FW: [PEN-L:19439] Multilateralist Japan

[NYTimes]
November 9, 2001
WORLD TRADE
Japan: Ready for W.T.O. Talks, and Ready to Deal
By JAMES BROOKE

TOKYO, Nov. 8 - As trade ministers converge on Doha, Qatar, for a
World Trade Organization meeting that begins on Friday, Japan, long
the world's staunchest multilateralist, is quietly hedging its bets,
pursuing a parallel policy of negotiating bilateral free trade
agreements.

Frustrated by the glacial pace of group talks, fearing a rising China
and hoping to tailor deals to protect its antique agricultural sector,
Japan is talking one on one with its major trading partners. After
disdaining bilateralism and regionalism in the 1990's, Japan now faces
trading blocs in North America, South America and Europe.

Just this week, China announced that it had agreed to negotiations
aimed at forming in 10 years the world's most populous trading bloc:
1.3 billion Chinese, plus the 500 million inhabitants of 10 Southeast
Asian countries.

At the same time, Japan's exports are shrinking and its once- vaunted
trade surplus is melting like butter. For the first half of this
fiscal year, from April through September, Japan's trade surplus was
43 percent below the level of the comparable period last year.

"W.T.O. is still the major interest for us, but it takes years to
conclude a new round," said Nobuo Tanaka, vice president of the
government's Research Institute of Economy, Trade and Industry.
Referring to Japan's sudden surge of interest in bilateral free trade
associations, he added, "I can see associations with Korea and Mexico,
Canada and Australia."

Last month, Japan wrapped up a free trade agreement with Singapore,
the first such bilateral agreement for Japan, which is the world's
third-largest trading nation, after the United States and Germany.
Seeing itself as a Pacific trading hub, Japan is encouraging new
bilateral spokes to Mexico, Australia, Canada, Chile, South Korea and
Taiwan.

Behind the interest is the realization that giant Japanese trade
surpluses are as passé as disco music.

In the first half of this fiscal year, Japan's trade surplus was down
6.5 percent with the United States, 33.5 percent with Europe and 59.5
percent with Asia. Over the last two years, imports have grown
steadily, while exports have stagnated or dropped. Trade surpluses,
part of Japan's economic identity since 1965, could disappear in five
years.

"Back in the 1980's and early 1990's, we were not interested in free
trade agreements, but since then, we have started to become surrounded
by these groups, in Europe and the United States," said Noboru
Hatakeyama, chairman of the Japan External Trade Organization, a
government trade promotion agency that favors bilateral pairings.

In Doha this weekend, Japan plans to pursue an agenda of keeping farm
protection, liberalizing trade in services, standardizing investment
rules and restricting antidumping practices. But after the collapse of
the 1999 trade meeting in Seattle, Japan has become disenchanted with
the slow pace of the 142-member organization.

Surrounded by water and lacking in natural resources, Japan has
historically been sensitive to its dependence on foreign trade. Many
Japanese still believe that the United States and Britain provoked the
war in the Pacific when they cut Japan off from Asian sources of oil
and rubber in the summer of 1941. Modern Japan imports most of its
food and its energy sources, a dependency that was underlined last
week when Japan's last coal mine announced that it would close in
January.

At international trade meetings, Japan has usually taken refuge in
multilateralism, joining with Europe to protect domestic farmers with
tariff walls. The crowd was a safe place for the Japanese to avoid
drawing Japan-bashing attention for protectionist stands.

Robert G. Wright, Canada's ambassador to Japan, said, "For 40 years,
Japanese were the strongest multilateralists on the block, then they
suddenly felt very isolated, with free trade associations all around
them."

If a liberalization agenda does not emerge from Doha, Canada and many
other countries will line up to negotiate bilateral trade agreements
with Japan, which is still the world's second-largest economy despite
a decade of low growth.

"When Japanese authorities look in the direction of Singapore and
Mexico, I want them to find Canada on their radar screen," said Pierre
S. Pettigrew, Canada's minister of international trade, during a visit
here last month. "We should also be thinking about what Japan and
Canada could be doing together."

Under one timetable, a Japan- Mexico free trade pact would go into
effect in two years. Eying a backdoor to the United States, the Toyota
Motor Corporation (news/quote) announced last week that it planned to
build a manufacturing plant in Mexico by 2003, joining Nissan and
Honda there. Australia and Japan have asked a bilateral business panel
to deliver a feasibility report six months from now on a free trade
association.

Taiwan and Japan agreed last month to conduct a similar study for the
potential of trade integration. In announcing the joint effort,
Taiwan's economic affairs minister, Lin Hsin- yi, noted that among the
world's 30 largest economies, Japan, China, Korea and Taiwan are the
only ones without free trade agreements. (Japan's agreement with
Singapore is to go into effect next April.)

"They must be very ambivalent about all this," Michael H. Armacost,
president of the Brookings Institution, said last month on a visit to
Tokyo, where he was United States ambassador from 1989 to 1993. "When
I was here they felt that multilateralism was the best way to go."

Spurring Japan to action is the fear that Asia is falling into China's
economic orbit, a move that could lock Japan into peripheral
isolation.

China is urging the Association of Southeast Asian Nations to begin
free trade negotiations, Atsushi Yamada, a columnist for Asahi
Shimbun, warned last month. "If Japan does not act forcefully to
liberalize its markets," he added, "it will likely be left out in the
cold."

Seeking friends, many Japanese are once again looking across the
Pacific to the United States. Some talk of a liberalized trading pact
between the two nations, which have the world's largest economies.

The big obstacle would be agriculture. Japan maintains high import
tariffs and funnels about $4,500 in subsidies into each acre of
farmland - far more than Australia, Canada and the United States.

The votes of Japanese farmers keep the Liberal Democratic Party in
power, and the government shows no interest in liberalizing
agricultural imports.

"As long as we include goods and agriculture, both Japan and the U.S.
will encounter political difficulties," Ryozo Kato, Japan's new
ambassador to the United States, said in an interview here late last
month. Trade could be promoted, he said, through a different kind of
free trade association, "one which sets aside goods and focuses more
on the mobility of people, services and investment."

But in recent speeches, Robert B. Zoellick, the United States trade
representative, has shown little interest in compromise. In one he
said that "opening markets for U.S. farmers and ranchers is a top
priority in our trade agenda."

Bilateral agreements have to be submitted to a World Trade
Organization committee for review, largely to make sure that they do
not discriminate against other countries. To avoid setting off alarm
bells, Japan and Singapore have labeled their new agreement an
Economic Agreement for a New Age Partnership.

While major food exporters, like Canada and Australia, do not want to
drop the issue of Japan's agricultural subsidies unilaterally, their
views seem tempered by pragmatism.

"About 35 percent of Canada's global trade is in services," said Mr.
Wright, the Canadian ambassador. As for working out a deal with Japan,
he added, "Before we say it is not doable, let's see what's doable."