When I think about where international trade stood in 1956, when the Asia Society was established, the changes between then and now boggle the mind. In 1956, the major trading partners of the United States were Canada, the United Kingdom and Japan, while trade with China was virtually non-existent. Moreover, Asia’s contribution to global trade was relatively small. At the time, Asian trade comprised approximately less than 15% of global trade flows. Meanwhile tariff barriers were the name of the game in global trade. So much has changed since then. China, ASEAN, and Japan are now among the top 5 U.S. trade partners. Asian trade has become an engine of global economic growth and now constitutes approximately 40% of global trade flows. Moreover, trade has helped lift over 500 million people in Asia out of poverty. Hundreds of bilateral and regional free trade agreements are in force, and tariff barriers, while still of concern, have been largely overshadowed by non-tariff and so-called “behind the border” measures. At the same time, trade agreements have become increasingly unpopular as citizens around the world blame them for many of their economic woes.
I had the privilege to work at the Office of the U.S. Trade Representative during almost half of this 60-year period, and experienced first-hand many of these developments. When I reflect on my career, however, one area stands out, for its truly transformative impact: the dramatic change in the U.S.-Japan trade relationship.
When Japan joined the General Agreement on Tariffs and Trade (GATT) a half century ago, the United States offered Japan the same tariff treatment that we offered others, failing to recognize how imbalanced the relationship was soon to become. Soon thereafter, the Japanese government fueled its economic growth on an export-driven model, while putting into place restrictive import policies. As a result, the bilateral trade imbalance rose to unprecedented levels, reaching its peak at nearly $90 billion in 2006. Japan’s exports quickly moved up the value chain, and it was just a matter of time before many American manufacturing industries felt threatened by unfair competition, both on the export and import side. This led to friction and resentment in our trade relationship.
I led many of the U.S. delegations at that time as we worked to open the Japanese markets in a range of sectors, including semiconductors telecommunications, autos, and insurance. The negotiating sessions were often tense, with sharp words exchanged across the table and impasses occurring frequently. While we met with some success, we often encountered what we referred to as the “onion phenomenon” of trade negotiations, peeling off one barrier. Each peeling back of that onion took us straight back to the negotiating table. The tense atmosphere persisted through the 1980s and first half of the 1990s. It was not unusual, as the negotiators met around the clock, for work on possible trade sanctions against Japan to proceed in parallel just in case the talks failed. In sum, Japan didn’t want to be at the negotiating table feeling forced and pressured by the United States to do so.
Although U.S. pressure failed to meaningfully move the needle, economic realities soon intruded, and began to make a difference. In the late 1990s, Japan’s economy experienced a serious slowdown and the country entered what would come to be known as the “lost decade.” U.S. companies, recognizing the economic downturn, also grew weary of the challenges they faced in the Japanese market. As a result, they shifted their attention to other markets.
In my view, the big wake-up call for Japan came with the conclusion of the U.S.-Korea Free Trade Agreement (FTA) in 2007 and the EU-Korea FTA in 2010. Japan watched with a high degree of skepticism and unease as its neighbor and commercial rival entered into FTA negotiations with two of its largest trading partners. The Japanese had not expected these talks to be successful. Like others, Japan had convinced itself that Korea would not make the tough decisions, including those to open its agriculture market, to make these deals a reality.
But the Korea deals were successfully concluded, joining a raft of other bilateral and regional free trade arrangements, and new negotiations were launched. The P4 talks were opened, and concluded in 2005, and soon led to a new set of regional negotiations, with the U.S. and others in the region, featuring an expanded agenda and a new name – the Trans Pacific Partnership (TPP).
Witnessing these developments, and recognizing that they might be left behind, the Japanese started to consider TPP membership. This was a paradigm shift for Japan; a serious domestic debate ensued in the country about what TPP participation would mean, both economically and strategically, and how potential benefits would balance against the required economic reforms. Agriculture quickly came to the forefront of the debate – only natural, as agriculture concerns had in the past prevented Japan from successfully pursuing comprehensive FTA negotiations with large agricultural exporting countries.
Fast forward to 2013, when under the leadership of Prime Minister Abe, Japan formally expressed its interest in joining TPP, and other TPP countries, including the United States, supported its bid. Japan’s decision was based on its carefully-calibrated national interest, not external pressure, which proved to be a decisive factor in reversing the negative dynamic in U.S.-Japan trade relations.
The Japanese delegation formally joined the talks that summer and hit the ground running. With a strong mandate, negotiators were determined and committed to working with others to reach a deal. Not missing a beat, Japan became a close partner with the United States in urging other countries to adopt cutting-edge rules in such areas as intellectual property rights, e-commerce, and investment. Even in the contentious areas of agriculture and autos, the Japanese team worked constructively to find a mutually acceptable solution. Of course there were many tense moments, including a few sessions where one side stopped the talks abruptly and walked out of the room. At these times, I was hard pressed to see how the issues in question would come together. But ultimately they did as both sides stayed focused on finding a way forward.
This was a complete, welcome reversal from previous trade negotiations with Japan. The acrimony and mistrust I had grown accustomed to were replaced with cooperation and a shared purpose of reaching an outcome that would shape the rules for Asia-Pacific trade for years to come. The U.S.-Japan rapprochement also added important momentum to the talks, and contributed immensely to the conclusion of a high standard, comprehensive TPP, signed by the 12 TPP members in February.
Buried in the final agreement, and a source of great personal accomplishment to me, is a U.S.-Japan Free Trade Agreement. This outcome would have been impossible to imagine just ten years ago, let alone six decades ago, when the Asia Society was established. Moreover, this is by no means the end of the story. With our solid basis of cooperation on these issues, the U.S. and Japan will undoubtedly find many more areas in the economic sphere on which to closely cooperate, including in the WTO, G-20, APEC, and expanding the membership of TPP. As two of the largest economies in the region and as strong allies and partners, the table is set for the U.S. and Japan to work together and with others in the region to help build a prosperous and secure region for the years to come. You might say it started at the negotiating table.