Japan will make a fresh attempt to expand the Trans-Pacific Partnership trade pact to include more Asian economies, such as Thailand, Taiwan, Indonesia and the Philippines, after the new coronavirus exposed the risks of supply chains overly dependent on China.
First up will be Thailand, a key production hub for many Japanese automakers. The country is expected to announce as early as this month its intent to join the TPP.
Negotiations will officially begin in August, when the 11 existing members — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — are due to hold a ministerial meeting in Mexico.
Japan has already begun laying the groundwork by sending a high-ranking negotiator to Thailand. Japan will chair the TPP in 2021, when talks are expected to kick into high gear.
The move comes amid a realisation that diversifying production is increasingly important.
As factories in China were forced to shut down as the outbreak spread beyond its initial epicentre of Wuhan, global production was disrupted for many multinationals. A shortage of Chinese auto parts forced Nissan to suspend operations at an assembly plant in Japan last month, while Komatsu scrambled to shift production of metal parts for its construction equipment from China to Japan and Vietnam.
Covid-19 has spread widely across the Asia-Pacific region since early March, infecting thousands across South Korea, Malaysia, Singapore, Thailand and Australia and cooling economic activity.
This article is from the Nikkei Asian Review, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.
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Tokyo now hopes that the TPP — under which trade will be governed by common trade and investment rules — will offer a springboard for companies to diversify production out of China.
“Supply chains will become stronger and more diverse from Thailand joining the TPP, and Japanese industry will also benefit significantly,” said Yasutoshi Nishimura, Japan’s minister in charge of the trade deal.
Taiwan, Indonesia and the Philippines are also seen as potential additions to the trade deal. Taiwan has expressed interest and is expected to make an official decision based on the Thai experience in negotiations.
China has played a growing role in Japanese supply chains in recent years. A total of 37 per cent of auto parts shipped to Japan last year came from China, compared with 18 per cent in 2005.
Japan relies on China for 21.1 per cent of its imports of intermediate goods, according to the Japanese government. The figure is much lower for other G7 nations, with the US at 16.3 per cent, Germany at 7 per cent and the UK at 5.9 per cent.
Business leaders support greater economic ties with other Asian countries as well. Kengo Sakurada, chairman of the Japan Association of Corporate Executives, or Keizai Doyukai, pushed the government in early March to support companies in expanding production to a south-east Asian country in addition to China.
“I want to consider a framework for governments and business sectors between Japan and India or the Association of Southeast Asian Nations to have concrete discussions,” said Mr Sakurada, group president and chief executive of Sompo Holdings. Greater Asean participation in the TPP could help advance the “China plus one” approach to production.
As part of an emergency stimulus package to be finalised as early as April, the government is considering subsidies for Japanese companies that move some production to Japan or south-east Asia, particularly in the China-dependent auto parts industry.
A version of this article was first published by the Nikkei Asian Review on March 21 2020. @2020 Nikkei Inc. All rights reserved
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Source: Economy - ft.com
