If there's a developed country suffering from typical developed country maladies, it's Japan. Massive public debt (largely counterbalanced by huge FX reserves some would argue); a shrinking and aging population; chronic deflation; and a moribund non-export oriented sectorare among its many woes. Meanwhile, I recently discussed how South Korea's leadership was keen on signing on to the Korea-US Free Trade Agreement (KORUSFTA). Many observers including myself saw this as a move partly aimed at shoring its security alliance with the US given North Korea's volatile situation. And so it is with Japan and the US. Given the growing heft of China in the region and its own security-related tussles over the Senkaku islands, Japan's DPJ leadership has for now watered down its rhetoric about being more independent of America and all that jazz. Given their often-uncertain low politics of economic benefits, trade deals are often struck for other considerations--including the high-politics of security.
Like his Korean counterpart Lee Myung-Bak, Prime Minister Naoto Kan of the DPJ is eyeing a trade deal almost as a cure-all. While Japan's economic situation appears less promising than South Korea's, it is also appears keen on solidifying military relations with the US. All the while, the usual promise of more jobs is being bandied about. In either case, liberalization of highly protected agricultural sectors--Japan and South Korea apply among the highest tariffs in the world for imports such as rice--is the politically heavy cost that must be incurred. Naturally, influential and vote-heavy agricultural constituencies are not so happy.
In Japan's case, PM Kan wants to enter negotiations to join the APEC member-based Trans-Pacific Partnership (TPP) of Brunei, Chile, New Zealand, and Singapore alongside potential entrants Australia, Malaysia, Peru, the United States, and Vietnam. What's immediately noticeable about this grouping is China's absence unlike in ASEAN +3 or ASEAN+6 groupings. (For a guide to the bewildering array of Asia-Pacific plutilateral arrangements, see my previous post on an event we held here at LSE IDEAS on Asian economic integration.) The Wall Street Journal writes:
To be sure, there's an element of Japanese firms believing they will be at a competitive disadvantage (from trade diversion) if they fall behind in signing trade deals alike regional competitors such as South Korea. In a manner of speaking, it's precisely the effect the US wants to create of "bandwagoning" on an American- and not a Chinese-led trade facilitation vehicle: if you don't get on board, you may be left behind.Japan's embattled prime minister vowed to intensify his push for a controversial free-trade agreement, using his New Year's statement to promise progress on one of his top policy initiatives, despite his political weakness. Prime Minister Naoto Kan said he will focus this year on the Trans-Pacific Partnership [TPP] Agreement and will seek the overhaul of Japan's agricultural sector that would be required to join the pact...
In the New Year's message the prime minister laid out goals for 2011 in broad terms that include steps to help reignite Japan's economic formidability. Japan will "seek new possibilities in agriculture, forestry and fisheries," while also promoting free trade, he said.
Mr. Kan's ability to win the reforms needed to make those policy changes—or even to stay in office much longer—is unclear. A flurry of recent public opinion polls show his popular support rate has fallen below 30%, a level that leaves him little political capital to make tough reforms.
On the trade agreement, the prime minister faces tough resistance from farm lobbies and fellow party politicians in his battle to lift heavy tariffs that have long protected the domestic agricultural sector from overseas competition. Mr. Kan's plans to initiate talks to join the Trans-Pacific Partnership during the Asia-Pacific Economic Cooperation meeting in early November sparked broadsides from Japanese farming groups.
The regional trade agreement seeks to eliminate all tariffs among member nations in 10 years. While the pact would pinch the country's declining agricultural sector even more, it would help make Japanese manufacturers more competitive on the international stage. Facing increasingly tough competition from China and fearing the empowerment of South Korean rivals as a result of Seoul's aggressive trade liberalization, Japanese manufacturers are fighting hard to get the government to commit to the agreement.
In related developments, also see the Asahi Shimbun's insightful if downcast prognosis on Japan's plight. I honestly wish the Japanese the best of luck since, unlike a certain other country that's also active in the Asia-Pacfic, it isn't trying its darndest to economolest the rest of us.
