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Economic Integration, Growth, and Cooperation: Japan and Korea in post TPP era
Yukiko FukagawaWaseda University/ Yonsei University
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OutlineTPP as the New RulesImpact of TPP on East AsiaEconomic integration as the growth strategies: Japan’s case
Changed JK cooperation perspectives
Temporary conclusion2
Trans Pacific Partnership (TPP) as the New Rules
Not just a Mega FTA Real goal: Common rule making in Asia-
Pacific region, Reducing business risksHigh standard of liberalization in goods/
services/ investmentNew rules on state enterprises, Investor-
State Dispute Settlements (ISDs), Transparency principles on SPS and other trade procedures
Accumulation in Rule of Origin for GVC 3
High standard in free tradeJ apan TPP11
品目 貿易額 品目 貿易額
Total tariff elimination 95.0 95.0 99.9(Canada/Mexico/Peru)99.9(Mexico)
~100.0(Others) ~100.0(Others)
Immediate tariff elimination
In Industrial goods 95.3 99.1 86.9 76.6
Final tariff elimination
In industrial goods 100.0 100.0 99.9 99.9
J apan USA Australia Mexico Vietnam
Immediate tariff elimination
In Agricultural goods 51.3 55.5 99.5 74.1 42.6
2-11 years 27.5 37.8 0.5 17.2 52.3
After 12years 2.2 5.5 0.0 5.1 4.5
Exclusion 19.0 1.2 0.0 3.6 0.6
J -US(TPP) Korus J -Canada(TPP) C-Korea
品目 輸出額 品目 輸出額 品目 輸出額 品目 貿易額
Immediate tariff elimination
87.4 81.4 83.0 77.5 95.4 87.5 72.2 59.1
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China-Korea FTA
Korea ChinaTariff lines Trade volume Tariff lines Trade volume
Normal track Immediate elimination 50 52 20 441-5years 12 4 21 46-10years 18 21 31 19
Total 79 77 71 66Sensitive Within 15years/ 20years 13 14 19 19Highly Sensitive Exclusion, TRQ 8 9 9 15
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Portfolio of Japan’s subsidiaries in Machinery manufacturing (numbers (left) and sales (right) by %)
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The regional impact depends on the domino effects
Vietnam as the hidden jewel Thailand: Biggest industrial
accumulation outside TPP in ASEAN, Location competition with Malaysia and Vietnam
Philippines: Geopolitics, FDI competition with Vietnam
Korea: Accumulation rules for Vietnam Taiwan: Geopolitics, Internal politics,
Competition with Korea7
The impacts on Japan-Korea (-China) FTAs
Korea: Joining TPP means Virtual Japan-Korea FTA (Korea-Mexico FTA) at very high standard: Immediate tariff elimination of 86.9%?
Korus in revision: US’s responsesJ-K: More difficult in agricultural sector?
(Exemption rice/wheat/beef&pork/dairy goods/ sugars) but Vegetables/ Fruits, sea weeds…)
Bilateral pacts: Large gap between C-K and TPP based J-K FTA
No perspectives on J-C FTA but at least higher than K-C (WTO 24th rules)
8
Limited impact on in industrial goods?
Tariff Elimination Base rate Tariff Elimination Base rateOrganic Chemical Immediate 1-6.5 Chemical goods Immediate 1.6-6.5Plastic products Immediate 2.1-6.5 Leather goods 11/ 16 years 8-16/ 12-30Chemical Fibers Immediate, 5years 2.7-13.2 Textile Immediate 1.9-14.2
11years Non- ferrous metals 11years 2.5-6.3Towels 5years 9.1Steel products 5years 5.3Titanium goods 10years 5.5-15Steam Turbine Immediate 6.7Bearing 12years 2.4-5.8Passengers cars 25years 2.5Track 30years 25Automobile lock Immediate 5.7Engine related parts Immediate 2.5Crank Shaft Immediate 2.5Break Immediate 2.5Engine more than 2000cc 5years 2.5Glass Fiber 12years 6.7
USA J apan
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The Last 5 agricultural items
Concession Additional TPP CommitmentRice (t) WTO MA 770000 None, Outside rate \ 341/ kg USA: 3years 50000, 13years 70000
SBS 100000 Australia: 3years 6000, 13 years 8400Wheat (t) WTO 5740000 None, Outside rate \ 55/ kg USA: Immediate 114000, 7years 150000
▲ 45 Mark up rate in 9years% Canada: Immediate 40000, 7years 53000Australia: Immediate 38000, 7years 50000
Beef (%) 38.5 30 in 4-10years, 20 in 11-15 years Safe Guards9 in 16years
Pork WTO Ad volume tax \ 50/ kg \ 23/ kg Elimination in Ad valorem tax Differential Tariff with \ 524/ kg None with Safe Guard
Skimmed Milk/ WTO MA 137000 Abolishing Mark up in 11years Trade by private sectorButter/ Whey Inside tariffs 25%,35% +Mark up S.Milk 24102 t in 6years
Butter 45898 t in 6yearsRaw sugar/ \ 21.5/ kg + 57.4/ kg None Processed sugar \ 21.5/ kg + 42.4/ kg Some \ 0/ kg + \ 39/ kg
Base system
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But others may have political impact for Korea
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Base rate (%) TPP Tariff eliminationGreen Onion 3 Immediate Tomato 3 Immediate Green Onion 3 Immediate Strawberry 6 Immediate Potato 4.3 Immediate Radish 3 Immediate Pumpkin 3 Immediate Grape 17/ 7.8 Immediate Sweat Potatoes 12.8 6yearsOnion 8.5 6yearsOrange 16/ 32 6years/ 8years with Safe GuardsApple 17 11yearsCherry 8.5 6yearsLaver \ 1.5/ piece or 40 \ 1.28/ piece or 34Kelp 15 12.7Horse mackerel 10 8.9Pollack 6 6yearsCanned Eel 9.6 11years
Integration as the Growth Strategies for JapanSecuring export environment
under stagnant WTO negotiationMega FTA hubInnovate location advantage
through outside pressuresSecuring Global Value Chains
through common rules: Accumulation rules matter for Japan
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Japan as the hub of Mega FTAs
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Export remains sluggish
14
Ordinary profits (100 Million Yen, Except financial sector)
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Growth Policy in “Abenomics”
Mid to Long-term Japan needs: Consumption -Investment-Wage recovery cycle, Productivity gains, Market-driven growth
The Direction: “Japan Revitalization Strategy” (Revised since Jun. 2013)
(1) Private sector dynamics (Structural reform)
(2) Mobilizing all human capital (Labor reform)
(3) Create new frontiers (4) Trickle down growth: Local economies(5) Global outreach (Economic integration) 16
(1)Structural reformPromoting business restructuring and reorga-nization
Stimulating investment (Corporate tax cut, Energy reform, Corporate governance structure…)
Reforming venture capital and venture business
Promoting inbound/outbound FDI
Globalizing SMEs
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(2) Mobilizing human resources
Enhancing labor mobility
Female labor empowerment/ Senior labor par-ticipation
Diversifying working styles
Education reform
Taking in foreign talents and skilled laborers
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(3) Growth frontier: Gov.-Business partnership
National health: Advanced treatment (Regenerative medicine)/ Healthcare business cluster/ Big data based care/ Outbound-Inbound care services/ Clinic innovation networks …..
Clean energy: Batteries/ Home energy system/ Hydrogen society/ Methane hydrate development
19
(3) Growth frontier: Gov.-Business partnership (Continued)
Advanced infrastructure system: Sensor/ Robot monitoring/ ITS system: ART on Tokyo Olympic
Transportation for the seniors
Robot society: Personal mobility, Communication, Cleaning, Security service (labor shortage)
20
(3) Growth frontier: Promoting investment and ventures
Reforms in national universities(Local contribut-Ion, Specialization, Global competition)
Research universities with venture platforms
Flexible appointment among research organizations
Silicon valley-Japan partnership
21
(4) Local Abenomics
Agriculture: Land reform/ Corporate investment/ Cost reduction (ex. 40% in rice) / Food business ( 10 trillionyen in 2020)/ Export promotion (1 trillion yen)
Tourism: DMO(Destination Management Organization)/ Barrier-free infrastucture/ Big data/ Cultural exchange….
Health care: Local care information system/ Data analysis/Business cluster promotion/ Preventive care…
22
(5) Global outreachPluri-lateral and Comprehensive agreements for Global supply chains: TPP, RCEP, CJK (≠ Bilat-eral FTA) → FDI, Roo coverage, Competition policies, IPR, MRA
Participation in rule setting in FDI (ISDs), Standard, Movement of persons
“” Market pressures for the reform
23
Interface with Matured economies
Competition and Cooperation for innovation-led growth (Basic research, IPR and Cybersecurity, Investor protection, Competition policy, Standardization)
Rule design and setting (ex. TTP-TTIP-J/EU FTA, ITA and other WTO+)
Japan as the gateway to Asia?(ex. Healthcare hub sustained by welfare market size)
24
Interface with Asia
End of flying geese pattern (Flat relationship)
(1)End of hardware manufacturing(2)Differentiation by Big data(3) Interactive exchange: FDI, Talents,
Ideas/ Knowledge, Experience (Seamless integration: Outbound/ Inbound)
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New JK Cooperation Focus after TPP (1)
Cluster ≠ Border ⇔ Inbound FDI, trade facilitation, Venture capitals
ex. Automobile, new energy cluster (Kyushu-Ulsan) ex. Tourism, Culture cluster
Knowledge-based ≠ Hardware ⇔ IPR, MRA, Standards
ex. R&D/ Big data analysis in healthcare ex. Pharma/ Fine chemicals / Medical devices
IoT -based services ≠ Production ⇔ Elec.transaction, Cyber security, Silicon valley platform ex. Smart energy networks ex. New Agricultures ex. Advanced Transportation System
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New JK Cooperation Focus after TPP (2)
Region (GVC network, SMEs) ≠ Nation ⇔ Rule of origin, Standards, State enterprises
ex. Materials, Devices, Supporting industries
Horizontal ≠ Vertical , Interactive ≠ One Way ⇔ National treatment, Investor
protection, ISDs, Deregulation Pressures ex. Tourism, Culture, Properties, Fintech, IoT business
Nation < Firm< Individual ⇔ Movement
of persons, Qualification standards ex. Venture capital, Ventures, Education, Global talents…
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Temporary conclusion: Strategies for JK integration
Beyond export-led growth ideas ⇔ Be strategic on comprehensive and sustainable growthBeyond “industrial policy” legacies ⇔ Be strategic on economic welfareBeyond politicization of the economic pacts ⇔ Be strategic on the realities (GVCs)WTO plus approach: ITAs, TiSA, ACTA…The road map for the integration:
Upgrading BIT, Trade enhancement, Deregulations….
(JCK dialogues in sharing growth strategies) 28