Economic panel wants to go its own way on FTAs, farm trade

In a rather belated move aimed at giving the languishing Japanese economy a badly needed shot in the arm, Prime Minister Junichiro Koizumi’s key economic panel has put yet another sacred cow on its reform agenda: agriculture.

At a meeting earlier this month of the Council on Economic and Fiscal Policy, chaired by Koizumi himself, four private-sector members stressed the need for Japan to promote free-trade agreements, especially with Asian trading partners and without treating the farm sector as sacrosanct.

It was the first time that the highest government policymaking body on economic affairs, which was set up early last year as part of a sweeping reorganization of government ministries and agencies, had squared up to the closely interwove issues of promoting FTAs and liberalizing the politically sensitive domestic farm markets.

The four private-sector council members are: Jiro Ushio, Chairman of Ushio Inc.; Hiroshi Okuda, Chairman of Toyota Motor Corp.; Masaaki Honma, a professor at Osaka University; and Hiroshi Yoshikawa, a professor at the University of Tokyo.

The council plans to come up with specific plans for revitalizing the economy in June.

To be sure, the council’s discussions about an FTA strategy and liberalization of farm trade should be a welcome development for free-trade proponents within the government and business circles, which are increasingly worried that Japan might not be able to jump on the global FTA bandwagon.

At present, well over 100 bilateral or regional FTAs exist around the globe. Roughly two-thirds of them have been concluded in the past decade, a period characterized by rapid globalization and increasingly cutthroat competition in the international marketplace.

FTAs not only smooth the flow of trade and investment among partners but also strengthen international competitiveness as signatory nations, under a new kind of peer pressure, carry out structural reforms.

Japan is still the world’s only major industrialized economy that does not have a bilateral FTA, although its first, with Singapore, is expected to take effect this summer after being ratified by the current Diet session.

While some people within the government and business circles advocate concluding FTAs with other trading partners, especially South Korea, Mexico and the 10-member Association of Southeast Asian Nations, their discussions have been limited to the laboratory.

It has become obvious where blame for the stagnation should be placed.

The biggest obstacle to Japan’s concluding additional FTAs is vehement objections from politically powerful farm lobbies who block any further opening of the nation’s uncompetitive agriculture markets — especially the rice market — to foreign competition.

Even in closing the agreement with Singapore, which produces and exports almost no farm products, the government had to take pains to persuade farm lobbies and lawmakers within the ruling Liberal Democratic Party who rely on farm votes to refrain from killing it.

“Japan has so far failed to formulate a clear FTA strategy because talk of liberalizing agriculture markets has been considered to be a political taboo,” lamented one senior government official, apparently losing patience with the current situation.

Another senior official who also advocates FTAs and liberalization of the farm sector welcomes the recent discussions at the Council on Economic and Fiscal Policy.

“No matter how many discussions we bureaucrats have among ourselves about the politically sensitive question of further liberalizing the agricultural market, we will get nowhere,” the official said on condition of anonymity.

The official did not hide the expectations he has for the Council on Economic and Fiscal Policy to push aside the strong objections from the farm lobbies and their supporters within the LDP.

But a big question mark continues to hang over how far the council will be able to go in turning around the country’s hitherto go-slow — timid? — approach toward FTAs.

“I doubt that Prime Minister Koizumi is courageous enough to further antagonizing what he describes as reform-resistance forces within the LDP by targeting agriculture, after already putting on his reform agenda many things long considered politically untouchable,” one senior trade official said, requesting anonymity.

Indeed, Koizumi himself once grumbled about the political difficulty of injecting more competitive principles into the farm industry, a remark that betrayed his reformist credentials.

Another senior trade official is also pessimistic.

“Whether the Council on Economic and Fiscal Policy can come up with a clear FTA strategy without excluding agriculture will depend on how much political leadership the maverick Koizumi can exert,” the official said. “But unfortunately those skyrocketing public approval ratings he had have been declining sharply in recent months.

“And they were the best political ammunition he had to push through his reform agenda.”

In fact, the precipitous decline in Koizumi’s public popularity, which was triggered by his firing of the popular Makiko Tanaka as foreign minister early this year, seems to be subtly tilting the balance of power away from the prime minister and toward the LDP’s old guard.

The Council on Economic and Fiscal Policy itself has become a lightening rod for criticism from these LDP conservatives.

In addition to containing four private-sector members, the council is effectively under the command of Heizo Takenaka, a former university professor of economics and now state minister in charge of economic and fiscal policy.

The old-guard LDP conservatives regard the council as a buttinsky who encroaches on the traditional party turf.

All of this augurs ill, not only for an FTA strategy and liberalization of agriculture sectors, but also for Koizumi’s oft-stated political goal of “reform without sanctuaries.”