Stephen Jacobi: Japan's rising TPP profile boon for NZ business

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US Vice-President Joe Biden and Japan's Prime Minister Shinzo Abe. Photo / AP
US Vice-President Joe Biden and Japan's Prime Minister Shinzo Abe. Photo / AP

Amid the Wellington shakes and the news of the royal baby, Japan's arrival at the negotiating table of the Trans-Pacific Partnership in Kota Kinabalu, Malaysia, was hardly noticed in New Zealand.

Even so, Japan's association with TPP marks a remarkable sea-change in Japanese policy and is full of consequence for New Zealand.

The story so far is that while New Zealand has successfully negotiated a range of trade agreements in Asia - most recently with Taiwan - Japan has been a missing link. Japan has been the only major economy in Asia with which New Zealand had neither an FTA nor a negotiation under way. This changed in April when Prime Minister Shinzo Abe's Government announced that it wanted to join the 12 other economies in TPP. In May the first round of negotiations got under way in another regional forum, the Regional Comprehensive Economic Partnership (RCEP), linking 16 economies including New Zealand and Japan.

After years of attempts by current and former governments to move the dial with Japan, at last New Zealand is beginning to negotiate the rules for expanded trade and investment with the world's third largest economy and our fourth largest trading partner.

New Zealand's economic relationship with Japan is well established and encompasses not just two-way trade but also investment. Japanese investors are major players in a number of key industries including agriculture, fishing, wood processing and tourism. Japanese companies have shown themselves to be strong corporate citizens.

Japan's involvement in TPP now has the potential to transform the economic relationship between us. While New Zealand has for many years done profitable business in Japan, including in heavily protected sectors like dairy and beef, there has been a sense in recent years that there was a lack of momentum.

This was certainly not helped in Japan's case by an economy that continually failed to fire, and in New Zealand's case by increasing attention focused on China, which is seeing Japan's market share in New Zealand steadily decline.

While any visitor to Tokyo today cannot fail to be impressed by the number of three-star Michelin restaurants, impressive infrastructure and an array of glittering malls, growth in the Japanese economy has been anaemic at best and Japanese companies have increasingly struggled to maintain competitiveness.

Prime Minister Abe has been determined to meet Japan's economic challenges head on by firing the "three arrows" of Abenomics - fiscal stimulus, monetary easing and structural reform. Early results have been positive and Abe's leadership has been rewarded by a hefty majority for the Liberal Democratic Party in the recent Upper House election.

TPP comes under the third arrow of structural reform because it addresses a number of key issues, which determine Japan's economic competitiveness.

Greater openness in the domestic economy will stimulate further growth in demand, as protected sectors, including agriculture, are subject to reform. Change will not happen overnight but the direction is clear. In the case of Japanese agriculture, which has enjoyed high levels of subsidy and protection in the past, this is unprecedented.

There is opposition to this in some parts of Japanese society, of course, but also a widespread and growing realisation among the public at large that the present system of assisting Japanese agriculture is simply failing to address the ageing of the agricultural population and the sector's decreasing competitiveness.

Reform is not all down-side either - the more competitive parts of Japanese agriculture could well find themselves growing.

New Zealand's interest in future reform of Japanese agriculture is obvious.

Immediate prospects of increasing export volumes are hindered by supply constraints but TPP could influence a significant change in the nature of products supplied, opening up new market segments and, importantly, reducing the costs associated with doing business. As New Zealand food suppliers are increasingly operating through global value chains, TPP's approach to setting common rules and standards across the region has significant benefits - just as it will for Japanese companies which are perhaps the world's experts at building competitive supply chains.

The point is that Japan's association with TPP effectively changes the strategic calculation for New Zealand and raises the stakes of TPP's success.

As ever, New Zealand's economic fortunes are determined in overseas markets. TPP may not be as exciting as a royal birth but the seismic shift that Japan's involvement sends around the region should not be ignored.

Stephen Jacobi is executive director of the NZ US Council.

- NZ Herald

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