Impact of the Nuclear Crisis on Japan's Imports and Exports

By A. M. Newhall, BASC Research Assistant

In the wake of Japan negotiating multiple trade agreements with Australia and India in terms of imports and exports, one must wonder how deeply the ongoing nuclear crisis will hinder their standing in the global economic market. On March 29, 2011 Japan pleaded at a World Trade Organization conference for consumer markets not to ban their products, a plea that came on the heels of New Zealand and other states experiencing an export boost in Asian markets "as buyers shun Japanese products on concern they may be tainted with radiation."

Near the Fukushima Daiichi power plant in the northern region of Japan, radiation has been detected in the ocean water, in groundwater, in the soil, and on crops. This will directly affect the fishing and seaweed industries and undoubtedly hinder Japan's dairy exports. According to CNN, "radiation gets into the milk because it falls on grass eaten by cows." Consumer concerns have been dismissed by the U.S. Environmental Protection Agency, which asserts it is safe to drink milk with low quantities of radiation. However, given that Japan's domestic milk and other produce may now have a uranium flavor, the Japanese government may be more receptive to Australia's previous demands that Japan abolish its tariffs on its beef, wheat, sugar, and dairy products.

Furthermore, one wonders if the recent troubles and ongoing criticism centered on Japan's outdated nuclear reactors has likewise made India have second thoughts about their recent trade negotiations with Japan. A press release stated, "Japan and India launched negotiations in June on a pact that would allow Tokyo to export its cutting-edge nuclear technology to the energy-hungry South Asian nation, a hotly contested market for atomic plants." Whether Japan's "cutting-edge nuclear technology" will still be as fervently desired or favorably viewed remains to be seen.

Ultimately, the economic impact of this multi-pronged disaster will be one more burden for the Japanese people to bear in the years ahead. Obviously, this disaster may accelerate the removal of Japan's tariffs on imports at a much faster rate than previously forecast and perhaps alter the nation's views about free trade. Indeed, the disaster has resulted in the European Union proposing a free trade agreement with Japan that "would be the most significant trade deal signed by the EU with a single country." In short, the tragedy unfolding in Japan may greatly affect free trade in the Asia-Pacific region.

Indonesia Rising

by Michelle Chang

BASC Research Assistant

In December 2010, Foreign Policy magazine forecast ten trends in 2011 that will come to change the world in the coming decades. Among them is the rise of Indonesia.

As the world lavishes most of its attention on China and India, Indonesia doesn’t come across as a hot topic. It rarely crosses anyone’s mind that Indonesia is the fourth most populous nation in the world, a fact alone that marks countless opportunities and possibilities.

Indonesia has emerged almost unscratched from the recent economic crisis, as its financial sector was not closely integrated with that of the rest of the world. After a landslide victory for President Yudhoyono in 2009, Indonesia is now firm on the path to solve problems of endemic corruption and invest heavily in building new infrastructure all over the country.

It is also worth noting that Indonesia also has the largest Muslim population in the world. President Obama has already acknowledged Indonesia’s key importance in global security in the future. We do not yet know exactly how Indonesia’s future shall unfold, but we can be certain that its political and economic importance will continue to rise in the years to come. It is a future worth anticipating, and for that, we should all be keeping Indonesia on our radar. 

Japan Seeks To Join TPP

By Michelle Tan, BASC Research Assistant

On Feburary 26, 2011, the Japanese government started a series of forums nationwide to gain widespread support for possible Japanese participation in the Trans-Pacific Partnership Agreement (TPP). The TPP is a multilateral free trade agreement that aims to integrate the economies of the Asia-Pacific region. There are nine current negotiating countries (Brunei, Chile, New Zealand, Singapore, Australia, Malaysia, Peru, the United States, and Vietnam) and they have set a target for settlement of negotiations by the next APEC summit in November 2011. Japan’s government plans to make its decision about whether to join the TPP negotiations by June this year and to work out measures for the economic reforms needed to join the pact. The TPP is very comprehensive, requiring members to reduce all tariffs in ten years. As a result, there has been much domestic opposition to Japan’s plans to join the TPP, which has led to a wider debate and discussion about the path of economic development Japan needs to take in order to remain competitive.

Japanese Prime Minister Naoto Kan has strongly advocated joining talks on the TPP to promote trade liberalization. First, agreeing to the trade agreement is essential to ensuring that Japanese companies are not at a disadvantage to their Chinese and South Korean competitors in terms of export competitiveness. South Korea has already signed free trade agreements (FTAs) with the United States and the European Union, and is engaged in FTA talks with Australia. In comparison, Japan does not have bilateral agreements with any of these major trading partners. Additionally, joining the TPP is a key way to force fundamental change in Japan and make it open up its markets. According to the stated goals of the TPP, Japan will have to loosen up its restrictive environment for mergers, acquisitions, and private equity while promoting better corporate governance. She will also have to open government procurement to foreign firms, and remove barriers to foreign investment. The removal of trade barriers will lead to increased competition from increased imports, resulting in more innovation and a more efficient allocation of resources. Economic liberalization might well provide the crucial jumpstart Japan’s lagging economy needs. China recently overtook Japan to become the largest economy in Asia.

On the other hand, opposition to the TPP is very strong, especially in agriculture. Farmers fear that joining the TPP will cause an influx of cheap agricultural imports into Japan. Japan currently has extremely high tariffs on certain food items, including 38.5% tariffs on beef, 360% tariffs on butter and 788% tariffs on foreign rice imports. In particular, Japanese rice farmers are notoriously inefficient, with only 1% of all rice farmers making at least half their income from rice. The balance of their income comes from heavy subsidies and transfer payments from the government. Yet, at the same time, these rice farmers who make up less than 3% of the population have disproportionate political sway to block Japan’s TPP bid because of how parliamentary representation is apportioned.

However, unlike what is believed by some, pursuing TPP membership and encouraging a vibrant agricultural sector are not mutually exclusive. The European Union and South Korea are both carrying out fundamental agricultural reforms, anticipating the impact that regional market integration and liberalization will have on the agricultural sector. Similarly, Japan can seek to boost the productivity and competitiveness of its farmers such that the removal of tariff protection will not affect them adversely.

All in all, the discussion about the TPP has spurred the Japanese to start questioning long-held views about the structure of their economy. Japan now stands at a crossroad. Its decision about whether or not to join the TPP is an important decision about the future direction of its economy. Does Japan want an open and dynamic economy or an economic structure that no longer seems to meet her needs?

Harmony with Chinese Characteristics

By Cindy Li, BASC Research Assistant

As social unrest spreads rapidly across the Middle East, "social management" is once again a great concern for the Chinese government. In their efforts to curb the initiation of a "Jasmine Revolution," government leaders further limited access to social networking websites and text messaging services and have detained several activists linked with the proposed protests.

Stanley Lubman, a long-time specialist on Chinese law and professor at the UC Berkeley Boalt Hall School of Law, writes on instances of rights violations that occurred in the name of maintaining social harmony. Lubman’s blog post on the Wall Street Journal’s website criticizes Chinese authorities for using violence and interfering with communications technologies in order to "maintain social order."

A smooth transition from the rule of the party to the rule of law remains an obvious determinant of the long-term success of the Chinese economy. The government’s continued struggle with its desire to maintain harmony in the present at the risk of significant social unrest in the future should be a concern for many people. Lubman’s blog post offers much needed exposure of the faults of the government, but, like many of its predecessors, fails to provide alternatives for addressing the very real concerns the party leaders face today.

India and Japan Sign CEPA

By Viola Tang, BASC Research Assistant

On February 16, 2011 India and Japan signed a Comprehensive Economic Partnership Agreement (CEPA) that will remove tariffs on 94% of trade between the two countries by 2021. The agreement aims to boost bilateral trade between the two countries, from the current amount of US$10.36 billion to US$25 billion, in four years. India will gain from removed tariffs on food products (including pepper, tea, and curry), textiles and pharmaceuticals, as well as the new allowance of ‘commercial presence’ of Indian working professionals in Japan to set shop and provide services. Japan will gain from reduced barriers on products (including auto parts, steel imports, electronics and machinery) and greater opportunities to invest, with ensured protection of intellectual property, in key resources and mega industrial and infrastructure projects in India. The agreement also enables Japan to develop its production networks in Asia via relaxed restrictions on single brand companies. However, neither side has given leeway on sensitive sectors, such as rice and spices.

The pact highlights the advent of increasing strategic trade partnerships in response to changing power dynamics in Asia. For Japan, CEPA provides a counter-balance to its increasing economic dependence on China and diversifies the risk of diplomatic flare-ups. The agreement is also a move for Japan to remain competitive against South Korea, which has utilized free trade to improve its global competitiveness. Having just fallen to the number three spot in global GDP ranking, the pressure is on the Japanese government to boost growth. For India, the pact is the first with a developed country, providing a market for its booming economy. The agreement also led to proposals to create a US$9 billion revolving fund with Japan to finance an industrial corridor, which could fundamentally improve India’s infrastructure for economic development. Finally, the pact provides India with a competitive edge over China, South Korea and Vietnam, which do not have FTAs with Japan.

China Moves Further Away from Global Legitimacy in its Handling--or Lack Thereof--of the North and South Korean Crisis

by Mona Fang
BASC Research Assistant

With the renewal of North and South Korean tensions, it seems all though all the nations are scrambling to find solutions with the exception of the one country whose actions could really make a difference.  Despite China’s geographic, economic and political closeness to North Korea and various forms of public persuasion employed by national leaders, Chinese government officials have not only remain resistent to demands of greater Chinese involvement in the crisis, but also continue to justify their non-interventionist approach, placing themselves further and further away from the path towards becoming a respected global leader.  

Historically, China’s foreign policy towards its unpredictable neighbor, and really any controversial country, can be described as accommodating at best, or put more harshly, appeasement.   Although the lack of a formal peace treaty to conclude the 1950-1953 Korean War between the two nations mean that technically North and South Korea are still at war, the two sides have avoided open warfare, a “peaceful” coexistence, marked by intermittent skirmishes for the past half century. An overview of North and South Korean conflict has revealed the occurrence of several military clashes, often instigated by the unstable and unpredictable North that seemed dangerously close to the beginnings of another open war.  More recently, conflict between the two in the past year flared up with the sinking of the Cheonan, a South Korean warship, and the death of 46 sailors in late March.  An investigation conducted by the South Korean government two months later led officials to conclude that the cause was a North Korean torpedo fired from a “midget” submarine.  In addition to public condemnation, South Korean retaliation took the form of cutting back trade with the North.  Tensions continued to mount as nearly a hundred thousand North Korean protestors gathered to condemn the South Korea accusation as intentionally creating cross-border tension between the two nations.  In spite of repeated demands from South Korea, Japan and the U.S. to publicly censure North Korea and take an active approach in resolving the crisis, China chose not to back UN Security Council action against the country and instead questioned the legitimacy and accuracy of the investigation reports, adhering to traditional Chinese policy of neglect and effectively leaving the growing crisis to simmer.  

Then, in late November, North Korean soldiers fired dozens of shells at a South Korean island, killing two of the nation’s soldiers.  In an attempt to justify their actions, the North Korean government pointed to South Korea’s previous firing of test shots in the region, despite South Korean insistence that none such shots had touched North Korean soil.  This latest skirmish around Yeonpyeong Island, a mere miles away from the Northern Limit Line, has once again drawn the attention of world powers like the U.S. and Japan and mobilized global leaders to attempt to resolve the conflict with the same strategy that evidently was a diplomatic failure: indirect pressure on North Korea that is contingent on China’s involvement.  U.S. efforts have included a phone call from President Obama to President Hu Jintao and “sharp criticism” of China from Admiral Mike Mullen, the chairman of the Joint Chiefs of staff.  While Chinese response has been one of typical hesitation and cozy diplomacy as indicated by a recent meeting between top government official Dai Bingguo and the Kim Jong-il in Pyongyang, global leaders should consider that perhaps such a lukewarm response from China is a mere reflection of the unwillingness of the U.S. and other world leaders to devote a substantial amount of time and effort in pressuring China to, in turn, pressure its North Korean ally.  

Regardless of who in the global community has the greatest responsibility and most important role to play in the situation between North and South Korea, China’s projected image of an increasingly influential economic giant that has been continuously reluctant to exert its leverage for purposes beyond its own self-interests is not only to the detriment of the entire global community but also clearly not doing anything in the way of establishing China’s desired status as a global leader.  North Korea and their actions against their neighbor to the south have presented numerous occasions for China move towards attaining the coveted legitimacy of a true world power and expand the foundations for their growing influence beyond that of pure economic might.  However, instead of taking advantage of these opportunities, Chinese officials continue to pursue an outdated and counterproductive policy of non-intervention in an era of global connectivity, feeding a growing globally accepted belief that China, despite their modern economic developments, is still centuries behind with respect to its attitudes foreign policy and international relations.

US Completes Long-Awaited Free Trade Deal with South Korea

by Ren Yi Hooi
BASC Research Assistant

As highlighted by the Washington Post and CNN, the US and South Korea have finally completed talks on their free trade agreement, which has seen unending controversy since 2007. This deal was reached after key concessions were granted by both sides, including a major reduction of tariffs on US auto imports on the part of South Korea and the waiving of US demand for complete access to the South Korean beef market.

Although it met with strong criticism from Public Citizen, an advocacy organization which claimed that the FTA would cause widespread job losses, it appeared to satisfy most US automakers that had previously held out against the deal. Business leaders such as Jeffrey Imelt, CEO of GE, also lauded the agreement for promoting both US economic and strategic interests. Various Korean sources reacted positively to the agreement as well.

The closure of the KORUS FTA not only paves the way for an expansion of trade between both countries, but also signals a strengthening of their bilateral alliance at a critical time marked by North Korea’s attack on South Korea. It is could thus be seen not only as an economic move, but one influenced by political motivations.

The FTA will enter into force once –and if– it is ratified by the US Congress.