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Takeru Saito

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Thinking about the TPP Problem

Takeru Saito
Professor, Faculty of Commerce, Chuo University
Areas of Specialization: American Economic History, Trade Theory, Trade Policy

Now that the Japanese government has announced its decision to participate in the negotiations over the Trans-Pacific Partnership (TPP), the basic structure of the new international environment surrounding the Asia-Pacific area has become clear.

Creation of free-trade regions larger than the EU

TPP was a minor free trade agreement (FTA) which was concluded by four countries-Brunei, Singapore, New Zealand and Chile-and which took effect in 2006. In November 2009, the Obama administration suddenly announced its decision to participate in TPP negotiations, saying that, "as an Asia-Pacific nation, the U.S. will take part in the discussions that will shape the future of this area." In March 2010, three other countries-Australia, Peru and Vietnam-joined. As these eight countries entered formal TPP negotiations, TPP began to develop into a grand idea. Although there was a sharp disagreement between pro-TPP groups and anti-TPP groups in Japan, the Japanese government on November 11, 2011 announced its decision to formally participate in TPP discussions. Soon thereafter, Canada and Mexico made similar announcements. When Japan made its stance clear, TPP had nine participating countries (with a total of 510 million people) and a combined economic size of $16.8 trillion, about the same as the EU. TPP quickly expanded to $25 trillion later in November to cover 11 countries (with 775 million people). TPP came to aim for a mega economic integration that would account for 40% of the world's economy (in terms of GDP).

Meanwhile, from the beginning, China promoted a plan for an FTA that would involve the Association of Southeast Asian Nations (ASEAN) plus Japan, China, and South Korea, and nudged Japan and South Korea toward this plan behind closed doors. Since the main point of this FTA would be to keep the U.S. out of the loop, the Japanese government's announcement of its decision to participate in TPP negotiations was seen as its choice of the U.S. as a partner in the Asia-Pacific bloc. South Korea, whose negotiations with Japan over an economic cooperation agreement were deadlocked, expressed great surprise at Japan's suddenly changed stance. India supports the idea of an FTA involving ASEAN countries in addition to Japan, China and South Korea, and hopes to join them to form a broad economic bloc while denying the possibility of participating in TPP. Indonesia and other ASEAN countries remain cautious because they feel the TPP is "unnecessary for the time being."

FTAs and the free trade system

What kinds of criteria are necessary when we think of and relativize the TPP problem, which has created confrontational relationships at home and abroad? Under the trade rules, TPP is a type of agreement to form a free-trade area (FTA) as provided in Article 24 (economic integration) of GATT. A provision of this article permits discriminatory treatment by WTO member states of their trade partners under certain conditions as an exception to WTO's key principle, which is the principle of nondiscrimination (the principle of most-favored-nation treatment). The conditions are: (1) trade restrictions such as tariffs outside the free-trade area should not be more powerful or restrictive than they were before integration (Article 24, Clause 5), and (2) trade restrictions such as tariffs should be abolished for "practically all Trade" (90% or more trade in a weighted average taking account of trade volume) within the free-trade area (Article 24, Clause 8).

Economic integration under an agreement such as an FTA is treated as exceptional because it has the potential to threaten the free trade system. Economic integration has the effect of opening up trade for countries within a free-trade area and conversely closing down trade to countries outside the area. We should also note that economic integration has the effect of "politicizing trade." A.O. Hirschman explains the "politicization of trade" by drawing on the concept of the "influence effect," which means the effect produced when a country brings another country under its political influence by economic means called trade. What is seen as important is an "immediate" and "subjective trade profit." As a country's trade policy is influenced by the immediate vested interests of certain influential groups, the country becomes dependent on another country and comes under the latter country's control.

Is it possible to achieve economic integration based on a new concept?

Turning to the western hemisphere, all of the 33 countries in Central and South America (the U.S. and Canada in North America are not included) launched an international organization called the Community of Latin American and Caribbean States (CELAC) this December. CELAC aims to narrow the gap between the rich and the poor and seek its own sustainable economic development while maintaining distance from the U.S. which has historically used this region as its own backyard.

Amid these new developments, Japan, which suffered the Great East Japan Earthquake and resulting nuclear damage, needs to search seriously for a new form of international solidarity as well as a new value system that gives high priority to "security in living" and "safety in life" without involving itself as before in the scramble among various interest groups for immediate gains and without over-committing itself in its foreign policy to relations with the U.S. Economic integration based on new ideas such as these is especially called for in Asia, where the stage of economic development, the political system, culture, and religion vary greatly from country to country. The essence of the TPP question is not whether to open up the country or not, but how and to which area to open the country.

Takeru Saito
Professor, Faculty of Commerce, Chuo University
Areas of Specialization: American Economic History, Trade Theory, Trade Policy
Born in Tokyo in 1951. Graduated from the Faculty of Law, Chuo University, in 1973 and graduated from the Faculty of Commerce, Chuo University, in 1975. Received a Master's Degree from the Graduate School of Commerce, Chuo University, in 1977. Moved on to a Doctorate Program, but left the program in 1980 without graduating. Since 1978, has served as an Assistant, an Instructor, and then as an Assistant Professor in the Faculty of Commerce, Chuo University. Has held his present position since 1992. His current research interests include the New Deal and U.S. public policy during World War II - in particular investments and loans by the Reconstruction Finance Corporation (RFC), and the American-style welfare system as seen in the Veterans Affairs Law commonly called the GI Bill. His main publications include The Historical Phase of the Global Financial Crisis [Sekai Kinyu Kiki no Rekishi-teki Iso] (author and editor, Nihon Keizai Hyouronsha, 2010) and A Book for Think about Money and Living [Okane to Kurashi o Kangaeru Hon] Vol. 5. - Money Races Around the World [Okane ga Sekai o Kakeru] (Iwasaki Shoten, 2007).