Abenomics, Agriculture in Focus at Japan Trade Policy Review
Japanese Prime Minister Shinzo Abe’s signature economic strategy came under scrutiny this week at the WTO, as members held a two-day review of Tokyo’s trade policies, institutions, and macroeconomic conditions.
As one of the WTO’s four largest traders, Japan must undergo a review of its trade policies every two years. The EU, US, and China must similarly undergo biennial reviews, while smaller traders are reviewed at less frequent intervals.
The review involves the release of a report by the WTO secretariat, as well as the preparation of a report by the trader under scrutiny. Fellow WTO members can submit questions for the member under review beforehand, as well as during the meeting itself, which is held at the global trade body’s Geneva headquarters.
This year’s review comes just a few months after Abe won a snap election that confirmed he would remain in office for at least four more years, unless he chooses to call an election sooner. (See Bridges Weekly, 18 December 2014)
Since taking office in late 2012, the Japanese premier has undertaken an aggressive three-pronged economic strategy, dubbed “Abenomics,” that included monetary easing, fiscal stimulus, and structural reforms.
Last December’s polls were touted as a referendum on this suite of policies, which had come under criticism in light of data that the Asian country had briefly slipped into recession, though it has since shown a slight rebound.
“The expansionary monetary and fiscal policy measures adopted since the last review have supported Japan’s economy but have been insufficient to achieve strong economic growth,” the secretariat report said, referring to the first two “arrows” of Abenomics.
The February 2013 WTO review had been held just a few months into Abe’s term and had highlighted the importance of structural reforms to bolster Japan’s efforts at economic recovery, with Tokyo then in the process of rebuilding after the March 2011 earthquake and tsunami. (See Bridges Weekly, 20 February 2013)
At the time, only the first two of the Abenomics “arrows” had been launched. Later that same year, the third arrow was launched under Japan’s Revitalisation Strategy, which was revised in 2014.
This year’s secretariat document noted that the structural reforms promised under the third “arrow” in Abe’s strategy remain vital for ensuring long-term sustainable growth in Japan, with the report calling specifically for additional trade and investment liberalisation measures.
Under Abenomics’ third arrow, the focus of Japan’s trade policy involves building upon and expanding its existing network of trade deals, along with promoting foreign direct investment into the country and adopting “strategic approaches” in Tokyo’s relationships with emerging economies.
Summarising the discussions held in Geneva this week, Bulgarian Ambassador Atanas Atanassov Paparizov, who chairs the WTO’s Trade Policy Review Body (TPRB), noted that members generally urged Japan “to pursue these structural reforms without delay, including trade and investment liberalisation measures.”
“Furthermore, as several delegations and the discussant noted, the first two [Abenomics] arrows are short term stimuli, but it is the third arrow which will provide the basis for long-term sustainable growth,” the TPRB chair said on Wednesday.
The highly-protected nature of Japan’s farm sector has long been the subject of international scrutiny and debate, despite agriculture only making up a small portion of the island nation’s economy. In 2012, the WTO report noted, agriculture only contributed 1.02 percent to Japan’s GDP.
The report acknowledged, however, that agriculture is important in Japan “for historical and cultural reasons and, according to the authorities, for food security.”
The WTO report noted that Japan has a trade deficit in agricultural products, with imports reaching over US$61.4 billion in 2013, while exports hit just US$3.4 billion that same year. Though those imports range across several tariff lines, with many involving cereal and oilseeds, agricultural exports were focused primarily on processed products.
“A high degree of government support and protection for farming has… meant that small-scale farming remains profitable, particularly when supplemented by non-farm incomes,” the WTO review said. “However, the result has been a steadily aging farming population and an inefficient agricultural sector.”
Various WTO members reportedly raised questions this week over Japan’s agricultural policies, particularly given that agriculture-related support and protection is still high compared to other members of the Organisation for Economic Co-operation and Development (OECD).
Abe has already made clear in recent weeks that he will not shy away from difficult policy initiatives, including those deemed necessary for Japan’s economic revitalisation.
In a major policy speech last month, the Japanese premier called on his country’s lawmakers to approve “the most dramatic reforms since the end of World War II,” focusing particularly on plans to overhaul key sectors such as agriculture. (See Bridges Weekly, 19 February 2015)
The premier outlined a series of reforms to the way the country’s system of agricultural cooperatives are run, with the goal of boosting farmer income and improving the competitiveness and efficiency of the sector.
Trading partners such as the US, which is currently involved in intense bilateral negotiations with Japan on agriculture in the context of the Trans-Pacific Partnership (TPP) Agreement, welcomed these reform plans this week, while noting that implementation will be key.
“The United States commends Prime Minister Abe’s efforts to reform the Japanese agriculture sector,” said US Ambassador Michael Punke at this week’s WTO meeting, referring to the potential reforms of agriculture cooperatives as “historic.”
“These long-awaited domestic reforms coupled with agriculture market liberalisation steps taken through the Trans-Pacific Partnership create the prospect of a new era for Japanese agriculture,” the US official said.
Proliferation of trade deals
The WTO report noted that the 2013 Japan Revitalization Strategy has committed the Tokyo government to increasing its FTA ratio – in other words, the percentage of trade volume subject to FTAs compared to Japan’s total trade volume – “from current 19 percent to 70 percent by 2018, by promoting economic partnership as a basis of global economic activities.”
Along with being one of the 12 TPP countries, Tokyo is also involved in a series of other regional and bilateral trade negotiations, including with the EU.
Other negotiations that have been completed, or have advanced significantly, include Japan’s deal with Australia, which went into force this past January. The WTO report also cited the deal in principle that Japan recently reached with Mongolia.
Tokyo is also in bilateral talks with Canada, Colombia, China, the Gulf Cooperation Council, South Korea, and Turkey, while being one of 16 members negotiating a Regional Comprehensive Economic Partnership (RCEP). Japan is also negotiating a trilateral deal with China and South Korea. (For more on the RCEP and the Japan-China-South Korea negotiations, see related story, this edition)
SPS, TBT, fisheries policies draw scrutiny
Among the various areas that were raised during this week’s review, members reportedly questioned the high number of sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT) that appear to go beyond international norms.
As of 31 March 2014, the secretariat report said, approximately half of the 10,525 Japanese Industrial Standards (JIS) corresponded with international norms, with 97 percent being harmonised “with identical or modified identical standards.”
The TPRB chair also noted the various questions raised about Japan’s fisheries subsidies and programmes during this week’s review, given that the Asian economy is one of the world’s largest producers and consumers of such products. Budget support also increased in the wake of the 2011 tsunami, which left the fisheries sector – which had already been seeing a production decline – “severely damaged.”
Other issues that drew notice during the review included customs procedures for certain agricultural products, as well a push by some members for Japan to open up certain services sectors to additional competition.
The next trade policy reviews on the WTO docket include Pakistan on 24 and 26 March; Australia on 21 and 23 April, and India on 2 and 4 June.