Trans-Pacific Partnership: Asian growth opportunity

Japanese State Minister in charge of Trans-Pacific Partnership (TPP) Akira Amari (centre) is surrounded by reporters before his meeting with Prime Minister Shinzo Abe at his office in Tokyo on April 25, 2014.

"The convergence between Japan and the United States is almost in sight. The two countries are heading toward the conclusion [of the talks]," said Akira Amari, state minister in charge of Trans-Pacific Partnership negotiations, to a crowd of reporters on April 25 at the Cabinet Office in Chiyoda Ward, Tokyo.

He stressed his confidence that the bilateral TPP talks would conclude soon.

During the unusual marathon negotiations that continued even after a summit meeting between Prime Minister Shinzo Abe and visiting US President Barack Obama on April 24, the two countries made significant progress.

After all, Abe considers the TPP a main pillar of the government's growth strategy.

The sum of gross domestic product of the 12 countries participating in the TPP negotiations accounts for about 40 per cent of global GDP.

If the TPP agreement comes into force, the countries involved will be able to export their products more easily because of low tariffs in this gigantic market.

Companies will also have an easier time making investments thanks to deregulation.

The TPP presents an ideal opportunity for Japan to harness demand in Asia's growing markets, including fellow participants Malaysia and Vietnam, at a time when the country is facing a chronically low birthrate and a rapidly aging population.

In terms of TPP negotiations as a whole, opinions still widely differ between emerging economies and industrialized countries, the former taking a cautious stance about eliminating or relaxing regulations. Japan and the United States need to join their efforts to lead the TPP negotiations to a conclusion.

In March last year, the government released its estimate that the TPP would boost consumption and investment in Japan, pushing up GDP by about 0.66 per cent, or 3.2 trillion yen (S$39 billion). Based on the assumption that agricultural product tariffs are eliminated, the calculation also predicts total agricultural production would drop by 3 trillion yen.

However, the TPP is expected to have a more favourable impact than the government projection because Japan will likely be able to maintain tariffs on the five key agricultural categories including rice, as well as beef and pork, at certain levels.

There is still the possibility that Japan will be urged to review its agricultural and labour regulations, for example, if cross-border movements of capital and goods become more active. "It [the TPP] will trigger changes in various rigid regulations," said Junichi Sugawara, a senior research officer at Mizuho Research Institute Ltd.

One precedent for a regional trade agreement such as the TPP is the North American Free Trade Agreement (NAFTA) between the United States, Canada and Mexico, which came into effect in 1994.

Craig Thorn, a former senior official of the Office of the US Trade Representative, said NAFTA was successful in that it promoted economic growth and boosted productivity, adding that the TPP has the same attractiveness.

However, the TPP alone will not guarantee Japan's economic growth. Fuel costs have continued to rise due to the weak yen, and imports have been increasing while exports remain sluggish. Given such circumstances, the national current account surplus, which consists of the balance of trade in goods and services, has been shrinking.

To utilize the opportunity to make money that will be created by the TPP, other growth strategies must be implemented at an early date to enhance Japan's earning power.