Revised Version
March 2019

TPP11 (CPTPP): Its Implications for Japan-Latin America Trade
Relations at a Time of Heightened Risks
Mikio Kuwayama*/**/*/ The author is a Research Fellow of Kobe University Research Institute for Economics andBusiness (KIEB) and Managing Director of the Japan Association of Latin America and the
Caribbean (JALAC). The views expressed in this paper do not necessarily reflect those of theorganizations with which the author is associated. The author is responsible for any errors oromissions.
**/ The preliminary version of this paper was presented at the seminar, “Private Roundtable:
Japan and LAC: Forging Quality in Uncertain Times”, December 12, 2018, Washington D.C., coorganized by JALAC and the Inter-American Dialogue. This paper has not been submitted toformal editing. Please do not cite or distribute without permission of the author.
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Abstract
Although the US withdrawal was a major setback for TPP12, TPP11 remains an economicallyand politically significant agreement. The entry into force of TPP11 provisions sets a precedentin the evolution and strengthening of international trade disciplines and rules. The entry into forceof both TPP11 and the Japan-EU EPA sends the world a strong message that Japan and the EU
will continue to play a leading model of preserving free trade and multilateral trading system. In
a sense, TPP11 is likely to fill, to some extent, a geopolitical vacuum created by the retreat of US
global leadership, which is unlikely, at least for now, to be filled by China’s “socialist-type” tradeliberalism. The political significance of TPP11 for Latin America is that even without the UnitedStates, countries on both sides of the Pacific Rim can work together to safeguard the multilateral
trading system in which Latin American countries have a large stake. At the same time, TPP11
will open to Latin America new venues and ways to construct strategic relations with the AsiaPacific countries, and Japan in particular, and rewrite integration strategies within the proper
region. The ongoing process of convergence in trade rules between the Pacific Alliance andMercosur and an EPA between Japan and Mercosur will be another important signal for thepreservation of open trade regimes. A more unified and enlarged regional market resulting fromjoint efforts between the Alliance and Mercosur, on the one hand, and a more connected regional
market with the EU, EFTA and Asia-Pacific countries (e.g., Australia, Canada, Japan, theRepublic of Korea, Singapore), on the other, will enhance the attractiveness of LAC as a region.
Meantime, crisscrossing FTA networks emerging across Asia-Pacific and Latin Americancountries should be avoided.

Index
I. Introduction
II. Japan’s leadership in the TPP11 deliberations
III. Differences between TPP12 and TPP11: Economic and Political Impacts
A. The original texts (TPP12) vs. the revised texts (TPP11)
B. Economic Impacts
C. Potential Benefits to the Three Latin American Countries
D. Political Implications
IV. Implications of the United States-Mexico-Canada Agreement (USMCA) for Japan
V. New Waves of Regional Integration in Latin America
VI. Concluding Remarks

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I.

Introduction

Against the backdrops of the U.S. withdrawal from the Trans-Pacific Partnership (TPP)
agreement in January 2017, the steady increase in U.S. protectionism immediately after theinauguration of President Trump, his proclivity towards bilateral free trade agreements (FTAs)
over plurilateral deals, coupled with the World Trade Organization (WTO) in need of a serious
reform, Japan has managed to conclude negotiations in six months and to have “TheComprehensive and Progressive Agreement for Trans-Pacific Partnership” (CPTPP), commonly
known as TPP11, signed by other 10 countries, March 2018, in Santiago, Chile. The Japanese
authorities went on to sign a core Economic Partnership Agreement (EPA) with the European
Union (EU) on July 2018. TPP11 came into effect on December 30, 2018. The Japan-EU EPA
entered into force on February 1, 2019 before the United Kingdom supposedly leaves the EU.
The entry into effect of both agreements sends the world the message that with concern overthe global rise of anti-globalism and protectionism, Japan is prepared to play an active role inpreserving the multilateral trading system. Japan has played a “mediator” and “coordinator” rolein TPP11 renegotiations. Thanks to the Japanese government engagement, the number of“suspended” provisions in TPP11 was kept to a minimum. Japan has made efforts to keep themember countries interested in TPP11 and promoted consultations with non-TPP participating
countries to expand its membership. In Japan’s view, both mega-agreements would haveincreased the probability of the United States returning to the original TPP (hereafter abbreviatedas TPP12), while reducing the likelihood of a bilateral FTA with the United States. Under thepresent circumstance of the United States pressuring Japan to accept a bilateral deal ― “Trade
Agreement on Goods” (TAG) as a starter1―, the possibility of the United States returning to
TPP12 is increasingly remote.
TPP11 was to enter into force after 60 days if more than six signatory countries havecompleted domestic procedures. Though the six-country quota was met in November 2018,assuring prompt ratification by Chile and Peru is also a high priority on Japan’s diplomacy. Japan
also wants Colombia’s new government to renew its interest in joining TTP11, expressed earlier
by the ex-Santos administration, although the present Duque administration prioritizes the
finalization of the pending bilateral EPA with Japan. Once Colombia joins TTP11, Japan’s
relations with the Pacific Alliance can be realigned; Japan-Colombia EPA negotiations have been
on a standstill since 2015. Ecuador, reluctant in engaging in FTA networks with Asia-Pacificcountries up to now, has indicated interest in joining TPP11 and the Pacific Alliance. However,Japan’s commercial interests in Latin America go beyond the TTP11 and the Pacific Alliance.
There has been a renewed interest in a Japan-Mercosur (Southern Common Market) EPA. Recently, both the Pacific Alliance (Chile, Colombia, Mexico, and Peru) and Mercosur (Argentina,
Brazil, Paraguay, and Uruguay) have intensified their free trade agenda with extra-regional
partners. Japan does not want to miss out on these opportunities.
For TPP11 to transform into an effective trade and investment promotion vehicle across thetranspacific, active engagement of three Latin American countries (Chile, Mexico, and Peru) in
The United States and Japan announced on September 26, 2018 that both parties will open negotiations on a bilateral
trade agreement. It is a significant shift by the Abe administration that has been a strong advocate of TPP12. Although
this move gave Japan certain relief from the immediate threat of punitive tariffs on its auto exports to the United States,
hard negotiations are expected on sensitive sectors such as autos and agricultural products. From the U.S. government
perspective, this agreement is to be expanded to become a full-fledged FTA to later include services, investment andother issues. The agribusiness sector of the United States expects from Tokyo greater concessions than those offered in
TPP12 and the Japan-EU EPA. Japan’s decision to proceed with the bilateral agreement is aimed at shielding Japan
from possible tariffs on autos and auto parts by the United States under Section 232 so long as both sides are engaged
in market-opening discussions (Shigeta and Tobita 2018).
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the TPP11 implementation process is not only desirable but indispensable. Despite that these three
Latin American countries share Japan’s views, for these countries, TPP11 is not the only economic
diplomacy choice; NAFTA is likely to be replaced by the US-MEXICO-CANADA (USMCA)
agreement. Mexico recently upgraded its FTA with the EU, signed in 1997. Chile recently
upgraded its FTA with China (entered into force in 2006) and is in the process of doing the samewith the Republic of Korea (2004) and the United States (2004). Peru recently signed an FTA
with Australia, spreading its FTA networks in the Asia-Pacific. Peru and China are working to
upgrade their FTA (in effect since December 2009) to strengthen trade ties amid protectionist
signs. Trade negotiations between the Pacific Alliance member countries and other TPP member
countries seeking the Alliance’s “Associate” member status (i.e., Australia, New Zealand, Canada,
and Singapore) are also in progress. Considering these new moves on FTAs, for Chile, Mexico,and Peru whose largest trading partner is not Japan, TPP11 may not necessarily be their top
priority, though it is undoubtedly an integral part of their global strategy.
In addition, the Pacific Alliance has been trying to streamline trade and investment relations
with Mercosur, a policy guideline first proposed by ex-President Bachelet of Chile in 2014. The
Summit between the two blocs, held on the sidelines of the 13th Summit of the Pacific Alliance(July 24, 2018, Puerto Vallarta in Mexico) concluded with the signing of the Declaration, in which
the two regional blocs reaffirmed their commitment to strengthening their integration and agreed
to follow up on the process on a half-yearly basis with a view to reaching a framework FTA. The“Action Plan” adopted at the Alliance’s Summit specifies concrete measures and steps to be takenin the areas as planned in the “Roadmap Pacific Alliance and Mercosur,” agreed in May 2016.
The attractiveness of TPP11 is likely to be enhanced as these joint efforts proceed with concrete
results.
Japan should make full use of the synergy arising from strengthened relations between the
Pacific Alliance and Mercosur. To do so, it is desirable for Japan to deepen and streamline the
EPAs in force with the Pacific Alliance member countries. At the same time, the four Pacific
Alliance member countries seem interested in Japan’s converting in an “Associated” member ofthe same regional grouping. While the negotiations between Mercosur and the EU continue,pressure is being exerted on the governments of the Mercosur countries to accelerate negotiations
with other countries/regions such as the European Free Trade Association (EFTA),2 Canada, theRepublic of Korea, Singapore and the Pacific Alliance (as a group as well as bilaterally). Japan isa “late-comer” in this regard. Mercosur’s closer relations with the Pacific Alliance and an EPA
between Japan and Mercosur will be an additional, important signal for world open trade regimes.
This report will examine the economic and political significance of TPP11 for Japan and thethree Latin American countries (Chile, Mexico, and Peru) and explore the prospects of the Pacific
Alliance and Mercosur from the optics of trade relations between Japan and Latin America.
Chapter II highlights the significance of TPP11 and the Japan-EU EPA for the preservation of free
trade and the multilateral trading system. Chapter III outlines the major differences between
TPP12 and TPP11, by looking at the “suspended” provisions in the latter agreement and economic
and political impacts of both agreements for Japan and Latin American countries. Chapter IV
analyzes the recently agreed USMCA, especially from the viewpoint of Japan. In Chapter V, after
reviewing the recent efforts in the convergence of trade rules between the Pacific Alliance andMercosur, Japan’s new economic diplomacy toward both integration organizations is examined.
The paper concludes with Chapter VI, which discusses some policy implications of TPP11 andother mega FTA initiatives in progress in the Asia-Pacific and Latin American regions.

The European Free Trade Association (EFTA) is a regional trade organization and free trade area consisting of four
European states: Iceland, Liechtenstein, Norway, and Switzerland.
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II.

Japan’s leadership in the TPP11 deliberations

The announcement of the Trump administration’s withdrawal from the TPP agreement inJanuary 20173 has dampened the momentum of mega free trade agreements (FTAs), which were,
up to that point, considered as a major revitalizer of world trade and investment. In the same year,
the United States indefinitely suspended the negotiations of the Transatlantic Trade andInvestment Partnership (TTIP) with the EU and forced the renegotiation of the North American
Free Trade Agreement (NAFTA). With respect to the TPP agreement, contrary to most predictions,however, one year later (March 8, 2018), the remaining 11 countries have agreed on and signed
TPP11. Since then, each participating country has started domestic procedures for its ratification.
Of the original version of the TPP Agreement (TPP 12) that the 12 countries including the UnitedStates signed in October 2016, all concessions on tariff elimination will be maintained under
TPP11, but in the areas of disciplines and rules, 20 provisions were suspended from TPP12.
TPP11 has introduced more relaxed conditions for the entry into force of the agreement than thoseincluded in TPP 12.4
TPP11 entered into force on December 30, 2018. At the time of this writing, seven countries
have finalized the domestic ratification procedures: Mexico, Japan, Singapore, Canada, New
Zealand, Australia, and Vietnam, in the chronological order. The remaining four countries (Brunei,
Chile,5 Malaysia, and Peru6) are expected to conclude the domestic process soon. Seen by many
Mexicans as an objection to the protectionist agenda of the Trump administration, the Mexican
Senate ratified TPP11 on April 25, 2018, with a clear majority (73 votes in favor, 24 against and4 abstentions), becoming the first signatory country to approve TPP11. Japan’s domestic
procedures for ratifying TPP11 were completed on July 6, 7 the same day the United States
imposed the first round of prohibitive tariffs on some Chinese goods. With escalating tradetensions between the United States and China and anti-globalization sentiments, Singapore
ratified the agreement on July 19, becoming the third nation to do so. Canada and New Zealandstarted the proper ratification process early in June and August, respectively. Australia ratified theagreement on October 31. Vietnam, reluctant at first to join since the benefits it expected from
TPP12 came mostly from U.S. markets, ratified TPP11 on November 12. Malaysian Prime
Minister Mahathir Mohamad, who earlier called for a review of the TPP agreement, is reportedly
to have softened his stance, saying that there is a possibility the country will ratify TPP11, but thecountry will ask for some exemptions.
As conceived as an FTA whose membership will be eventually open to countries outside theAsia-Pacific region, TPP11 can be a guide for the construction of new world trade and investment
rules of “golden standards,” suitable for the 21 Century. The Republic of Korea, Indonesia,
The 12 countries including the United States reached agreement in principle, in October 2015, and formally signed
the agreement in February 2016. President Trump declared to withdraw from TPP12 immediately after his inauguration,and signed the presidential decree, stating "I will withdraw from the TPP, forever".
4 For the TPP12 to enter into force, it must be ratified by at least six of its members, who together represent at least
85% of the total GDP of the 12 signatory countries. Given a large share of the United States, it is considered difficult
for TPP12 to enter into effect, as long as the United States is determined not to participate in the agreement. Unlike
TPP12, TPP11 will enter into force 60 days after at least half of its signatory countries have ratified the Agreement. It
will only become legally binding on the remaining signatory countries 60 days after they ratify. This will prevent any
one Party from being able to veto the entry into force of the Agreement.
5 According to some official sources, Chile has started the domestic ratification procedure and the TPP11 agreement
will be approved in Congress in second quarter of 2019.
6 The Peruvian government expects to ratify TPP11 second half of 2018. The agreement will be ratified through asupreme decree to be issued by the Executive Branch; there seems to be no need to go through Congress, since existinglaws will not be modified (Andina: Agencia Peruana de Noticias 2018).
7
The TPP-related bill was passed and approved in the Lower and Upper House plenary on June 18 and June 29,
respectively with the majority votes from the ruling coalition.
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Thailand, and Taiwan in Asia, and Colombia in Latin America, as well as the United Kingdom
which earlier decided to withdraw from the EU, have expressed interest in joining TPP11, at one
time or another. Ecuador has also expressed interest to join. The Japanese government isencouraging other countries to do the same. 8 Thailand, which had earlier intended to apply to join
TPP11 in March 2019, will await a mandate from the next government.
On the same day that TPP 11 was signed by the 11 countries in Santiago, Chile, President
Trump officially announced import restrictions on steel and aluminum. The successful conclusionof negotiations on TPP11 came in the same week when U.S., Mexican and Canadian officials
returned to the table to discuss to rework NAFTA. President Trump continued to threaten to pull
the United States out of NAFTA if he did not get the deal he wanted. The current U.S.
administration’s “America First” agenda is a dramatic departure from the U.S. leadership of amultilateral order that has been the norm for over 70 years, supported by multilateral trade andinvestment disciplines and rules among World Trade Organization (WTO) member countries.
While it may or may not bring immediate economic benefits to signatory countries, the entry into
effect of TPP11 will send a clear signal that the 11 nations in the Asia-Pacific and Latin America
have cast their votes for free trade and rejected Trump's "America First" policy. Accession talks
with potential newcomers have started in 2019.
Since President Trump declared U.S. withdrawal from TPP12 in January 2017, Japan has led
the TPP11 negotiations. Among the 11 countries, Japan is the largest economy. Of the five highlevel official meetings held to reach a core agreement, four of those were held in Japan. At thesame time, after the U.S. withdrawal, Japan played a crucial role in keeping Vietnam and otherparticipating countries interested in TPP11 by maintaining close contact with them and inviting
other non-participating countries such as Thailand and the United Kingdom to join TPP11 after
the agreement takes effect. To a certain extent, Japan has found itself assuming new leadership
responsibilities in the Asia-Pacific region, as it tries to dampen the rise of U.S. protectionism andthe rapidly increasing China’s influence in the Asia-Pacific integration process. Japan has led theway in safeguarding the global rules-based order by pressuring the conclusion of TPP11 andsigning the Japan-EU EPA. Professor Kimura of Keio University claims that “the broad agreementon the TPP11 is a tremendous achievement that heralds the dawn of a new era in Japan’s economic
diplomacy” (Kimura 2018).
The United States has played a crucial geostrategic role in the Asian-Pacific region,9 but now
it is necessary for the countries in this region to assume a larger leadership role on the global stage,commensurate with their economic weight and interests (Petri et al. 2017, Petri and Plummer2016). As some experts (Armstrong 2018) point out, unlike TPP12, TPP11 is unlikely to keep theUnited States strategically engaged in the Asia-Pacific region, nor provides a strong safeguard of
the global trading system. However, TPP11 does send the world a strong message on the region’scommitment to rules-based multilateral trade liberalization. As protectionist trends by the Trumpadministration intensify and his preference for bilateral FTAs over plurilateral deals becomes
evident while the WTO is called upon to undergo reforms, the entry into force of TPP11 and theJapan-EU EPA becomes a breakwater for protectionist trends, reconfirming signatory countries’
Article 30.4 of TPP11 on Accession stipulates that “this Agreement is open to accession by: (a) any State or separate
customs territory that is a member of APEC; and (b) any other State or separate customs territory as the Parties may
agree, that is prepared to comply with the obligations in this Agreement.”
9 Historically, the United States had long supported regional economic integration by supporting transpacificinstitutions such as the APEC forum, and the Enterprise for ASEAN Initiative. The country has in effect bilateral or
plurilateral FTAs with Australia, Canada, Chile, Colombia, Mexico, Peru, Singapore, and South Korea. Most recently,
President Barack Obama’s “Asian pivot” envisioned deepening these ties with 11 Asia-Pacific partners by the way of
TPP12 (Petri et al. 2017, Medina 2017).
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commitment to free trade and the multilateral trading system (Petri and Plummer 2018b).
In April 2018, President Trump asked his trade team to look at rejoining the TPP agreement,
shortly after the other 11 countries in the deal agreed to move ahead with the TPP without theUnited States. He insisted that though he opposes plurilateral FTAs, he would consider negotiatingwith them collectively if it was in the U.S. interest. Japanese officials welcomed Trump’s interestin rejoining TPP12 but expressed hope that Washington would do so under the original terms. It
has been of major concern for the Abe administration that a possible return of the United Statesto the TPP agreement, or a bilateral deal between Japan and the United States, would lead to areopening of negotiations on agricultural products, automobiles, and other sensitive products. The
Japanese government has tried to avoid renegotiations on these products, while signing a bilateraldeal will facilitate the U.S. government to obtain better (“free” and “fair” in President Trump’s
terms) market access than those offered in the original TPP or the Japan-EU EPA.
The U.S. government has given top priority to renegotiating NAFTA. If enacted, the revised
NAFTA, now called the United States-Mexico-Canada Agreement (USMCA), will have profound
implications on corporate strategies not only of the three countries concerned but also Japanesebusiness sectors who have heavily invested in Mexico in recent years. Ironically, the new USMCA
may turn out to look a lot like the TPP Trump walked away from. A “winner” of the new USMCA
would have been the TPP11 countries, not just Canada and Mexico (Elliott 2018). In addition,
the outcome of the mid-term elections in November have started to influence the shaping of U.S.
trade policy. In fact, there is a possibility that the newly elected Democratic representatives voteagainst ratifying the USMCA due to their resentment toward the current president. Democrats are
already making demands to the Mexican authorities to update its labor laws to increase wages
before Congress votes on the new trade deal (Wasson and Leonard 2018). In turn, the outcome ofthe elections seems to give the Trump administration little incentive to soften its confrontational
trade strategy. Contrary to what might have been expected, several candidates who opposed
President Trump’s tariffs were defeated, while some who backed these tariffs won their races(Mayeda 2018). In addition, there is some bipartisan consensus with the Democrats that theUnited States should take tougher action against China across a range of fronts, from the military,
to trade, intelligence and diplomacy (Jiang and Westcott 2018). The trade war with China is likely
to be intensified, rather than lessened. President Trump has also hinted that his administration mightseek a bilateral trade deal with Brazil with the new Bolsonaro administration (Reuters 2018).
Neither, the outcome of the mid-term election is changing President Trump’s stance on the
TPP. At one point in time, the TPP became a divisive policy-issue within the Democratic Party;
Ex-presidential candidate, Hillary Clinton, opposed the accord, even though she helped negotiate
it as President Obama's Secretary of State. The Democrats, largely supportive on issues relating
to labor unions, environmental protection, and public health, are in general skeptical about FTAs.
Under these circumstances, the chance of U.S. returning to the TPP might become more realistic,
for example, should China decide to seek membership to TPP11 (Bergsten 2018a). The likelihoodof U.S. rejoining the TPP might be also enhanced if other European economies than the United
Kingdom make gestures to expand their FTA networks in the Asia Pacific region. While the 11
countries have all expressed interest in welcoming back the United States, these countries areunlikely to reincorporate the suspended provisions under TPP11 or renegotiate the TPP12 texts
that have been already agreed, despite large economic benefits U.S. participation in the TPP
agreement would bring. Besides, the United States rejoining the TPP would mean complicatedadjustments of conflicting rules (especially rules of origin in the automotive sector) between
TPP12 and the USMCA.
The Japanese government has identified trade policy as one of the pillars of its growth strategy.
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As the trade war between the United States and China intensifies, Japan has hurried to conclude
negotiations on an EPA with the EU. The signing of the Japan-EU EPA on July 11, 2018 also sent
the world a strong message that Japan and the EU will continue to play a leading model ofpreserving free trade and multilateral trading system. This agreement may be considered as aprototype trade agreement of the 21st century based on free and fair rules, incorporating, forexample, state-owned enterprises (SOEs), intellectual property rights (IPRs), and emerging tradeissues such as those caused by new technology. This EPA will create one of the largest freeeconomic areas in the world, with 28% of the world GDP and 37% of world trade (see Table 1).
The agreement was ratified the European Parliament and the Japanese Diet on December andDecember 8, respectively. The agreement entered into force in February 1, 2019, before theoriginal Brexit date.
Table 1: Select Mega-FTA Initiatives, Shares in World Population, GDP and Trade, 2017
Population

World GDP(%, Million Persons)(%, Billions US Dollars)World Trade (Exports + Imports)(%, Billions US Dollars)

TPP12

11.2

37.6

25.5

TPP11

6.8

13.3

14.9

TPP16*

13.7

18.1

22.1

TPP16 + UK + Colombia

15.3

21.8

25.3

Japan- EU EPA

8.7

27.7

36.6

RCEP

48.4

31.7

29.0

Revised NAFTA (USMCA)

6.6

27.8

15.3

7,349

80,05135,700World Total

Notes: TPP11 includes the TPP11 participating countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand,
Peru, Singapore, and Vietnam). TPP16*/ consists of the TPP11 member countries and Indonesia, Korea (Rep. of), Philippines, Taiwan
Province of China, and Thailand.
Sources: Elaboration by the author. Population and world GDP figures are based on IMF Economic Outlook database. World trade
data are taken from UNCTAD database.

At the end of the staging period, 99% of its imports from the EU will be liberalized, while theremaining imports (1%) will be partly liberalized through tariff-quotas reductions (in agriculture).
The overall level of liberalization of the EU is set at 99% with 96% of its lines eliminated at entry
into force. It should be noted that most of the EU’s tariffs on general machinery, chemical products,
and electronics will be eliminated on the date of the entry into force. Tariffs on automobiles(current duties:10%) will be eliminated in 8 years, while for auto parts, more than 90% of tariffs(exports by value) will be eliminated immediately. Despite the investment dispute resolution
being excluded, this EPA is a very comprehensive and progressive trade agreement. The signing
process of this EPA was accelerated after the Trump administration slapped additional tariffs onsteel and aluminum against Japan and the EU, and the announcement of the same administration
to introduce a possible 25% (now reduced to 20%) tariff on automobile imports.
TPP11, together with the Japan-EU EPA, add a huge momentum to broader liberalization not
only in the Asia-Pacific region but the rest of the world by facilitating expansion of membershipand by lifting the quality of disciplines and rules in the RCEP, an agreement under negotiation
among the 10 ASEAN members as well as Australia, China, India, Japan, New Zealand, and theRepublic of Korea. Should this happen, it will be, to a certain extent, multilateralization of thehigh-standard disciplines and rules included in those agreements to the rest of the world. TPP11
will facilitate additional integration in the Asia-Pacific region and beyond, with large attendantgains (Petri et al. 2017, Petri and Plummer 2019). TPP11 and Japan EU-EPA may speed up the
protracted negotiation process of RCEP and improve the quality of its trade rules. There is apossibility that the trade rules of TPP will become the de facto trade rules of the Asia-Pacificregion.10 Both TPP and RCEP are considered by many as an effective means to achieve the AsiaIn the RCEP negotiations, Australia and New Zealand are reportedly calling for importing several TPP11 rules into
RCEP (Petri and Plummer 2018a).
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Pacific Free Trade Area (FTAAP). It is also important to note that only four ASEAN countries(Brunei, Malaysia, Singapore, and Vietnam) are TPP members. Another difference is that RCEP
is supposedly a regional integration initiative with the ASEAN Economic Community (AEC) in
its “driver’s seat.” For that reason, in part, RCEP will take into consideration diversities on
economic and social development stages. The 16 participating countries in RCEP taken together
represent half of world population, roughly 30% each of world GDP and world trade (see Table
1).
During 2018, Japan has co-chaired the RCEP with Singapore. Japan has focused on pushing
through a reworked version of RCEP with the other 15 remaining members. The Abeadministration anticipated that having emerging countries (for example, Malaysia and Vietnam)
agree to a higher level of liberalization on the RCEP agreement would help persuade both China
and India to accept lowering their trade barriers and introduce higher trade standards within
RCEP. 11 China also appears eager to conclude the 16-member regional trade pact as acounterweight to Trump's protectionism. But after almost six years of talks ―and several attempts
to reach a year-end deal in 2015, 2016, and 2018―, RCEP members have achieved a consensus
on just seven12 of the agreement's 18 chapters (RCEP 2018). The member countries still struggle
with issues including market access in agriculture, trade in services, e-commerce, IPRs, andinvestment rules. 13 There are still wide gaps in market-access ambitions between relatively
developed and least developed ASEAN countries, on the one hand, and between China and India,
on the other. The slow progress made so far has obliged the member states to postpone thedeadline once again in order that a “substantially” complete agreement be reached at an earliest
date, to be signed by the end of 2019 (Japan Times 2018). Under these circumstances, as a pathto achieving FTAAP, Japan-led TPP11 seems to be a more pragmatic approach than the once
China-led RCEP.
In sum, Urata and Petri (2017) suggests that there are at least four reasons for TPP 11 to bebeneficial to Japan and other signatory countries. First, even if 20 provisions in the rules anddisciplines areas are suspended from TPP12, TPP11 contributes to the economic growth of theparticipating countries by maintaining high-quality, comprehensive trade rules. In addition to theeffects of tariff reduction, the introduction of new trade rules can contribute to resource allocation,
productivity improvement, service trade, and investment expansion. Second, TPP11 has thepotential to become a model of FTAs in the future, and it can become a template of FTAs not onlyin the Asia Pacific but also in other regions. In that sense, it helps to improve complementarity
with other mega FTAs. Third, it might become a breakwater of the spread of protectionist
measures adopted by countries such as the United States. And fourth, the withdrawal from TPP12
will damage the competitiveness of the U.S. merchandise in the markets of TPP11 participating
countries, which will eventually encourage the return of the United States to TPP12.
In addition, an important, but often not fully appreciated, feature of the TPP is that it adopts aquite holistic approach to the development-related issues, designed especially for developing
member countries by including the so-called “Horizontals” (Fergusson et al. 2013): Cooperation
For example, Australia and New Zealand seek a high-standard trade liberalization, while India is less enthusiastic
on trade opening. Regarding the rules of e-commerce, Australia, Japan, South Korea seek high rule standards. In
contrast, China and India are less keen in this area.
12 The seven chapters that had been concluded as at November 14, 2018, when the RCEP Summit meeting was held in
Singapore, are the following: 1) SME promotion; 2) economic and technical cooperation, 3) government procurement;4) customs procedures and trade facilitation; 5) institutional provisions; 6) sanitary and phytosanitary measures andstandards;, and 7) technical regulations and conformity assessment procedures (RCEP 2018).
13
In RCEP, liberalization schedules are less ambitious than in TPP11; Some countries may reduce only 80% of tariff
lines with long phase-out periods, in comparison with close to 100% in theTPP11. Liberalization of non-tariff barriers
and non-border measures, or on IPRs and trade in services is likely to be of a limited scope (Petri and Plummer 2018a).
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9and Capacity Building (Chapter 21); Competitiveness and Business Facilitation (Chapter 22);Development (Chapter 23), and Small and Medium-Sized Enterprises (Chapter 24). TPP11 iscomposed of 30 chapters, 4 out of which are related to development cooperation. Whatdistinguishes the TPP from other conventional mega FTAs is that the TPP incorporates, from theoutset, development dimensions into trade negotiations. 14 Emphasis on development in the TPP
bodes well with Japan's trade policy, baptized by the name of "Economic Partnership Agreement"(EPA), instead of a free trade agreement (FTA). Admittedly, in the TPP agreement, no Party shallhave recourse to dispute settlement under the Dispute Settlement (Chapter 28) for any matterarising under these chapters. These chapters are designed to be fine-tuned in accordance with theneeds and interests of developing member countries.

III.

Differences between TPP12 and TPP11: Economic
and Political Impacts

Some concern has been expressed regarding the possibility that if enacted, TPP12 could
jeopardize the possibility of developing member countries from successfully carrying out theirdevelopment strategies (Rowden 2015). Though slightly modified from the original TPP12,
TPP11 is still an FTA of high standards, which might undermine a policy maneuvering space ofdeveloping countries, especially in the areas of 1) Investor-to-State Dispute Settlement (ISDS)
mechanism, 2) the IPRs that would extend existing patents on essential drugs and expand thescope of patents and raise the costs of reverse-engineering, and 3) restrictions on state-owned
enterprises (SOEs). However, for Chile, Mexico and Peru, which have been front-runners of tradeliberalization over the years, these concerns are not necessarily new to them. For the past 15 years,
the three Latin American countries have addressed these concerns when they negotiated FTAs
with the United States, Canada, the EU, and Japan. Chile and Peru have emphasized in the TPP
negotiations duration of the drug patents, but the provision on a longer patent period demandedby the United States was suspended in TPP11. TPP11’s investment chapter is almost identical to
the respective chapters of FTAs signed by Chile, Mexico, and Peru with the United States. The
commitments made in TPP11 are aligned with the regulatory frameworks in place in Chile,
Mexico, and Peru; thus, the obligations under TPP11 are not more ambitious than those already
imposed by national laws and practices (CEPAL 2016).
A. The original texts (TPP12) vs. the revised texts (TPP11)
The major difference between TPP12 and TPP11 is a set of “suspended” provisions (22 in total)
until the United States comes back to the table.15 The provisions are a list of 19 items that officials
This holistic modality was clear in the Obama Administration’s approach to the Asia-Pacific. As evidenced by thestatement by Chairman of the APEC Trade Ministers' Meeting held in Hawaii in 2011, U.S. policy toward the AsiaPacific began to emphasis not only trade liberalization, but development gaps and the building of regional capacity torespond to the needs of “next-generation” trade and investment issues. In the U.S. government’ view, the following
issues should be included in APEC’s deliberations: 1) conceptualization of Global Value Chains (GVCs) to expand
trade; 2) promotion of SMEs' participation in GVCs; 3) promotion of effective and market-driven innovation policies;4) standardization and harmonization of Customs procedures; and 5) Green Growth. It should be noted that in Honolulu,
the U.S. government was also seeking solid progress with the TPP agreement, considered by the same government asa 21st-century agreement that would tackle pressing trade concerns in new ways and address cross-cutting issues
previously not included in trade agreements (Statement, the 23rd APEC Ministers Meeting, Honolulu, Hawaii
November 11, 2011).
15 The expression, "suspension" of 20 provisions, is based on the premise that TPP12 will not come into force until theUnited States returns. However, the U.S. decision to return to TPP12 would imply not only the "resumption" of thesuspended provisions but the whole TPP12 be renegotiated in accordance with the demands of the Trump administration.
In the present situation where TPP11 participating countries deny renegotiation of the TPP12 texts, the possibility of
the United States returning to the TPP without modification is also low.
14

10

from the member countries have agreed to remove temporarily from the agreement texts, one thathas been changed, and two that clarify terms in the deal. Some elements remain subject to futurenegotiations: SOEs (Malaysia), services and investment in the coal industry (Brunei), disputesettlement (Vietnam), and cultural exceptions (Canada).16 Some critics have assumed that thesesuspended provisions are a significant proportion of the document and that the withdrawal of theUnited States and the removal of the 20 elements, therefore, make TPP11 less relevant. However,in the view of some experts (Kimura 2018, The Asian Trade Centre 2018, Urata 2018), thechanges introduced are relatively narrow items that should not degrade the quality of TPP12.
TPP11 has no changes to any of the current member schedules or commitments in areas likemarket access for goods, services, temporary movement of business persons, government
procurement, or SOEs, and rules of origin. Despite some disagreements expressed by several
members throughout TPP talks, important chapters did not suffer major modifications. For
example, the e-commerce chapter was left intact. 17 The overall government-to-government
dispute settlement provisions are untouched (The Asian Trade Centre 2018, Fergusson andWilliams 2018). The greatest number of changes can be found in the Investment Chapter which
temporarily removes two kinds of provisions and in the IPR Chapter.18 Therefore, the consensus
is that most of TPP11 are identical to what was negotiated originally under TPP12.19
In the investment chapter, the Investor-State dispute settlement (ISDS) provision is suspended
for “investment screening” (e.g., the criteria by which a party approves an investment) and for a
dispute between “a host state government and an investor”, a subject matter of great concern forboth developed and developing countries. These changes potentially could lead to a requirement
to use domestic courts and apply domestic laws to resolve investment disputes, contrary tolongstanding U.S. objectives in bilateral investment treaties (BITs) and FTAs; the FTAs signedby the United States have incorporated ISDS provisions with all other FTA partners except
Australia (Fergusson et al. 2015). In the case of Japan, with Chile, Mexico, and Peru, theprocedure for ISDS has already been included in the bilateral EPAs. Japan’s bilateral EPA with
Australia does not have an ISDS provision. Therefore, it is likely that in the case of an ISDS, thecase is resorted to bilateral agreement. The controversy on the ISDS is not limited to TPP11. The
incorporation ISDS provision was controversial in the Japan-EU EPA negotiations. The two
Parties decided not to include it for the time being; an ISDS can be settled in the domestic courts,
pending future agreement on an appropriate dispute resolution mechanism.
Among the IPR-related provisions subject to suspension were a proposed eight-year protection
for data on next-generation biological medicines and extensions of copyright protection to 70
years after an author's death, which have been a major concern for some TPP11 member countries.
But it is significant that in the revised agreement, rules ensuring freedom in digital activity remain
intact, including three principles on electronic trade: 1) cross-border transfer of information, 2) a
The TPP agreement is said to depart from longstanding Canadian policy by not containing a full cultural exception.
The exemption, which is found in agreements such as NAFTA and EU-Canada Comprehensive Economic and Trade
Agreement (singed October 30, 2016), gives the government full latitude to implement cultural policies to support thecreation of Canadian content.
17 In e-commerce, the parties suspended the obligation to review de minimis tariff levels on express shipments.
18 The suspended IPR provisions include matters such as biological data protection and copyright periods. The major
suspended provisions are as follows: 1) patentability for inventions derived from plants; 2) patents for new uses,
processes, or methods of existing products (so-called evergreening); 3) patent term adjustment for marketing and patentapproval delays; 4) protection of undisclosed test data for chemical and biological drugs; 5) the author/creator life plus70 year copyright term; 6) legal liability and safe harbor provisions for internet service providers; 7) circumvention anddigital rights management; and 8) protections of encryption and satellite program and cable signals (Fergusson andWilliams 2018).
19
While, the original TPP legal text ran to 622 pages, with all the adjustments, the TPP11 text is approximately 10
pages shorter, plus the IP chapter changes, which reduces the length by another 18 pages.
16

11

ban on member states requiring foreign entities to set up computer servers in the states’ territory,
and 3) a ban on states ordering software source code disclosure. TPP11 has enshrined a set ofinnovative new rules on digital economy. These principles may encourage multinationals ofdifferent origins to enter the burgeoning economies in the Asia-Pacific region. “They also may
speed up their big data capabilities, which could help drive innovation in artificial intelligence”(Ota and Murayama 2018).
At the outset of renegotiation, some 40 provisions were earmarked for suspension, but thanks
to Japanese government efforts, the number of suspended items were reduced to roughly about ahalf. To preserve U.S. interest in the original TPP, Japan pushed hard for this agreement to suspend
TPP provisions where consensus could not be reached, rather than amend them. These 20
provisions were primarily sought by the United States and agreed to by other countries in the firstplace in return for better access to U.S. markets. When the United States left, the deal lost its
carefully maintained balance built on mutual concessions (Ota and Maruyama 2018). The 11
countries worked hard to find a new balance among themselves. As mentioned above, TPP11 hasfrozen part of the provisions on IPRs and ISDS, so there is a possibility there will be more policy
maneuvering space of developing countries, which may encourage their accession to TPP11.
B. Economic Impacts
While complicated technical problems remain in estimating the economic effects of the TPP, it
seems clear that the withdrawal of the United States would greatly reduce the economic impactsof the agreement. TPP11 countries account for 6.8％ of the global population (500 million
people) and have a collective GDP of $10.6 trillion (at nominal values in 2017). Though still
significant, accounting for 13.3% of world GDP, the economic size of the TPP11 area is about
one-third of the 37.6% under TPP12 (see Table 1). TPP11 countries are responsible for 14.9% ofworld trade (exports and imports). In contrast, TPP12’s share in world trade is 25.5%. By
comparison, Japan-EU EPA accounts for 8.7%, 27.7%, and 36.6% of world population, GDP, andworld trade, respectively.
Regarding GDP and trade, the economic size of TPP11 is less than half of the Japan-EU EPA.
TPP11 is a mega FTA, like the Japan-EU EPA or RCEP, but without the United States, its sharein world GDP and world trade is almost half of the share of TPP12. However, when the TPP11
membership is expanded to include, for example, the five countries (Indonesia, the Philippines,
the Republic of Korea, Taiwan, and Thailand: TPP16), the share of this group in world trade rises
to 22.1%. When the United Kingdom and Colombia are added to the TPP16, the trade share goesup to 25.3%, close to that of TPP12. These figures show, once again, in order to enhance theattractiveness of the TPP11, it is highly desirable to expand its membership.
With the withdrawal of the United States, based on 2017 export values of each member
country, TPP 's intra -regional exports will shrink from $1,978 billion to $389 billion, and as aresult, the centripetal force of the TPP as “a Free Trade Area” will diminish sharply. Likewise,
three NAFTA member countries (the United States, Canada, and Mexico) account for
approximately 70% of the total export value of the intra-TPP12 trade (Table 2). This indicatesthat the NAFTA is by far the most important trade nexus within the TPP12 region. Because exports
by Chile and Peru to the United States are larger than or as large as exports to the entire TPP11
markets, under the TPP11 framework, these countries will lose one of the engines for trade
expansion. However, since both countries have FTAs in force with the United States, the impactof withdrawal from that country regarding trade creation may be limited. On the other hand,
Vietnam's dependence on the U.S. market is high, and it is inevitable for this Asian country to be
cautious about TPP11. The United States is also the second largest export market for Malaysia
after Singapore, though its dependence is less than that of Vietnam.
12

Table 2: Trade Matrix of the TPP11 vs. TPP12 2017
(Exports of Each Member Country: U.S. millions of dollars)
Australia

Brunei

Australia

Canada31

Brunei152

Canada

1,541

Chile

Japan

Malaysia

TPP11

USA

TPP12

24,008

3,409

131

6,796

50

3,581

3,503

42,895

8,425

1,630

626

0

1

0

426

44

2,880

29

2,908

682

9,117

554

6,051

380

548

1,044

812

20,731

318,955

339,686

201

1,172

68

1,766

64

279

11,611

9,997

21,607

11,2692,463

758

12,76322,654

15,054

92,401135,060

227,461

2,224

1,043

117

30,9796,388

67,06020,576

87,636

113

1,511

905

292

21,964

327,358

349,322

84

810

513

11,524

3,781

15,305

50

153

5,138

6,940

12,07812,294

83,66624,183

107,849

29,30238,47367,77539,333389,172

893,777

1,282,948

225

1

1,390

85

9,592

Malaysia

7,495

534

816

165

17,300

Mexico1,190

5

11,376

1,804

4,056

711

New Zealand

6,252

Peru

240

758

Viet Nam

016,011

10,006Singapore

296

Japan

Singapore

Peru

1

Chile

4

New Zealand

1,090

2

-

Mexico

6,445
1,754

481

128

2,276

722

256

1,202

1,041

1,880

130

418

23

732

79

17,05739,580

1,281

1,799

81

51,321

Viet Nam*

2,865

20

2,653

805

14,671

3,342

1,888

360

277

2,420

TPP11

45,976

1,441

29,332

6,754

98,44160,543

15,882

11,342

17,19762,932

USA

24,523

121

282,082

13,60567,602

12,964

243,287

3,920

8,662

29,773

8,133

694,672

694,672

TPP12

70,4991,562

311,413

20,359166,043

73,507259,170

15,26225,85992,70547,466

1,083,844

1,977,621

Notes: */ Figures for Vietnam correspond to the year 2016.
Source: calculation by the author, from UN COMTRADE database.

In the case of TPP12, three NAFTA member countries were major markets within the TPP
region. As a result, if enacted, the outcomes of NAFTA renegotiation will dramatically change
potential gains of TPP11 to both Canada and Mexico and other TPP11 participating countries. In
addition, among TPP11 participating countries, there are countries where China is a more
important export destination than the United States, except in the case of Canada, Japan, Mexicoand Vietnam for which the United States is the No.1 export market. Chile and Peru would havebeen more interested in a geographically wider, new Pacific-Rim scheme which includes China,
the Republic of Korea or even India. In that sense, although the RCEP’s scope for tradeliberalization is less ambitious than that of TPP11, for the Latin American countries that havestrengthened trade relations with the Asia-Pacific countries on an individual basis over the years,
cooperation with RCEP and ASEAN countries might become a high priority.
According to the Petri et al. study (2017), TPP12 will generate global income benefits of $492
billion (gains for member countries estimated at $465 billion and gains for non-member countries
at $27 billion). Benefits includes income gains of $131 billion for the United States and substantial
percentage gains for other members, especially for Japan ($125 billion), Vietnam ($41 billion)
and Malaysia ($52 billion). In turn, TPP11 will generate substantially lower global income
benefits of $147 billion, less than one-third of the above-mentioned $492 billion for TPP12. Gainsare smaller for every member not only because benefits for TPP11 is much smaller without theUnited States, but also many TPP11 members already have FTAs in effect among each other. The
differences between the two agreements are most obvious for Japan, Malaysia, and Vietnam, withthe benefits of each reduced to about one-third to one-fourth of their TPP12 benefits. Therefore,
the shortfall would be largest for economies that offered significant policy concessions motivatedby their market access to U.S. markets, such as Japan, Vietnam, and Malaysia.
On the other hand, some economies in North America and Oceania, including Australia,
Canada, and Mexico, do reasonably well in TPP11 mainly because their gains in U.S. markets
were limited in TPP12 since Australia has a bilateral FTA, Canada and Mexico have NAFTA with
the United States, and TPP11 would allow them to capture some benefits in third-country markets
such as Japan. But no member economy gains from replacing TPP12 with TPP11. As evident
from these figures, the return of the United States is critical for trade creation possibilities for
TPP11 member countries.
13

The same study shows, at the same time, benefits obtainable from the TPP16 might exceed
those generated by other alternatives examined, with income gains of $449 billion globally and$486 billion for member economies, which are higher than in TPP12 itself. The largest
beneficiaries, in absolute terms, are Japan, the Republic of Korea, and Taiwan, along with theirSoutheast Asian partners. TPP16 would boost benefits three-fold because such an agreement
would apply high-quality disciplines and rules to trade and investment among those threeadvanced economies in Asia which currently do not have an FTA with each other, and as a result,
new value chains will be created in the Asia-Pacific region. Especially, Taiwan has few
agreements with other economies (only with New Zealand and Singapore among the TPP16
countries) and would benefit disproportionately with income gains of 7.8% of GDP, the largest
percentage gain for any economy. The gains estimated for TPP16 suggest that future accession of
non-member countries in and outside the region is highly desirable, or even necessary (Petri et al.
2017).
Petri et al. (2017) estimates that the RCEP agreement generates substantially lower global
income gains of $286 billion, mainly due to two reasons. First, RCEP member economies havethe largest combined GDP among all alternatives examined, and second, the disciplines and rules
contemplated in the RCEP are relatively weaker than those included in TPP11. Besides, RCEP
members are more competitive than complementary in economic structure. In addition, these 16
countries are already connected by a myriad of FTAs among themselves. The requirement formembership in RCEP is that each economy have an agreement with the ASEAN, and RCEP
provisions are not likely to exceed in quality those FTAs already in effect. Still, RCEP could leadto improved follow-up agreements in the future as other ASEAN agreements have done, yielding
greater long-run benefits. Either TPP11 or RCEP option would yield benefits greater than thosethat would be generated from bilateral FTAs between individual countries and the United Statesalone, and gains from such mega-deals could grow over time.
Estimates by Petri et al. (2017) indicate that the Japan-U.S. bilateral FTA is the least attractive
among the alternatives examined, with global income gains of $120 billion. Both Japanese andU.S. gains would fall far short of benefits under TPP12. If the U.S. Administration continues toprioritize bilateral FTAs to close bilateral trade deficits rather than seeking greater mutual gains
from a mega-trade deal such as TPP12 (or even TPP17 including the five Asian countries and theUnited States), gains for the United States and Japan should shrink enormously.
An analysis by the Japanese Cabinet Office released in December 2017 (Japan, Cabinet
Secretariat 2017) shows that the original TPP deal would have raised long-term real growth in
GDP by 2.59%, a significantly higher rate than the 1.49% expected under TPP11. In comparison,
the Japan-EU trade deal was expected to increase real term economic growth by 1%.20 On theemployment side, TPP11 and the Japan-EU EPA are expected to generate employment for
460,000 people and 290,000 people, respectively. The government estimates employment
creation from TPP12 is 800,000 persons. Therefore, the economic effect combined for TPP11 andthe Japan-EU EPA is comparable to the original TPP. However, of TPP11 participating countries,
Japan has already concluded EPAs with eight countries, with the exceptions of Canada and New
Zealand. Therefore, the effects of trade liberalization with those eight countries should beconsidered only as “additional." Professor Kozo Abe of Osaka University considers that thebenefits Japan can enjoy from TPP are rather limited (Abe 2017).

The Japanese government estimates indicate that TPP12 will generate 14 trillion yen ($1,270 billion). In contrast,
the economic effect of TPP 11 and the Japan-EU EPA will raise Japan's GDP by 8 trillion yen (approximately 730
billion dollars), 5 trillion yen (450 billion dollars), each. The total sum is 13 trillion yen (1,180 billion dollars).
20

14

To analyze economic effects in more details, it should be taken into account that TPP countries
are already connected by a myriad of bilateral and plurilateral FTAs and that liberalization among
the TPP participating countries has already progressed to an advanced stage (See Table 3 forexisting FTA networks within the TPP11 region). In this respect, it is important to assess themagnitude of the “add-ons” or “extras” included in the TPP11 agreement, compared to theliberalization measures contained in the existing bilateral and plurilateral FTAs, especially in theareas of tariff reduction/elimination and non-tariff barriers. In other words, whether there havebeen substantial improvements in TPP11 regarding market access and other trading rules,
compared to those of the individual FTAs.
Table 3: Existing FTA networks among TPP11 participating countries
Austraiia
Australia

Brunei

CanadaP

BruneiP

Canada

Chile

Japan

Malaysia

New Zealand

Peru

Singapore

Viet Nam

B

B

P,B

P,B

B

P,B

P

P

P,B

P

P

P

P

P,B

P,B

P

P

P,B

P

P

Chile

B

P

Japan

B

P,B

Malaysia

B

P

MexicoB

Mexico

P,B
B

B

B

P,B

P,B

B

B
P

B

B

P,B

P,B

P

P,B

B

P

P

P,B

B

P

P

P,B

New Zealand

P,B

Peru

B

Singapore

B

P

P

P,B

P

P,B

Viet Nam

P

P

B

P,B

P

P

B

P,B

P,B
B

B
B

P
P

Notes: P=Plurilateral : FTA among more than 2 member countries
B=Bilateral FTA: to be filled when TPP11 goes into effect.

Source: Elaboration by the author based on national sources.

In sum, for the benefits of TPP11 to expand, either the return of the United States or theaccession of other countries is indispensable. If five Asian countries (Indonesia, the Republic ofKorea, the Philippines, Taiwan, and Thailand), Colombia from Latin America, and the United
Kingdom when it leaves the EU, which have expressed interest, at one time or another, in joining
TPP11 are included, benefits for the enlarged TPP11will substantially expand to match or evenexceed those under TPP12. A new study by Petri and Plummer (2019) shows that if China were
to join TPP11 (TPP11+China), these gains would be much greater, quadrupling to $632 billion,
or a quarter more than TPP12. In the case of “TPP16 +China”, in which China joins TPP16,
benefits are estimated at $ 1,225 billion, tripling those of TPP16.
C. Potential Benefits to the Three Latin American Countries
The estimates by Petri et al. (2017) and Petri and Plummer (2019) suggest that impacts of the
TPP on the three Latin American countries will vary as the TPP membership is expanded.
According to the income gain estimates for 2030 (based on the 2015 constant dollar), the impactsof TPP12 and TPP11 on Chile are relatively small, 0.9% and 0.7% of GDP, respectively. But when
China is included in TPP11, the impact will rise to 2.1%. In the case of “TPP16 +China” variant,the percentage goes up to 2.5%. Gains expected for Chile, a country that has signed FTAs withall the TPP participating countries, also expands substantially when China is included. In the caseof Mexico, the corresponding figures are 1.0%, 0.7%, 2.2%, and 3.4%. For Mexico that has FTAs
in effect only with Japan, Chile, and Peru among TPP11 participating countries, expected income
gains from the TPP increase as the TPP membership expands; TPP11 opens for Mexico newmarket access to six countries (Australia, Brunei, Malaysia, New Zealand, Singapore, andVietnam). Mexico’s gains are even greater when China joins the TPP11. Compared with the two15

countries, the impact on Peru is even greater, 2.6%, 2.2%, 3.2% and 3.9%. Peru's expected income
gains increase as the TPP membership expands. TPP11 should improve market access to thecountries with which Peru has not yet signed bilateral FTAs, (i.e., Brunei, New Zealand, Malaysia
and Vietnam), new market access to these countries will generate enough gains to boost the
Peruvian economy. It is rather surprising that the expected income gains in Colombia are zero,
regardless of the type of agreement (TPP12, TPP11, TPP16, TPP16+China).
However, while aggregate global income gains may be relatively small, TPP11 is likely toprovide important economic stimulus in certain sectors. The greatest advantage of joining the
TPP11 to these countries is improved access to the Japanese market for agricultural products. In
addition, automobiles, business services, machinery and equipment, textiles and apparel, andleather products are expected to benefit from the TPP11 (CEPAL 2016, El Mercurio 2018). Under
the TPP11, the Japanese markets for products such as meat, citrus fruits, dairy products, foodpreparations, and fish will open significantly, providing substantial gains to the three Latin
American countries. TPP11 should also help to reduce non-tariff barriers to trade among its
members, especially trade in services and government procurement. 21 These often arise fromdiscrepancies between countries’ technical standards in areas such as safety, health orenvironmental protections, or sanitary and phytosanitary (SPS) measures (CEPAL 2016). The
cumulation of origin should encourage the diversification of and addition of value to exports of
Latin American TPP signatory countries.
1. Chile
Chile has in effect FTAs with all the TPP members, and therefore, it might be expected that
TPP11 has little to offer. However, the “add-ons” to the bilateral agreements are not insignificant.
Since all the tariff concessions agreed in TPP12 are preserved in TPP11, there should besubstantial gains in market access, especially with Japan,22 Malaysia, and Vietnam in Asia, andCanada and Mexico in the Americas. For example, Chile gained market access for 1,603 (mainly
agricultural) products that are excluded from tariff cuts in its bilateral FTAs with these fivecountries, whose exports amounted to about $1.4 billion in 2014. Chile’s access was improved
compared with its bilateral FTAs with Japan, Malaysia, and Vietnam for 1,523 products; exportsof these products to the three countries exceeded $1.3 billion in the same year (DIRECON, 2016).
Overall, some 3,000 items, previously excluded from the bilateral FTAs signed by Chile withother ten countries, are now included in TPP11. Also, under TPP11, Chile will have access topublic procurement markets of three countries (Malaysia, Peru, and Vietnam) with which it
already has bilateral FTAs that do not address this issue (CEPAL 2016).
According to the Chilean Pork Producers Association (ASPROCER), market access to Japan
will be improved by Japan’s introduction of gate-price (i.e., standard prices for importation). Chile
exported $147 million to the TPP11 countries (out of which $116 million were destined to Japan).
In contrast, the signing of TPP11 does not significantly change the panorama for the fruit industry,
as tariff reductions are already included in the bilateral FTA with Japan, except oranges and tablegrapes, whose high tariffs under the bilateral agreement were to be reduced over a 10-year period.
Under TPP11, Chile, Mexico, and Peru have greater access in public procurement than under bilateral FTAs:
Australia granted access to government procurement markets at the federal level to all TPP partners and provided only
five countries (the three Latin American countries, Canada and Japan) with access to government procurement markets
at the subnational level. Under TPP11, Canada and Japan have also added more entities to the list covered bycommitments on the openness of government procurement markets, compared with existing bilateral FTAs with Chile,
Mexico and Peru (CEPAL 2016).
22
In the case of Japan, 1,027 items, which were excluded in the Japan-Chile EPA, are now included in the TPP11,
would greatly improve to facilitate entry into this Asian market. With the TPP11, only 236 items are still excluded fromcomplete tariff elimination (El Mercurio 2018).
21

16

Also, market access of Chilean wines to Malaysia, agricultural products to Vietnam, or pork anddairy products to Canada will be improved. With the growing purchasing power of Vietnameseand Malaysian consumers, Chilean wine exports are expected to grow. In the case of wines,
because of the Japan-EU EPA, Chile may lose some price advantages that it has enjoyed in theJapanese market up to now. Chile exported $380 million worth of wine to the TPP11 area (ElMercurio 2018). It is not of minor importance that the rules of origin in TPP11 should allow
member countries to import inputs of agricultural production and to reexport a final productwithout losing tariff preference.
However, not all industries will enjoy better market prospects. The Chilean Dairy Producers
Association (EXPORLAC) is concerned that the competition with Australia, Canada, and New
Zealand will intensify. Chile exported $206 million worth of dairy products to 37 different
markets in 2017, 24% of which were directed to TPP11 countries, including Peru and Mexico.
Brunei and Malaysia do not yet have approved the phytosanitary codes. In the case of Japan, withan introduction of a quota system, cheese exports might increase (El Mercurio 2018).
2. Mexico
Mexico is no stranger to free trade deals, having signed such accords with 46 countries,
including Japan. But TPP11 represents an important opportunity for the country to establish traderelations with new governments since the existing deals are mostly with countries in the Western
Hemisphere and Europe. TPP11 would open six new markets in the Asia-Pacific region and allow
Mexico to boost exports of food items such as pork, avocados, tomatoes, and tropical fruits.
Besides, Mexico will have access to six new public procurement markets in the Asia-Pacificregion. The combined GDP of the six countries amounts to $27,600 billion, little explored markets
so far by Mexican enterprises.
More importantly, TPP11 would allow Mexican enterprises to participate more actively indynamic value-chain networks that have prospered in Asia, not only in manufacturing but also
commodity or services sectors. The TPP11 stipulations of rules of origin and their system of“cumulation” should boost Mexico’s supply chains of the automotive and electronics sectors.
Mexican authorities have consistently called for diversification of the export sector and foreign
direct investment (FDI) from countries other than the United States. TPP11 would allow Mexico
to diversify its economic and trade structure, which is heavily reliant on the neighboring country:
The United States represented 80% of Mexico's exports and 46% of its imports in 2017.
In the case of the automotive sector, in which extensive supply chain networks have been
constructed in North America, the outcomes of NAFTA renegotiations (now USMCA) will be ofgreat importance for TPP11 as well. Stricter rules of origin under the USMCA agreement on
automobiles and their parts would force Japanese automotive companies to accommodate theirstrategies, in conjunction with the rules of origin already stipulated in TPP11. For a vehicle to beconsidered of origin, the TPP12’s rules require a level of regional value content (RVC) that islower than the level required by NAFTA, but higher than the level required by most other U.S.
trade agreements (Signoret and Bloodgood 2016) (the USMCA will be discussed in more detailin Chapter IV).
Mexico’s strategic value of TPP11 as leverage in NAFTA renegotiation is clear: the Mexican
government considers having other trading partners to fall back on has given more leverage inrenegotiating NAFTA and other mega deals. The hope has been to challenge the U.S. assumptionthat Mexico would not be able to maintain its economy without NAFTA and thus be submissive
to its demands. On the import side, TPP11 should not create great difficulties for Mexico; tariffs
17

on some products imported to Mexico (including various agricultural and clothing products) will
be phased out over a period of up to 16 years, while others will remain at levels of up to 47.5%(used vehicles) and in other cases will not be reduced (for example, sugar) (CEPAL 2016).
3. Peru
Peru has concluded FTAs with 53 countries, and the participation in the TPP process is part ofthe country's liberalization package. In fact, 94% of Peru's overseas trade is already covered by
FTAs. Once the TPP11 enters into force, Peru will have gained preferential access for its products
in four new markets (Brunei, Malaysia, New Zealand, and Vietnam), whose combined GDP
amounts to almost $750 billion. Peru will also have access to public procurement opportunities
in these four new markets. It should be noted that Peru has recently signed a bilateral FTA with
Australia in February 12, 2018. In addition, in those markets where Peru has in place six bilateral
FTAs (Canada, Japan, Mexico, Chile, Singapore, and Australia), additional benefits can be
expected.
Peru’s trade with Japan has a great potential to grow. The number of products excluded fromtariff cuts in the Japanese market is reduced from 1,062 under their bilateral agreement to only 29
under TPP11. This wider trade opening raises liberalization rate of the Japanese market for Peru
from the bilateral rate of 88% to 98%. In addition, Peruvian authorities consider that TPP11 offers
significant growth potential for its non-traditional exports, especially food, industry, and fisheries,
to the markets of the four countries with which Peru has not signed bilateral agreements(MINCETUR, 2016). The restrictions for the temporary entry of Peruvian professionals andtechnicians into these markets will also be eliminated. Besides, TPP11 is expected to promote theinternationalization of Peruvian SMEs, since "cumulative" rules of origin can be utilized among
participating countries. While SMEs’ capacity for generating value added in their own country
are limited, they can accumulate regional contents of intermediate goods and parts andcomponents imported from TPP participating countries and use preferential tariffs.
TPP12 was going to provide better access to the U.S. market for Vietnam and Malaysia thatwould have competed directly with Peru in textiles and clothing. With the U.S. withdrawal, thisconcern is lessened for now. On the imports from the other ten countries, Peru should not have
major problems because most of their imports from the other members are already duty-free (orare in the process of becoming so) due to existing bilateral FTAs. Peru will also eliminate tariffs
on some products during a period of up to 16 years (for example, certain poultry and pork
preparations) (CEPAL 2016).
When TPP11 gets into force, Peru will establish an FTA relationship with four new trading
partners in Southeast Asia and Oceania and have closer ties with consumption and investment
trends in the Asia-Pacific region. Peru aims at consolidating its position as a “gateway” for Asian
countries to Latin American markets by strengthening relations with trading and investment
partners in the Asia-Pacific region by way of participating in TPP11 (Young 2015). The Peruvian
government's view is that TPP11 will provide opportunities to improve trade rules that had notbeen incorporated into existing bilateral FTAs (Montoya 2015). Many of these improvements are
related to non-tariff measures, and various types of regulations are targeted, particularly, sanitaryand phytosanitary (SPS) measures aimed at enhancing consumer protection and quarantine
inspection and certification capabilities (Montoya 2015).
B. Political Implications
The TPP without the United States is unlikely to diminish its political importance for several
18

reasons. First, as mentioned earlier, the greatest underlying geostrategic benefit of TPP11 has been
its potential to discourage harmful trading practices and “managed trade” policies by building a
21st-century rules-based trading system. Second, in the view of A. Sarukhan (former Mexican
ambassador to the United States), “TPP11 might create incentives to eventually engage with
China, and for China itself to reform its “state-capitalism” practices (IAD 2018b). It is true thatwith the U.S. exclusion, some TPP participating countries now are free of the anti-Chinese bias
embedded in the original TPP (Medina 2017). Third, because of its transpacific nature, TPP11 canconsolidate not only the coalition of the free trade advocating countries in the Americas but also
the relationship of these countries with the Asia-Pacific counterparts. Fourth, it will continue tocreate synergies with and among the four Pacific Alliance nations and others such as Mercosur
countries that have begun to engage themselves in cooperative efforts with the Pacific Alliance.
In sum, TPP11 has a new and important role to play in filling the geopolitical vacuum in theAmericas, caused by the retreat of US global leadership. China’s recent persuasion of its socialist
trade liberalism is not enough, at least for now, to fulfill this gap left by the Trump administration.
Although the large trade deficit of the United States with China has often been cited as themain cause of the current trade tensions, according to the U.S. authorities, competition fortechnological supremacy between the two countries is a more relevant factor (USTR 2018, Akita2018). In their view, the country’s technological supremacy is threatened by China’s unfair
practices, such as 1) requirements that US firms have to invest in strategic sectors in China (e.g.,
manufacturing of automobiles and commercial aircraft and basic- and value-added
telecommunications services) and forming joint ventures with local partners, 2) several
mechanisms, usually of informal nature, forcing or inducing the transfer of technology and IPRs
from U.S. firms to Chinese counterparts, 3) subsidies to SOEs that would eventually lead to
overcapacity, and 4) commercial cyberespionage practices. The European Union and Japan share
most of these concerns expressed by the United States; accordingly, these three countries are
calling for the rules of the WTO to be updated on issues such as industrial subsidies, the regulationof SOEs and forced technology transfer practices (CEPAL 2018a). According to Bergsten (2018a),
China should join this US-EU-Japan initiative to reform the rules of the WTO, in a plurilateraland thus less charged political context.
Both Japan and the EU pushed for an early entry in force of the EPA, possibly before March
2019, when the United Kingdom would leave the EU. The Japanese government aimed to have
TPP11 and the Japan-EU EPA in force during 2019 when Japan will chair the G20 deliberations.
These efforts, in turn, should facilitate the Japanese government to accelerate discussion on theimportance of multilateral trading system with President Trump of the United States and Xi
Jinping Jintao of China. In the Japanese government point of view, TPP11 and the Japan-EU EPA
will encourage the United States to reconsider its return to TPP12, and at the same time, canincrease the possibility of a successful conclusion of both the trilateral FTA among Japan, China,
and the Republic of Korea and the RCEP process.
As mentioned above, there are at least seven countries that have expressed interest in joining
TPP11. The Republic of Korea, pressured by the United States to renegotiate the bilateral FTA
already in force, had tried to use TPP11 as a tool to increase the country’s leverage for thisnegotiation. 23 Thailand seeks membership in TPP11 to enhance the competitiveness of their
President Trump signed a revised FTA with the Republic of Korea on September 24, 2018, cementing the firstbilateral FTA of his administration and sending a signal that the United States could soon win similar agreements withother trading partners. The revised US-Korea FTA will expand annual auto export quota of each U.S. automaker from25,000 to 50,000 vehicles that are only required to meet U.S. safety regulations instead of Korean ones. The reviseddeal will allow the United States to continue imposing a 25% tariff on Korean trucks until 2041. The revised FTA does
not address rules of origin for autos and parts. Both sides agreed not to pursue new agricultural liberalization. The
23

19

entrepreneurs against its neighboring countries, although joining TPP11 would intensify
competition from Vietnam in several industries. Besides, the Thai authorities see that TPP11 ismuch less rigid on pharmaceutical patents, a sticking point for Thailand in the original TPP12.
Japan has agreed to support Thailand’s TPP membership, while pledging to help accelerate RCEP
negotiations so that RCEP talks can be concluded by the end of 2019. The two countries also
agreed to revise the Japan-Thailand Economic Partnership Agreement (JTEPA) to promote indepth cooperation; JTEPA focuses largely on import tariff cuts, and the Thai authorities would
look to overhaul the 10-year pact to cover greater cooperation on innovation, artificial intelligenceand digital development between the two countries (Bangkok Post 2018).
The Indonesian government, which has a series of conflicts with China on the South-China
Sea issue, also has expressed interest in joining TPP11 but does not see it as an immediate priority
for the economy. Indonesia in April 2018 drew up a development strategy called “Making
Indonesia 4.0” for upgrading five manufacturing sectors (food and beverage, textile and clothing,automotive, chemicals and electronics) in the hope of making the country one of the world ten
largest economies. Indonesia faces fierce competition from its neighboring countries in theseindustries and joining TPP11 would at least level the playing field against its regional rivals.
Indonesia is a strong supporter of RCEP, and the government sees its prompt concretion as thecountry’s top priority. The Philippines24 wants to catch up to Vietnam which has concluded eight
FTAs including one with the EU. These ASEAN countries do not want to be left out of the global
value chain networks developed in the Asia-Pacific region, where Vietnam is emerging as one of
the chain hubs.
Taiwan is hoping to join TPP11 as soon as possible and believes it can conform to the deal's
standards and market access commitments. There has been a report that Taiwan has asked
Japanese Prime Minister Abe for the endorsement of its membership to TPP11 (Ting-Fang 2018).
The Taiwanese authorities see that TPP11 would mitigate the effects of China’s protracted traderow with the United States as well as China’s efforts to contain Taiwan’s international presence.
Furthermore, TPP11 does not get in the way of exploring means to participate in the US-led “Freeand Open Indo-Pacific Strategy”, in which the U.S. government has repeatedly acknowledgedthat Taiwan has a critical role (Asia Times 2018). Despite that Japan welcomes Taiwan’s
willingness to join, this move might irritate Beijing and prejudice Japan’s recently improving
diplomatic relations with China.
In Latin America, Colombia, one of the four Pacific Alliance members, which was unable toparticipate in the negotiations on TPP12, has officially requested accession to TPP11 on June 15,
2018. Colombia was the first to formally notify New Zealand, as depositary of the TPP, of its
interest in joining once TPP11 enters into force. While APEC membership is not required, allcountries involved in TPP11 are APEC members; though it has applied for APEC membership,
Colombia has not yet been admitted. Another important reason for Colombia to join TPP11 is thatthe member countries of Pacific Alliance are currently negotiating an FTA with other four TPP11
participating countries (Australia, Canada, New Zealand, and New Zealand) (Portafolio 2018). It
remains to be seen whether or not a successful conclusion of Japan-Colombia EPA is aprerequisite for the latter country’s joining TPP11.
The UK’s announcement in July 2018 that it was formally considering joining the TPP11 wasamended FTA does not include a side letter on “currency issues”, like the one signed by TPP countries in November
2015 and included in Chapter 33 of the USMCA (Schott and Jung 2018).
24
The Philippines would likely consider joining the TPP if the United States decides to renew its membership. In thetestimony at the Senate Committee on Appropriations, USTR’s Robert Lighthizer hinted that the United States would
see the Philippines as a next candidate for a bilateral FTA after Japan (King 2018).

20

in some ways unsurprising because International Trade Secretary Liam Fox had beenchampioning the chance to join since he came into office. Australian Prime Minister Malcolm
Turnbull (then) welcomed the UK’s interest. New Zealand officials have also been supportive of
the United Kingdom joining the deal. With the world’s fifth-largest economy included, TPP11’s
market size will be substantially enlarged, thereby enhancing its attractiveness. Strengthening
UK’s existing relationship with the Asia-Pacific countries might be a key element of delivering
the country’s first independent trade policy for over 40 years as it leaves the EU. TPP11 members
accounted for £82 billion of UK trade in 2016, more than the Netherlands, France or China.
(Government of the United Kingdom 2018). However, there are several obstacles to the United
Kingdom coming on board, including its inability to negotiate trade deals with any countries until
after it formally leaves the EU in March 2019. In February 2019, the Japan-EU EPA entered into
force, and if the United Kingdom withdraws from the EU without a formal agreement, the EU
agreement involving Japan and the United Kingdom is expected to expire in two months.

IV.

Implications of the United States-Mexico-Canada Agreement(USMCA) for JapanThe negotiation of the US-Mexico-Canada Agreement (USMCA) has ended with sighs ofrelief over the fact that it could have been much worse; a complete breakdown of the trilateral
FTA or a bilateral FTA between the United States and Mexico without Canada would have meantsignificant impediments to continued development of supply chain networks between the three
countries. In J. Schott’s (2018) view, “the pact succeeds in partially updating the 25-year-old
NAFTA by imposing new obligations for environmental policies and labor practices, curbing
state-owned enterprises, and fostering digital trade”, thereby “improving incrementally upon thehigh standard rule-making developed in the TPP” which the three countries signed onto during
the Barack Obama administration. The incorporation of environment and labor issues in USMCA
should earn support from the Democratic Party in the new Congress. The deal is expected to takeeffect on January 1, 2020 but requires the approval of all three governments (Wasson and Leonard
2018).
The text of USMCA includes major adjustments in several key sectors of the countries’ trading
relationships. The agreement sets new rules for automobile production, intended to stimulate theproduction of cars and trucks in countries that pay higher wages. It reduces barriers for U.S. dairy
farmers to sell cheese, milk and other products to Canada. It retains a tribunal for resolving tradedisputes that the United States had sought to eliminate.25 Furthermore, the new deal contains aprovision known as a “sunset clause” proposed by the Trump administration, which provides foran automatic termination after a fixed period unless the agreement is explicitly extended by theParties. 26 The USMCA also includes a “currency manipulation” chapter, 27 despite that it isunlikely to affect Mexico or Canada since neither has been a currency manipulator (Bergsten
2018b). But the “currency chapter” in the USMCA could become an important precedent for later
deals with other countries, including a bilateral FTA between the United States and Japan.
the dispute settlement mechanism stipulated in NAFTA’s Chapter 19 for anti-dumping measures is maintained. The
ISDS mechanism between the United States and Canada is eliminated, while its scope is reduced between the UnitedStates and Mexico.
26 Although the United States was initially seeking a five-year sunset clause, the USMCA extends the period to a 16year term, with a review required within the first six years of the agreement that could lead to a renewal for another 16year term.
27 In the Trade Promotion Authority (TPA) legislation in 2014–2015, U.S. Congress mandated “avoidance ofmanipulating exchange rates” as a principal U.S. negotiating objective in future trade agreements and passed separate
legislation requiring “enhanced engagement” with any country that violated those precepts and action against it. The
Obama administration negotiated a side agreement on currency to the TPP (Bergsten 2018b).
25

21

It is of great importance that Article 32.10 of USMCA obligates each signatory to notify the
text of an FTA with a “nonmarket” economy for at least 30 days before signature to allow forreview and assessment of the impact on the North American pact. Sarukhan (IAD 2018a) statesthat “Given the lack of a common North American footprint which the TPP would have provided
towards China, it [USMCA] could have relevant diplomatic and geopolitical implications for both
US neighbors.” Though Mexico has had no interest in talking a possible FTA with China directly
to date, both Mexico and Canada are moving forward with TPP11 and “that could spell trouble
for the new USMCA if China asks to negotiate accession to the Asia-Pacific pact” (Schott 2018).
The revamped NAFTA sets stricter standards for tariff-free auto exports, which all have serious
implications for Japanese and other foreign automakers operating in Mexico. The new agreement
stipulates that vehicles must consist of 75% North American content by around 2023 to qualify
for zero tariffs, up from 62.5% in NAFTA, forcing automakers to source fewer parts for an“Assembled in Mexico” (or Canada) car from Germany, Japan, Korea or China. Besides, there
will be additional obligations of rules of origin to be met for “Core Parts” (i.e., engines, engine
parts, vehicle bodies, gear boxes, drive axles, shock absorbers, lithium-ion batteries and steering
wheels) for use in passenger vehicles and light trucks: North American Content requirement forthese parts will rise to 73% (net cost method) or 85% (transaction method) by 202328 (Inns 2018).
These changes will likely force companies that locally source much of the content of Mexicanmade cars to switch suppliers.
The new agreement also mandates that an escalating percentage of parts for any tariff-freevehicle — topping out at 40% in 2023 — must come from a so-called “high wage” factory. The
new agreement says those factories must pay a minimum of $16 an hour in average salaries for
production workers. That is approximately triple the average wage currently paid in Mexican
factories, and the Trump administration hopes that this provision will force automakers to shift
suppliers from Mexico to Canada or the United States. Just as an example, Nissan's Sentra sedans,
which are assembled in Mexico principally for the US market, include just 15% to 20% American
and Canadian content, with 40% to 55% originating from Mexico, according to data from the U.S.
National Highway Traffic Safety Administration (Tanaka 2018).
In side letters to the revised NAFTA, the United States granted tariff exemptions to 2.6 million
imported passenger vehicles a year from each of those countries. This threshold is slightly more
vehicles than Mexico has exported to the United States in 2017 and nearly 1 million more than
Canada has exported (Tankersley 2018). Mexico is projected to reach this quota as early as 2021
if production continues to expand at its current pace. The USMCA sets a quota for auto parts of$ 32.4 billion for Canada and $108 billion for Mexico, respectively. It is of great concern that thequota system will force companies to be more cautious about investing in Canada and Mexico. 29
The quota system also favors US automakers by including an exemption for light trucks — themain segment exported from Mexico by General Motors and Fiat Chrysler Automobiles. Nissan
Motor and Honda Motor Company, by contrast, export mostly passenger cars (Tanaka 2018).
Producers of passenger cars must either comply with the new rules or forgo the USMCA tariff
preference. “This will likely be their choice, since in that case they can use components from any
country and simply pay the low most favored nation (MFN) tariff of 2.5% instead of overhauling
Depending on which method is used to calculate the North American content, in 2020, these parts will need to have
66% (net cost method)/76% (transaction method) North American content to qualify as “originating”. Thereafter thecontent requirement will rise incrementally to 75% (net cost method)/85% (transaction method) North American
content in 2023 (Inns 2018).
29
The Japanese authorities and the business sectors are concerned that the United States will try to introduce quotas
for automobiles in the TAG negotiations.
28

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their supply chains. But truck producers do not have that easy escape route: The U.S. MFN tariffon trucks is 25%” (Schott 2018). In practice, the new rules will be costly for consumers and could
well have negative effects for both workers and the auto industry because of the increased costs
involved (Elliott 2018, Schott 2018).
With the United States and Canada reaching a deal on a revamped NAFTA in late September
2018, Japanese and other automakers are expected to revise their strategies toward the region.
The USMCA sets new restrictions on cross-border auto exports, but — to the relief of many in
the Japanese auto industry — does not impose tariffs on these exports. Japanese automakers haveinvested heavily in Canadian and Mexican production. They exported a total of about 1.5 million
vehicles from those two countries to the United States in 2017, accounting for roughly 20% of
their sales in the United States (Tanaka 2018) (Figure 1). Nissan Motor and Germany's Daimler
together spent roughly $1 billion on a Mexican plant that began operation in late 2017. Toyota
announced in 2018 a 1.4 billion Canadian dollar ($1.09 billion) investment in Canadian plants
and intends to make new models there.
Figure 1: Japanese automakers in the USMCA markets, Domestic Production and Exports, 2017
Japanese auto makers in Canada:

1,000,000 units

Exports by Japanese
auto markers
770,000 units

Parts
US$ 1.4 billion
Domestic
Production:
9,690,000
Units
Domestic
sales:
5,230,000
units

Production in Canada
Toyota: 570,000
Honda: 430,000

Exports: 1,740,000 units
Finished vehicles: US$ 40billion
Vehicle parts: US$ 8.5 billion

Domestic
Production:
11,190,000 units
Japanese
automakers in
the US
3,770,000 units

Exports by Japanese
auto makers
690,000 units

Parts
US$ 1.8 billion

Japanese auto makers in Mexico:

1,330,000 million units

Production in Mexico
Toyota: 150,000 (140,000 exported to
the US)
Nissan: approx. 800,000 (350,000)
Honda: 210,000 (130,000)
Mazda: 180,000 (70,000)

Notes: Export values are calculated using the exchange rate of 110 yen=1US$
Source: prepared by the author based on the Nihon Keizai Shimbun, [jidousha rittukoku, semaru kiki], “Coming Threat to Japan’s Automobile Empire”,
September 16, 2018, and [nihonsha, hokubei senryaku nerikaeshi], “Reworking of the North American Strategy of the Japanese Auto Industry”, October
2, 2018.

The revamped NAFTA has raised concerns in Japan about the potential impact on negotiations
with the United States toward a bilateral “Trade Agreement in Goods” (TAG). Some warn that
Washington could take a harder line, including demanding that Japan and Europe accept similar
quotas on auto exports. Japanese automakers will need to figure out how to adjust their production
structure in the United States, a vital market, to the satisfaction of U.S. government insistence on
shrinking trade deficits. This task is increasingly trickier by shifting U.S. market conditions;though U.S. new-car sales hit a record of about 17 million units in 2017, some analysts say themarket has peaked (Tanaka 2018).

V.

New Waves of Regional Integration in Latin America

The first Summit meeting between the Pacific Alliance and Mercosur was held on July 24,
2018, on the sidelines of the 13th Summit of the Pacific Alliance, in the Mexican resort city of
Puerto Vallarta. The presidents of Colombia, Peru, Mexico, Chile, Brazil, and Uruguay attended

23

the meeting30 and signed a letter of intent to start working toward establishing a regional FTA.
The leaders of both organizations renewed the agreement they reached in Buenos Aires in Aprilof 2017, signing an “Action Plan” with a series of concrete actions that are going to be addressed
during the next months in areas such as technical barriers to trade, regional value chain, rules oforigin, trade facilitation, regulatory cooperation, SMEs, trade in services, e-commerce, among
others. In these areas, concrete measures have been taken, guided by the “Roadmap Pacific
Alliance and Mercosur” agreed upon in May 2016.31
Talks on possible convergence of trade rules between the two parties started in 2014 under theleadership of Chile’s Ex-President Michelle Bachelet. It should be reminded that Chile, Mexico,and Peru are TPP signatory countries. Intra-zonal trade of the Pacific Alliance is quite limited, areason for which deeper integration with Mercosur becomes increasingly necessary and urgent
for the Pacific Alliance countries not only to expand the regional market and participate in GVCs
and RVCs but also act as a “gateway” to and from the Asia-Pacific region. Most importantly, thistype of cooperation will provide a boost to weakening support and respect for the rules-based
multilateral trading system and to a reversal of recent moves towards power-based trade relations.
The negotiations between Mercosur and Mexico involve the two largest Latin American
economies (Brazil and Mexico), which, however, trade very little among themselves up to now,
incommensurate with their respective market size. In fact, from the perspective of the Latin
American FTAs network, lack of an FTA between Mercosur and Mexico is said to be a major“missing link.”32 An agreement of Mercosur with Mexico would be an important milestone on
the path towards an integrated regional economic space. In addition, this will help Mexico reduce
its high trade dependence on the United States. Similarly, with a successful conclusion of thenegotiations between Mercosur and the EU, a common body of norms and commitments acceptedby all members of Mercosur and the Pacific Alliance would be created, which could be later
incorporated, with the appropriate adjustments, to a later agreement between both groups.
After the abrupt turn of the U.S. trade policy, both the Pacific Alliance and Mercosur haveintensified their FTA agenda with extra-regional partners. In June 2017, the Pacific Allianceadmitted four “Observer” countries (i.e., Australia, Canada, New Zealand, and Singapore) as its
first “Associated Member States” candidates: Just to be reminded that these four countries arealso participating in TPP11 and that the signatory countries of the Pacific Alliance are also
participating in TPP11, except for Colombia that also has officially expressed interest in joining
TPP11. Later, the Pacific Alliance started negotiations on a trade deal with these four “candidate”
countries. 33 This process, currently underway, marks a significant milestone for the Alliance,since it constitutes the first FTA negotiation with non-original signatory countries.
The process mentioned above has meant another milestone for the convergence of trade andinvestment rules in Latin America: it puts in practice a kind of “multilateralization” process for

From Argentina and Paraguay, Deputy Foreign Minister Daniel Raimondi, and Deputy Foreign Minister, Federico
González attended the summit meeting.
31 The Roadmap identifies the following six as priority areas: 1) Regional Value Chains / Cumulation of Origin; 2)Trade Facilitation / Single Windows for Foreign Trade; 3) Customs Cooperation; 4) Trade Promotion and SMEs; 5)
Non-Tariff Barriers; and 6) Facilitation of Trade in Services. Working Groups are set up and are executing specificprojects in each area.
32 This is true with the exception of the Economic Complementation Agreement No.55 (ECA55) which lays thegroundwork for free trade in the automotive sector between Mexico and MERCOSUR.
33 There have been six rounds of negotiations: the 1 st in Cali, Colombia (October 23-27, 2017); 2 nd in Gold Coast,
Australia (January 29-February 2, 2018); 3rd in Santiago, Chile (March 3-9, 2018); 4th in Ottawa, Canada (May 12-18,
2018); 5th in Mexico City, Mexico (July 7-14, 2018); and 6th in Oakland, New Zealand (September 22-28). The 7thround meeting, scheduled for November 15-25, in Lima, Peru, was suspended.
30

24

the Alliance’s trade disciplines and rules with countries outside the Latin American region. A third
significant milestone is the successful conclusion, in April 2018, of the negotiations of a new FTA
between Mexico and the EU, which will replace the current agreement, which dates from 1997
(CEPAL 2018b). Chile has been engaging in a similar renegotiation exercise with the EU sincelate 2017. Both parties want to modernize the existing agreement by updating issues such as thefacilitation of customs procedures, trade in services, investment, competition, rules of origin, andIPRs. Meantime, Ecuador has officially expressed interest in joining the Alliance. The Republicof Korea is applying for an “Associate Member” status to the Pacific Alliance.
The full agenda of trade negotiations in which Mercosur is immersed marks a remarkable turnfrom its traditional policy. Its four original members have intensified efforts to conclude the longstanding negotiations for the signing of an Association Agreement with the EU but have not yet
reached an agreement. Areas that have not reached an agreement are reported to include beef,sugar, automobiles and auto parts. 34 The economic situation of Argentina and the results ofBrazil’s presidential election in October 2018 have had the EU authorities to adopt a “wait andsee” stance toward this FTA negotiation. The afore-mentioned sectors might turn out to be
problematic in future EPA negotiations between Japan and Mercosur.
In parallel to the negotiations with the EU, Mercosur recently started negotiations with theEuropean Free Trade Association (EFTA), in June 2017, and with Canada, in March 2018. The
negotiations with the Republic of Korea and Singapore have started in May 2018 and July 2018,
respectively. At the same time, efforts toward strengthening bilateral relations among the Member
States of both the Pacific Alliance and Mercosur, on a bilateral basis, are moving forward:
Bilateral FTA talks, for example, between Colombia and Brazil, Peru and Brazil, Argentina and
Mexico, and Chile with Argentina, Brazil and Uruguay, are underway. These efforts between blocs
and on a bilateral basis will contribute to creating a more solid intra-regional market and a moreconnected market with the extra-regional ones.
Japan has been discussing an EPA with Mercosur since September 2015, when Keidanren(Japan Business Federation) and the National Confederation of Industry (CNI) of Brazil prepared
the joint report (CNI and Keidanren 2015) on a roadmap for a Brazil-Japan EPA. Against thisbackdrop, the Japanese-Argentine Joint Business Cooperation Committee (the Japan Chamber ofCommerce and Industry and the Argentine Chamber of Commerce and Services) and the JapanBrazil Business Council (Keidanren and the Brazilian National Confederation of Industry) issued
joint reports in May and July 2018, respectively, calling for launching negotiations on an EPA
between Japan and Mercosur. Uruguay, a country supportive of a Japan-Mercosur EPA, signed
the Japan-Uruguay Investment Agreement in January 2015. The Paraguayan government has also
been supportive of Japan-Mercosur EPA; in April 2016, Vice Canceller remarked that if a
Mercosur member country refuses to negotiate with a specific country rather than Mercosur as agroup, Paraguay would propose a change of Mercosur Resolution 32/00 so that a bilateralnegotiation will be possible.
The updated version of this joint report (CNI and Keidanren 2018) made available to theirjoint meetings in 2018, outlines issues and matters that should be included in the EPA based on
factors including the current state of economic relations between Japan and Mercosur, as well as
business issues faced by the private sector. Both Japan and Brazil share the view that with the
In January 2018, the EU side suggested raising the beef import quota from 70,000 tons to 97,000 tons, but the
Mercosur side is asking for a quota of 130,000 tons. Mercosur is dissatisfied with the tariff quota on sugar’s exports of
150,000 tons per year, with the imposition of a tariff of 98 euros per ton. Regarding the grace period for the liberalizationof autos and auto parts imports of Mercosur from the EU, it is reported that Mercosur is requesting to extend it from
10 years to 15 years (JETRO 2018).
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concern over the global rise of anti-globalism and protectionism, the Japan-Mercosur EPA willcontribute to the formation and strengthening of free and open economic areas in the Americas,
and when concluded, will have profound significance on the world trading system. As establishedin these joint reports, to further develop inter-regional trade and investment and other forms of
economic exchange, Japan and the Mercosur countries must fully comply with WTO rules. At thesame time, to ensure that the EPA achieves comprehensive and high-level liberalization and rulemaking, it must cover at least 13 negotiation areas. 35 Strong leadership from both Japan andMercosur countries will be expected to conclude a Japan-Mercosur EPA in the near future.
Japan should make full use of the synergy arising from strengthened relations between the
Pacific Alliance and Mercosur by deepening and streamlining the EPAs with Pacific Alliancemember countries. This need becomes evident when one takes into account that Chile, Mexico,and Peru are also TPP participating countries, while Colombia is likely to join TPP11. The
question is then, whether Japan will try to strengthen the relationship on an individual basis with
the Alliance countries within the framework of TPP11, or as a group, for example, by Japan
becoming an “Associate-member State” of the Alliance. In the case of the latter, the four bilateral
EPAs (including one in negotiation with Colombia) are likely to be adjusted in order that they
will be eventually collapsed into a single EPA. This, in turn, might require further negotiations
which go beyond the commitments made in TPP11.
Although three TPP 11 countries from Latin America (Chile, Mexico and Peru) basically sharethe views of Japan on TPP11, in the current situation where TPP11 participating countries andother countries/regions are engaged in other FTA negotiations ―Australia, Canada, New Zealand,
and Singapore are involved in FTA negotiations with the Pacific Alliance from February 2018―,
these seven countries, together with Colombia, are negotiating an FTA, whose geographic
coverage is similar to that of TPP11 (see Figure 2). As a result, there seems to emerge a duplication
process between the TPP11 membership and the expansion of the Pacific Alliance in progress.
TPP11 should continue to create synergies with and among the four Pacific Alliance nations andothers that are engaging in the group. The government of Japan should make efforts for bothschemes to be complementary and mutually reinforcing. Emerging crisscrossing of transpacific
FTAs (a spaghetti bowl phenomenon) might eventually pose a challenge for the TPP11
participating countries.
Figure 2: FTA networks in the Transpacific region

Source: Elaboration by the author based on official sources.
Negotiation areas recommended to be included by both parties Trade in Goods, Investment and Services, Rules ofOrigin, Trade Facilitation and Customs Procedures, Technical Barriers to Trade and Sanitary and Phytosanitary
Measures, Trade Remedies, Intellectual Property Rights, Movement of Natural Persons, E-Commerce, Government
Procurement, Business Environment, and Dispute Settlement (Keidanren 2018).
35

26

The member countries of the Pacific Alliance and Mercosur have recently given clear signals
to accelerate and deepen the convergence process. Some even have expressed interest in exploring
the possibility of initiating negotiations for an FTA between the two groups, in stark contrast to amore modest idea of initiating the discussions on convergence. Despite this greater politicalsupport, the negotiation of a "bloc by bloc" agreement is unlikely until other processes of equal
importance, in which some members of both groups are immersed, come to a concretion. This has
been the case of the USMCA’s approval, of the negotiations between Mercosur and Mexico, andthose carried out by Mercosur with the EU. Since the tariff rates and trade and investment rules
differ greatly between the Pacific Alliance and Mercosur, it might be advisable to proceed withthose areas of common interests that can be agreed upon without major difficulties, and to seek
later the convergence of rules over the medium to long-term, without aiming at creating a“Customs Union” or even “Free Trade Area.”

VI.

Concluding Remarks

The Abe administration has put TPP11 and Japan-EU EPA as one of the most importanteconomic diplomacy projects, forming an important component of Abenomics. The entry in forceof both mega agreements that portray a prototype of the 21st century FTA of “golden standards”
will send the world a strong message that Asia-Pacific, Europe, and Latin America will continue
practicing a leading model of free trade regime. TPP11 has a potential to serve as a breakwater ofthe protectionist waves and as a safeguard against the preference for bilateral FTAs of the Trumpadministration, in addition to becoming prototype of FTAs in the Asia-Pacific region andelsewhere. The potential significance of TPP11 is even greater in the context of the intensifying
trade tensions between the United States and China.
Although the U.S. withdrawal was a major setback for TPP12, TPP11 has a large potential togrow, in both economic and political terms. The decision by the United States to withdraw does
not lessen the importance of the agreement, which has been recrafted to drop some of the original
demands made by U.S. negotiators. The U.S. decision to withdraw from TPP12, however,changed the dynamics of the trade pact, thrusting Japan into a leadership role. Although Japan iswell positioned to take a more active leadership role, no one country in the Asia-Pacific can dothis alone. Collective leadership will be required from those that have a large stake in the global
open trade regime. Japan is key, and other open economies such as Australia, Canada, New
Zealand, and Singapore in the Asia Pacific, as well as Chile, Colombia, Mexico, and Peru in Latin
America, will be important partners in these endeavors.
The entry into force of TPP provisions, even without the United States, would be an importantdevelopment in the evolution and strengthening of international trade disciplines and rules. TPP11
parties are expected to benefit from commitments providing for tariff reductions, cumulative rulesof origin and support for GVCs, facilitation of cross-border digital trade, SOEs, investment
liberalization and protection of IPRs and other provisions that go beyond those in existing
agreements. Provisions on environment and labor are also included. The horizontal rules thatallow trade to prosper are also added. By way of addressing the “Horizontals” issues, Japan should
work on concrete actions and activities for the four chapters on development cooperation with
Latin American member countries. Provisions provided in these chapters should be taken fulladvantage of, in order to promote the development of Latin American GVCs and RVCs and thequality infrastructure building.
TPP11 will contribute to the productive and export diversification processes in Chile, Mexico,27

and Peru, and Colombia when the country become a member. Although market-access benefits
for those countries might be limited at the aggregate level, the opening of markets under TPP11
would open new opportunities especially for their agricultural and agro-industry exports tocountries with high purchasing power, such as Australia, Canada, Japan and Singapore, or withhigh economic and demographic growth, such as Malaysia and Vietnam. Furthermore, allowing
the cumulation of origin between Chile, Mexico and Peru and with other TPP partners would
promote GVCs and RVCs, especially for their SMEs. In any case, industrial, technological andinnovation policies are needed to take advantage of these opportunities that TPP11 might offer.
The experience of the countries of the region with FTAs suggests that the entry into force of
TPP11 alone would be insufficient to deepen productive and export diversification processes ofthese countries. The “horizontal” commitments included in the agreement should facilitate theseprocesses.
The political significance of TPP 11 for Latin America is that even without the United States,
Asia-Pacific countries can work together to preserve the multilateral trading system and open a
new era in international economic relations. The entry into force of TPP11 is meaningful to theLatin American region where many economies have worked hard to streamline trade andinvestment policies over the last 25 years. TPP11 is a reassurance of free trade regime andmultilateral trade liberalization, of which countries of the Latin American region have beenfaithful followers. TPP11 will open to Latin American countries new venues and ways not only
to construct strategic relations with the Asia-Pacific countries, but to rewrite integration strategies
within the proper region. Countries in the region should support TPP11 or RCEP initiatives topromote productive diversification, GVCs and RVCs, infrastructure development, as well as
democracy, national security, and other issues.
The accession clause of TPP11 does not suffer changes from TPP12; the clause allows any
state or customs territory to accede to the Agreement, subject to the terms and conditions agreed
between the applicant state and the Parties. There are no “geographical” limits with respect to its
membership. Admittedly, with the U.S. withdrawal, the attractiveness of TPP as a “Free TradeArea” is substantially diminished. For the TPP11’s benefits to expand, either the return of theUnited States or accession of other countries is highly desirable. Under the present circumstancein which the U.S. return is most unlikely, the United Kingdom joining TPP11 will undoubtedly
boost its market size and therefore its attractiveness. New accession of countries deeply embedded
in Asian value-chains like the Republic of Korea, Taiwan, Indonesia, and Thailand in Asia willfurther enhance its commercial and geostrategic value. TPP11 offers a great potential to expand
Asian GVCs and RVCs to get Latin American counterparts engaged not only in Mexico’s
manufacturing but also in commodity and services sectors as in the case of Chile, Colombia, andPeru. These value-chains networks can be also connected with the RVCs in the Mercosur
economies.
Since some 20 provisions that U.S. negotiators fought hard to achieve in TPP12 are for now
suspended, TPP11 may generate even stronger incentives for others to join. Indonesia, theRepublic of Korea, Taiwan, Thailand, and the United Kingdom all expressed interest in
membership following the conclusion of the negotiations. At one stage, even China expressedinterest. China’s membership, though controversial, would generate especially large benefits forall. Bergsten (2018a) argues that China should indicate an interest in joining TPP11, which would
induce the United States to rejoin the TPP agreement and provide another venue to open markets
and establish new rules for the Asia-Pacific countries. Also, some of the EU Member States thathave concluded bilateral FTAs with Asia-Pacific economies could also be potential partners of
TPP11. As the number of member countries increases, economic and geostrategic benefits can be
expanded accordingly.
28

In the medium term, TPP11 could form the foundation for a Free Trade Area of the AsiaPacific (FTAAP) among the 21 economies of the Asia-Pacific Economic Cooperation (APEC)
forum. While TPP11 could set the momentum towards establishing FTAAP, a gradualconvergence process in trading rules between TPP11 and other mega economic integration
projects currently under negotiation such as RCEP might be encouraged. The fact that seven
RCEP participants (Australia, Brunei, Japan, Malaysia, New Zealand, Singapore, and Vietnam)
are also parties to TPP11, may facilitate this convergence. In any case, any convergence between
these two projects would be highly complex, as the diverging views of Japan, on the one hand,
and China and India, on the other, on the regulation of trade and investment would have to bereconciled.
China has dramatically increased its commercial presence in Latin America in recent years,
and as a side-effect of President Trump’s “America First” policy, it is expected that China will
become more aggressive to fill the vacuum left by the United States. Chinese companies are readyto undertake new projects in Latin America. U.S.’s inward-looking strategy will have an important
political effect that could alter the power balance between the United States and China, or Russia,
in Latin America (Rocco y Comini 2018). Japan should be prepared to fill, to its possible extent,
the vacuum left by the United States, and counterbalance Chinese influence. If this happens, Japan
will be obliged to decide how to go about strengthening its relations with the Alliance, either
individually or as a group, and with Mercosur.
The negotiations undertaken between the Pacific Alliance and Mercosur in recent years
respond to a natural interest of both parties to strengthen trade and investment relations with
relevant regional partners, especially in a global context of great uncertainty and growing
protectionism. The protectionist trends became evident in some quarters of the world that havegiven renewed impetus to the agenda of intra- and extra-regional negotiations of both groups andprovided a rationale to also boost the process of convergence; having a more integrated regional
economic space would strengthen the attractiveness and bargaining power of both groups towards
developed countries, Asian emerging economies and other extra-regional partners (CEPAL
2018b). Mercosur’s closer relations with the Alliance and an EPA between Japan and Mercosur
will be an additional, important signal for the preservation of world open trade regimes. A
successful conclusion of the negotiations of Mercosur with the EU, EFTA, the Pacific Alliance,and several Asian countries (Korea and Singapore, and possibly Japan) has a potential to provide
a common body of trade norms and commitments that can be eventually acceptable to all Latin
American countries.
When it enters into force, TPP11 would also have important implications for the future of
regional economic integration processes in Latin America and the Caribbean. The three Latin
American Parties to the agreement are also members of the Pacific Alliance, while anothermember of the Alliance, Colombia, has expressed interest in joining TPP11. On the other hand,four Associate member-candidate countries have started FTA negotiations with the Pacific
Alliance. As the membership of the Alliance expands, there will be two similar, overlappingtranspacific mega agreements in progress. In this regard, a hypothetical scenario in which the
Pacific Alliance is in effect subsumed by TPP11, or vice versa, could make it difficult for the
Alliance to proceed with the convergence process with Mercosur. Japan’s efforts to strengthen
relations with the Alliance and Mercosur should be pursued in such a way to contribute to thisconvergence. The entry into effect of TPP11 means just a beginning of its implementation andadministration process. It remains to be seen how the TPP11 will evolve in Latin America in theyears to come.

29

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