‘One Battleship Has Arrived In Port’ – A Japanese View On The TPP

The TPP is done, or not quite. But what is still lacking, what are next steps and what does the finalised deal do to the grand picture of the mega-trade deal landscape? Japanese economist Nakagawa Junji, Professor of International Economic Law Institute of Social Science, University of Tokyo, shares a view from Japan with writer Monika Ermert.

Intellectual Property Watch (IPW): Following the final round in Atlanta, the TPP is signed. Is it a done deal now?

Nakagawa Junji: Actually, it is not signed. Negotiations have been concluded and all barriers have been said to be done with. It can be signed after the process of legal scrubbing is complete.

IPW: What is the next step?

Nakagawa: The parties agreed on three modes of how the agreement could enter into force. First, as soon as all 12 parties have ratified – within two years -, gone through their respective legislative procedure and made necessary changes in their regulation, the agreement becomes effective after 60 days.

IPW: Not a very realistic scenario….?

Nakagawa: No. Secondly, after the two years have elapsed the treaty becomes effective 60 days after at least six countries which share 85 percent of GDP as of 2013 have ratified. This 85 percent is a minimum condition. So US ratification is necessary and it is also difficult to do it without Japan.

IPW: What will next happen in Japan?

Nakagawa: All treaties of significant impact on the economy and with budgetary implications have to be ratified by the Japanese Parliament, the Diet. So the Japanese government will make a proposal, alongside the necessary proposals for regulatory change, for example in intellectual property law.

IPW: What changes are necessary in IP law?

Nakagawa: For example, Japan needs to update the term of copyright protection to 70 years. Currently it is 50 years after the death of the author. The government will also present a package on how to support the agriculture and fishery sectors to ease some of the negative impacts for them from the TPP.

IPW: To what extent have negative effects resulting from TPP for Japan been considered?

Nakagawa: The government has made several studies on the overall effects. Estimates by the Ministry of Agriculture have been very negative. The Ministry of Economy came up with an overly positive estimation. A study by the Cabinet finally was in between and more balanced. In ten years, according to that, there will be a combined growth of 2.3 percent GDP.

IPW: That is a plus of 0.23 percent per year?

Nakagawa: Yes. It is not a big gain. A reason for the negative figures from the Ministry of Agriculture was they were based on a complete elimination of tariffs and import limitations for sensitive products like rice, beef and fish. But that will not happen. Restrictions only will be lifted gradually over time. Many experts in Japan on the other side expect that the agricultural sector will silently die if it is not reformed, just because the old generation of farmers vanishes. Japanese farmers do not want their children to become farmers, because they are not satisfied with their business. Perhaps the changes forced onto the sector by the TPP could help to change things.

IPW: Do you expect opposition from the Japanese Parliament against the ratification?

Nakagawa: I do not think there will be much opposition because of what has been negotiated for the agricultural sector. But opposition in the US seems to be considerable.

IPW: Do you think the agreement will make it during Obama’s tenure; what do you think are the odds?

Nakagawa: 50 to 50.

IPW: Given the complexity of the new free trade agreements, how difficult is it to come up with really good estimates about the effects? Is this a gamble?

Nakagawa: In a way it is a gamble and it goes beyond tariff reduction. It touches the economy, regulation and the society. It has considerable parts on regulatory cooperation, especially with regard to cooperation in the specific sectors, pharmaceuticals, medical devices, cosmetics, cars or e-commerce.

IPW: What are major points for e-commerce and the ICT sectors?

Nakagawa: There must be no imposition of tariff obligations for online commerce. no protection of privacy, and there is a prohibition for localization requirements. It is very liberal for traders, a system of deregulation. It is aimed at getting regulatory burdens out of the way, also for pharmaceuticals where there is a regime against arbitrary delay of market licences. The focus is on procedures, like transparency for example, more than on substantive harmonisation.

IPW: The issue of regulatory cooperation is under considerable scrutiny in the ongoing US-EU negotiations for the TTIP (Transatlantic Trade and Investment Partnership). Are concerns over undue influence of big US companies in these new processes valid?

Nakagawa: Contrary to the TTIP regulation, there is no formal mechanism or institution for regulatory cooperation in the TPP. But regulatory cooperation is no news. The EU and the US already have a transatlantic dialogue in place. Japan and the EU also have regulatory cooperation efforts ongoing for quite some time. I think the concerns in Europe are a little over the top; I do see no new element of private sector involvement in decision-making in the regional FTAs, the TPP or TTIP.

IPW: Critics are nevertheless concerned about the depth of the agreements. Do they go beyond classical trade agreements?

Nakagawa: Tariffs certainly have been already very low, so the major barrier for trade is regulation, and internal regulation, not border regulation. There is no clear line between purely trade and regulatory issues. Regulatory aspects covered go deeper and deeper into environmental, labour and other social rights. The right to regulate in the public interest has been underlined, especially by the EU which is also more positive about this.

IPW: What does the finalisation of the TPP mean for the TTIP negotiations – will the EU still be able to defend its more regulatory-friendly model?

Nakagawa: From a game theory point of view, the first mover has an advantage. Japan has been negotiating with the EU and the US, and the EU and the US are also negotiating. With the TPP now done the EU comes more and more under pressure. The TPP sets a precedent and its provisions are already referenced. Similarly China, who is negotiating the RCEP [Regional Comprehensive Economic Partnership] agreement, is under pressure and has already accelerated the talks with the nine parties of which several are also TPP parties. RCEP is an important battleship of China against the TPP, which is the battleship of the US against China and to promote their more deregulatory FTA vis-a-vis the EU. If China will succeed in finalising the RCEP which is quite different from the TPP – also a little more friendly to smaller countries – it could achieve a counterbalance.

But the TPP battleship has arrived and there are several governments that have already made statements about their potential joining. Countries like Indonesia, Thailand, the Philippines, Korea and Taiwan are potential candidates and Costa Rica has expressed its interest.

IPW: Beyond that trade monopoly, what will be the effect of this to the multilateral system, the World Trade Organization?

Nakagawa: The negative effect for the WTO will be huge. After the conclusion of the mega-regionals there will be a group of 40 or 45 trading countries. But there will also be 150 countries outside of this 21 century FTA model. Countries in Africa, Middle East and Central Asia most likely will not be chosen by global firms and they will remain outside of the supply chain. Poverty in most of these countries will persist.

IPW: Will this bring more refugees to the wealthy industrialised countries?

Nakagawa: Yes, the numbers of refugees will rise. But also there could be more radicalization resulting ultimately even terrorism because people have no hope that their countries will get better. I think there is an urgent need for the international community, the OECD [Organisation for Economic Cooperation and Development] and the WTO to address this.

IPW: Professor Nakagawa, thank you very much.