ECONOMIC PARTNERSHIP AGREEMENTS (EPAS) AND FREE TRADE AGREEMENTS (FTAS) AND JAPAN
The New Growth Strategy promoted by the government of Prime Minister Naoto Kan puts a premium on establishing economic partnership agreements (EPAs), or free trade agreements (FTAs). As of 2010, Japan had EPAs with 10 countries and one region---ASEAN. [Source: Hiroko Tabuchi, New York Times, November 11, 2010]
To establish more EPAs Japan would needs lower tariffs on agricultural goods and reducing subsidies to farmers. This would could lead to a flood of cheap products from the United States and Australia and drive down prices, negatively affecting Japanese farmers, and details Japan’s plan to be more self sufficient in food production. To offset hardships for farmers, the Japanese government has proposed giving them subsidies. [Ibid]
Hiroko Tabuchi wrote in the New York Times, “Although Japan has negotiated free-trade agreements with a handful of smaller trading partners, including members of ASEAN (Association of Southeast Asian Nations), Tokyo has always insisted that agricultural produce like rice and dairy stay exempt from the tariff reductions. Japan levies a 252 percent tariff on imported wheat, 360 percent on butter, 328 percent on sugar and 38.5 percent for beef.” [Ibid]
“Partly as a result of that rigid stance, Tokyo has yet to conclude free-trade agreements with China, the United States or the European Union, which are Japan’s main export markets---a major impediment to gaining market share, exporters argue.” The European Union imposes a 10 percent tariff on automobiles and a 14 percent tariff on TVs. “Any further delays will mean Japan will be left out of global economic growth,” Hiromasa Yonekura, chairman of the Nippon Keidanren, Japan’s biggest business lobby, said in October 2010. [Ibid]
“Japanese exporters are particularly wary of rivals from South Korea, which has been more aggressive in forging trade agreements with important trading partners,” Tabuchi wrote. “A free-trade agreement between South Korea and the European Union goes into force in July 2010. EU tariffs on South Korean exports will be eliminated, causing the price competitiveness of South Korean products on the international market to rise markedly. In December 2010, the U.S. and South Korea signed a fair trade agreement (FTA) that aimed to boost trade by dramatically reducing tariffs, The move gave South Korea companies an advantage over Japanese ones in several sectors and put pressure in Japan to make a similar deal.”
In May 2011, Japan and the European Union started talks on forging an EPA. The EU had already made such a deal with South Korea. Around the same time Japan, China and South Korea began deciding a framework for negotaited a trilateral free trade agreement (FTA).
Trans-Pacific Partnership Agreement (TPP)
In a move pitting Japanese farmers against the nation’s export industries, Japan is pushing to join negotiations for an American-backed free-trade zone called the Trans-Pacific Partnership that would span the Pacific Rim and create a vast free-trade area that would involve over half of the world’s economic output.
Trans-Pacific Partnership Agreement (TPP) is essentially an EPA (economic partnership agreement) involving countries in the Asia-Pacific region seeks to remove all tariffs among its members. It began as a relatively minor framework among Brunei, Chile, Singapore and New Zealand, but became a promising major free trade scheme when the United States showed interest in it.
Hiroko Tabuchi wrote in the New York Times, “The new zone would give Japanese exporters of cars, televisions and other manufactured goods greater access to the United States and other markets. But a trade agreement could dismantle the generous protections that have sustained Japanese farms for years---most notably, Japan’s 777.7 percent tariff on imported rice. High agricultural tariffs mean Japanese consumers must choose between expensive domestic produce or even more expensive imports. They pay four times the average global price for rice; three times the global average for sugar, butter and beef; and twice the global average for wheat, according to government estimates. [Source:Hiroko Tabuchi, New York Times, November 11, 2010]
The Ministry of Economics, Trade and Industry (METI) said the agreement would virtually ruin the farm industry, causing it lose $130 billion and only boost GDP by around 0.5 percent. If Japan doesn’t participate in the TPP the METI estimated that GDP would go down by 0.14 percent , 812,000 jobs would be lost and a major blow would be served to three major export industries.
In 2010, Japan participated in negotiations to join the TPP. Though preliminary negotiations involve just nine countries, including the United States and Singapore, the plan would be a building block for a wider pan-Pacific free-trade zone. As of November 2010, Singapore, New Zeland, Chile and Brunei had joined; the United States, Vietnam, Australia, Peru and Malaysia were in negotiations to join; and Japan, South Korea, the Philippines, China and Canada were considering joining. The agreement got attention when U.S. President Obama said in 2009 the United States was interested in joining to boost exports.
Support in Japan for the TPP
Japanese Prime Minister Naoto Kan said he wants Japan to join the TTP talks but added he that doesn’t want to hurt farmers. “Japan is determined to more actively open up to the world,” Kan told world leaders at the G-20 meeting in Seoul, South Korea in November 2010. Partly bowing to the pressure from agriculture lobby Kan later softened his stance, promising he would only “initiate consultations” on joining the Trans-Pacific Partnership. He has also promised to overhaul the country’s agricultural policy, possibly increasing subsidies to farmers. [Source: Hiroko Tabuchi, New York Times, November 11, 2010]
Hiroko Tabuchi wrote in the New York Times, “The Japanese business lobby has gone all-out in support of the drive, saying it would help exporters---like automakers and electronics manufacturers---regain their competitive edge. The country’s exporters have been particularly vocal as their overseas earnings suffered from a strong yen, which can make Japan-made products more expensive overseas or erode exporters’ overseas earnings.” [Ibid]
“Staying out of a pan-Asian free-trade bloc would shave at least 1.5 percent, or 10.5 trillion yen ($128 billion), from the Japanese gross domestic product and eliminate eight million jobs, according to a recent estimate by Japan’s trade ministry. Exporters have threatened to shift more factories from Japan to overseas locations to get around both tariffs and the strong yen.” “To be globally competitive, we need to be able to play by the same rules,” Osamu Suzuki, chief executive at Suzuki Motor, said in November 2010. [Ibid]
The Japanese public tends to back more free trade. In a 2010 poll by Kyodo News, 46.6 percent of respondents said Japan should join the Trans-Pacific Partnership, versus 38.6 percent who opposed it.
Obstacles to the TPP
The biggest obstacle to joining the TPP or making a significant ERA arrangements are farmers--- which rely on agriculture subsidies and sky-high protective farming tariffs to keep cheap, foreign produce out of Japan---and the various organizations that support farmers. "Joining the TPP is out of the question. Our agriculture industry will be destroyed. While avoiding a hasty approach, we will protect our rice farmers," a senior official at the farm ministry told the Yomiuri Shimbun.
Hiroko Tabuchi wrote in the New York Times, “The Agricultural Ministry warns that if Japan were to join the proposed trade zone, 90 percent of the nation’s rice cultivation would disappear, and wheat, sugar, dairy and beef output would also be adversely affected---costing the country about 4 trillion yen, or $49 billion, in lost production and 3.4 million lost jobs.[Source: Hiroko Tabuchi, New York Times, November 11, 2010]
Large-scale demonstrations have already been held in opposition to Japan's joining the TPP in Tohoku, Kyushu and other farming regions. In November 2010, 1,000 farmers took to the streets in Iwamizawa, fists raised against what they say is a government betrayal that will ruin their livelihoods, and almost 3,000 farmers rallied in Tokyo against free-trade plans. “Farming communities across Japan will face ruin,” said Mamoru Moteki, who heads an umbrella organization for Japanese agricultural cooperatives. “We must prevent this by all means.” [Ibid]
“The anger is evident in Tokachi, another major farming region on Hokkaido,” Tabuchi wrote, “where local officials warn that the entire region would lose jobs across all sectors if farms were allowed to perish. Tokachi has few manufacturers to speak of, with local factories making potato chips, sugar, cheese and butter. Even the transportation networks are maintained by farms.
The National Association of Towns and Villages, to which 941 towns and villages belong, adopted a resolution opposing TPP participation. According to a November 2010 Kyodo News report: “A total of 46 local assemblies have adopted statements to express opposition to or caution in participating in a U.S.-backed Pacific free-trade initiative, a survey indicated. The figure, which represents about 70 percent of prefectural assemblies and ordinance-designated major city assemblies in the country, indicates farming regions are concerned the central government might decide to join negotiations on the Trans-Pacific Partnership Agreement without sufficient domestic debate.”
JA Opposition of the TPP
According to Yomiuri Shimbun article: Leading the charge against the TPP has been the national federation of agricultural cooperatives, the Central Union of Agricultural Cooperatives (JA-Zenchu). In December, it declared it would collect 10 million signatures for a petition opposed to Japan joining TPP negotiations. In his New Year greeting, JA-Zenchu President Mamoru Moteki, urged members to "resolutely resist" the TPP, which he said will be the organization's "No. 1 challenge" this year. True to Moteki's words, every branch of the JA organization has joined the boisterous anti-TPP campaign. [Source: Yomiuri Shimbun , January 18, 2011]
Kazuhito Yamashita, a senior researcher at the Canon Institute for Global Studies, a private think tank, said if Japan signed up to the TPP and trade tariffs were eliminated, domestic farmers would not necessarily be hung out to dry. "The government's income compensation for individual farming households means farmers' income won't decline even if prices of farm products drop as a result of trade liberalization," Yamashita said. "Trade liberalization would have little adverse impact on marketing vegetables because their tariffs are already pretty low." [Ibid]
Yamashita even suggested JA's opposition to the TPP could stem from its own self-interests. "The JA should be blamed for fanning farmers' anxieties that the TPP could wipe out the domestic agriculture sector, primarily because the JA is afraid its farming produce-related revenue would decrease when prices of farm produce fall after liberalization," he said. One JA-Zenchu executive even admitted JA "isn't necessarily opposed to trade liberalization itself" and is "well aware of the benefits free trade could bring." [Ibid]
According to the Yomiuri Shimbun: The JA group should accept the simple fact that progress on Japan's participation in TPP negotiations is inevitable, as long as the future of this nation rests on free trade with other countries. Failure to reform the farming sector would be certain to invite further deterioration of the agriculture industry. Whether JA can knuckle down to the task of self-transforming itself to boost the competitiveness of the farming sector will be key to the future of this country. [Ibid]
Farmers Who Object to the TPP
Atsushi Kono considers the TPP a grave threat to his family’s farm. He told the New York Times “This is the end of the road for my farm,” said Mr. Kono, 60, who grows rice, wheat, red beans and cabbage on 17 acres of farmland here in Iwamizawa, on Hokkaido. He would probably end up selling his land, he said, if he could find a buyer. “But then what do I do?” Mr. Kono said. “I can’t see a future at all.” [Source: Hiroko Tabuchi, New York Times, November 11, 2010]
Masatoshi Honda, 67, and his son, Koichiro---who run a small dairy farm of about 100 cows in Tokachi---say they are eager to expand and eventually export premium cheese and butter overseas. But entrepreneurship has not been rewarded in Japanese farming policy, they say, and farmers need more time to prepare for greater competition from overseas. “We realize Japan can’t resist opening up forever,” said the younger Mr. Honda, 34. “But fixing Japanese farming has to come first,” he said. “Everything is happening too suddenly.” [Ibid]
TPP and the Noda Administration
In November 2011, Kyodo reported: “Japanese Prime Minister Yoshihiko Noda declared Japan's policy of joining multilateral talks on a Pacific free trade accord at a summit meeting of the Asia-Pacific Economic Cooperation forum. Several economies' leaders welcomed Japan's decision to start consultations with countries concerned on joining the Trans-Pacific Partnership negotiations, the official said. [Source: Kyodo, November 13, 2011] Analysts say Japan must keep pace with developments such as South Korea's recent free-trade pact with the United States. Membership in the Trans-Pacific Partnership, these observers say, will strengthen ties with Japan's neighbors and the U.S. while reducing the damaging effects of a surging yen. [Ibid] Rice growers like Fukuda would be hit worst. Many are now protected by a whopping 800 percent duty on imported rice. Irate farmers recently drove their tractors down busy Tokyo streets to counter lobbyists who promote the free-trade pact as a boost for Japan's sagging economy. [Ibid]
Views on the TPP
In a Yomiuri Shimbun survey people were asked: "Do you think Japan should take part in the Trans-Pacific Partnership negotiations aimed at liberalizing trade, including agriculture, in the Pacific Rim?" Forty-one percent favored Japan's participation in the TPP talks, while 37 percent were opposed and 22 percent gave no answer. [Source: Yomiuri Shimbun, November 21, 2011]
“Whether or not Japan can participate in the TPP requires the approval of the other participating nationsForeign Minister Koichiro Gemba told reporters in Tokyo the governments of Vietnam and Brunei have said they welcome Japan's interest in joining the TPP. His stance indicated that Japan has essentially won over the nations' approval to participate in the talks. According to trade sources, Vietnam is concerned the United States may lead the TPP agreement and force the socialist country to liberalize its market. Vietnam therefore desperately needs Japan's TPP participation to avert possible pressure from the United States. [Source: Hideyuki Ioka and Akihiro Okada, Yomiuri Shimbun, January 24, 2011]
“The reaction of the United States is believed to be pivotal to Japan's successful participation in the TPP. The United States invited comments in the country on Japan's participation in the TPP. Most of the about 130 parties who responded were in favor of Japan's joining. The results are believed to reflect expectations that Japan's participation will help create a gigantic trade zone to curb China. [Ibid]
“But a statement released by the American Automotive Policy Council (AAPC) --formed by major U.S. automobile companies Chrysler LLC, Ford Motor Co. and General Motors Co.--opposes Japan's participation in the TPP. It also issued various demands, such as that Japan should abolish its unique light vehicle standards and that Japanese safety authentication procedures should be brought in line with international standards. It appears the AAPC is worried Japan's participation in the tpp may strengthen Japanese cars' competitive edge in the U.S. market. Japan has opposed the demands, with Japan Automobile Manufacturers Association Chairman Toshiyuki Shiga saying he does not think light vehicles are competing with mainly large-sized U.S. cars. Yet the areas where the major U.S. automakers are based are also home to leading legislators of the Democratic Party, who have a support base among labor unions. [Ibid]
U.S.-South Korea Free Trade Agreement
In October 2011 the U.S. Congress approved of a free trade agreement with South Korea that went ino effect in March 2012. The South Korean government quickly passed bills ratifying agreement despite angry protests bt farmers and promises by the Democratic Party of South Korea, the country's largest opposition party, to do everything it can to prevent the National Assembly from passing the bills. [Source: Ichiro Ue, Yomiuri Shimbun, October 15, 2011]
The primary purpose of the agreement is to encourage trade by reducing tarriffs. After the FTA went into effect, for example, U.S. import tariffs on South Korean cars, 2.5 percent in 2011, will be abolished in five years. [Ibid]
“The Federation of Korean Industries, which is equivalent to Keidanren, issued a statement that said the FTA would create 350,000 jobs and increase South Korea's real gross domestic product by 5.6 percent. But South Korea's agricultural organizations, especially cattle-breeding farmers, strongly opposed economic management led by exporters. [Ibid]
Impact of the U.S.-South Korea Free Trade Agreement on Japanese Firms
In March 2012, the Yomiuri Shimbun reported: “The free trade agreement that went into effect between South Korea and the United States will likely hurt Japanese automakers and electronics firms in the North American market, observers have said. The FTA is expected to help South Korean manufacturers increase their exports to the United States. However, Japanese companies will likely have to fight an uphill battle for the time being, while the Japanese government aims to join negotiations on the Trans-Pacific Partnership free trade agreement, the observers said. [Source: Yomiuri Shimbun, March 17, 2012]
“South Korea will have an advantage regarding exports. Japanese companies have to combat that disadvantage," Japan Automobile Manufacturers Association Chairman Toshiyuki Shiga said during a press conference. South Korea's Hyundai Motor Co. has recently increased its presence in the United States and become a powerful competitor for Japanese automakers. According to U.S. survey company Autodata Corp., Hyundai's market share of new car sales in the United States, which includes that of its subsidiary Kia Motors Corp., was 8.9 percent in 2011. This is above Nissan Motor Co.'s 8.2 percent and is closing in on Honda Motor Co.'s 9 percent and Toyota Motor Corp.'s 12.9 percent. [Ibid]
“The effectuation of the FTA will likely be a tailwind for South Korean companies.In the North American market for flat screen TVs, South Korean manufacturers have a huge lead over Japanese firms. South Korea's Samsung Electronics Co. had a 21.9 percent share of the North American market for flat screen TVs in 2011 and LG Electronics Co. had an 11.6 percent share. Panasonic Corp.'s share was 9 percent, Sony Corp. was at 6.6 percent, and Sharp Corp. at 3.3 percent. [Ibid]
“The South Korea-U.S. free trade deal is likely to widen the gap between the market shares of Japan and South Korea, according to the observers. Satoru Okuda, senior researcher at the Institute of Developing Economies of the Japan External Trade Organization, estimates exports from Japan to the United States will decline by 252 million dollars (21 billion yen) in the year following the effectuation of the South Korea-U.S. free trade agreement. [Ibid]
“Japanese auto parts and other products in which Japan is highly competitive are expected to be replaced by South Korean products, which will decrease Japan's exports to the United States, Okuda said. "There will be a strong movement [for Japanese companies] to move their factories to South Korea from Japan, to use South Korea as a base of operations for exporting, " he said. This movement may accelerate the hollowing-out of Japanese industry. [Ibid]
“If Japan joins the TPP negotiations, in which Australia, the United States and other countries are participating, before the TPP becomes effective, Japan will no longer be at a disadvantage relative to South Korea, the observers said. However, Japan has yet to form a consensus over the TPP, and prior consultations with the United States are expected to be protracted. [Ibid]
Free Trade Agreement Involving Japan
Japan and India signed a free trade pact in February 2011. The two countries had already signed a free trade agreement and economic partnership agreement which eliminated tariffs on 94 percent of two-way trade flows in October 2010.
Japan and Australia plan to conduct talks on a free trade agreement in 2011. Japan gets 61 percent of its iron and 63 percent of its coal from Australia.
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Yomiuri Shimbun, Daily Yomiuri, Japan Times, Mainichi Shimbun, The Guardian, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.
© 2008 Jeffrey Hays
Last updated August 2011