What Now for Japan after TPP?

Chris G. Pope

Posted on August 24, 2017

In recent years, the ratification of the Trans-Pacific Partnership (TPP), more an international investor’s rights agreement than a trade liberalization agreement, based within the loosely and contentiously defined “Asia-Pacific,” was a major point of discussion in Japan and the United States. Two notable quotes come to mind:

If we do not help to shape the rules so that our businesses and our workers can compete in those [Asian-Pacific] markets, then China will set up rules that advantage Chinese workers and Chinese businesses. – U.S. President Barack Obama¹.

Now is our last chance. If we miss this opportunity, in other words, it would amount to Japan being left out of the creation of world rules. “The TPP was the curtain-opener of an Asia-Pacific Century” – This is precisely what future historians will come to conclude. An Asia-Pacific Century. Japan must exist at the centre of this. – Japanese Prime Minister Shinzo Abe².

The TPP was considered by some to allow for a pathway for the more inclusive Free-Trade Area of the Asia-Pacific (FTAAP), and accompanied plans for a similar agreement between the European Union (EU) and the United States, the Trans-Atlantic Trade and Investment Partnership (TTIP). While the scope of the TPP was expected to cover more than 40 per cent of the world’s annual gross economic product³, it contained controversial aspects taken by some to be fundamentally threatening to democracy or national sovereignty, such as the Investors State Dispute Settlement (ISDS) mechanism which would have permitted private companies to sue states (read: societies) under certain conditions in international courts of arbitration⁴

Aside from such perceived threats, there were clear geopolitical considerations in formulating a new economic bloc, as given by the leaders of the both Japan and the United States⁵. The Obama administration made efforts to reimplement Trade Promotion Authority (TPA), a “fast-track” authority for international trade agreements which would mean Congress could either reject or accept the TPP following negotiations without amendment – necessary given that ratification would have been complicated given congressional and public scepticism over the agreement⁶. Efforts to first reauthorize TPA in the Senate took place in the summer of 2015 following criticism over Obama’s decision not to publicly disclose the draft details of the TPP before the TPA vote⁷ and during a period when many countries were in the process of joining China’s newly established Asia Infrastructure Investment Bank (AIIB) – something which the United States sought to oppose. TPA passed through Congress in late June 2015 and the end was thought to be in sight⁸. Abe sought to ratify the TPP by the end of 2016, while Obama aimed to do so by the end of his presidency in early 2017. Though Abe achieved this, TPP did not come into effect. Now, following U.S. withdrawal from TPP under the Trump administration, it is only Japan and the United States out of all G7 nations, and only Japan, the United States and Mexico out of all signees of the TPP who are not members or prospective members of the AIIB.

TPP was not primarily about finding a means to immediately improve global economic conditions

Previous administrations in Japan, notably the Democratic Party of Japan (DPJ) government under the leadership of Prime Minister Yukio Hatoyama, showed a greater interest in the Regional Comprehensive Economic Partnership (RCEP) led by the Association of Southeast Asian Nations (ASEAN) – a sharp contrast to the Liberal Democratic Party under Abe. While Hatoyama had sought to build a regional community on a China-Japan axis, the Abe administration sought to re-strengthen relations with the LDP’s long-time strategic partner, the United States⁹. In terms of short-term economic growth, RCEP was expected to stimulate growth to a greater extent than the TPP would have¹⁰ – which lends credence to the claim that strictly speaking, TPP was not primarily about finding a means to immediately improve global economic conditions. Further, despite Abe’s implicit claim that the TPP would allow Japan to be at the center of the new “Asia-Pacific Century,” the TPP did not (and in its hypothesised “TPP-11” form, lacking U.S. membership, still does not) include China, India, and Indonesia, three powerhouse economies of growth in the Asia-Pacific, while RCEP does – but excludes the United States¹¹.

So what were the benefits of the TPP for the Abe administration? For one, a strategic partnership with the United States would have meant that Japan could decide terms of trade that would benefit Japanese businesses. The TPP comprised a central component of the Abe administration’s much-touted economic growth strategy, Abenomics, which entails large-scale quantitative easing and neoliberal reform. More importantly, as with most economic agreements on any scale, it would have meant that states wishing to join this new bloc would only be able to enter on certain terms. In other words, the TPP was also an opportunity for the Abe administration to make full use of the strategic multilateralism of the Obama administration to exclude China from the regional and international community¹², amidst a time of increasingly rapid and expansive global technological development. Were the TPP to develop into FTAAP or any other regional/multiregional agreement, Japan’s input in the rule-making process in the early stages of development might be seen to pay off in the long-run, with Abe keen to stymy China’s growing regional and international influence.

So why did the TPP fail? It would be easy to suggest that the “America-first” doctrine propounded by Donald J. Trump in the 2016 U.S. general election was the chief and main reason the United States withdrew from the TPP. But this would be to overlook that Democratic nominee Hillary Clinton also came out against it, having supported it as Secretary of State under the Obama administration, stating in 2012 that it sets the “gold standard” of trade¹³. Clinton announced her opposition to TPP during the Democratic primary race against Bernie Sanders, who also vehemently opposed it. Polling of U.S. voters’ views on free trade varies significantly depending on how the question is phrased, but given that every major presidential candidate saw fit to oppose TPP, it is reasonable to conclude that many U.S. voters at the time of the 2016 general election, on left and right alike, opposed the deal whether for economic or foreign policy reasons.

Xi Jinping recently signalled China would become the new leader of “free trade”

With the United States pulling out of TPP agreements, commentators have pointed to a rise in protectionism in the global economy to explain this. That does not show the whole picture, however. While there are protectionist elements to China’s economy, for example, it produces more than it can consume in terms of its manufacturing output – meaning that in terms of exports at least, it is reliant on other markets. Indeed, Chinese President Xi Jinping recently signalled China would become the new leader of “free trade”¹⁴ in the absence of U.S. multilateralism at, of all places, Davos. China appears to be putting money where its mouth is; it is a key player in the ever-expanding transformation of the global architecture of energy production and consumption, and is spending gargantuan sums of cash to build inroads across Central Asia to Asian and European markets as part of its geostrategic “One Belt, One Road” initiative, as well as expanding its considerable influence in African markets and elsewhere.

What, then, about Japan’s future role? While the reasons are open to dispute – some argue that Abe’s motives are informed by neo-nationalism towards state remilitarization and a vision of being a regional leader in the Asia-Pacific, and others suggest neoliberal or internationalist motives – few dispute that Abe came to power with the explicit goal of strengthening relations with the United States. Instead, since U.S. withdrawal from the TPP in January 2017 Abe has begun to champion an Economic Partnership Agreement (EPA) with the European Union as a core tenet of his administration’s strategy for growth¹⁵, and perhaps as a signal to the United States of Japan’s continuing commitment to such deals. With the EU still negotiating the terms of Brexit and seemingly no long-term solution to Greece’s “explosive” debt crisis¹⁶, such an agreement is not a suitable replacement for the TPP in furthering Prime Minister Abe’s geopolitical ambitions.

The TPP was a core component of so-called “third arrow” of the Abe administration’s economic growth strategy

Perhaps it is hoped among the higher ranks of the Japanese cabinet that President Trump will soften his stance on multilateral economic agreements, at risk of further deteriorating his core support. Such a scenario is not impossible to envisage given the haphazard nature of the Trump administration but seems unlikely in the short-term given the risks to Trump’s personal popularity. Perhaps it is hoped that the Trump administration will be a flash in the pan, followed by business as usual. However, with such opposition to the TPP in the 2016 U.S. general election and the primaries which preceded them, a U.S.-Japan-led regional economic bloc in the Asia-Pacific is difficult to envisage on the horizon. It remains to be seen how current developments in the politics of Abe’s key and most important strategic partner will impact the opening up of markets for globalizing Japanese businesses.

These developments also raise questions over the long-term prospects of the currently embattled Abe administration, whose election campaigns have centred primarily on economic issues¹⁷. Many Japanese businesses, especially exporters, must have been keenly anticipating the prospects of TPP, while the large swathes of the population who have endured the so-called “Lost Decades” of economic stagnation must also have been hoping for improvement based on the promises of stability and prosperity for Japan’s economy that would arise from Japan being at the center of an “Asia-Pacific Century.” With the promise of the TPP now being watered down to bilateral trade deals with the United States and a Japan-EU EPA it seems as though there is little room for Abe to make good on his promises to investors and citizens alike. The TPP was a core component of the so-called “third arrow” of his administration’s economic growth strategy, denoting expansive liberalization measures for all sectors of international trade. With the well-documented breakdown in Sino-Japanese relations, particularly under Prime Minister Abe, and the rise of narratives of the “China threat,” it appears to be perhaps a bridge to far for Abe to consider other frameworks such as RCEP, as this would demand a reversal of his prioritization of a strategic relationship with the United States and efforts to buffer China’s influence in the regional community. At this time, the mantra of his 2014 general election “There Is No Alternative” resonates. With Plan A on the rocks and no immediate solution in sight, it may have come back with a vengeance for the ruling PM.