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Japan’s Trans-Pacific Partnership Play

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Pacific Money

Japan’s Trans-Pacific Partnership Play

Reports suggest Japan could join TPP talks. But will ingrained interests kill a potential deal?

“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.