Brookings: Experts - Mireya Solís

The Containment Fallacy: China and the TPP

Mireya Solís — Fri, 24 May 2013 09:30:00 -0400

In recent commentary for the Financial Times, David Pilling argues that the central objective of the Trans-Pacific Partnership trade negotiations is the exclusion of China. In his view, the desire to build an “anyone but China” club is due both to the perception that China got an easy pass when it joined the WTO and has continued to flaunt international trade and investment rules; and to the articulation of a larger political strategy to marginalize this emerging superpower. Pilling goes on to predict that the TPP will fail to deliver major liberalization as the traditional pattern of shielding sensitive sectors will emerge, and admonishes that only a much diluted trade agreement faces a realistic chance of ratification given the fractured consensus on the new proposed rules. In this rendition, the TPP appears politically myopic and economically irrelevant.

The argument that the TPP is a club that bars Chinese entry is inaccurate and unhelpful. China, like any other APEC economy, has the right to request entry into the TPP. Whether the Chinese leadership will judge TPP membership to be in their country’s national interest and whether TPP members can be persuaded that China is prepared to abide by the negotiated disciplines is a separate matter. But it is important to dispel the notion that the TPP precludes Chinese entry. In fact, this trade agreement scores better than most in incorporating an accession mechanism that has already delivered membership expansion from four to twelve members –now comprising 40% of world GDP. More fundamentally, it is hard to understand why TPP countries would pursue the counter-productive and unfeasible goal of marginalizing China. China sits at the apex of the world economy as it ranks number two in share of world GDP and is at the center of global supply chains. A trade agreement that by fiat sought to defy these fundamental economic realities would be foolhardy indeed. Hence the TPP concept is expansive: it aims to eventually develop an Asia-Pacific wide platform of economic integration, not to draw lines encircling China.

If Chinese exclusion were the selling point of the TPP for countries like Japan, then one would be hard pressed to explain why the Japanese government is concurrently negotiating two major trade agreements with China: a trilateral FTA in Northeast Asia and an East Asian trade agreement known as the Regional Comprehensive Economic Partnership (RCEP). And the same is true for all other Asian countries in the TPP who already partake in the ASEAN-China FTA and are participating in the RCEP talks. The “us versus them” dynamic of security alliances is not really applicable to free trade agreements. The noodle bowl that characterizes the maze of FTAs illustrates the fact that in the world of international trade overlapping memberships render moot purely exclusive arrangements.

Ascribing an anti-China objective to the TPP is not helpful on three main fronts: 1) it provides political cover to protectionist interests, who argue that they should not be asked to undertake painful economic adjustments for the sake of trade agreements driven by geopolitical concerns; 2) it sends a chilling message to prospective members, who may fear that in joining TPP they will be seen as enlisted in the anti-China camp; and 3) it will discourage China from finding points of convergence with the TPP agenda if this is seen as capitulating to an American strategy of containment.

The most fundamental challenge to the TPP project vis-à-vis China is not that it is built around a faulty notion of containment, but rather that it may not constitute a powerful enough enticement to propel China to sign on to these new standards on trade and investment. China so far has reacted by accelerating its own trade initiatives in Asia. The risk that the United States and China will remain for the foreseeable future in separate trade groupings, without a significant bilateral dialogue on trade and investment, is very real. TPP negotiators cannot postpone the task of fashioning a strategy to engage China until after the TPP agreement is completed. They must be mindful of the fact that rules must be evaluated both in terms of their quality and dissemination potential. China must see in the new trade agenda a deal not unlike its accession to the WTO: while hefty commitments are to be expected, the accompanying domestic reforms will pay off handsomely in terms of improved economic performance.

Authors

Mireya Solís

Image Source: © Bobby Yip / Reuters

Mitigating Natural Disasters, Promoting Development: The Sendai Dialogue and Disaster Risk Management in Asia

Fri, 10 May 2013 10:00:00 -0400

Event Information

May 10, 2013
10:00 AM - 5:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

The Tōhoku earthquake and tsunami of March 11, 2011 (3/11) had both immediate and long-term consequences. Over 20,000 people lost their lives in the triple disaster, hundreds of thousands were displaced and the economic costs were the highest ever to result from a natural disaster. Since the disaster, however, both Japan and the international community have sought to learn from this tragedy by drawing lessons for preventing, responding to, and rebuilding after natural disasters. Specifically, the Government of Japan and the World Bank launched the Sendai Dialogue in October 2012 as a way to re-conceptualize the role of disaster risk management (DRM) in development strategies, emphasizing the importance of building resilience against natural disasters.

On May 10, the Center for Northeast Asian Policy Studies and the Brookings-LSE Project on Internal Displacement co-hosted a discussion featuring experts on natural disasters and disaster risk management from the United States and Asia. Panelists representing the private, public, and international sectors sought to refine some of the topics considered at the Sendai Dialogue. They identified the lessons learned from 3/11; how these lessons can be applied to overseas economic assistance programs, focusing on DRM; the specific challenges of disaster risk management among Asian countries; and how DRM can be integrated and mainstreamed into development assistance across different platforms.

Audio

Transcript

Uncorrected Transcript (.pdf)

Event Materials

Economic Growth, Energy, and Economic Partnership: Japan’s Current Obstacles and New Opportunities

Fri, 03 May 2013 15:00:00 -0400

Event Information

May 3, 2013
3:00 PM - 3:50 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

In the four months since Prime Minister Shinzo Abe was inaugurated in Japan, his Cabinet has pushed forward in rapid succession an unprecedented series of potentially transformational economic policies. On May 3, the Center for Northeast Asian Policy Studies (CNAPS) at Brookings hosted an address by H.E. Toshimitsu Motegi, minister of economy, trade and industry of Japan.

In his address, Minister Motegi described the steps necessary for Japan to continue to move forward. He touched on Japan's growth strategy, membership in the Trans-Pacific Partnership (TPP) and energy policy.

Richard Bush, senior fellow and director of CNAPS, provided a brief introduction. Brookings Senior Fellow Mireya Solís, the Philip Knight Chair in Japan Studies, moderated the discussion.

Event Materials

Japan’s Big Bet on the Trans-Pacific Partnership: The TPP Nations Should Reciprocate

Mireya Solís — Mon, 25 Mar 2013 14:24:00 -0400

Prime Minister Shinzo Abe announced on March 15th Japan’s bid to enter the Trans-Pacific Partnership (TPP) trade talks. Pending approval by TPP countries, Japan’s participation in this ambitious trade negotiation with 11 other Asia-Pacific nations is a game changer, and one with very positive payoffs for both Japan and the United States.

For Japan, TPP participation puts aside the concern that the third largest economy in the world will play a marginal role in international trade negotiations. Moreover, by providing a focal point for the deregulation and competitiveness measures that Japan’s economy sorely needs, it helps realize the single most important component of Prime Minister Abe’s economic strategy: structural reform.

For the United States, Japan’s TPP membership dramatically increases the economic significance of this agreement, paves the way to build a genuinely Asia-Pacific platform for economic integration by enlisting a major economy in the region (and creating incentives for other countries to follow), and boosts its efforts in the negotiation table in the rules area of the agreement as the United States and Japan share views on disciplines for investment protection and intellectual property, among others.

If TPP participation is a win-win for both countries, why is Japan coming on board so late in the game? For over two years, successive administrations of the Democratic Party of Japan (DPJ) were unable to decide on Japan’s TPP participation given the determined opposition of the agricultural lobby; the campaign to scare the Japanese public (with alarmist charges that the TPP would undermine Japan’s national health care system, the safety of the food supply, and would lead to massive immigration of unskilled foreign workers); a divided parliament, and the lack of party cohesion on this issue. When the Liberal Democratic Party took the reins of government earlier this year, the prospects of moving on the TPP front prior to the Upper House summer election seemed slim, as the LDP’s landslide electoral victory depended heavily on the agricultural vote and the anti-TPP party caucus gathered close to half of its parliamentarians.

Why, then, has PM Abe thus surprised us by acting before the July elections? A number of factors explain the bet of Prime Minister Abe that TPP membership now will not bring an electoral debacle. One, his high approval ratings -product of his focus on economic revitalization- gives him some immunity from TPP foes. Two, the electoral dominance of the LDP (with the decimation of the DPJ last election) has left the agricultural lobby bereft of a large national party that can champion its anti-TPP crusade. Three, LDP party members are less tempted to defect when they expect the Abe government to finally break the cycle of one-year prime ministerships. Fourth, the carefully worded Obama-Abe statement of the February summit (that all goods are subject to negotiation, but the results of tariff elimination are not pre-ordained, and that both Japan and the United States have sensitive sectors), allowed Prime Minister Abe to make the case that TPP participation will not break its party’s stance of rejecting full tariff elimination as a precondition for TPP participation.

Many voices in the LDP are not convinced that the odds of this bet are good, hence the party has demanded continued protection for five agricultural commodities: rice, wheat, sugar, dairy and beef. These “five fingers” guarantee that there will be a ratification showdown down the road, as TPP partners will not agree to such wide ranging sectoral carve-outs. Prime Minister Abe’s announcement is hence a huge step, but only the first of many that will be required to ensure Japan’s meaningful participation in the Trans-Pacific trade talks. Two essential tasks come to mind. One, it is necessary to revamp Japan’s trade negotiation structure. Japan is coming late to the TPP talks, will need to hit the ground running, and its past negotiation style of sending scores of negotiators to represent multiple bureaucratic views, will simply not do. The decision a few days ago by the Abe government to establish a TPP secretariat to streamline the coordination of domestic interests and appoint a chief negotiator is, therefore, a very positive development. Second, Japan should learn the lessons from South Korea of narrowing down the range of its defensive interests significantly (in order to achieve tariff liberalization ratios of around 98%) and offering trade adjustment assistance to obtain farmer acquiescence. And the government should move boldly in the area of agricultural modernization with changes in the income compensation program and land transactions, to name a few.

Japan today has placed a big bet that the Trans-Pacific Partnership can help retool its economy to become more open and competitive, and reconfigure its domestic politics by eroding the clout of protectionist forces. These are the right bets to place and the international community should be supportive. It is time for the TPP nations to reciprocate with their own big bet on Japan, one that acknowledges that this is a critical juncture to support the cause of structural reform and market liberalization, and one that benefits them by making the TPP a far more significant trade agreement.

Authors

Mireya Solís

Image Source: © Toru Hanai / Reuters

What Lies Ahead for Japan and the United States

Fri, 22 Mar 2013 14:00:00 -0400

Event Information

March 22, 2013
2:00 PM - 3:00 PM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

An Address by H.E. Kenichiro Sasae, Ambassador of Japan to the United States

During Prime Minister Shinzo Abe’s recent visit to Washington, DC, he announced that “Japan is back.” Meanwhile, the Obama administration is emphasizing a “rebalancing” of its global posture toward the Asia-Pacific region.

On March 22, the Center for Northeast Asian Policy Studies (CNAPS) at Brookings hosted an address by H.E. Kenichiro Sasae, ambassador of Japan to the United States. Following the productive summit meeting between Prime Minister Abe and President Obama last month, Ambassador Sasae discussed the roles of the two countries in shaping the regional order in East Asia and how they may strengthen the Japan-U.S. alliance. Senior Fellow Richard Bush, director of CNAPS, provided introductory remarks. Senior Fellow Mireya Solís, the Philip Knight Chair in Japan Studies, moderated the discussion.

Audio

What Lies Ahead for Japan and the United States

Transcript

Transcript (.pdf)

Event Materials

20130322_japan_us_transcript

Business Advocacy in Asian PTAs: A Model of Selective Corporate Lobbying with Evidence from Japan

Mireya Solís — Fri, 15 Mar 2013 00:00:00 -0400

What explains the pattern of selective business interest in preferential trade agreements (PTAs) with active campaigning for and utilization of tariff preferences for some trade agreements, but not others? Under what conditions can business advocates of PTA policy mount an effective lobbying campaign to influence policy outcomes (i.e., shaping decisions on who to negotiate with and what to negotiate about)? These are important questions given that analyses of Asian PTAs frequently assign a negligible role to business interests either out of apathy or lobbying weakness. To understand the pattern of selective business lobbying for PTAs, I develop a theoretical model with three main independent variables: venue selection, preference intensity, and advocacy effectiveness, and apply it to the case of Japan to test its usefulness. My model shows that the conditions for effective business PTA campaigning are exacting: loss avoidance, high technical expertise, and influence-seeking strategies that maximize access opportunities given institutional constraints. And yet when these factors align, business interests do influence PTA outcomes. My research shows that the current trend to characterize the agency of PTA proliferation as either state-led or business-driven needs to be re-examined as it is more useful to think about state-society constellations in favor or against PTAs.

Read the article at degruyter.com » (Membership required to access the article)

Authors

Mireya Solís

Publication: Business and Politics

Earthquake, Tsunami, Meltdown - The Triple Disaster's Impact on Japan, Impact on the World

Elizabeth Ferris and Mireya Solís — Mon, 11 Mar 2013 00:00:00 -0400

Two years ago today, a devastating 9.0 earthquake struck Japan’s east coast, followed minutes later by a massive tsunami with 100 foot waves. Japan’s legendary investment in earthquake-resistant design meant that only about 100 people died in the earthquake itself although almost 20,000 people lost their lives in the tsunami. The economic destruction of the "Triple Disaster" was massive: 138,000 buildings were destroyed and $360 billion in economic losses were incurred. This was the most expensive disaster in human history. Japanese response to the earthquake and tsunami was rapid, effective and life-saving. Some 465,000 people were evacuated after the disaster. But it was the meltdowns at the Fukushima nuclear plant – the world’s worst global nuclear crisis since Chernobyl in 1986 – which caused the most fear and provoked the greatest criticism of the Japanese government’s response.

The Triple Disaster had effects on Japan and on the world.

The economic, political, and social consequences of the Triple Disaster have changed Japan in fundamental ways. The uprooting of entire communities and the large infrastructural losses produced immediate disruptions in Japan’s extensive supply networks. These in turn caused dramatic drops in industrial production that imposed a toll not only on Japan’s economy, but also on the many other countries linked through these production networks. While Japanese companies creatively restored the supply chains in just a few months, the shutdown of the nuclear reactors has had far more damaging long-term economic consequences. Since 3/11 only two nuclear reactors have restarted operations, and the Japanese government has had to resort to large increases in oil imports to make for the gap in electricity supply. Consequently, since 3/11 Japan has experienced record trade deficits, in the order of $78 billion in 2012.

The social and political aftereffects of 3/11 are also formidable. A large citizen movement calling for the abolition of nuclear power in Japan developed in the aftermath of the Fukushima disaster. The enactment of more exacting safety standards and the development of new patterns of government regulation and monitoring of the nuclear industry have emerged as key topics in the national political debate. On a more positive note, the Triple Disaster also revealed Japan’s most valuable asset: the strength of its civil society. The world watched in awe as Japanese citizens who had lost everything, immediately sprung to help one another. The dignity, creativity, and orderly response of the Japanese population to this mega disaster is indeed the best measure of Japan’s potential. And just as a previous natural disaster, the Kobe earthquake of 1995, helped spur the NGO movement in Japan, March 11, 2011 has seen has seen the activation of scores of non-profit groups and the consolidation of a culture of volunteerism.

However, the reconstruction challenges remain daunting for Japan. Hundreds of thousands of people are still displaced, the quality of the nuclear cleanup continues to raise concerns, and the financial cost of rebuilding the Tohoku region is staggering (in its latest stimulus budget, the Abe government slated $18 billion dollars for this purpose). Japan’s energy future is also uncertain as the government has yet to issue a long-term strategy that clarifies the role of nuclear power in the country’s energy mix.

The effects of the Japanese disaster went far beyond Japan, of course. It served as a warning that even developed, well-prepared countries are not immune from terrifying disasters. It illustrated the extremely high economic costs of disasters occurring in developed countries and the vulnerabilities that come with urbanization and coastal settlement. It served as a wakeup call to the world that unanticipated disasters (or "black swans") happen and that those engaged in contingency planning need to be prepared for much more devastating disasters. Internationally, the fallout of the Fukushima meltdowns for the future of nuclear energy has been mixed. While immediately after the accident some governments announced plans to phase out of nuclear energy, others have continued their nuclear planning (although it’s probably true that all nuclear plants worldwide looked more seriously at their safeguard mechanisms in light of Fukushima). Japan’s tragedy has also led to a re-energizing of investing in disaster risk reduction strategies.

In October 2012, the Japanese government and the World Bank co-hosted the Sendai Dialogue to highlight the lessons learned from the disasters and to adopt comprehensive guidance for reducing risk in other parts of the world. To continue the learning of lessons from Japan for disaster risk management in Asia, we are organizing a day-long conference at Brookings on May 10, 2013 to examine the lessons from March 11, 2011, the challenges of disaster risk management in Asia and, more broadly, strategies for mainstreaming disaster risk management in development assistance. We hope in a small way to contribute to continued learning from Japan’s tragedy and to prevent further tragedies resulting from similar disasters which occur elsewhere.

Authors

Image Source: © Ho New / Reuters

The Hollowing-Out of Japan’s Economy: Myths, Facts and Countermeasures

Wed, 20 Feb 2013 13:30:00 -0500

Event Information

February 20, 2013
1:30 PM - 5:15 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

The skyrocketing cost of importing energy combined with an uncertain electricity supply, a maze of regulations, a contracting domestic market, and the appreciation of the yen have led the Japanese economy to be in peril of deindustrialization. The hollowing-out of the Japanese industrial base as companies seek new business opportunities through overseas manufacturing has become an issue of pressing concern in the Japanese national debate.

On February 20, the Center for Northeast Asian Policy Studies at Brookings hosted a discussion to address the future of the Japanese economy, whether it will become a high-end manufacturing economy or a post-industrial economy based around services and repatriated income from overseas investment. Presentations examined the extent to which fears of deindustrialization are warranted, the extent of internationalization of Japanese manufacturing activities, and assess possible countermeasures in the areas of deregulation, promotion of inward investment, and the encouragement of innovation.

Audio

Transcript

Transcript (.pdf)

Event Materials

The Future of China-Taiwan Relations

Wed, 06 Feb 2013 14:30:00 -0500

Event Information

February 6, 2013
2:30 PM - 4:00 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

During much of the 2000s, tensions between Taiwan and China roiled the stability of East Asia. Each side feared the intentions of the other and acted on those fears, creating a vicious circle of political mistrust and military build-up. The United States was drawn in because Beijing and Taipei each urged Washington to take its side against the other. Some strategists believed that Taiwan was the only issue that might spark a U.S.-China war. Over the last five years, the relationship between China and Taiwan has changed for the better, with cooperation replacing confrontation, and the danger of war declining. However, future momentum will likely slow, and China has not abandoned its goal of unifying with Taiwan on its terms. Will it be content to continue its current, incremental approach? What will happen if it doesn’t? What can Taiwan, China and the United States do to ensure that the current stability will continue?

On February 6, the Center for Northeast Asian Policy Studies at Brookings (CNAPS) hosted the launch of a new book, Uncharted Strait: the Future of China-Taiwan Relations (Brookings, 2013) by CNAPS Director and Senior Fellow Richard Bush. Uncharted Strait explores the significant shift in cross-Strait relations and prospects for the future. Senior Fellow Mireya Solís, the Philip Knight Chair in Japan Studies, provided introductory remarks and moderated the discussion.

Audio

The Future of China-Taiwan Relations

Transcript

Uncorrected Transcript (.pdf)

Event Materials

20130206_china_taiwan_transcript

Japan’s Trade Policy in 2013: Possibilities and Pitfalls

Mireya Solís — Fri, 01 Feb 2013 00:00:00 -0500

2013 could very well be a big year for Japanese trade policy. Japan is contemplating four major trade negotiations that could finally help its trade policy gain traction: the trilateral China-Japan-Korea Free Trade Agreement (FTA), the Regional Comprehensive Economic Partnership (RCEP), an FTA with Europe, and the Trans-Pacific Partnership (TPP) trade negotiations. The first three of these trade initiatives received the green light just last November, and of course the decision on Japan’s TPP membership is still pending.

The key contrast is between what Japan has accomplished so far in its decade-long FTA policy and what could be done through these four major trade initiatives. Japan in fact has numerous FTAs in place: 13 as of the end of 2012. The problem is that they have been mostly trade agreements of small ambition that have not generated significant economic gains or made Japan a major player in the world of preferential trade negotiations. I have referred to this in the past as a “busy” strategy of negotiating many “small FTAs.” The import of the Big Four is much larger. A couple of graphs make this point rather eloquently:

This graph shows that the Big Four FTAs that Japan is now entertaining dwarf what has been accomplished in terms of the share of Japanese exports covered. In fact, if Japan succeeds in negotiating all four trade deals, around 77 percent of its exports would be eligible for preferential market access through its FTA network. Another way to gauge the importance of the Big Four is by estimating their contribution to Japanese economic growth. The graph below shows that the estimated gains from trade as a share of Japan’s GDP are of a different order of magnitude when we compare the Big Four vis-à-vis the previous 13 FTAs.

There is a lot to be gained, but will Japan succeed in negotiating in the big leagues? It will not be easy since each one of these initiatives comes with a significant number of challenges. In what follows, I examine the pitfalls that loom on the horizon for Japan’s trade initiatives in the year ahead.

RCEP

The economic stakes of the Regional Comprehensive Economic Partnership (RCEP) are indeed high if one takes into account that this grouping of 16 nations (in addition to all ASEAN countries, China, Korea, Japan, Australia, New Zealand, and India) represent 40 percent of world trade. Moreover, major players in the region view RCEP favorably as a vehicle to achieve important goals: for ASEAN, it is mostly about maintaining the organization’s centrality in the regional integration process; for China, RCEP is a good counterpoint to the American led TPP; and for Japan, RCEP’s membership configuration dovetails exactly with its long-standing proposal for an ASEAN+6 trade grouping, thereby endorsing a more expansive definition of the East Asian region.

RCEP has big aspirations. As ASEAN countries rolled out the list of principles and objectives for RCEP, they highlighted their aim for a comprehensive agreement (covering goods, services, investment, economic cooperation, intellectual property, competition, and dispute settlement); their intention to go beyond the existing ASEAN+1 FTAs to ameliorate the noodle bowl phenomenon; and their endorsement of the principle of special and differential treatment to take into account the sharp differences in development levels of members. But there are many questions as to whether RCEP can deliver major results in economic integration. ASEAN’s hallmark approach to trade negotiations, one based on flexibility, is fully embedded in RCEP’s negotiation guidelines. This could compromise the overall quality of the agreement if governments have an easy way out to shelter sensitive sectors and negotiations in the rules area only yield weak results. Also, there are real limits in thinking about deep integration given the very pronounced development gaps, especially regarding the smaller ASEAN countries. So the risk is that the agreement could only yield a low common denominator. Finally, RCEP is unlikely to solve the noodle bowl phenomenon since it is clearly stated that the existing web of prior FTAs among negotiating parties will stay intact (this critique also applies to the TPP).

Trilateral China, Japan, Korea FTA

The missed opportunities of not having a trade agreement among the large Northeast Asian economies have long been noted. But defensive economic interests in each country and complicated regional political dynamics made it difficult for the trilateral FTA to prosper. In fact, the three countries studied this possibility for years, which effectively meant that they benched the idea for a very long time. However, the trilateral FTA was finally put on a faster track by the sooner than expected conclusion, in late 2011, of the joint study for an FTA conducted by the three nations and by the formal launching of negotiations last fall. Without a doubt, the fact that the trilateral FTA initiative was not a casualty to the very difficult climate in China-Japan and Korea-Japan relations of the last several months is in itself a very important achievement.

But these negotiations also present multiple challenges. One has to do with the market access negotiations as each country has important defensive economic interests. For instance, Japan and Korea worry about asymmetrical benefits in agricultural liberalization in favor of China, and to deal with these concerns, the joint study report calls for “due consideration of sensitive sectors.” Hence, the possibility of signing a trade agreement of limited reach is very real.

The other serious question is whether the frictions over history and territory will prevent a successful negotiation outcome. It has often been pointed out that even when bilateral relations between China and Japan have reached very low points in 2005 or 2010, the level of economic exchange has not been affected. Although it is too soon to tell whether the more recent frictions will have a longer lasting economic impact, the most recent Japan Bank for International Cooperation (JBIC) survey suggests that there is in fact a different attitude among Japanese companies regarding their business prospects in China. For instance, 65 percent of Japanese firms in the 2012 survey responded that they had been negatively affected, whereas only 22.6 percent reported this had been the case in 2010.

It is important to keep in mind that FTA negotiations are more vulnerable to the overall tone of diplomatic relations for two main reasons: 1) these are inter-governmental negotiations which are difficult to sustain in the middle of a diplomatic row, and 2) every trade negotiator knows that there will be some outstanding disagreements on the negotiation table where political intervention at the highest level will be required to bridge negotiation gaps. That kind of political investment may not be forthcoming in a climate of deteriorating diplomatic relations. This is precisely what happened during the failed attempt to negotiate a Japan-Korea FTA, whose talks have been suspended since November 2004.

Trade agreement with the EU

The Japan-EU FTA promises to be a fascinating negotiation, one that surprisingly has not received as much attention, as everyone is watching developments in East Asia and Asia-Pacific. For starters, there are interesting asymmetries at play in two areas: level of interest and central objective in the negotiations. Japan is certainly much keener than its European counterparts in moving forward with these trade talks. Essentially, the key objective for Japan is to level the playing field for Japanese companies who are deemed at a disadvantage vis-à-vis their Korean rivals in the European market since the enactment of the Korea-EU FTA. So Japan has been mostly focusing on the tariff cutting benefits. For Europe, however, this is about tackling Japanese non-tariff measures (NTMs) that over the years have so confounded Japan’s trade partners. The Europeans have really done their homework as the impact assessment reports they have released provide an inventory and measurement of scores of Japanese NTMs that could be removed via trade negotiations. Technical standards, product approval systems, emission and certification standards, and lack of transparency in government procurement are some of the issues highlighted in the European analysis of Japanese NTMs. In an interesting twist, the European Commission has announced its willingness to suspend the trade negotiations if no concrete progress is made in eliminating NTMs after a year of talks. This may just be an initial negotiation posture, but it certainly will be fascinating to watch these trade talks unfold in the coming months.

Finally, the Japan-EU FTA is also interesting because of the potential demonstration effect it may have on the on-going TPP membership negotiations between the United States and Japan. In contrast to the position of the U.S. auto industry that Japan’s non-tariff barriers cannot be reduced via an FTA, by giving the green light to trade talks with Japan, the Europeans have adopted a different position: that this is a solvable, if difficult, problem.

TPP

No other trade agreement has generated as much controversy domestically, and yet it is a key trade initiative for Japan to pursue. The significance of the TPP hinges not only on its promise to generate large economic payoffs and advance the domestic structural reforms that Japan needs to enhance its competitiveness. It is critical as well for Japan to gain leverage in other trade negotiation fronts, lest we forget that it was the prospect of Japan’s TPP membership that encouraged China to speed up the trilateral FTA and ASEAN to roll out RCEP.

But what are the chances that the Abe government will decide to seek entry into the TPP? Needless to say it is a complicated question because both the opponents and supporters of the TPP see promising signs in the incoming Abe administration. Supporters of the TPP are reassured by a number of Cabinet appointments (for instance the new Minister of Agriculture Mr. Hayashi Yoshimasa is not a traditional agricultural policy tribe politician); and by the closer ties established with the business community through the revival of the Council on Economic and Fiscal Policy and the newly founded Headquarters for Japan’s Economic Revitalization. Moreover, many TPP watchers in Japan also report that Prime Minister Abe is personally disposed to TPP and he may support the trade talks as part of his broader effort to strengthen U.S.-Japan relations.

However, opponents of the TPP gain comfort from the fact that the LDP still relies heavily on the fickle agricultural vote and that in this past general election many agricultural policy tribe politicians made a comeback. Anti-TPP sentiment was very high among the roster of LDP candidates elected to the Lower House this past December. A Kyodo News survey shows that 84.3 percent of successful LDP candidates oppose Japan’s TPP participation. Not surprisingly, the ranks of the anti-TPP group within the LDP have swelled to 203 according to an Asahi Shimbun report. More fundamentally, the central political priority for Prime Minister Abe is to win the Upper House election, scheduled for next July, in order to avoid legislative gridlock. No policy (including TPP membership) that threatens that electoral goal will be adopted before that time.

The interesting question is what will happen after the Upper House election. The final outcome will hinge on the following: Can Prime Minister Abe bring the party rank and file with him in supporting Japan’s TPP bid and a complete reorientation of agricultural policy (eliminating the set-aside program and promoting large-scale commercial farming)? Can he avoid the weakening intra-party disputes that plagued the DPJ? And the perennial question: will Japan’s membership bid come too late to join as a founding member? If PM Abe insists that the central guideline is that Japan negotiates on behalf of its national interest, then there is a premium to join as a founding member and not through an accession clause. Hence, the decision cannot be postponed long after July.

Authors

Mireya Solís

Free Trade Game Changer

Mireya Solís and Justin Vaïsse — Thu, 17 Jan 2013 00:00:00 -0500

Over the next four years, President Obama should advocate forcefully for ambitious free trade agreements with our partners in Asia and Europe. Mireya Solís and Justin Vaïsse wrote this memorandum to President Obama as part of Big Bets and Black Swans: A Presidential Briefing Book.

Can President Obama overcome erosion of support for free trade agreements in Congress and among the American public?
How will China react to the Trans-Pacific Partnership?
What are the benefits of a new free trade agreement with the European Union?

Download Memorandum (pdf) | Download the Presidential Briefing Book (pdf)

TO: President Obama

FROM: Mireya Solís and Justin Vaïsse

Pursuing and signing free trade agreements (FTAs) with both the Asia-Pacific region and Europe during your second administration will yield considerable economic and political benefits. World trade is expected to have stalled at a mere 2.5 percent growth in 2012, down from 13.8 percent in 2010. Protectionism is on the rise everywhere, especially in the form of non-tariff barriers. The Doha Round is essentially dead. At the same time, the United States and Europe need to stimulate their economies without resorting to fiscal spending. Furthermore, the United States needs to establish a broader and deeper economic presence in Asia, the world’s most dynamic economic region. Achieving both a Trans-Pacific Partnership (TPP) and a Trans-Atlantic Free Trade Agreement (TAFTA) is the most realistic way to reclaim U.S. economic leadership and make progress towards your promised goal of doubling U.S. exports. Moreover, signing both the TPP and TAFTA would have deep strategic implications. Both deals would reaffirm liberal norms and a leading U.S. role in setting the global rules of the road. The TPP would help define the standard for economic integration in Asia, without necessarily antagonizing China. TAFTA would give American and European businesses an edge in setting industrial standards for tomorrow’s global economy.

Recommendation:

• Pursue both TPP and TAFTA simultaneously. Conclude negotiations in close succession to gain momentum in international bargaining, reap the benefits of emulation (through setting rules and standards of global applicability), and increase your leverage domestically;

• Start the process to secure Trade Promotion Authority (TPA) early in 2013 by reaching out to Congressional leaders in unison with an aggressive public awareness campaign on the benefits of free trade, led by the White House, which seeks to allay some of the concerns about opening U.S. markets.

• Set October 2013, the time of the next APEC leaders’ meeting in Bali, Indonesia, for the conclusion of negotiations. This will provide a focal point for leaders of TPP countries to bridge differences at the negotiating table;

• Launch TAFTA talks as early as possible in 2013 after the U.S.-EU high-level working group makes it recommendations, with the objective of concluding negotiations before the next U.S. midterm elections in 2014.

Background:

Free trade was not a priority in your first administration. It is, however, an indispensable component of a long-term growth strategy to rebound from the 2008-2012 recession. It is also a necessary part of the response to the significant redistribution of power in the international system. The pivot to Asia and to the emerging world in general cannot be based on political and military initiatives alone. It needs to be backed by rejuvenated American leadership in trade and investment.

While the time has come to launch new initiatives in these spheres, the erosion of support for FTAs in Congress and among the public is likely to hamper this effort. Contrast, for example, the fact that Congress continuously renewed fast-track authority between 1975 and 1994, but in the post-NAFTA years it was only extended during the 2002-2007 period. Public skepticism of the value of FTAs is also on the rise, according to polls. It will fall on you, Mr. President, to advocate forcefully for these ambitious agreements.

TPP

The TPP is the most ambitious trade initiative currently under negotiation. In essence, it promises to do what no other FTA has done before: to liberalize without exemptions and to tackle systematically vexing non-tariff barriers by generating trade disciplines in areas such as intellectual property, regulatory convergence, and state-owned enterprises. With the TPP, your administration can shape an Asia-Pacific economic integration platform with the potential to generate substantial economic and political payoffs. According to reliable estimates, a TPP 13 (one that includes Japan and South Korea) would generate annual income gains for the United States in the neighborhood of $78 billion dollars. Furthermore, an expansive TPP can also achieve the important political benefit of disseminating highquality trade and investment rules through a ratcheting-up effect. Other trade initiatives will then feel compelled to raise their standards to remain competitive (e.g. ASEAN’s Regional Economic Partnership) and more countries will seek TPP membership, perhaps even China in the future. Indeed, you should explain to your Chinese counterparts that this is by no means the economic equivalent of a containment strategy; it is rather an enticement strategy that recognizes the benefits of a strong Chinese economy in an interdependent world, and aims to codify best practices on international trade and investment rules that could help China deepen its market reforms.

TAFTA

TAFTA is equally ambitious. If achieved, it would offer the United States and the European Union a new opportunity to define the industrial standards and norms of tomorrow’s economy, especially vis-à-vis the Asian giants, rather than competing against one another. EU leaders seem very eager to move forward. American labor and environmental activists will have fewer objections to a deal with Europe than with other regions, given the generally higher standards prevalent there. Tariffs between the two sides of the Atlantic are already low (around 2-3 percent on average), but the scale of the potential payoff makes an investment in this initiative worthwhile. The volume of trade and investment between the United States and Europe is huge – much larger than that with China. The benefits of an agreement for both sides would be substantial if common standards and norms can be adopted and regulations harmonized in crucial sectors like pharmaceuticals, electric cars and cloud computing. Sweden’s National Board of Trade predicts that trade of goods and services between the United States and the European Union could jump 20 percent, or more than $200 billion annually, and the American Chamber of Commerce estimates that growth on both sides of the Atlantic could be boosted by 1.5 percent annually.

There are potential obstacles and pitfalls:

• Negotiation failure: TPP nations have not yet overcome differences in important areas of the market access negotiations (e.g. sugar, dairy, textiles) and in the rule codification effort (e.g. intellectual property and the state-investor dispute settlement). In the case of TAFTA, major problems will arise on the EU side concerning agricultural and food standards(e.g. Europe’s ban on genetically-modified organisms or the use of artificial growth hormones in beef production). On the U.S. side, there might be problems involving access to public markets by EU firms because American states have legislative authority on this issue and often have “buy American” rules.

• Ratification failure: The lack of TPA, the divisive public debate on the benefits of free trade, and the unprecedented scope of these trade agreements augur at best an arduous ratification fight.

• Parochialism: There is a danger that negotiations on each FTA will yield idiosyncratic rules that fail to generate global standards, and instead compartmentalize the world economy.

• Polarization: Depending on the geopolitical climate, there is the risk that the TPP could antagonize China and polarize the Asia-Pacific region further rather than promote its integration.

Conclusion:

The benefits of these two FTAs make the effort required to secure them worthwhile. Your administration can avoid potential pitfalls with creative solutions and political investments. You should shore up U.S. negotiating credibility by securing TPA, strike the right balance between ambition and flexibility at the negotiating table, advocate global rules and norms, and reassure China of the benefits of a deeper economic relationship based on higher trade and investment standards.

Downloads

Authors

President Barack Obama’s Second Term: Big Bets and Black Swans

Thu, 17 Jan 2013 13:00:00 -0500

Event Information

January 17, 2013
1:00 PM - 3:00 PM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

President Barack Obama begins his second term at a critical moment in world affairs, facing the many challenges that an unstable world—much of it in turmoil—presents. In response to these many challenges, Brookings Foreign Policy scholars have prepared a Presidential Briefing Book with memos to President Obama that detail the “Big Bets” that he should place in foreign policy, and the “Black Swans”—low probability, high impact events— that could unexpectedly dominate President Obama’s second term. The “Big Bets” include: a nuclear deal with Iran; a new approach to China; securing free trade agreements with Asia and Europe; outlining an Obama doctrine for the use and deployment of drones and cyberweapons; and establishing the United States as a leading energy exporter. The “Black Swans” include: a U.S.-China confrontation over Korea; revolution and war in China; the collapse of the House of Saud; the unraveling of the eurozone; the unraveling of the Palestinian Authority; and the impact of rising seas and climate change-related migration.

On January 17, Foreign Policy at Brookings hosted the launch of “Big Bets and Black Swans: A Presidential Briefing Book.” The first panel focused on the transformational policies that could shape a new global order. The second panel focused on the low probability, high impact events that might derail the president’s second term agenda. Vice President Martin Indyk, director of Foreign Policy, provided introductory remarks. David Gregory, host of NBC’s Meet the Press, moderated both panel discussions.

Visit the Big Bets & Black Swans interactive map »

Video

Audio

President Barack Obama’s Second Term: Big Bets and Black Swans

Transcript

Transcript (.pdf)

Event Materials

LDP Landslide Victory with No Mandate: How Did It Happen and What Can We Expect Next?

Mireya Solís — Mon, 17 Dec 2012 00:00:00 -0500

The Liberal Democratic Party (LDP) scored a landslide victory in the election held in Japan on Sunday, December 16; and through its alliance with Komeito it will hold a supermajority in the Lower House. Despite this overwhelming victory, the key takeaways from this electoral contest are: an unenthusiastic electorate, a rejection of the DPJ experiment, a third pole that shattered, and an LDP victory by default. Let me elaborate:

Notwithstanding the many pressing issues in the national agenda such as the future of nuclear power, the reactivation of the Japanese economy, membership in the TPP, etc., many Japanese voters stayed away from the polling stations. Voter turnout in this election was only around 59%, the lowest in the postwar period. This election was mostly a rejection of the Democratic Party of Japan (DPJ) rule, a party that fell dramatically short of the expectations of "regime change" of three years ago. The so-called “third pole parties” that proliferated recently also failed to gain traction with Japanese voters as the electoral alliances they cobbled together in the weeks prior to the election led to the sacrifice of hallmark policies and left a bad taste among many Japanese voters. In the end, these smaller parties fragmented the anti-mainstream party vote, helping magnify the LDP lead in the single-seat districts. Most importantly, the LDP did not achieve this major electoral win by riding on a wave of widespread popular support. Its share of the vote in single-seat districts was only around 43% and it received an even lower level of the total vote in the proportional representation seats (around 28%).

This then sets the stage for what we may expect the Shinzo Abe administration to do in the next few months as it consolidates its rule. Japanese voters are mostly hungry for decisive leadership and economic growth, and with the comfortable lead they have now given to the LDP in the Lower House, they will have greater expectations that these changes are forthcoming. Mr. Abe may try to comply by resorting both to old-style pork-barrel spending and non-conventional measures such as pressuring the Bank of Japan to adopt a higher inflation target and buying unlimited amounts of construction bonds in an attempt at monetary easing. These are all controversial policy measures, but they will help Mr. Abe show that he is taking action in the area that most worries voters: the economy. And yet, aware of the fickleness of the Japanese voter and determined to eliminate legislative gridlock by securing a majority in the Upper House election next summer, Mr. Abe may well be tempted to postpone the much more needed structural deregulation of the Japanese economy and participation in the Trans-Pacific Partnership trade negotiations.

Authors

Mireya Solís