Since several years ago, economists across the globe have become increasingly concerned about what will happen after the end of the Trans-Pacific Partnership (TPP) negotiations. Agreement in these negotiations is merely the beginning. At the same time an agreement is reached, governments of various nations will formulate policy—based on policy research leveraging calculations of economic impacts—so the content of the partnership will function in actual trade and corporate activities. “At the time of the past North American Free Trade Agreement (NAFTA) and General Agreement on Tariffs and Trade (GATT) Uruguay Round, nations made various calculations on economic impacts regarding what might happen after the negotiations, and major disorder occurred across the world. As a result, even if the government comes to a settlement in the TPP and mega-Economic Partnership Agreement (EPA) negotiations, will policy discussions run into trouble because of this disorder? No, that is something that should be avoided.”

With the desire to create a common economic analysis platform and analysis tools that can be utilized all over the world, economic experts in various economies formed the Global EPAs Research Consortium in 2013. Dr. Kenichi Kawasaki, a professor at the National Graduate Institute for Policy Studies (GRIPS), is the co-chair of this organization. His tasks include estimating data on tariffs and non-tariff measures (NTMs), improving and analyzing economic models utilizing such data, and making proposals on the global stage.

At the 121^st GRIPS Forum on April 11 (Monday), Dr. Kawasaki gave a talk on analyzing the economic impacts of the TPP and EPAs. The venue at GRIPS was filled with audience members such as students and researchers, suggesting a high level of interest in the TPP. In the first half of his talk, Dr. Kawasaki spoke in an easy-to-understand way about regional integration structures through EPAs, an outline of the TPP, viewpoints regarding tariff reductions, and other issues. In the second half, he compared his economic model analyses to introduce the economic impacts of EPAs. At the beginning of his lecture, Dr. Kawasaki also referred to the general concept of economic model analysis. In the world of natural sciences, the method used is actually conducting experiments to clarify the truth. However, in policy research and social sciences it is impossible to actually conduct experiments on what will happen to the economy when a given policy is enacted. Instead, the economic model analysis method is used. A specific economic model is supposed from a vast amount of data, and experiments are performed on questions such as what occurs when the consumption tax is increased or the yen appreciates in this model. In the analysis of economic impacts from the TPP and EPAs, as introduced in this speech, he used this method to compare the medium- and long-term economic impacts when trade liberalization is put into practice and when it is not.

Regional integration is a step toward smoother global trade liberalization

Dr. Kawasaki shared an image of the structure of regional integration in the Asia-Pacific region and explained the participating economies and relationships in four groups: Asia-Pacific Economic Cooperation (APEC), Regional Comprehensive Economic Partnership (RCEP), TPP, and Association of Southeast Asian Nations (ASEAN). Next, he stated that the future prospect for regional integration, which is currently limited to just some economies, is development into economic cooperation in all of Asia-Pacific and across the world. Here, he emphasized that we must not forget the possibility of regional initiatives having negative effects on countries not included in the group. Just when Indonesia and other ASEAN countries declared their desire to participate in the TPP group in 2015, today’s regional integration is not the end. Rather, dynamic transformations are taking place.

Economic viewpoint about TPP tariff concessions and reduction rates

Dr. Kawasaki highly assessed the comprehensive tariff concessions and reduction rates via the TPP, saying that the previous level of around 90% at the tariff line base has been boosted to 95%. The tariff for beef—one sensitive agricultural produce commodity—will be drastically cut 16 years from now to 9% from the current rate of 38.5%. But how does one determine if these figures will cause major impacts from an economic viewpoint? According to Dr. Kawasaki, for example, the price gaps between domestic and overseas markets (price variance when the same product or service is sold domestically or in foreign countries) for beef are said to be approximately two to three times. Taking this into consideration, it is not appropriate to only discuss tariff reductions as the cause for the domestic-foreign beef price gaps. Moreover, the exchange rate appreciated from 120 yen to the dollar to 80 yen to the dollar after the global financial crisis in 2008, which was the equivalent of a 30% tariff cut. Considering the level to which beef production was impacted at that time can provide a calm picture of a 30% beef tariff cut through the TPP.

Why do EPAs cause economic impacts?

EPAs[1] are regional economic partnership agreements formed across the world. Compared to Free Trade Agreements (FTAs), which are aimed at reducing and removing tariffs and barriers in the trade of goods and services, EPAs include more extensive cooperation items. Dr. Kawasaki explained the impacts EPAs have on economies by dividing them into static and dynamic impacts. For instance, static impacts include increased exports caused by tariff reductions, resulting in increased production in related industries. Conversely, the domestic production structure becomes more efficient through imports, causing falling prices for imported items. Dr. Kawasaki emphasized that declining imported goods prices have similar effects as so-called tax reductions, and offer benefits to individual citizens as consumers. On the other hand, extensive margins of trade are drawing attention as dynamic impacts. This refers to the birth of brand new trade through trade liberalization and tariff reductions. A great deal of attention is directed at the economic impacts of parties such as small and medium enterprises, which were not previously engaged in international trade, conducting new industrial activities in overseas markets.

Japan should enjoy the benefits of both TPP and RCEP rather than choose either TPP or RCEP

In the Asian-Pacific region, Japan has participated in the APEC, RCEP, and TPP since the second half of the 1980s. Dr. Kawasaki introduced a graph analyzing the income effects in Japan caused by the Asia-Pacific EPAs, and indicated that mutual, complementary benefits can be obtained from the FTAAP by pushing forward with both the TPP and RCEP, although this is dependent upon the future results of TPP and RECEP negotiations. Dr. Kawasaki’s analysis graph also clearly showed which economies caused economic impacts in Japan. According to the graph of how various economies contributed to income effects in Japan, for example, Japan’s own efforts had relatively large importance for the TPP, but China made the principal contributions for the RCEP, and both Japan and China made large contributions for the FTAPP.

In addition to tariffs, importance should be attached to NTMs reductions and the liberalization of services and investment

In contrast, looking at the example of the United States, what are the economic impacts in the U.S. from its EPAs in the Asia-Pacific region? Dr. Kawasaki’s analysis graph showed that economic impacts are overwhelmingly greater when implementing both tariff removals and NTMs reductions, rather than tariff removals alone, for the TPP. For EPAs, Dr. Kawasaki emphasized that in addition to tariff removals and reductions, policy methods such as NTMs reductions and the liberalization of services and investment bring about larger economic impacts in some cases. This potential applies to advanced nations in particular, while there is still room for tariff reductions to cause effects in the East Asia region.

Domestic reforms cause economic impacts inside a country

Dr. Kawasaki introduced a comparative analysis on a given country when it removes tariffs and when another country removes tariffs. For the ASEAN nations, China, Canada, and other countries, it is worthy of attention that there were greater economic impacts when the given country removed tariffs, more so than when another other country removed tariffs or reduced NTMs.

Dr. Kawasaki’s economic impact analyses regarding the TPP and EPAs hypothesizes that the Japanese economy, as well as the economies and societies of partner nations, will be extremely lively. One cannot help but feel a sense of expectation regarding this. Dr. Kawasaki stressed that, among the “three arrows” of Abenomics, in contrast to short-term economic policy via monetary easing and fiscal stimulus, it is possible that the implementation of economic structural reform through EPAs can achieve medium-and long-term, sustainable economic impacts such as more efficient resource allocation and productivity improvement. Future predictions of this type lead to greater precision through the accumulation of detailed data and minute analyses. Dr. Kawasaki also spoke about his personal issues in the future. He wants to conduct economic analyses that will be useful in Japan’s policy research and formulation, in a way that is closer to individual, specific policies. He said that, in addition to macroeconomic data, it is necessary to decipher each provision—such as NTMs, services, investment, etc.—and analyze their economic impacts in EPAs.

Article by Public Relations Division

Since several years ago, economists across the globe have become increasingly concerned about what will happen after the end of the Trans-Pacific Partnership (TPP) negotiations. Agreement in these negotiations is merely the beginning. At the same time an agreement is reached, governments of various nations will formulate policy—based on policy research leveraging calculations of economic impacts—so the content of the partnership will function in actual trade and corporate activities. “At the time of the past North American Free Trade Agreement (NAFTA) and General Agreement on Tariffs and Trade (GATT) Uruguay Round, nations made various calculations on economic impacts regarding what might happen after the negotiations, and major disorder occurred across the world. As a result, even if the government comes to a settlement in the TPP and mega-Economic Partnership Agreement (EPA) negotiations, will policy discussions run into trouble because of this disorder? No, that is something that should be avoided.”

With the desire to create a common economic analysis platform and analysis tools that can be utilized all over the world, economic experts in various economies formed the Global EPAs Research Consortium in 2013. Dr. Kenichi Kawasaki, a professor at the National Graduate Institute for Policy Studies (GRIPS), is the co-chair of this organization. His tasks include estimating data on tariffs and non-tariff measures (NTMs), improving and analyzing economic models utilizing such data, and making proposals on the global stage.

At the 121^st GRIPS Forum on April 11 (Monday), Dr. Kawasaki gave a talk on analyzing the economic impacts of the TPP and EPAs. The venue at GRIPS was filled with audience members such as students and researchers, suggesting a high level of interest in the TPP. In the first half of his talk, Dr. Kawasaki spoke in an easy-to-understand way about regional integration structures through EPAs, an outline of the TPP, viewpoints regarding tariff reductions, and other issues. In the second half, he compared his economic model analyses to introduce the economic impacts of EPAs. At the beginning of his lecture, Dr. Kawasaki also referred to the general concept of economic model analysis. In the world of natural sciences, the method used is actually conducting experiments to clarify the truth. However, in policy research and social sciences it is impossible to actually conduct experiments on what will happen to the economy when a given policy is enacted. Instead, the economic model analysis method is used. A specific economic model is supposed from a vast amount of data, and experiments are performed on questions such as what occurs when the consumption tax is increased or the yen appreciates in this model. In the analysis of economic impacts from the TPP and EPAs, as introduced in this speech, he used this method to compare the medium- and long-term economic impacts when trade liberalization is put into practice and when it is not.

Regional integration is a step toward smoother global trade liberalization

Dr. Kawasaki shared an image of the structure of regional integration in the Asia-Pacific region and explained the participating economies and relationships in four groups: Asia-Pacific Economic Cooperation (APEC), Regional Comprehensive Economic Partnership (RCEP), TPP, and Association of Southeast Asian Nations (ASEAN). Next, he stated that the future prospect for regional integration, which is currently limited to just some economies, is development into economic cooperation in all of Asia-Pacific and across the world. Here, he emphasized that we must not forget the possibility of regional initiatives having negative effects on countries not included in the group. Just when Indonesia and other ASEAN countries declared their desire to participate in the TPP group in 2015, today’s regional integration is not the end. Rather, dynamic transformations are taking place.

Economic viewpoint about TPP tariff concessions and reduction rates

Dr. Kawasaki highly assessed the comprehensive tariff concessions and reduction rates via the TPP, saying that the previous level of around 90% at the tariff line base has been boosted to 95%. The tariff for beef—one sensitive agricultural produce commodity—will be drastically cut 16 years from now to 9% from the current rate of 38.5%. But how does one determine if these figures will cause major impacts from an economic viewpoint? According to Dr. Kawasaki, for example, the price gaps between domestic and overseas markets (price variance when the same product or service is sold domestically or in foreign countries) for beef are said to be approximately two to three times. Taking this into consideration, it is not appropriate to only discuss tariff reductions as the cause for the domestic-foreign beef price gaps. Moreover, the exchange rate appreciated from 120 yen to the dollar to 80 yen to the dollar after the global financial crisis in 2008, which was the equivalent of a 30% tariff cut. Considering the level to which beef production was impacted at that time can provide a calm picture of a 30% beef tariff cut through the TPP.

Why do EPAs cause economic impacts?

EPAs[1] are regional economic partnership agreements formed across the world. Compared to Free Trade Agreements (FTAs), which are aimed at reducing and removing tariffs and barriers in the trade of goods and services, EPAs include more extensive cooperation items. Dr. Kawasaki explained the impacts EPAs have on economies by dividing them into static and dynamic impacts. For instance, static impacts include increased exports caused by tariff reductions, resulting in increased production in related industries. Conversely, the domestic production structure becomes more efficient through imports, causing falling prices for imported items. Dr. Kawasaki emphasized that declining imported goods prices have similar effects as so-called tax reductions, and offer benefits to individual citizens as consumers. On the other hand, extensive margins of trade are drawing attention as dynamic impacts. This refers to the birth of brand new trade through trade liberalization and tariff reductions. A great deal of attention is directed at the economic impacts of parties such as small and medium enterprises, which were not previously engaged in international trade, conducting new industrial activities in overseas markets.

Japan should enjoy the benefits of both TPP and RCEP rather than choose either TPP or RCEP

In the Asian-Pacific region, Japan has participated in the APEC, RCEP, and TPP since the second half of the 1980s. Dr. Kawasaki introduced a graph analyzing the income effects in Japan caused by the Asia-Pacific EPAs, and indicated that mutual, complementary benefits can be obtained from the FTAAP by pushing forward with both the TPP and RCEP, although this is dependent upon the future results of TPP and RECEP negotiations. Dr. Kawasaki’s analysis graph also clearly showed which economies caused economic impacts in Japan. According to the graph of how various economies contributed to income effects in Japan, for example, Japan’s own efforts had relatively large importance for the TPP, but China made the principal contributions for the RCEP, and both Japan and China made large contributions for the FTAPP.

In addition to tariffs, importance should be attached to NTMs reductions and the liberalization of services and investment

In contrast, looking at the example of the United States, what are the economic impacts in the U.S. from its EPAs in the Asia-Pacific region? Dr. Kawasaki’s analysis graph showed that economic impacts are overwhelmingly greater when implementing both tariff removals and NTMs reductions, rather than tariff removals alone, for the TPP. For EPAs, Dr. Kawasaki emphasized that in addition to tariff removals and reductions, policy methods such as NTMs reductions and the liberalization of services and investment bring about larger economic impacts in some cases. This potential applies to advanced nations in particular, while there is still room for tariff reductions to cause effects in the East Asia region.

Domestic reforms cause economic impacts inside a country

Dr. Kawasaki introduced a comparative analysis on a given country when it removes tariffs and when another country removes tariffs. For the ASEAN nations, China, Canada, and other countries, it is worthy of attention that there were greater economic impacts when the given country removed tariffs, more so than when another other country removed tariffs or reduced NTMs.

Dr. Kawasaki’s economic impact analyses regarding the TPP and EPAs hypothesizes that the Japanese economy, as well as the economies and societies of partner nations, will be extremely lively. One cannot help but feel a sense of expectation regarding this. Dr. Kawasaki stressed that, among the “three arrows” of Abenomics, in contrast to short-term economic policy via monetary easing and fiscal stimulus, it is possible that the implementation of economic structural reform through EPAs can achieve medium-and long-term, sustainable economic impacts such as more efficient resource allocation and productivity improvement. Future predictions of this type lead to greater precision through the accumulation of detailed data and minute analyses. Dr. Kawasaki also spoke about his personal issues in the future. He wants to conduct economic analyses that will be useful in Japan’s policy research and formulation, in a way that is closer to individual, specific policies. He said that, in addition to macroeconomic data, it is necessary to decipher each provision—such as NTMs, services, investment, etc.—and analyze their economic impacts in EPAs.

Article by Public Relations Division