trade policy brief
Comprehensive free trade agreements: which benefits for Japan?
January 2020
he Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is T expected to lift Japan’s real income USD 490 per worker, by 2030. The EU-Japan Economic Partnership Agreement (EPA) is expected to raise real income in Japan between USD 160 per worker and USD 330 per worker over the same period. eyond existing arrangements, if G20 economies were to undertake ambitious and B comprehensive reforms across tariffs, non-tariff measures restricting goods trade, and barriers to trade in services, the estimated gains far outweigh the sum of individual actions - exceeding 6% of Japan’s GDP.
What’s the issue? With the recent entry into force of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU-Japan Economic Partnership Agreement (EPA), Japan has established itself as a truly global player in opening new economic opportunities at home and abroad. As a Party in both of these agreements, Japan benefits from much improved market access – for both imports and exports – across a country grouping with a combined GDP of more than 27 trillion USD, which accounts for more than 30% of world GDP. And these numbers will nearly double when Japan and the United States implement their new trade agreement. The CPTPP has already begun to cut tariffs across a significant number of tariff lines and will, over 15 years, eliminate them across 99% of all tariff lines. The ‘behind the border’ commitments are potentially even more important, encompassing regulatory restrictions on goods, services, and investment, as well as beginning to address labour and environmental issues, amongst others. Under the EPA, the EU will eventually eliminate tariffs covering 99% of products and Japan 94% of its tariff lines; many of these cuts have already been implemented. Taken together, commitments made under these two partnership arrangements will benefit Japanese consumers and businesses by reducing unnecessary costs that can often be imposed on them by both border and ‘behind the border’ trade restrictions. While it is too early to assess, definitively, the actual impacts of the CPTPP and the EPA on their parties (as well as on non-signatory countries and firms), anecdotal evidence and early data indicate steady trade flows between the partners. www.oecd.org/trade
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What benefits should Japan expect from these recent trade agreements? Benefits to consumers come from lower prices for imports and, over time, for domestic products. The lower prices increase purchasing power, raise real income, and boost demand. Consumers also benefit from having more varieties on offer. Less than one year after entry into force of the initial commitments made under these arrangements, Japan is importing more goods which are available at lower cost to Japanese consumers. Firms in Japan are expected to benefit from increased market access abroad, and subsequently higher exports. More exports create more production, and this potentially lifts both firm profits and wages. But the greatest source of benefit to firms comes from reducing barriers to trade in internationally fragmented value chains: the more frictionless the trade of parts and pieces, the lower the cost of organizing those supply chains. Tariffs are important in that regard, but even more so is the reduction of unnecessary trade costs related to non-tariff measures (NTMs) affecting goods and to regulations that impede services and investment flows. Full implementation of the CPTPP and the EPA is expected to raise real income in Japan by as much as USD 490 and USD 330 per worker, respectively.
How important are comprehensive free trade agreements? OECD analysis also shows that the more countries that participate in efforts to reduce trade costs, on a comprehensive basis, the greater the shared benefits: @OECDtrade