Japan's Abe Makes Push for EU, Pacific Trade Pacts in Europe Visit

8 May 2014

Japanese Prime Minister Shinzo Abe issued a strong defence of his economic strategy this week – including a call for advancing trade pacts with the EU, US, and other partners – during his high-profile tour of Europe, pledging to not be afraid of domestic reforms as he continues his efforts to jumpstart the world’s fourth-largest economy.

“The Japanese economy is back,” Abe said in Paris on Tuesday at a ministerial-level meeting of the Organisation for Economic Co-operation and Development, which his government was chairing. “The vigorous economy that was once brimming with vitality as the ‘engine of world growth’ has returned once again.”

“The Japanese people are reaping the benefits of economic revival. The conditions are all set. Now, it’s time for bold reforms,” he pledged.

Abe became Japan’s Prime Minister in late 2012, having served a previous term in the role in 2006-2007. Upon his return to office, he pledged to institute a three-pronged plan known as “Abenomics” aimed at revamping the Asian island country’s economy, focusing on monetary stimulus, fiscal spending, and structural reforms.

Much of the Abenomics focus so far has been on the Japanese Central Bank’s efforts at bringing the country’s economy out of a long stretch of deflation, implementing an aggressive quantitative easing programme with the goal of hitting a two percent inflation rate within two years.

These efforts have yielded dividends, the Prime Minister insisted on Tuesday, noting that his country is “now truly on the verge of pulling out of deflation.”

He also highlighted the recent decision to increase the consumption tax rate – the first time this has happened in 17 years – as another example where he is taking “bold reforms,” along with a series of others.

Recent reports, such as one issued by the International Monetary Fund, have highlighted Japan’s economic growth since the launch of Abe’s strategy. However, the international finance institution warned, further clarity and implementation of structural reforms will be key in order to avoid seeing this progress wane. (See Bridges Weekly, 1 May 2014)

The OECD, in its own report on Tuesday, has similarly cautioned that the hoped-for inflation in Japan may not be matched with wage growth, which could in turn lead to decreased consumer spending and investment, and a resulting economic slowdown. The rich-country club also lowered its growth forecast for Japan this year to 1.2 percent, from the previous estimate of 1.5 percent.

 

Trade topping reform agenda

Top on his list of reforms, Abe told his Paris audience on Tuesday, would be to ramp up negotiations on a series of Economic Partnership Agreements, or EPAs, that Japan is in the process of conducting with various trading partners. These include the EU, members of the Association of Southeast Asian Nations, and the eleven other members of the Trans-Pacific Partnership (TPP).

“Regional trade liberalisation results in less economic welfare than global trade liberalisation,” Abe continued in his address at the OECD meeting. “However, Japan promotes multilateral EPA negotiations, such as those underway with the EU, not simply in pursuit of abolishing tariffs. Instead, it also stems from our wish to build a new economic order.”

A day later in Brussels, Abe met with EU leaders to discuss a series of bilateral issues, including the planned trade pact between the two sides. Following the Wednesday meeting, officials confirmed that they hope to wrap up the trade negotiations quickly, with Abe suggesting in subsequent comments to reporters that the deal could be completed next year.

“We reaffirm the importance of strengthening the trade and economic relationship between the EU and Japan, and of the early conclusion of a highly comprehensive and ambitious Free Trade Agreement (FTA)/Economic Partnership Agreement (EPA) which would play a vital role in this regard,” the leaders said in a joint statement following the Brussels summit.

The EU-Japan trade talks kicked off in April of last year, in what was welcomed as an “historic event” by officials at the time, given that the two sides together make up approximately one-third of the world’s economic output. However, the negotiations were launched with the caveat that any reductions in tariffs on the EU side must be matched by eliminations of non-tariff barriers by Japan. (See Bridges Weekly, 27 March 2013)

If sufficient progress is not seen in the areas of non-tariff barriers, railways, and urban roadmaps within one-year of the negotiation’s launch, the European Commission will be required to suspend the talks.

After five rounds of bilateral negotiations, the Commission’s progress review is currently underway, and will soon be submitted to the European Council. Media reports have indicated that Brussels is satisfied so far with most of Tokyo’s commitments in this area, suggesting that the talks will likely be allowed to continue.

“Negotiations have now reached a critical phase,” European Council President Herman Van Rompuy told reporters on Wednesday. “If the one-year review of the Free Trade Agreement so allows, we must raise the level of ambition and bring these negotiations to a speedy and successful conclusion.”

 “We want these negotiations to succeed,” European Commission President José Manuel Barroso added. “But for this agreement to be truly transformational, we need to inject a high level of ambition across the board, especially in the areas such as market access for goods, including agriculture, non-tariff barriers, public procurement, and geographical indications.”

 

Abe: US, Japan to “accelerate” TPP talks

Japan’s participation in another major trade initiative – the 12-country Trans-Pacific Partnership talks – has also been subject to close scrutiny by trade observers since the Asian economy joined nearly a year ago.

The main focus has been on whether Japan will be able to make sufficient concessions in agriculture and automobiles – both sensitive areas for the country – in order to satisfy its trading partners, particularly the US.

In recent months, the two sides have been holding a series of bilateral meetings in an effort to resolve their differences, particularly regarding Japan’s highly-protected agricultural sector. However, while a “path forward” was announced when US President Barack Obama visited Abe in Tokyo last month, it has not been made clear how far apart the two sides still are. (See Bridges Weekly, 1 May 2014)

“Negotiations are… in their final phase on the Trans-Pacific Partnership Agreement,” Abe said in Paris. “Japan and the United States will act in cooperation to accelerate negotiations further towards the early conclusion of negotiations by the 12 participating countries as a whole.”

Japan recently completed negotiations for a bilateral trade pact with Australia, in what many noted was the first deal that the Asian economy had made with a major agricultural exporter, and included some unprecedented concessions by Tokyo in the areas of beef and dairy. (See Bridges Weekly, 10 April 2014)

However, the US has said it is seeking even more ambitious results on agriculture tariffs in the TPP than what was agreed in the Australia pact, while Japan has urged Washington to show more flexibility, given that farm policy is a very sensitive topic domestically.

The resolution of the US-Japan divide is said to be key in advancing the TPP talks. Yet even if this path forward does lead to an outcome, various other issues still remain outstanding across the different negotiating chapters of the deal, and whether it can be completed by end-2014 – as Washington has said it wants – or could drag into 2015 remains highly uncertain.

In this context, chief negotiators for the 12-country talks are set to meet in Vietnam later this month, with a TPP ministerial expected shortly thereafter.

ICTSD reporting; “UPDATE 1-Japan meets most conditions for ‘vital’ EU trade talks – documents,” REUTERS, 5 May 2014; “OECD warns Japan’s economy may suffer inflation without wage growth,” THE JAPAN TIMES, 6 May 2014.

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