The Comparison of Arguments Over Japan's Engagement With the Trans-Pacific Partnership
The Trans-Pacific Partnership (TPP) is a
large scale framework of Economic Partnership Agreement for a group of
countries located along the Pacific rim, and the main component of this trial
for economic cooperation is to establish a mobile market for jobs, goods, and
services in participant countries; in other words, it is simply a Free Trade
Agreement for everything tradable. Although the TPP sounds beneficial for whole
industries in a country to promote exports and stimulate the economic growth,
an argument over the engagement with the TPP in Japan reached at a deadlock,
for this economic partnership works differently to each sector of Japanese industries
and causes conflicts of interests between them. For a typical example, the
agricultural cooperative association in Japan strongly oppose to the
participation to the TPP while Japan Business Federation, which covers almost
all sectors of business except agriculture, appeals to the government to
proceed the negotiation on the TPP. The former says the liberalization of
trades of farm products will increase imports of cheap agricultural commodities
and devastate domestic farmers’ business whereas the latter insists the
competition with overseas farmers will enhance farming productivity and
ultimately benefit Japan’s agricultural industry (“What’s the TPP”, par.2). In this essay,
these different opinions over the effect of the TPP are compared by introducing
two points of view: efficiency and equity.
Before discussing the case of Japan’s
engagement with the TPP, let us confirm the reason why trading is basically
good for a country’s economy. According to the theory of comparative advantage
(Ricardo, p.28), countries with different relative efficiency in producing
certain goods can gain by trading with each other. In this theory, if a country
specializes in producing certain goods the cost of which is relatively lower
than other countries (here let this described as ‘comparative advantage’), and
barters such goods for those of no comparative advantage with other countries,
the country can minimize the cost to gain the goods without comparative
advantage. For example, if Japan and the United States produce two goods at
different labor cost shown in Fig.1, and these goods are traded at equal price,
Japan can obtain wheat at a price of 100 by trading, rather than 150 by
producing, and the United States can obtain car at a price of 20 by trading,
rather than 90 by producing. Consequently, the international division of labor
between Japan and the United States is more efficient than the individual
production of both goods in each countries. In short, trading brings about
efficiency in a country’s economy.
Figure 1. Unit labor costs
Wheat |
Car |
|
The U.S. |
20
|
90
|
Japan |
150
|
100
|
The TPP opponents, most of which are from
agricultural sector, refuses the agreement for unfairness brought by a
following prediction. As the theory of comparative advantage is applied to
Japan’s industries, the manufacturing industry has comparative advantage, but
the agricultural industry does not have; accordingly, the industry scale of
agriculture will shrink under the trade liberalized by the TPP while the
manufacturing industry will profit from expanded exports. Actually, comparative
advantage in Japan’s manufacturing industry is suggested by strong automobile
production (Kamery, p.116-117). In contrast, according to a statistic survey
(Fig.2), labor productivity of agriculture in Japan is relatively lower than
those of other countries, which means no comparative advantage in Japan’s
agriculture.
Figure 2. Labor productivity index
Source: Honma and Hayami, p.122
However, opponents need to cope with a
counter argument: nonattendance to the TPP is to give up a chance to enhance
efficiency in Japan’s economy, also supported by the theory of comparative
advantage. Opponents say an effective alternatives to achieve economic
efficiency is to operate a development program for Japan’s agricultural sector
to improve its productivity although running the program causes a budget loss
in the government finance.
On the other hand, from a point of view of
the TPP advocators, their argument for the TPP is based on coming efficiency in
the Japan’s agricultural economy. According to the statement of Japan Business
Federation (“TPP: Trans-Pacific Partnership”, p.14), participation to the TPP
will promote exports of farm products with trade liberalization and stimulate
investments into the agricultural sector which faces competitions with foreign
farmers; as a result, the TPP will benefit Japan’s agricultural industry.
Within the agricultural industry, there are some farm products with comparative
advantage which is currently exported such as high quality beef, fruits, and
processed foods (“TPP: Trans-Pacific Partnership”, p.14). If Japanese farmers
specialize in the production of these items by correcting labor, capital, and
land, the industrial structure of Japan’s agriculture will gain more
efficiency, as a consequence of the theory of comparative advantage, and be
competitive among foreign agricultural industries.
Nevertheless, the TPP might be unfavorable
for Japanese farmers who grow crops without comparative advantage, compared
with, for example, automobile manufacturers in Japan who are clearly
advantageous in the global market; therefore, it is controversial how equity
among Japan’s industries can be secured. For a solution, increased profits in
advantageous industries can be allocated to farmers whose business are damaged
by the TPP and promote them to transit to other business.
In conclusion, it is revealed that two different
opinions over the TPP are based on different grounds: efficiency and equity. On
the one hand, Japanese farmers’ association is disagree with participation in
the TPP, arguing that such a policy is an unequal treatment of Japanese
farmers. On the other hand, other industries’ opinions, represented by Japan
Business Federation, support the engagement with the TPP because they expect
profit increases not only in their business, but also in the agricultural
sector, ultimately. Both these arguments over the TPP seem to be reasonable;
however, there is no solution which can satisfy each sides’ requests at the
same time because they stand on different argument grounds.
References
Ricardo, D. (1817). On the Principles of Political Economy and Taxation. Retrieved form:
Honma, M. and Hayami, Y. (1986). Structure of
Agricultural Protection in Industrial
Countries.
Journal of International Economics. 20. p.115-129.
Kamery, R. (2004). The U.S. and Japan: Comparative
Advantage Between Automobiles
and Aircraft. Proceedings
of the Academy of Legal, Ethical and Regulatory Issues. 8(2). p.115-120.
“What’s the TPP”.
Japan Agricultural Co-operatives.
Retrieved May 18, 2012.
http://www.zenchu-ja.or.jp/tpp/whatstpp.html
“TPP: Trans-Pacific Partnership”. Japan Business
Federation. Retrieved May 18, 2012.
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