Comment on “Free Trade Agreements and Domestic Politics: The Case of the Trans-Pacific Partnership Agreement”

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Correspondence: M. Chatib Basri, University of Indonesia, LPEM-FEUI, Jl. Salemba Raya no 4, Jakarta 10430, Indonesia. Email: dedebasri@hotmail.com

Naoi and Urata's (2013) paper provides a very interesting and valuable reading on the political economy of trade protection in Japan in the case of Trans-Pacific Partnership Agreement (TPP). In particular, Naoi and Urata highlight the role of public attitudes toward trade agreements. I agree with Naoi and Urata that understanding public attitudes toward an agreement is a critical but often neglected point in the literature on the political economy of trade protection. This paper tries to fill this gap by emphasizing the role of public opinion or public attitudes.

The paper lays out Japan's FTA policies and agriculture policies (which are highly protected), and provides an in-depth analysis of the factors influencing the formation of public opinion about the TPP. I should say that overall I agree with all these findings, so I just want to add some questions and specific comments

First, Naoi and Urata's political economy approach mostly focuses on the demand side. They argue that industry protection is the result of interest groups (agriculture protectionist). Implicitly, the structure of protection depends on the cost and benefits of lobbying or campaigning. This model assumes that trade protection generates profits and rents. However, this model is silent about the supplier of protection (the government). In many cases, the government is not silent and has a particular policy preference for maximizing the aggregate welfare of society. Furthermore, a government may take the view that there are particular market failures that need to be avoided or overcome, or there may be other goals that deserve a higher priority than short run maximization. Noneconomic objectives usually refer to some distributional considerations, such as employment creation or regional development. In these cases, protection will be granted in accord with sectoral priorities consistent with this perception of the “national interest.” It would be good if the paper could say something on this issue.

Second, Naoi and Urata argue the importance of public opinion. This somehow parallels with the median voter model developed by Mayer (1984), which argues that trade policy is the outcome of majority voting among the population. Naoi and Urata argue that uncompetitive agriculture obtains revenue from rents, and that these financial resources are used to finance anti-FTA campaigns, which later will influence the median voters. But if income redistribution is costless, the exporters can always compensate the worker's loss, and the outcome will be free trade. That is why this paper recommends the supporters of FTAs to compete with their opponent's campaign. The main criticism of this argument is that in reality income redistribution is not costless. Furthermore, in practice, trade policy is rarely determined by majority voting, and this greatly simplifies the institutional aspects of political process (Rodrik, 1998).

Third, using a standard political economy model, Naoi and Urata argue that understanding who gains and loses from trade protection is important to help explain the determinants of support for the TPP in Japan. However, the reality is considerably more complex, as is evident in Japan. Although this framework can help configure the winners and losers from trade reform, it has its own limitations. As Rodrik (1998) admits, by its very nature, trade liberalization creates a lot of winners whose identity cannot be predicted prior to the reform. For example, in the medium or long term, some import-competing industrialists could transform themselves into export-oriented industrialists, and eventually support the reform. The full configuration of winners and losers only becomes apparent after the reform takes place.

Fourth, it would be useful if Naoi and Urata could also include some other variables, for example how an exchange rate appreciation affects the demand for protection, or the weak and strong producers' argument, which may affect the demand for protection rather than simply lobbying activities. It is worth looking at the group of net consumers who, although they are larger in size, have less incentive to fight against protection compared with the smaller group of net producers who have more incentive to fight for protection. Due to smaller shared net benefits to individual consumers, each rationally opts for not fighting. On the other hand, the producer group (or more precisely through its subgroups) has more concentrated benefits. As a consequence, the producer group appears stronger than the consumer group. It is, therefore, predictable that the government sides with the producer group, and hence hurts the consumers.

These comments and suggestions do not detract from the overall summary judgment that this paper is worth reading, and offer an important contribution for the study of the political economy of TPP in Japan. Furthermore, various lessons can be drawn from this paper, particularly a comparative study with other countries with similar problems.

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