Agriculture takes a toll on Japanese economy
New Straits Times (Malaysia) | 2008/01/13
OPINION : Agriculture takes a toll on Japanese economy
LEE SIEW LIAN
A resurgent China has alerted Japan to the danger of losing its influence in Asia. Despite being While Japan is Asia’s most industrialised nation and the world’s second largest economy, experts say trade barriers in the agriculture sector are putting its firms extract a high price from the rest of the economy and in trade talks with other nations at a competitive disadvantage everywhere, writes LEE SIEW LIAN
JAPAN is struggling to cope with changes in Asia in the face of a rising China and to reshape its economic and political role in the region.
Emerging from its "lost decade" of stagnation and deflation, Japan has found itself lagging in free-trade deals and ceding influence in Asia as China’s economic might has grown.
While its economy arguably turned the corner two years ago, it is still immersed in a discourse over how to face a future featuring a population that is not only ageing but shrinking as well, and a belligerent and powerful farm lobby.
That was one conclusion drawn from briefings to a group of Asean journalists visiting last month for a symposium on East Asian integration, hosted by the Keizai Koho Centre — an arm of the Nippon Keidanren, the Japan Business Federation.
The symposium aimed to explore the scope for economic integration in East Asia in view of the proliferation of free-trade agreements (FTAs) in the region, especially with Asean nations.
Together, East Asian nations, including Asean, represent two billion people, a third of the world’s population, and gross domestic product of about US$7 trillion (RM22.5 trillion), about a fifth of world GDP.
Japan has seen export volumes fall to countries which have concluded FTAs with third countries, because their trade is diverted to preferred bilateral partners.
Trade diversion is expected to benefit rival South Korea, for example, which has preferential access to the US market under FTA negotiations concluded last year.
Without FTAs, or broader economic partnership agreements (EPAs), as Japan prefers to call them, domestic industries will hollow out when companies are forced to cut jobs and shift more production facilities out of the country.
Until May, when then-prime minister Shinzo Abe kicked off trade talks with Australia, Japan seemed set on the path to tackling the reform of agriculture and the heavy protection of rice in particular.
The Australia talks were widely seen as a dry-run for trade talks in the future with the US, which industrial groups have long pushed for.
Free-trade deals had been the linchpin of a perceived strategy to break long-standing policy deadlocks in Japan, and to pry open agriculture to market mechanisms and competition. But uncertainty has set in after the humiliating defeat in the Diet upper house for the ruling Liberal Democratic Party (LDP), which has ruled Japan almost uninterrupted since 1955.
The loss was a punishing blow from the LDP’s traditional support base, Japanese farmers who were pushing back against agriculture reform efforts championed by Japanese business interests.
Domestic protection of agriculture has hamstrung Japan’s ability to sew up free-trade deals, which in turn has hurt Japanese industry, according to Professor Masayoshi Honma of Tokyo University :
"Japanese firms based in this country are being forced (into) competitive disadvantage in every region of the world."
This is why reform of the notorious agriculture sector is urgently needed, says Honma, whose field is agriculture resource economics.
Agriculture accounts for a mere one per cent of gross domestic product (GDP). So the sector’s trade barriers extract a disproportionately high price from the rest of the economy.
The failure of the Doha round cost Japan some US$400 billion in potential benefits, for instance. Under the Junichiro Koizumi administration, some reform had already been set in motion, including the promotion of large-scale farms and the notion of an export-oriented agriculture sector.
Curiously, many ordinary Japanese appear to desire to protect the sector as much as farmers do, even though tariffs make food much more expensive. Rice costs perhaps three to four times more than in the rest of Asia, courtesy of a 778 per cent import tariff.
Konnyaku, a yam-like tuber, is also subject to a whopping 900 per cent tariff. In Southeast Asia, where konnyaku flourishes, it is widely consumed as mini cup fruit jellies. In Japan, it is eaten in jelly-like slabs and noodles.
Honma puts it down to a sentimental attachment to what the sector symbolises in the Japanese psyche : man living in harmony with nature and the idyllic myth of the agrarian past.
These farmers and their hold on policy making and public awareness, are increasingly being challenged by the reality of an ageing, shrinking Japan.
Indeed, Honma says the farm sector itself is already in a state of crisis, with ageing farmers abandoning cultivated land which in turn shrinks agricultural production further.
The prospect has also spurred a debate about whether Japan should open up to more foreign workers, to maintain productivity and stay competitive.
Japan has some two million registered foreigners, a record high for one of the most insular countries in the world and one of the few industrialised countries of the world that has not experienced tremendous migration.
The powerful Japan Business Federation has long contended that declining birth rates pose a serious threat to the country’s industrial base.
Demographics have now become one of the platforms from which Japanese industry has been aggressively pushing for reforms in agriculture and immigration, to secure the FTAs Japan needs to maintain economic growth.
Japan’s policymakers have long been perceived as reactive, internal divisions allowing for the survival of a large element of resistance, the teiko seiryoku as Koizumi called them.
With some pundits predicting Japanese politics is headed back to the "revolving door" system, when Japanese prime ministers came and went every few months, continuing economic reform seems unlikely.
But time is short. As Honma says : "(Japan needs) strong political leadership with a clear vision of its future."
