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)

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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

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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

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(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)

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(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

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(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…

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(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

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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)

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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