Japan's cutting-edge car and pharmaceutical industries are delighted at a 12-nation Pacific Rim agreement on trade and tariffs signed on October 5. But the agricultural sector fears the pact will be their death knell.
Speaking a day after 12 nations signed the Trans-Pacific Partnership (TTP) trade deal in the US city of Atlanta, Prime Minister Shinzo Abe said the landmark deal would benefit Japan and "make our lives richer."
An agreement that brings together states that account for fully 40 percent of global economic output and has the potential to expand with the addition of more member nations in the future "is the best possible outcome and in line with the national interest," the prime minister said.
The majority of Japanese people and the business sector agreed wholeheartedly with the PM's assessment. A poll taken immediately after the TTP was signed showed that 58 percent of the Japanese public was in support of the deal. Just 32 percent said they were opposed.
The TPP involves 12 Pacific Rim nations - Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam - which account 26 percent of world trade. The far-reaching deal aims to dismantle tariff and non-tariff barriers to trade and investment between the participant countries.
It also foresees streamlining regulations, and the implementation of common standards for the protection of foreign investment and intellectual property, among other things. After its ratification, the deal is expected to serve as a model for future trade pacts. Many countries negotiating the TPP such as Australia, Singapore and Canada already have free trade agreements with the US.
Auto sector welcomes deal
Japan's powerful auto companies - a key part of the national economy and a sector that proved to be one of the final sticking points of the deal - greeted the announcement enthusiastically.
"We welcome and applaud the administration's announcement," said Masami Tanaka, head of the international department of the Japan Automobile Manufacturers Association (JAMA). "It is too early for us to comment with any certainty on the impact of this agreement, but it will clearly make trade easier for our member companies and allow them to explore new opportunities in new or existing markets," said Tanaka.
For Japanese manufacturers, one of the most important elements of the deal was the United States agreeing to gradually lower the 2.5 percent tariff on Japanese automobiles 15 years after the agreement takes effect. The tariff is to be halved in 20 years and eliminated entirely in 25 years.
In addition, the US will eliminate tariffs on more than 80 percent of all the auto parts imported from Japan, while Canada has committed to abolishing its 6.1 percent tariff on Japanese vehicles in five years as well as the 6 percent duty on nearly 90 percent of auto parts imported from Japan.
In a statement, Toyota Motor Corp. said it was "confident that this agreement will contribute to the further development of free trade." JAMA also pointed out that US manufacturers would also benefit from the arrangement as they purchase large amounts of components from Japan. "And if Ford and GM vehicles become cheaper, that's good for the consumer as well," Tanaka said.
The deal gives Japan's auto industry a freer hand to source parts from other Asian nations, including from plants in countries that are outside the TPP-zone, such as China, for vehicles sold in North America. The "rule of origin" would only require 45 percent of a vehicle to have been sourced from within the TPP, down from 62.5 percent under the North American Free Trade Agreement.
Pharmaceuticals see opportunities
Japan's pharmaceutical sector is also confident that it will benefit from the deal. "We believe the trade agreement is favorable for Japanese pharmaceutical firms and we are pleased that the final deal is almost exactly what we expected," said Takeshi Shigihara, director of the international affairs division of the Japan Pharmaceutical Manufacturers' Association.
Shigihara said there had been "some concerns in the industry" earlier in the negotiations over intellectual property issues and the potential impact on the domestic healthcare system, but those were eliminated in the final pact. "We do not believe the agreement will have a major impact on the industry here," he said. "And we also believe it will be good for our member companies as it will enable them to do more business in other Asian countries and Latin America.
For Japanese firms, there appear to be no downsides to the agreement because they will be able to market innovative new products in other countries more quickly. "The auto sector is still the centerpiece of Japanese trade and while tariffs for the US market were not that high already, the parts industry will see bigger gains," Martin Schulz, senior economist with the Fujitsu Research Institute, told DW.
The TPP fits in neatly with the structural reforms of the Japanese economy that Abe has been attempting as part of his broader "Abenomics" policies. "Unlike in any of the other countries that have joined the TPP, it is a domestic policy tool here in Japan," said Schulz. "The structural reforms of 'Abenomics' are anchored in the TPP."
"Another plus will be the added flexibility that can be built into supply chains as until now, Japanese companies have focused on producing in the US or Mexico, but production can now be shifted to other parts of Asia." However, the loser from the agreement, Schulz said, is undoubtedly Japan's outdated agricultural sector.
Anxiety among famers
"The TPP is being used as a tool by the government to apply additional pressure on the agricultural cooperatives that they have to change," Schulz said. "The government has said pricing changes will be phased in slowly so we won't see an immediate price war, but there will be changes in the governance and the current agricultural monopolies that have stifled competition here."
Inevitably, the agricultural sector has expressed its disappointment and issued dire warnings about how it will impact the industry. Speaking of "tough competition" from the US given the scale of the country's exports, Choe Okuno, the president of the Central Union of Agricultural Cooperatives, said the TPP "has spread anxiety and anger among producers."
PM Abe, however, seems to have been expecting opposition from the farming sector and moved quickly to assuage their fears. The politician said he will introduce measures to enhance the agricultural sector and make it a career that attracts young workers aimed at cultivating new markets and promoting innovation.