Earlier this week, the Nikkei Asian Review published At odds with US, Japan reaches out to other TPP partners. The title would lead you to believe Japan is working with other countries to strengthen opposition to the toxic, mislabeled trade deal known as the TransPacific Partnership.
The text of the article suggests otherwise, that Japan’s prime minister Abe will feel compelled to offer some concessions when Obama visits next month. On the surface, that would represent a significant shift. Readers may recall that our Japan-savvy commentor Clive parsed an article last December in Japanese from Fisco, which made clear that the Japanese doubted the deal would get done, and was extremely pointed by Japanese standards in saying that the US was refusing to negotiate on tariffs (and on other matters).
Agricultural tariffs are a big deal in Japan. The island nation has high tariffs, famously for beef and rice, and farmers are a important voting block. And tariffs are not resented domestically. Japanese prefer to eat and buy Japanese, and are generally leery of the quality of foreign products (and after America’s experience with the crapification of pretty much everything, they’ve got good reason to be concerned, even after allowing for the occasional product quality scandal).
The Nikkei article explains the current state of play: the Japanese had hoped to conclude other bi-lateral trade deals with countries like Australia and New Zealand on the heels of wrapping up the TPP. But now that that looks to be in doubt, Japan is trying to ramp up talks on these stalled trade pacts (for instance the deal with Australia has been in the works since 2006). Here are the key bits of the Nikkei piece:
But U.S. Trade Representative Michael Froman has insisted that Japan must end all of its import duties. On the sidelines of a ministerial conference last month in Singapore, Akira Amari, Japan’s economic policy minister, tried to persuade Froman to agree to some exceptions. But the two sides remained divided…
To be in a better position to protect its five priority areas — rice, wheat, beef and pork, dairy products and sugar — Tokyo aims to wrap up negotiations with Australia and other TPP participants by the time Obama touches down.
Japan will send negotiators to Mexico, New Zealand, Singapore and other countries this month. All of them are likely to make uncomfortable demands for tariff elimination — Mexico on pork, New Zealand on dairy products, and Singapore on chocolate. Japan will not agree to drop these tariffs but will consider lowering them.
The Abe government, however, has little time to sell this deal before Obama’s visit. Moreover, Japanese farmers will fight even tariff reductions. Some LDP lawmakers fear this approach could run afoul of a parliamentary committee resolution promising to defend the five priority areas. Officials at the agriculture ministry are also wary. Support for exposing the farm sector to greater foreign competition is far from rock solid within Abe’s party or government.
In fact, this does not sound like anything could possibly get resolved with any of Japan’s trade partners before Obama arrives, meaning this is all a big exercise in looking like Japan is making vigilant efforts (the Japanese are masters of pretending to cooperate by doing 40% of what you asked them to do slowly).
I pinged Clive, who has the considerable advantage of being able to read the original article in Japanese. His take:
My reaction on reading both versions was “it’s good to know that the traditional art of Kabuki is not only alive and well, but thriving in Japan”. In order to unpack that statement, one has to think about the Japanese obsession – and obsession it is, they don’t put it on just for the benefit of foreigners – with saving face. They really don’t want to have Obama visit and to be put on the naughty step over TPP. So they will feel compelled to be at least seen to be doing something.
This desire, though, will be set against hard political reality. In Japanese there’s a word 根回し (nemawashi) which roughly translates to “doing the groundwork”. No-one — not even company presidents or prime ministers – gets to simply dictate decisions. Consensus is important and everything is mired in a cycle of give-and-take, you scratch my back and I’ll scratch yours. When the article concludes “The Abe government, however, has little time to sell this deal before Obama’s visit” it means that the essential nemawashi has either not even been started or barely begun. For Abe to demand tariff reductions be accepted both to the LDP and the civil service would be like me marching up to you and demanding $10. It would be, in Japanese culture, the epitome of cack-handed rudeness and disrespect. The political equivalent of farting in an elevator.
That all said, it would seem that Japan might be willing to concede tariff reductions. But not tariff eliminations. Which brings me back to the Kabuki. A reduction of, say, 5% in a tariff is undeniably a reduction. But hardly a material one. Which is I think why Japan is so keen to be giving the impression of negotiating, but only negotiating on the reduction level of a tariff but not the removal. It would enable the classic Japanese negotiating tactics of either giving a trivial concession, or appearing to discuss a more significant concession but dragging out the details ad infinitum. The problem I think they have with tariff removal is that it’s a binary thing. You either have them or you don’t. So no potential there for gamesmanship.
There’s also a marvellous example of Japanese duplicity going on (shortform version: Why beef? Why Australia? Out of all the TPP issues, why that one? Put quickly, it’s a hot-button issue for the Japanese public so I don’t think it is entirely coincidental that it is being dredged up here and now).
One bit about nemawashi: it’s generally presented in the Western media as “consensus building” which implies it’s a nice process. It’s anything but that. Every party that has a legitimate interest must be consulted or they have the right to sabotage the result. You get lots of bitching and protracted horse trading.
So in other words, expect to hear the Trade Representative’s office to bray that considerable progress was made on the TPP as a result of Obama’s visit. Remember, in negotiating, the impression that progress is being made is critical. But anyone who has been following this beat and isn’t in the can for the Administration is certain to tell you otherwise.
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Thanks Yves for another fascinating piece. It would be nice if the Japanese nemawashi’d the TPP right into the ground.
aww yeah!
My thanks too, Yves, for Clive’s comments. I’ve gotten more insight into understanding how Japanese culture “works” from his (all too few) posting than more years and book-reading I’d like to admit to.
Could somenone knowledgeable on the issue analyse the impact that TPP could have on beef trade, particularly on the kobe beef production and trade?
Hi Ignacio, thanks for giving me a prompt here, I wanted to flesh out a point which I only covered briefly above due to time constraints.
Meat, specifically here beef, is a huge issue for Japan. Both economically and, for want of a better word, “culturally”.
Roughly half of Japan’s beef consumption is satisfied by imports. Japan’s government is constantly juggling domestic demand, imports, pricing and protection of indigenous suppliers. It is a difficult balancing act. Any sudden movements (like the TPP which would be akin to letting in a gorilla to stomp around the room) and the whole system would be in thrown into chaos for both Japanese consumers and producers.
Australia is the biggest exporter of beef (http://www.mla.com.au/Prices-and-markets/Overseas-markets/Japan) despite a punishing 38.5% tariff. And even that tariff isn’t the end of it, there’s an anti-dumping / market “protection” clause which permits this to be increased to 50% in some circumstances.
Normally you’d expect the US, with its industrialised beef production and very high efficiency in this area to dominate. But the low showing of US beef imports into Japan is a legacy of a short-lived BSE infection outbreak which pretty much ended the US export market into Japan at the time (http://en.wikipedia.org/wiki/US_beef_imports_in_Japan). Even nearly 10 years later, it is only slowly recovering.
On top of that little milieu, there’s the domestic beef production in Japan angle. Without tariffs to protect it from Australian imports and the ability to curtail US imports on health/food safety grounds, it wouldn’t stand a chance. To call it sub-scale is putting it nicely. Literally, it’s often some guy with a few dozen cattle. Texan agri-business would make, if you’ll forgive the pun, mincemeat out of them.
This is the main concern for Japan around beef. Without the tariff protection it would be steamrollered by Australian or US imports. And, while I can’t say I share the conclusion of the analysis and certainly understand why people — real, live people, not pseudo-lab rats — are sceptical, there really isn’t any scientific basis for the continuing restrictions on US beef exports. You can’t see Japan’s current US beef import restrictions lasting more than about 5 minutes once any TPP “trade court” starts making it’s rulings.
And the Japanese attitude to food is like nothing I’ve ever encountered anywhere else. Even in France or Italy. I won’t pretend to even be able to scratch the surface of the underlying belief systems which the Japanese tend to have when viewed as a culture as a whole, that would be to insult the Japanese people because a) I wouldn’t be able to do the subject justice and b) it would inevitably come across as belittling or dismissive (it’s very hard to describe a culture that you’re not really part of, from the outside, without being naïve). Suffice to say, food sourcing, food quality, the food supply chain, food in general, is viewed from what I can tell by the Japanese in a different way than western culture views it. Food is, in Japan, revered. That’s no exaggeration. Compared to the attitude of us Brits, where, as a rule, we’ll eat any old cr*p, it’s startling.
It never ceases to amaze me how dumb economists are, trying to stuff us all into their neat little “rational actor” boxes. Such a mentality is writ large over the whole TPP negotiations. If the US had an ounce of intelligence, it would at least begin to appreciate how when it comes to Japan and, as discussed here, beef, it really is playing with fire. The dynamic they’re seeking to tamper with is a million miles from “rational”. No wonder the Japanese are resorting to their traditional tools to scupper it. I hope for their sakes they succeed.
Clive is sparing us some of the hysterical excuses made by Japan for not importing American beef in the 1980s (I assume the Japanese just ate less beef back then, since the country had an even lower level of agricultural imports then than now), including my personal favorite: that Japanese colons were different and couldn’t digest American beef.
I traveled to Asia on business in the mid-1980s, and, from what I saw on a particular flight from Sydney to Tokyo, the Japanese satisfied their craving for beef (and hard liquor) by traveling on food-buying “tour groups” to Australia. I almost missed my connecting flight to Osaka because of waiting for my luggage while hundreds of large white boxes of frozen beef and boxes of booze came down the baggage conveyor. The Aussies had it figured out. Lines of Japanese were queued up in the duty-free area of the Sydney airport at special stores that seemed to cater just to Japanese tourists. The boxes were all the same size, so the duty-free purveyors most likely had pre-packaged cartons ready to comply with Japan’s import limits.
I would also agree with Clive about the Japanese reverence for food. I visited one of their food halls (equivalent to our grocery stores) and even the produce section at Whole Foods pales by comparison. Each individual grapefruit, for example, was packaged in a plump netted sleeve to keep it from being bruised. The pastries were the most exquisite confections I’ve ever seen. Also, even back then, the Japanese wouldn’t allow artificial dyes in their food.
Sounds like a waste of packaging. How good is their recycling?
Yes!! I hope that it’s scuppered both for their sake and for our (the American workers’) sake.
Thanks a lot Clive! Excellent response. In Spain we have recently started to import some kobe-beef for sibarites. I didn’t try it, since it is regrettably expensive. But this fact makes me think that there is a market outside for japanese beef producers as well as they keep standards of excellence. In this case only affluent japanese migth afford to enjoy this, apparently marvelous piece of meat.
… as well as… should be …as long as…
My english is getting worse everyday.
Japan succeeds by failing. It tried to succeed by succeeding in the Nineteen Thirties and Forties, but that didn’t work.
I don’t know anything else about Japan, including that it has a prime minister named Abe. What’s his last name?
Linkoni
A number of years ago I spent several months living with a Japanese man in close quarters on a ship. We discussed our cultures extensively and were both perplexed by each of them. What I took away from these discussions is that the Japanese culture is very very different from ours (America in this case) and drawing conclusions about Japanese based on our values does not work well, or at all usually. Their cultural values are profoundly different from ours and based on a value system alien to our thinking. Thanks Clive for helping to illuminate the trade situation for us.
Japan has thrived because of other countries having open door trade policies. They still have a managed economy and implement many trade (import) barriers to products and services they see in their national interest. Even if there is concessions on tariffs, BoJ will go on the open market to buy up more US treasuries to prop up the dollar against the yen. The US trade deficit will swell even further with Japan.
Hi John — this is an interesting point you raise here.
Japan is protectionist. No if’s or but’s. It operates either outright, overt protectionist policies (like the beef) or covert, far more subtle ones. I could go on about the labyrinthine Japanese system of intermediaries — wholesalers — in distribution. These even managed to thwart ruthless, highly experienced (I would say cut-throat) retailers like Tesco (http://www.bbc.co.uk/news/business-18484159).
But the US too is protectionist. Much less overt but nevertheless still beyond any shadow of a doubt anti-competitive. Where shall I start ? JP Morgan’s cosy government ties. Walmart’s subsidised wages via tax credits and food stamps. The GM and Ford bailout. The Fannie and Freddy bailout. Actually, thinking about it, there’s not even much attempts at pretence any more, it’s pretty shameless. These even managed to thwart ruthless, highly experienced (I would say cut-throat) retailers like Tesco (http://www.bbc.co.uk/news/business-24040346). Stop me if I’m repeating myself here.
Each market (for example here the US and Japan) will — without government intervention — tend towards a local enterprise establishing a monopoly position. A foreign competitor will have to throw money at the operation to dislodge a big embedded established player — and even that is no guarantee of success because local knowledge of the sort that makes a difference between building a business and failing is hard to acquire.
So a government, such as the US although it is by no means unique in this, which is unwilling to curb monopolies — or very big scale businesses — is in effect being protectionist. Perhaps not intentionally (because domestic new entrants are similarly discouraged) but it ends up with the same result.
Now for the radical bit: In my opinion, if that is what sovereign nation states want to do — with the consent of their citizens — then fine, they should be allowed to do that. In fact, I’d go a lot further than that. If big capital (be it Walmart, Goldman, Johnson & Johnson, heck even Disney) gets to start pushing even whole countries around under the auspices of so-called “free trade” then something is very, very rotten. Such moves should be resisted by everyone, everywhere. Right now, Mrs. Tanaka gets to go down to the deli counter and, if she wants to, buy Japanese reared beef. She pays a price for having that choice — the beef she buys, whether domestic or imported costs more. Without the import tariff, there would be no Japanese beef — or a vanishingly small supply at even higher prices. But the hidden cost of the potentially lower prices which would result in the removal of the import tariff is the removal of the choice which currently exists for her today.
And it gets worse. Once Japanese native beef production has been put out of business (apart from a niche supply maybe) it cannot simply be brought back into being again if the situation changes. Japan is then exposed to supply risks, quality risks, currency risks and so on.
There are, then, consequences for citizens of a country which decides whether or not to have protectionist measures. But I would always argue that the decision on whether or not those consequences are worthwhile enduring lies in the hands of those citizens.
We could argue that for some goods and services, let’s take automobiles for example, it really should be a case of the most efficient producer takes all and inefficient local suppliers just have to suck it up. But those decisions must be in the hands of the population of the country concerned. It absolutely should not be gifted to some supra-nationalist “trade court” which can overrule what the people who live in a country want to do.
That is what the TPP will result in, and it stinks.
This is an excellent argument to convince folks, even those who don’t particularly care about labor, public health, or environmental issues, to oppose the TPP. Thanks for making it so well!
I think that protectionism or merchantilism is becoming more and more a general practice all around the world in the crisis aftermath. May be not via tariffs like in Japan, or via exchange manipulation as John indicates. As you note, subsidies constitute a major protectionist mechanism not only in the US, but for instance, in all eurozone countries. In fact, since you cannot manipulate currencies within the eurozone, mercantilistic subsidies are a rule rather than an exception. Those subsidies can be seen as anti-robin hood wealth transfers from households to corporations.
My only tangentially related question is: “Why is the Obama administration so bound and determined to indicate that TPP agreement is just around the corner?” They’ve actually been to the meetings, they have to know just how uninterested most of the players are in most of the parts of treaty. It’s one thing to present a confident face and to use inevitability as a way to get others to agree. But it seems to me that they’re beginning to look delusional rather than confident. Are they SO desperate to kowtow to their corporate masters that they have to appear to have tried to do everything to appease them?
Well, yes they do. They have been hired to do a job, even if the real payoff is deferred. Nobody will be able to say they haven’t tried, and they’ll get the payoff, which is chump change to those doing the paying. All the arguments for free trade are cant. The only problem with tariffs is they raise prices to the domestic population. What they should probably do instead is keep the foreign production out and strictly regulate the domestic production while breaking up important monopolies and doing seven million other things none of which are likely to change anything important.
“Are they SO desperate to kowtow to their corporate masters that they have to appear to have tried to do everything to appease them?”
Yes. They are. One of Obama’s key concerns these days is to make sure that he will be welcome in any golf club in America when he’s done, no matter how hoitty toitty, something Clinton had problems with.
Perhaps also they figure that if they can keep on making the right noises, things will fall into place. It’s the Obama way, great messaging and PR IS the policy.
Also remember the sheepish grin on Barry’s face when he signed the National Defense Authorization Act from a Hawaiian beach on New Year’s Eve.
What if the “consensus building” has already been done — what if the Japanese people are fed up with the fear that all their home-grown food is contaminated with Fukushima radiation?
Then Abe’s poker face would be hiding his all-too eager position of wanting to get rid of all tariffs, so the people can get outside food they might trust.
Of course, officially there is no radiation problem. All is under control.