Action 8. Position Free Trade (FTAs/TPP) as part of a Growth Strategy and Assert Leadership through the Creation of Rules

Hirokazu Kiuchi, chairman of Wagoen, an agricultural cooperative based in Chiba prefecture, has declared that the “TPP will make Japanese agriculture stronger.” But the TPP is not just about agriculture. To put a stop to Japan’s economic decline, it will be essential to open up Japan to the world, tap the vitality of the global economy, and promote the revitalization of domestic industry, including agriculture, and strengthen our international competitiveness.

1. Position Free Trade (Free Trade Areas, or FTAs and the Trans-Pacific Partnership, or TPP) as part of a Growth Strategy and Assert Leadership through the Creation of Rules
The EU’s free-trade ratio (trade with FTA partners as a proportion of total trade) is 77.6% (includes trade within the EU). The U.S.’s is 38.3%, South Korea’s is 35.2%, Australia’s is 24.9%, India’s is 21.6%, and China’s is 19.4%. Japan’s, however, is just 18.7%, an extremely low figure. The difference with South Korea in the level of effort to sign FTAs is particularly marked, and this is harming Japan’s competitiveness. After the FTA between India and South Korea took effect, imports from South Korea apparently increased by as much as 50%. South Korea is also expected to exercise an advantage in trade with the EU and the U.S. in the future. FTAs and the TPP must be positioned as integral to Japan’s growth strategy, and the country must demonstrate initiative during negotiations with other countries in the process of creating rules for the liberalization of trade and investment.
2. Restructure Agriculture and Make it more Competitive
The TPP will make it necessary to shift away from the introspective protection of agriculture in favor of making it stronger. However, Japanese agriculture is faced with serious problems such as aging farmers (their average age is around 65) and difficulty in finding successors. A fundamental restructuring is called for. Actions 44-46 constitute recommendations for radical reforms to make agriculture stronger.
3. Promote Deregulation to Encourage Free Trade and Lay the Foundations for Systems for Complementing That
Industries that are protected by regulations decline, while those exposed to free competition as a result of deregulation become stronger and capable of competing globally. This is the view espoused by Michael Porter in his book, The Competitive Advantage of Nations. Japan’s pharmaceutical, chemical, and finance industries lagged in internationalizing due to protectionist policies, and found themselves unable to compete. However, automakers, electrical/electronics manufacturers, trading companies, and so on grew stronger as they were completely unregulated. Protectionist policies emaciate industries. The only way to make industries stronger is to eliminate regulations, encourage competition, attract new entrants, force companies to fight, and foster vitality. To that end, the government’s Regulatory Reform Committee must serve as the control tower for aggressive deregulation.
On the other hand, because the issues involved in the liberalization of trade and investment are wide ranging, for some of them it will be necessary to establish a foundation based on EPA (Environmental Protection Agency) negotiations. With regard to investment, a legal framework will be required to expand investment and tax treaties, conclude social security treaties, and so on.
4. Politicians Need to Demonstrate Strong Leadership
Free-trade negotiations and deregulation involve a small number of people with vested interests putting up strong resistance against free trade while all those that would benefit cannot make their voices heard. As a consequence, well-entrenched regulations cannot be removed. To institute systemic reform, it is essential for all the beneficiaries to express their views and for politicians to exercise leadership. To that end, it will also be important for the prime minister and other ministers to properly explain to citizens why economic cooperation is important as a national strategy and to gain their understanding and support.
It is essential to leverage TPP and FTA negotiations as an opportunity to strengthen Japanese industries that have been weakened by excessive protection and to create an environment in which Japanese companies can compete worldwide on an equal footing. Otherwise, Japanese industry will decline. For this again, strong political leadership will be required.