trade

policy brief

Comprehensive free trade agreements:

which benefits for Japan? January 2020

 he Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is

T
expected to lift Japan’s real income USD 490 per worker, by 2030.
The EU-Japan Economic Partnership Agreement (EPA) is expected to raise real income in Japan
between USD 160 per worker and USD 330 per worker over the same period.
 eyond existing arrangements, if G20 economies were to undertake ambitious and
B
comprehensive reforms across tariffs, non-tariff measures restricting goods trade, and barriers
to trade in services, the estimated gains far outweigh the sum of individual actions - exceeding
6% of Japan’s GDP.

What’s the issue? What benefits should Japan expect from

With the recent entry into force of the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership
(CPTPP) and the EU-Japan Economic Partnership
Agreement (EPA), Japan has established itself as a truly
global player in opening new economic opportunities at
home and abroad. As a Party in both of these agreements,
Japan benefits from much improved market access – for
both imports and exports – across a country grouping
with a combined GDP of more than 27 trillion USD, which
accounts for more than 30% of world GDP. And these
numbers will nearly double when Japan and the United
States implement their new trade agreement.
The CPTPP has already begun to cut tariffs across a
significant number of tariff lines and will, over 15 years,
eliminate them across 99% of all tariff lines. The ‘behind
the border’ commitments are potentially even more
important, encompassing regulatory restrictions on
goods, services, and investment, as well as beginning
to address labour and environmental issues, amongst
others. Under the EPA, the EU will eventually eliminate
tariffs covering 99% of products and Japan 94% of its tariff
lines; many of these cuts have already been implemented.
Taken together, commitments made under these
two partnership arrangements will benefit Japanese
consumers and businesses by reducing unnecessary costs
that can often be imposed on them by both border and
‘behind the border’ trade restrictions. While it is too early
to assess, definitively, the actual impacts of the CPTPP
and the EPA on their parties (as well as on non-signatory
countries and firms), anecdotal evidence and early data
indicate steady trade flows between the partners.
these recent trade agreements?
Benefits to consumers come from lower prices for imports
and, over time, for domestic products. The lower prices
increase purchasing power, raise real income, and boost
demand. Consumers also benefit from having more
varieties on offer. Less than one year after entry into
force of the initial commitments made under these
arrangements, Japan is importing more goods which are
available at lower cost to Japanese consumers.
Firms in Japan are expected to benefit from increased
market access abroad, and subsequently higher exports.
More exports create more production, and this potentially
lifts both firm profits and wages. But the greatest source
of benefit to firms comes from reducing barriers to
trade in internationally fragmented value chains: the
more frictionless the trade of parts and pieces, the
lower the cost of organizing those supply chains. Tariffs
are important in that regard, but even more so is the
reduction of unnecessary trade costs related to non-tariff
measures (NTMs) affecting goods and to regulations that
impede services and investment flows.
Full implementation of the CPTPP and the EPA is expected
to raise real income in Japan by as much as USD 490 and
USD 330 per worker, respectively.
How important are comprehensive free trade
agreements?
OECD analysis also shows that the more countries
that participate in efforts to reduce trade costs, on a
comprehensive basis, the greater the shared benefits:

www.oecd.org/trade tad.contact@oecd.org @OECDtrade

Comprehensive free trade agreements:
which benefits for Japan?
The estimated GDP impact of comprehensive trade policy liberalisation
%
Tariff NTM's Goods
15
13
11
-1
Source: OECD (2019).
• Wider participation provides more market
opportunities and lessens the inevitable trade
diversion effects that arise with preferential trade
agreements. Smaller economies, as well as larger
ones, benefit from trade integration as it provides
them with more opportunities to specialize in
contributions to production networks.
• OECD estimates that reducing unnecessary trade
costs associated with NTMs in goods across G20
members would be expected to increase global trade
by 5.5% among G20 members and 4% worldwide.
• Japan ranks among the top beneficiaries in this
scenario, with both exports and imports expanding
by almost 8%. More fluid trade in intermediate
products in motor vehicle and electronic equipment
value chains is an important driver of overall
export growth; Japanese exports of higher value
food products for final consumption would also be
expected to increase.
• Eliminating unnecessary trade costs on goods across
G20 members could increase GDP in Japan by 0.9%,
more than three times the gain in Japan expected
from eliminating tariffs across the G20.
• Additional gains could be realized if G20 countries
would reduce their barriers to services trade, for
example by moving to the average level among
economies in the European Economic Area (EEA).
For Japan, this opening up of services markets would
increase GDP by a further 0.8%.
• Comprehensive reforms - reducing trade costs
associated with NTMs across both goods and services,
along with the removal of the last remnants of tariffs
- would be expected to increase trade by over 20%
among G20 economies. The increased trade flows
have a direct impact on the competitiveness and
efficiency of every economy, raising production, GDP
and worker’s incomes.
www.oecd.org/trade tad.contact@oecd.org
NTM's Services Combined liberalisation
• Comprehensive and ambitious trade policy reforms
- acting simultaneously across tariffs, goods and
services regulations - lead to gains that far outweigh
the sum of individual actions. Japan would be
expected to be a major beneficiary, with an increase
in GDP of 6%.
Further reading
• European Commission Directorate-General
for Trade (2018), THE ECONOMIC IMPACT OF
THE EU-JAPAN ECONOMIC PARTNERSHIP
AGREEMENT, https://trade.ec.europa.eu/docl ib/
docs/2018/july/ tradoc_157115.pdf
• Felbermayr, G., F. Kimura, T. Okubo & M.
Steininger (2019), ‘Quantifying the EU-Japan
Economic Partnership Agreement’, Journal of the
Japanese and International Economies, forthcoming.
https:// www.eurasiareview.com/25022019-the-
eu-japan-economic-partnership-agreement-
and-the-revitalisation-of-international-
economic-liberal-order-analysis
• OECD (2018), “Market Opening, Growth and
Employment”, OECD Trade Policy Papers, No.
214, OECD Publishing, Paris, https://doi.
org/10.1787/8a34ce38- en
• OECD (2019), Trade Policy and the Global
Economy – Synopsis: The Case for
Comprehensive Trade Policy Reform https://
issuu.com/oecd.publishing/docs/oecd-trade-
scenario-5-synopsis
• Petri and Plummer (2019), China should join the
new Trans-Pacific Partnership, Policy brief 19-1,
Peterson Institute for International Economics.
https://piie. com/system/files/documents/pb19-
1.pdf
@OECDtrade