US • Japan Business Council

We Need to Get Back into the Trade Game in Asia

Last week, I was in Hanoi for the meeting of the APEC Ministers Responsible for Trade. As I described during my recent testimony to the Senate Foreign Relations Committee’s Subcommittee on Asia, the Pacific and International Cybersecurity, the clear takeaway from our allies abroad was disappointment that the United States has withdrawn from the Trans-Pacific Partnership Agreement (TPP).

Asian countries want an active American presence in the region, and they want robust trade with the U.S. But Asian economies are not waiting or standing still after the U.S. withdrawal from the TPP. They are moving forward across a number of different fronts, from trade and aid to investment and infrastructure.

According to the Asian Development Bank, Asian countries have signed 147 bilateral or regional trade agreements, and 73 more are under negotiation or concluded and awaiting entry into force.

Japan and New Zealand, the only countries to have ratified the TPP, are pushing forward with a possible “TPP-11” arrangement—i.e. one without the U.S. It is clear their objective is to advance the TPP in some form, so that the strong rules and high standards they fought so hard to achieve will survive.

Sixteen Asian economies – China, Japan, Korea, Australia, New Zealand, India, and the 10 ASEAN countries – are accelerating efforts to conclude negotiations on the Regional Comprehensive Economic Partnership (RCEP), a less ambitious and lower-standard agreement than the TPP.  Both the TPP and RCEP are possible pathways toward the longstanding APEC goal of a Free Trade Area of the Asia Pacific (FTAAP).  

This lost opportunity cannot be overstated. The Asia-Pacific region is critical to current and future U.S. economic growth, competitiveness, and job creation. Unfortunately, we’re falling behind. U.S. exporters need access to these fast-growing economies and their increasingly wealthy consumers in order to increase sales and hire more workers at home.

Following the withdrawal from the TPP, the U.S. is party to only three FTAs in all of Asia: Australia, Singapore, and South Korea. Trade within Asia is surging, but even as total Asian imports have risen more than three-fold in the past 15 years, the U.S. share of the pie has dropped dramatically, from 12.2% in 2000 to 6.6% in 2014 according to the think tank Third Way. As indicated in the charts below, China – not the U.S. – has become the dominant trading power in the region. 

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In Hanoi, Ambassador Robert Lighthizer, the new U.S. Trade Representative, reiterated the administration’s intent to negotiate bilateral free-trade agreements (FTAs) in the region at some point. In an era of global value chains, the TPP had the advantage of cutting through the “noodle bowl” of divergent trade rules under multiple agreements.

In any event, the U.S. is running out of time. Bilateral FTAs, even with small economies, will take years to negotiate and enter into force.

Meanwhile, the challenges the TPP was designed to address remain:

  1. The Asia-Pacific region is growing, and it will soon be home to two-thirds of the world’s middle class consumers.
  2. Made-in-America products are too often shut out of those promising markets by steep tariffs and other barriers.
  3. U.S. exporters’ disadvantages in the region are likely to mount as other economies clinch new trade pacts that benefit their exporters but shut us out.

The implications of RCEP, TPP 11, or other bilateral agreements that exclude the U.S. from the fastest growing region of the world are dramatic.  American exporters who don’t have the same tariff advantage as their competitors will suffer immediate and serious commercial losses. Case in point: U.S. beef exporters face a 38.5% tariff on their product, while those from Australia pay a 27.5% tariff because of Australia’s FTA with Japan. 

More broadly – and significantly – if the U.S. is not leading to shape the rules and set the standards for 21st Century trade, it will damage our long-term competitiveness in the region even more. 

The Trump administration will need to devise a strategy to address these challenges – and soon. The U.S. Chamber of Commerce is committed to working with the administration and Congress in that effort. The U.S. business community supports trade agreements, whether bilateral or multilateral, that will open markets and allow our firms to compete as long as they conform to Trade Promotion Authority (TPA) guidelines and procedures. Ultimately this is about growth and jobs, and we need new export markets and a level playing field to increase both and reduce our trade deficit.

Time is of the essence, as every month that goes by gives our competitors an even greater long-term advantage. We cannot afford to be on the sidelines: we need to be in this critical trade game.

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Japan Investing in America’s Greatness, Becoming an Export Leader

Mount Fuji stands behind buildings in Tokyo, Japan. Photo credit: Tomohiro Ohsumi/Bloomberg

Each times a foreign company or individual invests in the United States, it is a statement of confidence in America’s growth and potential.  Moreover, it is another tangible reminder that America is already great.

The simple fact is that America remains a highly attractive, desirable market for international investors. The United States has one of the most open markets and predictable investment climates in the world. It possesses an unrivaled consumer market, a world-class education system, a skilled and productive workforce, a transparent regulatory system, and enormous energy potential. It fosters an entrepreneurial culture of innovation and risk-taking.

Just as increasing foreign direct investment (FDI) in the United States reflects America’s greatness, so too is this investment increasingly contributing to America’s greatness – to the tune of $2.8 trillion in FDI that has been made in the United States to date.

With this investment come jobs – lots of them.  More than 6.1 million U.S. workers are employed by U.S. affiliates of foreign-owned firms. Another 5.9 million more American jobs can be attributed to the additional economic benefits from foreign investment – in terms of additional jobs tied to sourcing, increased incomes, productivity gains, and other similar positive impacts.

That’s 10 million American jobs tied to FDI.

Where does all this investment come from? The United Kingdom still leads the pack, accounting for nearly 20 percent of all FDI in the United States as of the end of 2013.

Japanese investment, which is a strong second (nearly 12 percent of all FDI), is particularly worth a closer look, not only because of the large amount but also for the other key contributions it makes to the U.S. economy.   

  • First, Japanese investment has risen rapidly over the last few years, becoming the top source of FDI in the U.S. in 2013 at nearly $45 billion. This is nearly two times more than FDI from Canada, nearly four times more than from Germany, and nearly 19 times more than from China in the same year.
  • Second, Japanese affiliates in the United States are directly responsible for nearly 719,000 U.S. jobs (2012) – an increase of 64,000 jobs in just two years. California leads the way with over 110,000 people employed by Japanese affiliates, but 12 other states have over 20,000 people employed by Japanese affiliates. These jobs tend to pay more than the average, and range across manufacturing, technology, life science, wholesale, and service industries.
  • Third, Japanese affiliates in the United States also were responsible for $68 billion in U.S. goods exports in 2012, the highest value among foreign affiliate goods exports from the United States.

In sum, Japanese investment in the United States has been responsible for high-paying jobs, innovation-driving productivity, and growth-generating U.S. exports. Japanese investment also is spread widely across all 50 U.S. states and the District of Columbia.

Japanese and other foreign investors recognize a good thing when they see it, and America remains at the top of their list for investment. But to sustain high levels of investment, U.S. economic policy must support economic growth, innovation, and new opportunity. 

The importance of FDI, and policies and measures that support its continued growth, will be in focus at the upcoming SelectUSA 2016 Investment Summit this week in Washington, D.C.

The U.S. Chamber of Commerce actively supports this opportunity to showcase to global investors the innumerable new investment opportunities available across the United States.

The Chamber knows that foreign investment is essential to the economic and social fabric of many U.S. states and communities, and so it remains critical that we continue to send a strong signal – both through words and deeds – that America welcomes FDI and is open for business.

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Japan’s Prime Minister: U.S.-Japan Trade Agreement Is ‘Just Around the Corner’

Prime Minister of Japan, Shinzo Abe at the U.S. Chamber of Commerce in Washington, DC on April 29, 2015. Photo by Ian Wagreich / © U.S. Chamber of Commerce

Japanese Prime Minister Shinzo Abe’s very busy day in Washington, D.C., included a visit to the U.S. Chamber for a CEO roundtable discussion and an historic appearance on Capitol Hill.

At the U.S. Chamber event, President and CEO Tom Donohue said, “The Chamber strongly supports your bold and comprehensive plan to revitalize Japan’s economy…. One important area is completing and bringing into force a high-standard, comprehensive [Trans-Pacific Partnership (TPP)] agreement–and soon.”

Prime Minister Abe was optimistic, saying a trade agreement between the U.S. and Japan is “just around the corner.” This important step will lead to completion of the Trans-Pacific Partnership (TPP).

“TPP will mean creating one economic zone in the Asian region, the engine of growth in the world,” Abe added. Through “fair and more dynamic rules” from the trade agreement, “any member country of the TPP will be able to leverage the vastness of this market to build the most-efficient supply chain.”

It’s encouraging to hear from leaders that both countries have made significant progress toward concluding bilateral negotiations. This work will lead to a set of secure trading rules under the TPP that will help all participating economies.

Earlier in the day, Abe made history by becoming the first Japanese Prime Minister to address a joint session of Congress. Developing closer economic ties between the U.S. and Japan through the TPP was top of mind:

As the largest economies in the negotiations, Japan and the United States play critical roles in ensuring that the TPP is a comprehensive, high-standard, and ambitious trade agreement.

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The High Cost of Japan’s Farm Protectionism (and How the TPP Can Help)

A Japanese farmer collects harvested rice ready to dry in a paddy field. Photographer: Tomohiro Ohsumi/Bloomberg.

Prior to his departure for bilateral negotiations over the Trans-Pacific Partnership (TPP) with U.S. Trade Representative Michael Froman, Japanese Minister of State for Economic and Fiscal Policy Akira Amari—who oversees Japan’s participation in the 12-nation TPP negotiations—didn’t mince words on his expectations. According to Jiji Press:

Against this backdrop, Richard Katz, a highly regarded observer of U.S.-Japan relations for more than three decades, has attracted attention in recent days for his incisive comments on the high cost of Japan’s agricultural protectionism for Japan.

Katz’s observations go to the heart of the Amari-Froman negotiations because Japan’s barriers to agricultural trade are at the heart of the impasse in the U.S.-Japan negotiations. By extension, they are also central to the overall TPP negotiations as the other 10 nations await this outcome before moving forward with their own market access deals.

The following is excerpted from Katz’s three-part survey of “The Cost of Japan’s Farm Protectionism” in The Oriental Economist Report, where Katz is Editor-in-Chief.

  • “The cost to Japan’s economy and Japanese consumers of protecting Japan’s farmers from imports, as well as other anti-competitive practices, is several times the contribution of farming to national GDP.
  • “Japanese consumers have to devote 14% of their household budget for food, compared to 9.3% in the UK and 6.3% in the U.S.; if that could be reduced in Japan to even 11%, that would save Japanese consumers ¥7.5 trillion per year, far more than the entire GDP of the farm sector (¥5.4 trillion), and twice as much as the output of the five ‘sacred’ sectors (¥3.6 trillion).
  • “Taxpayers pay for subsidies that provide half of all farmers’ income; in 2009, these subsidies amounted to ¥4.3 trillion ($46 billion), more than the ¥2.5 trillion per year taken by the most recent hike in the consumption tax …
  • “In short, barriers to imports have become obstacles to Japan’s own exports.”

The promise of the TPP has always been that it will be an ambitious and comprehensive trade and investment accord, covering all products and sectors. While there is ample room for an outcome in which “both sides make an even compromise,” as Amari told the press, Katz’s analysis underscores that it is squarely in Japan’s own interest to open its agricultural sector.

The TPP thus has the potential to help Japanese consumers by lowering the price of food and the Japanese economy more broadly by limiting the fiscal cost of agricultural subsidies and by expanding industrial exports. None of this should be scary, as tariff protection can be phased out over time while the Abe government adds some substance to the agricultural reforms of which Prime Minister Shinzo Abe has spoken and then actually implements them.

A better future for Japanese agriculture lies ahead, but only if Japanese leaders are willing to start the process of change. As Katz puts it: “It is Japan, not America, which has the most to gain from liberalizing its agricultural market via TPP.”

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Australia-Japan Trade Agreement: A “Dud Deal”

Shinzo Abe, Japan’s prime minister, left, and Tony Abbott, Australia’s prime minister, at a welcoming ceremony in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg.

Australian and Japanese officials earlier this week concluded seven years of negotiations toward a bilateral free-trade pact. The news comes as negotiations for the Trans-Pacific Partnership (TPP) enter what could be their final stage.

By acting now, Australia apparently hoped to seize a head start in the Japanese market over other agriculture exporters. Japan apparently hoped to set a standard that will shape the TPP, in which they are joined at the negotiating table by the United States and nine other Pacific Rim nations.

It’s a pity they set the bar so low.

Much of the press coverage to date has focused on beef, a key export commodity for Australia. The news is underwhelming.

According to Japanese press accounts, Tokyo has agreed to lower its 38.5 percent tariff on beef. However, the tariff on frozen beef will only be reduced to 19.5 percent, and only after 18 years. Tariffs on chilled beef will fall to 23.5 percent over 15 years, and only up to a certain quantity.

Japan will achieve some of its negotiating objectives. Under the new agreement, Australia has committed to eliminate its 5 percent tariff on Japanese auto imports.

But this is a far cry from the comprehensive accord the United States is seeking in the TPP. In fact, over four years of negotiations, all 12 governments have reiterated time and again their commitment to putting all commodities and sectors on the table. The watchword has been “no exclusions.”

Some Australians are also unimpressed:

  • “The Cattle Council of Australia said it was ‘disappointed’ that ‘substantial tariffs’ would remain in place after the 15-year transition, something that was ‘unlike in previous free trade agreements,’” according to the Financial Times.
  • Australian dairy farmers called the agreement a “dud deal,” according to Melbourne’s The Age. Aussie dairy exporters, who reportedly pay more than $100 million a year in Japanese tariffs, will see that sum fall by “just $11.6 million by 2031.”
  • Australian rice grower Chris Morshead called the agreement “‘a bloody disgrace’ that leaves the nation’s 1500-odd rice farmers by the wayside,” according to the Australian Financial Review.
  • “The National Farmers’ Federation, meanwhile, bemoaned the fact that sectors such as rice were left out altogether,” the FT added.

Some analysts welcomed the agreement as Japan’s first opening, however tentative, in some of the so-called five sacred areas (rice, wheat, beef/pork, dairy, sugar). The Chamber disagrees: This agreement falls far short of U.S. trade agreements, and Japan has much further to move to realize the ambition of TPP.

The U.S. Chamber of Commerce has repeatedly insisted that the TPP must be a comprehensive accord of the highest standards, and the U.S. business and agriculture community is in full agreement.

As recently as December, the trade ministers from the 12 nations vowed to make the TPP “an ambitious, comprehensive and high-standard agreement.”

The Australia-Japan agreement, with its exclusions and exceptions, cannot be a precedent for the TPP. It’s time to move forward with the TPP—and make it a truly great agreement.

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