(Sankei: January 16, 2015 – p. 1)
It was learned on Jan. 15 that if all the mega free trade agreements (FTA) Japan is currently negotiating are actually concluded, tariffs paid by Japanese export industries will be reduced by 2.5137 trillion yen. This was revealed through estimates made by the Ministry of Economy, Trade and Industry (METI) recently. This tariff reduction is equivalent to a corporate tax cut of over 5% in Japan. The economic effects will be tremendous, so the government will aim at early agreement in the negotiations for the Trans-Pacific Partnership (TPP) and other mega FTAs.
The estimates were based on total imports from Japan by all the negotiating partners for mega FTAs and the tariffs imposed on them. It was found that tariff reduction under the TPP will be 545.1 billion yen; 1.9573 trillion yen under the East Asian Regional Comprehensive Economic Partnership (RCEP); 1.189 trillion yen under the Japan-China-ROK FTA; and 236.8 billion yen under the Japan-EU economic partnership agreement (EPA). Total tariff reduction is the sum of these amounts, minus the overlap.
Although the actual tariff reduction will depend on the ultimate level of trade liberalization, there is no doubt that the economic effect will be tremendous.
Reduction of the tariff burden of export businesses will not only improve their profitability, but will also enhance their price competitiveness in overseas markets and increase exports. With the current trend of repatriation of production lines to Japan in light of a weaker yen and the reduction of the effective corporate tax rate, improved competitiveness of exports under mega FTAs will further spur the return of production lines and contribute to the maintenance and expansion of employment.
The benefits of mega FTAs are not limited to the reduction of tariffs. The Peterson Institute for International Economics in the U.S. has also studied the impact on GDP of the TPP and the RCEP through the elimination of non-tariff barriers and liberalization of services and investment, in addition to tariff reduction. According to its estimates, Japan’s GDP in 2025 will grow by $105 billion (approximately 12.3 trillion yen) and $96 billion from the 2007 level, respectively, under the TPP and the RCEP. Since Japan regards the TPP as the “driving force” for mega FTAs, the achievement of an early TPP agreement should be its first priority.