Japan and TPP

One of the least noticed but in the long term probably more important results of the change in leadership in Japan is the boost it has given to the prospects of the nation joining America's Trans-Pacific Partnership (TPP).

New Prime Minister Shinzo Abe may have been disappointed with the tone of US support for Japan vis a vis China on the Senkakus during his recent visit to Washington, but he did get assurances on TPP which enable him to pursue it.

Japan has for long been in two minds about the TPP for reasons to do both with a desire not to be seen to be too closely allied with Washington to appease both domestic critics and China, and the long-held fears of protected sectors such as agriculture and some services that benefit from regulatory procedures which deter competition.

Abe's promise of radical moves to lift Japan out of its economic rut now clearly include the TPP in addition to monetary easing and structural reforms to spur competition. Previously he was in favor of joining the trade pact only if it did not involve elimination of agricultural tariffs on entry. Now he can claim that any elimination would be gradual.

Even in Japan itself popular opinion seems to have shifted in favor of the TPP, sensing that it may help give the economy a badly-needed boost and help it fend off Chinese competition in North American and east Asian markets. Big business is also now supportive. The rural vote is declining slowly and Japan is sending the message that it needs to respond to its aging population with new initiatives to raise productivity.

At the same time, the US badly needs to give the TPP the momentum that only Japan can provide. A TPP confined to small and middling countries such as Singapore, Malaysia and Vietnam would have scant impact. It would certainly not act as a counterweight to China's well-advanced efforts to sew up Free Trade Agreements (FTAs) with the Asean nations. But Japan's participation would be an even more important economic deal than the US FTA with South Korea, which is now a year old, having been held up for long by political opposition, especially in the doltish US Congress.

The TPP itself is anyway a work in progress which is very ambitious, going beyond the scope of FTAs, not only aiming to tackle the difficult issues which are sometimes omitted from FTAs into broader issues involving services, investment codes and more. There is no guaranteeing that the US itself is as open as its likes to think and automobiles for instance are still a sensitive issue.

However, if the US is serious about its "pivot" to Asia and if Japan is serious about reform and making itself more competitive, it makes sense for both sides to push TPP. There is a also a wider feeling in Asia that the US economy is a lot more flexible and competitive than had been assumed after years of mammoth trade deficits followed by the real estate and banking boom and bust. Also too there is a sense that Japan may, at least for the next few years, have bottomed out while China has topped out and now faces years of relatively modest growth and a possibly unstable financial environment.

Of course the sheer size of Japan's economy and the complexity of issues could put a brake on the whole TPP process. But a TPP which has no major economic actor other than the US is unlikely to be attractive to others. Japan's eager involvement would also put pressure on countries, especially Thailand, which are reluctant to irritate China but for whom the Japanese corporate presence remains far more important overall than that of China.

For sure Japan's vested interests, conspicuously well represented in Abe's own party, will fight to preserve themselves. The political support for Abe may prove as short-lived as that of his many predecessors. The US may well be diverted from its Asian agenda by other issues such as Israel's lock on its Mideast policies, or simply by a rise in the isolationist sentiment now evident in some quarters of the Republican Party.

But both nations not only need a strategic alliance at multiple levels, they need to stand together - and with the EU - to protect the rules-based international trading system from ad hoc arrangements of convenience by others including China and India who often appear to see trade in 18th century mercantilist terms.