Another round of negotiations toward a Trans-Pacific Partnership trade agreement begins today, and someone is missing from the conference in Leesburg, Virginia: Japan. This marks a major political failure on Tokyo's part. It's also an opportunity for any Japanese leader who cares to capitalize on it.

The TPP would include the U.S., Canada and Mexico alongside the likes of Australia, Malaysia and Singapore in a comprehensive free-trade area that could eventually encompass about one-third of the world economy. Participating countries appear keen not only to make broad cuts to tariffs on goods, but also to tackle regulatory barriers and liberalize services such as banking or insurance.

That's why TPP could be so important to Japan. Japanese manufacturers are highly competitive and have found creative ways around existing tariffs over the years: for instance, Japanese auto plants built in the American South or Thailand to avoid tariffs on cars produced in Japan.

Yet Japan's domestic service industries remain largely closed to foreign competition, which helps account for Japan's long economic drift. As the manufacturing industry has evolved to higher-tech production with fewer, more highly trained workers, the country has struggled to create new opportunities for entrepreneurs and workers in services. The economy remains dependent on manufacturing exports to fuel growth.

TPP would pry open service industries, as well as areas such as agriculture. The result would be a competition stimulus as well as a big benefit to consumers. Not for nothing has the prospect of TPP been characterized as Japan's third great opening, after Commodore Perry's arrival and the American occupation after World War II.

Yet Japan's political class has lost the plot. Prime Minister Yoshihiko Noda once championed TPP membership, but in April he and his Democratic Party of Japan jettisoned the trade opening for the sake of pushing through an unpopular doubling of the national consumption tax. That tax is so politically toxic it will likely cost Mr. Noda his job.

As for the opposition, the Liberal Democratic Party has yet to put out any clear statement on TPP. The faction of feisty former DPJ leader Ichiro Ozawa is divided on trade. Osaka Mayor Toru Hashimoto, arguably Japan's most promising reformer, supports TPP and has included it as one of the planks in his new grouping's platform. But it's a footnote next to administrative reforms to empower regional governments at Tokyo's expense.

If no major party or leader talks about free trade, the next election could turn out to be another vote about nothing. Although the consumption-tax hike's unpopularity may trigger Mr. Noda's downfall, few politicians are seriously discussing repeal: The argument has shifted to how to spend the money Tokyo fancies it will raise.

There's still time for enterprising leaders to sell TPP to voters as a tough but necessary step to shake off a two-decade malaise. Mr. Noda couldn't make the sale. Someone needs to.

September 6, 2012

Source: Wall Street Journal

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