Korea’s prospective membership in the Trans-Pacific Partnership would go beyond eliminating tariffs, closely linking its economy with Japan and shoring up its competitiveness within an interconnected global value chain, an influential economist has said.

As a “platinum standard” agreement instantly abolishing 87.4 percent of tariffs on items and 81.3 percent on export volume, the accord was reached on Oct. 5 last year between 12 Pacific Rim countries ― the U.S., Japan, Canada, Australia, Mexico, New Zealand, Malaysia, Vietnam, Singapore, Brunei, Chile and Peru. Korea announced its intention to join last December, and was followed by Thailand, Indonesia and the Philippines.

The compact, expected to come into force within two to three years following congressional ratifications in member countries, aims to rewrite the rules of the world’s economic order toward greater liberalization and deregulation, according to Fukagawa Yukiko, Waseda University professor and visiting scholar at Yonsei University.

The members have agreed to knock down tariffs on nearly all traded items over the next 30 years, targeting economic growth, creation and retention of jobs, higher innovation, productivity and competitiveness, poverty reduction, increased business transparency, as well as better governance, labor management and environmental protection.

As a comprehensive deal encompassing 40 percent of the global economy, it covers goods and services, rules of origin, trade remedies, government procurement, the environment, labor, pharmacies, sanitation, intellectual property rights and strategies for small and middle-sized enterprises.

“The TPP will be Japan’s highest standard free trade agreement as the country works to move its economy from hardware manufacturing to knowledge-based industries,” Fukagawa said at a seminar titled “How does Japan prepare for the post-TPP regime?” at the East Asia Foundation in Seoul in late January. 

“The Japanese government has been pushing it so hard, saying it should abandon ugly protectionism, particularly from the powerful agricultural sector.”

Unlike in the U.S., where the deal must pass the Republican-dominated Congress that has been divided over the ratification, in Japan, “Abe’s political position is so established that there is virtually no opposition,” she stressed.

To weaken and compromise with the agricultural lobbying groups ― the most resistant being “Ja Zenchu” (the Central Union of Agricultural Cooperatives) ― five “sanctuary” products of rice, sugar, beef, pork and dairy products were excluded from the list.

After the pact enters effect, she added, Japan’s agricultural industry will combine operations with large-scale distribution and logistics enterprises to capitalize on overseas supermarkets and convenience stores, particularly in Taiwan, Hong Kong and affluent Chinese cities.

Small and medium-sized Japanese retailers, such as ramen noodle companies, are establishing shops in Europe; advanced basic scientific research is being integrated with commercial schemes; and services industries will incorporate the Internet of Things, artificial intelligence and robots, to increase productivity.

According to the development and trade economist, who received her master’s degree from Yale University and doctorate from Waseda University, the TPP is a “game changer” in that it goes beyond eliminating tariffs to establishing common new rules across the Asia-Pacific for trade and investment.

“The TPP is fundamentally about reducing risks for businesses. Its clauses have high standards of liberalization covering goods, services and investment, including new rules on state enterprises, investor-state disputes and transparency in sanitary and phytosanitary measures.”

She added that the TPP would boost Japan’s economy by 2.6 percent, while positively affecting 800,000 jobs in Japan. 

As Korea has bilateral FTAs with all of the TPP members except Japan and Mexico, Seoul’s anticipated participation would be equivalent to negotiating with Japan, according to Dr. Ahn Choong-yong, chairman of the Korean Commission for Corporate Partnership.

Underlining the “gold standard” Korea-U.S. FTA, which came into force in March, 2012, Ahn argued that Korea’s hardware manufacturing was “competitive enough” to accept the terms and conditions. He added that the TPP ― as the “third arrow” of Abenomics economic policies addressing fiscal stimulus, monetary easing and structural reform ― bears resemblances to the President Park Geun-hye administration’s “creative economy” policy, aiming at industrial innovation.

Unlike Korea, which had to undertake significant economic restructuring following the 1997 Asian financial crisis, Fukagawa pointed out, Japan’s economy needed an “external shock” to awaken from a protracted slumber.

She claimed the TPP would catalyze businesses to differentiate their products and services using big data, shifting the focus “from hardware to systems, price competition to innovation, domestic protectionism to industrial competitiveness, and most importantly, from nations to firms to individuals.”

“Some countries are still sticking to the old, 20th century-type industrial policies, intervening in the market out of proclaimed ‘sovereign interests’ and preferentially treating domestic companies,” Fukagawa said.

“Inbound foreign direct investment and movement of individuals are the most crucial aspects of Japan’s growth strategy. As Japan has an incredibly small number of foreign firms, we are inviting all high-skilled workers from abroad with incentives and subsidies.”

Noting that her government eased visa regulations for young and talented professionals, she indicated that Korean and Japanese job seekers would find greater opportunities in each other’s countries in the foreseeable future.

As untapped, lucrative sectors, the scholar pointed to the health care industry ― regenerative medicine, big-data-based services and clinical innovation networks ― as both societies are aging fast; research and academic partnership; clean energy; and advanced infrastructure, manufacturing, agriculture and intelligent transportation system, which would be embedded with IoT technologies.

By Joel Lee (joel@heraldcorp.com)