Japan – 3rd Largest Economy in the World Sought for Trade Deals after TPP Demise

Japan Investment Property

Japan Real Estate

27 Jan, 2017 –

TOKYO — President Trump’s decision to pull the United States out of the Trans-Pacific Partnership trade deal should have been good news for Hitoshi Kondo, a Japanese rice farmer. The sweeping 12-nation agreement, negotiated by the Obama administration and formally rejected by Mr. Trump on Monday, would have opened swaths of Japan’s highly protected agricultural sector, and was bitterly opposed by farmers. Now, without American involvement, the deal looks as good as dead.

Mr. Kondo isn’t celebrating, though. “It’s actually scarier, because what comes next will be a lot harsher,” he said on Wednesday, as Japanese leaders scrambled to find a coherent response. What comes next, many in Japan believe, could be a bruising showdown between Tokyo and Washington. They fear a return to the trade wars of the 1980s and early ’90s, when many Americans saw Japan as an untrustworthy economic adversary.

The U-turn is a setback for Japan’s prime minister, Shinzo Abe. Mr. Abe viewed the Trans-Pacific Partnership as a way to advance two cherished goals: drawing the United States closer to Japan and other friendly Pacific Rim countries (the trade deal, known as TPP, does not include China, the region’s increasingly bristly superpower) and bolstering Japan’s lackluster economy. Such is Mr. Abe’s enthusiasm for the deal that his government finished ratifying it on Friday, just before Mr. Trump’s inauguration, despite Mr. Trump’s promise to withdraw.

Mr. Trump has repeatedly said he wants to alter the American trade relationship with Japan, in which Japan sells far more goods to the United States than it buys in return. In a meeting with executives from Ford Motor and other American manufacturers this week, the president again said that such an imbalance was “not fair.” And Mr. Trump says he wants to pursue trade agreements with individual nations, in lieu of group deals like TPP, which would have included countries comprising as much as 40 percent of the world’s economic output. Japan has long preferred multilateral rule-making to head-to-head deals, but pressure to go along with Mr. Trump’s approach will be strong.

“Japan may eventually agree to bilaterals with the U.S. to ensure that the U.S. stays engaged in Asia — both economically and to provide a security counter to China,” said Glen S. Fukushima, a former United States trade official who is now a senior fellow at the Center for American Progress, a think tank in Washington.

Officially, Japan has not given up on the TPP, or on keeping the United States involved. The day after Mr. Trump signed his executive order committing to withdrawal, Mr. Abe said in Parliament he would “resolutely continue to seek understanding” from Washington of the deal’s strategic and economic importance. Mr. Abe’s advisers express hope that members of Mr. Trump’s cabinet with business and national security experience will lend their voices to the effort. Sadayuki Sakakibara, chairman of Keidanren, the lobbying group representing Japan’s largest corporations, encouraged Mr. Abe this week to take a two-pronged approach. Mr. Abe, he said, should try to keep the deal alive while engaging the United States directly, if necessary, “with the goal of eventually broadening negotiations to a multilateral level.”

Barring a drastic change in Mr. Trump’s views on trade, however, that could mean stringing matters out for years — possibly until the next administration, if not longer. The TPP’s demise doesn’t pose an immediate threat to Mr. Abe, whose poll numbers remain high. About as many Japanese voters favored the trade deal as opposed it. But none of Japan’s other trade options serve Mr. Abe’s goals the way TPP does.

Japan and others could move on without Washington, which would require changing a condition that requires the United States to ratify the deal before it can take effect. Prime Minister Malcolm Turnbull of Australia said on Tuesday that he had been promoting that idea to Mr. Abe and several other leaders. Japan, with the second-largest economy in the group, after the United States, would be a crucial participant.

But it could be politically awkward for Mr. Abe, who sold the deal on the merits of American involvement. Even on narrow commercial grounds, he would have some explaining to do: Accepting more agricultural imports was supposed to be the price Japan paid for cheaper access to the vast United States market for cars and other manufactured goods. With the United States out of the picture, Mr. Abe could be accused of selling out farmers for little gain.

Japan is negotiating other deals. One, with the European Union, predates Mr. Abe’s embrace of the TPP, in 2013, but talks had been put on hold. European negotiators want concessions on agriculture, too — another reason Japanese farmers are not breathing sighs of relief. In at least one area, dairy products, European demands go beyond what Japan agreed to in the TPP.

Japan is also part of an Asian trade initiative, the Regional Comprehensive Economic Partnership. But that effort is being led by China, which has that partnership’s largest economy. China’s rise represents perhaps the biggest change from the United States-Japan trade battles of a generation ago. For Japan, it is both an added risk and a potential buffer. Many in the Abe administration hope that Mr. Trump will target China first, making Japan a lower priority, said a senior government official involved in trade matters, who asked for anonymity to discuss a sensitive issue.

Companies, however, are dusting off their 1980s playbooks. Japanese carmakers built factories in the United States to head off American protectionism then — investments that Akio Toyoda, president of Toyota Motor, and others have made a recent point of highlighting. Only about a quarter of the Japanese-brand cars sold in the United States are imported, though Japan remains the source for many high-value components as well as design work.

One of Mr. Trump’s complaints about Japan, repeated for decades by American trade negotiators, is that its economy is organized to keep foreign products out even without overt trade barriers like tariffs. By this logic, American carmakers have failed to penetrate the Japanese market because dealers and regulators collude against them. (Japan imposes no border taxes on cars; the United States adds a 2.5 percent levy to most imported Japanese vehicles.)

Japan has been addressing so-called non-tariff barriers — in some cases as a direct response to the TPP talks. It agreed during the negotiations to recognize some American automobile safety standards, for instance, and has narrowed a tax loophole that favors ultralight Japanese cars. In agriculture, Mr. Abe has moved to curb the power of Japan’s monopolistic farm cooperatives.

Under TPP, Japan agreed to phase out import duties on about 2,000 agricultural products, more than in any previous trade deal, but a smaller percentage of the total than other signatories. Sensitive products like rice were exempted. Mr. Kondo, the rice farmer, worries that Mr. Abe will concede more ground to the United States in order to appease Mr. Trump. “We have to sell cars to the U.S.,” he said, “and farmers will be traded away for access.”

(Source – “The New York Times“, Pic – World Trade Centre at Minato City / “Guilhem Vellut“)

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