Why Japan is lagging on the TPP

Author: Aurelia George Mulgan, UNSW Canberra

Is Japan going to negotiate its way into the Trans-Pacific Partnership (TPP) any time soon?

The short answer is no. The DPJ has not finalised its position on the issue, and in view of the ongoing consumption tax battle, Prime Minister Yoshihiko Noda has no spare political capital to expend on the TPP.

Plans to revitalise agriculture in preparation for reducing tariffs have stalled. Scale expansion of agriculture has not progressed despite the Noda government’s pledge to expand the scale of rice paddy farming ‘in order to realise sustainable agricultural, forestry and fishery industries that are compatible with high levels of economic partnership’.

The time frame for the TPP negotiations is this year, but scale expansion of agriculture will take decades. The government has not even taken the first step by cutting direct income subsidies to small-scale, part-time farmers. To do so, it would have to reverse the main plank in its vote-winning farm policy. Nor are there any signs of the government grappling with key land and tax reforms to facilitate the integration of farmlands.

Japan’s record on signing FTAs is not promising. As a general rule, Japan prefers signing FTAs with non-agricultural exporting powers, rather than with powerhouses like Australia, New Zealand and the US. The TPP also breaks with precedent in two other ways: Japan has not signed trade agreements with its major trading partners or with developed countries (except for Switzerland in 2009); and it has preferred developing countries instead because it asks them to accept a lower trade liberalisation rate with exceptions for some agricultural products. Developing countries have accepted these uneven terms in the hope that they would bring Japanese aid, investment and technical cooperation. In short, Japan has signed Economic Partnership Agreements (EPAs), not FTAs, where trade comes as part of an economic cooperation package.

There are big problems with the TPP itself, which is about a lot more than agriculture. It is an extreme FTA (all tariffs abolished within 10 years) with a very broad template that has implications for a host of Japanese regulatory systems including investment, competition policy, intellectual property, financial services and government procurement.

The TPP is asking Japan to go considerably further in opening up than it has ever been before, and the question is whether the political system is up to it. Cabinet is divided, with Minister of Agriculture, Forestry and Fisheries (MAFF) Michihiko Kano one of its strongest opponents. Prime Ministers Noda and Kan brought back majority party intervention in policy making, which allows TPP opponents to wield influence within the trade decision-making process. The so-called ‘cautious faction’ (shinchōha) in the DPJ is arguing that the TPP offers no benefits for Japan. There is also cross-party opposition to the TPP. Amongst the national parties, only ‘Your Party’ appears to be openly in favour of the TPP.

On the bureaucratic side, trade negotiations are not overseen by a centralised trade negotiation authority. Each ministry concerned pursues it own interests in the negotiations, which, in the absence of effective inter-ministry coordinating mechanisms, means that the Japanese government lacks a unified position on the TPP negotiations. Although, officially, the National Strategy Unit was supposed to supervise the whole process, the task proved too much for it. Japan needs at least a minister with full power to negotiate. It is highly unlikely that the new appointee to the position of TPP negotiator will have this power.

The TPP is also generating more than the usual share of resentment against US external pressure (gaiatsu). Critics have said that the TPP is nothing but a ‘radical Japan–US FTA’ that does not allow for the usual process of negotiating terms and conditions for individual products and services, nor for grace periods for liberalisation. America’s specific demands from Japan relate to beef, cars and insurance, but TPP opponents on both the right and left say that the US wants nothing short of the Americanisation of Japan — its laws, systems and business practices.

Against this background, the Australia–Japan FTA becomes more attractive — particularly for the Japanese agricultural protectionists who see it as the lesser of two evils. They argue that if Japan can secure exclusions in its EPA with Australia, it might even be possible to maintain these bilateral exclusions when it joins the TPP. And so Japan’s Ministry of Foreign Affairs is quietly prioritising the Australia–Japan EPA as a more realistic political prospect.

Prime Minister Noda has argued that by joining the TPP Japan ‘can absorb the Asia Pacific’s growth power’, but this argument is flawed because the Asian economies most important to Japan (China, South Korea, Thailand, Indonesia and the Philippines) are not in it. Those that are (Singapore, Malaysia, Vietnam and Brunei) have a very small combined GDP and are primarily sellers to Japan, not absorbers of large quantities of Japanese exports. DPJ leaders have talked about the TPP in the context of ‘opening Japan to the world’, but this has prompted the retort that the TPP is not the world — it is not even Asia.

In the meantime, Japan will continue to push the Japan–China–South Korea FTA proposal, which was boosted by Noda’s recent trip to Beijing for trade talks with Chinese and South Korean leaders. But Japan’s stalling on the TPP means it cannot play the TPP card against China and thereby move the trilateral Japan–China–South Korea FTA idea along more quickly. For this purpose alone, there is an advantage in Japan seriously toying with the idea of joining the TPP negotiations.

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