When President Barack Obama departed Japan last week, on the first leg of a four country Asian tour that will also take him to Malaysia, the Philippines and South Korea, the headlines were that he had failed to reach a trade accord with Tokyo. The sticking point of agricultural subsidies, which have always been the major stumbling block, halted progress on the proposed Trans Pacific Partnership. But American and Japanese negotiators are actually said to be making real progress on this issue with the outlines of a compromise taking shape.
If Japan and the United states come to a bilateral agreement as a prelude to broader negotiations among the participants in the Trans Pacific Partnership, it would constitute a significant development for the region and global trade. It would also give Japan’s prime minister, Shinzō Abe, his third economic reform “arrow” to stimulate the island nation’s economy and Obama a diplomatic victory as well as renewed momentum for his Asia pivot.
In addition, the United States will have provided an alternative to the supposed “Beijing Consensus,” the state centered economic model championed by China’s rise that many observers in Asia predicted would gain in popularity at the expense of free markets.
The “high quality” Trans Pacific Partnership trading bloc should liberalize trade, strengthen intellectual property rights and provide greater access to the financial and insurance sectors in the twelve participating countries. While China has been excluded, implementation of the trade agreement will put more pressure on its leaders to adopt liberal trade rules and agree to stricter intellectual property regulations as a prerequisite for entry.
Talks between America and Japan have progressed over the last few weeks with negotiators now discussing specific reforms and protections on the most sensitive agricultural products, according to Jeffrey J. Schott of the Peterson Institute for International Economics. Specifically, Japan is believed to be offering concessions on beef, pork and dairy products — priorities for the United States — while the Americans are said to be offering flexibility on the implementation of reforms by Japan. That is, they would not demand the total elimination of protections on all of Japan’s agricultural products.
Abe is seemingly committed to confronting the powerful constituencies in Japan that have heretofore inhibited freer trade. In bilateral talks, Japan is believed to have agreed to deeper cuts in its agricultural subsidies than it did in its trade agreement with Australia.
Signifying the seriousness that the negotiations have reached, senior officials from the American Department of Agriculture recently joined in the talks. They are said to be delving into the details of the cuts on specific products while discussing the depth of access in each other’s market.
There are meetings scheduled in Vietnam in the middle of May between the chief negotiators of the prospective trade bloc’s countries. Assuming the American-Japanese bilateral talks are successfully concluded by then, analysts are predicting that a full agreement could be completed by the summer. It would then go back to each country for approval.
The importance of the current bilateral talks between Japan and the United States cannot be overstated. They constitute the two largest economies by far in the Trans Pacific Partnership and an agreement between them would provide guidelines for the rest of the group.
Agricultural subsidies have been the traditional sticking point in free-trade agreements globally. Depending on the details, successfully overcoming hurdles on this issue also has the potential to provide a template for future world trade talks.