Kan tries again on trade

When the DPJ was campaigning to unseat the LDP in 2009, its manifesto included a pledge to "conclude" a free-trade agreement with the United States. The agricultural lobby flexed its muscles, and shortly after releasing its manifesto the DPJ issued several "clarifications," changing its pledge to reach an FTA with US to a pledge to "begin negotiations." Kan Naoto insisted that it would not conclude any agreement that harmed Japan's farmers. While the party claimed otherwise, the issue was effectively dropped for the duration of the campaign and the DPJ's first year in power.

After his victory over Ozawa, Kan, now prime minister, brought the issue of trade openness back onto the agenda in the form of Japanese participation in the Trans-Pacific Partnership. Simply put, Kan's initial attempt to clear the way for Japanese involvement in TPP was stymied by the agricultural sector — with help from members of the DPJ. The lobby argued that participation would devastate Japanese agriculture, and forced the government to make a weak commitment to "study" participation, a climb down considering the soaring rhetoric with which the PM announced that his government would study participation in his policy speech at the start of the autumn Diet session.

However, with the start of a new year and a new Diet session, Kan, far from being chastened by the earlier defeat at the hands of the agricultural lobby, is positioning his government to begin the campaign anew. As Corey Wallace notes, the "themes" of this reshuffle were tax and pensions reforms and TPP. Regarding TPP, the most significant change was the appointment of Kaieda Banri as minister of economy, trade, and industry. Moreover, Hachiro Yoshio, a former farmer, was replaced as Diet affairs chairman by Azumi Jun. Combined with Maehara Seiji's staying on at the foreign ministry — Maehara has repeatedly called attention to the importance of economic openness for Japanese foreign policy — Kan managed to put into place a team that will be committed to the fight for free trade. His cabinet quickly agreed to TPP participation as a basic policy of the latest Kan government.

The question is whether Kan will be able to translate this ambition into reality. At the very least, the Kan government (and the DPJ) appear to have found their purpose. After fumbling around in search of a major issue or two to devote its energies to, the DPJ-led government has decided to tackle two rather pressing issues, which, combined with the challenges in Japan's bilateral relationships, passing the budget and budget-related bills, and managing life as a de facto minority government will be more than enough to keep the Kan government occupied. 

But in pursuing an open Japan — Kan's New Year's message was devoted to his goal of a third opening, a "Heisei opening" that would mean not just a Japan open to more imports but open to cultural, intellectual, and social exchanges across borders  — the Kan government arguably faces an even steeper battle than Koizumi faced when he took on the postal system, meaning the postal workers and their allies in the LDP. Between the rural bias in parliamentary representation (which, given the size of the DPJ's parliamentary caucus, inevitably means that there will be battles within the DPJ), the opposition of local governments in rural areas throughout Japan, and the outsized power of Nokyo, the Kan government faces formidable and perhaps insurmountable obstacles to bringing Japan into TPP. 

A basic understanding of international political economy is that free trade falters because its costs are concentrated while its benefits are diffuse. Plenty of states have joined free-trade agreements, suggesting that this fundamental tenet may not be all that fundamental. But what can the Kan government do to overcome the determined resistance of the agricultural lobby and its allies? For starters, the government needs to build a coalition of its own to rival the anti-TPP coalition. Business peak organizations like Keidanren will be indispensable partners for the Kan government if it is as serious about TPP as it says it is. Given the frosty relations between the DPJ and big business, the "anti-business" planks of the DPJ's manifesto, and the party's ties with organized labor (and big business's traditional ties with LDP), building this coalition will take some work, although this meeting between Kaieda and Keidanren's Yonekura Hiromasa is an encouraging start.

But it will take more than the help of friendly interest groups for the government to succeed. Ultimately, TPP may be the first big test for the DPJ's parliamentary-cabinet system. On paper, the DPJ's new policymaking process ought to (1) enable the government to coordinate its strategy on TPP across the relevant ministries (METI, MAFF, MOFA, etc.), (2) keep all cabinet ministers on board with the policy, (3) silence opposition within the ruling party, and (4) make strong, direct appeals to the general public about the necessity of the government's program. It is not a perfect analogue, since the upper house, now controlled by the opposition parties, gives the opposition parties procedural weapons they lack in the UK. However, the Kan government still has considerable tools at its disposal. The question is whether it uses them. As Andy Sharp argues at The Diplomat, it may well take a Koizumi-style PR blitz for the Kan government to win on this issue. It needs to hammer home why TPP — and greater openness more generally — are good and necessary for Japan. The idea that trade policy is an arena where groups with "objective" interests derived from their position in the global economy is overstated. Even among urban residents, thought to be the natural constituency for free trade, support cannot be taken for granted. The policy will not sell itself; an pro-TPP interest coalition needs to be constructed. The government's plan to convene town halls across Japan in February and March to explain the benefits of the policy are a good first step. But more talk will be needed. And side payments in one form or another will be unavoidable.

There is considerable risk in taking on TPP at the same time that the government will be debating a consumption tax increase linked to pensions payments, which, if not handled properly, could produce public opposition that could overwhelm the patient work of building a consensus on TPP. Nevertheless, as the Kan government and the DPJ begin a new year in power, they seem to be finding their bearings on policy. This government may yet leave a positive legacy.

Japan feels the heat

Based on the coverage in Japan's newspapers, it seems that Japan was blindsided by the US-ROK free-trade agreement. Perhaps Japanese observers did not quite believe that negotiators would be able conclude an agreement before time ran out. Of course, the agreement's passage in both the US and South Korean legislatures is hardly a foregone conclusion, as the Japanese media has noted, but the prospect of Korean companies -- especially automakers -- having preferential access to the US market seems to have stirred the Japanese government to action.

The FT reports today that Japan has announced that it is interested in ramping up talks with South Korea on a Japan-South Korea FTA, and quotes Abe has saying that even an FTA with the US should be considered. The FT also notes, however, that Korea is more interested in trade negotiations with the EU than with Japan.

Perhaps another sign of the deficiencies of the Japanese government's foreign policy making; Tokyo seems utterly incapable of shaping the regional environment, and is continually being outflanked by its neighbors, allies, and rivals, whether on trade, security, or in the six-party talks.

Farewell six-party talks?

So the US Department of Commerce has imposed tariffs on imports of glossy paper from China, bowing to pressure from the paper industry.

This is one of those cases that lead me to question whether the Bush administration is capable of walking and chewing gum at the same time.

At the same time that the administration has committed political capital to reaching a lasting agreement in the six-party talks -- in which it is dependent upon China wielding its influence with North Korea -- it has opted to provoke China in trade policy. Obviously the federal government is a colossal machine with each component focused on its own work, but did no one in the administration speak up with a reminder that maybe, just maybe, imposing these tariffs might undermine the six-party talks by prompting Chinese retaliation (perhaps by a sell off of China's holdings of US Treasuries)?

So did the administration forget about the six-party talks, or does it not care? In any case, its policy incoherence is becoming dangerously reckless.

Meanwhile, I can imagine that the Japanese government is not altogether unhappy with the US move, particularly if China retaliates. After all, in the event of Chinese retaliation, the onus for undermining the talks will shift from Tokyo to Beijing.

Japan's friends, kept at arm's length

The Japan Times today has two op-eds that illustrate Japan's troublesome ties with the US, its ally, and South Korea, its wealthy, democratic neighbor and former colony.

The first, by journalist Hanai Kiroku, calls for a US-Japan economic partnership agreement (EPA), to follow on the heels of the Japan-Australia EPA currently under negotiation. Given the scale of the economic links between the world's first and second largest economies, the benefits of a US-Japan EPA would be large -- and would undoubtedly have spillover benefits for both the search for a compromise in the WTO and the push for an APEC FTA.

But I fear that political conditions in both countries militate against the negotiation and passage of a US-Japan agreement for the foreseeable future. With economic insecurity on the rise in the US, and the president's trade promotion authority set to expire, a wide-reaching EPA with Japan could very well aggravate US fears of Japan's economic prowess -- imagine the screams that would emanate from Detroit.

In Japan, meanwhile, the opposition to an agreement would be more fundamental, as it would no doubt emanate from Japan's heavily protected agriculture sector. Hanai makes the sensible suggestion that since Japan is dependent on food imports anyway, it might as well conclude deals that ensure that imported food supplies will remain stable, cheap, and plentiful:

Japan's calorie-based food self-sufficiency rate is only about 40 percent, much lower than the comparable rates of other countries. Some fear that EPAs with major farm exporting nations such as Australia and the U.S. will lower the rate further. However, in my opinion, Japan should secure stable food supplies from overseas because of its low food-sufficiency rate. If Japan, through EPAs with Australia and the U.S., has both countries promise to refrain from one-sided restrictions on food exports, it will help strengthen Japan's food security.

For that to happen, though, Japan's political system will have to change: as long as rural prefectures are the LDP's power base, and as long as the distribution of power in the political system favors agricultural producers over consumers, any agreement that forces Japan's farmers to face substantially greater competition will be nigh on impossible. This kind of opposition has already emerged against the Australia EPA negotiations; imagine the opposition that would await EPA negotiations with the US.

The second piece, meanwhile, is Pyon Junbeom and Tsukagoshi Yuka, South Korean and Japanese scholars respectively, writing about concrete steps that South Korea and Japan can take to ease bilateral tensions and build a genuine partnership. I like this piece, because it seeks to craft policies that take into account intangible cultural and historical factors. As they write: "The root of anti-Japanese sentiment in South Korea is wounded pride. Koreans feel humiliated and insulted that they, a highly civilized society, were invaded by the Japanese, whom they believed to be barbarians." A sensible argument, but it leads me to wonder if even their modest recommendations will be difficult to implement. The kind of attitude they describe South Koreans as having seems like it would be difficult to overcome simply through Japanese apologies and other conciliatory measures. I don't doubt the value of a closer, more active Japan-South Korea partnership, I just doubt whether a South Korea intent on rectifying centuries of shame and a Japan feeling insecure as it watches its neighbors succeed will be able to forge a strong, dynamic friendship.

If Japan is to remain a significant player regionally and globally, however, it better start laying the groundwork for more constructive, open partnerships with its friends now, before it's too late.

Two Chinas, two Asias

I spent Friday afternoon at the headquarters of the Keidanren -- a classic example of Tokyo-style brutalism if I've ever seen one -- at a symposium convened by the World Trade Center Tokyo and the Tokyo American Center on "China's Rise and the Emerging Architecture of Trade and Investment in the Asia-Pacific Economy." Keynotes by a Chinese and an American academic, with a panel of veteran Japanese diplomats.

The discussion ended up being very interesting, addressing the many varieties and possibilities of trade agreements in East Asia.

But I'm not going to summarize the discussion here. Rather, I found the contrast with the talk I attended earlier this week, on the evolving situation in the Taiwan Straits, jarring, but illuminating.

It seems that at present, two Asias exist side by side -- with observers seeing the Asia they prefer to see. The business leaders, academics and diplomats gathered at the Keidanren today prefer to see the Asia characterized by ever-deepening economic, political, and cultural integration, the "spaghetti bowl" of organizations and agreements, including ASEAN, ASEAN + 3, the East Asian Summit (ASEAN + 6), APEC, the Chiang Mai Initiative (connected to ASEAN + 3), the ASEAN Regional Forum, and a host of bilateral free trade agreements. It's an Asia marked by increasingly dense trade and investment ties within the region. At the heart of this Asia is China, the new "workshop of the world," which has become one of the world's biggest traders since joining the WTO, and has enthusiastically embraced regionalism. This is the China that showed up at Cebu earlier this year.

But then there's the other China -- the China that reacts defensively to US calls for military transparency (not to mention the ASAT test) -- that was the focus of Randy Schriver's talk on Wednesday. That's not to say that Schriver only described the belligerent China; if anything, his view, and the view of China in the Armitage-Nye Report, is much more balanced than the seemingly unbridled optimism I heard today. In any case, this second Asia contains the risk of conflict, as it is characterized by ethnic tensions, arguments over history, the possibility of zero-sum competition for energy (the Sino-Japanese conflict over EEZs in the East China Sea, for example), the potential for a nuclear arms race in Northeast Asia, and concerns about China's military buildup, especially as directed at Taiwan. This Asia is by no means inevitable, but every time China shows its belligerent side, the shadow of this conflictual Asia threatens to darken the bright, shining Asia of ever thicker regional ties.

I give the US government credit for not overreacting in recent years to the shadows of the latter Asia -- but sooner or later it is going to have to exert substantial effort to ensure that the former takes a shape that is in the interests of the US (i.e., an Asia that does not harden into a trade bloc that excludes the US). Having a hedge against the latter outcome, in the form of enhanced alliances with Japan and Australia and deeper ties with India, Vietnam, and other regional partners, is fine, but it can only be one facet of US Asia policy.

So I'm with Georgetown's Dennis McNamara, one of the keynote speakers on Friday: it is time for the US to begin working at shaping the cooperative Asia as best it can in a direction that favors the US. (See this Asahi interview for a summary of McNamara's views on this subject.)

But it is important to remember that the decision as to which Asia -- cooperative or conflictual -- will emerge will depend largely on decisions made in Beijing.