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What elections in Japan and Canada say about the future of trade deals

September 15, 2015

Shinzo AbeShinzo Abe
Japanese Prime Minister Shinzo Abe speaks to reporters at his official residence in Tokyo. Photograph by Yoshikazu Tsuno — AP

Japan’s governing Liberal Democratic Party re-elected Prime Minister Shinzo Abe as its president last week. He was first elected in 2012 on a pro-growth, economic reform agenda. Now his top domestic priority is to restore growth to the Japanese economy – which has been on a downward slope for the last several decades and which contracted in the second quarter of this year.

Upon receiving the positive vote for leadership of his party, Abe immediately declared his commitment to successfully close a massive Pacific Rim trade deal that includes Japan and about 40% of the global economy. At this point, that’s not easy as Japan and 11 other nations continue negotiating the Transpacific Partnership agreement. For Japan, letting more agricultural products compete with domestic farm products is a challenge, but lowering tariffs is key to successfully closing the trade deal. Canada, Australia, New Zealand and the United States have a keen interest in exporting more of their agricultural products to Japan. What is in the deal for Japan? Japan hopes to gain further market opportunities for its exports throughout the Pacific region to enable it to stimulate its economic growth.

Prime Minister Abe is not the only one facing tough decisions. During the first half of this year, Canada’s economy slumped into negative growth as energy prices dropped. Canada Prime Minister Stephen Harper sees the TPP as a vehicle to diversify and expand its exports to promote Canadian economic growth. What’s complicating negotiations is that other countries negotiating the trade deal are asking that Canada reduce its protection for agricultural products — particularly dairy. Canada’s supply management system is not an easy one to change, and its farmers have built their businesses and taken out mortgages based on that system of protection staying in place.

So the question for Canadian negotiators is how much liberalization they will accept in return for Canada’s access to a broad range of new export opportunities through others’ TPP commitments. Canada’s government is the first of the TPP partners to be in a general election, with the vote scheduled on October 19. This week, the three contenders vying to be Canada’s next prime minister are expected to debate over the country’s economic policies. Prime Minister Harper has pledged to liberalize Canadian imports of even its sensitive products.

Yesterday, Australia’s Liberal Party changed its leadership, giving Australia a new prime minister. New Zealand’s trade minister, Tim Groser, hailed this move as giving a boost to earlier conclusion of TPP as Turnbull uses it as a means to boost Australia’s economy.

Agriculture is not the only remaining issue in TPP, but it is a key ingredient in forging a 12-nation consensus. New Zealand cannot sign a deal that does not enhance its dairy exports, and looks to Japan and the United States as markets that should be more open. Australia looks to Japan for its meat exports and to the U.S to take in more of its sugar, for it to agree to a final deal. American farmers are likewise looking for additional export opportunities in Japan and Canada.

Past trade agreements have often provided relatively less liberalization for agriculture than for industrial goods. This is true of the commitments made in the World Trade Organization, as well as those made in a large number of existing regional “free trade” agreements. TPP has been touted as an agreement that can break that mold, to achieve a higher standard than has been reached in prior agreements. It aspires to be a template for future trade deals, including the next major trade deal for the United States – the Trans Atlantic Trade and Investment Partnership negotiations with the 28 nation European Union.

Gains to world economic growth from TPP could be on the order of $295 billion, economists at the Peterson Institute for International Economics have estimated. They go further and see the possibilities for broader agreements encompassing Asia leading to increased growth in the trillions of dollars. Since Korea, the Philippines, Thailand and Indonesia are waiting in the wings to consider joining TPP, the path to that level of growth is not entirely theoretical. However, these estimates depend on extensive liberalization. The first step will depend on what the twelve TPP parties can accomplish. That is not yet determined, but could be, soon.

Alan Wm. Wolff practices law with the international firm, Dentons in Washington DC. He is chairman of the National Foreign Trade Council and a former U.S. Deputy Trade Representative.