Japan must draw on vitality of global economy


At the 2011 ASKA Conference, Hirokazu Kiuchi, Representative Director of Wagoen, an agricultural union corporation operating in Chiba Prefecture, said “Japan’s agriculture will be strengthened if Japan joins the Trans-Pacific Partnership (TPP) Agreement, and it is necessary to join TPP in order to improve the competitiveness of Japanese agriculture.”

Japan is undergoing population decline (lower birth rates and aging society). These demographic changes will push the Japanese economy into the realm of low or negative growth. Consequently, Japan’s relative position in the world will inevitably decline over the medium to long terms. In the early 1990s, the Japanese economy accounted for nearly 20% of global GDP. However, during fiscal 2011, this ratio will drop below the 10% mark. It is estimated that this ratio will stand at around 5% in 2020.

How can this downward trend be stopped? Japan has no choice but to open itself to the world and actively draw on the vitality of the global economy (the flow of people, goods, and money) and to thereby revitalize domestic industries and to strengthen the nation’s international competitiveness. In particular, the strategic pursuit of free trade agreements (FTA) with the countries and economies of the Asian-Pacific and other regions is an urgent task.

Countries throughout the world are entering into high-level FTAs with major trading partners. This process is being accelerated, given that the outcome of the WTO Doha Round negotiations has become increasingly uncertain. Unfortunately, Japan is being left behind. Unable to overcome the obstacles posed by domestic agricultural issues and regulatory reform issues, Japan has suffered many delays in its negotiation and conclusion of FTAs.

As of October 2010, Japan had concluded only 11 FTAs, and its FTA ratio (share of trade with FTA partners in a country’s total global trade) languishes at only 16%. In comparison, the European Union has concluded 29 FTAs and boasts an FTA ratio of 76% (including intraregional EU trade). The corresponding figures are 14 agreements and 38% for the United States, seven agreements and 36% for Korea, and eight agreements and 21% for China. These numbers point to the undeniable fact that Japan’s FTA ratio remains unusually low.

The significant gap between Japan and its rival, Korea, is especially worrisome and is threatening Japan’s competitive position. Take for example the FTA concluded between India and Korea. Shortly after the agreement came into force, India’s imports from Korea increased by 50%. It can be foreseen that Korea will soon be standing in an advantageous position in exports to both the EU and the United States. Slow progress in FTAs is now being counted as one of the six stumbling blocks slowing the Japanese economy and shackling its manufacturing industries, the others being the high value of yen, the electricity shortage, high corporate tax rates, CO2 emission restrictions, and labor practices.

At one point, there was much hope that Japan would join TPP. For example, addressing the Davos Conference on the subject of the “Third Opening of Japan,” former Prime Minister Naoto Kan stated very clearly that Japan would reach a conclusion on whether to join the negotiations by June 2011. However, this promise was not kept. On Aug 15, the cabinet approved post-reconstruction measures to revitalize Japan and to redesign and reinforce Japan's new growth strategies. This policy document indicates that Japan has effectively given up on joining TPP.

The slow policy response in the area of free trade will put Japan far behind other countries in the intense competition that surrounds the ongoing changes in the international environment for trade and investment. The very worrisome outcome of this is that Japan may be left behind in the future growth and prosperity of the global economy.

In response to this, I would like to propose the “Heisei Opening” of Japan to the world to be achieved through the implementation of the following five reforms in Japan’s domestic systems. In the course of FTA/TPP negotiations, Japan has never been able to take the initiative in the process of developing the rules of free trade and investment. This failure can be attributed to a series of obstacles and problems that include agriculture, immigration, and regulations/non-tariff barriers. A comprehensive program for reforming Japan’s domestic systems must be pursued in order to develop a better understanding internally.

1. Implement Structural Reforms in Agriculture

Japanese agriculture faces a number of serious problems that include the aging of the agricultural population (average age is approximately 65) and the scarcity of successors. The truth of the matter is that these problems threaten the future sustainability of Japan’s agricultural sector. To break out of this impasse, agricultural competitiveness must be strengthened and commercially viable business and industrial models must be applied to the sector. This requires the implementation of the following fundamental structural reforms and the fostering and training of management resources.

(a) Fostering Management Resources in Agriculture

Education of leaders must be provided to those who enter the agricultural sectors. The leaders then should be capable of acting strategically in the selection of agricultural products, improvement of agricultural efficiency, development of new marketing channels, management of brands, and promotion of exports.

(b) Increasing the Scale of Operation and Improving Productivity through Consolidation of Land Use and Ownership Effective systems must be developed for realizing economies of scale.

Specific measures to be taken include revision of the Agricultural Land Act to facilitate fixed-term land leaseholds and the legal mandating of the Basic Register of Agricultural Land.

(c) Promoting Agricultural Corporations by Abolishing and Easing Restrictions on Entry of Joint-Stock Companies

Conditions for certification as agricultural production corporation should be eased to facilitate the entry of joint-stock companies. Furthermore, public listing of such companies should be facilitated to encourage the flow of capital into agricultural production corporations.

(d) Expanding Marketing Channels and Establishing Brands

Regional brands and brands for agricultural products should be established by creating websites and antenna shops to differentiate themselves from becoming mere commodities.

Systems should also be developed for promoting direct selling.

(e) Exporting to and Operating in Foreign Countries

Agricultural exports to neighboring countries should be increased, and possibilities should be pursued for operating in foreign countries, including engaging in agricultural production in foreign countries.

As indicated in the statement by Mr Kiuchi in the opening paragraph, Japan should capitalize on TPP as an opportunity for further strengthening Japanese agriculture.

2. Promote Entry of Human Resources

Chinese, Indians, and Eastern Europeans currently account for the majority of Silicon Valley’s entrepreneurs. The entry of human resources from throughout the world is the source of American vitality. Japan should follow this example and endeavor to attract outstanding human resources from all countries.

The current Japanese situation is such that even the acceptance of candidates for nurses and certified care workers from the ASEAN region is riddled with problems. Various requests have been made for improving the present system, including the extension of period of stay of candidates and the provision of preparatory Japanese language training. These requests should be positively considered in light of Japan’s future population structure and employment and recruiting conditions in related industries.

It is important to actively recruit and encourage outstanding human resources to come to Japan.

3. Promote Deregulation

Industries protected by regulations tend to lose their vitality and competitiveness. On the other hand, deregulated industries that are subjected to free competition gain strength and are capable to compete in the global arena. This is the concept of the “competitive advantage of nations” put forward by Michael Porter. Because of protectionist policies, Japan’s pharmaceutical, chemical, and financial services industries were unable to compete internationally. However, such unregulated industries as automobiles, electrical machinery and electronics, and trading companies became strong.

Protectionist policies weaken an industry. To strengthen our industries, there is no other way but to abolish regulations, promote competition, invite new entries, encourage corporate innovation, and promote the process of replacing the old with the new. In order to achieve this, it is important to move forward on a program for thorough deregulation. This process should be led by the Government Revitalization Unit, which has full jurisdiction over regulatory reform for the entire government.

4. Develop EPA Complementing Systems

Trade and investment liberalization encompasses a large number of issues, which implies that it will not be enough to merely conclude FTA/TPP. As outlined below, it will be necessary for Japan to build the foundations for various systems that complement economic partnership agreements (EPA).

(a) Develope the legal foundations for investment (promoting the expansion of investment agreements, tax treaties, and social security treaties).

(b) Establish international rules for intellectual property rights, and countermeasures for counterfeiting and piracy, and strengthening international cooperation in these areas.

5. Strong Political Leadership

Success in free trade negotiations with trading partners requires decisive action for reforming domestic systems. This includes the ability to coordinate and adjust various domestic vested interests that stand in the way. All of this requires strong political leadership. Therefore, Japan’s policy management framework must be strengthened by unifying the government and the ruling parties. But beyond that, the prime minister and responsible cabinet ministers must provide the public with full and compelling explanations on why economic partnership agreements are important from the perspective of nation’s strategies. It is critically important to win the understanding and support of the people in this manner.

TPP and FTA negotiations should be used as an opportunity to strengthen those industries that have been weakened through over-protection. At the same time, concerted efforts must be made to create an environment that will allow Japanese companies to compete in the international arena on an equal footing. If we fail to do this, Japanese industries will continue to decline. Here again, there is a crying need for strong political leadership.

© Japan Today

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I agree 100% with #3. Avoid #4, the EPA is a disastrous bureaucracy that sees itself above the law ad hampers economic growth.

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Brilliant article. Have made many of the same points on various posts here regarding the TPP and agricultural reform. (Possibly because I took Michael Porter's class many years ago. Got the equivalent of an "A".) But, unfortunately, all this will fall on deaf ears, since you can bet no one in Japanese government truly understands international economics or how to make Japan more competitive. They are too busy being told what to do by JA and the Ag. Ministry. Bye, bye, Japan. Your "15 minutes" of fame and influence on the world stage is about over, and you have no one to blame but yourselfs, for sitting on your hands for the last two decades. Because now the list of problems -- at least six according to the Japan business heads -- is simply too big for Japan to surmount, and the required change too great. The land famous for incremental change refused to adopt this to their own society, and now it cannot absorb the complexity of the task facing it.

-2 ( +1 / -3 )

Item (e) Exporting to and Operating in Foreign Countries will not work - Fukushima. Further Promote Entry of Human Resources - this will solve many problems. Japan does not need investment in Japan, a lot of money. Japan needs people who know how to work with the investment. Japan needs a new revolution Meijin. You can start with earthquake prediction. < >Japan is spending hundreds of billions of where it was possible to do a few million. And the fact that people are dying, I'm not even talking about.

-1 ( +0 / -1 )

IMO Japan is still very closed to imports-try to personally import any decent quantities of any item and there will be some custom formality opposed to the quantity or use of the product ie some Japanese regulation classifies the item as somehow different. Some examples are contact lenses (2 month's supply at a time), ,cosmetics (20 tubes only)The Sedgeway was opposed and banned for road use here.Why? Foreign skis were rejected as being 'wrong' as Japanese snow was different! Walk into a Japanese supermarket and the choice is pitiful! Where are all the foreign beers and ciders that we can buy in Europe or the states?Where re all the cereals and different flours,varieties of ketchup?

Karma is coming home to roost in Japan I think.........

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The truth of the matter is that these problems threaten the future sustainability of Japan’s agricultural sector.

Japan's agricultural sector should be allowed to die a natural death. Japan has no business producing agriculture when other countries can do it much better, for much cheaper. Stick with things you do well, like manufacturing electronics and large scale infrastructure electronics (trains, nuclear power plants, etc).

Bring on the TPP, and let the chips fall where they may. Everybody else will be better off. No need for creating all kinds of government oversight, development, systems whatever.

-3 ( +0 / -3 )

Hori-san, this was your best article so far on JT.

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Japan is still a long long way from doing any of this stuff, the govt really wants to wait until the last lemming is falling before MAYBE attempting something

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