The Political Economy of Japanese Trade Policy

Aurelia George Mulgan, Masayoshi Honma, Aurelia George Mulgan, Masayoshi Honma

• Publisher: Palgrave Macmillan
• Year: 2015
• Print ISBN: 9781137414557
• eBook ISBN: 9781137414564
• Topic: Politics & International Relations
• Subtopic: American Government
• Index: Politics & International Relations

This study provides up-to-date coverage of the most important domestic and external political and economic influences on Japanese trade policy, as well as the evolutionary dynamics of that policy in the post-war period.

1

Understanding Japanese Trade Policy: A Political Economy Perspective

Aurelia George Mulgan

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 protectionism and liberalisation, and the timing and extent of Japan’s accession 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 politicians 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 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 international 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 mutually reinforcing.

The analytical framework outlined here discards the theoretical assumption of self-interest. It is based on the premise that both government and non-government actors can pursue sectoral, societal and international interests either for reasons of their own self-interest or out of concern for the wider national benefit. The following sections illustrate 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 maintaining high levels of agricultural protection by negotiating exemptions, exclusions and other special arrangements for so-called ‘sensitive products’ (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 additional 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 concessions 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 negotiations 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 arguments 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 developing 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 differential 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 negotiations (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 agricultural, 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...

Table of contents

• Cover
• Title
• 1  Understanding Japanese Trade Policy: A Political Economy Perspective
• 2  Postwar Japanese Trade Policy: A Shift from Multilateral GATT/WTO to Bilateral/Regional FTA Regimes
• 3  The Political Economy of Japanese Agricultural Trade Negotiations
• 4  The TPP and Agricultural Reform in Japan
• 5  To TPP or Not TPP: Interest Groups and Trade Policy
• 6  The Impact of Trade Policy on Japanese Trade and Investment
• 7  International Production Networks and Economic Diplomacy in Japan
• 8  Locating Japanese Trade Policy in an Evolving Regional Context
• Index