JIN-360 -- The Panglossian World of Japanese Trade Policymakers

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T H E J @ P A N I N C N E W S L E T T E R
Commentary on the Week's Business, Technology and Cultural News
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Issue No. 360
Tuesday March 14, 2006 TOKYO

+++ VIEWPOINT: The Panglossian World of Japanese Trade Policymakers

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+++ VIEWPOINT: The Panglossian World of Japanese Trade Policymakers

The Japanese Government has shifted to a strategy of giving greater
flexibility in the forging of economic partnerships with other countries.
Against the background of a growing number of countries entering Free
Trade Agreements (FTA), the Liberal Democratic Party and business world
are increasingly worried that Japan will lose international
competitiveness if it alone continues to press for comprehensive
Economic Partnership Agreements (EPA).

"Some people compare Japan with China and South Korea, yet they are not
significantly ahead of us in concluding agreements," remarked Shinzo Abe,
Chief Cabinet Secretary, during a press conference on March 7. He tried to
squelch speculation that behind the change of course was a heightened
feeling of competition with China and Korea in the wake of frosty
relations caused by Prime Minister Koizumi's visits to Yasukuni, where
Class A war criminals are enshrined.

China and Korea did beat out Japan in initiating trade
negotiations with ASEAN. The Japanese desire for the swift conclusion
of trade agreements is driven by such factors as the urgency engendered
by the looming presence of a militarily expanding China.

"We need a full-fledged control tower," remarked Yoshio Yatsu, the former
Agriculture Minister and the FTA & EPA Study Committee chairman on the
occasion of his proposing to Koizumi on February 23 the acceleration of
FTA negotiations. His proposal triggered the shift in policy.

With corporate executives worried that Japan is falling behind China,
Korea and India, the business world has accelerated that shift. The Nippon
Keidanren (Japan Business Federation) is tying political donations to
efforts to promote FTA. The LDP, looking ahead to the Upper House election
in 2007, can't afford to ignore the organization's policy.

Japan has concluded EPA with Malaysia, Singapore and Mexico, and is
negotiating agreements with several other countries. But because EPA cover
not only the mutual abolition of tariffs, but also dispute settlement
procedures, the movement of money, and development of a system for
safeguarding intellectual property, their conclusion takes time.
Meanwhile, China, Korea and other countries are rapidly proceeding to
eliminate tariffs, with potential harm to Japanese corporations' exports.

Japanese automakers have established a far-flung system of division of
labor for parts manufacture in Asia and North America. If Japan is tardy
in concluding agreements with countries in those regions, it will have to
pay higher tariffs and find itself locked in fierce competition. Kakutaro
Kitashiro, Chairman of the Keizai Doyukai (Japan Association of Corporate
Executives), remarked during a press conference on March 7 that Japan
was indeed slow in concluding agreements.

But there is a speed bump on the road to faster conclusion of agreements
through a renewed emphasis on FTA. It is agricultural products. Japan
seeks to avoid reducing tariffs on agricultural products while creating an
environment facilitating exports from key industries like electronics and
cars. For Panglossian policymakers, a country can have trade partners
reduce tariffs on its key exports, and keep high tariffs on imports
posing a threat to domestic industries with political clout. But the
reality is that agreements with Japan have little benefit for
farm-commodity exporting countries like China and India. Thus it is
unclear whether Japan can conclude agreements as it wishes.

A change of course at politicians' initiative to FTA and investment pacts
of benefit to Japan alone will likely not be swallowed by partner
countries.

--Burritt Sabin

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EDITOR
Written by Willhemina Wahlin; edited by Burritt Sabin (editors2@japaninc.com)

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