The twelve countries negotiating the Trans-Pacific Partnership (TPP) trade agreement met in Washington, DC last week and at the close of that meeting announced they would hold another informal round in late January, again in the U.S., followed by a ministerial meeting in February or March. These meetings are part of an effort to conclude the negotiations by mid-year in 2015.
Whether that timeline can be met will be determined by one country – Japan. It has been in continuing discussions with the U.S. over trade in automobiles and five agricultural categories – rice, wheat, beef and pork, dairy products and sugar. No one expected anything to come from those talks until after the U.S. Congressional elections in November and the Japanese House of Representatives parliamentary election on December 14.
Japanese Prime Minister Shinzo Abe called an election half-way through the term of the lower House of the Diet (Parliament). He sought to reconfirm his mandate for reforms in economic, foreign, military, nuclear energy and social policies. His Liberal Democratic Party (LDP) directly won 291 of the 475 seats in the lower House. The LDP’s coalition partner, the Buddhist-backed Komei party, controls another 35 seats. The 326 seats held by the ruling bloc are more than the two-thirds super-majority of 317 and could enable the coalition to override resistance in the upper house. The coalition can have a few defections and still preserve its super majority.
While the Prime Minister has a big agenda, the leading item has been and continues to be economic policy – what has become known as Abenomics – to end the slow economic growth of the last 20 years. Abenomics has three parts: monetary easing, fiscal stimulus and structural reforms designed to put Japan on the path to sustained economic growth. The monetary easing lowered the value of the Japanese Yen so Japanese products better competed in international markets and the additional fiscal stimulus with borrowed money increased infrastructure spending and social outlays. To appease those policymakers who were opposed to more debt and a devalued Yen, Mr. Abe agreed to increase the national sales tax from 5 percent to 8 percent and then to 10 percent. The first tax increase totally offset the monetary and fiscal policies and led to declining economic activity for two quarters in a row – what is commonly called a recession. The second step of the sales tax increase has been delayed.
Despite this turn of events, the ruling bloc won over two-thirds of the seats in the lower House. Voter turnout was estimated at 52.7 percent, down nearly 7 percentage points from the 2012 election and a post-World War II low. The election largely ignored the ‘third arrow’ of Abenomics – economic reforms intended to raise productivity and competitiveness across Japan’s declining workforce and effectively compete in world markets. Mr. Abe didn’t campaign on these themes. He hardly mentioned the TPP. Some of the LDP members in the House rely on rural areas for support and fear exposing farmers to global competition.
That structural reforms are needed in Japan is not an issue. That has been repeatedly studied from inside and outside Japan. It is not a new idea. The Prime Minister knew all of this before he became Prime Minister. He also knew that hundreds of good market opening plans have been defeated by forces within the LDP and/or by special interest lobbying. Mr. Abe’s question is has anything changed? He has promoted and managed TPP participation since he became Prime Minister two years ago and understands the need for reforms and the fierce opposition to them. The solution must be found within the LDP and within the special interest lobbying groups.
Some Japanese policy analysts continue to believe nothing will happen with those third arrow economic reforms. That would leave Mr. Abe’s economic policies based a low-valued Yen and more government spending, both of which are not sustainable by themselves. He would lose the support of the many people who want real economic reforms. The economic events of the past year have shown that real economic policy reforms are essential to moving the Japanese economy forward and preparing for an aging population.
While there is a need for economic reforms, some say that things have not gotten so bad they will force change. Most people have a relatively high quality of life. If that quality begins to decrease and forces changes in economic policies, it may be too late to then save the quality of life.
Since the elections, there have been some news reports about serious preparation for economic reforms. A Bloomberg story mentioned dairy and meat tariffs among the items at issue in the TPP talks. A non-tariff quota for U.S. rice imports of about 100,000 metric tons a year was also listed as a potential change. The farm lobby’s power may be reduced because retiring farmers aren’t being replaced by a younger generation. Mr. Abe has reduced some payments to farmers in the last two years.
According to a report from Inside U.S. Trade, the TPP countries have decided to start a ‘legal scrub’ of the seven completed chapters of the agreement to shorten the time needed between the completion of negotiations and the official signing of the agreement. Also, the Australian government announced that the new Japan-Australia Economic Partnership Agreement will enter into force on January 15 of next year. While it is not as comprehensive as the TPP, it does include sensitive items like beef and indicates the acceptance of some change in trade policy.
Timing is an issue for the TPP agreement. This is the first opportunity after the elections for the Prime Minister to use the third arrow and he cannot avoid impacting farmers. The other countries in the TPP want to move forward now because political events make moving now the best option. Some have suggested leaving Japan behind, but Japan is too important for agricultural, industrial and consumer markets for that to happen. Japan wants to stay in to gain access to TPP country markets and to remain competitive with countries like South Korea that may ask to join after the agreement is signed.
Other TPP countries can only wait and watch. Japan’s leaders have talked about negotiating in their country’s national interest. We should not ask them to do otherwise.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade &Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade and @World_Farmers on Twitter |Truth About Trade & Technology on Facebook.