Japan to Join Trade Talks as Abe Defies Key Voting Bloc

By Isabel Reynolds & Takashi Hirokawa

Prime Minister Shinzo Abe said Japan will join negotiations on an American-led regional trade accord opposed by some of his core supporters as he seeks to boost growth and strengthen ties with the U.S.

“We are watching the birth of an economic zone that will account for about a third of the world’s economy,” Abe said at a press conference in Tokyo yesterday. “If Japan alone remains inward-looking, it will have no opportunities for growth. Companies will not remain here and talented people will not want to work here.”  Abe’s decision, four months before elections to the upper house, risks alienating farmers who have traditionally backed his Liberal Democratic Party and fear being harmed by a free- trade deal. Abe is pursuing deregulation to help boost Japan’s international competitiveness and the trade pact may help companies like Nissan Motor Co. (7201) compete with rivals from South Korea, which already has a free trade deal with the U.S.

“Abe wants to use these talks to promote structural reform in Japan, help exporters and boost domestic productivity, but it’s a risky move because he is taking on a powerful interest group,” said Jeff Kingston, the director of Asian Studies at Temple University in Tokyo. “But with 70 percent approval ratings he has leverage to twist arms in the LDP.”

GDP Boost

Japan’s participation would boost its gross domestic product by 0.66 percentage point or 3.2 trillion yen ($33 billion) if it abolished all tariffs, according to a government statement released yesterday.

Abe’s move comes less than a month after he and President Barack Obama agreed that pledging to abandon all tariffs wasn’t a precondition to joining the talks. Obama has been pressing successive Japanese governments to join the 11-nation talks that aim to lower tariffs, strengthen patent protection and improve access to government contracts. At the same time, U.S. automakers have opposed Japan’s participation unless it eases market barriers they say restrict American sales.

Acting U.S. Trade Representative Demetrios Marantis said the U.S. “welcomes” Abe’s announcement, while noting that “important work remains to be done” in consultations with Japan in areas including the automotive and insurance sectors.

“We look forward to continuing these consultations with Japan as the 11 TPP countries consider Japan’s candidacy for this vital initiative,” Marantis said in a statement. “We will continue to consult with Congress and stakeholders as we proceed.”

Unfairly Closed

Representative Sander Levin of Michigan, joined by 46 other Democrats, said in a letter to Obama that the automobile import market in Japan is unfairly closed to U.S.-made vehicles, and letting the nation join the regional trade deal would hurt rather than help address that imbalance.

Abe came in to office in December pledging to revive the world’s third-largest economy through aggressive monetary and fiscal stimulus to end deflation. Another component of his plan is reducing regulations to increase corporate investment and hiring, and joining the TPP could aid these aims, analyst Jun Okumura said.

“It serves as a form of outside pressure on the process as the Abe administration tries to implement deregulation,” said Okumura, a senior adviser to the Eurasia Group in Tokyo and former Japanese trade ministry official who took part in the Uruguay Round of world trade talks in the 1990s. “Japan needs to take part in these pacts with its partners and competitors.”

Possible Delays

Japan may not join the talks immediately as it took Mexico and Canada a year to gain permission from existing members after announcing they wanted to be part of the TPP negotiations. The other countries are the U.S., Australia, New Zealand, Vietnam, Singapore,Malaysia, Brunei, Peru and Chile.

Abe’s immediate predecessors, Yoshihiko Noda and Naoto Kan, failed to push through a decision to take part in the negotiations, due to opposition from their Democratic Party of Japan. Abe also faces opposition inside his own party.

“I cannot agree to negotiations that will abandon Japan’s food security, our ability to feed ourselves,” said ruling party lawmaker Hiroshi Imazu, whose constituency is on the northern island of Hokkaido, the country’s second-largest rice- producing area. “I don’t think we will be able to withdraw from the negotiations once we join.”

Japan imposes tariffs of 778 percent on rice imports, 328 percent on sugar and 218 percent on powdered milk. Eliminating a 38.5 percent tariff on beef would probably spur a jump of as much as 40 percent in imports and help exporters including the U.S. and Australia displace half of local produce, according to Tetsuro Shimizu, a general manager at Norinchukin Research Institute in Tokyo.

‘Sensitive Products’

“We will pay special attention to sensitive products and it is a matter of course that we will make the utmost effort to minimize the effect on them,” Abe said yesterday.

Government estimates released yesterday show a trade deal could cut production of agricultural and marine products by 3 trillion yen, a prospect that sparked anti-TPP demonstrations by agriculture cooperatives in Tokyo. LDP Secretary-General Shigeru Ishiba vowed at a rally this week to protect rice.

Abe said this week in parliament he was confident he could overcome dissent within his party, which holds its annual convention tomorrow.

“Once we have made a decision based on our discussions, we will work together,” he said March 12.

Insufficient Explanation

A March 11 poll by the Tokyo Broadcasting System showed that while 50 percent of respondents agreed Japan should join the TPP, 82 percent expressed concerns. Almost 85 percent said the government had not sufficiently explained the deal’s merits. The survey of 1,200 people had a margin of error of 2.8 percent.

The same poll showed Abe’s support at above 75 percent, which will probably keep the LDP unified in the face of an anti- TPP backlash, said Risaburou Nezu, a former trade negotiator and now a senior fellow at Fujitsu Research Institute.

“Abe is very popular, so there is no point in leaving the party,” Nezu said. “Abe knows this, which is why he can be decisive. LDP lawmakers have no choice but to go along with it.”

For Abe, the TPP is not just about the economic effects. “Japan will form a new economic zone with its ally, the U.S. and the countries that join will share the values of freedom, democracy, basic human rights and the rule of law,” he said yesterday in Tokyo.

To contact the reporters on this story: Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net; Takashi Hirokawa in Tokyo at thirokawa@bloomberg.net

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