OPINION: Japan Needs To Look Outward For Growth

TOKYO (Nikkei)-- Japan must take the next step in its strategy for reviving growth by joining the Trans-Pacific Partnership and exploiting the myriad opportunities for economic expansion the pact offers.

Arguments against the country's participation in the TPP have been purely inward-looking. Critics focus on what supposedly needs protecting, such as agriculture and universal health insurance, which they say would meet with ruin.

Having grown up amid deflation, with no memory of better times, Japanese youth suspect the TPP will take away job opportunities. Opponents of the trade deal far outnumber supporters in the 12-19 and 20-24 age groups, according to a poll conducted by Hitotsubashi University professor Reiko Aoki just before last December's lower house election. By contrast, those 30 and older mostly lean in favor of the trade agreement.

"Although the TPP is without a doubt a plus for Japan, politicians had been unable to articulate this," Aoki says.

If foreign countries drop their tariffs, Japan can export more to the world. The TPP will also harmonize rules in areas other than trade. It would allow companies to invest competitively on a level playing field with overseas peers and give them chances to win foreign-government contracts. And by working to protect intellectual property, it will help stem the flood of cheap, pirated goods.

The government estimates that joining the TPP will lift real gross domestic product by at least 3 trillion yen. This takes into account only the effect of eliminating tariffs on goods. Including the benefits for services, investment and other areas, the GDP boost could measure around 10 trillion yen, reckons Brandeis University economist Peter Petri. A more open Japanese economy would better absorb foreign demand.

The 11 countries now negotiating aim to reach a deal this year. If Japan were to remain apart, the result could come as a bombshell -- the economic equivalent of having its best events taken out of the Olympics.

The earliest the country could join is July. But the government will likely be able to gain access to the negotiating text before the summer, once preliminary talks with the U.S. and other countries conclude. Japan must make up for lost time.

The nation's preoccupation with exemptions from tariff cuts could sour the mood at the negotiating table. At a TPP meeting this month in Singapore, some participants voiced concern that Japanese participation could sap the drive for liberalization and slow the process.

Free trade agreements typically aim for liberalizing at least 95% of trade. Prime Minister Shinzo Abe's Liberal Democratic Party is calling for exceptions for rice, beef and other goods. But the more Japan tries to carve out, the more glaring its negotiating weakness becomes. And a lower level of liberalization would only decrease the final deal's benefits.

Agricultural reform will prove a test of Japan's ability to change. The key to success is abolishing the "gentan" policy of rice planting reductions, argues Kazuhito Yamashita, a research director at the Canon Institute for Global Studies.

"Rice consumption in Japan has fallen by more than a third over 20 years," Yamashita notes, adding that domestic farmers "have no choice but to set their sights overseas." Taking the opportunity afforded by the TPP to end crop restrictions could embolden growers to scale up.

Japan is also poised to negotiate the Regional Comprehensive Economic Partnership, an all-Asia free trade bloc that covers 16 nations, including major trading partners China and South Korea.

"Japan is the only country that can become a link between the TPP, which will make developed-nation rules, and the RCEP, an economic union for Asia," says Waseda University professor Shujiro Urata.

The TPP lies within reach. The world is watching to see whether Japan can use it to gain the traction needed to escape deflation and low growth.

--Translated from an article by Shigeru Seno, deputy editor of the Economic News Department

(The Nikkei, March 16 morning edition)

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