Hatoyama’s FTA strategy: no strategy at all?

Author: Joel Rathus

Japanese Prime Minister Hatoyama has now had several opportunities to put forward his view on a Free Trade Area in East Asia. Thus far his ‘vision’ has proven to be more dependent on the audience, rather than economic or strategic factors. This can be seen in his approaches towards the CJK-FTA, or China-Japan-Korea trilateral FTA as it is also known, and also the larger issue of US participation in the East Asia Community (or East Asian FTA project).

Firstly, with regard to the CJK-FTA, Hatoyama proposed at the October 10 Beijing Trilateral meeting that such an FTA be accelerated. At the same time, Hatoyama proposed that an investment pact among the three be concluded. China’s position from the outset has been that an investment agreement would not be considered outside of an FTA. On reflection, this was an early indication that progress had been made on CJK-FTA.

But while Japan’s interests in an investment agreement (to protect intellectual property, manufacture technique and brand names, and to secure investment in a framework beyond the out of date 1988 treaty) have both been aired and are well understood, Japan’s interests in a trade deal with China are much less clear. Indeed, Koizumi had turned down several requests from the Chinese side that an FTA be formed, in the process willfully ignoring the results of joint research which urged an early conclusion to the trilateral FTA [1]. It can be argued that FTAs are more about the politics, not the economics, of bilateral relations and that political relations were especially bad during the Koizumi era.

Just over two weeks later in Hua Hin (Thailand), Hatoyama progressed the CJK-FTA idea with the announcement of working groups to do joint research on the CJK-FTA. While this is the third time research has been commissioned, it is the first time government departments are involved.

Why did Hatoyama reverse the LDP’s position? Was it because China was doing something differently in its internal politics or trade policy? No. Then, was it because the World Financial Crisis demanded that the DPJ appear to do something to secure Japan’s exports?

Although it is possible Hatoyama or the Trade Minister Naoshima had talks with the relevant bureau in the Ministry of Foreign Affairs, I am told that the Ministry of Economy, Trade and Industry has not been asked to provide any sort of policy brief as to the implications of a CJK to Hatoyama (or his Office) prior to his announcements at either of the above forums.

This is suggestive of a short-term motive. Considering the manner in which Comprehensive Economic Partnership in East Asia (CEPEA) was launched, there exists a precedent for Japanese politicians to just announce an FTA/EPA with shockingly little ‘nemawashi’ or domestic consensus building first. Rather, each of these announcements by Hatoyama seems to be made on the spot with the current audience in mind.

The commitment to the CJK-FTA was announced suddenly by Hatoyama at the Trilateral summit, and was warmly welcomed by the PRC. Since the benefits to Japan are uncertain, and at any rate little effort was apparently made to understand the possible gains, might this be simply a proposal aimed at warming the relationship with China brought on by the Summit itself? In other words, no summit – no proposal. Or more precisely, this was a policy spectacle produced with audience in mind rather than specific gains. This commitment was reaffirmed at the ASEAN Plus Three, and the same can more or less be said there too.

Zooming out from the narrow issue of a CJK-FTA, if policy is being made to suit the audience rather than the national interest, it will be difficult to predict where Japan eventually decides to stand on the ‘big’ issue of U.S. inclusion in the East Asia Community project. The trajectory thus far has been towards U.S. inclusion, but Hatoyama temperament and the ‘right’ series of events might prompt a surprise and another turnaround. For the U.S., PM Hatoyama is a man to be checked on more, rather than less, frequently.

Intriguingly, the clear statement by U.S. President Obama about the importance of the Pacific to U.S. strategy and U.S.-Japan relations in Tokyo prior to APEC and Singaporean PM Lee’s appeal that the U.S. be included in any regional trade pact seems to have shifted Hatoyama’s assessment. When commenting on membership at a post-APEC forum, Hatoyama (mindful of his APEC audience) noted membership would be ‘open’, to any who ‘shared the dream’. Again, the audience counts significantly. Perhaps at next year’s APEC, which Japan will host, Hatoyama will put the US in the picture fully and formally. Then again, perhaps not.