Trade Policy Ver. 2.0: WTO, TPP, and beyond

TAMURA Akihiko Senior Fellow, RIETI

Negotiations for the Trans-Pacific Partnership Agreement (TPP), which is Japan's foremost important trade policy issue at the moment, are in a crucial stage with U.S. Congress deliberating a bill to grant trade promotion authority (TPA) to U.S. President Barack Obama. The future course of the TPP negotiations is hard to predict. However, insofar as there is a fairly good chance for a successful conclusion, we have sufficient motivation to start shaping next-generation trade policy, which I will refer to as "Trade Policy ver. 2.0" hereinafter in this article.

Trade policy geared toward the establishment of joint hegemony in view of the increasingly multipolar world

Trade Policy ver. 2.0 should be developed and implemented based on the new reality of international politics in an increasingly multipolar world by departing from the conventional mindset centered on the international trade regime that has its roots in the postwar Cold War structure. More specifically, we need to consider the following two phenomena: 1) the retreat of the Western world led by the United States and the rise of emerging countries, and 2) the rise of non-governmental organizations (NGOs) and the relativization of national sovereignty. On the back of their rapid economic growth, emerging countries such as China and India are increasing their influence on international politics, whereas the influence of developed countries is in relative decline. The Doha round of negotiations at the World Trade Organization (WTO) have been dragging on far too long, and negotiators have yet to find a clue to its successful conclusion. Likewise, other multilateral negotiations, whether on climate change or on nuclear non-proliferation and disarmament, are having difficulty reaching agreement. My understanding is that the end of Pax Americana is the root cause of these phenomena. An international order can be maintained only when a hegemon or a single nation state that has overwhelming political power backed by coercion or authority exercises its leadership (hegemonic stability theory), and the stability of the international system diminishes as the power of the hegemon declines. Pursuing a new, multilateral international regime by disregarding these fundamental factors and keeping the conventional mindset would not lead us to a successful end. We have to wait for the rise of a new overwhelmingly dominant power or seek to restore the international order through the establishment of joint hegemony by a group of mutually trusting countries. Since the first option is not realistic, we have no choice but to pursue the second one.

Hegemonic stability theory and the possibility of establishing hegemony based on authority

Here, I would like to briefly review strands of theory for the conceptualization of international politics (in particular, international relations theories in the United States). Realism is the most widely accepted classical version of theory on the conceptualization of international politics. In particular, its latest version, which assumes that the primary goal of nation states is to ensure their survival in the anarchic world, is called "neorealism." Realism is based on the principle of a balance of power, and thus, according to its view, the era of the U.S.-led unipolar world immediately after the Cold War should have witnessed the formation of an anti-U.S. alliance by non-hegemonic nation states. However, as the reality turned out otherwise, this strand of theory was criticized for being unable to explain what happened in the immediate post-Cold War period. While being a realist himself, Robert Gilpin detaches himself from the theory of balance of power and instead advocates the theory of hegemonic stability, insisting that a hegemon has both the motivation and capabilities to build and manage an international order from a long-term viewpoint and hence that the unipolarity of the United States would lead to the stability of the international order. The validity of this thinking is now widely accepted as the end of the Cold War did not result in a collapse of the alliance of Western nations, and a significant number of cases of multilateralism in practice are observed on the economic front.

However, the theory of hegemonic stability is not without problems. Since its starting point is the realist assumption that the world is in anarchy, or the assumption of non-existence of international authority, it is unable to explain, for example, why the liberal international regime is being maintained in the multipolar world of the early 21st century, i.e., even after the military and economic power of the United States declined relative to that of other countries. Against this backdrop, some liberals such as Joseph Nye and John Ikenberry modified Gilpin's theory of hegemonic stability to present a new vision of an international order. Rather than looking solely at hard power or coercion as the source of hegemonic leadership, they explicitly recognize a form of hegemony in which non-hegemonic nations agree on the presence of hegemony by acknowledging the authority of the hegemon, which in turn serves as an anchor for the stability of the international order, particularly, a multilateral one. Both Gilpin and Ikenberry assume that the presence of a hegemon leads to the stability of the existing international order, and thus support the view that the relative decline of the power or authority of the United States as seen today poses a challenge to the current multilateral regime.

For Japan, a non-hegemonic nation, the liberal vision that considers a multilateral international order as being established by a constitutional agreement between a hegemon and non-hegemons is preferable, for instance, as compared to the realist vision that considers an international order as being formed decisively through a military power game among great powers. Furthermore, based on the liberal vision under which not only coercion but also authority backed by thoughts and norms can be a source of hegemonic power, even a small military power can play a part in establishing joint hegemony.

Of course, all of these theories are no more than models. Still, when shared widely by many people and built substantially into the process of establishing their cognitive framework, such models would definitely affect human behavior in reality. Therefore, it may be of interest for Japan to accumulate supporting evidence to help establish liberal multilateralism as the dominant cognitive framework, while at the same time preparing itself for a possible turn of events--such as those in the area of national security--based on realism.

This brings us to the next question of what kind of authority Japan will be able to obtain. I believe that the key to Trade Policy ver. 2.0 is hidden in this question.

Trade policy for quality-oriented economic development geared toward obtaining authority

As aforementioned, Trade Policy ver. 2.0 should be developed and implemented with an eye to establishing joint hegemony. In doing so, there is one crucial factor that must be taken into account, namely, the current reality of the international community, where there are growing calls for a greater focus on the quality of economic development--such as sustainability and inclusiveness--reflecting the increasing significance of social issues such as the environment, human rights, labor, natural disasters, and public health relative to that of economic growth. The increasing influence of NGOs observed today also corresponds to the above-described phenomenon. Such social problems are also economic issues because failure to address them properly could hamper the sound operation of the highly globalized world economy. In other words, a quality-oriented holistic policy approach encompassing both economic and social issues is needed. International economic policies must be adjusted to align with the concept of quality-oriented economic development. In order to solve global social problems and achieve common good on a global scale, we should introduce new thoughts, create new norms, and implement trade policy designed to ensure that the benefits of the globalized economy will be truly shared by as many people as possible across the world. Japan has a long history of addressing various social problems by developing new products, technologies, and services, for instance, in the area of environment management and energy conservation. Given such experience, there is tremendous potential for Japan to obtain authority in the international community through its trade policy.

Japan has been promoting economic integration in the Asia-Pacific region, defining it as a high priority issue on the trade policy agenda. It is my understanding that the idea of Trade Policy ver. 2.0, which is designed to realize quality-oriented economic development, would translate into what I call "holistic connectivity" when applied to the policy field of regional economic integration. The concept of holistic connectivity is to pursue regional economic integration in substance and in all aspects, departing from the current narrowly-focused approach to promote integration only in two aspects, namely, institutional connectivity and physical connectivity. Indeed, economic integration in the Asia-Pacific region, which is the world's growth center, has been deepening through these two channels, with institutional connectivity strengthened through free trade agreements (FTAs) and physical connectivity through the promotion of infrastructure construction. And there are some areas where the development of connectivity has yet to take place as is the case for Central Asia, the primary target of China's "yidai yilu (one belt, one road)" initiative. In general, however, value chains developed primarily by Japanese companies across the Asia-Pacific region have already reached the point where further development can be achieved only by securing connectivity of greater sophistication. It is necessary to capture a broad scope of phenomena that could cause a disruption to the operation of value chains and take necessary measures to reduce the incidence of such a phenomenon and minimize the cost incurred in the event of its occurrence. Failure to properly address any of the aforementioned social problems--i.e., those in the area of human rights, labor, natural disasters, etc.--could undermine the smooth operation of value chains in the Asia-Pacific region. In such an event, the benefits of institutional and/or physical connectivity--no matter how improved--would be diminished.

Accordingly, Trade Policy ver. 2.0 should comprise a mix of measures designed to realize quality-oriented economic development, and through the promotion of this policy, Japan should seek to establish joint hegemony with its trusted partners so as to ensure political stability in the Asia-Pacific region and across the world. This is how I envision Japan's post-TPP trade policy.

June 12, 2015

June 12, 2015

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