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Contents

List of Illustrations vi

Preface and Acknowledgements viii

Notes on Contributors ix

List of Abbreviations xi

1 Understanding Japanese Trade Policy: A Political Economy Perspective 1

Aurelia George Mulgan

2 Postwar Japanese Trade Policy: A Shift from Multilateral GATT/WTO to Bilateral/Regional FTA Regimes 41

Shujiro Urata

3 The Political Economy of Japanese Agricultural Trade Negotiations 71

Kazuhito Yamashita

4 The TPP and Agricultural Reform in Japan 94 Masayoshi Honma

5 To TPP or Not TPP: Interest Groups and Trade Policy 123 Aurelia George Mulgan

6 The Impact of Trade Policy on Japanese Trade and Investment 157 Roger Farrell

7 International Production Networks and Economic Diplomacy in Japan 175

Fukunari Kimura

8 Locating Japanese Trade Policy in an Evolving Regional Context 196

Hidetaka Yoshimatsu

Index 223

Copyrighted material – 9781137414557


1

Introduction and analytical framework

The purpose of this book is to identify the main political and economic forces that have helped to shape Japanese trade policy in the postwar period. The individual chapters focus on different aspects of this story, although they share a broad political economy perspective and common underlying themes such as factors influencing Japanese trade protec-tionism and liberalisation, and the timing and extent of Japan’s acces-sion to bilateral, regional and multilateral trade agreements.

In economics, the standard political economy approach to explaining trade policy assumes that individuals and firms, who may organise into interest groups, are motivated exclusively by considerations of economic self-interest to prefer particular trade policies as are the poli-ticians responding to them (Baldwin 1996). Key trade policy measures such as reducing levels of import protection or becoming a member of a trade bloc result from the balance of political forces motivated by economic self-interest to support or reject these measures (Baldwin and Baldwin 1996). In political science, public choice analysis attributes motivations to core trade policy constituencies such as farmers, business firms and consumers based exclusively on economic self-interest, while assigning a political calculus to politicians based exclusively on political self-interest (George Mulgan 2008b).

Even economists, however, concede that trade policy preferences cannot be fully explained by the self-interest model, pointing to the broad social concerns that underpin the trade policy preferences of voters and public officials (Baldwin 1996; Baldwin 1989). This approach

1 Understanding Japanese Trade Policy: A Political Economy Perspective Aurelia George Mulgan



2 Aurelia George Mulgan

argues that trade policy can be explained mainly by the government’s concern for the welfare of certain social and economic groups and by its desire to advance particular national and international goals, which are also endorsed by the general public (Baldwin 1989). Among the most widely discussed are goals relating to the maintenance of the existing distribution of income, or to enhancing the power of the nation-state by pursuing trade alliances (Baldwin 1989). This approach allows for more diverse motivations beyond the assumptions of economic or political self-interest, such as ethical considerations and the desire to promote the public good, including genuine ambitions to advance the interests of the nation-state in the international community.

The integrative political-economy framework introduced in this chapter builds on these approaches by adopting a broadly conceived interest-based perspective in which interests are divided into ‘sectoral’ and ‘state’. ‘Sectoral’ interests are associated with specific producer groups such as farmers and manufacturers as well as with wider socio-economic sectors such as consumers, regional dwellers and taxpayers. ‘State interests’, on the other hand, refer to benefits that accrue to the whole nation-state, not to particular sections or sectors. They can be further sub-divided into ‘domestic’ and ‘external’.

Domestic state interests encompass collective economic goals such as economic growth and national prosperity as well as broader social concerns such as environmental conservation and social welfare. They relate to the interests of the nation-state with a domestic focus. External state interests, on the other hand, are the interests of the nation with an international focus. They can be embedded in and pursued through trade policy and are not necessarily restricted to narrowly defined trade goals. They include objectives such as expanding international economic and political influence, exercising regional and global trade leadership and strengthening alliance relationships.

This approach adopts a wider lens for viewing the interests that might find expression in trade policy. It also acknowledges that government decision-makers can be motivated to respond to sectoral interests, but they can also seek to advance the broader societal and interna-tional interests of the state in formulating trade policy (George Mulgan 2008b). Trade policymaking will inevitably involve a balancing of diverse interests, some of which will conflict while others will be mutu-ally reinforcing.

The analytical framework outlined here discards the theoretical assumption of self-interest. It is based on the premise that both govern-ment and non-government actors can pursue sectoral, societal and



Understanding Japanese Trade Policy 3

international interests either for reasons of their own self-interest or out of concern for the wider national benefit. The following sections illus-trate the framework by identifying the range of interests – both sectoral and state – that key Japanese trade policies advance.

Sectoral interests

Trade liberalisation without agriculture

Perhaps the most distinctive, enduring and internationally contentious feature of Japanese trade policy is a continuing reluctance to liberalise agricultural trade. Japan has concluded a series of trade agreements without fully opening its agricultural market. It has insisted on main-taining high levels of agricultural protection by negotiating exemptions, exclusions and other special arrangements for so-called ‘sensitive prod-ucts’ ( juyo hinmoku ) such as rice, dairy products, beef, pork and others. ‘Sensitive’ in this context means ‘politically sensitive’ (Urata 2014), reflecting the sectoral interests of Japan’s small-scale, internationally uncompetitive agricultural producers as well as the interests of regional dwellers more broadly, particularly in areas of declining population and economic contraction.

Under the General Agreement on Tariffs and Trade (GATT), Japan’s domestic production of core agricultural commodities was heavily protected through controlled trade schemes or quota systems that were granted ‘exceptional treatment’ (Honma 2005). As Urata argues in Chapter 2, although import liberalisation, beginning with the 1960 Trade and Foreign Exchange Liberalisation Plan Outline, proceeded not only for industrial products but also for agricultural products, items considered important to domestic agriculture remained protected.

During the Uruguay Round (UR) negotiations, Japan opposed the blanket conversion of quantitative import restrictions to tariffs on all products because of the implications for rice. It was prepared to accept an increased minimum access (MA) settlement in lieu of tariffication, obligating it to import specific quantities of rice annually over the term of the six-year Uruguay Round Agreement on Agriculture (URAA) 1 with only a small proportion used for food consumption in Japan itself, as Yamashita details in Chapter 3.

In reality the URAA turned out to be a very imperfect instrument for liberalising Japanese agricultural trade. In addition to continuing rice protection, the tariff regimes instituted for products such as skim milk powder for school lunches, animal feed, whey, konjac root ( konnyaku )




and starch were so punitive that imports of most of these products declined after the agreement was implemented (George Mulgan 2006). In addition, state trading regimes were continued for products such as wheat, barley and butter to protect domestic producers (Naoi and Urata 2013), while tariff-rate quotas and prohibitively high secondary duties for products such as wheat, barley and pork also had the practical effect of retaining agricultural protection, with the result that imports across the board barely increased if at all under the new tariff regime (Honma 2000). As Yamashita argues in Chapter 3, even in 1999 when Japan finally accepted rice tariffication, this was designed to reduce the level of rice imports, not expand it.

In the Asia-Pacific Economic Cooperation (APEC) meetings that followed the signing of the 1993 URAA, Japan sought to limit any addi-tional concessions on agriculture beyond those already agreed during the UR. At the 1995 APEC meeting in Osaka, the Japanese proposal listed exemptions to the principle of trade liberalisation for agriculture on the grounds that sensitive sectors needed to be considered and accorded special treatment. This stance implicitly rejected the APEC principle of ‘comprehensiveness’ (meaning no exempt sectors) and the 1994 Bogor Goals of trade and investment liberalisation for developed economies by 2010. Japan also stated that it could not consider any more conces-sions other than those agreed to in the URAA. It was a similar story at the APEC Summit in Manila in 1996 and in Vancouver in 1997, where Japan rejected the option of placing primary products on the priority list for early voluntary sectoral liberalisation (EVSL) and any further tariff reductions beyond its URAA commitments. The same position was restated at the APEC meeting in Kuching in Malaysia in 1998 (George Mulgan 2006). This was a tactical move that was directly linked to Japan’s World Trade Organization (WTO) strategy. There were concerns that any concessions at APEC would undermine Japan’s position in the new round of negotiations in the WTO, which were due to begin in 2000 (George Mulgan 2006).

Compared with its active engagement in the agricultural trade nego-tiations during the UR, Japan was much less active in the subsequent WTO Doha Round of agricultural negotiations where it remained ‘ arch-defensive on agriculture’ (Sally 2007, 3). It was reluctant to become involved in discussions on concrete measures for cutting tariff rates and would not discuss tariffs on specific items (George Mulgan 2006). It held the line on market concessions, reaffirming and elaborating the key argu-ments of its earlier negotiating positions, which pushed for greater, not less protection for agriculture. It called for restraint on the lowering of




tariffs on important items and for a reduction in the MA quantity of rice imports. It also pressed for the admission of a new safeguard mechanism that would allow safeguards to be automatically triggered by import quantities and/or prices. The United States described this proposal as ‘more regressive in content than the agreements reached under the Uruguay Round of global trade talks’ ( Kyodo News , 8 February 2001). To buttress its position, Japan became a prominent member of a group of agricultural protectionists in the Doha Round called the G-10 (Group of Ten), which included other net farm product-importing countries such as South Korea, Norway and Switzerland that were heavily reliant on protection at the border to shield their farm sectors from international competition.

As Yamashita elaborates in his chapter, the Ministry of Agriculture, Forestry and Fisheries (MAFF) later endeavoured to designate all the important agricultural products including rice, wheat, barley, sugar, dairy products, beef and others as ‘sensitive products’ to which a 70 per cent rate of reduction in tariffs higher than 75 per cent would not apply. Japan opposed a compromise farm trade deal put forward by the United States and European Union (EU), which would have allowed tariffs up to 100 per cent on agricultural products, advancing its own proposal, which offered only modest tariff cuts and no cap on the height of tariffs, asserting that it wanted to maintain the number of sensitive items at 10–15 per cent, compared with the 1 per cent demanded by the United States and 8 per cent advanced by the EU ( Nikkei Weekly , 14 November 2005). It was prepared to let the Doha Round fail rather than concede on agricultural market access by agreeing to the US and European proposals for cutting agricultural subsidies.

Japan also used the same tactic in the WTO that it was later to use in its approach to concluding Free Trade Agreements (FTAs) by offering to substitute aid for market-opening concessions (Rathus 2011; George Mulgan 2008b). It offered a $13.3 billion trade development package to the world’s poorest countries in lieu of an offer to lower farm tariff barriers and production subsidies, which would have broken the impasse in the Doha Round in late 2005. It was hoping that the package would divert blame aimed at it for wrecking attempts to reach agreement on farm trade liberalisation at the WTO summit in Hong Kong in December 2005 ( Weekend Australian , 10–11 December 2005).

The sectoral interests of internationally uncompetitive agricultural producers have also been evident in Japan’s FTAs, to which it became more receptive from the early 2000s. They were conspicuous in the order in which FTAs were concluded (beginning with Singapore in 2002), in




the pace at which agreements were signed (e.g., the stalled negotiations with Mexico and in the failure to sign an FTA with South Korea), 2 in the agreements with developing countries such as Thailand, the Philippines and Malaysia but not with developed agricultural exporters such as the United States, Canada, Europe and Australia (until July 2014), in the need for the Japanese government to offer compensation, such as aid and technical cooperation, to some trading partners – particularly devel-oping countries – in lieu of requested agricultural market access, and last, but by no means least, in the lower quality of the agreements signed in terms of trade liberalisation levels compared with other FTAs, as Urata demonstrates in the following chapter. Inclusive as they are of special product exclusions and quotas (outlawed by the WTO), small and differ-ential tariff reductions, tariff quotas (which the WTO seeks to eliminate) and agreements to reserve certain products for later resolution, Japan’s FTAs have thus revealed themselves as very restrictive templates for Japanese agricultural trade liberalisation. 3 This has been an important factor making them a more attractive proposition to Japan rather than persisting with the WTO multilateral agricultural trade negotiations.

Certainly, if a prospective partner country has only a very small farm sector, then a deal will be easier to reach than in multilateral negotia-tions (Manger 2009). Singapore was selected as the partner for Japan’s first bilateral agreement on the grounds that it exported virtually no agricultural products. Even then, the Japanese side steadfastly objected to the inclusion of primary products and refused to lower tariffs on imports of Singaporean agricultural and marine products. Its position was that it ‘would not accept any further abolition beyond the WTO Agreement on Agriculture (AoA)’. 4 Indeed, among the total 2,277 agri-cultural, forestry and fishery items, the number of those on which tariffs were abolished in the Japan-Singapore FTA was 486 (428 items on which tariff abolition had been agreed in the WTO AoA plus 58 items on which the effective tariff rate was zero). This meant that agricultural products were effectively excluded from liberalisation in the Japan-Singapore FTA (Honma 2013; 2005). As Urata writes in Chapter 2, it was Japan’s FTA strategy to eliminate tariffs that were effectively zero but not to concede more than the WTO concessions on other tariffs. It was only Singapore’s willingness to sign the agreement with these exclusions that enabled the bilateral FTA to go ahead. Hence the Japanese government was able to establish the precedent for exceptional treatment for agriculture (George Mulgan 2006).

In subsequent FTAs, Japan moved to pleading the case for special treatment of individual agricultural items that were the focus of specific




import pressure. This became its standard negotiating position on FTAs (George Mulgan 2006). In the free trade negotiations with Mexico, for example, the most serious obstacle to agreement was Japan’s strong resistance to liberalising pork, beef, chicken, oranges and orange juice, the so-called ‘five fingers’ (Solis 2005). Vegetables were the only agricul-tural product on which tariffs were eliminated from the date on which the 2005 Japan-Mexico Economic Partnership Agreement (JMEPA) came into effect. All other agricultural products either had staged reduction followed by elimination of tariffs after three, five, seven or ten years, or the introduction of tariff quotas (for honey, processed tomato products, pork, orange juice, beef, chicken and fresh oranges) (Japan Customs n.d.). Moreover, while JMEPA generated further impetus for FTAs with Malaysia, Thailand, Indonesia, the Philippines and even for a full Japan-ASEAN agreement, in reality it provided only a very limited model for later settlements on agriculture (George Mulgan 2006).

The April 2007 agreement with Thailand (Japan-Thailand Economic Partnership Agreement, or JTEPA) did not cover agricultural commodi-ties such as rice, wheat and dairy products, 5 while the August 2007 Japan-Indonesia Economic Partnership Agreement (JIEPA) retained all existing tariffs on agricultural imports into Japan except for bananas and prawns. Similarly, the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) Agreement of April 2008 exempted key Japanese agricultural items such as rice, beef, sugar and dairy products from tariff elimina-tion or reduction. Nor were agricultural products adequately incor-porated into the Japan-Philippines Economic Partnership Agreement (JPEPA) (Honma 2013; 2005), with some products such as pineapples and chicken subject to tariff quotas as were beef, pork and chicken in the March 2007 Japan-Chile Economic Partnership Agreement (JCEPA).

When Japan signed the Economic Partnership Agreement with Australia (JAEPA) in July 2014, the precedent for exclusions and tariff quotas had thus been set because Japan had introduced them for key products in its FTAs with other countries, classing them as ‘sensitivities’. Japan agreed to only small, quantitative increases in imports of beef, and in varying degrees on processed cheese, high polarity sugars and pork. Even these limited concessions were not replicated on other sensitive products such as rice, wheat, other sugars, wheat, butter, fresh cheese and skim milk powder, as Honma points out in Chapter 4. Australia was pressing for better market access but these products were excluded from the agreement (George Mulgan 2014). A major problem was the fact that Australia’s main farm exports coincided with Japan’s sensitive products (Higuchi 2007).




The record therefore shows that Japan has not signed FTAs that liberalise agricultural products it has wanted to protect. Agreements have gener-ally placed less emphasis on trade liberalisation and have been accom-panied by a significant component of economic cooperation, which has taken various forms, including infrastructure investment, technical assistance and promotion of small and medium enterprises (Lord 2010). Particularly when concluded with developing countries, aid, investment and technical cooperation have been important because they facilitate the acquisition of technology and other items important for economic growth. In the Japan-Malaysia Economic Partnership Agreement (JMEPA) of December 2005, for example, Japan offered assistance to Malaysia’s domestic car manufacturers, with ‘an obvious cost to Japan’s competi-tiveness in the Malay domestic car market’ (Rathus 2011, 96). This was part of a comprehensive list of 24 ‘Projects and Programmes’ under which Japan agreed to provide cooperation and assistance to a range of develop-ment programs in Malaysia, including agriculture, forestry and fisheries, education and human resource development, science and technology, and small and medium enterprises (Ministry of Foreign Affairs of Japan 2005). As Urata points out in Chapter 2, Japan has provided technical cooperation in the field of agriculture to developing countries specifically in lieu of agricultural trade liberalisation. In the case of Thailand and the Philippines, cooperation offered by the Japanese government included the dispatch of experts in the areas of food-security planning, agricul-tural development planning and sustainable management of agricultural water resources; and assistance in the development of agricultural statis-tics and analysis, in planning for protection against stock diseases and in response to bird flu (Fuji 2004).

Japan’s exclusion of a considerable number of mainly agricultural items from tariff abolition in its FTAs meant that its trade liberalisation rate (on a trade value basis) has been consistently lower than for partner countries (Urata 2014; Ito 2007). Only in the case of Brunei, Switzerland and Peru was the ratio of Japan’s trade liberalisation more than 99 per cent, matching that of its FTA partner (Urata 2014, 10; Naoi and Urata 2013, 330). In the case of Mexico, Malaysia, Chile, the Philippines and Thailand, there was at least a five percentage point difference between Japan’s and its trade partner’s liberalisation ratio. The biggest differ-ence was between Mexico at 98.4 per cent and Japan at 86.8 per cent (Urata 2014, 10; Naoi and Urata 2013, 330). Developing countries such as Mexico, Thailand, the Philippines and Malaysia were willing to accept these uneven terms in exchange for the compensation Japan offered in other areas (George Mulgan 2008b).




The Ministry of Economy, Trade and Industry (METI) in its 2012 white paper on trade admitted that from a global perspective, Japan had achieved only a low level of liberalisation through Economic Partnership Agreements (EPAs) (90 per cent or more in terms of trade value, but approximately 86–87 per cent in terms of trade items) because it set a relatively high number of exceptions to liberalisation (Ministry of Economy, Trade and Industry 2012, 640). Indeed, Japan’s consistent use of the term ‘economic partnership agreement’ rather than ‘free trade agreement’ to describe all its trade agreements since Japan-Singapore Economic Partnership Agreement (JSEPA) in 2002 has been to show that these trade agreements are about more than simply abolishing tariffs. They are much broader agreements in which induce-ments can be offered to prospective trading partners to accept lower levels of trade liberalisation on the Japanese side including compen-sating EPA partners for Japan’s failure fully to liberalise agricultural trade.

In the Trans-Pacific Partnership (TPP) talks, as Yamashita observes in Chapter 3, the Japanese government has based its negotiating position on excluding five key agricultural product categories (rice, dairy prod-ucts, sugar and starch, beef and pork, and wheat and barley, covering 586 food items) from the TPP principle of total tariff elimination. This was affirmed in the resolutions adopted by the Diet Upper and Lower House Agriculture, Forestry and Fisheries Committees and by the Liberal Democratic Party’s (LDP’s) TPP Affairs Committee calling for the five sensitive products to be treated as ‘sanctuary’ ( seiiki ) from tariff abolition and for the government to withdraw from the negotia-tions if it judged that this ‘sanctuary’ could not be protected (House of Councillors 2013). 6 The LDP’s TPP Affairs Committee defined ‘sanctuary’ as ‘vital [‘life and death] interests’ ( shikatsuteki rieki ). In the ensuing negotiations, the Japanese side sought a compromise by proposing to lower tariffs to a certain extent on some items within the five categories, including beef on which Japan imposes a 38.5 per cent tariff. 7

The TPP negotiations have also brought to the fore Japan’s contin-uing preference for import tariffs rather than direct payments to protect farmers as Yamashita argues in Chapter 3. Japan is perhaps the only country that protects specific agricultural items with tariffs that are in the high hundreds of per cent (e.g., more than 700 per cent on rice and more than 1000 per cent on konjac root). Successive governments have chosen not to introduce direct income subsidies that would make up for the loss in farmers’ income when agricultural prices fell, but which




would facilitate agricultural trade liberalisation. As Yamashita argues, maintaining tariff barriers to farm imports panders to the sectoral inter-ests of the farmers’ agricultural cooperative organisation (JA, or Japan Agricultural Cooperatives), which markets locally produced farm prod-ucts. JA has a vested interest in the high price of agricultural goods traded in the domestic market because of revenue generated by commis-sions on sales, which are calculated as a fixed proportion of the final price. For JA, lower prices resulting from tariff elimination would reduce revenue from its marketing business, and the consequent shake-up of the domestic agricultural sector as the bulk of JA’s farmer-members – part-time, uncompetitive producers – exited farming would rock JA to its very organisational foundations.

Agricultural protection in the form of tariffs also privileges the economic interests of taxpayers over those of consumers. Using direct income subsidies funded by the budget to assist potentially damaged import-competing sectors, such as agriculture, would affect the budget bottom line but under import protection Japanese consumers are forced to buy basic foodstuffs at inflated prices because of hefty tariffs as Yamashita points out in Chapter 3.

Tailor-made for business

Japan’s jumping on the FTA bandwagon in the early 2000s, which Urata documents in Chapter 2, demonstrates the potential of such preferen-tial agreements to offer ‘immediate, direct, and concentrated benefits’ (Pekkanen 2005) to business interests seeking improved trading condi-tions and higher profits, particularly given the faltering pace of Doha Round (Kawai and Urata 2012). Firms that stood to gain were export-oriented manufacturers in fields such as steel, transport machinery and electronics (George Mulgan 2008b; Pekkanen 2005; Kawasaki 2004). Among Japan’s exports to Mexico, for example, machinery products such as cars accounted for 75 per cent (in 2002), on which tariff aboli-tion was expected to contribute to a significant expansion of Japanese exports to the country (Honma 2005).

Moreover, as Japan’s trade increasingly became concentrated in East Asia, Japanese exporters faced on average higher tariff rates in these countries, 8 which imposed ‘an additional burden for Japan’s exporters ... in key markets such as Indonesia and sectors like automo-biles’ (Rathus 2011, 77). The focus on East Asia in Japan’s trade strategy certainly made sense in terms of producing ‘the greatest additional benefits through further liberalization’ (Kovrigin and Suslov 2006, 40). Japanese businesses were also facing rising competition from China




and Association of Southeast Asian Nations (ASEAN) countries in these markets (Kovrigin and Suslov 2006). Indonesia alone represented 40 per cent of the consumers within the 10-member Asian region. Joining the growing movement towards FTAs additionally stood to benefit general trading companies, which had a relatively high degree of dependence on foreign trade, which were major importers of energy goods, minerals and raw materials into Japan as well as exporters of finished goods, and which were also prime movers of commodities within Japan’s intra-regional networks of production and distribution (George Mulgan 2008b).

Perhaps even more importantly, Japanese firms were facing an increas-ingly unfavourable situation as a result of the proliferation of FTAs in the global market from the early 1990s onwards (Park, Urata and Cheong 2005). Playing catch-up in an environment of competitive liberalisa-tion served the interests of Japanese corporations, which were disadvan-taged in doing business with countries that had already concluded FTAs elsewhere (Solis and Katada 2007). As Urata points out in the following chapter, securing and expanding export markets for Japanese business in an environment of rapidly proliferating FTAs among the regions of the world was an important sectoral interest served by Japan’s pursuit of FTAs.

In particular, Japanese firms faced discriminatory trading arrange-ments as a result of the fast pace of FTAs signed by the EU and the United States. For example, the market situation for Japanese firms became tougher without an FTA with Mexico, not only for exporters but also for Japanese corporations operating in Mexico (Working Group on Economic Partnership Agreements and Agriculture 2007). The North American Free Trade Agreement (NAFTA) and the EU-Mexico FTA meant that European and American firms faced zero tariffs in the Mexican market. Japanese firms, on the other hand, had to pay an average of 16.2 per cent on all exports in 2001 (Kawai and Urata 2012). In partic-ular, Japanese car and steel companies wanted to expand their exports to Mexico, with steel companies exporting to Japanese assembly firms operating there (Kawai and Urata 2012). With the tariff rate for cars at 20–30 per cent, Japanese firms could not produce cars profitably in Mexico because they had to import parts under tariffs (Honma 2005). They were additionally at a disadvantage in bidding for government projects as eligibility was limited to countries that had concluded FTAs with Mexico (Honma 2005). Without an FTA, the total cost in terms of lost business was estimated at ¥400 billion, almost the equivalent of the value of Japan’s export trade to Mexico (Urata 2005). Not surprisingly,




Japanese business groups pushed hard for equal access to the Mexican market as Farrell points out in Chapter 6.

The EPA with Mexico signed in September 2004 – the second that Japan signed after JSEPA – thus defended Japanese firms’ interests in avoiding the opportunity cost of being excluded from FTA networks (George Mulgan 2008b). It was a similar story with JTEPA, which supported the interests of Japanese firms that were using Thailand as a production base, but which were being outcompeted by American firms because of the more favourable investment conditions available to these firms under the US-Thailand Treaty of Commerce and Navigation (Manger 2009). Japanese car assembly plants in Thailand ended up major beneficiaries of JTEPA. As Farrell points out in Chapter 6, JTEPA meant that Japanese auto firms were given national treatment and concessions on a par with the rival companies of third countries.

The March 2007 EPA with Chile (JCEPA) played a similar role in protecting the interests of Japanese car and electronics manufacturers against their competitors in South Korea, which was ahead of Japan in ratifying an agreement with Chile in 2004. In the interim, Chile’s imports from Japan had flattened while its imports from South Korea had grown rapidly.

It was the same story with the Japan-ASEAN FTA. When Japan reached agreement with ASEAN in August 2007, it was in the position of having to catch up to China and South Korea, which had already concluded FTAs with ASEAN. This had put Japanese exports to the region at a competitive disadvantage compared with Chinese and South Korean goods. AJCEP particularly benefited Japanese manufacturers of flat-panel TVs and car components, which secured more favourable tariff treatment from the ASEAN states compared with South Korean prod-ucts. This was because the tariffs on those products from Japan were scheduled to be eliminated by many ASEAN countries while those on such products from South Korea would only be reduced under its agree-ment with ASEAN ( Japan Today , 26 August 2007).

Japan’s decision to participate in the TPP negotiations as well as those on a Japan-EU EPA and a trilateral China-Japan-South Korea FTA also caters to the interests of Japanese corporations that export to countries and regions such as United States, EU and China, and which are eager for a level playing field with their competitors. South Korea, in particular, is ahead of Japan in signing FTAs with the United States and EU as well as a prospective FTA with China. If Japan did not join the TPP, for example, then the gap with South Korea would continue to widen, rendering Japan uncompetitive. Companies producing commercial vehicles, passenger




cars and flat-screen TVs have been the most affected by the US-Korea FTA (Working Group on Economic Partnership Agreements and Agriculture 2007). Chairman of the Japan Automobile Manufacturers Association (JAMA), Toshiyuki Shiga, complained about South Korean exports gaining an advantage and Japanese automakers having to compete at a disadvantage because of tariffs they face at the US end ( Yomiuri Shinbun , 16 March 2012). Japan’s participation in the TPP promised to rectify this disadvantageous position. It would also enable Japanese electronics manufacturers to keep their production lines and technologies for key components in Japan and to compete with South Korean firms ( Yomiuri Shinbun , 22 November 2011).

Similarly, a Japan-EU EPA, which the Japanese government began seri-ously to negotiate in April 2013, promised to advance the interests of Japanese business firms apprehensive about loss of market share with tariff-free South Korean goods flooding into Europe. Their primary concerns were for the EU to lower or abolish its tariffs on passenger vehicles (10 per cent), car parts (4.5 per cent) and flat-screen TVs (14 per cent). As Yoshimatsu points out in Chapter 8, Japanese car sales to the European market declined after the South Korea-EU FTA came into effect. Japan’s entry into negotiations on a China-Japan-South Korea trilateral FTA accommodates the same fear about Japanese corporations being at a disadvantage in the Chinese market compared with their South Korean rivals ( Yomiuri Shinbun , 14 May 2012). In fact because Japan faces high tariffs on exports of cars and machinery in both China and South Korea, it probably stands to enjoy the benefits of the trilateral FTA the most (Sakakibara 2013).

Mega-FTAs such as the TPP and the Regional Comprehensive Economic Partnership (RCEP) are also recognised as having the benefit of ‘improving the competitive environment for Japanese companies’ ( Nihon Keizai Shinbun, 4 April 2012, 7). For example, Japanese car manu-facturers will gain from higher exports under lower tariff conditions in the TPP. Abolition of car tariffs will save them the ¥130 billion they had paid to participating countries by 2010 ( Yomiuri Shinbun , 22 November 2011, 9). In fact, the prospect of expanding exports through tariff cuts under both the TPP and RCEP will reduce the need for Japanese compa-nies to move to foreign countries in order to avoid the burden of tariffs and thus enable them to maintain their production bases in Japan. It will offer the same advantages for small- and medium-sized manufac-turers that cannot afford to set up factories overseas ( Yomiuri Shinbun , 9 March 2011). The TPP also promises benefits to agri-businesses seeking cheaper inputs and higher exports.




Some EPAs, such as JCEPA and JAEPA, offered specific gains to compa-nies with a high dependency on mineral and energy goods. JCEPA, for example, catered to the interests of Japanese car manufacturers in providing secure access to large quantities of copper from copper-rich Chile. JAEPA, on the other hand, was of vital interest to firms that tapped into and relied on Australian natural resources for manufacturing and energy-generation. Such high natural resource-use industries had been concerned about guaranteed and stable access to mineral and energy resources in light of intensifying competition with China.

Japan’s EPAs with East Asian countries also accommodated the desire of export-oriented manufacturers and multinationals to improve the business environment in these countries. They included foreign direct investment (FDI) liberalisation and other measures designed to create a more business-friendly environment (Kawai and Urata 2012). By concluding FTAs with developing countries such as the ASEAN coun-tries, which still had relatively high barriers to trade and investment, it was possible to establish an environment in which Japanese firms could more easily conduct their business activities (Urata 2014; Naoi and Urata 2013). 9 Because Japan’s trade agreements were EPAs and not simply FTAs, they catered to such interests. The Ministry of Foreign Affairs (MOFA) of Japan itself distinguished between FTAs and EPAs by stating that FTAs abolished tariffs on goods and lowered barriers to trade in services while EPAs promoted the liberalisation and facilitation of trade and investment, aiming to strengthen economic relations in a broad sense, including the abolition of domestic and border regulations and the harmonisation of various economic systems (Ministry of Foreign Affairs of Japan 2007). This meant that for Japan, enforcement of EPAs meant a strong commitment from the partner country to improve their business environment (Hiratsuka, Sato and Isono 2009).

The most important elements of JSEPA, for example, were liberali-sation of trade and FDI, FDI facilitation and economic and technical cooperation in a wide range of areas including the mutual approval of standards, the mobility of people and human resource development, information and communications technology including the conver-sion of trade procedures into electronic modes, as well as property rights, and competition and environmental policies (Urata 2005). As Ozaki comments, ‘Under such a comprehensive liberalisation agenda, companies in Japan and Singapore stood to gain business opportunities without borders’ (2001, 2).

Even more comprehensively, Japan’s EPAs embodied the inter-ests of Japanese multinational manufacturing firms involved in the




development of regional production and procurement networks. These networks played an increasingly important role in the business models of these firms (Lord 2010), which were eager to utilise trade agreements (Hiratsuka, Sato and Isono 2009) because they offered a supportive policy framework for deepening these networks and building up regional supply chains (Kawai and Wignaraja 2011). As Kimura points out in Chapter 7, Japanese firms treated East Asia as a production site. Many Japanese manufacturers had established integrated production hubs, from parts-making to assembly, in the region where they began making investments more than two decades earlier ( Nikkei Weekly , 22 May 2006). Hence, Japan’s production and distribution networks were well posi-tioned to benefit from the improved business environment created by EPAs, which became vital ‘building blocks of regionally integrated busi-ness networks’ (Kimura 2007). The increasing focus in Japanese trade policy on deepening economic and trade relations with East Asian trade and investment partners through EPAs directly benefited these manu-facturers (Kawai and Urata 2012). 10 Prospective partners for EPAs were selected on the basis of the production networks to which they belonged (Lord 2010). EPAs improved supply chain efficiency by reducing tariffs and by eliminating and promoting the adoption of cumulative rules of origin. The primary role of AJCEP, for example, was to enable the use of cumulative rules of origin and the harmonisation of trade-related laws and regulations (Kotera 2012).

In fact, both Japan’s EPAs and the TPP were expected to maintain Japan’s position in global supply chains and work to improve supply chains ( Nihon Keizai Shinbun , 18 July 2012) by reducing barriers in supply chain networks. Because supply chains involved many countries, Japan’s multinational corporations did not want barriers in any coun-tries (Urata and Kusaka 2013). For these firms, as Dent observes, Japan’s EPAs helped ‘to minimize the international transaction costs incurred by operating these systems, for example in trade between different nodes of the ... inter-firm networks’ (2006, 77). The Japanese car industry, for example, viewed the TPP as potentially making it easier for factories set up overseas to procure parts from Japan’s domestic parts industry ( MSN Sankei News , 26 April 2014). The TPP would also offer greater opportuni-ties for companies to diversify their supply chains ( Nihon Keizai Shinbun , 22 July 2012). ASEAN plus one (i.e., Japan) was insufficient for a supply chain to operate efficiently, for example. Similarly, Japan’s joining the RCEP promised to serve business interests by making it easier for compa-nies to establish supply chains spanning multiple countries ( Nihon Keizai Shinbun , 20 June 2012). As for the TPP, it offered the prospect of




extending Japanese manufacturers’ global supply chains beyond Asia to North America as an area of final consumption (Fan 2013).

Domestic state interests

Domestic state interests encompassed by trade policy extend to concerns about the health of the national economy as well as broad social and economic concerns such as resource security, environmental conserva-tion and social welfare.

The importance of the US market

For decades, Japan’s responsiveness to external pressure ( gaiatsu ) from the United States on trade issues illustrated the importance of the trading relationship with the United States to the Japanese economy and therefore to national prosperity. Japan had a strong state interest in preserving its large stake in the American export market and in heading off American protectionism. On these grounds, a national interest case could always be mounted for any concessions made during the course of US-Japan trade negotiations.

A pattern in which the United States threatened retaliation against the Japanese economy and Japan responded with concessions to American trade demands became well established. It was particularly evident during the 1970s, 1980s and first half of the 1990s when the relationship was characterised by high levels of trade friction owing to the blowout in Japan’s trade surplus with the United States (Cooper 2014; George Mulgan 1997). This provided tremendous impetus for American pres-sure to open Japanese markets across a range of sectors (George Mulgan 1997). Gaiatsu was often accompanied by explicit American references to the larger value of Japan’s relationship with the United States. The United States Trade Representative’s (USTR’s) Advisory Committee on Trade Policy and Negotiations (1989, 108), for example, argued that ‘Japanese Government officials have a keen sense of where their national interest lies, and when faced with credible threats of retaliation that adversely affect that interest, they usually choose to accommodate requests from the United States’.

As Urata points out in Chapter 2, resolving trade friction with the United States became an important item on the trade policy agenda. Japan responded to gaiatsu with bilateral deals on a range of products including textiles, steel, televisions, cars and semiconductors. They involved so-called ‘voluntary export restraints’ (VERs), orderly market arrangements and voluntary import expansion, as Urata notes. 11 For




example, in response to America’s so-called ‘aggressive unilateralism’ (Bhagwati and Patrick 1990) in the form of the application of Section 301 of the US 1974 Trade Act (Super 301), which potentially restricted Japan’s exports to American markets (Kawai and Urata 2012), Japan concluded the US-Japan Semiconductor Trade Agreement in 1986. Under the terms of the agreement, it ‘agreed to end the “dumping” of semiconductors in world markets ... and to help secure 20 percent of their domestic semiconductor market for foreign producers within five years’ (Irwin 1996, 5). 12

Japan faced similar demands on cars with the United States seeking the liberalisation of the Japanese auto market. It pressed Japan to set a numerical target for imports of US vehicles. The negotiations were settled in 1995 when Japan accepted part of this request by presenting Japanese companies’ voluntary plans ( Sankei Shinbun , 15 November 2011). The government justified the capitulation to American demands for access to Japanese markets as ‘unavoidable’ because of Japan’s huge trade surplus with the United States.

Even multilateral trade rounds were consistently accompanied by bilateral pressure from the United States. No matter what the institu-tional setting – the GATT, the WTO, or the TPP, which also became a surrogate bilateral between the United States and Japan – the negotia-tions always followed a pattern of parallel negotiations with the United States. Japan’s Central Union of Agricultural Cooperatives (JA-Zenchu), for example, described the secret US-Japan rice market opening negotia-tions of late 1993 as conducted ‘on the basis of priority consideration being given to bilateral relations between the two countries’ ( JA-Zenchu News 1994, 5) At the time, there were both confirmed and denied reports that the Japanese government had already done a deal with the United States on rice in October 1993, before the final round of GATT negotiations.

Economic growth through trade growth

Japan’s adoption of policies to facilitate trade flows and to support trade growth reflect a belief that trade is one of the foundations of national economic prosperity and a means to generate national economic growth. Japan’s accession to the GATT and its support for the multilateral trading system, for example, brought into play considerations relating to the health of the global economy and the fact that Japan’s pre-emi-nent economic position was derived directly from the benefits a liberal international trading regime bestowed on its export industries. Japan gained substantially from trade expansion under the GATT-supported




open multilateral trading regime, which assisted its postwar economic reconstruction, rapid industrialisation and economic growth (Kawai and Urata 2012).

Similarly, Japan’s signature to international trade agreements embodies an acceptance that its economic growth and success are predicated on market access. National gains to welfare, gross domestic product (GDP) and exports result from trade creation (Hiratsuka, Sato and Isono 2009). Certainly the Japanese government has recognised the benefits of trade liberalisation as a source of economic growth (Urata 2009; 2005). Japan’s policy was to contribute to the GATT-based open trade order by begin-ning the liberalisation process of its own markets, which involved reducing quantitative restrictions, and tariffs and non-tariff barriers on manufactured imports (Kawai and Urata 2012).

A range of direct and indirect benefits to the Japanese economy were identified as arising from a successful completion of the UR, for example. These included the positive developments in world trade consequent on the rolling back of protectionist policies, a reduction in trade fric-tion between nations, the institution of a more liberal rule-based trading system, the lowering of the costs of protection to the efficiency of the global economy and the existence of a countervailing force to the rise of trade blocs that might provoke trade conflict leading to political and other forms of conflict between nations. Japan’s Prime Minister Hosokawa justified his government’s decision to end Japan’s ban on rice imports in order to secure the UR agreement by saying, ‘We must do it for the sake of world trade ... .The Uruguay Round should not fail because of us’ ( The Australian , 15 December 1993). Analysis suggesting that a successful conclusion to the UR would pump up to ¥24 trillion in trade into the world economy over a nine-year period, which was vital to resurrecting the global economy, linked Japan’s future prospects for economic growth directly to a positive outcome for the Round ( Japan Times , 27 November 1992). As a foreign ministry official remarked during the UR negotiations, ‘A successful conclusion to the latest GATT round is essential for Japan, which benefits so much from free trade’ (Hirose 1990, 39).

Some of the specific benefits from the Round included the provision of an agreed code on what constituted dumping, abolition of local-content rules and a termination of voluntary restraint measures and the possibility of decreased trade friction by streamlining trade-dispute settlement procedures. A study of the major effects of agricultural trade liberalisation alone revealed that there would be a 3 per cent rise in Japan’s export earnings. 13 Acceptance of the URAA thus reflected a belief




that Japan’s prosperity had been brought about as a result of the GATT free trade system and for that reason, the success of the UR was Japan’s international mission (Watanabe 1994).

Concessions to American demands for agricultural access as part of successive GATT trade rounds also supported Japan’s domestic state interests in ensuring the success of these negotiations. In the closing stages of the Tokyo Round in 1978, for example, the Carter adminis-tration calculated that it could ease US-Japan bilateral tensions if it achieved Japanese concessions on beef and oranges and thereby obtained the support of private industry and the Congress for the success of the negotiations. By making the agreement of Congress to the Round condi-tional on Japanese concessions on beef and oranges, the United States extracted additional quota increases for beef and citrus from Japan in December 1978 following on from those granted in the earlier beef and citrus agreement negotiated in January. The advantages to Japan were reputedly those that would accrue from a successful Round, which, as Urata notes in his chapter, Japan itself had initially proposed and in which it had actively engaged, and which would be forthcoming on Congressional approval. This was secured by an overwhelming majority in July 1979.

In the UR, the United States also explicitly leveraged Japan’s stake in the global trading system to extract concessions on rice. American negotiators made these concessions critical to the success of the agri-cultural trade negotiations and thus the success of the UR negotiations as a whole. This position was made clear by US Secretary of Agriculture Clayton Yeutter in 1990. He argued that the UR could not be brought to a satisfactory conclusion without resolving the issue of Japan’s rice market, complementing earlier statements that Japan’s rice ban was undermining efforts to reform farm trade. His position was echoed by supportive voices on the Japanese side who ‘admitted that Japan might have to offer a major concession on rice in order to wrap up the farm trade talks, which in turn could decide the eventual outcome of the whole Uruguay Round’ (Hirose 1990, 40).

Furthermore, Japan’s concessions on rice promised to deal with a number of specific problems it faced in trade disputes with the United States, such as the use of protectionist legislation, the deployment of unilateralism as a weapon of gaiatsu and potential discrimination against Japanese trade and investment, by keeping the United States committed to an international set of trade rules ( Australian Financial Review , 8 April 1988). It was also argued that a positive resolution of the agricultural trade friction problem would have the effect of ameliorating America’s




anti-Japanese criticism across a range of trade disputes because of the symbolic value of agricultural products as representing one of Japan’s most protected sectors ( Australian Financial Review , 8 April 1988).

On the other hand, as Yoshimatsu argues in Chapter 8, Japan’s gradual shift – initially passive and defensive, then pro-active – to a multi-track (WTO+FTA/EPA) trade policy from the late 1990s onwards signified an awareness of the potential of bilateral and regional trade agreements (RTAs) to achieve its economic interests. 14 These encompassed the benefits to Japan from economic growth through trade liberalisation, particularly when the WTO was proving tardy in this respect (Kawai and Urata 2012).

Japan’s policy of signing bilateral and regional EPAs with East Asian countries also embodied its interest in contributing to economic growth and stability in the region more broadly through trade and economic cooperation. As Urata notes in the following chapter, Japan recognised the importance of boosting economic growth in developing countries through economic cooperation. Following the Asian Financial Crisis, its desire to contribute to regional economic stability became stronger, and with the growth in its regional trade ties, it became increasingly concerned with the economic health of its trading partners (Lord 2010). Assisting stable and prosperous development in its trading part-ners would not only contribute to Japanese prosperity and economic growth by boosting exports but it would have the concomitant benefit of enhancing political and social stability in the region. It also made economic sense to sign FTAs with East Asian trading partners because these were countries where, despite close economic relationships, the relatively high trade barriers that existed posed obstacles to the expan-sion of Japan’s economy (Kovrigin and Suslov 2006).

Perhaps, most importantly, jumping on the FTA bandwagon had the virtue of avoiding discrimination in foreign markets that were being captured by FTA networks, which could negatively affect Japanese economic growth through trade diversion (Kawai and Urata 2012). Non-member countries experienced a decrease in both GDP and income (Hiratsuka, Sato and Isono 2009). For example, according to a METI esti-mate, the trade diversion effect of NAFTA amounted to a loss of exports worth ¥395 billion in 1999 alongside investment diversion effects (Urata 2005). Similarly, the results of a simulation revealed that Japan’s GDP would contract by 0.006 percentage points annually if China, South Korea and ASEAN established an FTA without Japan. For this reason, it made sense for Japan to promote FTAs in order to avoid the possible negative impacts of ‘competitive (beggar-they-neighbor)’ (Urata 2005, 20).




In addition, FTAs became important for their potential to deliver further economic growth by enhancing business opportunities for Japanese firms in partner countries (Urata 2005). This was due not only to their trade liberalisation effect but also to their function of creating a better FDI environment by promoting FDI liberalisation as well as economic and technical cooperation (Urata 2005). In comparison, the WTO was disadvantaged by the limited coverage of its rules (Urata 2005), which reduced its potential to promote world trade.

The first big surge in EPAs occurred under the Koizumi administra-tion (2001–2006), which emphasised recovery from Japan’s economic crisis (George Mulgan 2002). It was under the Koizumi administration in 2004, for example, that the first clear-cut vision for a Japanese FTA policy was outlined, as Yoshimatsu points out in Chapter 8. In fact, both the Koizumi administration and the Abe administration that followed in 2006–2007 were very responsive to the prospect of diffused gains from EPAs across wider areas of the economy. Abe was highly apprised of the fact that FTAs with East Asian countries could be used as an engine of growth for the Japanese economy, including as one element of a strategy for dealing with the aging Japanese population and declining birth rate (George Mulgan 2008a). His administration pursued FTAs in order to bolster economic growth by drawing in overseas demand for goods and services, thus harnessing Asian growth to assist economic growth in Japan (George Mulgan 2011).

Similarly, the Hatoyama administration of 2009–2010 viewed the establishment of FTAs with other nations and regions as a crucial element of its growth strategy. It was followed by the Kan adminis-tration (2010–2011), which adopted a similarly pro-active free trade agenda (George Mulgan 2011) in order to harness the growth of Asia, particularly East Asia, to assist Japanese economic growth and arrest its relative economic decline. As stated in the government’s Basic Policy on Comprehensive Economic Partnerships ,

In order to achieve the ‘strong economy’ described in Japan’s New Growth Strategy ... it is necessary to deepen economic relationships with Asian and emerging countries whose markets are expected to grow, and with Western and resource-rich countries. It is also neces-sary to rebuild the foundation for future growth and development in Japan. Recognizing this, the Government of Japan is absolutely resolved to ‘open up the country’ ... .It will take major steps forward from its present posture and promote high-level economic partner-ships with major trading powers ... .To be more precise, Japan will play




a leading role in actively promoting bilateral Economic Partnership Agreements (EPAs) within the Asia-Pacific region. (Ministry of Economy, Trade and Industry 2010)

This policy document committed the government to EPA negotiations with Peru and Australia, to resume the suspended Japan-Korea EPA nego-tiations, to work towards realising regional economic partnerships such as a China-Japan-Korea FTA, to start EPA negotiations with Mongolia as soon as possible, to begin consultations with TPP member countries, to expand arrangements to enter into negotiations with the EU at an early date and to facilitate on-going negotiations with the Gulf Cooperation Council (Ministry of Economy, Trade and Industry 2010). Prime Minister Kan also pledged to bring Japan into the TPP on the grounds that the trade liberalisation initiative would help Japan to return to a path of robust growth ( Nihon Keizai Shinbun , 9 November 2010). As Yoshimatsu argues in Chapter 8, Kan indicated at a meeting of the Council on the Realisation of a New Growth Strategy that the government would delib-erate on participating in the TPP because EPAs/FTAs were significant for developing an environment in which Japan could share growth and prosperity with Asia-Pacific countries.

The Noda administration, inaugurated in September 2011, followed with an even stronger commitment to entering the TPP negotiations. The prime minister stated that Japan needed free trade deals in order to tap the dynamic Asia-Pacific region and bolster growth ( The China Post , 18 October 2011). When asked about the significance of joining the TPP during Diet interpellations, Noda responded by saying, ‘The Asia-Pacific region will definitely be the driving force behind economic growth, and [joining the TPP] will bring benefits to Japan’ ( Sankei Shinbun , 5 November 2011, 2). He told those close to him, ‘I must do this for the sake of the national interest’ ( Tokyo Shinbun , 3 May 2012, 6).

One of the main arguments in favour of Japan’s joining the TPP is for it to grow amid shrinking domestic demand because of the declining birth rate and aging population (Urata 2014). An editorial in the Nihon Keizai Shinbun argued that the Japanese economy would continue to contract unless the government envisaged a path towards economic growth. In that context, the TPP should become a pillar of Japan’s growth strategy as it was a trade pact that could act as a framework for Japan to expand trade with and investment in the United States and in growing Asian countries ( Nihon Keizai Shinbun , 3 November 2011). In fact the chairman of the Japan Business Federation (Keidanren) asserted that joining the




TPP was the ‘only way for Japan to achieve its goal (of economic growth)’ ( Yomiuri Shinbun , 31 July 2012, 9).

When Prime Minister Abe announced in March 2013 that he had decided to participate in the TPP negotiations, he justified the decision on the grounds that, ‘Japan alone has become inward-looking against the background of an aging population and prolonged deflation when other countries in the world are trying to absorb the growth in foreign countries’ ( JAcom , 15 March 2013). He explained, ‘Turning the Pacific into an ocean upon which goods, services and investments come and go freely [would] ... be in the national interest’ ( JAcom , 15 March 2013). 15 As Urata and Yoshimatsu reiterate in their chapters, joining the TPP nego-tiations became an integral part of Abe’s national growth strategy, which was the third arrow of ‘Abenomics’.

Various measurements have been made of the potential welfare gains of FTAs, including the TPP, in terms of added GDP growth. For example, the AJCEP was estimated to expand Japan’s GDP by between ¥1.1 and ¥2 trillion ( Japan Today , 26 August 2007). The Research Institute of Economy, Trade and Industry (RIETI) calculated that the trilateral China-Japan-South Korea FTA would help bolster GDP by 0.74 per cent ( Mainichi Shinbun , 20 January 2012, 7), as Yoshimatsu also points out in Chapter 8. Similarly, Tanaka Hitoshi, Senior Fellow at the Japan International Exchange Center, cited EPAs with China, South Korea, India, New Zealand and 16 ASEAN member nations as expected to push up Japan’s GDP by approximately ¥5 trillion ( Nihon Keizai Shinbun , 25 July 2007, 5).

As for the TPP, the Cabinet Office estimated that if Japan joined and liberalised trade in products by 100 per cent, real GDP would rise by 0.54 per cent or ¥2.7 trillion over 10 years ( Asahi Shinbun , 26 October 2011, 4). 16 In addition to the expected ¥2.7 trillion boost in real GDP from joining the TPP, there would be other benefits such as those resulting from the introduction of deregulatory measures in areas such as services, investment and trade ( Yomiuri Shinbun , 3 November 2011). 17 Another model that included TPP effects in areas such as investment and produc-tivity increases estimated that Japan’s participation in the TPP would generate a 2 per cent rise in Japan’s GDP (Urata 2014). Indeed, METI calculated that if Japan failed to join the TPP, it would lose ¥10.5 trillion in GDP as of 2020 (approximately 2 per cent of GDP) (Terada 2012). As for the RCEP, it was estimated to have the effect of increasing Japan’s GDP by more than double the effect of participating in the TPP ( Yomiuri Shinbun , 31 August 2012).




Structural reform

An important domestic state interest served by trade liberalisation is structural reform of the domestic economy. Trade liberalisation in the context of the GATT as well as gaiatsu from the United States were initially used to reform domestic structures, which helped to improve the competitiveness of the Japanese manufacturing sector as well as put pressure on uncompetitive sectors such as agriculture to undergo struc-tural adjustment (Urata 2005).

Japan’s shift to a multi-track approach in the late 1990s and early 2000s marked a similar appreciation of the potential of FTAs to promote domestic policy reforms, which were important for revitalising the stag-nant domestic economy (Urata 2005). As Urata (2004) argues, histori-cally pressures from international regimes such as the GATT and from the United States had been a significant factor promoting structural reforms in Japan, but because gaiatsu from these sources diminished in effective-ness from the 1990s onwards (the WTO failed to progress trade liberalisa-tion in the 1990s and the boom in the US economy helped to mitigate market opening pressures on Japan), FTAs were increasingly expected to fill the gap. In the following chapter, he observes that trade liberalisation through FTAs played a complementary role in revitalising the Japanese economy by promoting domestic structural reforms. Although compet-itive sectors were keen to exploit expanding export and FDI opportu-nities, there was greater potential for stimulating necessary structural reforms in the labour market and farm sector (Kawai and Urata 2012). As MOFA stated in its 2002 national FTA strategy for Japan, ‘unless we take a stance linking FTAs to internal economic reforms, Japan will not succeed in making them a means of improving the international competitiveness of Japan as a whole’ (Ministry of Foreign Affairs of Japan 2002a).

Under the Koizumi administration, with US gaiatsu having declined, economic structural reform was making quite slow progress. This became a serious issue for the promotion of structural reforms (Fujiwara 2003) and so Prime Minister Koizumi made a direct link between strengthening the competitive power of agriculture and advancing his trade agenda on FTAs ( Nosei Undo Jyanaru , February 2004). He aimed to force open Japan’s agricultural markets in order to strengthen the competitive power of the domestic farm industry. Following the enun-ciation of the first clear-cut vision for FTA policy in 2004, which identi-fied their value in promoting structural reforms, as Yoshimatsu indicates in Chapter 8, the Koizumi administration signed five trade agreements and laid the groundwork for at least three others signed by his successor, Abe, in 2007 (George Mulgan 2011).




Trade issues thus became a significant source of domestic pressure ( naiatsu ), or a new form of gaiatsu , to open up Japan’s agricultural markets. As Honma shows in Chapter 4, the TPP was also expected to play a similar role. The Kan government’s commitment to promoting EPAs in the Basic Policy was accompanied by a simultaneous commit-ment to ‘ first press ahead with fundamental domestic reforms in order to strengthen the competitiveness it will need for economic partner-ships of this kind ... .the Government of Japan ... will first promote appro-priate domestic reforms with respect to areas of the agricultural industry’ (emphasis added) (Ministry of Economy, Trade and Industry 2010).

The TPP was seen more broadly as an opportunity to advance struc-tural reform of the economy, including regulatory reform, given that it aimed not only for the scrapping of tariffs but also for the creation of various common trade- and investment-related rules ( Nihon Keizai Shinbun , 3 November 2011). Prime Minister Abe, in particular, saw the TPP as an external catalyst to implement bold deregulatory reforms, which he viewed as critical to economic growth. He said, ‘What we need are bold reforms to regulations. We need external catalysts like the TPP’ ( Nosei Undo Jyanaru , August 2013, 21). In this context, the TPP became an integral part of his structural reform plans.

Social, regional and environmental policy considerations

Japan’s insistence on limiting concessions on agricultural market access in trade agreements also embodies income distribution, welfare, regional and environmental policy concerns. One important consid-eration is the level at which the government estimates that a surge in imports will really start to hurt domestic agricultural producers and income reductions will become too serious. As Solis argues, the selec-tion of trading partners in the early stages of Japan’s FTA policy where Japan only approached small trading partners exhibited a preference for minimising the effect of domestic adjustment costs associated with the liberalisation of Japanese markets. In particular, in those sectors where significant adjustment costs (e.g., agriculture) could be expected, there were ‘very important exclusions and quotas, thus mitigating the impact’ (Solis 2005, 4). In this context, restricting foreign access pointed to government concerns about avoiding a significant absolute reduction in the real incomes of farmers. Japan’s on-going reluctance to open its agricultural markets continues to reflect these concerns.

Restricting the exposure of domestic agricultural producers to international competition also reveals associated welfare concerns for preserving employment in an industry with a high proportion of




workers over 60 years of age, particularly in rural areas with fewer alter-native employment opportunities, concerns that extend to the pros-perity of regional economies as a whole as Urata argues in Chapter 2. This is particularly the case where the production of certain agricultural commodities is concentrated in specific regions, such as dairy prod-ucts, beef, sugar and starch in Hokkaido, and beef and pork in southern Kyushu (Naoi and Urata 2013). Minister of Foreign Affairs in the Noda government, Koichiro Genba, for example, reiterated the importance of forging a domestic consensus on sensitive products, which he defined as those that were sufficiently important to the nation that an increase in imports posed an unacceptable risk of negative economic and social effects domestically (Genba 2011).

Under the umbrella of social benefits are also included those relating to paddy-field farming, particularly the environmental benefits of rice agriculture, such as the functions of preserving national land, main-taining water storage, preventing floods, conserving soil and purifying air. Japan’s policy of restricting foreign access to the domestic rice market embodies these strong domestic state interests. More broadly, as Urata points out in the following chapter, maintaining the diverse functions of agriculture – described as the ‘multifunctionality of agri-culture’ by the MAFF – embraces not only the preservation of land and the natural environment but also the cultural aspects of farming. These are important considerations particularly in the case of products such as rice, wheat, barley, which are grown across wide areas of Japan (Naoi and Urata 2013). In the Japan-Thailand FTA negotiations, for example, the principal strategy of the Japanese government was to secure an agreement that ‘maintained a balance between agricultural cooperation and liberalisation’ (Hattori 2004, 33). ‘Balance’ meant it would request that Thailand give ‘consideration to Japan’s food security, maintaining regional society and the multifunctionality of agriculture’ (Hattori 2004, 33) in the negotiations.

Enhancing energy and resource security

Japan’s FTAs with Indonesia, Brunei, Australia and Mongolia and its continuing negotiations with Canada mirror a significant domestic state interest in ensuring access to important supplies of energy and resources. As Urata points out in the following chapter, one of the three main characteristics of Japan’s FTA partners has been the presence of resource-supplying countries. In the mid-2000s, for example, Indonesia was the biggest supplier of liquefied natural gas (LNG) to Japan and JIEPA, signed in August 2007, incorporated concrete measures to ensure




stable supplies of energy and mineral resources to Japan ( Nikkei Weekly , 4 December 2006). It followed the July 2007 Japan-Brunei EPA that was the first EPA signed by Japan to contain a specific clause on the stable supply of resources to Japan.

An interest in securing stable supplies of LNG was also evident in the Noda government’s decision to launch EPA negotiations with Canada in March 2012. It was particularly important at the time because of the need for LNG for thermal power generation and as an alternative power source in the wake of the shutdown of nuclear power plants throughout the nation. Because Canada is rich in shale gas it is viewed as a more promising supplier than the United States, which allows natural gas exports only to FTA partners in principle, such as South Korea ( Mainichi Shinbun , 27 March 2012). The subsequent gap in utility rates between Japan and South Korea prompted concerns about the international competitiveness of Japanese companies ( Sankei Shinbun , 16 March 2012).

In the same way, concerns about ensuring energy and resource secu-rity were reflected in the Japanese government’s consideration of an EPA with Australia. The most urgent consideration for METI was the prospect of China’s gaining favoured access to Australia’s mineral and energy resources. METI warned, ‘China is going to take it all’ ( Asahi Shinbun , 5 December 2006, 10), advising that ‘the stable supply system for Japan has been increasingly threatened by China’s aggressive shop-ping’ ( Sankei Shinbun , 2 June 2005, 1). Similarly, the Japan External Trade Organisation (JETRO) expressed disquiet that Australia’s increas-ingly strong trading relationship with China would put further strain on Australia’s role as a reliable resource supplier to Japan ( The Australian , 4 July 2007). The Japan-Australia EPA was thus seen as an essential element of Japan’s resource security. METI Minister Akira Amari said, ‘Australia is perhaps the most important trading partner for Japan in terms of stable supply of energy and other resources. Against this backdrop, Prime Minister [Shinzo] Abe made a decision that [the deal] should be pursued’ ( Canberra Times , 7 July 2006, 12). When signed in July 2014, JAEPA included provisions relating to the stable supply of natural resources from Australia in addition to measures to reduce tariffs on products.

Japan’s successful pursuit of an EPA with Mongolia was also sympto-matic of its interest in the stable supply of mineral resources, particu-larly coal for energy. In their EPA agreement the two countries agreed to include provision for Mongolia to provide a stable supply of mineral resources to Japan.




External state interests

External state interests embraced by trade policy can be extensive and encompass a range of external policy considerations. They include inter-national ambitions and objectives not only in relation to trade but also in relation to foreign and security policy interests that can be advanced through trade policy.

Exercising international and regional trade leadership

Japan’s accession to GATT agreements reflected its external state interest in exercising international trade leadership by opening its markets and transforming itself into the necessary model of an open free trader. For example, it agreed to market opening for eight miscellaneous agricultural product categories in February 1988. The private US-Japan talks that took place after the GATT dispute panel ruling on these products (in fact 10 designated product categories were deemed as infringing GATT rules) were scheduled just before the 40th anniversary celebrations of the GATT. At the time, Japan was anxious to show trade policy leadership at a multi-lateral level, making it vulnerable to US manipulation of its trade goals.

Japan’s subsequent adoption of a multi-layered trade policy that extended first to bilateral EPAs and then RTAs in East Asia and the Asia-Pacific also reflected its broad interest in exercising economic and trade leadership in the region. Japan’s FTAs were to be ‘the building blocs of a Japan-led regional trade network’ (Rathus 2011, 86).

In practice, Japan pursued a ‘twin-track’ approach in which, with the objective of building an economic partnership covering East Asia as a whole, the Koizumi administration began to pursue a Japan-ASEAN economic partnership at the same time as promoting bilateral agree-ments with ASEAN members individually, using JSEPA as a template (Ministry of Foreign Affairs of Japan 2002b). According to this strategy, the FTA with Singapore would ‘pressure ASEAN countries to enter into FTA talks with Japan’ (Rathus 2011, 86). The aim was to use the agree-ment with Singapore as the thin edge of the wedge to push for FTAs with other countries (Lam 2006).

Japan’s interest in exercising regional trade leadership became pronounced in the context of competition with China for the domi-nant role in the East Asian economic integration process. China had moved first with its proposal for an ASEAN-China FTA (ACFTA) in 2000, launching negotiations in 2001 and signing a comprehensive economic cooperation framework agreement with ASEAN in 2002. Japan responded by pushing its Japan-ASEAN FTA idea with greater urgency (Dent 2006).




Until then it had ‘been ambivalent in dealing with ASEAN as a grouping’ (Ajanant 2003, 3). Official Japanese negotiations with ASEAN on an EPA began in 2004. The acceleration of Japan’s bilateral EPAs with ASEAN countries was another response to the same state interest. METI officials acknowledged that China’s ACFTA proposal pressured Japan to quicken the pace of its FTAs in East Asia (Dent 2006).

Japan also regarded the Japan-ASEAN link as ‘the core of East Asian integration’ (Rathus 2011, 86) with China and others invited in. In a speech in Singapore in January 2002, Koizumi advanced his idea of how ‘cooperation between Japan and ASEAN should be linked to cooperation with all of East Asia’ (Prime Minister of Japan and His Cabinet 2002). He proposed an ‘Initiative for a Japan-ASEAN Comprehensive Economic Partnership’ achieved by expanding East Asian cooperation based on the Japan-ASEAN relationship. Through this cooperation, he envisaged ASEAN nations, China, Japan, South Korea, Australia and New Zealand becoming ‘core members of such a community’ (Prime Minister of Japan and His Cabinet 2002).

Japan-China geo-strategic rivalry

When China proposed the formation of an FTA study group among ASEAN members, China, Japan and South Korea at the ASEAN+3 Economic Ministers meeting in September 2004, Japan responded with a proposal to expand the membership of the grouping to 16 (ASEAN+6), by adding India, Australia and New Zealand to the 13 countries of ASEAN+3 and to broaden the fields covered by the agreement (Yoshimatsu 2011). It took concrete shape for the first time at the first East Asia Summit (EAS) meeting in December 2005, which was organised ‘as an ASEAN+6 summit rather than as an ASEAN+3 affair’ (Urata 2008, 2).

The ASEAN+6 proposal revealed Japan’s interest in preventing China from playing the leadership role both in the growth of Asian region-alism and in supplying ‘governance structures for the region’ (Solis 2005, 4) as well as in blocking it from ‘replacing Japan as the head of Asia’s economic order’ (Rathus 2011, 70). It was to Japan’s advantage to provide a counterweight to China’s growing influence in East Asia by expanding the membership of the regional economic community to non-East Asian states over which China found it more difficult to exer-cise economic and political influence (George Mulgan 2008b).

In April 2006, METI put a distinctively Japanese stamp on the ASEAN+6 idea by proposing an East Asian EPA in the form of a Comprehensive Economic Partnership Agreement in East Asia (CEPEA) comprising ASEAN, Australia, China, India, Japan, South Korea and New Zealand.




This later metamorphosed into the Nikai Initiative of August 2006 when METI Minister, Toshihiro Nikai, presented it formally to a meeting of the ASEAN Economic Ministers (AEM) Plus Three in Kuala Lumpur. Nikai recommended the establishment of an Economic Research Institute for ASEAN and East Asia (ERIA), which would be an Asian OECD (Organization for Economic Cooperation and Development), and which would investigate the benefits of an East Asian FTA among the 16 EAS members, and also a Track Two study on a possible CEPEA. As Yoshimatsu notes in Chapter 8, Japanese Prime Minister Shinzo Abe made a formal proposal for such a 16-nation EPA at the second EAS meeting in January 2007. This was the only grouping in which Japan was prepared to accept China’s participation (Rathus 2011).

The Abe government’s commencement of bilateral FTA negotiations with Australia in 2007 represented yet another manifestation of compe-tition between Japan and China to conclude FTAs with other Asia-Pacific countries. Japan pushed the idea of an Australia-Japan FTA more urgently in the light of China’s pro-active approach to developing economic rela-tions with Australia and the agreement between China and Australia to commence FTA negotiations. Both MOFA and METI were eager for an early start to negotiations because of concerns about progress being made in the Australia-China negotiations and the perception not only that Japan was being left behind but also that China had seized the initi-ative in expanding FTA networks in the region. This was particularly so given the background of even more pronounced competition between Japan and China in relation to ASEAN (George Mulgan 2008a).

Balancing China in the new Asia-Pacific strategic order

Japan’s switch to a pro-FTA stance reflected not only the potential aggre-gate benefits to the Japanese economy of signing preferential trade agree-ments with particular trading partners but also the prospect of additional benefits to external state interests from strengthening Japan’s broader political and security relationships with specific countries. In October 2002, the Economic Affairs Bureau of MOFA developed and adopted a national FTA strategy for Japan, which identified Japan’s international interests in entering into FTAs including expanding Japan’s global diplo-matic influence and interests by increasing the sense of political trust that arose from a deepening of economic interdependence (Ministry of Foreign Affairs of Japan 2002a). FTAs offered potential diplomatic gains because they were not just about trade and economic relations. As Honma has noted, they had political and diplomatic effects as well as economic effects (2005). They strengthened political ties between nations as well as indirectly enhancing security relationships.




In the context of rivalry with China for regional influence, this meant that developing closer economic ties with regional states through FTAs was seen as important also for the achievement of Japan’s political and diplomatic goals (Okano-Heijmans 2013). Under the rubric of ‘strength-ening partnerships’, Japan sought to build closer political and diplo-matic relationships with states with whom it shared common strategic interests as a means of ‘balancing’ China (George Mulgan 2007).

Joining the TPP negotiations similarly embodied Japan’s broader stra-tegic interest in playing a shaping role over the emerging order in the Asia-Pacific. It recognised that the TPP’s successful extension to include Japan, while excluding China, would enable the trade pact to become a strategic means to counter the rise of China. According to Akihisa Nagashima, former special adviser to Prime Minister Noda on foreign policy and secu-rity affairs, the significance of Japan’s joining the TPP negotiations was ‘to consolidate a strategic environment that gives China the impression that Japan is a formidable country that can’t be intimidated’ ( Nihon Keizai Shinbun , 4 November 2011, 5). He also emphasised, ‘“Japan needs a posi-tive stance to build together with the United States an order in the Asia-Pacific region,” indicating that Tokyo and Washington should cooperate in the TPP talks with China in mind’ ( Nihon Keizai Shinbun , 4 November 2011, 5). In strengthening the US-Japan security alliance, as Yoshimatsu argues in Chapter 8, the TPP would allow the two nations to work together in order to deal with China ( Sankei Shinbun , 9 November 2011). Prime Minister Abe made an indirect reference in the Diet to the importance of the TPP ‘in establishing a [regional] order based on the law instead of domination based on force, [a project in which] there is no doubt that our partner will be our ally, the United States’ (Yosan Iinkai 2013).

This viewpoint recognises the geopolitical advantage of establishing a new trade order in which Japan can continue to grow in the Asia-Pacific region in which China is also expanding its influence, and of preventing state capitalism, a system in which the state intervenes in market competition in policy matters, from taking root in the region ( Nihon Keizai Shinbun , 25 April 2012). At the same time, Japan’s signing on to the RCEP negotiations points to a willingness to engage in a process of confidence-building with China by helping to consolidate a sound, healthy and sustainable trading relationship with it.

Preserving the special US-Japan relationship

Maintaining its special relationship with the United States in both the diplomatic and defence dimensions, as well as in the economic and trade dimensions, is an external state interest that Japan has continu-ously manifested in its trade policy. It has been most clearly reflected




in its vulnerability to gaiatsu from the United States. The interests that Japan has invested in the bilateral relationship as a whole, which the United States can leverage across a range of specific trade and market access issues, has bestowed asymmetrical bargaining power on the United States (Kawai and Urata 2012). On the international trade front, as Urata points out in Chapter 2, the United States assisted Japan’s entry into the GATT making it not only Japan’s largest market at the time but also ‘its sponsor in the world trade system’ (Porges 1991, 310).

On the broader strategic front, the TPP is currently invested with significance for Japan as an opportunity to build a closer relationship with the United States and thus to play a supportive role, albeit indi-rectly, in the Obama administration’s policy of ‘rebalancing to Asia’. As Yoshimatsu argues in Chapter 8, Japan’s participation fuels TPP promo-tion and strengthens US economic influence in East Asia.

To gain US Congressional approval of its entry into the TPP negotia-tions, the Abe government accepted a phase-out of American tariffs on cars and light trucks in accordance with ‘the longest staging period for any other product in the TPP negotiations’, as Honma points out in Chapter 4. At ten years, this is longer than the staging period in the US-Korea FTA. It also agreed to refrain from giving approval to new cancer insurance being offered by the state-owned Japan Post and to hold talks parallel to the TPP negotiations on what the United States considers to be Japanese non-tariff barriers in both automotive and non-automotive areas, as Honma details in Chapter 4. Given that the treatment of American tariffs on cars and light trucks was one of the very few things that Japan could have used to take the offensive against the United States in the actual TPP negotiations, it appears that Japan made major concessions in the prior consultations without gaining any explicit trade concessions in return.

This expensive ‘admission fee’ as Honma calls it in Chapter 4, which was also described by Hattori as a ‘defeat in diplomacy’ (2013, 22), reflects the continuing Japanese willingness to make concessions to US pressure in the pursuit of its external state interests in strengthening the trade, diplomatic and security relationship with the United States, which has both national and wider regional significance. The Japanese government sees the trade pact as leading to greater stability in the Asia-Pacific region, not only in economic terms but also in terms of security and as a means to strengthen Japan’s relations with countries with which it shares the same values, such as the United States. This is described as being ‘concretely in Japan’s national interest’ (Yosan Iinkai 2013).




Conclusion

This chapter uses a political economy framework to analyse the inter-ests, both sectoral and state, reflected in the Japanese government’s trade policy preferences. It argues that various facets of Japanese trade policy such as agricultural protection and the pursuit of FTAs in East Asia reflect the interests of Japan’s internationally uncompetitive agricul-tural producers and internationally competitive exporting and foreign investing companies respectively. Thus, while agricultural protectionist interests may be the most internationally contentious aspect of Japanese trade policy, they do not represent the totality of sectoral interests embodied in Japan’s trade policy.

In terms of the business versus agriculture dynamic that is omni-present in the debate about Japanese market opening, what this chapter has demonstrated is that the history of Japanese trade policy since it joined the GATT in 1955 has been a story of progressive trade liberalisa-tion, which has advanced the interests of Japan’s exporters and investors at the same time as maintaining a special sanctuary for a limited range of agricultural products. This has amounted to a bifurcated trade policy that caters both to special interests that seek to open overseas markets and those that seek to keep domestic markets closed.

Domestic state interests, on the other hand, have been mirrored in the concessions made by the Japanese government to trade demands from the United States as well as in the pursuit of opportunities to sign FTAs given their potential to provide greater impetus to processes of economic growth and structural reform. External state interests also find expression in Japanese trade policy – in the importance of exercising international and regional trade leadership, for example, and in poli-cies to balance China in the new Asia-Pacific strategic order as well as to preserve Japan’s special relationship with the United States and to fortify the US presence in Asia, which is seen as benefiting Japanese security.

Notes

1 . Japan agreed to minimum access (MA) quotas equivalent to 4 per cent of its domestic rice consumption in 1995 rising to 8 per cent by 2000, which was a higher percentage than the MA obligation under tariffication (from 3 to 5 per cent within the 6-year period) (Hayami and Godo 1995).

2 . South Korea’s agricultural, forestry and fisheries products are more competi-tive than Japan’s, hence it would have proposed the removal of tariffs on practically all these items in their FTA negotiations with Japan (Fukui 2004).

A South Korean government official said, ‘The terms of the tariff aboli-tion the Japanese side informally proposed for its agricultural sector are so




inadequate that it makes it impossible for us to continue the negotiations’ (George Mulgan 2006, 170).

3 . Japan is not alone in its exceptional treatment of agriculture in trade agree-ments. As Honma points out, ‘The fact of the matter is that it is almost impos-sible to find an existing FTA where trade in agricultural products has been treated like any other product and liberalized without exception. Even in the case of the US-Australia FTA, which is an FTA between two of the world’s major exporters of agricultural products, exceptional treatment is given to certain agricultural segments and products’ (2013, 193).

4 . As Honma explains, the URAA and the WTO’s Agreement on Agriculture (AoA) are the same. However, while the URAA was a result of the UR negotia-tions under the GATT in 1993, the AoA was the agreement adopted as a part of the Marrakesh agreement to establish the WTO in Marrakesh in 1994. In other words, the URAA of 1993 was formalised as the AoA in 1994 and imple-mented under the WTO in 1995. Thus, the URAA is referred to in the context of the agreement reached in the UR negotiations in 1993 while the AoA is referred to in the context of WTO after 1995. Personal communication, 9 August 2014.

5 . For example, in meetings of Japan-Thailand Economic Partnership Agreement Taskforce, which consisted of members from the bureaucracy, academic and business sectors of both countries, including the agricultural cooperatives (JA-Zenchu), the Japanese side stressed an economic partnership in the area of agriculture that adopted a well-balanced approach that focused not only on tariff removal but also on cooperation. The Thai side requested explana-tions for the ‘sensitivity’ of agricultural items such as rice, poultry, starch and sugar in which they were particularly interested. JA-Zenchu explained the detailed situation with respect to these products, why they should be treated as ‘sensitive items’ in the FTA negotiations and the need for agri-cultural cooperation between Japan and Thailand. The taskforce agreed that the basic principles of the subsequent negotiations would take into account ‘sensitivities’ that kept a proper balance between agricultural cooperation and agricultural trade liberalisation (Fuji 2004; Hattori 2004).

6 . The Upper and Lower House resolutions are identical. The LDP TPP Affairs Committee’s resolution was also virtually identical.

7 . This tariff is reduced progressively in the case of JAEPA. See Honma’s Chapter 4 in this volume.

8 . Simple average figures for tariff rates were much higher in East Asian coun-tries than in the United States and the EU, Japan’s other main export markets (Kovrigin and Suslov 2006).

9 . This included ‘streamlining import/export procedures and providing tech-nical assistance to partner countries so that with enhanced capacity they would be more able to handle higher amounts of trade and investment’ (Lord 2010, 30).

10 . This accords with the more general thesis outlined in Ravenhill (2014), which argues that a geographical concentration of the activities of multinational corporations in a particular region acts as an incentive for those corporations to lobby their governments for regional trade agreements.

11 . See also Pekkanen (2005).




12 . This did not prevent Japan being named as an ‘unfair trader’ in supercom-puters, satellites and wood products under Super 301 in May 1989.

13 . This was done by the Centre for International Economics in Canberra and reported in the Sydney Morning Herald , 6 December 1988.

14 . This track incorporated firstly bilateral FTAs, then RTAs – the Japan-ASEAN EPA and later the Japan-China-South Korea FTA and mega-FTAs (TPP, ASEAN+6/RCEP). The ASEAN+6 and the RCEP have the same potential membership: ASEAN and six of its major trading partners, China, Japan, South Korea, India, Australia and New Zealand.

15 . Abe was reiterating the mantra of former prime ministers such as Noda who declared in the Diet, ‘I think there is great significance in absorbing the growth of the Asia-Pacific region, which is the world’s engine of growth’ ( NHK News 7 , 27 January 2012).

16 . When the Abe administration announced its intention to join the TPP nego-tiations in March 2013, it officially announced that based on a standard general-equilibrium model, the estimated economic effect would be a ¥3.2 trillion increase in GDP or 0.66 per cent (Todo 2013; Nihon Keizai Shinbun , 16 March 2013). This projection was done by the Cabinet Office, but it is likely to be an underestimation given that increased productivity would result from expanding exports and imports (the so-called ‘dynamic effect of trade liberalisation’), and this factor was not taken into account by the model used by the Cabinet Office (Urata 2014, 12–13). The Cabinet Office model also excluded other effects of joining the TPP such as investment liberalisation, the movement of people, simplification of customs procedures and harmo-nisation of product standards, which would also promote trade and invest-ment, which, in turn, would contribute to economic growth (Urata 2014).

17 . Urata also argued that the Cabinet Office model did not consider the effect of the TPP on triggering domestic deregulation and structural reforms, which would increase productivity in Japan (2014).

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Urata, Shujiro and Kusaka, Kazumasa (2013), ‘Japan Trade Strategies’, 2013 Japan Update, Looking Forward in Economics, Politics and Trade , ANU Japan Institute and Australia-Japan Research Centre, Crawford School of Public Policy, ANU College of Asia & the Pacific, 5 November.

Watanabe, Yoshiaki (1994), ‘GATTO Nogyo Goi o Fumaeta Nogyo, Noson no Kasseika Shisaku’ [‘Policies for Revitalising Agriculture and Rural Areas Following the GATT Agricultural Agreement’], Nogyo to Keizai , Vol. 60, No. 5, May: 13–17.




Working Group on Economic Partnership Agreements and Agriculture, Expert Committee on Reforms Addressing Globalization. Council on Economic and Fiscal Policy (2007), First Report: Acceleration of Economic Partnership Agreements and Strengthening Agricultural Reform , 8 May, http://www5.cao.go.jp/keizai-shimon/english/publication/pdf/070703economic.pdf.

Yosan Iinkai (2013), Dai 183 kai Kokkai, Dai 15 go (Heisei 25 nen 3 gatsu 18 nichi) [ 183rd Diet Session, Budget Committee, No. 15 ], 18 March, http://kokkai.ndl.go.jp/SENTAKU/syugiin/183/0018/18303180018015a.html.

Yoshimatsu, Hidetaka (2011), ‘Japan’s Quest for Free Trade Agreements: Constraints from Bureaucratic and Interest Group Politics’, in Mari Pangestu and Ligang Song (eds), Japan’s Future in East Asia and the Pacific , ANU Press: 80–102.

Yung Chul Park, Shujiro Urata and Inkyo Cheong (2005), The Political Economy of the Proliferation of FTAs , Draft paper presented to the PAFTAD 30 meeting in Honolulu, Hawaii, 19–21 February, http://www.eastwestcenter.org/fileadmin/stored/misc/PAFTAD_30_Park_Urata_Cheong.pdf?q=who-uses-ftas.



223

Abbott, Tony, 99Abe, Shinzo, 21, 23, 24, 25, 30, 31, 32,

56, 89, 94, 99, 110–11, 129, 140, 144, 166, 169, 198, 199, 211–14, 217

‘Abenomics’, 23, 144, 212agricultural protection, 3, 4, 5, 10, 33,

61–5, 71–92, 104–7, 166–7see also rice; sensitive products etc

agricultural reform, 72, 74, 75, 83–91, 94–5, 101–7, 110–11, 114–19, 142, 190, 212

Asia-Pacific Economic Cooperation (APEC) forum, 4, 54, 95, 144, 146, 203, 205, 210

Bogor Goals, 4, 55, 187Association of South East Asian

Nations (ASEAN), 7, 11, 12, 14, 28–30, 55, 56, 57, 59, 60, 160, 161, 163, 169, 176, 177–9, 181, 187, 197–9, 209, 216, 217

ASEAN-China Free Trade Agreement (ACFTA), see Free Trade Agreements, ACFTA

ASEAN-Japan Comprehensive Economic Partnership (AJCEP), see Economic Partnership Agreements, AJCEP

Australia, 6, 7, 14, 22, 26, 27, 29, 30, 45, 54, 55, 56, 57, 59, 60, 63, 82, 83, 95, 99–101, 158, 165, 167, 170, 191, 198, 200, 202, 203, 204, 211

Japan-Australia Economic Partnership Agreement (JAEPA), see Economic Partnership Agreements, JAEPA

automobiles, see cars

barley, 4, 5, 9, 26, 49, 62, 63, 64, 77, 81, 96, 97, 98, 99

beef, 3, 5, 7, 9, 19, 26, 49, 64, 71, 81, 82, 97, 98, 99, 100–1, 117, 132, 211

Bogor Goals, see Asia-Pacific Economic Cooperation (APEC) forum, Bogor Goals

Brazil, 73, 158Brunei, 8, 26, 27, 55, 56, 60, 95, 191,

200, 202

Cambodia, 56, 187, 191, 200Canada, 6, 26, 27, 54, 55, 56, 57, 59,

63, 73, 95, 162, 167, 170, 178–9, 191, 200, 202, 209, 211, 215

cars (automobiles), 8, 10, 11, 12, 13, 14, 15, 16, 17, 32, 44, 48, 52, 82–3, 97, 101, 114, 133, 160, 161, 162–3, 164, 165, 196, 201

Chile, 7, 8, 12, 55, 56, 57, 59, 60, 95, 168, 169, 191, 199, 200, 202, 204

Japan Chile Economic Partnership Agreement (JCEPA), see Economic Partnership Agreements, JCEPA

China, 10, 12, 13, 14, 20, 23, 27, 28–9, 30, 31, 33, 42, 54, 55, 56, 57, 59, 65, 73, 81–2, 83, 84, 158, 160, 161, 163, 169, 170, 176, 177–80, 181, 187, 188–9, 191–2, 196, 197, 198, 199, 200–1, 203, 204, 207–9, 210, 213–14, 215–16, 217

ASEAN-China Free Trade Agreement (ACFTA), see Free Trade Agreements, ACFTA

Chinese Taipei, see TaiwanColombia, 55, 211Comprehensive Economic Partnership

Agreement in East Asia (CEPEA), see Economic Partnership Agreements, CEPEA

consumer groups, 140, 142, 147

dairy products, 3–4, 5, 7, 9, 26, 49, 62, 63, 64, 71, 72, 76, 77, 84, 96, 97, 98, 99, 100, 113, 131, 132, 211

Index



224 Index

Democratic Party of Japan (DPJ), 73, 89, 149, 196, 197, 200–7, 212, 217, 218

Doha Round, see World Trade Organization (WTO), Doha Round

Economic Partnership Agreements (EPAs), 9, 12, 13, 14–15, 20–2, 25, 27, 28, 29, 57, 96, 157, 167, 168–9, 197–8

ASEAN-Japan Comprehensive Economic Partnership (AJCEP), 7, 12, 15, 20, 23, 29

Comprehensive Economic Partnership Agreement in East Asia (CEPEA), 29, 30, 197, 198, 199, 200, 201

Japan-Australia Economic Partnership Agreement (JAEPA), 7, 14, 27, 99–101

Japan-Chile Economic Partnership Agreement (JCEPA), 7, 12, 14

Japan-Indonesia Economic Partnership Agreement (JIEPA), 7, 26

Japan-Malaysia Economic Partnership Agreement (JMEPA), 8

Japan-Mexico Economic Partnership Agreement (JMEPA), 7, 164–5

Japan-Philippines Economic Partnership Agreement (JPEPA), 7

Japan-Singapore Economic Partnership Agreement (JSEPA), 9, 12, 14, 28, 187, 197, 198

Japan Thailand Economic Partnership Agreement (JTEPA), 7, 12, 164

Elections, 85, 88, 112, 143, 145, 146, 203, 205, 206, 211, 213

electronic goods, 10, 12, 13, 16, 17, 44, 48–9, 52, 53, 54, 134, 161, 196, 201

energy, see resources and energyEuropean Economic Community

(EEC), 72, 73, 77European Union (EU), 5, 11, 12, 13,

55, 56, 59, 60, 63, 65, 71, 72, 73, 76, 80, 85, 168–9, 190, 203, 211

food security, 8, 26, 77, 100, 107–10, 141, 201

France, 45, 166, 186Free Trade Agreements (FTAs), 5–8, 9,

11, 12, 13, 14, 20–2, 23, 24, 25, 26, 30, 31, 33, 54, 55–61, 63, 65, 95, 124, 144, 158, 165, 168–9, 176, 187–92, 196, 197–200, 201–2, 203–4, 211–12, 215–16, 217–18

ASEAN-China Free Trade Agreement (ACFTA), 28, 29, 198, 215

Free Trade Agreement of the Asia Pacific (FTAAP), 95, 132, 144, 191, 200, 216–18

gaiatsu (external pressure), 16, 19, 24, 25, 32, 128

General Agreement on Tariffs and Trade (GATT), 3, 17–18, 24, 28, 32, 33, 42, 45–50, 51–4, 55, 57, 61–2, 65, 71, 77–80, 157

Kennedy Round, 50, 61Tokyo Round, 50Uruguay Round (UR), 3, 4, 5, 18–20,

62, 71, 72, 73, 77–80, 114Uruguay Round Agreement on

Agriculture (URAA), 3, 4, 18–19, 52, 79

Gulf States, 169, see also Qatar; United Arab Emirates

Gulf Cooperation Council, 55, 56, 57

Hatoyama, Yukio, 203, 205, 207

Hong Kong, 51, 83, 177, 178–9, 191, 200

Hosokawa, Morihiro, 78

India, 23, 29, 45, 55, 56, 57, 58, 59, 60, 73, 168, 169, 170, 187, 191, 198, 199, 200, 203, 214

Indonesia, 7, 11, 26, 55, 56, 57, 60, 165, 187, 191, 200, 214

Japan-Indonesia Economic Partnership Agreement (JIEPA), see Economic Partnership Agreements, JIEPA



Index 225

interest groups, 1–3, 33agricultural groups, 198, 212–13,

see also Japan Agricultural Cooperatives (JA)

business groups, 10–16, 33, see also consumer groups; Japan Business Federation (Keidanren); Japan Medical Association (JMA); Japanese Trade Union Confederation (Rengo); Keidanren

political strategies of, 143–51and the Trans-Pacific Partnership

(TPP), 124–52interests, 1–2, see also sectoral

interests; state interestsInternational Monetary Fund

(IMF), 46investment, 157

foreign direct investment (FDI), 14, 21, 24, 50, 52, 53, 54, 57, 159–64, 169, 170–1, 175, 176, 177, 179, 180, 184, 187, 170–1, 175–80, 181, 184, 187

inwards, 167–8infrastructure, 8, 125,

149, 187investor state dispute settlement

(ISDS), 96, 130, 131, 132, 133, 137, 138, 139, 141, 147

Japan Agricultural Cooperatives (JA), 10, 74, 75, 76, 85–9, 91, 92, 104, 105–7, 129

Central Union of Agricultural Cooperatives (JA-Zenchu), 17, 91, 106, 110–14, 123, 129, 130, 141, 142, 144–8, 213

reform of JA, 91, 110–14Japan Automobile Manufacturers

Association (JAMA), 13Japan Business Federation

(Keidanren), 22–3, 124, 129, 130, 142–3, 144–5, 169, 202

Japan Communist Party (JCP), 141Japan External Trade Organisation

(JETRO), 27, 45, 159, 169, 186, 187

Japan Medical Association (JMA), 140, 141, 148, 149, 150

Japanese Trade Union Confederation (Rengo), 139, 140, 141, 148, 186

Kan, Naoto, 22, 25, 145, 203–4, 205, 206, 207, 213

Keidanren, see Japan Business Federation

Kennedy Round, see General Agreement on Tariffs and Trade (GATT)

Koizumi, Junichiro, 21, 24, 28, 29, 197Komeito, 149Korea, see South Korea

Laos, 56, 187, 191, 200Liberal Democratic Party (LDP), 9, 74,

85, 86, 90, 111, 141, 144, 149, 196, 197, 205, 209–14, 217

Malaysia, 6, 7, 8, 55, 56, 60, 95, 165, 182, 187, 191, 197, 200, 202, 215–16

Japan-Malaysia Economic Partnership Agreement (JMEPA), see Economic partnership Agreements, JMEPA

Mexico, 6, 7, 8, 10, 11–12, 55, 56, 57, 59, 60, 95, 162, 169, 178–9, 182, 191, 197, 200, 202, 209, 215

Japan-Mexico Economic Partnership Agreement (JMEPA), see Economic Partnership Agreements, JMEPA

Ministry of Agriculture, Forestry and Fisheries (MAFF), 5, 26, 63, 74, 75, 80–1, 82, 86, 90, 211

Ministry of Economy, Trade and Industry (METI), 9, 20, 23, 27, 29, 30, 147, 159, 183, 187, 197, 207, 211

Ministry of Finance (MOF), 75Ministry of Foreign Affairs (MOFA),

14, 24, 30, 187, 211Ministry of Internal Affairs and

Communications (MIAC), 211Ministry of International Trade and

Industry (MITI), see Ministry of Economy, Trade and Industry (METI)

Mongolia, 26, 27, 55, 56, 57Myanmar, 56, 187, 191, 200



226 Index

Netherlands, 118New Zealand, 23, 29, 55, 59, 60, 95,

191, 198, 200, 202Noda, Yoshihiko, 22, 27, 31, 144, 146,

151, 204–5, 206, 213North American Free Trade Agreement

(NAFTA), 11, 20, 162, 191Norway, 5, 62

Obama, Barack, 98, 210Oman, 165oranges, 7, 19, 49, 52, 62Organization for Economic

Cooperation and Development (OECD), 50, 76, 168

Ozawa, Ichiro, 205, 206–7

Pakistan, 199Papua New Guinea (PNG), 191, 200Peru, 8, 22, 55, 56, 57, 59, 60, 95, 191,

200, 202, 203, 204Philippines, 6, 7, 8, 55, 56, 60, 182,

191, 200Japan-Philippines Economic

Partnership Agreement (JPEPA), see Economic Partnership Agreements, JPEPA

pork, 3, 4, 7, 9, 26, 49, 62, 63, 64, 71, 81, 97, 98, 99, 101, 113, 133, 212

production networks, 15, 162, 175–6, 180–6

impact on developed countries, 183–6

Qatar, 165

Regional Comprehensive Economic Partnership (RCEP), 13, 15, 23, 31, 55, 56, 65, 170, 171, 191–2, 200, 209, 210, 216, 217

regional trade agreements (RTAs), 1, 20, 28, 42, 55, 57, 65, 158, 163, 169, 197–9, 207–9, 210

see also Regional Comprehensive Economic Partnership (RCEP)

Rengo, see Japanese Trade Union Confederation

Research Institute of Economy, Trade and Industry (RIETI), 23

resources and energy, 14, 26, 27, 58, 165–6, 171

rice, 3, 4, 5, 7, 9, 17, 19, 26, 49, 62, 63, 64, 71, 74, 75–6, 77, 78–9, 80–1, 81–4, 85, 86–8, 89–91, 96, 97, 98, 99, 100, 104, 107, 113, 114–17, 120, 211–12

Russia, 191, 200

sectoral interests, 2, 33, 85, 96, 123, 152, 169, 176, 186

agricultural, 3–10, 33, 63, see also Japan Agricultural Cooperatives (JA)

business, 10–16, 33, see Japan Business Federation (Keidanren)

trade unions, see Japanese Trade Union Confederation (Rengo)

security issues, 28, 30–1, 32, 33, 175–6, 177, 188–9, 197, 213–14, 217

‘sensitive products’, 3, 5, 7, 9, 26, 79–81, 96, 98, 109, 119, 125, 130, 135, 148, 211, see also barley; beef; pork; rice; wheat etc

Singapore, 6, 9, 12, 14, 28, 55, 56, 59, 60, 63, 95, 187, 191, 200, 202

Japan Singapore Economic Partnership Agreement (JSEPA), see Economic Partnership Agreements, JSEPA

South Korea, 5, 6, 12, 13, 20, 22, 23, 27, 29, 32, 54, 55, 56, 59, 62, 65, 101, 168–9, 170, 177–9, 182, 187, 191, 197, 198, 199, 200, 201–2, 203, 204, 208–9, 210, 214–15, 216, 217

starch products, 9, 26, 63, 64, 77, 81, 83, 97, 98, 99, 134, 211

state interests, 16–32, 33, 63domestic state interests, 16–27, 63,

158, 176, 186external state interests, 2, 28–32, 57

steel, 10, 11, 16, 44, 45, 46, 132, 164, 196sugar, 5, 7, 9, 26, 44, 48, 61, 62, 64,

71, 76, 81, 96, 97, 98, 99, 100, 134, 211

Switzerland, 8, 55, 56, 58, 60, 62, 169, 198



Index 227

Taiwan (Chinese Taipei), 51, 54, 83, 177–9, 182, 191, 200

textiles, 16, 45, 46, 51–2, 125, 134, 161

Thailand, 6, 7, 8, 12, 26, 55, 56, 60, 84, 160, 164, 169, 187, 191, 199, 200, 216

Japan Thailand Economic Partnership Agreement (JTEPA), see Economic Partnership Agreements, JTEPA

Tokyo Round, see under General Agreement on Tariffs and Trade (GATT)

trade friction, 50–4, 160, 170with European countries, 50, 53–4,

157, 161–2with the United States, 50–4, 90–1,

157, 161–2trade liberalisation, 1, 3–26, 33, 42,

45, 46–50, 51, 55–65, 95–6, 99, 101, 108–9, 130, 131, 134, 140–1, 145–9, 157, 163, 170, 176, 189–91, 198, 203, 206–7, 212, 215, 216

trade policy, history of, 43–65under DPJ government,

200–9and free trade agreements (FTAs),

54–61, 187, see also Free Trade Agreements (FTAs)

and General Agreement on Tariffs and Trade (GATT), 45–50, see also General Agreement on Tariffs and Trade (GATT)

under occupation forces, 43–5under the post-2012 LDP

government, 209–14Trade and Foreign Exchange

Liberalisation Plan Outline 1960, 3, 46, 48, 61

see also agricultural protection; food security; security issues; trade friction; trade liberalisation

Transatlantic Trade and Investment Partnership (TTIP), 191

Trans-Pacific Partnership (TPP), 9, 15–16, 17, 56, 65, 71–2, 79, 81–4, 85, 91, 94–9, 101, 111, 114, 119–20, 158, 170, 171, 188–92, 197, 200, 203–9, 211–16, 217

and interest groups, 123–52, see also Japan Agricultural Cooperatives (JA); Keidanren

Japan’s reasons for joining, 12–13, 22–3, 25, 31, 213–14

origins, 55, 95, 202scope, 95–6, 124–8and the United States, 31–2, 96–9,

128, 145, 188–90, 202, 208, 209, 210, 213–14

United Arab Emirates (UAE), 165United Kingdom, 45, 83United States, 5, 11, 12, 16–17, 22, 23,

27, 28, 31–2, 33, 41, 42, 43–4, 45, 46, 50–4, 55, 59, 63, 71, 72, 73, 76, 77, 78, 80, 82, 83, 84–5, 86, 89, 90, 95, 96–9, 100–1, 114, 116, 128, 145, 162–3, 165, 167, 169, 170, 176, 177–80, 182, 188–92, 200, 201–2, 203, 204, 205, 207, 211, 215, 216, 217

see also trade frictionUruguay Round (UR), see General

Agreement on Tariffs and Trade (GATT), Uruguay Round

Vietnam, 55, 56, 60, 95, 169, 182, 187, 191, 198, 200, 202, 204

wheat, 4, 5, 7, 9, 26, 64, 71, 74, 76–7, 81, 90, 96, 97, 98, 99, 100, 104, 135, 211

World Trade Organization (WTO), 4, 5, 6, 17, 20, 24, 42, 54, 57, 58, 65, 71, 73, 77, 78, 79, 80, 95, 96, 114, 157, 158, 169, 190, 197, 216

Agreement on Agriculture (AoA), 6, 73, 80, 96

Doha Round, 5, 10, 42, 71, 72, 79, 80–1, 96, 158



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