Japan’s globalisation strategy under pressure

Picture: Reuters

Australia & Japan in the Region

Volume 6, No 7, July 2018

The negotiation over the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that concluded in March 2018 was perhaps the first occasion for Japan to take a distinctive initiative in international trade talks. After the United States withdrew from the original Trans-Pacific Partnership Agreement (TPP 12) in January 2017, three conditions enabled Japan to play a more active role.

First, Japanese Prime Minister Shinzo Abe has retained the Prime Minister’s office for a long period by Japanese standards. He has deprived notorious bureaucrats of the opportunity to play a part in shaping policy initiatives and established a designated office for the Trans-Pacific Partnership (TPP) negotiation directly under the Prime Minister’s Office.

In the past, a typical negotiation team for a free trade agreement (FTA) consisted of representatives from the Ministry of Foreign Affairs, the Ministry of Economy, Trade and Industry, the Ministry of Agriculture and the Ministry of Finance. These representatives often fought harshly among themselves — even in front of their foreign counterparts. Poor coordination among them substantially weakened strategic moves and lessened their negotiating power. Now, Japan’s political leadership is overcoming traditional inter-ministry competition. Although the TPP team has already been downsized, the way of working towards FTAs has fundamentally changed.

Japan is trying to be a hub of multiple mega-FTAs and there is public support for this concept

Second, Japan was well prepared for the CPTPP negotiation. TPP 12 was signed in February 2016 and Japan formally reported the treaty’s ratification to the other negotiating countries in January 2017. By then, the related domestic laws and amendments had been approved by the Diet and most of the necessary domestic legislative adjustments had been completed. The CPTPP negotiation was deliberately designed so as to keep the original text of TPP 12 intact as much as possible. This was crucial not only to preserve the spirit of TPP 12 but also to save costs in Japanese politics. No additional domestic adjustments were needed for the CPTPP. This was particularly effective in taming the agricultural lobby.

Third, the majority of Japanese support the idea of TPP 12, at least in so far as they understand its elements. They believe that the competitiveness of Japanese firms resides in their active involvement in East Asian production networks. Thus the betterment of the East Asian investment climate is vital. TPP 12 or CPTPP will be a model FTA in East Asia in terms of the level of liberalisation and the advancement of international rule-making. The perception on globalisation in Japan may be a bit different from that in other developed countries, as Japan strongly believes in international production networks.

In parallel with the TPP, Japan has already completed the negotiation over the Japan–EU Economic Partnership Agreement. The diplomatic relationship with China has been restored to some extent and negotiations over the Regional Comprehensive Economic Partnership (RCEP) and the China–Japan–Korea FTA are ready to be accelerated. Japan is trying to be a hub of multiple mega-FTAs and there is public support for this concept.

Dirty concessions by smaller states are the least immediately harmful response to dirty requests by a big power

Counter to Japan’s interest in mega–­FTAs, the United States wants to launch a bilateral FTA negotiation with Japan. This is motivated by US President Donald Trump’s obsession with removing bilateral trade deficits. Japan is trying to win some time in order to validate the CPTPP and set up an accession negotiation for the United States. Japan hopes to narrow down the negotiating agenda to just 22 suspended items in the CPTPP—though this may or may not work. In any case, Japan must eventually negotiate with the United States over a bilateral FTA, the CPTPP, or both.

What is Japan afraid of? It is that the three conditions that enabled Japan to take the lead in the TPP 12 talks may be somewhat loosened.

First, Abe’s strong political stance is being shaken by a number of arguably small scandals. Although the ratification of the CPTPP has gone through the Diet, opposition parties are not willing to talk about related domestic laws. Political turmoil may be coming.

Second, negotiating with the United States means that Japan has to revisit liberalising agriculture to some extent. TPP12 involved some partial trade liberalisation commitments in agriculture. As a result, the tariff removal ratio, that is, the ratio of the number of commodities for which the tariff is going to be zero, went up from 84 per cent to 89 per cent in previous FTAs to 95 per cent in TPP12.

Yet five major agricultural products — namely, rice, wheat, meat products, dairy products and sugar — still retain various forms of trade protection. The United States will try to put some of these products on the table, regardless of whether the negotiation is over the CPTPP or a bilateral FTA. Japan must be prepared to clean up obvious weaknesses in its negotiating position, but disappointingly does not seem to be making any serious effort to do so.

Third, support for TPP 12 and CPTPP is backed up by the belief in rule-based international commercial policies. But the coming negotiations with the United States are unlikely to be along the same lines.

The renegotiation of the United States–Korea FTA that concluded in March 2018 provides a lesson. Under great pressure from US negotiators who perhaps mentioned steel and aluminium tariffs and national security commitments, South Korea suddenly made a series of concessions that are not be consistent with the spirit of the rules-based approach. These included voluntary export restraints on steel, compulsory import quotas for US automobiles with looser safety regulations, and backsliding in liberalisation commitments by the United States.

In particular, the use of politico-economic links in negotiations to get good deals will be very costly for international norms. Dirty concessions by smaller states are the least immediately harmful response to dirty requests by a big power. But such agreements degrade international trust in the rules-based trade regime.

Can Japan resist the temptation to make dirty concessions and keep to its globalisation strategy? To be consistent, Japan should be ready to clean up its agricultural protections. Japan should also understand that further trade liberalisation in agriculture and bad deals in automobiles are not equivalent. One way or the other, negotiations with the United States will start soon.

This article appeared in the most recent edition of East Asia Forum Quarterly, ‘Trade wars and Asia’.

About the author

Fukunari Kimura is Professor at Keio University in the Faculty of Economics and the Chief Economist at the Economic Research Institute for ASEAN and East Asia (ERIA).

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