Making Use of the “Japan-Australia Effect” in Obama’s Visit to Japan

Tatsuhiko Yoshizaki is executive vice president of the Sojitz Research Institute.

The day of U.S. President Obama’s visit to Japan has finally drawn near. With the collective gaze of the public upon him, that which is sure to draw the greatest amount of attention is the outcome of the Trans-Pacific Partnership (TPP) negotiations.

On March 13, in this very column, I expressed my personal opinion that we should “engage in economic relations with Australia and break the deadlock in the TPP.” Having said that, at a summit meeting between Japan and Australia held on the April 7, both countries agreed upon entry into an Economic Partnership Agreement. Having accomplished that, I think that we have come to a point where we can hold out some hope for TPP negotiations.

As for negotiations between the U.S. and Japan, the reality of the situation is that U.S. Trade Representative Michael Froman holds a firm attitude, and “there remains a sense of distance” (according to Akira Amari, minister in charge of the TPP). If only the U.S. and Japan could agree, the settlement of all other negotiations would not be so difficult.

Adding Other Participating Nations to Japan’s Group of Supporters

Previously, the worst case scenario for Japan in TPP negotiations was the U.S. announcing that “because Japan is uncooperative in negotiations, we will be making an agreement only with other participating nations.” Fortunately, however, I believe that such a fear has by and large vanished.

The reason I say that is because Japan has taken the lead by deciding to promote a reduction of trade tariffs with Australia. Therefore, if Japan is locked out of TPP negotiations, only tariffs on Australian goods marketed to Japan would be reduced, and that would be a real disadvantage for the export business of other countries participating in the negotiations. When you consider the scope of Japan’s economy, it would really be a regrettable thing.

Accordingly, it can be expected that, rather than exclude Japan from negotiations, other participating nations will want to secure trade terms equivalent to, or perhaps even exceeding, those with Australia. They are likely to say something to the effect of “since we’re not fixated on the annulment of tariffs on all agricultural products, we would like Japan to remain in the negotiations.” They’ll come to join Japan’s group of supporters. And it is this aspect that makes multinational negotiations so amusing.

Of course, domestic lobbyist organizations in the U.S. are thinking the same thing. For example, U.S. beef is locked in a fierce competition with Australian beef in the Japanese marketplace. If major chain restaurants specializing in things like hamburgers and beef bowls switched their ingredient suppliers from the U.S. to Australia, it would be a serious matter. Right about now the U.S. beef industry is probably under orders to “win better trade conditions than Australia, at all costs!”

Japan and Australia’s Domino Effect on TPP Negotiations

In this way, trade agreements made with one country will create pressure on another country. We call this resultant phenomenon — the acceleration of all negotiations — the trade agreement domino effect. To describe it in good terms, Japan’s trade negotiations up until now have been polite and reserved. To put it in bad terms, they have been indecisive and regrettably lacking any sense of speed. However, currently they are undergoing a dynamic change. But are we at a point where these commerce negotiations could, like cherry blossoms in spring, disappear within three days if you turn your back?

With that said, President Obama seems to stand all the more firmly. Within the president’s own Democratic Party, those who are opposed to trade liberalization are not few in number. At what point will he be left with the problem of wondering whether his “Trade Promotion Authority” can be acquired from congress?

He is also having a hard time trying to sway domestic industries. For instance, will he really be able to convince the auto industry to accept the annulment of tariffs? In Obama’s 2012 re-election campaign, the statement, “Bin Laden is dead, GM is alive,” was used as a sort of informal slogan. That is to say, having protected the auto industry is considered to be a great achievement for the Obama administration.

In anticipation of the midterm elections in the fall, it will be difficult to betray domestic expectations. If Obama, in his capacity as president, does not say, “We have won a number of concessions such as this from Japan,” he won’t be keeping a consistent posture.

Presumably, America has three objectives in the TPP. The first is to aim for the a new form of trade liberalization that will replace the stagnant and long-standing Doha Development Round and which will be of global benefit. The second is to obtain commercial benefits that are conducive to domestic industries and better for consumers. And the third is to further diplomacy in Asia through planning the deepening and expansion of the economic sphere through the creation of a new set of rules.

Can They Push for “One More Step?”

When conducting negotiations, unintentionally the eyes drift entirely to that second benefit. As they say, “Negotiations are win or lose.” However, the other two benefits are all the more important, especially in regards to Asian diplomacy; the creation of progressive, common rules and eventually winning China over are long-term goals.

These three benefits, of course, are points that Japan shares as well. Taking it even further, there is also the fourth benefit of “accelerating domestic reform.” It is hoped that the TPP will play the role of the “third arrow” in Abe-nomics — that is, accelerating strategies for growth.

It could probably be said that the terms presented in Japan’s Economic Partnership Agreement with Australia are somewhat “lenient.” Although tariffs on beef have been reduced by half, safeguards have also been put in place. And it seems that, comparatively, our country’s agricultural industry will accept the terms without a fight.

But perhaps it will require “one more step” to reach a conclusion to TPP negotiations. Even though neither can make a compromise that would be detrimental to national interest, it isn’t likely that either Prime Minister Abe or President Obama, having come this far, wants a conclusion that ends with them saying, “It was completely useless.”

What I want is for them to use the “domino effect” born from the Japan-Australia Economic Partnership Agreement to come to a fruitful conclusion.