Noda’s Next Step: the TPP?

Below is the more detailed and longer version of my piece on Japan and the TPP published over at the East Asia Forum.

Speaking of publishing elsewhere, I also am making regular contributions to the Shingetsu News Agency’s news site. SNA is a foreign independent news agency in Japan- one of the few, but well needed. They cover a lot of Japan stories on the ground too, which is becoming less common for international media agencies – see some of their videos here.

There is of course also Japan Security Watch and Asia Security Watch. Anyway, enough of the PR!

Why the TPP will not be Noda’s next big challenge

International expectations of Japanese Prime Minister Noda Yoshihiko’s administration seem to have increased greatly since his success in getting the consumption tax and related social security bills through the lower house late last month. Matthew P. Goodman a former White House coordinator for Asia-Pacific Economic Cooperation (APEC) and the East Asia Summit (EAS), writing for the CSIS, argues that[1] Noda needs “to make one last push over the next few months to secure Japan’s economic future—and his own legacy as one of the most effective Japanese leaders of the postwar era.” The Financial Times’ Mure Dickie[2] also writes that “the black-belt judo enthusiast should not be satisfied with a tax rise as his only legacy,” and along with Goodman suggests that Japanese commitment to joining TPP negotiations should be one of Noda’s main goals going forward.

Certainly Noda has been by the most effective of the (3) DPJ prime ministers. Unlike his predecessors Hatoyama Yukio and Kan Naoto, Noda has remained focused by taking on one policy challenge at a time, and has been calm, resolute and consistent in articulating his rationale for addressing said policy problem. He has avoided needlessly alienating supporters and potential allies, and most importantly, has focused pressure on his adversaries’ weaknesses and vulnerabilities in order to drag them into reluctantly supporting his policy program. While he stumbled in his first few months, he has managed to retain influence in articulating the narrative surrounding the “meaning” of his premiership, something that Hatoyama and Kan both lost early on in their tenures.

If one accepts the above evaluation of the Noda regime, then it would not be unreasonable to think that Noda may well have one or two more policy successes up his sleeve. Noda, and the DPJ, certainly need more than the single, unpopular success of raising the consumption tax to fight the next election on the basis of ‘effective leadership.’ Given that Noda identified joining the TPP as a priority late last year it is therefore natural to speculate that Noda may push forward with a bold Japanese bid to join the growing list of TPP nations in time for September’s APEC meeting in Vladivostok.

There are however many reasons why the TPP will not take a prominent place in Noda’s thinking over the next few months. Aside from the recent challenges surrounding the political management of his much reduced lower house majority, Noda will find pushing forward on the TPP much less attractive than he would have late last year. At the time, Noda found a proactive approach towards the TPP useful as it allowed Japan to temporarily take the focus off Futenma in the, at the time, troubled US-Japan relationship. It also seemed to stimulate Chinese interest in looking at pushing ahead with a trilateral trade agreement with Korea and Japan, giving Japan some diplomatic space for maneuver. This, Noda would have hoped, would have reduced the risk of foreign policy undermining his ability to push forward on domestic issues such as happened with his two immediate predecessors.

However much has changed since then making pushing forward on TPP even more unpalatable than it would normally be as a policy issue to burnish his credentials as a persistent, pragmatic and effective political executive. This time it is not Japan’s hesitancy to take on small but powerful political interest groups, but the US domestic situation that seems to be the biggest barrier to Japan’s entering TPP negotiations. In late May the United States gave a signal that it would start pressing Japan to reduce the nontariff barriers to car imports in talks over Japan’s participation in the TPP. [3] Then came news that the US required concessions in six areas related to automobiles before allowing Japan to join TPP negotiations. The necessary concessions would include relaxation of technological, ecological and safety standards, tax treatment for different engine displacements, and concessions on customer service and distribution. [4]

However Japanese industry reacted with incredulity to both the suggestion that Japan’s automobile market was a closed one and to the unreasonableness of what Goodman curiously describes as “token concessions.” Toyoda Akio, the head of Japan’s automobile industry association and president of Toyota Motor Corp., told the Japanese media that he was “greatly confused” by US requests. He declared that “Japan is an open market without any restrictions on imported vehicles and without any tariffs (on those imports),” and called for an “open dialogue based on facts.”[5] Toyoda also pointed out that Japanese car manufacturers were already having a hard enough time with the extremely strong yen and the weak dollar, something that should have seen US car manufacturers become much more competitive in the Japanese domestic market. The Japanese side argues that poor sales of US cars in Japan are the fault of US automakers and note that there are higher sales of foreign cars in Japan’s domestic market, just not American cars.

Looking at the Japanese media it appears that it has become conventional wisdom in Japan that accusations of Japanese protectionism and demands for unreasonable concessions are ironically part of a US auto industry strategy to maintain US tariffs, currently set at 2.5 percent on imported passenger cars and 25 percent for trucks.  Believing that the Japanese will not accede to these demands, the goal, it would appear to the Japanese, is no more than the exclusion of Japan from the TPP, or the US receiving an exemption for its auto industry – something that would only take place if Japan received a similar exemption for its own sensitive agricultural sector.

At about the same time as Toyoda’s remarks, METI Minister Edano met with U.S. Trade Representative Ron Kirk on the sidelines of an Asia-Pacific Economic Cooperation (APEC) meeting of trade ministers in Kazan, Russia.  The Asahi Shimbun reported that a Japanese source had said the talks had turned into a “game of chicken,” with both sides refusing to back down, despite the Edano-Kirk meeting lasting 20 minutes longer than the expected 45 minutes. [6]

On June 14, Yamaguchi Tsuyoshi, the Parliamentary Senior Vice-Minister for Foreign Affairs who accompanied Edano to the Kazan meeting, told a lower house agriculture committee that there was little hope for Japan being accepted into the TPP until after the US presidential election. [7] This is due to political sensitivities surrounding the US automobile industry’s influence in crucial swing states. Noda at the same time stated that he was not going to force a decision on joining the TPP by the then upcoming G20 meeting, [8] suggesting that a decision would be put off further. While some Japanese media outlets such as the Yomiuri lamented the possibility that Japan would be left behind when Mexico, and then Canada – both countries that declared their interest around the same time Noda did in November last year – announced that they would accept an invitation to join TPP negotiations during the mid-June G20 conference, [9] the Japanese government seemed to be unmoved. After a 19th June cabinet meeting Edano said in response to news of Mexico joining that “every country’s situation and conditions are different, and there is a need to continue to investigate and discuss with internal stakeholders.”[10]

The Japanese government’s suspicions were confirmed at the end of June. First US presidential candidate Mitt Romney, reacting to pressure from the three biggest automakers stated that he did not support Japanese participation in the TPP “at this time.”[11] Later US Senator Sherrod Brown of Ohio introduced legislation “aimed at preventing a new Pacific trade agreement from harming auto employment.”  Then 132 House of Representatives’ Democrats (about two-thirds of the caucus) also sent a letter demanding more transparency and better consideration of US stakeholders’ interests to USTR’s Ron Kirk. This coincided with an energized effort by US automakers to put pressure on Washington to not let Japan join talks on the TPP. For example Ford’s vice president of international government affairs Stephen Biegun declared that “It is just simply wrong the decision to put in that discussion a country which is demonstrably protected and closed to American exports.” [12]

While the Japanese auto industry rejected the claims by Ford in particular, arguing that Ford had “chosen to essentially withdraw from the Japanese market” and refused “to seriously compete there,” the fact remains that Japan is did not participate in the 13th round of TPP negotiations in San Diego taking place now, and is unlikely to participate in negotiations in the near future. Those calling for Japan’s immediate entry into the TPP in order to reinvigorate its economy, and for Noda to expend political capital on this goal, need to consider how disastrous it would be for Noda to pursue TPP accession under the current conditions and limitations.

There also needs to be more balanced discussion on what the real factors that are obstacles to Japan joining the TPP. One such factor is that it is not just the Japanese domestic political situation that is an obstacle to strengthening the multilateral trade order in the Asia-Pacific. Neither is it that the Japanese are still necessarily hostile to entering trade agreements with countries with sensitive sectors as seems to have been the case in the past. In the last three years the Japanese have made small but positive steps towards furthering discussions and negotiations to enter economic partnership agreements with nations such as China, Korea, Australia, the EU, and most recently, Canada, in addition to completing agreements with Switzerland, Peru, Vietnam and India. Politically, while the current group of national politicians is still undecided on the merits of free trade, supporters of administrative reform such as Hashimoto Toru are very much, in principle, in favour of increasing trade relations and Japan’s economic internationalization. Aside from MAFF and affiliated organizations, within Japanese officialdom there is increasing openness to liberalizing trade relations and indeed some see it as vital.

Nevertheless, the Japanese focus will remain in the medium-term on forging trade agreements with those nations where the benefits are most clear, and not with countries which insist on “protection” for not only industry interests in their own countries, but are also essentially demanding “protection” in the domestic markets of others, such as we are seeing in the US automaker’s case.


Japan’s Regional Security Environment and Possibilities for Conflict

The next 5 months could be one of high drama and tension in East Asia geopolitics due to various leadership transitions and elections. In South Korea we have already seen election year sensitivities coming to have real life policy consequences with the last-minute cancellation of the ACSA/GSOMIA military accords between Japan and the ROK. With the presidential election due to be held in December 2012 this might just be the first in a series of tensions between Japan and South Korea, or even between the ROK and the US. North Korean leaders are also the masters of milking the US presidential season for concessions by simultaneously escalating tensions and negotiating for their deescalation.

The US presidential and congressional elections take place in November this year, which will constrain President Barack Obama on issues such as North Korea, Iran, and the TPP, and will likely push him to take tougher positions on China-related issues such as human rights, currency manipulation and adherence to WTO rules. China will also undergo a leadership change around November this year, and although the top two positions of CCP General Secretary (and eventually PRC president) and Party Secretary (and eventually Premier) of the State Council appear to be relatively safe for Xi Jinping and Le Keqiang, the composition of the Politburo Standing Committee could well change depending on internal CCP politics around internal and external events. It is important to bear in mind that the slowdown in the Chinese economy that is currently taking place could make this a more sensitive time than normal for the PRC. This sensitivity could be exacerbated by Sino-American relations. Every president since Nixon has essentially found it useful to take a tougher line on China in their first term. Some have speculated this is because of the lack of a working relationship and distrust between Chinese leaders and a new US administration, and the general demands of reelection politics. Human rights, trade, and Taiwan/North Korea issues generally tend to pop up as critical issues around US election time and the administration in power cannot be seen to be taking a soft line towards China. Of course this is simply not just about the US. When the PRC undergoes its sensitive 10-yearly leadership transition analysts have pointed out that actors other than the core CCP leadership tend to have their influence augmented and reflected more in PRC foreign policy and diplomacy. The PLA and the SOE sector of the economy for example tend to have greater influence during this period. With these two pivotal events for Sino-American relations taking place in exactly the same month tensions are sure to rise, and the possibility for diplomatic conflict or worse cannot be ruled out. Recent tensions over the South China Sea may well have set the tone for the next 5 months or more.

Then there is Japan. While Japan’s House of Representatives election does not have to be held until the middle of next year there has been some talk about a November date, after the ruling DPJ and the opposition LDP’s internal party elections. Given the various inter- and intra-party interests this seems quite plausible, although far from determined. From the foreign policy view this could add to diplomatic tensions in East Asia. For Noda Yoshihiko the main goal before then will be for him to suck as much oxygen out of his opponents’ likely election platforms by either appealing to his opponents to work together on these platforms in the interim, or taking them on as his own.

Indeed there are signs of such a strategy being implemented. Noda is continuing to support the Osaka-mayor backed development of legislation to turn the Osaka region into a Metropolitan administrative district similar to Tokyo. While Noda is unlikely to decisively agree to Japan’s joining TPP negotiations, he will continue to fly the TPP flag – another policy interest of Mayor Hashimoto Toru and his reformist One Osaka (Ishin no Kai) party. Both the One Osaka party and the LDP have identified in their policy statements a desire to change Japan’s disposition towards defense and collective self-defense in particular – the LDP through the dubious mechanism of “constitutional reinterpretation” and Hashimoto through a constitutional amendment to Article 9. Noda has in the last week identified discussion on the interpretation of collective self-defense as something he wants to push forward in the current parliamentary session, particularly as it pertains to defense of US ships on the high seas and Japan’s use of its BMD system to  defend the US from ballistic missile attack. Finally, Noda has also pushed forward on the previously identified proposal of ‘nationalizing’ the Senkaku Islands, where the government takes over ownership from the current private owner. This is clearly focused on taking a little wind out of Tokyo Governor Ishihara Shintaro’s sails – something that Ishihara furiously alluded to in public. It is also a reasonably popular policy which will do no harm to Noda assuming he acts in a more decisive way than Kan Naoto’s administration did when faced with Chinese pressure over the islands.

The Noda administration’s other objective will be to relieve itself of as much pressure as possible from external sources as well. US-Japan relations could become a source of tension due to a number of issues. First there is the ongoing issue over the Futenma Replacement Facility. Second there is the continuing controversy and diplomatic friction over the deployment of the unpopular Ospreys to both Okinawa and Japan’s mainland. Third, there is the TPP, where arguments for Japan to enter negotiations have become weaker giving recent US demands. Noda is in an impossible situation in regards to all of these issues, given how politically vulnerable he now is in terms of both the upper and lower house numbers (as any subsequent prime minister will be without a solid majority in the Diet). In the short-term the best that Noda can do is state that he is committed to pushing forward with the policies, and hope that US election politics mercifully distracts Washington DC.

Noda’s plan to discuss collective self-defense may also have an external facing dimension. Given Noda’s political acumen, it would not be a surprise to find out that he is using such discussions as a hedge against Chinese escalation of the Senkaku Islands dispute that is likely to come about should Noda’s “nationalization” plan come to fruition in the next few months. While the CCP can be unpredictable in terms of how they react to certain sensitive diplomatic issues, the party leadership, and likely the PLA, will be united in not wanting to see Japan take on a more proactive military stance. The CCP at least still takes a realist approach to its foreign policy thinking, and the one thing they will not want to see, now that the strategic “distraction” of Taiwan has been somewhat dampened in the interim, is Japan rising to become a full strategic competitor in the East Asia region. A change in Japan’s collective self-defense doctrine would portend such a development for the Chinese leadership. The Chinese will be all the more wary given Japan’s recent activities in strengthening relations with its ASEAN partners. Not wanting to give the Japanese government a good excuse to go forward with changes in Japan’s security doctrine, the CCP may well tone down its ‘outrage’ over the nationalization of the Senkakus, assuming that the more hardline policies such as the stationing of the SDF of the islands, as proposed by Ishihara Shintaro, are not entertained. If more hard-line ‘nationalist’ elements in the CCP, or in the PLA in particular, take advantage of the more permissive pre-leadership transition political environment and move to escalate the issue then Noda possibly figures that he can make some political capital out of that as well, depending on the nature of the escalation.

The above is perhaps a somewhat cynical reading of the current geopolitical environment and internal politics of various regional actors. There are promising developments such as the potential (日) restarting of trade talks between Japan and the ROK, and Japan’s likely participation in three-way talks on a NE Asia trade bloc with China and the ROK. There may even be some coming together over North Korea and a restart of the six-party talks given China’s increasing displeasure with the DPRK. These will all have great long-term significance if they come to fruition. However in the short-term one should expect tension to be the norm rather than the exception. This coming together of domestic politics and external developments in putting pressure on various governments, which will need to be mediated through sensitive East Asian publics, means that avoidance of such tensions will likely require skillful behind-the-scenes diplomacy until at least early 2013.

Ad-hoc reflections on the meaning of the TPP

The one thing I’ve noticed since arriving in Japan and having reflected on the TV coverage of the TPP discussions and debate, is quite how earnest, and I would argue, over-earnest the debate really is in Japan, notwithstanding the potential future impact on an over-represented voting bloc in Japan.

The fact of the matter is, no one really knows what the TPP is going to be and (from the point of view of the Japanese at least it would seem) its main sponsor, the US itself, may well be the biggest spanner in the works of any eventual TPP deal that even half way meets the expectations originally articulated in regards to this “high quality” trade and investment agreement.

The one thing we have to remember is that while the US is committed to a certain kind of a liberal trade order, it has a pretty chequered history in regards to its commitment to the liberal political and trade order in general. There are a number of nations involved (including the one from which this author comes) that are extremely sceptical about any deal eventually negotiated by any American administration, and given that the 60 vote necessity in the Senate now almost appears semi-constitutional, these nations will be even more sceptical going forward.

The additional problem that some countries will have is that they will in trying to meet US requirements potentially risk aggravating some of their own key political constituencies while possibly getting nothing much in return. In New Zealand for example any proposed changes to the government procurement systems in health, and IP laws (which will only advantage US companies – something which came up pretty quickly in the debate in NZ) which the US is pushing for through the TPP, will be looked upon quite suspiciously. In fact the very popular government in New Zealand was not willing to risk even a little bit of political capital on this and ruled out any fundamental changes to the Pharmac model due to TPP negotiations, without a single bit of discussion. If a popular government is unlikely to give the US what it wants, it is going to be a considerably harder road for other nations – including Australia and Japan, whose domestic political situations are much more precarious.

There is also some suspicion arising among some fellow TPP travellers in regards to the US’ primary motives toward accession to the TPP. The original P4 countries (which involved New Zealand and hence why a pesky little non-important country genuinely committed to free trade like NZ cannot be brushed away in the discussions) that are at the “core” of the TPP, and not a few of the 5 negotiating to join are somewhat concerned about just how eager the US became toward the TPP in 2010 in particular. In fact top Australian and New Zealand political figures concerned at some of the external rhetoric floating around the TPP in Washington have had to communicate to key figures supporting the TPP  in no uncertain terms that the moment they (NZ and Australia – and likely Malaysia and Singapore wouldn’t be far behind in echoing the sentiment) smell a China containment policy, they are gone from the negotiations.

After all Australia had to sign a FTA with the US which did not go anywhere near as far in liberalizing the US agricultural market as hoped by the Australians, and due to the same range of interests and stakeholders a NZ-US FTA has not been a realistic consideration. Perhaps these comments are unfair and that the Obama administration in particular is more genuine. But in terms of US commitment to trade liberalization when it doesn’t suit them – well I guess many of these nations will believe it when they see it.

That is not to say that the TPP is a dead duck or negotiations are of  no value. In the short-term it could do good things in terms of clarifying rules of origins, procedures for trade remedies, and may even be a useful mitigating dynamic pushing back against tendencies towards protectionism that some are predicting will arise in the next year or two. However on the trade front – the most important front for most of the nations involved – this is likely to take a very long time and it is unlikely any deal – at least one as high in quality as initially desired – will be wrapped up in the space of a few years (unless some kind of security or economic jolt makes it more diplomatically and politically feasible).

What does this mean for Japan? Well first of all Peter Ennis gives a run down on the current inter-personal and diplomatic dynamics between Tokyo and Washington that I have no additional insights to add to. Essentially he argues that Tokyo and Washington, surprise surprise, might well be on different pages in regards to the symbolic and diplomatic dimensions of Japan’s agreeing to start negotiations.

However from my point of view it seems the Noda government’s signalling about the meaning of the TPP is somewhat curious overall. In one, simplistic sense, Japan has little to lose from joining negotiations as it is unlikely to be the only one with baggage coming into the negotiations. It is just more up front and earnest about them. The time scales here are in the order that Japanese agriculture and the government would have ample time to respond to any changes. After all, in the Australia-US FTA the US implementation of the limited amount of agricultural liberalization was somewhat tardy. These sort of dynamics do not appear to have been communicated very well in the Japanese media. In a sense, Kan’s concept of a “third opening” was somewhat of an over-exaggeration to the degree that Kan seemed to be focused solely on the TPP which took on more symbolism than it perhaps deserved.  The TPP could  be very big. But there is a long way to go. I thus found it quite interesting watching one Japanese TV program where it remarked how the production of certain agricultural goods had in the space of 25 years (or so) reduced a number of times over since liberalization. An economy can change quite a lot in 25 years and for the most part, it probably should. I don’t doubt that trade liberalization had something to do with these reductions but little mention was made of the redistribution of capital and labour resources that likely happened in the interim period.

Secondly, there is the question of whether the TPP as important as some of the other developments in global finance and trade. It may or may not have escaped the attention of some that a certain neighbourly competitor (South Korea) has already signed an FTA with Europe, and bilateral agreements with the US and Australia appear to be just around the corner. For the record, South Korea is only somewhat interested in the TPP.

Or perhaps all of the talk around the TPP, as Ennis in more polite terms suggests, a good way to placate the US diplomatically in order to relieve pressure over the Futenma issue? It may also be a valuable way to draw domestic fire away from Japan’s other more interesting trade projects, namely the already signed agreement with India, continued and redoubled efforts with the EU and Australia, and the start of China and South Korea trade discussions.

Japan also fundamentally likely shares concerns about the TPP turning into not just an economic hedge against China but also a full on “anti-Chinese” project. In this sense, the US should be secure enough in its relationship with Japan, and understanding enough of Japan’s own national interests, and recognise that the pursuit of simultaneous trade agreements with key Asian neighbours is actually a very good idea for Japan in terms of how it effects its long-term ability to manage diplomatic, economic and security tensions in East Asia.

Duelling Perspectives

Japan Security Watch has a couple of posts based on a Dispatch Japan article by Peter Ennis, and a piece published by the CSIS under its Japan Chair Platform. These are both on the Futenma problem and have a very different view on recent events and what the issue really is with force realignment. I have provided a response at JSW to the CSIS article here. The originals are here for Peter Ennis, and here for CSIS.