Hello from Tokyo. Spring is in the air, Covid-19 vaccinations have finally begun and the Japanese economy seems to be bouncing back well from the deep recession last year. Growth figures for the final quarter of 2020 showed that output was just 1 per cent lower than the same period in 2019 — a better outcome than seemed possible in the grim days of a year ago.
Even if the rebound continues, however, the outlook for Japan is cloudy. Prime minister Shinzo Abe and his “Abenomics” policies are gone; it is not clear what will replace them. All of the familiar challenges — ageing, population decline, high public debt and zero interest rates — are still present. The need, as ever, is for fresh sources of growth — and trade is one way to find them.
That is one factor behind Japan’s interest in new accessions to the trans-Pacific trade deal, the subject of today’s main piece. Policy watch examines the first big speech of China’s foreign minister since Joe Biden took office in the US, while our chart of the day looks at vaccine supplies.
The terms on which Japan will expand the CPTPP
The year 2021 began with a flurry of activity on accessions to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP): the archetypal “mega free trade agreement” that brings together Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. South Korea and China both expressed renewed interest in membership. Most significantly, the UK made a formal application to join.
CPTPP was designed from the start to accommodate new members. With the UK application, however, two things have quickly become clear. First, the accession process itself is quite vague and will now have to be spelt out in detail. Second, the precedent set by UK accession will be crucial when it comes to future applicants — possibly including China — so the existing members want to get the process right.
“Some countries are trying to craft the rules with other countries in mind,” said one CPTPP negotiator. “If you make this pre-negotiation process a bit more onerous then it helps to fend off China.”
Japan is such a country. Its overarching goal with CPTPP is to set high standards for trade in Asia. It therefore wants to make sure any new applicant signs up to all of the rules in CPTPP as a precondition for joining. “We don’t want to dilute TPP at all for new accessions,” said a Japanese trade official. In practice, the members are looking to create some sort of process where the UK demonstrates how it will meet all of the rules before starting entry negotiations.
The UK is an ideal first recruit for these purposes since it is happy with tough rules in areas such as intellectual property, subsidies and state ownership. Even then, Japan’s strict stance may cause difficulties, because London has red lines on its National Health Service and in some other areas. It is likely to resist a blanket declaration that it will follow all CPTPP rules without any clarification about their scope.
Once the existing CPTPP members agree to start talks, London will have to complete market access negotiations with the seven countries that have ratified the deal, plus Brunei, Chile, Malaysia and Peru if they complete the process. That is likely to be fairly straightforward, subject to adequate bilateral deals with Australia, New Zealand, Canada and Mexico, where agriculture will be an issue as usual.
Then comes the trickier matter of other new applicants. The prospect of Thai membership has fallen away after Covid-19, but negotiators in the CPTPP countries are taking the interest from China and South Korea seriously, although it is not clear whether either is yet ready to apply. For Seoul, one difficulty is its troubled bilateral relationship with Tokyo. For China, the questions are whether it is truly ready to accept some of the more difficult rules in CPTPP, and whether the existing members trust Beijing to abide by them.
If the UK does manage to join CPTPP, it will somewhat change the nature of the pact. As well as no longer being a purely Pacific agreement, the Commonwealth block of Canada, Australia, New Zealand and the UK would have roughly equal population and economic weight to Japan, balancing out Tokyo’s dominant presence in the deal. In furthering its campaign for a “free and open Indo-Pacific”, however, Japan is likely to pay that price happily.
If you haven’t already, we suggest you check out the FT’s vaccine tracker. It’s a thing of beauty and instils a little hope in these dark times.
As the chart below shows, vaccine makers (including those such as Oxford/AstraZeneca, BioNTech/Pfizer and Moderna, which have been approved in several jurisdictions) have received orders for billions of doses of their shots.
It’s no longer a question of if, but when much of the world gets vaccinated. In terms of timing, as we have previously reported (see here and here), there are plenty of supply chain-related difficulties that might delay mass inoculation.
One of the main questions occupying the trade community right now is how Beijing will handle relations with US president Joe Biden’s administration.
China has made clear that it wants to redraw its relationship with the US post-Trump, but it has struggled to come up with a clear strategy of how to thaw relations. The first big speech by foreign minister Wang Yi since Biden took office highlights some of the difficulties involved in improving the mood between the world’s two largest economies.
As Yuan Yang and Demetri Sevastopulo report, Wang went straight on the offensive, decrying the US’s meddling in what Beijing considers domestic issues as ungentlemanly. That follows comments from Biden that he would continue to challenge China over its human rights record.
On trade, the Biden administration has been clear it will not roll back tariffs at least until it consults with its international partners. With that in mind, plus Wang’s speech and Washington’s annoyance with the EU over its investment treaty with Beijing, it is unlikely that the Sino-US relationship will improve any time soon.
Thousands of European manufacturers have been hit by a surge in the price of polymer resins used to make plastic, which have risen to six-year highs because of strong demand and a slump in supplies.
Copper, the world’s most important industrial metal, climbed above $9,000 a tonne for the first time since 2011 on Monday, fuelled by speculative bets on higher prices from China.
Japanese companies are largely sticking with Myanmar despite the military putsch.
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Malaysia will partner with China’s embattled Huawei Technologies to establish a cyber security lab in an effort to position itself as south-east Asia’s leader in the field.