TT-604 -- Why Japan Needs the TPP Trade Pact, e-biz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, March 06, 2011, Issue No. 604

+++ INDEX

- What's New -- Why Japan Needs the TPP Trade Pact
- News -- 'Wahaha', More than Just a Chinese Yoghurt Joke
- Candidate Roundup/Vacancies
- Upcoming Events
- Corrections/Feedback -- English lessons with Philippines
- News Credits

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+++ WHAT'S NEW

In 2011 we may see a historic opening up of the Japanese
domestic market to agricultural imports, via the
Trans-Pacific Partnership free trade pact, more commonly
known as TPP. PM Naoto Kan shocked many conservatives in
October last year when he announced that his government
would bring Japan into the TPP discussions as early as this
year (2011), making a final decision about whether to join
the framework by June.

In making this announcement Kan was effectively attacking
the farming political bloc, who have scuttled every other
attempt over the last 30 years to open up Japan's
agricultural sector to foreign competition. He is doing
this because unlike the past, when the only issue at stake
was high consumer prices -- and no one really cares about
the consumers -- the problem is now that the bilateral nature
of TPP may effectively give competing countries a huge
price advantage over Japanese firms in autos, electronics,
and other traditional export sectors.

From what we can see, Kan appears to be staking his
political future into making TPP happen, and is really
digging in his heels despite demonstrations by farming
groups and remonstrations by Farm Ministry officials. Short
of losing a no-confidence motion, he appears ready to tough
it out and get Japan signed up. Kan certainly has a sense
of history in his mission, stating shortly after his
re-election over Ozawa last September that TPP is like "the
third kaikoku (opening of Japan to the outside world),
following the Meiji Restoration (of 1868) and defeat in
World War II."

So what is the TPP and is it really a significant event?

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[...Article continues]

The pact actually started way back in 1983, as an agreement
between Asia's only two native English-speaking countries,
Australia and New Zealand, as a sort of recognition that
the two were close enough that they could almost be one
country never mind the friendly competitiveness and the
sheep jokes...

Fast forward to 2000, and NZ, Singapore, the USA, Vietnam,
and some other countries around the pacific rim started to
sign free trade pacts with each other, leading to four of
those countries forming the current TPP network between
2006 and 2009. The four are: Brunei, Chile, New Zealand,
and Singapore. Advanced negotiations happening to bring in
Australia, Malaysia, Peru, the United States and Vietnam.

What is interesting is that those 9 countries account for
about 28% of nominal global GDP and 26% of Japan's total
exports by volume. So involvement with the TPP is an
obvious trade retention exercise -- in that it provides
Japan with an inside track to defend exports against the
predations of competitors who are moving on their own FTAs
with individual TPP members, most notably the USA.

Indeed, it is one particular such competitor, South Korea,
that most appears to be prodding Japan into action.

The fact is that Korea over the last ten years has whipped
Japan's a** in home electronics, semiconductors,
automobiles, clothing, and a variety of other sectors,
partly due to the devaluation of its currency, but also
partly because the government there was quick to realize
that to survive they had to open up, get rid of damaging
protectionism, and excel only in the industries that they
chose to put their minds to.

Thus it was that in 2003 Seoul put into place an Free Trade
Agreement (FTA) "road map" that caused it to start
aggressively negotiating non-tariff access to other markets
in return for access to its own. As a result, the nation
already has a US FTA, although not yet ratified, and will
see a European Union (EU) FTA go into effect from this
June. Eventually Korea expects to have around 90% of its
exports being tariff-free.

As an example of the impact this will have on Japan, take
LCD TVs. Right now Samsung makes LCD TVs which are
technically as good as Sony, Sharp, and other Japanese
brands and offers a price just 5%-10% less than the more
Japanese famous brands. However, shortly, Samsung's sales
in the EU will be free of 10% tariffs. This effectively
will make Samsung products hundreds of euros cheaper than
their Japanese competitors and the results on Japanese
exporters will be obvious.

Adding further pressure on the Japanese government is the
fact that the USA is expected to join the TPP before it
hosts the next APEC conference in Honolulu in November this
year. For the USA to be part of TPP, along with the Koreans
and their soon-to-be-active FTA, means that once again,
Japan's products will be tariffed while their competitors
have open access to the US market. That plus the ongoing
high yen rates could be disastrous.

Keidanren, the Japan Business Federation, is clearly very
worried about the implications of TPP, and is pushing the
government to move as quickly as possible to join the pact.
It says that TPP, combined with proposed corporate tax
cuts, will keep manufacturing in Japan and reverse the
current hollowing out. They also say that domestic capital
investment will rise about 60% over the next 10 years. The
Trade Ministry (METI) likewise says that not being in TPP
will severely hurt exports of autos, machinery, and
electronics and push down GDP in 2020 by JPY10.5trn,
causing more than 800,000 jobs to be lost.

Thus, while it is obvious that Japan should be part of the
TPP for the sake of its major exporters, why is it that the
Japanese are dragging their feet?

The answer is the nation's conservatives, who have long
used farmers as a symbol of traditional core values and
something to be preserved at all costs. They say that TPP
will lead to the loss of Japanese cultural heritage if the
farming sector is fully exposed to the ravages of
international competition. Although bewildering to a
non-Japanese, the elevation of agriculture and farming to
something almost sacred is a tactic that has worked in the
past, as is obvious from the lop-sided representation
of sparsely populated farming electorates in parliament and
the 700% price supports for rice. But as Kan's government
has been saying, now is the time to stop protecting just
1.5% of the economy, for the sake of the health of much
bigger sectors such as manufacturing and financial
services.

It is our take that farming will not be damaged to the
extent that the conservatives make out. Recent trends in
Grown-in-Japan fruit, veges, and rice exports to Asia have
gone to show that Japanese produce can get the high prices
needed, in return for promising unyielding quality in taste
and health. Evidence of this re-pricing working can even be
found here in Japan. Because of the various food scandals
associated with China, Japanese housewives now willingly
pay JPY200 for a solitary clump of garlic or ginger than
JPY150 for a whole bag of the Chinese-sourced product. The
farming sector just needs to understand how to market
better, and they can make a killing through exports and
value-added domestic sales, rather than fighting over a
shrinking local market.

What's more, the whole farming sector is in dire crisis
anyway -- so what is being defended here? Basically
some idealized embedded in a bureaucrats imagination?
The average age of farmers is in their late 60's, well past
the point where they are physically capable of peak
output, and many of the nation's farms are lying fallow
because there is no one to work them. In fact, we have
two separate non-farming friends (one is a foreigner) who
have been able to buy up fallow land at ridiculously
cheap prices, simply because it was designated farming
only and they have pledged to farm it -- even if only
part-time.

We believe that TPP will be the catalyst for some really
major change for Japan, just as Kan predicts, and is an
opportunity not to be missed. While the media speculate
that Kan's government will fall any day soon, we sincerely
hope that the PM's famous stubborness wins out at least
until the end of the year, and that he gets Japan on track
for the TPP. Japan needs the gaiatsu to get itself back on
track internationally and to flush out the internal decay
brought on by its many self-interested political groups.

...The information janitors/

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+++ NEWS

- JA tries to fend off TPP with new collectives
- Radio media ownership rules change
- China firm to buy out yoghurt maker?
- Marc Faber talks up Japan
- 25% increase in suicides over youth joblessness

-> JA tries to fend off TPP with new collectives

Small minds miss the point, and Japan's agricultural
cooperative, JA-Zenchu, has a collective mind which is
smaller than most. Threatened by the government's intent to
join the TPP pact, JA is saying that a better target is to
upsize the nation's many tiny farm plots into larger
tracts, to make them more efficient. Currently the average
farm plot is 1.27 hectares, whereas the JA proposal is to
"collectivize" those plots into larger farms of 20-30
hectares. ***Ed: How this will work and why it will be
better for Japan than the TPP is not spelled out, but
somehow JA thinks it will help improve agricultural output.
Instead, what we can see it as yet another level of
bureaucracy, which will lower feelings of commitment by
farmers, and most likely lead to even more inefficiency
than is the case now...** (Source: TT commentary from
e.nikkei.com, Mar 5, 2011)

http://e.nikkei.com/e/ac/tnks/Nni20110304D04JFA27.htm

-> Radio media ownership rules change

Just goes to show that the bureaucrats know how to be
flexible when the writing is on the wall. Apparently the
Ministry of Internal Affairs and Communications will from
late June allow any single company to own up to four radio
stations, rather than a single station as is now the case.
The relaxation of the media ownership rule has come about
because many of the nation's radio stations are in severe
financial condition and need rehabilitation or they will
go under. (Source: TT commentary from e.nikkei.com, Mar 4,
2011)

http://e.nikkei.com/e/ac/tnks/Nni20110304D04JF519.htm

-> China firm to buy out yoghurt maker?

The chairman of the improbably-named Wahaha group, a person
who also happens to be China's richest person, says that
the group is considering buying a "Japanese yoghurt maker"
without saying which one. Wahaha controls about 9.7% of the
Chinese dairy products market and is the third largest
player in that sector. Apparently the Wahaha boss likes
Japanese food know-how and product taste and wants to use
the acquisition to boost market share in China. ***Ed: One
hopes that the target Japanese firm has done its homework
on Wahaha. The company just settled a court battle with
Danone over charges that they took products owned by a
j/v with Danone and sold them through their own private
network. This may not be a partner the Japanese want to
have on their side.** (Source: TT commentary from
bloomberg.com, Mar 6, 2011)

http://bloom.bg/eXybT0

-> Marc Faber talks up Japan

Well-known HK investor, Marc Faber, has commented at a
conference in Tokyo that Japan stocks are looking very
favorable over the next ten years. His rationale is
interesting. He says that because public debt is so high,
the government will be forced to "print money" to monetize
the debt. In doing this, it will cause the yen to fall,
boost earnings for exporters, and consequently boost
stocks. (Source: TT commentary from barrons.com, Mar 4,
2011)

http://bit.ly/e5KTML

-> 25% increase in suicides over youth joblessness

One of the terrible fall-outs of the global job squeeze is
the increased number of young people in their twenties who
commit suicide after failing to cope with the feelings of
inadequacy and depression. According to police statistics,
there was a 25% increase in the number of suicides, up to
153 deaths, of young people after failing to find a job. On
a slightly more positive note, the overall number of
suicides in Japan dropped for the first time in nine years,
to below 32,000. (Source: TT commentary from reuters.com,
Mar 3, 2011)

http://reut.rs/gXVs61

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors@terrie.com.

*** In TT603, we covered an item about a Japanese company
selling video conferenced English lessons with teachers in
the Philippines for just JPY100 for 20 minutes. That
company is growing gangbusters.

=> Our reader comments:

Regarding your quote: "Our guess is that retirees in the
USA and elsewhere will wind up being the most popular
online English teaching providers." Well, you should
know that the minimum wage in California is $8.00 per HOUR
while the minimum wage in Cebu, Philippines is $6.50 per
DAY. Put another way, one can hire college-educated,
bilingual staff for this $6.50 daily wage and as a result
the Philippines surpassed India in 2010 to become the #1
call center nation in the world.

A Japanese English-language student can speak with a young
Filipina/Filipino about shared interests, including
American music, J-Pop, K-Pop, etc. You guys may bet on
American retirees being in demand for this work, but I'll
bet on the Filipinos!

I agree that the openness of some Filipinas may lead to
sexually explicit discussion and probably makes them even
more in demand. But the call centers here are mostly very
professionally run, and any significant local call center
is not going to allow their staff to do sexually explicit
things on a call.

=> We respond:

Thanks for the excellent feedback. Clearly trans-border
language lessons are the wave of the future. Why did we
mention American retirees? Although we didn't go into
detail, they are more likely to have the relevant work
experience and technical experience that company employees
need to practice. We think that young Filipinos will be
more attractive to casual and home learners.

Also, there is no minimum wage if the parties participate
in an open language-matching marketplace. This is already
a proven fact for the translation business, with sites such
as Proz.com. English teaching won't be far behind.

***********************************************************
END

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