US President Donald Trump sounded the death knell
for the Trans-Pacific Partnership (TPP) by signing an executive order withdrawing
the country from the Partnership. This scenario is viewed as a setback not just
for the TPP but also as preventing the Japanese economy from accomplishing the
targets set as per the 'third arrow' of Japanese Prime Minister Shinzo Abe’s 'Abenomics'.
Given the turn of circumstances, what alternatives does Japan have? Could Abe turn
the situation around to Japan's benefit?
Significance of the TPP for Japan
The TPP has been significant for Japan for three key
reasons: enhancing the Japanese economy; promoting Japan-US understanding over
the reduction of import tariffs; and balancing China’s economic expansion in
the Asia-Pacific region.
Japan has had the misfortune of a deflationary
crisis for the past two decades. 'Abenomics', the economic policy announced by
Abe in December 2012 in the hope of restoring inflation within the Japanese
economy, entails ‘three arrows': fiscal stimulus; monetary easing; and
structural reforms. Opening up the Japanese market for free trade and
structural reforms within the agricultural and non-agricultural sectors seems
to be the plausible solution towards achieving Abe’s target of two per cent inflation
of the GDP from its current deflationary trend. The US' participation in the TPP
would have not only enhanced Japan-US economic relations but would have also provided
Japan with a larger market base for increasing its exports. With the US'
withdrawal from the TPP, this is no-longer a credible prospect, compelling Japan
to explore ways to salvage the intended benefits of the TPP.
The TPP, which was originally a trade negotiation
between 12 signatories, accounts for almost 40 per cent of the global trade. Japan
and the US would have collectively enjoyed 60 per cent of the total benefits arising
from this deal. However, without the US, the TPP is likely to lose approximately
250 million consumers. This creates an irreplaceable vacuum of consumer base that
neither Japan nor the other signatories of the TPP can fill. Moreover, the fall
of the TPP makes way for the ASEAN led Regional Comprehensive Economic
Partnership (RCEP). The RCEP has the potential to become a significant trade
agreement in the Asia-Pacific region. The US' withdrawal from the TPP robs the Partnership
of its strategic significance, i.e. balancing China’s ascendency in the Asia-
Pacific region. In the absence of the US, China becomes a powerful economy in
the Asia-Pacific region, occupying a position that calls the shots.
Alternatives to the TPP
Although Abe would prefer a US presence within the TPP,
it will not cause much harm if he chooses to speculate the feasibility of the TPP
without the US and deal with Washington separately; and more so now that deal
is dead and the US seems more inclined to develop bilateral ties. Recently, Abe
embarked on a four-nation trip to Malaysia, the Philippines, Indonesia and
Vietnam to secure participation within the TPP. However, to Abe’s dismay, Trump
has said "I see Abe’s visit being more
about finding a follow-through, a replacement for TPP."
Under such circumstances, Abe feels compelled to make
statements in favour of establishing bilateral deals with the US. Abe and Trump
are scheduled to meet in the US in February 2017, and both seek progress on bilateral
trade negotiations. However, under a bilateral treaty, Japan is likely to lose
out on the equal foothold that it would have otherwise enjoyed in the TPP
Therefore, Japan is now warming up to the RCEP. Alternatively,
it might choose to invest in developing its EPAs or bilateral trade negotiations
with countries like Singapore, Mexico, Indonesia, Vietnam, the Philippines,
Brunei, Chile, Thailand, Switzerland, and India, and with groupings like the ASEAN.
It could be highly advantageous for Japan to expand the EPAs into multilateral
trade agreements. An EPA can have a very broad scope and can also include most of
the TPP signatories, thereby giving Japan the required platform to begin its
own version of trans-pacific trade negotiations; and also giving the country access
to vital markets across the world.
Working via a pre-existing negotiation framework - like
the EPAs - would not only save time but also result in an active shift of the
Japanese foreign policy. This means Japan would get the chance to ‘initiate’ multilateral
trade talks instead of participating in just one. A separate US-Japan bilateral
treaty might give Japan the required room to develop its own economic strategy
within the Asia- Pacific, which it may use as leverage to create a balance of
power situation vis-à-vis a rising China as well as develop the domestic
Although the US withdrawal drastically changes
Japan’s circumstances in the Asia-Pacific region, this could also herald new opportunities
that Japan could exploit to its advantage. Significantly, dealing with the
eastern block and the western block separately could be beneficial because Japan
might get the opportunity to actively construct it foreign policy without being
directed by the vision of any foreign power. Finally, if Japan could devise its
own version of trade agreements, it could shift from a reactive foreign policy
approach to a proactive one.