Japan–EU negotiations racing against protectionism

July 6, 2017 at 13:00

Japan–EU negotiations racing against protectionism

 

The Japan–EU Economic Partnership Agreement (EPA) negotiations appear to be coming down to the wire. Both sides are aiming to reach a framework agreement prior to the G20 summit on 7 July. Agriculture, as usual, is one of the sticking points, particularly for items such as cheese.

The domestic political setting in Japan shows some of the usual signs of tension. The Japanese government is seeking to advance the nation’s wider trade goals by reducing tariffs and other import barriers in overseas markets. On the other hand, Japan’s farm lobby — led by the Japan Agricultural Cooperatives Group (JA Group) and their allied politicians in the ruling Liberal Democratic Party (LDP) — is seeking to maintain specific barriers to imports of farm products given Japan’s small-scale and inefficient agricultural sector.

European Commissioner for Trade Cecilia Malmstrom and Japanese Foreign Minister Fumio Kishida attend their meeting as a part of the Japan–EU Economic Partnership Agreement negotiations at Iikura guest house in Tokyo, Japan 30 June 2017 (Photo: Reuters/Franck Robichon).

But this time, several key differences from other rounds of trade negotiations are generating strong impetus for an agreement.

First, the LDP’s poor showing in the Tokyo metropolitan assembly election last weekend and Abe’s weakening power base as prime minister because of recent scandals are putting strong pressure on his administration to conclude a successful trade agreement with the EU in order to help restore his grip on power.

Second, the Japanese government and the ruling LDP’s Headquarters are both in agreement on the need to achieve a prompt conclusion of an EPA with the EU, and are working together to promote the negotiations. The Headquarters’ latest ‘request’ to the government stressed the importance of swiftly concluding the EPA negotiations in order to promote Japanese exports to and investments in the EU ‘amidst the global spread of protectionism’.

The domestic politics of the Japan–EU EPA negotiations now are in stark contrast to those of the problematic Trans-Pacific Partnership (TPP) negotiation when the Abe administration and large numbers of allied LDP farm politicians were frequently at loggerheads. The government was constrained by the LDP and by upper and lower house resolutions calling for protection to be maintained for five so-called ‘sensitive’ agricultural products. And the Abe administration had indicated that it was prepared to withdraw from the negotiations if it could not achieve the deal it wanted.

Third, a government–LDP consensus has emerged that signing the Japan–EU EPA would provide Japan with an opportunity to create a mega-free trade agreement (FTA) and stop the global spread of protectionism. This follows the demise of the TPP and the rising perception in Japanese government circles that the Trump administration is a potential threat to free trade. On this score, Japan and the EU are also in unison, which is adding impetus to the negotiations.

Striking a symbolic blow for free trade has become even more imperative for Japan in light of possible import restrictions on its iron and steel exports to the United States, which amount to about 2 per cent of Japan’s total production volume. Japan fears the Trump administration may impose restrictions under Section 232 of the Trade Act if no bilateral FTA is forthcoming between the two countries. Section 232 allows the US administration to regulate imports of products deemed to have a significant impact on US national security.

The Japanese government has so far rejected the bilateral FTA option despite increasingly strong pressure from the United States to address the trade imbalance between the two countries. Japan has offered the so-called ‘Japan–­­­­­­­­US Economic Dialogue’ as an alternative, with the aim of replacing ‘negotiations’ with ‘dialogue’ in areas such as economic policy, infrastructure cooperation and the framework of trade.

If Japanese exports are targeted by US import restrictions, it may herald a revival of the so-called ‘Trade Act nightmare’ that Japan experienced in the 1980s and early 1990s. At the time, the United States also had a large bilateral trade deficit with Japan, with exports such as semi-conductors, supercomputers, satellites and timber negotiated under threat of sanctions under the Trade Act. The Act was also used as a weapon of US pressure on cars, when the United States threatened to impose a 100 per cent tariff on high-end car imports.

US Trade Representative Robert Lighthizer’s recent comment that he is going to press Japanese officials to respond to US complaints over its trade deficit with Japan rang alarm bells in Tokyo. The Abe government fears that in any bilateral trade negotiations with the United States, the Trump administration’s use of the Trade Act may also extend to Section 301, which will allow it to engage in negotiations supported by potential sanctions.

Aurelia George Mulgan is a Professor at the University of New South Wales, Canberra.

Source: http://www.eastasiaforum.org/2017/07/06/japan-eu-negotiations-racing-against-protectionism/




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