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The 2-Level Game in Japan’s Agriculture Trade Negotiations

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The 2-Level Game in Japan’s Agriculture Trade Negotiations

The Japanese agriculture sector has a long history of obstructing international trade talks. 

The 2-Level Game in Japan’s Agriculture Trade Negotiations
Credit: Depositphotos

Perhaps no country fits the description of Robert Putnam’s “two-level game” theory better than Japan. Putnam describes international negotiations as a bargaining process not only with the international counterparts but also with domestic audiences. Successful negotiators can build winning coalitions among domestic political actors and use international agreement to overcome domestic resistance, as Putnam described in the 1979 G-7 Bonn Summit. 

In Japan, this practice of employing international influence to initiate domestic change is called gaiatsu (external pressure). Japan often attributes tremendous changes in its national path to growing foreign pressure, from the arrival of Matthew Perry’s Black Ships in 1853, which led to the Meiji Restoration, to the post-World War II U.S. occupation under General MacArthur and the establishment of a modern, democratic state in Japan. 

Gaiatsu is a common practice in modern Japanese politics. For example, liberal-leaning Japanese leaders during the 1980s tried to use the Japan-U.S. trade dispute as a source of extremal pressure to force the conservative Japanese bureaucracy to adopt economic reform plans. During the 1980s, Prime Minister Nakasone Yasuhiro aimed to employ trade negotiation with the United States to stimulate structural reform and liberalize the Japanese economy. The 1985 Plaza Accord, which rapidly appreciated the yen, served as the necessary gaiatsu to force structural reform. 

Nakasone delegated his private brain trust, former Bank of Japan Governor Maekawa Haruo, to study the transition of the Japanese economy following the Plaza Accord. The Maekawa Report proposed strategies to rebalance the Japanese economy from an export-oriented, investment-led growth model to a domestic consumption-centered economy. These strategies addressed concerns such as reducing trade surplus friction with the United States, stimulating domestic demand, implementing a low-interest-rate policy, and undertaking structural adjustment measures like land deregulation and abolishing the Large-scale Store Law. In addition, Japan opened its domestic markets for American goods, allowing foreign companies, such as American supermarkets, to enter the Japanese market, and encouraged Japanese companies to take advantage of the strong yen and invest in foreign countries, especially the United States, Southeast Asia, and China. 

For reform-minded Japanese leaders, the most stubborn opposition to economic and trade liberalization is the agriculture sector. The Japanese agriculture sector has a long history of obstructing international trade talks. During the GATT Uruguay Round negotiations, the Japanese agriculture sector strongly opposed the tariff reduction scheme. Instead, they supported a special quota to protect the domestic market share of Japanese agriculture products, especially rice. 

In subsequent WTO Doha Round negotiations, Japan took a strong stance against imposing 100 percent tariff caps. It sought to designate numerous products as “sensitive items” to safeguard them from substantial tariff reductions. Japan aimed to negotiate exemptions for these sensitive items, permitting them to be subject to milder tariff cuts in exchange for higher tariff quota volumes.

The primary anti-liberalization vested interest was the small-scale production system dominated by part-time rice farmers who heavily relied on state subsidies. Despite the potential benefits of extensive trade liberalization for the Japanese economy and the struggling agricultural sector, this complex network of vested interests has impeded progress.

The center of this vested interest network is the Japan Agricultural Cooperative (JA), which lobbied to protect inefficient part-time farmers. The Liberal Democratic Party (LDP), which has ruled Japan for nearly all of its post-war period, also supported small farmers since they were the foundation of LDP election victories. Agriculture liberalization would disrupt the small-scale production system and drive part-time farmers out of business. Therefore, the JA lobbied the LDP to oppose agriculture liberalization. 

When Abe Shinzo returned to power in 2012, he adopted an ambitious structural reform plan. Abe viewed “putting Japanese agriculture on offense” as a vital pillar of his structural reform. The aim was to make the agricultural sector profitable and globally competitive. The plan to revitalize Japanese agriculture involved both “coming in” and “going out”: opening the Japanese market to foreign competition while internationalizing Japanese agricultural products. 

For Abe, the new Trans-Pacific Partnership (TPP) negotiation was a significant opportunity to make the Japanese agriculture sector globally competitive through internationalization. Therefore, Abe tried to seize the chance to defeat the agricultural establishment and push his structural reform agenda through gaiatsu. Abe aimed to use the TPP negotiation to open the Japanese domestic agricultural market. The impact of foreign food products would shake the foundation of the Japanese agriculture system, such as driving inefficient and subsidy-eating part-time farmers out of business and forcing the JA to adopt structural reforms. These structural changes in Japanese agriculture would weaken the JA’s political power and reduce its opposition to Abe’s reform agenda. 

However, Abe’s plan faced significant opposition within his party. Many LDP Diet members depend on the JA to mobilize rural voters for support in elections. In exchange, they fiercely defend the JA’s policies. These diet members, referred to as the “agricultural tribe” (Norin Zoku), lobby for protectionist policies and oppose agriculture reforms. 

One such important Diet member is Moriyama Hiroshi. Moriyama was a heavyweight in the Japanese agriculture establishment and a close collaborator with the Japanese livestock industry. He was the head of the Diet Agriculture Committee, overseeing agriculture policymaking in the Diet. 

In addition, he was one of the most powerful anti-TPP Diet members within the LDP. He was the leader of the LDP’s TPP Policy Committee, a position that gave him veto power over TPP-related policies. The LDP changed its party rules in the 1960s to require government bills to be approved by the LDP Policy Affairs Research Council (PARC) before being submitted to the Diet. Moriyama, therefore, was in charge of approving all TPP bills before they could become laws. He was also the founder and the first president of the TPP Application Withdrawal Conference, which later became the TPP Negotiation and National Interests Protection Conference, a national anti-TPP movement.

Moriyama played a significant role in the TPP negotiations. Under his leadership, the Diet Agriculture Committee adopted resolutions urging the government to exempt Japan’s rice, wheat, beef and pork, dairy products, and sugar, the so-called “five priority items,” from tariff elimination under the TPP agreement. This demand should be treated as a top priority in the negotiation, meaning Japan should leave the negotiating table if it could not be met. 

The Japanese TPP negotiation team indeed adopted this protectionist position. The negotiation did not eliminate tariffs on these “five priority items.” Among these five items, the current tariff rates would be maintained for rice, wheat, and sugar; the import quota would be expanded for American rice and wheat; and tariff rates would be reduced on beef, pork, and dairy products. 

According to Putnam’s theory, a fiercely opposed figure like Moriyama could improve Abe’s negotiation standing against the foreign counterparts because he could demonstrate that his hands are tied from compromising. However, the example of agriculture trade talk reveals the other side of the two-level game: Domestic interest groups are veto players who can doom the negotiation by blocking the policy in domestic politics. Therefore, chief negotiators like Abe must neutralize these veto players to expand the “win-set.” 

Taking advantage of the chief negotiator’s needs and urgency to achieve a breakthrough in the international negotiation, these veto players can demand handsome buyouts in exchange for not opposing the international agreement. These veto players represent sectoral interests that might become losers in the new agreement. Therefore, these buyouts serve as a cushion against potential losses after the agreement. In the TPP negotiation, Moriyama was one of the biggest TPP veto players within the LDP. To overcome Moriyama’s opposition to the TPP beef tariff reduction from 38.5 percent to 9 percent, the Abe administration provided a 300-billion-yen compensation to livestock farmers.

Further analysis shows that the TPP tariff reduction did not reduce Japanese beef prices significantly or hurt beef production. Wagyu, which occupies the biggest share of Japanese beef production, was exempted from the tariff reduction. In addition, the TPP negotiations established a beef import safeguard, which allowed Japan to raise tariffs if it imports too much beef from the United States. The effects of tariff reduction were further reduced due to the weak yen compared to the dollar. 

Therefore, the compensation did not act as a necessary buffer for farmers to absorb the impact of liberalization. Rather, it was Abe’s special deal to allow Moriyama to continue patron-client agriculture politics in exchange for his approval of the TPP deal. 

The experience of TPP negotiation in the agriculture sector highlights the difficulty in pushing for substantive reform in Japanese politics. Japanese leaders tend to use external pressure to turn the domestic bureaucratic wheel. In contrast, domestic actors can also utilize the national leader’s urgent pressure to conclude the international negotiation to extract concessions and compensation. In the case of the TPP agriculture trade talks, these compensations defeated the purpose of Abe’s agriculture reform plan: reducing state subsidies and introducing international competition for agricultural products. 

After the Abe administration, reform attempts ran out of steam. Japan is still very far away from a truly competitive agricultural sector.