Fran O'Sullivan: Japan playing hardball on trade deal

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PM lets little NZ know his country is calling the shots — and leaves John Key with a lot of difficult work to do

Shinzo Abe (left) and John Key have much work to do  if a basic deal is to emerge by the end of this year.  Picture / Greg Bowker
Shinzo Abe (left) and John Key have much work to do if a basic deal is to emerge by the end of this year. Picture / Greg Bowker

Shinzo Abe didn't quite throw his weight around when he met John Key at Government House in Auckland this week.

But his verbal semaphore - transmitted through diplomatic niceties instead of clear speech - left the resounding impression that the Japanese Prime Minister believes his country's status as one of the world's largest economic power carries with it privileges.

It was realpolitik at its naked best.

Japan - one of the Asia Pacific region's trade recalcitrants - was letting little New Zealand know it called the shots when it came to the TPP endgame.

Those privileges included that of positioning Japan's entry to the Trans Pacific Partnership as giving status and weight to a regional trade agreement - a "strategic" edge as Abe put it - that would otherwise not give the TPP sufficient heft for Barack Obama to persuade the Congress to endorse the trade-offs necessary to conclude the "high-quality, comprehensive 21st century free trade deal" which the US president has promised.

It was a positioning which demonstrated an element of arrogance, not just towards New Zealand, which has strived hard to build the international case for TPP as the pathfinder towards a free trade area of the Asia Pacific, but also towards the other countries taking part in the negotiations - which include major economies such as Mexico as well as some relative minnows.

It also claimed the privilege for Japan's Prime Minister to stop short of endorsing one of the strategic goals which underpins the TPP - and let's remind the Japanese Prime Minister of New Zealand's singular role in positioning the agreement in the first place - which is the implementation of the removal of agricultural tariffs even if over lengthy phase-out periods.

Instead, Abe affirmed a goal for a comprehensive TPP deal without acknowledging that the endgame is to achieve trade liberalisation and economic integration - not calcification.

And he claimed the privilege for Japan to cock a snook at the International Court of Justice by suggesting it would find a loophole in the whaling ban to resume commercial fishing of that species in the Southern Ocean under a different guise.

Let's be clear here.

Japan's entry into the TPP does take the agreement to a new level.

But that level will simply be backwards if Abe cannot muster the courage and persuasion to use Japan's entrance to the TPP to take his economy to the next level by reforming an archaic and protected agriculture sector which is out of step with the prowess his country has demonstrated with high-end technology.

It's a point that John Key made - if somewhat obliquely - by saying that Chile, which has bilateral trade agreements with the other 11 negotiating parties, will not want to sign a regional deal which reduces is own existing trade preferences.

Japan has long been a recalcitrant in the free trade space.

But is is surprising that a prime minister whose much-vaunted "Abenomics" has ensured vital reforms to Japan's sclerotic economy lacks the will to press down hard on the most protected aspects of his economy.

The Apec leaders' Bogor declaration in 1994 set out some ambitious goals for trade liberalisation in the Asia-Pacific region. They committed back then to achieving free and open trade and investment by 2010 for industrialised economies and by 2020 for developing economies.

Apec members agreed to pursue this goal by further reducing barriers to trade and investment and by promoting the free flow of goods, services and capital.

At their Yokohama meeting in Japan in 2010, an assessment was made on progress towards achieving the goals.

Japan had clearly made considerable progress on the goods tariff front but it has cast a protective blanket over its agriculture - particularly farming, fishing and forestry.

In Key's own and more direct diplomatic semaphore telegraphed before the Abe meeting, he insinuated that Japan should be excluded from the TPP if a tariff-free trading area does not emerge as a result of the negotiations.

After the talks, he suggested Abe should consider the lengthy phase-outs of agricultural tariffs which would give protected sectors of the Japanese economy time to adjust.

Key also stressed that other political leaders - such as himself - had to face up to the necessary hard-sell messaging to ensure domestic support for TPP.

It is obvious that Key and Abe were poles apart on the TPP goal. Both sides have a lot of work to do if a basic deal is to emerge by the end of this year.

- NZ Herald

Fran O'Sullivan

A columnist for the NZ Herald

Fran O'Sullivan has written a weekly column for the Business Herald since its inception in April 1997. In her early journalistic career she was a political journalist in Wellington and subsequently an investigative journalist who broke many major business stories including the first articles that led to the Winebox Inquiry in both NBR and the Sydney Morning Herald. She has specific expertise in relation to China where she has been a frequent visitor since the late 1990s. She is a former Editor of the National Business Review; has twice been awarded Qantas Journalist of the Year and is a multiple winner of the Westpac Financial Journalism Supreme Award.

Read more by Fran O'Sullivan

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