Energy security, a constant but quiet driver of Japanese foreign policy, took centre stage during a recent bilateral meeting between Japan and the Common Market of the South (MERCOSUR) in Paraguay.
The South American trade bloc is made up of most of the continent’s top markets, namely Brazil, Argentina, Paraguay, Uruguay and soon Venezuela, and is bound to attract increasing attention as resource poor nations look for ways to secure what visiting Japanese Foreign Minister Takeaki Matsumoto described as ‘vital natural’ interests.
As Matsumoto noted, this task has been given even greater urgency in light of the earthquake and tsunami – and the ensuing nuclear crisis – that struck Japan on March 11. While Matsumoto didn’t specifically point to Fukushima, it has been clear for some time that the country is rethinking its vision for a growing nuclear power industry, perhaps in favour of diversified overseas energy markets. Japan continues to be no different than most industrialized economies in that it relies on the Middle East for the lion’s share of its energy imports. However, instability in the Arab world, sanctions on Iran and its own shaken nuclear industry have prompted Tokyo to quickly move to cultivate a number of other market options.
And Japan is in some ways particularly well-placed to develop ties with MERCOSUR, not least because of its historical links to the region, including a substantial number of Japanese emigrants still living there. Indeed, despite a diplomatic flap between Peru and Japan over the trial and conviction of former Peruvian President Alberto Fujimori, Japan has generally maintained very good relations with the continent.
During his bilateral meeting in Asunción, Matsumoto suggested that the two sides begin a dialogue on how to enhance this partnership. Both sides agreed to launch the initial stages of a study into the possibility of setting up a Free Trade Agreement, which would build on the Economic Partnership Agreements Japan already has with MERCOSUR associate members Peru and Chile.
Certainly, South America’s importance to Japan continues to grow and compete alongside the country’s traditional footholds in Asia and Europe, and Japan will no doubt be keen to emphasize in negotiations with MERCOSUR that it remains a massive market, with an annual GDP of about $5.5 trillion.
So what exactly is in it for both markets? For MERCOSUR there’s the obvious benefit of increased exports to fuel Japan’s industrial giants, as well as a market for South American agricultural exports to a country that continues to see reduced capacity in many traditional areas of food production. On the other hand, Japan can offer MERCOSUR nations its expertise in areas such as high-speed rail infrastructure, technology and industrial stewardship. This was a point highlighted by Matsumoto, who noted that all of Japan’s bullet trains sensed the March 11 earthquake and were able to safely reduce speed and stop without causing any injuries. This will likely resonate with MERCOSUR states, which still have largely inadequate transportation infrastructure (Brazil is the only MERCOSUR state to have begun serious planning for a high-speed rail network).
All this sounds good. But there is a catch for Japan. For a start, investing in South American markets won’t immediately soothe Tokyo’s energy security concerns and, in the short to medium term, it may even increase pressure on the country’s sputtering economy. Second, the supply route to South America is neither the most natural nor most cost efficient. While Japan shares the Pacific with South American states including Chile, Peru and Colombia, it doesn’t have a logical or direct route to key MERCOSUR countries and big energy markets such as Brazil and Venezuela. The Panama Canal makes the route easier, but it doesn’t negate the logistical challenges.
Still, Japanese policymakers may find that the benefits outweigh these inconveniences. While the Middle East remains the primary source of global energy, the region is increasingly unstable and the secure supply of energy has always been loaded with caveats – both in economic and security terms. There are costs to this partnership, and Japan often feels acute pain as a result. Most recently, for example, Japan agreed (under intense US diplomatic pressure) to place strong sanctions on Iran over its nuclear programme. While some have claimed that this hasn’t yet affected the supply of energy from Iran, it certainly remains an ongoing concern.
In addition, there are worries over the maritime supply route, which crosses from the Strait of Hormuz and into the Arabian Sea before reaching the Indian Ocean and, eventually, Japan. But this route is fraught with problems including piracy and the risk of Iran potentially attempting to close the Strait of Hormuz in the event of conflict or regime instability.
All this suggests that although Japan should continue to pursue rounded engagement with MERCOSUR, it would be wise to complement this with a strategy aimed at the Pacific nations of South America as well. The benefits of joining the Trans Pacific Partnership, for example, will spill over into Japan’s bilateral relations with Pacific South American countries such as Chile and Peru.
But most important for Tokyo is to look at its energy strategy in as broad terms as possible. Japan can certainly gain from its new push with MERCOSUR. But it would do well to look at this as the basis for an overall regional engagement strategy, rather than just a short-term reaction to addressing its own energy security concerns.