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Saturday, 2 June 2012

Japan's Politics Favoring a Regional FTA over TPP?

It is easy to misapprehend Japanese politics.  It is hard—to put it mildly—to correctly apprehend them.   I say misapprehend, rather than misunderstand, Japan’s politics because the problem is not so much interpretation of information as of one of limited and biased sources of information.

Sad to say, if you don’t have Japanese and aren’t listening to and reading the Japanese media, you can simply give up thinking that any judgment you make is based on meaningfully representative information.  But even if you do follow matters in Japanese, it is hard to avoid finding one’s judgment biased by the fact that only Japan’s big business community—whose organ is the Nihon Keizai Shimbun—seems to speak on any issue clearly and with one voice.  The trap is allowing oneself to think that the Nikkei’s advocacy—because clear and forceful—holds more sway in the political process than that of a host of other interest groups, or that Japan’s political process is particularly responsive to big business.

I say this by way of apology and no doubt excuse for what I have suggested in the past is the “slam dunk” logic of Japan’s entering the Trans-Pacific Partnership (TPP) negotiations, or of meeting any ostensible deadlines for doing so, or of TTP being one of the highest priorities of the Noda government, and that accession to an agreement is critical to Japan’s future.

During the past month, and for at least the next few weeks, the Noda government—and Prime Minister Noda personally—have been engaged in a raucous and exhausting debate with dissident members of its own ruling Democratic Party of Japan (DPJ) as well as the opposition parties, led by the Liberal Democrats (LDP), over legislation to raise Japan’s consumption tax from 5% to 10%.  Noda has said many times that he is staking his political life on passage of the consumption tax rise, so vital does he believe it is to putting Japan back on a path to fiscal soundness and avoiding a Greece-like crisis.

Noda’s policy stance on the consumption tax is exactly that of Japan’s big business establishment, and the editorial pages of the Nihon Keizai Shimbun.   What about TPP—along with the consumption tax hike, a cause celebre of the Nikkei?  In fact, the trade agreement seems to have slipped completely off the agenda, at least for the time being.  Why—if it is so critical—might this be the case?

In answering this question I am indebted to an exceptionally insightful analysis by Professor Aurelia George Mulgan of the University of New South Wales in Australia recently posted in the East Asian Forum (website:  Apart from the obvious point that presently Noda has no spare political capital to invest in TPP, Professor Mulgan notes that “Japan’s record on signing Free Trade Agreements (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 U.S….  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 liberalization rate with exceptions for some agricultural product.”

Professor Mulgan elaborates on why TPP is stalled, and may be doomed, in Japan.  I want to relate his many insights in a future post.  Now I will focus on one more; he writes:

“PM Noda has argued that by joining the TPP Japan ‘can absorb the Asia Pacific’s growth power’, but this argument is flawed because…China, South Korea, Thailand, Indonesia, and the Philippines, are not in it.”

While TPP may be going nowhere, Professor Mulgan believes that Japan will “continue to push the Japan-China-South Korea FTA proposal, which was boosted by Noda’s recent trip to Beijing.”  In fact, at the tripartite meeting in Beijing Noda suffered another humiliating snub as Hu Jintao refused to meet one-on-one with him.  Speculation was briefly rife in the Japanese press as to why this happened.  But the buzz quickly passed, as snubs from Beijing seem recently to be the rule rather than the exception.

As readers of this blog know, I believe that the China-centric Asian regional economic and trade integration is an overriding mega-trend shaping and redefining Japan’s future.

Despite the Nikkei’s advocacy, movement toward TPP has stalled.    Very likely, where Japan’s varied political interests are aligning is toward a Japan-China-Korea FTA.

Stephen Harner
Stephen Harner, Forbes Contributor

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