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Obama, Abe and a high-stakes trade deal | Obama, Abe and a high-stakes trade deal |
(3 days later) | |
Trade deals don't usually take centre stage at summits among world leaders. But the Trans-Pacific Partnership (TPP) is at the forefront of US President Barack Obama's first state visit to Japan. | Trade deals don't usually take centre stage at summits among world leaders. But the Trans-Pacific Partnership (TPP) is at the forefront of US President Barack Obama's first state visit to Japan. |
Both leaders hope it will serve their own purposes: it is how President Obama can make his so-called "Asia Pivot" more concrete than just an aspiration, and how Japanese Prime Minister Shinzo Abe can put some substance to the structural reforms within his ambitious plan dubbed "Abenomics". | Both leaders hope it will serve their own purposes: it is how President Obama can make his so-called "Asia Pivot" more concrete than just an aspiration, and how Japanese Prime Minister Shinzo Abe can put some substance to the structural reforms within his ambitious plan dubbed "Abenomics". |
Firstly, the US and Japan are the main negotiators of the TPP, which includes 10 other nations from around the Pacific Rim: Brunei, Malaysia, Vietnam, Singapore, Australia, New Zealand, Canada, Mexico, Chile and Peru. | Firstly, the US and Japan are the main negotiators of the TPP, which includes 10 other nations from around the Pacific Rim: Brunei, Malaysia, Vietnam, Singapore, Australia, New Zealand, Canada, Mexico, Chile and Peru. |
These countries account for nearly 60% of global GDP and over a quarter of world trade. | |
In other words, it would create the biggest free trade area in the world if successfully concluded, and it's estimated it would add over $200bn (£119bn) per year to world GDP by 2025. | In other words, it would create the biggest free trade area in the world if successfully concluded, and it's estimated it would add over $200bn (£119bn) per year to world GDP by 2025. |
The US calculates that the TPP would add $305bn in exports per year globally, with nearly half accounted for by an increase in US exports by an additional $123.5bn. | The US calculates that the TPP would add $305bn in exports per year globally, with nearly half accounted for by an increase in US exports by an additional $123.5bn. |
The Pivot | The Pivot |
So, if this were solely an economic matter, excluding China - the biggest market in Asia - wouldn't be sensible. Yet, the TPP does just that. | So, if this were solely an economic matter, excluding China - the biggest market in Asia - wouldn't be sensible. Yet, the TPP does just that. |
As the US continues to be involved in crises in the Middle East and Ukraine - including negotiating yet another free trade agreement with the EU - there is little to show thus far for the Asia Pivot that had been described as the centrepiece for Obama's second term. | As the US continues to be involved in crises in the Middle East and Ukraine - including negotiating yet another free trade agreement with the EU - there is little to show thus far for the Asia Pivot that had been described as the centrepiece for Obama's second term. |
President Obama's Asia Pivot isn't supposed to be solely about geo-politics, but also a deeper rebalancing towards fast-growing Asia to boost America's economy. Securing preferential access to Asia's markets benefits US companies over Chinese firms that won't be part of the market-opening measures of the TPP. | President Obama's Asia Pivot isn't supposed to be solely about geo-politics, but also a deeper rebalancing towards fast-growing Asia to boost America's economy. Securing preferential access to Asia's markets benefits US companies over Chinese firms that won't be part of the market-opening measures of the TPP. |
This way, excluding China doesn't look just like politics or even containment, but rather that the world's second largest economy doesn't yet have the market-based economy, such as a flexible exchange rate or open capital accounts, to be part of the new free trade area. | This way, excluding China doesn't look just like politics or even containment, but rather that the world's second largest economy doesn't yet have the market-based economy, such as a flexible exchange rate or open capital accounts, to be part of the new free trade area. |
The end result of excluding China is the same, but the framing looks more appealing. | The end result of excluding China is the same, but the framing looks more appealing. |
The second opening of Japan | The second opening of Japan |
For Japan, the stakes are even higher. | For Japan, the stakes are even higher. |
The long-awaited "third arrow" of Abenomics - or the structural reforms to increase competitiveness that ultimately are what raises growth - has been somewhat lacking. | The long-awaited "third arrow" of Abenomics - or the structural reforms to increase competitiveness that ultimately are what raises growth - has been somewhat lacking. |
In an op-ed piece, headlined "The Second Opening of Japan", Prime Minister Abe says that the Pacific Rim economies encompassed by the TPP is a growth centre which "will continue to propel Japan's economy for the foreseeable future". | In an op-ed piece, headlined "The Second Opening of Japan", Prime Minister Abe says that the Pacific Rim economies encompassed by the TPP is a growth centre which "will continue to propel Japan's economy for the foreseeable future". |
The TPP is estimated to raise Japanese per capita GDP by about 1.5%, which would nearly double the slow pace of expansion the country has experienced in the past two decades. | The TPP is estimated to raise Japanese per capita GDP by about 1.5%, which would nearly double the slow pace of expansion the country has experienced in the past two decades. |
It would also raise per capita growth to over 2%, essentially lifting the country out of its long stagnation. | It would also raise per capita growth to over 2%, essentially lifting the country out of its long stagnation. |
The two giants and the farmers | The two giants and the farmers |
There are certainly high expectations, but it doesn't mean that the process will be smooth sailing or that the TPP will be concluded any time soon. | There are certainly high expectations, but it doesn't mean that the process will be smooth sailing or that the TPP will be concluded any time soon. |
Of the nations negotiating the TPP, the only one that doesn't already have a free trade agreement (FTA) with the US is Japan. So, the two nations - in addition to being the main players — are the key and also the main obstacles. | Of the nations negotiating the TPP, the only one that doesn't already have a free trade agreement (FTA) with the US is Japan. So, the two nations - in addition to being the main players — are the key and also the main obstacles. |
One academic has described the TPP negotiations as being between "two giants and the rest". | One academic has described the TPP negotiations as being between "two giants and the rest". |
The reason why there hasn't been an FTA between the world's biggest and third largest economies - or even when Japan was the second largest - is because of protectionism of key sectors. | The reason why there hasn't been an FTA between the world's biggest and third largest economies - or even when Japan was the second largest - is because of protectionism of key sectors. |
In Japan, five "sacred" agricultural products of rice, beef/pork, dairy, wheat, and sugar are protected. For example, Japan has a 778% tariff on imported rice. | In Japan, five "sacred" agricultural products of rice, beef/pork, dairy, wheat, and sugar are protected. For example, Japan has a 778% tariff on imported rice. |
Conversely, the US protects its car market - and the Japanese are demanding more access. | Conversely, the US protects its car market - and the Japanese are demanding more access. |
Reform agenda | Reform agenda |
These are perennial issues, but the TPP could help to provide political cover for Mr Abe's intended economic reforms. | These are perennial issues, but the TPP could help to provide political cover for Mr Abe's intended economic reforms. |
He is trying to abolish a policy which has been in place since 1971, that keeps rice prices high and has cost the economy an estimated 8 trillion yen ($78bn). The TPP could even force Japan to cut its tariff on imported rice. | He is trying to abolish a policy which has been in place since 1971, that keeps rice prices high and has cost the economy an estimated 8 trillion yen ($78bn). The TPP could even force Japan to cut its tariff on imported rice. |
Of course, agriculture in the US isn't without its share of problems. The Americans are also looking to reform their own farm bill which is set to cost $1 trillion over a decade. | Of course, agriculture in the US isn't without its share of problems. The Americans are also looking to reform their own farm bill which is set to cost $1 trillion over a decade. |
The top 10% of the largest farm businesses receive 75% of the government subsidies, while average farm household incomes exceed the average by a whopping 25%. | The top 10% of the largest farm businesses receive 75% of the government subsidies, while average farm household incomes exceed the average by a whopping 25%. |
It's not hard to see why agricultural subsidies are often called subsidies for the wealthy. | It's not hard to see why agricultural subsidies are often called subsidies for the wealthy. |
Tough sell and positioning | Tough sell and positioning |
So far, trade negotiations have come to an impasse, raising the possibility that there won't be a big announcement during the Obama-Abe summit. | So far, trade negotiations have come to an impasse, raising the possibility that there won't be a big announcement during the Obama-Abe summit. |
But it is in the economic interests of both the Americans and the Japanese to get an agreement done. | But it is in the economic interests of both the Americans and the Japanese to get an agreement done. |
By premising so much of the Asia Pivot and Abenomics on the TPP, the stakes are certainly high. | By premising so much of the Asia Pivot and Abenomics on the TPP, the stakes are certainly high. |
As the politics are also overlaid with geo-politics vis-a-vis China, it will not only be a tough sell but a tricky one to position. | As the politics are also overlaid with geo-politics vis-a-vis China, it will not only be a tough sell but a tricky one to position. |
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