Japan's Trans-Pacific Partnership Play
Image Credit: Office of the Prime Minister: Japan

Japan's Trans-Pacific Partnership Play

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“TPP” might have spelled total political paralysis for any other Japanese leader. But after stunning markets with his reflationary “Abenomics” policies, Japanese Prime Minister Shinzo Abe is expected to surprise again next week by taking on the farm lobby and announcing Japan’s participation in Trans-Pacific Partnership talks.

The move follows plans by Japan to enter into free trade agreement (FTA) negotiations with the European Union later this month. In a busy period for trade diplomats, Australian media have even reported the possibility of an Australia-Japan trade pact being sealed this year.

Yet a TPP including Japan and also potentially South Korea would dwarf such bilateral deals, comprising 13 nations accounting for 40 percent of global output and 30 percent of world trade.

According to the Yomiuri Shimbun, the reformist prime minister will announce Japan’s participation in TPP negotiations as early as March 13th, prior to the annual convention of his Liberal Democratic Party on the 17th.

The top-selling daily said Tokyo and Washington aimed to reach agreement by the end of this week by “setting aside highly contentious issues,” such as agriculture.

Already, the two allies have reportedly agreed to a deal in which U.S. tariffs on Japanese car imports will remain “for the time being,” with the expectation that such tariffs will eventually be removed, while Washington gives ground on Japanese agricultural protection.

Negotiations are also underway on beef, insurance and other areas, with such talks expected to continue even after Japan joins the TPP.

Japan’s expected plan to join what could become the Asia-Pacific region’s biggest free trade zone came after the February 22nd Washington summit meeting between the two nations’ leaders, where it was confirmed that Japan would not be required to eliminate all tariffs to join TPP talks.

“Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations,” the post-summit statement said.

Both Abe and U.S. President Barack Obama agreed on the need for freer trade, with the leaders of the world’s No.3 and No. 1 economies both hoping to revive higher growth rates in their respective countries.

Lobby group resistance

Yet amid the push from the top, resistance is expected from lobby groups in a potential stumbling block to a quick agreement.

The “Big Three” U.S. carmakers of Chrysler, Ford and General Motors have reportedly opposed Japan’s entry into the TPP, arguing that the Japanese auto market continues to “lock out” U.S. vehicles.

Ahead of Japan’s summer upper house elections, Abe faces pressures from not only rice and other farmers, but also medical and consumer groups worried about the effects on the nation’s universal health care system as well as food safety.

Defending the TPP, Abe told lawmakers on Wednesday that the universal insurance system was “a building block of Japan’s health care system and will never be shaken up.”

“Relaxing individual food safety standards has not been negotiated either,” he added.

Consumer protection advocates have urged the Japanese government not to ease standards on food imports, including U.S. beef, labeling requirements on pesticides and genetically modified foods.

Japanese farmers are also reportedly anxious to win exemptions from the TPP’s “zero-tariff” principle. According to agricultural cooperative JA Group, the elimination of tariffs would threaten Japan’s $48 billion in agricultural produce, making nearly all Japanese wheat, sugar and beef uncompetitive and wiping out a quarter of all rice production.

The long-cherished national aim of “food security” would also be threatened, with the farm ministry estimating that reliance on imported food would increase to 90 percent from the current 60 percent.

With 10 million members nationwide and a bank with half a trillion dollars worth of deposits, JA and its supporters represent a sizeable political obstacle for Japan’s trade liberalizers.

“Because of the rural bias in Japan’s electoral system the farming lobby is very powerful, even though as a percentage of the economy it accounts for 1 percent,” former Japanese trade negotiator Risaburo Nezu told Bloomberg Businessweek.

Aiming to avoid a political backlash, Abe’s LDP announced on Wednesday the establishment of five working groups on agriculture, automobiles, financial services, medical and food safety, and negotiating strategy to guide future negotiations.

After having scored relatively easy wins on fiscal and monetary stimulus, Abe’s reformist credentials are set for their biggest challenge.

Comments
15
BB
March 12, 2013 at 05:48

China should speed up its economic reforms, however painful it is, immediately eschew its current predatory mercantilist trading policy, play by the rules of the game, be a responsible stakeholder, and   participate in serious negotiations for the  membership of the TPP bloc in order  to save  itself  from economic faltering , total  social  chaos & internal  collapse. Got it, Chan?

John Chan
March 11, 2013 at 22:23

@BB,

North America’s oil and Shale Gas belong to free-market of the world, it must be available on the international market without restriction, let the free-market decide who can take the oil and the Shale Gas. WTO must take actions to prevent USA from imposing protectionist measures that prevent the oil and Shale Gas reaching the open market freely.

Takeji Tokugawa
March 11, 2013 at 13:03

With leaders like Abe Shinzo and "friends" like Washington, who needs enemies. Yankee joes OUT of Okinawa!!

John Chan
March 11, 2013 at 12:05

@angleus512,

USA is the worst violator of free market economy and globalization, it never honours trade agreements and treaties, its underhand predatory practice of stealing other people’s inventions and other nations markets is notorious, it even claims round corners, and German pig and Indian cotton’s DNA as its IP material.

US Congress is a houseful of crying babies and well frogs, they are whining too much when China tries to invest in the USA and create jobs of the American. Americans should tell their Congressmen to shut up and embrace China’s FDI with open arms.

BB
March 11, 2013 at 11:51

Oh, my 'global hegemonic dream'! Some 'good news'  for China, the world's N# 2 economy, vic! Only the TPP can save China from the middle-income trap, but it must speed up reforming its economic structure even it'll be so  painful, pal!

How the US Shale Gas Boom Could Derail China

CNBC

Published: Thursday, 7 Mar 2013 | 3:41 AM ET

By: Matt Clinch

With oil production at a twenty year high and predictions of a manufacturing renaissance for the U.S. economy, one of the world's largest investment banks has detailed how the "shale revolution" will negatively affect emerging markets such as China.

Hydraulic fracturing, or "fracking," has helped lead a revolution in gas and oil production in the United States. The new technology is unlocking oil and shale gas resources, spurring economic activity and giving industry a competitive edge with less expensive gas and electricity prices.

These developments could lead to the industrialization of the U.S. economy and could deliver sustainable growth, Morgan Stanley said in a research note on Wednesday.

With the help of cheap energy, manufacturing will pick up and move down the ladder to capturing the production of less "sophisticated" goods (computers, fabricated metals and automobiles) currently manufactured in emerging nations. As a result, the United States will likely compete with emerging markets for market share rather than being a consumer, Morgan Stanley said.

"As the manufacturing renaissance takes hold in the U.S., the move down the value-added ladder in the U.S. is likely to clash with China's need to further increase the sophistication of its manufacturing base," it said.

And as the bank details, China needs to move up that ladder to not only produce medium-term growth but to protect against economic stagnation, the "middle-income trap" and move from an emerging to a developed market.

U.S. crude oil production exceeded an average 7 million barrels per day in November and December 2012, the highest volume since December 1992, the Energy Information Administration (EIA) said last week. The International Energy Agency (IEA) projects it could even leapfrog Saudi Arabia and Russia to become the world's biggest oil producer by 2020.

A continued fall in U.S. oil imports means North America could become a net oil exporter by around 2030, according to the IEA, and the United States could become almost self-sufficient in energy by 2035.

But it's not just oil production causing this potential reindustrialization. Morgan Stanley also highlights a resilient (non-financial) private sector and a decade of dollar depreciation against emerging market currencies.

Malaysia is another country set to lose market share and should hope to move up the "value-added" ladder, Morgan Stanley said. Brazil could also suffer, with a Mexican economy that's closely knitted to the U.S. attracting more automobile manufacturing, it said.

"U.S. reindustrialization will likely challenge Russia's presence in steel, chemicals and industries to support that very renaissance," it said.

The bank admits that the threat to China is still some time away. Its research suggests that to decrease this potential threat it needs to rebalance its own economy. The country should move away from an export-led economy and concentrate on domestic consumption to drive growth, it said.

"Should consumption continue to rise steadily, a manufacturing base that caters to domestic consumption would be less threatened than one that relies on investment and has to cater to external demand because of insufficient domestic demand," it said.

By CNBC.com's Matt Clinch

Ryoukai
March 11, 2013 at 11:09

Abe and his cabinet are traitors. Impeach them and scrap TPP!  

Japan must maintain her tradition.

angelus512
March 11, 2013 at 08:45

@John Chan

WOW. It happened. For once I agree with what you posted.

Yes Japan is an extremely protectionist nation, now thats not altogether a bad thing but they've perhaps over-done it a little. They should join the TPP it will help them in the long run.

However I should also point out to a lesser degree that China is also heavily protectionist just in different perhaps more sinister ways.

Forcing western companies to Joint Venture partner with local Chinese firms which on too many occasions has resulted in graft and theft of IP material.

Barring western companies from multiple sectores of the economy and the Government giving extremely preferential treatment to their own SOE's.

Not as bad as Japan but significantly more predatory in nature. Policies designed to lure western business to China under the promise of a big market, when conditions are often tough and western companies often end up suffering IP theft or other misdemenours.

This is well known.

vic
March 10, 2013 at 05:57

What a big joke!  TPP is about a free trade zone, yet Japan is allowed to have tariffs.  It sounds more like a political union to exclude the #2 economic power.

Derek
March 9, 2013 at 13:51

The TTP would be the final nail in the coffin of the Japanese 'recovery'.  It will bite even more devestating structural changes before the possibility of recovery.  All the while the US benefits and wipes out the Japanese agricultural sector.

The LDP will be wiped out along with the farming sector and Japan will return to the norm of political paralysis and slow decline.

 

Japan is at a disadvange in the negotiations and the US will not allow the Japanese economy to restructure before the hammer comes down.

Dick
March 9, 2013 at 04:10

China, Taiwan, SKorea, etc . in  East Asia are all export-oriented, or mercantilist, if you will. How can they do business with one another w/o the  two big markets of EU & US?

Drive by
March 8, 2013 at 18:04

TPP is dead on arrival. Long live the TPP! On the other hand, the Regional Comprehensive Economic Parternship (RCEP) has a much better chance of success.

Bankotsu
March 8, 2013 at 16:05

Japan and the United States: A New Grand Bargain?

During the Cold War, the U.S.-Japan alliance rested on what might be described as a grand bargain between the United States and Japan. The Cold War Bargain consisted of two understandings-one in the realm of military security, and the other in the realm of economics. As part of the military bargain, the United States agreed to protect Japan's foreign security interests, in return for Japan's agreement to side with the United States against the Soviet Union and to host U.S. troops used in other parts of Asia like Korea and Indochina. The military bargain consisted of one-way free trade.

Japan was allowed to export to the American market, while keeping its internal market largely closed to U.S. imports by means of nontariff barriers.

Japan's export-oriented strategy was tolerated by American leaders from the 1950s until the 1980s because they were willing to sacrifice the economic interests of American industries threatened by Japanese imports to the military imperative of a strong U.S.-Japan alliance against the Soviet bloc…

http://newamerica.net/publications/articles/2000/japan_and_the_united_states_a_new_grand_bargain

 

During the Cold War, the U.S. abandoned those plans and improvised a strategy of U.S. hegemony or primacy. America's Cold War hegemony strategy rested on two pillars: dual containment and unilateral free trade.

Dual containment meant that the U.S. contained both the Soviet Union and communist China and its conquered, demilitarized allies West Germany and Japan, which could not be allowed to reemerge as independent military powers rather than U.S. satellites.

To keep West Germany and Japan as satisfied client-states, the U.S. promised not only to protect their vital security interests but also to practice unilateral free trade, opening its markets to their exports.

Throughout the Cold War and beyond, the U.S. turned a blind eye to the aggressive trade policies of its allies, particularly Japan, South Korea, Taiwan and other Asian client-states. They were allowed to protect their domestic markets and subsidize their industries, while enjoying access to American consumers.

For half a century the strategic elite in both parties has been willing to sacrifice U.S. industries in order to bribe the other major industrial countries into staying within the U.S. alliance system….

http://newamerica.net/node/13515

http://newamerica.net/publications/articles/2010/the_us_is_stuck_in_the_cold_war_29951

Kanes
March 8, 2013 at 11:15

Good timing for US to press on. With the fragile security situation, Japan has no option than to agree to US economic demands.

John Chan
March 8, 2013 at 09:52

Japan is a very protectionist nation; it implements all kind of discriminatory incentives. rules and regulations to discourage Japanese from buying foreign goods, for example you hardly can find any foreign made cars in Japan, their behaviour is very detrimental to globalization and free-market economy.

To ensure Japan an honest member of TPP, TPP must insist to establish enforceable means that can make Japanese to eliminate all those discriminatory incentives, rules and regulations during it membership negotiation.

 

Yukio Mishima-San
March 8, 2013 at 06:08

Ahh … the conquest and colonization of Japan will be complete soon.  Banzai! What a joke.  Great job, Mr Abe.

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