Japan and the TPP Conclusion: Regional Order, Negotiations, and Domestic Adjustment

It took five and half years for 12 member states to reach general agreement over the Trans-Pacific Partnership (TPP), which in encompassing 40 percent of the global economy now proposes to emerge as the largest free trade agreement (FTA) in history. Qualitatively, TPP can be viewed as one of the most ambitious FTAs ever. Dubbed the “platinum standard,” the agreement imposes greater tariff concessions and deregulations than afforded by the World Trade Organization (WTO)—WTO-plus provisions—and includes additional economic rules—WTO-extra provisions—, which affect state-owned enterprises, intellectual property, government procurement, and environmental and labor standards. These provisions took shape at the US-chaired TPP ministerial meeting in Atlanta, September 30 – October 5, 2015, where the last-minute efforts of the 12 trade ministers and their staff not only struggled against domestic politics advancing particular interests at the negotiation table, but also accommodated conflicting demands from other parties. The ministers’ final press conference was rescheduled three times, thus extending the total negotiation period from two to six days, which ultimately produced a draft agreement only 20 minutes before the final ministerial meeting was due to begin. Given that China’s slowing economy has hurt the exports of TPP member states such as Japan, Australia, and New Zealand, the recent consensus was desperately needed for these countries’ economic prospects; by establishing common rules for trade and investment in the Asia-Pacific region, TPP expects to catalyze interconnections in pursuit of common economic rules that will ultimately reduce export dependence on China.

As assessed by Deputy Secretary of State Antony Blinken, the leading players at the final stage of TPP negotiations were the United States and Japan—the largest and third-largest economies in the world, respectively—, suggesting that high-standard provisions reached in Atlanta were the remarkable achievement of US–Japanese initiatives.¹ Of course, US influence had been prominent at the inception of TPP, whose current form, nevertheless, originated from the P4, an obscure trade pact launched in 2006 by the four small economies of Singapore, Chile, New Zealand, and Brunei. In 2008, however, when President George W. Bush announced the US intention to join the pact, the agreement’s new potential of becoming a mega-FTA prompted Australia, Peru, Vietnam, and Malaysia to join, thereby adding decisive momentum to TPP’s ascendancy. By contrast, Japan joined TPP negotiations in September 2013 as the twelfth and final participant, which solidified the prospective agreement’s critical mass by increasing the costs of states’ non-membership. Yet, Japan’s initial interest in TPP, as announced in October 2010 by Prime Minister Kan Naoto, had earlier relaxed China’s stance toward Japan, when Chinese leaders accepted a proposal from Tokyo to conclude a trilateral investment agreement before a trilateral FTA, an approach that Beijing had previously opposed. This led to an agreement in May 2014. In fact, Japan’s participation also influenced South Korea’s December 2014 announcement of its intention to join TPP.²

Following this outline of Japanese involvement in TPP, this article examines Japan’s motives, approaches, and roles in the process of reaching the recent agreement in the light of three related factors: one, China’s aggressive advance toward a new regional economic order—for example, with the establishment of the Asian Infrastructure Investment Bank (AIIB)—and the US response (structure); two, Japan’s attitude and role in TPP negotiations (mediation); and three, domestic political adjustments in Japan (agency). In Japan, China’s push for the AIIB has heightened policymakers’ awareness of the transforming international and regional structure caused by China’s rapid economic growth and expanding influence in global economic and political landscapes. Though the springboard for this analysis is international structure, investigating Japan’s domestic political situation, chiefly by tracing the perceptions, ideas, and roles of individuals and organizations in domestic politics, can more precisely explain Japan’s responses to the TPP negotiations.

Led by Prime Minister Abe Shinzo, Japan currently views TPP as an important instrument for accessing Asian-Pacific economic growth and for putting Japan’s economy back on track. As a keystone of Abenomics and its trade strategy, the agreement has been promoted in Japan for its strategic value in pressuring China through economic means to comply with TPP-supported trade and investment rules. Similar to other TPP members, Japan needs to achieve further deregulation and liberalization in line with consensual TPP provisions, domestic reforms that Abe views as necessary steps toward realizing two major policy goals: constraining China’s foreign policy ascendancy and promoting economic reform at home.

Structure: The China-US Struggle Over a New Regional Economic Order

A key feature in the US Asian rebalancing strategy is to engage in multilateral arrangements in Asia and the Pacific, and the United States has increasingly resolved to counter the rise of China through an effort to undertake coalition-building with like-minded countries amid the ongoing US-China competition in the region. The decision to implement a coalition-building approach through its participation in TPP was a response to China’s inclination towards East Asian integration through, for instance, an FTA with ASEAN, which became strongly oriented towards developing countries and would contain more exemptions in the form of tariff-elimination duties, with few deregulation requirements that would reform domestic economic systems.

Despite a variety of extant economic and security cooperation initiatives in the Asia-Pacific, China has proposed its own regional institutions in recent years, including the AIIB and the Conference on Interaction and Confidence-Building Measures in Asia (CICA) as well as the Shanghai Cooperation Organization (SCO). China also leads the BRICS Development Bank with possibly USD 50 billion in capital and the USD 100 billion–scale Contingent Reserve Arrangement (CRA). In trade and investment cooperation, China has promoted bilateral and regional economic integration; in scale, the most promising initiatives are RCEP with ASEAN and its six dialogue partners, and the China-Japan-Republic of Korea (CJK) FTA—both are under negotiation, but China is expected to engage more seriously towards the conclusion of these deals in response to the TPP general agreement.³

China’s policies towards regional cooperation have comprehensively expanded, especially in South and Central Asia together with India and Russia, as seen by the overlapping memberships. China also expressed its ambition to create a “new Silk Road economic zone” covering these areas, as a potential counterbalance to TPP. Yet, it does not mean that China has entirely escaped from global and regional cooperation where the United States and its allies take their seats. Rather than simply balancing by creating parallel regional concepts, China has preserved its membership in multiple regional cooperation initiatives that sustain cooperation with the United States and even Japan, with which political relations had deteriorated since 2012. Hitherto, the CICA and SCO, at least ostensibly, targeted terrorism, separatism, and extremism, which could be regarded as common threats to security by China, Russia, and India. China’s actions to establish and revitalize regional cooperation could be seen as complementing regional institutions. As the Asian Development Bank (ADB) President Nakao Takehiko acknowledged, the ADB can provide about USD 13 billion in new lending every year, “while Asia needs to spend around USD 8 trillion on national infrastructure over the next decade to sustain its growth trajectory,” adding, “I understand the reason behind these banks (BRICS Bank and AIIB), so they should be welcomed.”⁴

These optimistic perspectives should be closely scrutinized. China has aimed through these frameworks to create institutions instrumental in realizing China’s interests or helpful in forging an environment to hamper American and Japanese attempts to realize their interests. Especially, in the field of security, President Xi Jinping’s emphasis on “Asia”⁵ indicates China’s adversarial approach to US intervention in sensitive sovereign issues. Japan and the United States are not members in either CICA or the SCO. Meanwhile, China’s external economic cooperation is more complicated. As the Regional Comprehensive Economic Partnership (RCEP) and China-Japan-Korea (CJK) FTA are regional integration frameworks in which the Chinese way of rule-making attempts to exclude the United States, and could not be simplistically seen as complementary to TPP; it is highly unlikely that China would let these integration frameworks deal with state-owned enterprises (SOEs), for instance, as People’s Daily once acknowledged.⁶ Finally, the BRICS Bank and CRA are increasing China’s political clout, expanding into areas where the global and extant regional institutions have failed to reach.

In short, the upsurge in “new” regionalism in Asia and the Asia-Pacific is a sign of the intensifying Sino-US struggle to shape the regional economic and political order, imposing one’s own sets of norms and rules on regional economic and security agendas. This power struggle has primarily developed around setting standards, not any direct military arms race or trade frictions, as a new way to dominate the regional order-building process. To establish their preferred economic and political rules, the United States and China have employed a coalition-building approach that entails attracting like-minded states and formulating arrangements designed to discourage the other superpower’s involvement. These tactics are intended to support the dominance of one side in standards-setting processes and negate advantages of the other superpower.

The US push for TPP and China’s promotion of AIIB indicate the conspicuous rise of a conceptual competition over economic development and governance. The launch of AIIB may contribute to China’s development model being more popular and gaining more supporters, challenging the US preference for democracy and a market economy. For instance, after the United States suggested that AIIB should “incorporate the high standards of the World Bank and the regional development banks,”⁷ Lou Jiwei, China’s finance minister, offered a rebuttal, stating “the West puts forwards some rules that we don’t think are optimal.”⁸ In “The Beijing Consensus,” Halper labeled governance which China has fostered in developing countries “market authoritarianism,” attributing to it a syncretism of capitalism and dictatorship–trade liberalization while keeping at a distance political liberalism and democracy.⁹ The concept inevitably postulates that government should undertake strong interventions in the economy. Bremmer characterizes the concept as China swelling its market to mainly accomplish domestic political goals such as the maximization of national power, and stresses the differences from conventional Western capitalism.¹⁰

These views hold open the possibility that the development of AIIB will lead to the proliferation of China’s state-intervening form of capitalism, and that the norm of respecting a free service and investment regime will not be adopted in other integration frameworks such as RCEP. TPP serves as a body on which the United States can rely for emphasizing the values of deregulatory systems in the region. This is the essence of Obama’s repeated statement: “If we don’t write the rules, China will write the rules out in that region.”¹¹ With Japan’s economy twice the size of the eight founding participants in the TPP negotiations with the United States, Japan’s entry was viewed as important for the pact’s emergence as the preeminent trade agreement in the Asia Pacific.

Japan’s Response to Structure: TPP and Abe’s Policy Goals

Abe made the final decision on Japan’s participation in TPP soon after his meeting with Obama in February 2013. A key factor behind Abe’s decision was Obama’s assurance of no preconditions for tariff elimination, interpreted in Japan as approval for the maintenance of tariffs on sensitive agricultural products such as rice to be shielded from TPP’s free trade package. Yet, Abe’s special interest in TPP, encapsulated in a statement in March 2013, was not limited to domestic political economy considerations. While underscoring the significance of creating an economic zone with new economic rules through forging a partnership with Japan’s key ally, the United States, Abe highlighted the universal values of freedom, democracy, human rights, and the rule of law as a political foundation for the economic rule-making approach. Abe’s statement implies that TPP members will take collective action not just economically but politically against countries that do not share those values, especially China, an approach that may subsequently evolve into political and security cooperation based on that shared stance.¹² This view is consistent with Abe’s ideologically colored foreign policy, as when he made an abortive proposal to create a quadrilateral forum with the United States, Australia, and India during his first tenure as prime minister.¹³ At that time he stressed that those universal shared values are fundamental to working together within a regional political and economic structure.

This foreign policy orientation suggests that Abe viewed the exclusion of China from TPP as a major advantage. If TPP achieved the promised liberalization by reducing exemptions through high-standard rules in trade and investment, it could lead to deeper economic interdependence among like-minded states. That result would reduce those states’ trade dependence on China and their vulnerability arising from trade and investment reliance on the Chinese market. This is a useful way to stay out of China’s attempts to exercise political influence on the basis of a substantial economic presence. For instance, when a Chinese fishing boat collided with Japanese coastguard ships near the Japan-controlled Senkaku Islands in September 2010, China, on which Japan had relied for more than 90 percent of its imports of rare earth metals, retaliated against Japanese charges by banning their export to Japan. If Vietnam, another TPP member that has disputed with China over maritime territories and heavily relied on the Chinese market for its exports, abided by TPP rules, the attractiveness of Vietnam in the Japanese business community as a destination for investments would be greatly enhanced. Japanese businesses have been looking for alternatives to China since the September 2012 anti-Japanese riots in China that were ignited by Prime Minister Noda Yoshihiko’s decision to nationalize the disputed Senkaku Islands that month. Accordingly, the conclusion of TPP would meet the strategic and economic interests of Abe and the Japanese business community.

Defense secretary Ashton Carter explicitly stated that economic prosperity, spurred by freer trade, is essential to military capability. TPP is, thus, viewed as indispensable from a strategic viewpoint:

I never forget that our military strength ultimately rests on the foundation of our vibrant, unmatched, and growing economy. TPP is so important because of its enormous promise for jobs and growth across our nation’s economy . . . you may not expect to hear this from a Secretary of Defense, but in terms of our rebalance in the broadest sense, passing TPP is as important to me as another aircraft carrier.¹⁴

This point was also echoed by Yachi Shotaro, Abe’s chief foreign policy advisor, who stressed the function of TPP—a de facto US-Japan FTA—, in strengthening the Japan-US alliance.¹⁵ In order to attain an early conclusion of the TPP negotiations, Amari Akira often told Froman, his US counterpart, “We come to negotiate despite opposition back home because we think US involvement is crucial for the stability of East Asia. We are doing this for our common values which go beyond the tariff issue.”¹⁶ This view is consonant with Froman’s political stance, as he also declared that TPP was essential not only for its economic benefits, but also its geopolitical impact, stressing America’s economic engagement as the foundation for regional security.¹⁷ In short, the United States and Japan share a vision that market integration with the harmonization of economic rules and the mutual commitment to domestic deregulations through the TPP agreement serves as an important instrument for the strengthened US-Japan alliance system, sustaining their effort to maintain the momentum in the TPP negotiations. This sort of strategic element in the TPP has been recognized by Chinese policy circles: Xinhua comments that Japan’s entry into the TPP negotiations contributed to the US taking a step forward in encircling China.¹⁸

Mediation: Japan in the Final TPP Negotiations

Although Japan and the United States were portrayed by the media, at least in Japan, as struggling to conclude their bilateral market access negotiations due to powerful domestic opposition to farm and auto liberalization in Japan and the United States, respectively, growing urgency to implement TPP based on shared strategic and economic interests led to a successful outcome. Abe was determined to promote farm reform, partly depriving JA Zenchu of its legal authority to control and manage local agricultural organizations.¹⁹ This helped Japanese negotiators reach a compromise at the negotiating table provided they were able to meet what the Abe administration calls the “national interest,” which meant the protection of five “sanctuary” agricultural products, including rice, sugar, beef, pork, and dairy products. Yet, as seen in Table 1, Japan consequently made many concessions concerning sensitive agricultural products, which had never been touched in an FTA. Of the 930 items for which Japan’s previous FTAs had not eliminated tariffs, 834 were agricultural, forestry, or fishery products, among which 586 were categorized as “sanctuary” products and 30 percent or 174 items will be tariff-free. Farmers and their association, JA Zenchu, had worked against FTAs in the past. They became particularly vehement in their stance against TPP, as, in principle, it would eliminate all tariffs. Abe’s effort to weaken JA Zenchu’s political power proved effective as far as Japanese concessions on agricultural products were concerned.

Japan’s concessions on pork and beef tariffs in response to US demands are a case in point. The nation’s beef tariff will be lowered from the current 38.5 percent to just 9 percent over 16 years, while up to JPY 615 per kilogram on low-priced pork products such as ham and bacon, and an 8.5 percent tariff on high-priced pork products will be eliminated in the eleventh year. In return for its tariff concessions Japan wanted to gain a safeguard clause from the United States that allows Japan to raise tariff rates on US beef and pork back to their original levels if imports of these products increase excessively. Although the United States, especially its Republican-dominated Congress, was not comfortable with this Japanese request, both nations eventually compromised to conclude the negotiations: the safeguard measure can be maintained during the first 11 years, but abandoned in the twelfth year. These concessions preferentially offered to the United States catalyzed Japan’s overall commitment to the agricultural liberalization promised with all TPP members. The immediate tariff elimination ratio on agricultural products is 51 percent of 2,328 farm products, and imports of 81 percent of those products are to become tariff-free in the end, the greatest agricultural concessions Japan has made in the history of trade negotiations.

The US concessions on automobiles were as follows: the nation’s 2.5 percent tariffs imposed on Japanese passenger-cars will begin to be reduced in the fifteenth year, and the current level will be halved in the twentieth year, then lowered to 0.5 percent in the twenty-second year and finally eliminated in the twenty-fifth year. A Japanese automaker executive said that 25 years is too long to see any meaningful effect on his company’s auto production.²⁰ As a precondition for Japan’s entry to TPP, Japan had already agreed when Abe met with Obama in February 2013 to offer the longest-possible period of time (25 years) for the elimination of the 2.5 percent tariff on commercial cars in the United States. A senior Japanese official lamented: the entry fee turned out to be too high.²¹

Yet, since a view lingered among Washington trade specialists that elimination of the tariff on automobiles was politically too difficult,²² this concession was symbolically significant in terms of American determination to conclude the TPP negotiations. Greater economic gains would be accrued in Japan from auto parts liberalization: 87 percent of the US tariffs (2.5 percent on average) on auto parts, including engines, will be removed spontaneously. This concession is beneficial for Japanese auto parts makers as, theoretically, they will be able to save JPY 50 billion annually.²³

As seen in the diagram below, while the United States was the only member heavily engaged in all three major outstanding issues in the TPP negotiations’ final stages, Japan remained a major player in the “rules of origins” on automobiles, and it and America made their demands convergent. As one of the major global automobile producers with wide-ranging supply chain networks in East Asia, Japan strongly wished to sell vehicles tariff-free in the TPP zone, even if a majority of their auto components originated from lower-wage East Asian countries such as Thailand and China, which are not TPP signatories. The local content ratio, meaning the proportion of auto components produced in TPP member countries, needs to be met in completed vehicles to receive tariff elimination privileges from the final exporting country. The United States and Japan through their bilateral talks had agreed to lower the domestic content requirement to 30 percent for auto parts and 45 percent for vehicles. However, because the North American Free Trade Agreement (NAFTA) stipulates the local content ratio for auto parts and vehicles at 62.5 percent, Canada and Mexico, keen to maintain their exports of automobiles to the American market, proposed sticking to the NAFTA ratio. As a compromise, Canada and Mexico accepted a rule proposed by Japan to regard automobiles that use components procured outside the TPP zone as ones made in the zone, provided that essential parts are made within the zone. Japan sees the acceptance of this rule as equivalent to a local content rate of 30 percent, even if the agreed ratio was 45 percent. The Canadian trade minister explained a major reason behind the compromise: “Our whole auto industry is at risk because we will lose lots of opportunities to expand our markets within the Asia-Pacific region and of course our preferences within NAFTA will be undermined over time.”²⁴

Following South Korea’s announcement of its intention to join TPP, Thailand and Indonesia expressed their interest. Further potentially good news for Japan in terms of the rules of origin for automobiles and auto parts is that the Philippines is currently considering TPP participation. Trade and Industry Undersecretary, Adrian Cristobal Jr., admitted that being excluded is disadvantageous for trade. His ministry has been advocating the “One Country, One Voice” strategy to build capacity to help undertake more FTA negotiations.²⁵ One factor pushing the Philippines to consider TPP participation is evident in a six-year Comprehensive Automotive Resurgence Strategy (CARS) program, designed as a way to attract greater foreign direct investment (FDI) to the nation’s automobile manufacturing sector. This program’s goal is eventually to make the Philippines’ automobile manufacturing sector the most competitive in Southeast Asia, where Thailand has currently established itself as the regional hub. One benefit CARS would provide automakers is that, as long as they produce 200,000 units of locally assembled car models over a six-year period, they would receive incentives in tax subsidies totaling USD 1000 per car. The most popular car brands in the Philippines are Toyota, Nissan, and Mitsubishi, all Japanese makers that have already demonstrated their intention to join the program in light of the potential Philippines participation in TPP,²⁶ as this would make it possible to export to the North American market without tariffs.

One of the expectations Japan had from its participation in the TPP was the expansion of the number of countries that were the subject of cumulative rule of origin, which has the benefit of increasing the number of goods for which no tariff is applied, simplifying the rules for that purpose, and ultimately contributing to an expansion in exports.²⁷ Accordingly, the future participation in TPP of additional East Asian countries, such as the Philippines, is very welcome for the Japanese automobile industry.

Agency: Domestic Adjustment

As the central organization among agricultural cooperatives, JA Zenchu functioned to collect the requests of farmers and their local cooperatives and act as a voting machine on their behalf. With such backing, the group had been consistently able to demonstrate against any concessions concerning agricultural tariffs in international trade negotiations. Yet, during the final stage of TPP negotiations, its campaigns against agricultural liberalization remained moderate compared to its efforts in 2011, when the group gathered roughly 11.7 million signatures for a petition opposing Japan’s participation in TPP just before that year’s Asia-Pacific Economic Cooperation (APEC) summit in Honolulu. The recent moderation has been attributed to Abe’s determination to reform JA Zenchu, which also precipitated the replacement of hardliner Banzai Akira with Okuno Choe as chairperson in August 2015. Knowing that the organization of JA Zenchu had remained unchanged for 60 years and was thus ideal for showcasing his reform orientation,²⁸ in August 2015 Abe enacted a revised agricultural cooperative law to make the organization a general incorporated association with little political leverage by the end of September 2019. Even key norin-zoku (agricultural tribes), a group of politicians who defend the interests of agriculture to obtain votes from farmers, have admitted the difficulty of opposing Abe—a popular, long-serving prime minister, who once expressed his determination that “no vested interests will remain immune from my drill,”²⁹ an apparent reference to JA Zenchu.

Ultimately, both JA Zenchu’s declining political influence and Abe’s growing will toward affecting agricultural reform contributed to Japan’s greater tariff concessions on agricultural products in TPP negotiations. As a result, tariffs on more than 400 vegetables and fruits, including grapes, oranges, pineapples, potatoes, and onions, will be abolished within a decade or so after the agreement’s enactment. Similarly, all 350 seafood imports, save less than a dozen seaweed products, will become tariff free. Abe has portrayed agricultural liberalization as a necessary step for moving “the agricultural sector from defense to offense,”³⁰ and in return for greater concessions on agricultural products, his administration established a cabinet meeting of all ministers to provide a multi-year package of measures to help the agriculture sector, which was clearly disappointed by the lack of tariff cuts and special quotas that Japan promised to secure in TPP negotiations. Similarly clear is that these measures are designed to retain farmers’ crucial votes for the upcoming Upper House elections in 2016. Above all, Abe has sought JA Zenchu reform to not only negotiate Japan’s greater concessions concerning agricultural products, but also to sustain the prospects of TPP, whose successful launch is vital for Japan’s regional strategy amid China’s assertive moves toward building a regional economic order—for example, by developing the AIIB.

Indeed, following the United States, Japan decided to not join the AIIB, which with USD 100 billion in capital has become a pivotal component in China’s strategy to rebalance Asia, with its emphasis on Central and South Asia. Of course, Japan views China’s AIIB as a challenge to both its and the US prominent role in the region’s economic order building, as Abe has indicated: “A company that borrows money from a so-called bad loan shark may overcome immediate problems, but will end up losing its future. The new bank should not turn into something like that.”³¹ Thus, in response to the AIIB’s ascendance, Abe announced his own plan to increase investment in infrastructure in Asia by 30 percent to USD 110 billion during the next five years, largely by expanding the financial basis of domestic agencies such as the Japan Bank of International Cooperation (JBIC) and the Japan International Cooperation Agency (JICA) through the supply of funds from the private sector.

TPP is expected to support Japan’s challenge against AIIB. Owing to the government procurement chapter, TPP members will be obliged to allow public bidding with common rules, including the equal treatment of domestic suppliers and companies in other TPP member states, for major infrastructure projects such as railway and highway construction. Eight members, including Vietnam, Malaysia, and Australia, from the TPP have yet to sign the WTO’s government procurement agreement that would ensure open and transparent conditions of competition in areas of government procurement. Their agreement to the obligation established under TPP to open overseas public tenders for any projects worth at least ¥1 billion is, thus, considered to benefit Japanese companies, including Hitachi and Mitsubishi Electric, which issued positive reactions to the deal.³² The emphasis of Japanese companies and the government on the potential benefits of this requirement partly relates to the fact that AIIB may face difficulty in regard to investment related to government procurement, particularly given Chinese law stipulating the favorable treatment of domestic products in its government procurement. Such regulations have been criticized by the United States and Japan as discriminatory, preventing the participation of foreign companies in China’s bidding procedures.³³ With the most liberalized government procurement regime at home, Japan was, therefore, satisfied with this provision’s inclusion in TPP.

Conclusion

According to an optimistic schedule, TPP is expected to launch by 2017 following its ratification by the various member-state congresses. The general agreement reached in the TPP ministerial meeting in Atlanta raised the cost of non-participation in the partnership; outsiders will continually fail to secure maximum trade and investment benefits. China’s participation would mean the transformation of TPP into a gigantic economic zone encompassing the world’s three largest economies. Froman set the conclusion of a bilateral investment treaty with the United State as a precondition for China’s entry by declaring “it’s a good test case to see whether China is willing and able to meet the high standards that we insist on.”³⁴ Furthermore, entry into TPP as a latecomer will also require China to accept all 31 chapters agreed upon by the 12 current member states, including those regarding environmental standards and stronger intellectual property rights, which will leave China little room to introduce national preferences into the agreement’s structure. At this point, however, it is uncertain when China will become ready to commit to TPP’s high-standard agendas.

Since Obama and Abe perceive that China is challenging them in a bid to cultivate a different economic order in the region, as evident in their decision not to join the AIIB, China’s domestic reforms, as seen in the Shanghai Free Trade Zone, in which 18 service sectors, including finance, tourism, and medical care, are being liberalized, can be instrumental in promoting its eventual participation in TPP, and altering such adversarial views. With China as a member, TPP could serve as a practical platform, nurturing shared interests economies, facilitating expanded political dialogue toward reducing differences and further increasing commonalities regarding economic rules. This is a pragmatic way for realizing the Free Trade Area of the Asia-Pacific (FTAAP) concept, which three nations are commonly pursuing as a long-term objective of their trade strategy.