Japanese trade policy and the prospects of FTA’s,
TPP
Tengis Bat-Ulzii1
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Contents1. Trends in foreign trade & investment
• Trade balance, exports, imports • FDI inflow, outflow, net• Value added • Tariffs
2. Trade policy review• General policies• Current FTA's• Bi and multilateral activities• Agriculture protection
3. FTA's to boost economic growth in Japan• CJK FTA• EU-Japan FTA• TPP
4. Conclusion
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1. Trends in Trade & Investment• Trade in goods and services (2014)• Exports 913 billion US$ (ranked 4th)• Imports 947 billion US$
• Trade deficit of 34 billion US$
• FDI flow • Inward inflows of only 2,3 billion US$ in 2013.• FDI stocks below 4% of GDP• Outward flow of 135 billion US$ in 2013 (ranked 2nd )
According to OECD
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Trade in goods and services
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Trade in goods and services
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Trade in goods and services
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Trade in goods and services (exports)
Source: OECD DATABASE
Exports forecast
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Trade in goods and services (exports)
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Trade in goods and services (exports)
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Trade in goods and services (exports)
Source: MIT
Japan: Exports by category 2013
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Trade in goods and services (imports)
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Trade in goods and services (imports)
Source: MIT
Japan: Imports by category 2013
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Trade in goods and services (Terms of Trade)
Terms of trade are defined as the ratio between the index of export prices and the index of import prices.
Source: OECD DATABASE
Terms of Trade
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Trade in goods and services (Terms of Trade)
J-Curve
Terms of trade are defined as the ratio between the index of export prices and the index of import prices.
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Trade in goods and services
Source: OECD DATABASE
Net Trade 2014
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Trade in goods and servicesDomestic value added in gross exports
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Trade in goods and services2009 import content of exports
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Trade in goods and servicesmodest increase in Japan’s export volumes in last half of 2014
Source: Thompson Reuters Database.
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FDI inflowFDI inflows (Mill. USD)
Source: OECD DATABASE
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FDI inflow
Source: OECD DATABASE
FDI inflows (mil. USD)
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FDI inflowFDI inflows (% of GDP)
Source: OECD DATABASE
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FDI inflow
Source: OECD DATABASE
Key factors that hindered FDI
• Low level of corporate mergers and acquisitions, a key channel for FDI• High corporate income tax rate• Lack of clarity and accountability in Japans corporate governance framework• An unclear regulatory environment• Inflexible employment and termination rules for labor and the lack of mid-
career mobility• Rules restricting the entry of foreign workers
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FDI outflowFDI flow outward (mil. USD)
Source: OECD DATABASE
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FDI outflowFDI flow outward (mil. USD)
Source: OECD DATABASE
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FDI outflowFDI Flows outward (% of GDP)
Source: OECD DATABASE
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2. Trade policy review• Look at key recommendations from OECD
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2. Trade policy review• Japan's trade policy under Abenomics
• extending its network of economic partnership agreements (EPA’s)• Enhance transparency of economic policies• Reinforce competitiveness
• strategic approaches to emerging economies to support expansion by Japanese enterprises, export infrastructure and systems, and to secure supplies of resources
• Promoting FDI into Japan
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Japan EPA’s• Currently 13+1 EPA’s concluded.
• Bi and multilateral activities outside FTA• APEC• ASEM• US• EU• Russia• China• Republic of Korea• India• Africa• MERCOSUR (south American bloc)
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Japan EPA’s• Japan aims to increase trade under RTAs from 19%2013
to 70% in 2018• Japan has excluded some sensitive commodities• FTA with Australia significant • Agriculture problem
• Average age of rice farmers 68.5, • Chart for Producer support estimate (also
consumer spending is 1.8 times what it would have been without it)
• Decided to phase out prod. Quotas for table rice by FY2018 and to abolish direct payments for rice in 2018
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Agricultural protection
Source: OECD Database
Producer protection ratio 2014
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Agricultural protection
Source: OECD Database
Producer support estimate, % of gross farm receipts, 2014
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Agricultural protection
Source: WTO
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Agricultural protection• Why?• Japans agricultural conundrum
• Agricultural sector is small, less than 0.9% GDP and 4.5% of population• Central Union of Agricultural Cooperatives, JA-ZENCHU
• Single most powerful special interest group (10 mill. Members, $532bill. )• Demand
• Concentrated benefits (farmers) vs. diffused costs (consumers).• Farmers have strong incentive to keep protection.
• Supply• Japanese politicians to support agri. In exchange for votes.• Very little to loose not supporting consumers.
• Thus for politicians Marginal benefit exceeds Marginal cost.
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3. FTA’s to boost economic growth in Japan• China-Japan-Korea (CJK) FTA• EU-Japan FTA• TPP
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• In 1999, 3 parties agreed to hold yearly trilateral summits (sideline of ASEAN+3)
• Official study started in 2009 • Possible building bloc for a
regional FTA• Beneficial for all 3 parties
• Put pressure on agri. and fishery in Japan and Korea, while boosting higher technology in manufacturing
• Put pressure on tech. intensive manufacturing sectors, while boosting agri. And labor intensive manufacturing
3. FTA’s to boost economic growth in Japan:CJK FTA
Source: World Bank 2012
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3. FTA’s to boost economic growth in Japan:CJK FTA
Why is it moving slow?• 3 countries differ in stages of economic
development and technology• Lobbying groups• Japan’s preference to treat China as a
non-market economy.• Regional tensions• Complicated and long process
Solutions?• A dual track approach• CJ FTA• JK FTA• CK FTA
A China-Korea FTA would be the most beneficial
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Political tension
3. FTA’s to boost economic growth in Japan:CJK FTA
China
KoreaJapan
More beneficial to Japan than KoreaTherefore, talks suspended in 2004
Mutually beneficial
US
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3. FTA’s to boost economic growth in Japan:
TPP
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3. FTA’s to boost economic growth in Japan:
TPP• 12 countries accounting to around 40%
of World GDP• Agreement was reached on 5 October
2015 after 7 years of negotiations. • Lots of criticism around the world.• Investor-state dispute settlement• Medical sector• Intellectual property rights• Inequality• Environment issue
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3. FTA’s to boost economic growth in Japan:
TPPGoals:• Promote economic growth• Support the creation and retention of jobs• Enhance innovation, productivity and
competitiveness • Raise living standards, reduce poverty• Promote transparency, good governance • Enhanced labor and environmental protections• Early ambitions to reach 98~99% trade
liberalization
Leaders and representatives of the participating countries
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3. FTA’s to boost economic growth in Japan:
TPPProspects for Japan• Tightening US-Japan relationship• Boost in Abe’s long forgotten 3rd “Arrow”• Agricultural sector reforms• Encourage SME’s• Infrastructure• Consumer spending• etc
Current Concerns:• Political issue• Still, ratification is needed• Again, agriculture…• 2016 summer election• Voting power higher
in rural areas!
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US-Japan impact• Currently 60% of tariffs below 5% • U.S to abolish agriculture, chemical
and apparel tariffs immediately.• Japan to abolish textiles tariffs
immediately• Both delay liberalization on protected
sectors• US dairy in 20Years• US trucks in 30Years• JP beef in 16Years
3. FTA’s to boost economic growth in Japan:TPP
• Agricultural impact• 81% of 2328 agr., Forestry and
fishery products• Higher than any FTA before• Lower than other TPP participants• Only 30% of “sanctuary” five• No change in Rice
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Source: TPP tariff schedules; trade data from UN Comtrade.
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TPP for JapanEconomics• Agricultural reforms• Encourage SME’s• Increase FDI• Increase demand for infra.• Boost in agri., fishery exports• Increase in consumer spending• Tourism• Automotive industry (81% of auto
parts duty-free, 2,5% duty on cars to US in 25Y starting in 15Y)
• Broadcast exports 3x
Politics
• About 49~53% approved of TPP• Good timing for Abe’s political struggle, also
considered a victory• Agripolitics
• Boost in 3rd Arrow• Study in 2012 suggests:
• Japan will gain the most• 119billion$ added to exports by 2025• 14.4% increase in exports• GDP by 0.66% annually (as much as
1.6%)• 3 Trillion Yen decrease in agri. • Additional measures needed to max.
profits from TPP• Another study by MAFF suggests:
• No dramatic rise in imports• The rest will have Limited or no impact• Prices may fall in domestic market
• Possible hedge against China
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4. Conclusion• Abe’s 3rd Arrow• Still ratification is needed, so is TRANSPARENCY • Agricultural sector needs reforms• Overall effects of the TPP seems promising enough, could be a good
way to achieve higher productivity and innovation in Japan.• TPP and further FTA’s are vital to the revival of Japan