Thursday, March 2, 2017

Japanese Prime Minister Shinzo Abe is nothing if not a skilful pragmatist in handling both domestic and diplomatic issues. Internationally, he is willing to do deals with the devil, including thugs like Putin and Duterte, as long as he achieves what he wants in terms of advancing Japan’s national interests.

Japanese Prime Minister Shinzo Abe is nothing if not a skilful pragmatist in handling both domestic and diplomatic issues. Internationally, he is willing to do deals with the devil, including thugs like Putin and Duterte, as long as he achieves what he wants in terms of advancing Japan’s national interests.

Abe does not believe in ‘moral diplomacy’, an increasingly outmoded concept. He believes in ‘economic cooperation diplomacy’, something that he tried with Putin to uncertain effect on Russia’s return of the Northern Territories (or Southern Kuril Islands) to Japanese sovereignty. He is also trying it on with the Trump administration and it may very well work.

It seems that Abe can look back on the recent summit with Trump as something of an achievement. He has provided the model for dealing with the new US administration that other leaders can only emulate, including Australian Prime Minister Malcolm Turnbull. Abe has effectively restored the status quo ante on US–Japan security relations; he has launched a strong and amicable personal relationship with Trump; and he has dodged Trump’s brickbats for the time being. Abe even managed to politely put forward Japan’s case on cars and the TPP without drawing the ire of the new president.

Above all, Abe fears a return to the ‘Japan-bashing’ of the 1980s when the United States blamed Japan for job losses, trade deficits and the United States’ economic decline, and sought rectification through bilateral negotiations on increased market access, voluntary export controls and other economic concessions from Japan.

But the ledger is not necessarily all pluses. Abe’s domestic critics have accused him of ‘sucking up’ to Trump and have belittled his diplomacy for being subservient to the United States. The really big question of where Japan’s economic and trade relationship with the United States goes from here also remains unanswered.

A Trans-Pacific Partnership (TPP) with the participation of the United States appears to be a lost cause. Still, Japan has made a huge investment in the TPP in terms of both its domestic and foreign economic policies.

The TPP figured prominently in the third arrow of Abenomics — the Abe government’s growth strategy. When the 12 countries participating in the TPP negotiations signed the historic agreement in Auckland in February 2016, Chief Cabinet Secretary Yoshihide Suga blogged, ‘I have always said that the TPP is the “arrow” in the growth strategy with the longest flight duration and will fly the longest distance…The entire government will work on maximising use of the TPP agreement so that it will lead to the growth of the Japanese economy’.

The TPP also had implications for structural reform of the Japanese economy — an integral part of Abenomics — including in areas such as agriculture. Suga linked the TPP directly to the government’s agricultural reform initiatives, stating that the TPP offers ‘great potential for growth’ for Japanese agriculture. Suga pointed to the Abe Cabinet’s efforts to transition from ‘agriculture on the defensive’ to ‘agriculture on the offensive’ and would use the TPP ‘to implement thoroughgoing measures to turn agriculture into [an industry] in which young people can have dreams’. But these hopes have now been dashed.

Since the Abe administration took office in December 2012, it has relied heavily on the first and second arrows of Abenomics — monetary easing and fiscal flexibility, including both stimulus and consolidation — in attempting to restore the Japanese economy to growth. On the other hand, it has not scored much in terms of the third arrow, or growth strategy, and much remains to be done.

Having lost the TPP as the centrepiece of its growth strategy and a tailwind for agricultural reform, the government is still touting agriculture as an industry with strong growth potential, particularly in exports. But to realise this potential, the sector needs structural reform. Most recently, the Abe government has turned its attention to Zen-Noh, the mammoth agricultural cooperative marketing and purchasing federation with an annual turnover of approximately 5 trillion yen (US $44.55 billion).

Zen-Noh is ripe for reform. Instead of exploiting economies of scale to sell production materials to farmers at cheap prices, it has been selling at high prices because the commission fees it charges on these sales constitute its main source of revenue and pay the wages of its staff. In short, Zen-Noh lives off the back of farmers. The latter also bear the risk in Zen-Noh’s consignment-based marketing practices.

The Abe government wants to reform Zen-Noh because its monopolistic ‘high cost and low sales’ are a hindrance to increasing farmers’ income. Abe has even gone as far as to argue that ‘Zen-Noh reform is the touchstone of structural reform of agriculture’.

Discussions on Zen-Noh reform shifted into full swing with a radical proposal coming from the government’s Regulatory Reform Promotion Council in November 2016. But there was tremendous push back from the usual suspects — the Liberal Democratic Party’s rural politicians, including the powerful ‘agricultural tribe’ (norin zoku), from Zen-Noh itself and from JA-Zenchu, the peak organisation of agricultural cooperatives. The election of Trump, who was advocating withdrawal from the TPP, also made it easier for opinions opposing reform to gain momentum.

In the end, it was left to Zen-Noh to engage in a process of self-reform that would be regularly checked by the government and the Liberal Democratic Party — a complete gutting of the original reform proposals.

Going forward, the biggest concern for Japan’s farm lobby and agricultural politicians is the prospect, once more, of strong US gaiatsu (external pressure) on the issue of agricultural market access in possible free trade agreement negotiations with the Trump administration.

Aurelia George Mulgan is a Professor in the School of Humanities and Social Sciences at the University of New South Wales, Canberra.


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