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Landmark pact a chance to jump-start aging Japanese economy

Originally Posted: Nikkei Asian Review, October 21

TOKYO -- The Trans-Pacific Partnership will thrust Japan into full market competition, opening up opportunities for exporters and bringing in cheap food imports that could threaten farmers but benefit consumers.

Of all the items covered by the trade agreement, Japan will eliminate tariffs on 95% of them eventually, the government said Tuesday. The ratio is the highest yet for any trade pact Japan has signed, surpassing the record 88.4% under economic partnership agreements with Australia and the Philippines by nearly seven percentage points.

Japan will do away with tariffs on all the industrial products covered, and on 81% of farm and marine products. The country sought to protect domestic producers in five key categories, including rice, beef, pork and dairy, and as a result, its tariff-elimination rate for the agricultural category is the lowest among the 12 countries in the pact.

On the other hand, Japan's trade partners will jettison tariffs on 99.9% of industrial items. "Tariff elimination in Mexico, Vietnam and other markets key for business expansion will lead to growth," says an official at industrial machinery producer Mitsubishi Electric.

Komatsu, which makes mining equipment such as hydraulic excavators, will benefit from the elimination of Australia's high 5% tariff, according to an official.

The U.S. currently levies lofty tariffs on chemicals and apparel products. Japan's Mitsubishi Chemical Holdings, which produces 80% of its annual 10,000-ton carbon fibers at home but sells 90% of it abroad, will benefit as the pact will force the U.S. to immediately scrap its 7.5% to 8% tariffs on raw materials. The agreement "will create a tailwind for increasing exports," a company official said.

For agricultural, forestry and fishery products, Japan will drop tariffs on 1,885 items, making foreign-grown vegetables, fruits and other items available at lower price to Japanese consumers.

While domestic producers have generally resisted efforts to open up the home market to foreign competition, some see new opportunities. An industry insider in Aomori Prefecture, the capital of Japan's apple industry, said: "This is an opportunity to increase exports as the domestic market shrinks owing to the declining population."

An official at a tea farmer association in Shizuoka Prefecture also expressed hopes for an export boost. On competition at home, he added, "we don't believe imports will increase drastically."

The government still faces challenges in cushioning the negative impact on Japanese producers. So far it has decided to buy more Japanese rice for the national reserve to cancel out incoming imports. But instead of blindly protecting growers, the government should make cheaper rice available to consumers while implementing assistance specifically targeting producers with growth potential.

The government will compile domestic-response measures as early as mid-November. How it promotes competitive agriculture by consolidating farmland and encouraging businesses to get involved will be a focal point.

In addition to letting consumers reap the TPP's full benefits, Japan should use the trade pact to put the anemic Japanese economy back on a growth path.

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