Jetse Reitsma (s1138871) jetsereits@gmail.com 3-1-2018
The Trans-Pacific Partnership and
Sticky Power of the United States
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Introduction p. 2
Literature Review p.4
Methodology p. 9
The TPP : neither soft nor hard power p. 10
Pivot to Asia and US hard power p. 14
The sticky power of the TPP p. 17
TPP country Japan and the effects of US sticky power p. 23
The elephant in the room: China and RCEP p. 27
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Introduction
The Trans-Pacific Partnership is a free trade agreement between Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, Japan and the United States. The TPP countries together represent 40% of the world economy in terms of GDP and affect 40% of world trade. The size and deep level of economic and regulatory integration of the TPP make it one of the most ambitious attempts of multilateral cooperation in the Asia-Pacific. The TPP has been hailed as a “21st century trade agreement” which aims to cut over 18.000 taxes on American exports and
establish a regional regulatory framework on labor rights and environmental protection.
East-Asia is one of the fastest growing regions in terms of economic activity and population. The growing importance of the East-Asia region in trade and politics was recognized by the Obama administration. China has become the biggest trading partner in the East Asia region and China’s strong economic growth is also increasing its political influence. China's economic growth has also strengthened its territorial ambitions, which has created tensions between China and smaller Asian nations about territorial claims. In order to reassure its allies in the region on the commitment of the United States to protect their territorial integrity Former Secretary of State Hillary Clinton announced the new foreign policy of the Obama administration as the: “Pivot to Asia”(Clinton, 2011). The Pivot to Asia is a retrenchment of the United States foreign policy and military cooperation from Europe and the Middle East to the East Asia region during the Obama administration.
The pivot to Asia is often perceived as America’s commitment to expand its military capabilities and hard power assets in the Asia-Pacific (Campbell, 2013)(The Diplomat, 2013). Because the TPP negotiations under the Obama administration were held at the same time as the announcement of the pivot to Asia, the TPP is characterized as the soft power side of the US pivot to Asia. During his 2015 State of the Union address Obama referred to the TPP as a tool to establish international standards and rules on trade and to counter China’s attempts to challenge US regional leadership. President Obama referred to the new Chinese led international financial institutions, such as the Asian Infrastructure Investment Bank and the New Development Bank. By promoting ambitious and comprehensive free trade agreements such as the TPP and TTIP president Obama attempted to display the willingness of the United States to participate in international rulemaking on trade and large multilateral trade agreements. Because of pressure by US trade negotiators the TPP promotes many US values, such as protection of property, transparency, and fair competition by reducing the power of State Owned Enterprises.
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Regionalism and free trade agreements are not new in the East Asia region. Many different trade agreements and regional organizations have emerged since the 1990s. Some experts even argue that the wide variety of different trade agreements and regional institutions have created a regulatory ‘noodle bowl’ which is complicating international trade and cooperation rather than simplifying it (Ravenhill, 2009). The TPP attempts to disentangle parts of the noodle bowl by creating an overarching trade structure that is more comprehensive and enforceable. One of the most notable aspects of the TPP is the absence of China, the world’s second largest economy and the most important trading partner of the United States. However, China is engaged in an ambitious and comprehensive free trade agreement on its own within the boundaries of the ASEAN+6 called the Regional Comprehensive Economic Partnership (RCEP). There is an ongoing debate whether the TPP is meant to include China and whether the RCEP and TPP both serve the same larger goal of establishing a combined free trade area around the entire Asia Pacific.
Like other free trade agreements such as NAFTA (North American Free Trade Agreement) and TTIP, the TPP has increasingly become a topic of controversy. Critics often mention that TPP could hurt American workers because of competition from low-wage countries such as Vietnam (The Guardian, 2015)(New York Times, 2017). Another topic of contention is the controversial ISDS (Investor-State Dispute Settlement) which allows Corporate investors to sue governments in international courts using arbiter tribunals rather than using the national legal structures. The controversy surrounding the TPP has diminished its chances of being ratified by the participating governments and has resulted in the withdrawal of the United States from the TPP by president Trump in 2017. Because the future of the TPP is uncertain and the considerable chances of the TPP of not being ratified, it is important to analyze the effects that a failure of the TPP will have for the geopolitical position of the United States in the Asia Pacific as well. So far three different U.S. presidential administrations have been involved in the TPP negotiations. In the final year of the administration president George W. Bush the U.S. participated in the initial negotiations of a free trade agreement between New Zealand, Singapore, Chile and Brunei. The majority of the negotiations and the expansion of the TPP have been under the administration of President Obama. His successor Donald Trump withdrew the U.S. from the TPP negotiations in January 2017. Since the TPP played a crucial part in Obama’s foreign policy of a rebalance towards East Asia this thesis will focus on the TPP as part of the foreign policy strategy of the Obama administration.
The geopolitical aspects of the TPP are often mentioned in the existing literature but hardly defined or explained, unlike the economic benefits such as GDP growth or job growth in different member
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countries (Petri, 2016)(Cheon, 2013) The problem with the existing literature on the TPP is that they often claim that the TPP is used as a tool for expanding American soft power but don’t explain how the TPP would expand spread soft power. The Trans-Pacific Partnership is most often described as a soft power tool (Bremmer, 2016)(The Diplomat, 2016). Former Secretary of Defense Ash Carter, however, argued that the TPP is as important as adding another aircraft carrier to the US navy, hardly a metaphor for soft power (Department of Defense, 2015). Economic power is usually defined as a form of hard power, since economic pressure and sanctions force other states to change their behavior. However, not all economic power can be associated with coercion, as economic cooperation also tends to create mutual interests and economic interdependence. The TPP will strengthen trade and economic interdependence between the parties involved. In the long term, the economic interdependence as a result of the TPP could enhance the ‘Sticky Power’ of the United States. Sticky power is a form of political and economic influence that is derived from global economic institutions championed by economic hegemons, such as the WTO and the IMF. While such global economic institutions can offer compelling economic benefits for participating states, it can be difficult for states to escape from the influence of the economic hegemon leading those institutions. This thesis will explain how the TPP attributes to the sticky power of the United States by compelling other states into economic cooperation, increasing their economic dependence on the United States in the long term. This thesis will analyze the different features of hard power, soft power and sticky power, to what extent they can be attributed to the Trans-Pacific Partnership and how the TPP affects the sticky power of the United States in the Asia Pacific.
Literature Review
After the end of the Cold War and the dissolution of the Soviet Union no country could match the global political influence of the United States. While the United States managed to maintain this position for two decades its capabilities to remain the sole superpower are increasingly questioned by scholars and the public alike. Since there are many different theories on the transition of a unipolar to a multipolar world order, the consensus is that the United States as a hegemon will not collapse like the Soviet Union or the European empires, but that the global role of the United States is challenged by new global players such as China and India.
One of the better-known works on the relative decline of the United States in world politics is Fareed Zakaria’s The Post-American World. In the Post-American World, the United States is still considered to be the wealthiest country with unmatched military capabilities, but the US is no longer able to
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enjoy the geopolitical influence it had during and after the cold war. Fareed Zakaria argues that globalization has created spectacular economic growth for India and China (Zakaria, 2008 p.13). These new players in the world economy do not necessarily play by the rules of the United States. The relative decline of the United States is further explained in Superpower: Three Choices for
America's Role in the World and Every Nation for Itself by Ian Bremmer. Bremmer argues that the
world is changing from a unipolar to a multipolar world order which he describes as a G-Zero world (Bremmer, 2012)(Bremmer, 2016). Organizations such as the G7 or G20 become slowly obsolete and no emerging world power has the capabilities to fill the power vacuum left by the United States. In all of Bremmer’ s three possible future roles of the United States the Trans-Pacific Partnership plays a key role for the US leadership in the G-Zero world. According to Ian Bremmer the United States should choose to take on global leadership as either Independent, Moneyball or Indispensable. Ian Bremmer's description of “Independent America” is a United States that should relieve itself from most of its international burdens and instead focus its resources on making improvements within the United States itself (Bremmer, 2016 p. 84)). Pulling back from many of its international commitments does not prevent the “Independent America” to establish ambitious trade deals such as the Trans-Pacific Partnership (Bremmer, 2016 p. 85). However, Bremmer argues that in an “Independent America” the people and congress should have more influence in establishing those trade deals and that the president should not have the sole power in negotiating those deals (as is the case in many fast track negotiations such as the Trade Promotion Authority). The second future path for the United States that Bremmer offers is that of “Moneyball America.” The foreign policy of “Moneyball America” concentrates on protecting US economic interests abroad (Bremmer, 2016 p. 147). The TPP is a central component to US foreign policy in “Moneyball America” as it strengthens US economic interests in a market that contains 40% of the global economy. Bremmer argues that the TPP will provide a framework in which American private companies are able to compete with the rising influence of China's state capitalism (Bremmer, 2016 p. 180). Bremmer third and most ambitious blueprint for future US leadership is Indispensable America. Indispensable America actively promotes and upholds its liberal democratic and free enterprise capitalist values across the globe. Indispensable America should not only push for a Trans-Pacific partnership as soon as possible but also negotiate extensive bilateral trade agreements with China and India (Bremmer, 2016, 343). Although Bremmer’s three foreign policy blueprints for the United States are fundamentally different, they all rely to some extent on a successful Trans-Pacific partnership (Bremmer, 2016 p. 349).
Robert D. Kaplan's “Asia's Cauldron” and Michael Greens “By More than providence” are useful in understanding the broader geopolitical landscape of the East Asia region. In chapter 8 of “Asia's Cauldron” Kaplan discusses the role of China in the East Asia region and tries to explain the Chinese
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perspective of the South China Sea dispute (Kaplan, 2014 p. 369). The Trans-Pacific Partnership regarded as an important part of a larger US attempt to create a pivot towards Asia. It is impossible to understand Obama's “pivot to Asia” strategy without understanding the origins and the claims of the South China Sea dispute. Unlike past competitions against ideologies such as fascism or communism Kaplan argues that the competition between China, the United States and other Asian regional powers is one of centered around expanding economic interests. The Trans-Pacific Partnership could prove to be an important element in this conflict of economic interests in the South China Sea. Like Kaplan, Michael Green explores the historical background of the East Asia region, but concentrates on role of the United States and its pacific foreign policy (Green, 2017) . Whereas both authors mention Obama’s pivot to Asia and the potential role of the TPP for the future of the US Asia-Pacific relationship they only provide a limited explanation for the geopolitical aspect of the TPP.
Kaplan and Green describe the geopolitical arena of the Asia-pacific and the political implications for rising China. In these works the future role of the United States in the Asia Pacific is centered around trade and security. In Kaplan’s Asia’s Cauldron there is no mention of the role of the TPP in strengthening the position of the United States (Kaplan, 2014 p. 368). Green focusses on the economic implications of the TPP for the United States and doesn’t mention the effect of the TPP on the US power (Green, 2017 p. 547). One of the central works on the TPP is “the Trans-Pacific Partnership: A Quest for a Twenty-first-Century trade Agreement” by Lim, Elms and Low. This book explains in detail how the TPP was shaped and what the contributions were of the different rounds of negotiations so far. The book covers a wide variety of issues that the TPP attempts to eliminate or so far fails to address. One of the most important complications for the TPP is that the member states often have a very different way in which their economy is designed. State-Owned Enterprises (SOE’s) play an important role in many East Asian economies. These companies can either be completely or partly owned by the government. One of the goals of the TPP negotiations is to define what constitutes as a SOE and to what extent they are subjugated to the regulations set up by the TPP. Other topics that are discussed are issues regarding labor rights and environmental protection. The last part of the book also touches upon other regional trade agreements which could enhance or hinder the prospects of the TPP (Lim, 2012 p. 299).
There are a wide variety of opinions regarding the objectives of the TPP and how this deal will affect the geopolitical landscape of the Asia-Pacific (Chow, 2016)(Campbell, 2013 p. 5)(Cheong, 2013). Matthew Goodman takes a very vocal position in an attempt to clear up existing uncertainties regarding the TPP. Goodman argues that the TPP is designed in order to serve as the economic leg of
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the “pivot to Asia” (Goodman, 2013). A failure of the TPP could compromise the influence of the United States in the Asia-Pacific. Goodman disagrees that the TPP is constructed in order to contain China. Many participants of the TPP are also involved the RCEP negotiations, which include China (Goodman, 2013), . Goodman argues that the RCEP and TPP are meant to serve as stepping stones toward a greater free trade agreement in the Asia-Pacific (FTAAP). Goodman admits that it does attempt to reform the Asian State-Owned Enterprises and strengthen intellectual property rights, which would enable other Asian economies to compete with China’s state capitalist economy (Goodman, 2013). Goodman mainly considers the absolute gains of TPP and rejects the notion that the TPP is designed to limit the impact of China. According to Goodman the largest absolute gains can be gained through even further trade cooperation in the Asian-Pacific and an eventual Pacific Wide Free Trade Agreement of the Asia-Pacific (Goodman, 2013).
Peter Chow explores the economic and strategic elements of the US Pivot to Asia. In the book “The
US Strategic Pivot to Asia and Cross-Strait Relations” much attention is paid to the TPP and its role
in the hegemonic competition between the US and China. The TPP is often perceived as a complementary strategy to the Pivot to Asia because the Obama administration had pursued both simultaneously. While strategic security is considered high politics and economic prosperity is considered low politics the two often reinforce each other. Security is essential for prosperity, and maintaining security requires the hegemon to possess a considerable amount of fiscal and economic strength. Chow argues that combining the two foreign policy projects helps overcome some of the difficulties that can arise from usual cooperation, such as abandonment. According to Chow the economic integration of the TPP and the military cooperation of the pivot to Asia are intended to increase the effectiveness of the other. The hegemonic competition between China and the US is subject to strong economic interdependence on the one hand and deep mutual mistrust on the other. Many of the clashes of interests between China and the US are centered around the distribution of gains derived from the strong economic relationship (Chow, 2014 p.8). Because of these aspects of within the relationship between China and the US could also be regarded as a strategy by the US to redirect trade and investment flows away from China and towards the US and its regional allies. Despite this concern, there have been no significant changes within the economic relationship between TPP members and China, as trade and investments have continued to grow during the ongoing negotiations of the TPP.
Because the TPP is not just a FTA but also aims to establish high standard regulations it has also received skepticism among the promoters of free trade. The libertarian leaning Cato institute has researched whether the TPP helps or harms the goals of free trade. The primary opposition and
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criticism regarding the TPP comes from labor unions, environmental groups and grassroots movements. These groups argue that the TPP will facilitate a “race to the bottom” and allow corporations to bypass regulations regarding labor rights and the environment. The Cato institute primary criticism of the TPP is that it will raise regulations in red tape in certain fields, rather than reduce regulations (Cato, 2016 p. 7), . The strongest opposition of the Cato research is regarding the TPP provisions on Trade Remedies. This chapter of the TPP reaffirms that member states have the right to invoke anti-dumping laws and countervailing duty laws (Cato, 2016 p. 29). These laws can protect domestic industries from countries that subsidize their exports in order to gain a competitive advantage. Such measures are allowed by the World Trade Organization in case of serious economic injury towards the domestic industry. The Cato Institute argues that such provisions to the TPP only raise trade barriers rather than reduce them and this provision is a form of protectionism. Another concern of the Cato Institute regarding the TPP is the chapter regarding labor protection. The TPP labor provisions contain high standard regulations on labor protection, including laws on minimum wages, hours of work, safety and health. These obligations are subject to dispute settlement which could result in sanctions if a member does not comply (Cato, 2016 p. 60). The TPP provides a higher standard of labor regulations than that of previous US trade agreements and also has a mechanism to enforce its labor regulations. The Cato Institute report argues that some of the labor standards of the TPP are unfit for developing economies such as Vietnam and Malaysia and will ultimately harm the economic benefits of the TPP (Cato, 2016 p. 61). Because the TPP both cuts and creates regulations at the same time the author of the paper considers the TPP a case of managed rather than free trade. Despite the relatively high standards on labor rights on balance the TPP does more to liberalize trade than create new barriers for trade (Cato, 2016 p. 76). The Cato Institute paper does provide uncommon criticism on the TPP and different insight how some the provisions in the TPP might harm trade more than it increases trade.
In order to define our understanding of the relationship between sticky power and the Trans-Pacific partnership we must first understand the different methods by which hegemonic states such as the U.S. exert power and influence over other states. In the academic world of international relations power tends to be viewed as a way for one state to change the way other states act that they would not have done otherwise. One of the best-known works on the concept of power exerted by states is Joseph Nye. Joseph Nye makes the important distinction between soft power and hard power. Nye refers to hard power as the ability by states “to use carrots and sticks of economic and military might to make other follow your will”. Where hard power relies on the use of (limited) force and coercion soft power is the ability to get what you want by attracting and persuading others to adopt your goals” (Nye, 2004). Walter Mead describes a more detailed breakdown of the sources for the hegemonic
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position of the United States. According the Mead economic power isn’t necessarily a form of coercion. The international economic and financial institutions set up by the United States create a “attracts others into our system and makes it hard for them to leave” (Mead, 2005 p.24). Mead breaks down Nye’s concept of hard power into two different kinds of power, sharp power and sticky power. Sharp power refers to the power that is exerted trough military strength. Sticky power is established trough economic policies and institution that attracts other countries into cooperation with the U.S. and making it difficult to leave. One example that Mead makes are the Bretton Woods institutions set up by the United States during the end of the 2nd World War. These institutions helped the U.S.
maintain its central position in international trade and finance despite the collapse of the Bretton Woods system 30 years after its creation. It is the combination of soft power, sticky power and sharp power that maintains the U.S. lead hegemonic system and makes it look desirable, inevitable and permanent (Mead, 2009). The large economic capabilities don’t just provide the economic means for the United States to pursue its strategic interests, it also encourages other countries to accept U.S. leadership.
Within the existing literature there is a common opinion that the world will shift towards a multipolar global order in which the dominance of the United States declines and China becomes a more influential global player. The “Pivot to Asia” and the complementary TPP are seen as tools that strengthens US leadership in the Asia Pacific and limiting the growing regional dominance of China. However, the existing literature does not explain how the TPP will strengthen the influence of the United States. Most of the literature dedicated to the TPP focus on effects on the economy and regulations. The TPP is often mentioned in the context of China-US competition but never fully explained. This thesis will try to fill the research gap by explaining how the TPP and its sticky power influences the geopolitical position of the United States in the Asia Pacific.
Methodology
This thesis is a case study approach that tries to establish a relationship between the concept of sticky power and the Trans-Pacific Partnership. This thesis focusses on how sticky power of the United States over its trading partners increases as industries of the TPP countries become more dependent on their trade with the United States. The hypothesis is that the Trans-Pacific partnership will increase the sticky power of the United States significantly. First this thesis will explore the more widely used concepts of power in international relations, such as soft power and hard power. After establishing why these widely known concepts are not well fit for explaining the U.S. power element to the Trans-Pacific Partnership, this thesis will explain how the TPP affects the sticky power of the United States
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In order to properly outline the scale of the economic consequences of the TPP this thesis will rely in both quantitative and qualitative data. The quantitative data will consist of sources from the Congressional Research Service and working papers from Peter A. Petri and Michael G. Plummer. The models used in chapter six are Computable General Equilibrium (GCE) models used by Petri and Plummer (Petri & Plummer, 2016 p. 14). The role of the quantitative data is to show importance of the TPP for future economic growth, particularly for the TPP members in the East Asia region. The largest and most important Asian TPP trading partner of the United States is Japan. Japan is one of the main economic beneficiaries of the TPP and is a key player within the TPP. This thesis will use Japan’s participation in the TPP as a such case study to show that even large economies such as Japan are susceptible for American sticky power. Using the triangulation of qualitative and quantitative data is meant to strengthen the final argument of the thesis that the participation of the United States in the TPP will strengthen its sticky power in the Asia Pacific.
The TPP: neither soft nor hard power
According to Nye America’s soft power is primarily derived from three resources: culture, political values and foreign policy. While none of these sources are very clearly a source of American power, Nye argues that they do contribute to the legitimacy of US hegemonic position. American high culture and popular culture are consumed in every corner of the world spreading with it the American values and ideology on which Americas cultural identity is based. Much of the expansion of American soft power is done by trade. American brands and advertising play an important part in spreading American products and culture. Nye points out that the post war economic recovery fueled by the Marshall Plan also spread American soft power and attractiveness across Western Europe. The Marshall plan and Western Europe’s economic recovery strengthened American influence and attractiveness in Europe and helped expand democratization in many European societies that didn’t have a democratic history (Nye, 2004 p. 53). American values of liberty and modernity, the free market economy and the society of mass-consumption didn’t just generate attractiveness in the areas within the American sphere of influence, they also contributed to the resistance on the other side of the Iron Curtain. During the final years of the Cold War Hollywood profits exploded in foreign market and a year after the fall of the Soviet Union American movies dominated the entire film market in the Eastern Bloc (Wagnleitner, 1999). After the Second World War the Soviet Union had some soft power on its own based on its victory over Nazi Germany and communist ideology. Much of the soft power of the Soviet Union diminished due to repression by the Soviet regime and poor economic
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Nye devotes a lot of attention to the distinctions and characteristics of soft power but takes less time to analyze his two sources of hard power. Nye argues that the two main resources of hard power are military might and economic strength. America’s military capabilities are an obvious source of hard power. The “pivot to Asia” and its retrenchment of US military commitments towards the East Asia region is a practice of a display of America’s hard power, but not all military resources are necessarily linked to hard power. Nye argues that a well-run military can also be a source of admiration rather than coercion (Nye, 2006). President Obama stated that the goal of the pivot is to strengthen ties and to prove the commitment of creating stability in the Asia Pacific (Office of Press Secretary, 2012). Military-to-military cooperation and joint military training operations that are part of the pivot to Asia can potentially generate soft power in the form of attractiveness and trust (Nye, 2006). Nye’s primary example of economic hard power is the use of economic sanctions. As the world largest economy, the United States does indeed have considerable economic hard power. There are, however, many other ways that the United States exerts economic influence that are much less about coercion and much more about attraction and cooperation.
Walter Mead makes the distinction between Sharp power and sticky power within the realm of hard power. Sharp power concerns military capabilities and coercion and sticky power is the economic influence. Economic institutions and policies set up by the United States attract other states towards cooperation with the United States. American leadership over global economic institutions increases the influence of the United States and traps other states into a path dependency on which there is no feasible alternative as economic partner (Mead, 2009). According to Mead sticky power is a form of power on its own that neither belongs to hard power or soft power. Nye agrees with Mead that sticky power seduces as much as it compels, but argues that it can be difficult to determine which part of the economic relationship can be attributed to the hard power coercion and which part of the economic relationship has the allure of soft power (Nye, 2006). It is the combination of American soft power, hard power and sticky power that makes the US hegemony desirable and durable. The sticky power of the United States is based on the foundations of a US led international monetary system and the principles of free trade. The Bretton Woods agreements created the IMF, World Bank and the General Agreement on Tariffs and Trade (later incorporated in the World Trade Organization) (Mead, 2009). These global economic financial institutions promoted the principles of free trade. The Bretton Woods agreement also made the US dollar the primary global currency which would be linked to gold. While the Bretton Woods system collapsed its international institutions survived and the US dollar remained the most important free-floating global currency (Economist, 2015). The U.S. Federal Reserve also
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serves as an important foundation for U.S. sticky power. Since the dollar is considered the most trusted global currency, almost every economy is affected by the decisions of the U.S. Federal Reserve as their trade flows and debts are in dollars. While America’s dominance in global trade has declined its control over the world’s monetary systems has increased. The market share of Wall Street investment banks has increased and the banks from the emerging Asian economies have so far been unable to challenge Wall Street (Economist, 2015).
The United States has promoted free trade across the world and it convinced many developing countries to open up their markets. Meanwhile the United States itself would also open its markets to exports from Europe, Japan and later China (Mead, 2009). The United States became the most important market in the world and many economies rely heavily on their export to the US market. So the US trade deficit became a source of sticky power rather than a weakness for US economic dominance. A collapse of the US economy would create an economic depression in China and Japan as a large part of their economy is devoted to exports to the US market (Mead, 2009). Many countries that have a trade surplus with the United States also invest much of their acquired capital in US government bonds and private bonds. Both China and Japan have a significant trade surplus with the United States and are also the largest foreign holders of US national debt. China (including Honk Kong) currently holds about 7% of US government debt and Japan about 6% (CNN, 2016). By expanding their portfolios in US government bonds China and Japan have increased their economic interdependence with the United States even further, making their economies more strongly glued to the sticky power of the economy of the United States (Mead, 2005 p. 27). This open market also means that many US producers and workers face strong competition and many foreign producers have pushed US producers out of its own market. This trend has contributed to resentment towards free trade and globalization, which also made the Trans-Pacific Partnership into a controversial political subject. Despite those drawbacks it is clear that economic power does not just belong to the realm of hard power and is a source of power on its own. The sticky power of the US economic system makes other countries dependent on the United States and the other way around. China’s rise is often considered the greatest rival to the global hegemony of the United States. But even China has become part of the US led global economic system and doesn’t really have the means to detach itself from it without ruining its economy (Mead, 2009).
The Trans Pacific Partnership has evolved from previous smaller free trade initiatives, of which the Pacific Four was the very first free trade agreement to a comprehensive US led free trade agreement between twelve countries. The Pacific Four was a multilateral free trade agreement between New Zealand, Singapore, Chile and later Brunei. The negotiations between the countries started during the
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2002 meeting of the Asia-Pacific Economic Cooperation. In 2005 the Pacific Four countries agreed to reduce their trade tariffs by 90% and eventually remove trade tariffs altogether by 2015 (TPSEP, 2005). In February 2008, the Bush administration announced that it would join the negotiations among Singapore, Chile, New Zealand and Brunei on the topics of financial services and investment. The Bush administration stated that they are looking for increase their engagement towards countries in the Pacific that are committed to negotiate high-standard trade agreements. While at the time the size of the Pacific-Four agreement was still limited the Bush administration already saw the Pacific Four negotiations as an initiative that could provide the framework for a larger Trade agreement in the Asia-Pacific region (USTR, 2008).
Australia, Vietnam and Peru announced their participation in the negotiations in November 2008, Malaysia joined the negotiations 2 years later. During the APEC meeting of 2011 the participating countries officially announced that the goal of the negotiations is to create a high-standard trade agreement that is to be called the Trans-Pacific Partnership. South Korea declined the offer by the United States to join the TPP negotiations in 2010, but in 2015 South Korea’s position changed and South Korean president Park Geun-hye announced that South Korea was reconsidering joining the TPP. One of the reasons South Korea’s hesitation to join the TPP was because it was involved in many different FTA’s over a short period of time, including a FTA with the European Union and bilateral trade agreement with the U.S. (KORUS). South Korea is also part of the RCEP negotiations led by China (The Diplomat, 2015). In 2012 Canada and Mexico both accepted the invitation the join the TPP negotiations. The final participant in the TPP was Japan in 2013.
The Trans-Pacific Partnership would reduce trade tariffs between its twelve member states and also set many common regulatory standards. One of the primary and most straightforward objectives of the TPP is to increase the volume of trade between its members (Petri, 2016 p. 7). According to Mead's theory the increased volume of trade as a result of the removal of trade barriers would also increase America's sticky power and the member states would become entangled in web of US led economic institutions. But this doesn't necessarily mean that the Trans-Pacific Partnership is just about sticky power. It is often argued that the Trans-Pacific partnership is the economic aspect of the “pivot to Asia” retrenchment. This means that the Trans-Pacific partnership is a non-hard power initiative that is complementary to the pivot to Asia initiative. A 2009 survey by the CSIS finds that stronger diplomatic and economic ties between Asian states and the United States has a high degree of attractiveness among the elites of various East Asian states. Respondents in India, Japan, South Korea, Indonesia, Singapore, Taiwan and Australia were all over 80% in favor of the rebalance of the United States towards East Asia. China (23% approval) and Thailand (54%) approval were the only
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exceptions where the respondents were not optimistic about the pivot to Asia, primarily because it would be to confrontational towards China (Green, 2014). Most of the elite respondents did support the policy of the US rebalance but were concerned about a lack of US resources to put the pivot to Asia into practice. The survey finds that there is a very large support for the Trans-Pacific Partnership among the elites in many East Asian countries, especially Japan. Even the respondents in East Asian countries that are not part of the TPP negotiations such as South Korea and Taiwan consider it an important initiative for the future of the region (Green, 2014).
The Pivot to Asia and US hard power
During the first decade of the 21st century much of the foreign policy of the United States was
concentrated on the Middle East. The Iraq war in 2003 and America’s invasion of Afghanistan in 2001 had become a major drain on the economic, military and diplomatic resources of the United States (Lubold, 2017). Meanwhile China had been experiencing decades of consistent double digit growth in its GDP. While the US foreign policy during the Bush administration was increasingly focused towards the Middle East the role of China in the Asia-Pacific region was growing (Swaine, 2011 p. 52). While some parts of the W. Bush establishment were aware and concerned about a rising competition with China, the events of the 9/11 terror attacks were decisive in foreign policy orientation of the Bush administration (Swaine, 2011 p. 116) Many countries in the East Asia region are concerned about the increasing economic dominance of China and were hoping for a stronger US presence in the Asia-Pacific region . It was only in 2008 that the Bush administration started to recognize the importance of US presence in the Asia Pacific and appointed an official ambassador to the ASEAN (Swaine, 2011 p. 117). The Obama administration sought to further address these concerns by announcing a retrenchment of US military, diplomatic and economic towards the Asia-Pacific as many US military operations in the Middle East were ending (Campbell, 2013 p. 3). An important reason for this decision was that the Asia-Pacific region had experienced strong economic growth and many East-Asian countries had become important trading partners for both the United States and China.
Barack Obama wasn’t known as a supporter of free trade agreements in his political career before his presidency. During the presidential campaign of 2008 Obama campaigned against the free trade agreements that were in progress, although he had made no comment on the early TPP talks initiated
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by the Bush administration. During the initial years of his presidency Obama had to focus on dealing with the fallout of the 2008 financial crisis. While the Obama administration didn’t pick up the efforts by the previous administration to expand US free trade treaties president Obama openly spoke out against protectionism during G-20 summits (Greene, 2017 p. 518). It is only after a year into his presidency that Obama started to continue to work on the progress made on the TPP and other FTA’s in the East Asia region. During his state of the Union address President Obama pledged to double the U.S. to the Asia Pacific over the next 5 years. The potential role of the TPP in establishing this objective became much more apparent when Japanese Prime minister Shinzo Abe expressed interest for his country to join the TPP. With the participation of Japan, the scale and potential of the TPP became much greater (The Economist, 2013).
In 2011 secretary of state Hillary Clinton described the Pacific oriented foreign policy of the Obama administration as “the pivot to Asia” (Clinton, 2011). Later in the year of 2011 the Obama administration started using the term “rebalance” towards the Asia-Pacific, implying that US foreign policy would shift its focus on the Middle East towards East Asia and South-East Asia. In November president Obama went on a 9-day trip to various countries in the Asia specific including an APEC (Asia Pacific Economic Cooperation) meeting in Hawaii. While visiting the Australian parliament Obama stated that the goal of the US foreign policy shift is “to ensure that the United States will play a larger and long term role in shaping the region and its future” (Swaine, 2012). Unlike previous secretaries of state, Hillary Clinton attended every ASEAN Regional forum meeting when she held that position (Green, 2017 p. 521). The central pillars of the Pivot to Asia would be to strengthen existing bilateral alliance and security cooperation within the region, improve relations with emerging regional power centers such as China, India and Indonesia and stronger participation in the development of regional multilateral institutions in the realm of security, diplomacy and economy.
Although the official message of the “pivot to Asia” also sought to deepen diplomatic and economic relations with China, it is often perceived as an attempt to reduce Chinese economic and diplomatic influence over the Asia-Pacific, especially among China’s elite (Green, 2014 p. 9). A survey from the CSIS shows that outside of China over 80% of the foreign policy experts in Asia supported the attempted rebalance of the Obama administration towards Asia. However, many of those experts were doubtful about the ability of Obama to follow through on his promises of stronger American military and economic presence in the Asia-Pacific region (Green, 2014 p. 12). This doubt was further strengthened by military budget cuts and the shrinking size of the US navy (Green, 2017 p. 529). In addition to the CSIS survey publications by Chinese foreign policy experts also tend to support the idea that the US pivot to Asia seeks to counterbalance China and challenge the growing influence of
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China in the region (Green, 2017 p. 520). If the United States seeks to challenge the growing influence of regional influence of China it could eventually generate a zero-sum game. In this zero-sum game both China and the United States compete for influence and presence in the Pacific region in order to increase the benefits of trade in this dynamic economic region (Swaine, 2012 p. 55). The pivot to Asia has received criticism from both Chinese and US scholars that because it would be to confrontational towards China (Swaine, 2012). Another critical note towards the pivot is that it is not assertive enough towards China. Aaron Friedberg argues that the attempt by the Obama administration to improve ties with China would strengthen the position of China’s hardliners in the domestic power struggle at the cost of China’s liberal reformers (Friedberg, 2012). Friedberg argues that despite strong economic relations the ideological differences between the Chinese leadership and the United States will prevent any diplomatic achievements beyond limited cooperation. The ultimate goal of Beijing is to make China a regional hegemon by expanding its economic influence over smaller countries in the Pacific (Friedberg, 2012 p. 50). The Chinese strategy of “winning without fighting” seeks to passively expand China’s sphere of influence and steadily erode that of the United States. According to Friedberg the United States would be able to accept China as the regional hegemon if it China would embrace democratic principles and elections, just as Great Britain was willing to embrace the United States as the new hegemonic power in the Western hemisphere (Friedberg, 2012, p. 49). Whereas a democratic transition within China would not necessarily diminish China’s ambitions in becoming the regional hegemon, it would greatly improve the potential of regional cooperation between China and the United States, as well as cooperation with other powerful democracies within the region such as Japan and China. A democratic transition within China would also increase the probability of reaching an agreement between China and Taiwan (Friedberg, 2012, p. 51).
The issue of Taiwan is not explicitly addressed in the “pivot to Asia” of the Obama administration, but it remains an important silent part of the pacific strategy of the United States. In addition to seeking to expand and strengthen US security and economic interests in the Pacific region, it also provides a framework in which the United States can exports its ideology of political liberalism and democracy. One of the reasons why the United States doesn't release its support for the Taiwanese cause completely is because of the political transition Taiwan has made toward a liberal democracy. Despite the US not officially recognizing Taiwan's independence, the relationship between Taiwan and the US remains warm because of their ideological affinity, as was clear when Obama stated that
“the relationship between the people of the United States and the people of Taiwan is based on common interests and a shared commitment to freedom and democracy” (Chow, 2014 p. 41).
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The sticky power of the TPP
The TPP has been hailed as a “21st century trade agreement” because, besides removing tariffs, the
TPP also establishes an extensive regulatory framework. Previous “20th century” trade agreements
primarily followed the guidelines of the World Trade Organization without extending much beyond the WTO baseline (Lim, 2012 p. 7). The vast majority of past preferential trade agreements were bilateral and focused on final goods in the production chain. The PTA’s were effective at reducing tariffs but often did not address other mechanisms that would that protected markets such as quota’s, licensing and subsidies (Lim, 2012 p. 8). Under “20th century PTA’s” the regulations of the Rules of
Origin were often very complicated, strongly limiting the amount of products and industries that could benefit from the trade agreement. Most of the bilateral PTA or FTA do not cover complete supply change thus making it harder to abide by the Rules of Origin. In some cases, FTA’s even encourage the use of more costly products of the FTA partner rather than the more efficient and competitive products by non-partners (Petri, 2016 p. 8). Within the Asia Pacific many different PTA’s have been conducted, most of them bilateral and poorly synchronized with each other. This vast amount of poorly tuned PTA’s and the creation of different regional economic institutions created a regulatory framework for trade that is regarded by some scholars as a “noodle bowl” (Ravenhill, 2009 p. 216). majority of the WTO baseline concerns reducing tariffs in order to promote trade. The PTA’s that have been influenced by the WTO standards often only have no or few provisions dedicated to promoting and protecting Foreign Direct Investment (FDI). The rise of the digital service sector and the internet only started at the final years of the 20th century. Unlike the TPP the “20th century trade
agreements” do not address intellectual property issues in the digital market. The agricultural sector is often exempted from WTO regulations or tariffs cuts in PTA’s (Hendrix, 2016 p.41). The TPP provides a wide variety of exemptions for agricultural products. However, the TPP still involves sufficient cuts in tariffs across the agricultural sectors. When the TPP is ratified it will initially reduce 30% of the Japanese and Vietnamese agricultural tariff lines (Hendrix, 2016 p. 49). Other TPP countries such as Australia, Malaysia and New Zealand will remove almost all agricultural tariffs right away. Because agricultural reform is politically sensitive for some countries there are provisions within the TPP that allow those countries to phase out trade barriers more slowly (Hendrix, 2016 p. 41).
Despite the rhetoric about the TPP being a 21st century trade agreement, trade liberalization and
cutting tariffs remain the most traditional and most important component of the trade agreement. Upon the implementation of the TPP almost 75% of nonzero tariffs will be removed. Ultimately TPP members will remove all existing tariffs and liberalize 99% of their trade goods, including strongly
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protected agricultural products of Japan and Vietnam. Most of the exceptions within the TPP will be removed 16 years after the implementation (Petri, 2016 p. 16). The estimated economic benefits of the tariff cuts of the TPP will be significant. The economic gains of the TPP will become more substantial as the agreement ages and exemptions from tariff cuts disappear. By the estimates of Peter Petri shown in table 1 the increased annual real income effect generated by the TPP equals 291 billion USD in 2025 among the TPP nations. By 2030 the extra income among the TPP nations grows to 465 billion USD every year. The estimated real income gain by the TPP for the United States is 88 billion USD in 2025 and 131 billion USD in 2030. These income gains would account for a 0.4% growth of GDP in 2025 and a 0.5% growth in GDP in 2030 for the United States. The United States and Japan will enjoy the largest amount of absolute income growth by the TPP. The TPP also provides significant GDP growth potential for the developing economies such as Malaysia and Vietnam. In 2030 TPP will increase Vietnam’s annual GDP growth by 8.1% and Malaysia’s GDP growth by 7.6% (Petri, 2016 p. 14). The TPP will have a significant negative impact on economic growth of Thailand, China and India. Cutting tariffs and trade barriers will increase the amount of trade between the TPP members, some of the existing trade with non-members such as China and Thailand will likely be diverted towards their more favorable TPP competitors such as Vietnam and Malaysia (Petri, 2016 p. 15).
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(Petri, 2016 p.14)
During the past TPP negotiations US negotiators pushed hard for stronger reforms of State-Owned Enterprises. Many Asian economies, including some that participate in the TPP are dominated by State-Owned Enterprises. Initially SOEs mostly operated in the national economy but many SOEs have started investing and trading internationally. These SOE’s are competing with private firms and at the same time receiving preferential treatment and support from their national governments. US negotiators have been particularly keen on reducing this unfair advantage as it prevents many private
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US firms from competing in the lucrative Asia-Pacific market. Chapter 17 of the TPP is entirely devoted the reducing the role of State-Owned Enterprises in the economies (Cato, 2016 p. 54). The TPP only affects State-Owned Enterprises that are involved in commercial activities and exclude State-Owned Enterprises that serve public goods such as education, healthcare, pension funds and central banks (NZFAT, 2016)(Cato, 2016, p. 54). The core of the TPP chapter on SOE’s involve discrimination policies against goods from another TPP party. The TPP also prevents granting non-commercial assistance to SOE’s that damages the interests of other TPP parties. This clause mainly involves preventing governments from granting favorable loan guarantees or financial assistance to SOE’s in order to improve the SOE’s competitive position (NZFAT, 2016). The TPP chapter on SOE’s doesn’t attempt to liberalize SOE’s or prevent government ownership but is primarily focused on reducing the market distortions caused by corporations owned by the government (Cato, 2016 p. 55). While the TPP formally doesn’t liberalize SOE’s it does reduce the capabilities of TPP partners to create unfair advantages by giving preferential treatment to national industries. The TPP provision on SOE’s could potentially strengthen the economic influence of the United States in the Asia-Pacific as American corporations will face less unfair competition as the result of these obligations in the TPP.
Table 2 shows the long term effects of the TPP on FDI and exports. Of all the TPP parties the United States has the largest amount gains in terms of absolute increase in exports. The estimated 357 billion USD in export gains will amount to a 9.1% increase of exports compared to the baseline (without TPP). The other TPP parties also show a significant increase in their exports compared to the baseline model. The TPP parties of the Asian Pacific see the largest amount of percentage growth of their exports. According to the estimates of export gains shown in Table 2 we could expect a significant increase of trade between the TPP parties. The graph shows that the United States is by far the largest investor and consumer (Petri, 2016 p. 16). In the long term this means that a great part of the economic growth of the TPP economies will caused by trade with the United States. The economic benefits of the TPP are considerable and can become influential in changing future trade between the United States and the Asia Pacific. If the TPP were to be ratified, the Asian Pacific parties of the TPP will become much more economically dependent on their trade with the United States than they are in the baseline model of Table 2. Stronger economic interdependence and a likely rise in the trade deficit of the United States will increase the sticky power of the United States has in the Asia-Pacific.
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(Petri, 2016 p.16)
Most of the arguments made by president Obama for his support of the TPP were focused on the economic benefits of the United States. Another important reason for his support of the TPP was that it would allow the United States to write the rules on international trade. In Obama’s final state of the Union Address he stated:
“That’s how we forged a Trans-Pacific Partnership to open markets, and protect workers and the environment, and advance American leadership in Asia. It cuts 18,000 taxes on products made in America, which will then support more good jobs here in America. With TPP, China does not set the rules in that region; we do. You want to show our strength in this new century? Approve this agreement. Give us the tools to enforce it. It's the right thing to do.”
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By using the method of text analysis Allee and Lugg compared the known content of the TPP to the rhetoric used in other trade agreements. In the comparison it is clear that the rhetoric used in the TPP is disproportionally similar to other US trade agreements, suggesting that the United States has had much influence in establishing the content of the TPP and its regulations. Allee and Lugg found that nearly 45% of the content of previous US trade agreements can be found exactly in the TPP. Australia, Canada and Peru see only 30% of the content of their previous trade agreements in the TPP and most other countries only have a 20% similarity previous trade agreements (Allee & Lugg, 2016 p. 4). The influence of previous US trade agreements are most strongly visible in the TPP chapters on investment, finance, general services, telecom and safeguards. These chapters are relatively poorly established within the existing regulatory infrastructure of the WTO, which would increase the impact of those chapters (Allee & Lugg, 2016 p. 6). The largest similarity between previous US trade agreements and the TPP can be found in the TPP chapter on investment, where 80% of the content is copied from previous US agreements (Allee & Lugg, 2016 p. 7). These data show that the United States has had a leading role in the rule writing of the TPP and confirms the intention of the Obama administration to “write the rules on trade.”
The increasing interests and the promotion of the TPP by the Obama administration must also be understood in the larger context of trade agreements within the Asia-Pacific. The increasing economic growth and economic interdependence of countries in the Pacific led to the creation of the Asia-Pacific Economic Cooperation (Lim, 2012 p. 299). The APEC is an international forum that aims to promote trade within the Asia-Pacific region. By 1998 the number of states participation in the APEC forum had grown to 21, including the United States, Japan, Russia and China. The most ambitious objective of the APEC is the establishment of a Free Trade Area of the Asia Pacific (FTAAP). However, it’s unlikely that the APEC will be able to achieve the creation of the FTAAP. The large scale and the diverse membership will prevent the APEC from forming any trade agreement with far reaching commitments from its members. Because of the inability by the APEC to create a APEC wide FTA at once some APEC members have been looking to create FTA of a smaller scale with likeminded countries within the APEC framework. The growing interest of APEC members in the TPP raises the question whether the TPP could serve as the model for the larger FTAAP, like the smaller P4 served as a base for the more ambitious TPP. The APEC officially supports multilateral trade agreements such as the TPP and hoped that they can become the framework for a larger regional trade agreement. Unlike the TPP, the goals set and promises made within the APEC are not binding. The APEC is unable to enable to enforce rules and merely serves as a forum for communication between its members. Whereas the APEC and the TPP were created by different intentions and serve different purposes the organizations, they share many goals. The APEC meetings have contributed to
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an environment in which leaders of the Asia-Pacific are aware of the benefits of multilateral trade agreements. On the other hand, the TPP could serve as a stepping stone to achieve the goal of a larger multilateral trade agreement within the Asia-Pacific. Unlike the APEC the signatories of the TPP are bound to comply with the standards and rules of the TPP (Lim, 2012 p. 243).
TPP country Japan and the effects of US sticky power
Japan is the second largest economy in the TPP and already an important trading partner of the United States. It is also one of the countries that has a lot to gain in terms of GDP growth from the TPP tariff reductions. This thesis will use Japan as an example of how the TPP could increase the sticky power of the United States in the Asia Pacific.
Agriculture
The decision to join the TPP by Japanese prime minister Abe was largely influenced by Abe’s election promise of reforming and reviving the stagnating economy of Japan. In order to win support from rural voters Abe promised to oppose the provisions of the TPP that would reduce tariffs on many agricultural goods. Japan has been campaigning very hard in order to create exemptions within the TPP, particularly for agricultural products. Japan’s agricultural sector is highly dependent on its government subsidies and very vulnerable to cheaper foreign competition (Mulgan, 2013 p. 3). The majority of the Japanese public are in favor of Japan’s participation in the TPP, but the public support to maintain protectionist policies on Japanese agriculture is even higher. Despite the pandering to the rural voters and a powerful agriculture lobby, Prime Minister Abe has been pushing a wide variety of agriculture reforms (Mulgan, 2013 p. 3). Most of the Japanese agriculture consists of inefficient small-scale farms with the average size of 1,5 hectares (excluding livestock). The small-scale farms are maintained due to complex regulations that make it difficult for farmers to sell or buy land, which is becoming increasingly problematic as the average Japanese farmer is 70 years old. Cheaper foreign producers of agricultural products face very high tariffs, such as a 777,7% import tariff on rice, 360% tariffs on butter and a 328% on sugar (Economist, 2013). Abe has been able to negotiate a wide variety of protectionist exemptions for the Japanese agricultural industry, but those exemptions will not prevent Japan completely from having to open up its economy for foreign agriculture products. The reforms in the agricultural sector have been a relatively successful part of Abe’s promised plans to strengthen the Japanese economy (FT, 2015). Countries such as Australia, New Zealand and the United States have large agricultural industries that will seek to expand their markets towards Japan. Therefore, Japan has to make certain trade-offs between protecting its agricultural industries and
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opening up its markets for foreign competition. Japan will also increase its subsidies for farmers in order to compensate them for the potential market share because of the TPP (Japan Times, 2016). While high tariffs and protectionism are good for Japanese farmers and vested interests of larger agriculture industries, they are a heavy burden for the Japanese consumer and taxpayer. The Producer Support Estimate indicates how much money is transferred from the taxpayer to the farmers as a result of protectionism on agriculture. Japan has a staggering PSE of 78%, compared to the 15% for the EU and 6% for the US (Kazuhito, 2015). Japan has agreed to major TPP tariffs cuts on imports of beef, pork, dairy products and but it has done only modest concessions on the tariffs on rice. Because US rice producers are efficient and globally competitive, they do not have the economic, social and political values that rice production has in Japan. Therefore Japan’s reluctance to liberalize its rice market will primarily be a loss of opportunities for Vietnam, which also has a large rice export industry. The liberalization of Japanese agriculture tariffs is the most significant in agriculture products of which the US has a large export industry, such as beef, poultry, dairy and other livestock (Hendrix, 2016 p. 48).
Car Industry
The TPP will likely provide many challenges for the Japanese agricultural sector but also large opportunities for its other sectors. A large part of the economy of Japan is dedicated to its exports for the US market. A major powerhouse in Japanese manufacturing is the auto industry. Japanese car manufacturers both produce and sell cars in almost all the TPP countries. Deeper economic integration and a reduction of tariffs will have likely have a massive impact on the car sales. Like other industries and car manufacturers, the TPP will reduce its domestic market share, while at the same time vastly increasing its potential output in the other TPP countries. Japanese car sale at home will likely face a 90.000 reduction in sales, but could experience a 1.7 million increase in sales among the other TPP countries (WEforum, 2015). The amount of potential sales growth for Japanese car manufacturers in the TPP markets differs greatly per country. The TPP will only have a limited impact on Japanese car sales in Mexico as Mexico and Japan already have many bilateral trade agreements and low trade barriers. The TPP will be the most significant for markets that the Japanese car industry has very little access to. Currently Vietnam has a 70% tariff on foreign car imports and Malaysia has a tariff of 30% (WEforum, 2015). The TPP will also create a more attractive climate for foreign direct investments and expansions of manufacturing overseas, which will influence the market beyond that of the TPP countries. If Japanese car manufacturers can produce car parts more efficiently in Canada because of the TPP, it will also increase the competitiveness of Japanese cars produced in Canada in markets outside of the TPP (WEforum, 2015). The rule of origin of the TPP requires just 45% of the cars to be produced within the TPP zone in order to be eligible for the TPP benefits. This is relatively low
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when compared to many other multilateral trade agreements such as NAFTA’s 62,5%. This low rule of origin standard is particularly useful for Japanese car manufacturers as a large part of their existing production chain lies in Asian countries that are not part of the TPP such as China (The Diplomat, 2015). In the long term, the TPP could provide major boosts for Japanese exports and economic growth. In the estimates of table 1 by Peter Petri Japans annual GDP could grow by 125 billion USD in 2030, increasing Japans annual GDP growth by 2.5%. One of the biggest winners from the TPP is Japanese exports. Table 2 shows that the TPP could increase Japan’s exports by 23.2% in 2030 (Petri, 2016 p.16).
Political Changes
Another important indicator of Japan’s commitment to the TPP is the establishment of new government institutions dedicated to the domestic implementation of TPP reforms as well as international negotiations (Mulgan, 2013 p.5). These new institutions will be able to coordinate the TPP reforms between the government and the affected parties and is less influenced by the usual pressure groups and lobbies that are present in Japans decision making process. The creation of dedicated government institutions shows is unusual for Japan’s FTA’s and shows that the Abe administration understands changing institutional structures are essential for combating vested interests and reforming the Japanese economy (Mulgan, 2013 p. 5). The decision of Japan to join the TPP negotiations shows that the Abe administration is willing to challenge the powerful agriculture lobby and dedicated to reforming the inefficient agricultural industry. The participation of Japan in the TPP is also an opportunity for innovative Japanese agricultural business to thrive in other TPP markets (Mulgan, 2013 p.6).
Japan’s participation in the TPP also has a geopolitical aspect. The rivalry between China and Japan over the Senkaku Islands in the East China Sea draws most of the headlines and raises many short term tensions between the two countries. On the other hand, China and Japan are also involved in a deeper competition over economic influence in East Asia. The East Asia region has the strongest economic growth in the world and requires many infrastructure investments (The Diplomat, 2017)(Firzli, 2015 p. 9). An important part of Japan’s commitment in the economic development of the Asia region is done through the Asia Development Bank, of which is it the largest shareholder. China has set up its own development bank, the Asian Infrastructure Investment Bank, which Japan and the United States have refused to join. Currently the Asian Development Bank has a much larger capital but China has promised to raise the capital of the AIIB and quickly expand its operations. The AIIB and the ADB are not necessarily opponents. Most of the investments by the ADB are done in China and China is also a member of the ADB, although it has much less influence than the ADB.
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The initiative by China to set up its own intergovernmental financial institutions shows that China is challenging existing financial institutions dominated by the West (Green, 2017 p. 425). Japan and China are already competing for massive infrastructure projects in the Asia-Pacific. In Indonesia, the Japanese Mitsui & Co. is involved in a major expansion for the main port of Jakarta. Chinese SOE won the bid for a $5.5 billion high-speed railway project between Jakarta and Bandung over a proposal from the Japan International Cooperation Agency (Jakarta Post, 2015). Japan and China engaged in extensive lobbying and proposal revisions in order to win the bid. As the Asia Pacific region will see substantial economic growth competition between Japan and China for infrastructure contracts will likely continue. The announcement of a series of massive infrastructure projects in Asia as part of China’s One Belt One Road initiative will heat up the competition with Japan even more. With the lower restrictions on investments and absence of tariffs of the TPP Japan would have a stronger position as competitor to China when investing in another TPP country. The TPP will make it easier and more attractive for Japanese companies to invest in other TPP economies (Japan Times, 2017).
The TPP will bring large changes to the markets of its member states. Stronger economic integration will make it easier for industries to invest in other markets within the TPP. For example, the Japans car industry will likely see a large boost in sales in the United States and expand its car factories in the United States (WEforum, 2015). On the other hand, the Japanese industries will face more competition in their domestic market and lose their domestic market shares. The implications of the TPP for the Japanese agriculture industry have been a particular point of debate, fueled by the resistance of a powerful agriculture lobby. Despite the necessary costs of reforms and negative impact that the TPP could have on Japan’s small-scale farmers the Japan’s agriculture industry is only 1/13th
the size of the Japanese car industry, who strongly support the TPP (Kazuhito, 2015 p.21). On balance, however the TPP will facilitate a system in which industries of all parties can thrive. Stronger market integration also means that the TPP countries will become more economically interdependent. The United States is by far the largest and most attractive consumer market for Japanese industries. A reduction of tariffs as a result of the TPP will ensure that Japanese economic growth and stability becomes tied to that of the United States. Joseph Nye argues that economic pressure is a form of hard power. In the case of the TPP and the relationship between Japan and the United States the TPP generates economic attractiveness and soft power rather than economic pressure. The TPP will continue to attract Japanese investments and businesses to economic orbit of the United States (Green, 2016 p.22). As deeper economic integration and interdependence continues the interest of Japan and that of the United States will have a stronger alignment of interests. The economic relationship between Japan and the United States is a clear case in which the TPP could become a tool of American
