Sebastian Moffett reports that the Japanese are worried they'll lose trading opportunities if the Korea-U.S. FTA becomes effective (Mindful of South Korea, Japan Considers Seeking U.S. Trade Agreement, Wall Street Journal, July 9):
The free-trade pact signed by South Korea and the U.S. in April is worrying Japan, which fears the deal could leave it on the outside looking in.
The agreement, which is awaiting congressional action, would abolish U.S. tariffs on Korean-made flat TV screens, putting Japan at a disadvantage. For every flat TV Japanese makers export to the U.S., they -- unlike their Korean competitors -- would still have to pay a 5% tariff.
The pact would also exclude cars imported from Korea from a 2.5% tariff that would continue to apply to Japanese-made vehicles.
"We can't get left behind Korea," says an official at Japan's Ministry of Economy, Trade and Industry. "Japan is worried about this."
They may want a U.S. FTA of their own:
For Japan, a deal with the U.S. would be the biggest possible FTA. A 2004 study by the Peterson Institute for International Economics in Washington estimated such an agreement with the U.S. could boost Japanese economic output by some 3%.
Lately the idea has gained the attention of Japan's leaders. Prime Minister Shinzo Abe's main economic-policy committee recommended last month that the country "consider" free-trade pacts with the U.S. and the European Union. A few business groups already favor a U.S.-Japan free trade agreement. The U.S.-Japan Business Council and the influential Nippon Keidanren, the Japan Business Federation, came out over the past year in support of an Economic Partnership Agreement, which would include free trade.
But its unlikely to happen soon:
Proponents of a U.S.-Japan deal are thinking well into the future. For a start, the U.S. free-trade agreement with Korea might not pass in Congress because of concerns about its potential impact on the U.S. auto industry.
What's more, the Bush administration's fast-track authority on trade agreements, which limits Congress to an up or down vote on such deals, expired at the end of June. In practical terms that means any further bilateral trade deals will likely have to wait until President Bush's successor takes over in January 2009. That could easily be someone who isn't keen on free-trade pacts: Hillary Clinton, who wants the Democratic nomination, has already declared her opposition to the deal with Korea.
Don't expect the Japanese farm lobby to be thrilled:
Even so, Japan has so far avoided big food producers in the free-trade agreements it has reached in recent years with trading partners starting with the city-state of Singapore. It has since signed similar agreements with other countries ranging from Mexico to Thailand, and is expected to sign a trade accord with Indonesia in August.
Tokyo recently started negotiating with Australia, a major exporter of farm products, to test whether such a deal was possible. The idea has already panicked the Japanese farm lobby. The Ministry of Agriculture, Forestry and Fisheries released a study late last year estimating that such an agreement would wipe out Japan's wheat and beet-sugar producers and halve domestic dairy and beef production. Much of the impact would fall on the cool, spacious northern island of Hokkaido, Japan's main center for those products. The local government there predicted that 88,000 jobs would be lost.
A free-trade accord with the U.S. would have even broader consequences. The U.S. extends both as far north and as far south as Japan, meaning American farmers can produce most of the products that Japanese producers can -- from wheat and milk in the north to pineapples and oranges in the south.
That, says Mr. Kobayashi of the Agricultural union, would put many Japanese farms out of business. He says that would reduce the beneficial side effects of having farms in Japan: the role paddy fields play in flood prevention, the cleansing effect of plants on the air and preservation of the cultural heritage of centuries of rice production. "If you removed tariffs," he says, "we couldn't keep up with this."
An agreement might force reform and increase Japanese agricultural productivity:
Some advisers to Mr. Abe's administration think the challenge would do Japan's farmers some good, by forcing them to change the way they do business. One reason Japanese farms are currently so tiny is that corporations aren't allowed to own farmland -- something the Agricultural Union opposes. That prohibition makes it hard for large farms with economies of scale to develop, and government advisers say the law should be changed. The Japanese government report suggesting a trade deal with the U.S. also called for reform of the agriculture sector, "without fearing globalization."
