May 11, 2007; Volume 03, Number 17

of the

Japan Considered Podcast

[Listen to the audio file by clicking here]

Clink Links Below for Today's Topics

Introduction
Dr. Edward Lincoln Explains the Significance of FTAs and EPAs
Domestic Politics: Looking Toward the July Upper House Elections
The “Next Big Event” Syndrome
Important Changes in Japan’s Domestic Political Environment
Concluding Comments

Good Morning. From Beautiful Spring Valley. In the Midlands of South Carolina. Today is Friday, May 11th, 2007. And you are listening to Volume 03, Number 17, of the Japan Considered Podcast.

Introduction

Thanks for tuning in again today. And thanks to those of you who wrote in to comment on last week’s program. Very positive reaction to Gregg Rubinstein’s explanation of the recently concluded 2+2 U.S.-Japan consultations. Thanks again, Gregg, for the time. We’ll have to do it again soon. And please continue to send your comments and suggestions to me at RobertCAngel@gmail.com. I read and appreciate them all. And reply to as many as I can directly.

This week, I’ve got another treat for you. Earlier this morning I talked with Ed Lincoln via Skype Phone. Ed explains the significance of this talk about free trade agreements, and economic partnership agreements. FTAs and EPAs, to some of you. As usual, Ed combines his academic knowledge of economics with a very keen political sense. One of the few professional economists around able to do that. And get it right.

As most of you know, after a long career in Washington, Ed now directs the Japan-U.S. Center at New York University’s Stern School of Business. He also spent several years in Tokyo as special adviser to Ambassador Walter Mondale,. I’ll put a link in the transcript to the website for his Institute. Have a look around! There’s lots of useful information on economic Japan there.

In addition, we’re long overdue considering the domestic political environment in Japan. And how it’s changed, short- and medium-term. No predictions here. Just consideration of the various factors I consider most imp  ortant in determining what will happen in the future.

Dr. Edward Lincoln Explains the Significance of FTAs and EPAs.

So, let’s get right to the interview with Ed Lincoln. It’s a bit longer than usual. But well worth the time.

RCA: Good Morning, Ed Lincoln. Thanks for joining us again on the Japan Considered Podcast.

EL: Good Morning, Bob. Good to talk with you again.

RCA: This is at least your second or third appearance on the program, isn’t it?

EL: Probably.

RCA: I’ll have to start sharing revenues with you. You’re becoming a co-host here.

EL: I’ll get rich!

RCA: Well, the problem is, there aren’t any revenues. But, nonetheless ….

I called this morning to ask your views on these FTAs, these free trade agreements we’re hearing so much about. Is there anything to them?

EL: Well, they’ve become increasingly important as more governments around the world have showed a preference for negotiating this kind of agreement. For economists, there are problems. The economics profession is deeply divided over whether these are a good idea or a bad idea. The reason they might be a good idea is that they can accelerate the removal of trade and investment barriers. And economists generally believe that more open trade and investment is good for the world.

On the negative side, the danger for all FTAs is that we create something called ‘trade diversion.’ If you have, say, a ten-percent tariff on the import of a good, you’ll still import that good from the world’s most efficient producer. But let’s suppose now you sign an agreement with one particular country that has an inefficient producer, but now can dominate your market because their product comes in with no tariff. And everybody else has to pay the tariff. Economists don’t like that. Because that encourages inefficient producers in the world.

There’s another issue as well. Which is that every single one of these agreements is different. They all have different rules of origin. Leading to what Jagdish Bhagwati calls the spaghetti ball effect. Probably, the people who love free trade areas the most are lawyers. Because it takes a lawyer to figure out whether or not the rules enforced properly. So, there’s deep division about these things.

RCA: Have the free trade agreements that Japan has already signed had any actual economic effect?

EL: Not much. In part because, in general, Japan has done the same thing the United States has done. Which is mainly to sign agreements with relatively small countries, or small economies. For example, Japan actually doesn’t have that much trade with Singapore. So the impact on Japan of that agreement would be small. The only one that I would say has some significance is with Mexico. Because the Japanese face a specific problem in Mexico. Which was that they had been able to export parts to their factories in Mexico duty-free if the assembled products from those plants were to be exported from Mexico. Obviously, into the U.S. market. This was under a plan that Mexican government had established back in the 1960s.

But, when Mexico joined NAFTA, that preference on imports of parts was to be phased out. Obviously, that didn’t affect the United States. Because we had an FTA with Mexico. It ended up not affecting European factories because the E.U. very quickly negotiated an FTA with Mexico. That left the Japanese as the major investors in Mexico who would be disadvantaged by this change when it was due to be phased in. Which I believe was 2004. So, that drove the process of negotiating an FTA with Mexico. Which the Japanese government now has concluded.

RCA: One other thing. I hear another acronym. EPA, or economic partnership agreement. Are these any different than the FTAs? Or just another phrase?

EL: Well, not really. The reason the Japanese call them economic partnership agreements is because they go beyond traditional trade and quota barriers. That, however, is true of virtually all FTAs, including those negotiated by the United States.

And it is, in fact, partly because of the ability to go beyond traditional at-the-border barriers that governments like the United States government and American business like FTAs. You can get at, for example, investment rules. Which the WTO has not touched yet. You can get more deeply into expanding opportunities in various service industries. Where the WTO has started to work. But hasn’t gotten very far.

So, in fact, what the Japanese call an economic partnership agreement is no different from the normal terminology of a free trade area.

RCA: Has all of this bilateral negotiation replaced the multilateral efforts we used to have on international trade liberalization?

EL: Well, that’s a big concern. In all governments, as you know better than I, there are limited human resources. And if you have your trade negotiators running around the world negotiating FTAs, they have less time to spend on the multilateral process.

We are, in fact, at a rather worrisome time at the multilateral level. The current round, the so-called Doha Round, is stalled. And has been stalled for a couple of years. It’s going to take a concentrated effort by trade negotiators in many countries to get this round settled. And that may not happen. If they are putting their time in, and are pleased with the outcome of their bilateral negotiations.

RCA: An interesting perspective …

EL: If I might add one thing to that which may interest your audience. On the political side. There may be an additional bureaucratic advantage to FTAs. Whether it be the U.S. government or the Japanese government. It comes from the fact that people hold their positions in government for generally two or three years. That is the American political appointees. Or, on the Japanese side, because of the normal rotation process of career bureaucrats. That means no individual can say, “I negotiated successfully the Doha Round.” Or the Tokyo Round. Or the Uruguay Round. Because they last too long. These big multilateral negotiations go on for anywhere from five to ten years.

But it is possible to negotiate an FTA in one to two years. That is clearly within the space of time an individual would be in a key position regarding those negotiations. That gives them, if nothing else, bragging rights through the rest of their career that “I am the person who negotiated this deal!” I think we probably shouldn’t underestimate the importance of that in motivating behavior in governments.

RCA: Ever since the United States negotiated the FTA with South Korea there’s been fluttering around in Tokyo about the fear of being left behind again. An old theme there. Are we likely to see an FTA between Japan and the United States in the near future?

EL: No, absolutely not.

RCA: Does it matter?

EL: It would matter, mostly in a negative direction, if we did negotiate one. Let me get that taken care of first. It would be negative because we are the largest and second-largest economies in the world. We have a lot of trade between the two of us. That would create a fair amount of trade diversion. When you have trade diversion, but your partner is a little country, it doesn’t matter that much. But with Japan, this would matter. It would create a negative economic effect rippling through the world that I think would be best to avoid.

So that’s the economist’s answer to why this wouldn’t be a good idea. But, it’s unlikely to happen for a number of reasons. One, politically, the Bush Administration is not about to start a new FTA negotiation at this time. The FTA with Japan probably take more to negotiate than the one with South Korea. So, they’re beginning to get out of that window of time where they could finish it and have the bragging rights for it.

Second, and more importantly, all of the obstacles to such a negotiation remain in place. To summarize it, the conviction on the American side, that the Japanese government is simply not ready to make the kinds of offers that would be necessary to have the U.S. government sign a document. Lacking that conviction, the government doesn’t want to start those negotiations. No trade negotiator wants to sit down at the table to begin a negotiation with the expectation that it’s going to fail. There just isn’t that confidence on the U.S. side that the negotiation would produce enough that we would want to sign the agreement after that.

This is partly an issue of agriculture. We cannot have an FTA with Japan that leaves out, substantively leaves out, agricultural issues. Even with South Korea, by the way, my understanding is that there are fairly substantial concessions on agriculture. Although the South Koreans did manage to get rice excluded from the final agreement. In the case of Japan, there isn’t the confidence they’d come forward in agriculture.

There are other issues as well. There was a very damaging report from Keidanren put out last year. Saying they were all in favor of an FTA with the United States. But then listed what their conditions are. And it was basically that Japan not make a concession on any of the things the United States might want.

RCA: Oh dear.

EL: On the industrial side.

RCA: Not too encouraging.

EL: Not terribly encouraging. So, to me, it’s unlikely that this is going to happen. But the Japanese response to the South Korean one, as you say, was entirely predictable. ‘Oh dear, Japan is being left behind.’

RCA: Do you think Japan will negotiate some of these, or similar agreements, with the E.U., or other major trading countries around the world?

EL: Well, that’s conceivable. The E.U. tends to have, if anything, a harder line on trade with Japan than the United States does. Which diminishes the possibility of this happening. As you’ll recall, some of their countries continued to have relatively stringent import quotas on Japanese cars up until the time of the formation of the E.U., at the beginning of the 1990s. Not all that long ago. So, …

The one relatively big one that Japan is in the process of trying to finish up this year is with the ASEAN countries, as a whole. Not individual ASEAN countries. But a blanket agreement with all of ASEAN, matching the one that China has negotiated. Matching in terms of the scope of the countries. That China already has signed with ASEAN.

The other one that people bring up from time to time, would there be a Japan-China FTA. Over the last five years the political environment has not been good for that. As you have discussed from time to time on your podcast. But there seems to be a thaw going on, on the political side. Which at least opens the possibility of it. But personally I would be a little surprised if that happened in the next year or two.

RCA: Is there any other thing that we non-economists should be looking at in this topic, that I’ve failed to ask you about?

EL: Well, to me the interesting thing, and the thing to watch for over the next several months, is whether the Bush Administration decides to make a last-ditch effort to save the Doha Round. If they don’t, then resolution of the Doha Round, at the very least, gets postponed to the next Administration. But we’ve seen, in fact, just over the past day or two, developments in Congress that suggest that even though the Democrats control Congress, they might possibly approve an extension of trade promotion authority. The negotiating authority the President needs to have to negotiate on trade issues. They might approve that.

That’s important because this authority expires this summer. And the Doha Round is not going to be finished in time for the White House to notify Congress that they’ve reached a deal before authority expires. So they need an extension to do that. They would have to work very quickly, though. Since next year is an election year. Nobody in Congress wants to have a vote on a big package like this coming really close to the election.

But it’s still conceivable. If the Administration decides to make that push. Then it would have implications for Japan. Because we are all collectively responsible for the failure to reach an agreement in the Doha Round. But if one party, the United States, decides to make a push to do it, that means we are going to lean on other principal players to remove whatever the obstacles were on their part to reaching an agreement. So we would be pushing on the Japanese to make more acceptable concessions in the Doha Round.

RCA: If that comes up, we’ll have to have you on the program again. Thanks so much for your time this morning. I know you’re busy. And I do appreciate you coming on, and helping out.

EL: Good to talk with you.

Always a treat to talk with Ed. We’ve known each other for a long time now. But I learn something new each time I get a chance to chat with him. Very few professional economists have his understanding of how politics affects the economy. Especially when it comes to international economic relations.

Domestic Politics: Looking Toward the July Upper House Elections

For some time now we’ve planned to consider Japan’s domestic political developments in more detail. So, let’s get to that right now. We don’t have time for a comprehensive treatment today. But at least we can get started. Today we’ll consider some critical environmental factors. And on the next program we’ll consider the main political parties that compete within that environment for control of Japan’s national government bureaucracies. 

The “Next Big Event” Syndrome

Political news in Japan, as in most genuine democracies, tends to focus around preparations for the next big electoral contest. That is, the research and writing of journalists in the know tends to be driven by anticipation of that next big event. As we’ve often mentioned on this program, journalists love to report on a real contest. As opposed to more mundane, less exciting things.  Even when those more mundane things are very important. Like the course of legislation through parliamentary committees. Or efforts to make government bureaucracies more efficient and responsive to public – as opposed to private – needs.

Political journalists would rather cover boxing matches, in other words, than Go tournaments. On this program, we don’t have to worry about that. If the Go match is more significant, longer-term, for Japan’s domestic politics or conduct of international relations, we’ll consider Go!

It’s only natural that political journalists focus on big competition events, like elections. Absent conflict there Is no politics. Since politics, for me at least, is best described as the effort to resolve important disagreements non-violently. Or, with a minimum of violence. So, political conflict, or competition, gets at the essence of politics. And good political reporting describes and interprets that “conflict.” The more significant the conflict, the better.

Some listeners may object that this focus on competition and conflict in politics overlooks “cooperative” political efforts. That it may actually encourage, or legitimate, conflict. They’d rather emphasize efforts to cooperate in pursuit of larger collective objectives. Objectives of the sort pursued by national political systems. Well, it’s an old debate. One we’re unlikely to solve here. All I can do here is make my biases clear. And proceed from that.

The most significant competition, of course, in a genuine democracy, is that over who gets to occupy the highest government office in the land. In Japan’s case, the premiership. This is an on-going, often unsettled, struggle in a parliamentary system. Since prime ministers serve no constitutionally fixed term of office. In contrast to their presidential counterparts. True, party rules and custom may place limits on prime ministerial tenure. And Lower House elections must be held at least every four years. After which the new members must vote on the prime ministership again.

But Japan’s constitution only requires the prime minister to be selected by majority vote of the parliament. And provides for parliamentary votes of “no confidence” to remove incumbents who no longer please that majority. Meaning prime ministers, in theory, can be driven from office at any time. This means, in Japan’s case, at least, that many important political stories are reported from the perspective of how they’re likely to affect the tenure of the incumbent prime minister.

We’re seeing an illustration of that now. Most of Japa n’s more insightful and interesting political commentary now is focused upon the July Upper House elections. And much of that reporting focuses on the effect the outcome of that election will have on Prime Minister Shinzo Abe. Will a serious LDP/New Komeito loss force Abe to resign? Will a big LDP/New Komeito win assure Abe’s future for some time to come? Will a minimal Upper House electoral win end the political effectiveness of the Abe Cabinet? All important questions, to be sure. But not the only important questions we have to consider to understand what’s going on these days in Japan’s domestic politics.

I’ll try to put all this into perspective this week and during the next or two by dividing our consideration into two basic categories. First, the most important aspects of the environment within which Japan’s political competition or conflict takes place. And next week focus on the two major competitors: The LDP and the DPJ.

Important Changes in Japan’s Domestic Political Environment

It’s easy to think of a list of significant changes during the past half-decade or so in Japan’s domestic political environment. Anyone’s list would include the effect of long-term prosperity. And widespread recognition of that prosperity, and confidence in its continuation. Advancements in communications technology. Generational change since the World War Two defeat and Allied Occupation. Virtual collapse of the doctrinaire Left in Japan’s national-level parliamentary politics. Growing public cynicism over the various anti-corruption efforts of Japan’s national-level political parties. The list could become long indeed.

The change that seems most significant to me, however, is that in the relationship between Japan’s political candidates and political parties, on the one hand, and Japan’s potential voters, on the other hand. It’s here I think we can best spend our time if we want to better understand what’s going on in Japan’s national politics today.

Simply put, I believe we’ve seen a significant change in the way Japan’s potential voters relate to the candidates and political parties for which they cast their ballots. And this change has been most apparent during the past ten or fifteen years. I’ll get to the determinants of this change in a minute. But first, some effort to describe it clearly.

Both individual candidates and the political parties to which they belong are required to appeal in some way to the potential voters in their electoral districts. This can be done in a number of ways.

What I now describe as traditional methods of developing voter support flourished under the old “1955 System.” With its Lower House multi-member, single-vote, medium-sized electoral districts. Individual LDP candidates had to rely upon enormously expensive “Koenkai” to assure them an adequate number of votes to win come election time. Socialist members, of course, relied on trade union organizations. While Komeito members relied upon the tight neighborhood cell-like structure of Soka Gakkai members. Member rolls of these LDP candidates’ Koenkai could reach many tens of thousands of potential voters. Indeed, they had to if they were to be worth supporting. They became institutions of great value, regularly passed down from one generation to the next.

Keeping the names and addresses straight alone was a gargantuan task. Especially before the computer era! And that wasn’t all. Communications with each member; presentation of programs; social events; excursions; and the like. All this cost vast amounts of money to assure the candidate that the individual voter would cast his or her ballot for the “right” candidate. Money the individual candidate or Diet member was expected to find somehow.

Add to this Japan’s strict limitations on the amount of money any candidate could collect or spend for electoral purposes. The result was many electoral candidates were forced to choose between obeying the law and winning elections. That is, conditions virtually forced many successful candidates to violate Japan’s strict election laws. Not just once. Not just marginally. But most of the time. And by a lot!

There were advantages and disadvantages to this traditional system. The biggest advantage was its predictability. At least when compared to the alternatives. This predictability provided Japan with political stability at the top during a period when the country could ill-afford anything else. But this predictability came at great cost. Most significant on the negative side of the ledger was erosion of the confidence Japan’s attentive public in its elected representatives. Erosion most visibly reflected in the decline in voting rates, and increase in the percentage of unaffiliated, or floating voters. That’s not good, longer-term. 

For years, Japan’s police and prosecutors seem to have turned a politically astute blind eye to all but the most blatant of illegal electoral campaign finance activities. That appears to be changing now. Another significant change. If the trend endures. Along with more intense prosecution of bid-rigging and other sorts of business collusion. Often among firms that contributed heavily to LDP candidates and Party organizations.

By the early 1990s, calls for meaningful “political reform” enabled incumbent politicians to enact long-overdue reforms of Japan’s outdated Lower House electoral system. By mid-decade, the notorious medium-sized, multi-member, single-vote electoral Lower House districts were gone. Replaced by a combination of smaller single-member districts and proportional representation seats intended too assure the survival of Japan’s smaller political parties.

Concluding Comments

During the weeks ahead we’ll continue to consider the effects and implications of these environmental changes. We’re way over time now. But earlier this week while preparing to put this show together, I found a bluegrass clip that you’ve just got to hear. It’s from the Original Seldom Scene. By the original, Truly Fabulous Five! Here’s the unforgettable ending to John Starling’s “C&O Canal.” From their fourth album, “Old Train,” released in 1973. I’ll put a link to the Country Sales site in the program transcript so you can buy a copy. If you don’t already have it. Just listen to the way John Starling and John Duffey bring their voices together to tell this story. Ah, so smooth it’d probably cure warts! Certainly chronic hysteria. Enjoy.

[bluegrass]

Goodbye all. Until next time.