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No breakthroughs in the Australia-Japan EPA negotiations

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In Brief

The Australia-Japan Economic Partnership Agreement (EPA) negotiations are the first real test of the Kan government’s new trade policy of ‘opening up Japan’ and a chance for it to show that it means business when it comes to agricultural trade liberalisation and economic reform.

However, if progress — or lack of it — in the new round of Australia-Japan negotiations is any guide to how successfully Japan’s revamped trade policy is being implemented, then it is difficult to be optimistic about a major breakthrough on Japan's agricultural market access issues any time soon.

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The wider implications of failure are even more significant — Japan will have fallen at the first hurdle on its way to the TPP and a leadership role in Asia Pacific integration.

In fact, for Japan’s National Strategy Minister, Gemba Koichiro, the chief value of the Australia-Japan EPA negotiations seems to be as a trial run for the TPP. In the January issue of Voice he wrote: ‘bilateral agreements are easier to accommodate domestically because some allowances can be made for maintaining tariffs on certain products … tariffs on some products remain, in line with the particular situation in each country … Similarly, if Japan first makes progress in advancing economic ties with its key trading partners, it will be in a more advantageous position, should it join the TPP, to negotiate for some products to be exempt from tariffs or for tariffs to be eliminated in stages.’

The negotiations began with both sides affirming their existing positions — the ones that led to the breakdown of talks last April. In particular, Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF) wants beef, wheat, dairy products and sugar to be treated as exceptions to tariff abolition — the very items on which the Australian side is demanding that tariffs be scrapped. The only major concession on agriculture appears to have come from the Australian side: it is now willing to exempt rice from tariff abolition, which is important from a Japanese perspective because it sets a precedent for the TPP negotiations, though not a good one.

Basing bilateral negotiations on this premise will make the Japanese side less willing to make concessions on agriculture, not more. In fact, the same old problems that stymied previous negotiations have not gone away.

The Kan government is still allowing the MAFF to make the running in the trade negotiations on agriculture, staking out its customary position of treating high-tariff agricultural items as exceptions to liberalisation. Not only do high tariffs protect domestic agricultural producers but the MAFF also has an institutionally vested interest in the current import regime because of the profit it makes on the purchase and resale of wheat. Similarly, the government-funded Agriculture & Livestock Industries Corporation (ALIC) makes a profit on the import and resale of dairy products, sugar, starch and corn for starch. These state trades are a lucrative source of off-budget funding for domestic agricultural industries.

Second, Prime Minister Kan has neither his wider ministry nor his own party under control on trade policy matters, and particularly on agricultural trade policy. Prime Minister Kan and his National Strategy Minister, Gemba Kōichirō, both of whom want an EPA signed with Australia by June, are seemingly incapable of imposing top-down, trade policy leadership that can override the naysayers in their own party and in the government. Both MAFF Minister Kano Michihiko and Deputy MAFF Minister Tsutsui Nobutaka want to protect Japanese agriculture even at the price of undercutting the implementation of the government’s new trade policy. Deputy MAFF Minister Tsutsui was quoted at a press conference four days before the restart of Australia-Japan negotiations as saying ‘we have no intention of changing our position on key items. The situation of tough negotiations will continue.’

This begs the larger question of whether Japan has the kind of political processes that can deliver reform in areas where vested interests are entrenched, such as in agriculture. There are major problems with party discipline, with divided ministries and with cabinet solidarity, which make it almost impossible to run coherent government, especially for reforming prime ministers.

Political parties in Japan remain conglomerations of individual Diet members pushing their own political barrows, while all too often ministers remain spokespersons for their ministries rather than for agreed government policy. It is difficult to believe that Deputy MAFF Minister Tsutsui belongs to the same party and same government as Prime Minister Kan and others in the cabinet supporting the government’s official trade policy, including National Strategy Minister Gemba, as well as Foreign Minister Maehara Seiji and Trade Minister Kaieda.

The same vertically divided bureaucracy that blocked change under successive LDP administrations is still all too evident. The appointment of the new METI Minister Kaieda, whose early, surprise trip to Australia this weekend at least symbolises the importance he attaches to the relationship, and earlier, the selection of Deputy Minister Matsushita Tadahiro, a late convert to the cause of agricultural trade liberalisation, to lead the pro-trade METI might have ‘levelled the playing field’ vis-à-vis the MAFF, its minister and deputy minister, but does nothing to mend a divided cabinet in which ministers representing the differing policy interests of their ministries cancel each other out.

Japan has a fragmented system of negotiating trade agreements — no single institution with final negotiation authority and no reliable mechanisms for coordinating conflicting intra-bureaucratic interests, or party-government interests. Kan’s idea of appointing Gemba as Policy Affairs Research Council (PARC) Chief and as Minister of National Strategy at the same time, and tasking him with carrying out adjustment between the party and the government on agricultural reform and trade liberalisation was designed to bridge the divide that has often stymied reform in the past. But Gemba is just another minister amongst many, and without a ministry, his status is lower in the cabinet pecking order. It has certainly not been sufficient to guarantee that the government would speak with one voice on trade policy because of all the other manifest problems in the policy process.

What Japan needs is an Office of Special Trade Negotiator with a cabinet minister in charge, which has authoritative powers of policy coordination across the ministries on trade matters, and which carries sufficient authority to negotiate deals on behalf of the government, thus bypassing vested bureaucratic and political interests. South Korea successfully implemented a similar institutional innovation, and it proved decisive in achieving a breakthrough on FTA negotiations with the United States and Europe. South Korea is showing the way in both this respect and in terms of the way in which it has compensated farmers for the likely influx of agricultural imports.

The official enunciation of a new trade policy without successful implementation remains simply a statement of good intentions. The risk remains that Japan’s political process will condemn it to the sidelines of major developments in regional economic integration, including the TPP.

Nor do we know how long the Kan government’s current trade policy will last. The Kan administration could fall — as early as next month — either through a Lower House election, or through the resignation of the prime minister and his cabinet. Right now the survival of his government is uppermost in Kan’s mind as he strives to pass the budget bills through the Diet before the beginning of the new financial year on 1 April.

Aurelia George Mulgan is Professor of Politics at the University of New South Wales, Australian Defence Force Academy.

One response to “No breakthroughs in the Australia-Japan EPA negotiations”

  1. I think this article is right and Japanese Government message about promotion of EPA looks like just a good political statement. Mr.Kan and his colleagues are very busy on the passage of the Budget and related laws and he doesn’t have enough able men to work hard for him, and it is not clear whether even Mr.Kaieda is serious.

    DPJ politicians are inexperienced in political negotiations and political adjustment process. MAFF is one of the strongest ministries in Japan and many politicians, such as Mr.Ozawa, have their constituencies in rural areas, so it is almost impossible to liberalize major agricultural products in Japan without strong party consensus or a strong international pressure where Japan might be isolated in the WTO negosiations or trade war. In addition, many DPJ rural politicians won the lower house elections by promising to introduce the new law which guarantees minimum income for farmers, but it have not realized, yet.

    I do not think that setting-up another new trade ministry will work, since most bureaucrats in Japan are loyal to their ministries. The political leadership such as under Mr.Koizumi’s government might be more important.

    As for Mr.Kaieda, he is also an important figure in DPJ, but it is not clear whether Mr.Ozawa really relies on him or not. His relationship to Mr.Ozawa is the most important key for Mr.Kaieda to be the next prime minister. Mr.Kaieda might not like to promote EPA negotiation, to which Mr.Ozawa seems to be strongly opposed as a protector of Japan’s agriculture.

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