Sunday, January 29, 2012

Another Big Noodle - East Asian trade

CLEARLY the Japanese government does not think it has too much on its plate trying to secure support at home and abroad for its plan to join the Trans-Pacific Partnership (TPP), the America-led free-trade zone. According to Motohisa Furukawa, minister for national policy, Japan’s decision to prepare the ground for TPP entry has stoked China’s interest in a trilateral free-trade agreement with Japan and South Korea. In the past, he observed to The Economist on January 24th, discussions on the issue with China had never progressed very far. “Now they’ve [the Chinese] become very positive.” Japan, too, seems eager. Asked whether the TPP or rather a trilateral East Asian FTA would be the priority for Japan, he simply said: “whichever is the quickest.”

He didn’t mention South Korea, whose government remains preoccupied by historical grievances with Japan and appears keener on pursuing a bilateral FTA with China—perhaps worried that a trilateral deal might boost its already high trade deficit with Japan. But Mr Furukawa said the milestone to watch out for was an investment treaty between Japan, China and South Korea, which is expected to be signed shortly. “That will be the trigger for a fully-fledged discussion.”

Other government officials, too, put high store by the investment treaty, which would be one of the first formal frameworks to connect the three countries. One enthusiastically equated it to the European Coal and Steel Community, out of which the European Union grew. Hyperbole aside, it is clear that a trilateral FTA would not set out to be as rigorously all-encompassing as the TPP talks—which may make it easier to achieve. From Japan’s perspective, the threat of a flood of cheap goods from China is partially mitigated by rising labour costs in its neighbour’s booming economy. The possibility of creating a trilateral FTA might also attract the European Union toward free-trade talks with Japan.

For all the complications for Japan that would come from negotiating two huge trade treaties at once, there is one very positive aspect. It is becoming increasingly clear that efforts to forge a TPP are not isolating China; instead they are coaxing it towards more open trade, even if this remains of the “noodle bowl” variety of Asian FTAs, rather than an over-arching Asian-Pacific agreement. Mr Furukawa noted that one of the main benefits to Japan in joining efforts to expand regional free trade is that it will be able to help set the rules of global trade and investment. If China, too, takes part, such rules would become far more meaningful.

There is still a big question about whether Japan can live up to such ideals, however. It is not clear that the prime minister, Yoshihiko Noda, can persuade ordinary voters that free trade is in their interest. Richard Katz wrote a report in The Oriental Economist (no relation) this week saying that both the Noda and Obama administrations are trying hard to get a “yes” on Japan’s TPP participation. But he said there remain serious doubts in America. “The big fear in both government and business circles is that the strong opposition from Japan’s politically powerful farming sector would make it impossible for Japan to sign off on the sort of agreement that the US and some of the other participants would like to see.”

Japanese farmers might reckon they have just as much reason to oppose a free-trade deal with China and South Korea, too.

By Banyan for The Economist

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