SINGAPORE — Gemba Koichiro, the minister tasked with devising ways to revive Japan’s sagging international influence, recently drew a link between the economic power of a nation and the readiness of other countries to challenge its security interests.
Writing in the latest issue of JapanEchoWeb, he said that the economic decline of Japan appeared to underlie the resurgence of territorial disputes with both China and Russia.
Japan, he explained, had once negotiated with Russia over disputed islands from a position of strength because the Russian economy was weak. Now resource-rich Russia was on the rise, allowing it challenge Japanese territorial claims and achieve sustainable economic growth regardless of Japanese aid.
“This same dynamic seems to be at play in the recent friction between Japan and China over the issue of the Senkaku Islands” in the East China Sea, he wrote.
China has become Japan’s largest trading partner, with a 20 percent share of two-way commerce. Japan needs access to the rapidly expanding Chinese market more than China needs access to the near stagnant Japanese market — and Beijing knows this.
China’s economic rise and Japan’s relative decline was underscored earlier this month when official figures released in Tokyo confirmed that China had overtaken Japan in 2010 to become the world’s second-biggest economy after the United States.
The U.S., too, has belatedly recognized the connection between power, influence and trade, particularly in the Asia-Pacific region where China and other rapidly growing economies have made foreign trade, often among themselves, an important engine of expansion.
The U.S. is one of nine countries negotiating to form a Trans-Pacific Partnership free-trade agreement. The group finished its latest round of talks in Chile on Feb. 18. The next round is due in Singapore in March. Apart from Chile and the U.S., other countries taking part in the TPP negotiations are Australia, Brunei, Malaysia, New Zealand, Peru, Singapore and Vietnam.
They aim to conclude a deal by the time U.S. President Barack Obama hosts the annual Asia-Pacific Economic Cooperation forum in Hawaii in November.
Japan, Taiwan and Thailand have shown interest in joining the negotiations. On a recent visit to New Zealand, Australia’s Prime Minister Julia Gillard said that she and her New Zealand counterpart, John Key, would try to bring more nations into the TPP to give it even greater clout.
The current TPP countries are the third largest goods export market for the U.S. and its fourth biggest market for services. U.S. merchandise exports to the Asia-Pacific amounted to $618 billion in 2009, 58 percent of total U.S. goods exports to the world.
For the first three quarters of 2010, the value of these U.S. exports rose 22 percent over the same period in 2009. So crafting a comprehensive TPP is central to the Obama administration’s goal of doubling U.S. exports and expanding jobs at home by 2015.
In Japan, too, some ministers want to revitalize the economy and make it more competitive by hastening to finish a number of key bilateral trade liberalization pacts and then joining the TPP negotiations in June.
Japan took a significant step in this direction on Feb. 16 by signing a comprehensive economic partnership agreement with India, Asia’s third biggest economy. It is the 12th such deal Japan has signed with other countries.
However, Tokyo insists on calling these deals “economic partnerships,” not free trade agreements, because they allow it to continue protecting agriculture.
Japan’s 2.6 million farmers, average age nearly 66, produce no more than 1.5 percent of GDP and their number is expected to drop by 1 million in the next 10 years. However, they and other rural voters have disproportionate weight in Japan’s electoral system. As a result, Tokyo has shielded farm produce from foreign competition with high tariffs — 778 percent in the case of rice.
All the bilateral economic partnerships Japan has negotiated permit it to exclude politically sensitive agricultural items. The first, with Singapore in 2002, even excluded goldfish and cut flowers. The deal with India only obliges the signatories to abolish tariffs on 94 percent of trade between them within 10 years.
However, the TPP group says it aims to end all tariffs on all trade within a decade. Since each TPP country must approve Japan’s entry into the negotiations, Tokyo must either accept the entry terms or persuade major agricultural exporters like Australia, New Zealand and the U.S. that it should be allowed some leeway, particularly for rice.
The test case is with Australia, Japan’s third-largest source of imports. Japan depends on Australia for over 60 percent of its coal and iron ore imports, mainly for making steel, and 30 percent of its uranium imports for generating electricity from nuclear power.
But the latest round of negotiations with Australia this month ended in deadlock. Canberra insisted that tariffs on beef, wheat, sugar and dairy products be scrapped. Japanese officials refused to budge.
Australian Prime Minister Julia Gillard may visit Japan in April to try to break the impasse. However, the Japanese government is weak and divided over opening the economy to foreign competition, particularly in the farm sector.
If Japan is to be a linchpin of TPP expansion and a rejuvenated participant in Asian affairs, it must take action to prevent farm protection from being an obstacle. It could do so by compensating farmers and encouraging those with the most appealing produce to sell more overseas.
Aurelia George Mulgan, a Japan specialist and professor of politics at the Australian Defense Force Academy in Canberra, which is part of the University of New South Wales, believes that Tokyo also needs to establish an Office of Special Trade Negotiator with a Cabinet minister in charge.
This agency would have powers of policy coordination across Japan’s ministries dealing with trade. It would be given authority to negotiate deals on behalf of the government, thus bypassing vested bureaucratic and political interests.
Writing in the East Asia Forum on Feb. 12, she pointed out that South Korea had successfully implemented a similar institutional innovation, and it proved decisive in achieving a breakthrough on FTA negotiations with the U.S. and Europe.
She added: “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.”
Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.