Joining TPP crucial to Japan's recovery

Daily Yomiuri, October 7, 2011.

By Jean-Luc Butel, Special to the Yomiuri Shimbun.

Butel is chairman of the U.S.-Japan Business Council and executive vice president and group president international of Medtronic Inc. The USJBC is a Washington based business association comprising major U.S. companies that do business in Japan, and is dedicated to working cooperatively with the Japanese private sector and both nations' governments to strengthen bilateral economic ties.

Six months on, the Japanese economy has shown much resilience after the unprecedented triple disaster in the Tohoku region. Second-quarter growth was negative, as expected, but above forecasts. Transportation infrastructure and supply chains are being restored with impressive speed. There are however, complex problems -- housing, health care, food and water safety, radiation -- still to be addressed in Tohoku. Moreover, the economy faces headwinds from a strong yen, energy distribution, growing competition in critical industries such as autos and electronics, debt and demographics.

Against this backdrop, the new government led by Prime Minister Yoshihiko Noda needs to move quickly and surely to put in place short, medium and long term measures that support a strong and sustainable recovery not only in Tohoku, but nationwide. Japan is a big and important economy in the global system, so how this unfolds is relevant for everyone.

In particular, the government needs to make a concerted effort to provide a business environment that induces private companies to continue to do business in Japan.

Many other economies in Asia -- not just China -- are more dynamic, and governments are doing more to provide incentives and conditions that encourage investment. Unless the Japanese business environment is more attractive, domestic and foreign companies will continue to move to these lower cost, faster growing markets.

This is why the U.S.-Japan Business Council (USJBC) feels so strongly that Japan's participation in the Trans-Pacific Partnership (TPP) agreement is a crucial element in a sustainable recovery. 

In the short term, a firm commitment to participate in the TPP -- the sooner the better -- would send a powerful signal that Japan is "open for business."

In the mid to long term, participation in the TPP is the most assured way for Japan to establish a competitive and attractive business environment. Many Japanese companies agree.

It is important for Japanese leaders to understand the dynamics. The United States and other TPP partners welcome Japan's participation -- if it is ready to meet the same high standards and comprehensive requirements. Only Japan can decide this. The USJBC's White Paper, "Japan's Successful Participation in TPP," stresses this point while outlining some key issues that must be addressed. 

First and foremost is agriculture. this requires new thinking that emphasizes the substantial upside. Rather than "destroying" agriculture, the TPP is an opportunity to transform and revitalize the sector, which is even more important die to land damage and contamination in Tohoku. With only 40 percent of domestic food consumption being produced, the current system was not sustainable before the disaster, even less so now. 

Participation in the TPP, coupled with basic measures (increased scale of production, incentives to new entrants and new techniques to increase productivity) can revitalize production, enhance food security and safety, and benefit consumers and the economy through lower food costs and subsidies.

Japan's commitments would not come into effect immediately, so there will be time to implement revitalization measures over a period of years as trade barriers and subsidies are lowered.

Joining the TPP will require Japan to make adjustments in other areas. In particular, Japan will have to reduce regulatory and other nontariff barriers in areas such as health care, government procurement, insurance and financial services, and autos -- all of which will make the economy more dynamic and competitive and the playing field more level.

This does not mean the TPP will lead to foreign control of Japan's hospitals or postal instiutions, or borders being opened wide to foreign workers. Those kinds of issues go far beyond the scope of trade agreements, even those ambitions as the TPP.

Again, the emphasis should be on the substantial upside. Japan will benefit significantly from lower tariff and nontariff barriers to exports and import goods and services; better trade and investment rules and systems that increase intellectual property protection, among other things; cross-border "connectivity" measures that strengthen regional production and supply chains; removing entry barriers to spur innovation and new industries; and science-based, internationally accepted standards for agricultural and industrial goods.

As the USJBC and our Japanese counterpart, the Japan-U.S. Business Council, said in recent joint statement: "These and other improvements in the Japanese business environment achieved through the TPP are essential to enhance Japan as a place for Japanese and foreign companies to invest and expand businesses, thus increasing job opportunities."

In short, participation in the TPP is a transformational opportunity for Japan. It is the USJBC's strong hope that Japan's new leaders will seize it.

Japan's participation in the TPP is also a transformational opportunity for the U.S.-Japan relationship.

The USJBC has long maintained that strong economic ties are a critical but often overlooked pillar of the U.S.-Japan strategic relationship. The TPP will be a much more important trade agreement for the United States in commercial terms if Japan is part of it, and easing the barriers to further trade and investment in both countries the TPP will strengthen the bilateral economic relationship.

Japan's participation will also allow the United States and Japan to cooperate in establishing a high-standard, transparent, rules-based trading system in the critical Asia-Pacific region.