Japan's warming to TPP poses political and diplomatic conundrums (2)

12:10, November 14, 2010      

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As Obama waxed lyrical about trade and growth in the region not having to be seen as "zero sum games" and that healthy competition can spur collaborative economic growth, during his keynote speech at the beginning of the two-day APEC summit on Saturday, his emphasis on U.S. exports creating jobs for U.S. people resonated more than his calls for "collaboration," "acting together," and " strengthening ties."

"With every 1 billion U.S. dollars we sell in exports, five thousand jobs are supported at home," the president said. "And jobs supported by exports pay up to 18 percent higher than the national average."

Whilst Obama made no apologies for his U.S.-first ethos -- hardly unsurprising following his party's recent loss of ground to the Republicans in the Congress -- he also called for nations with large surpluses to shift away from an unhealthy dependence on exports and take steps to boost domestic demand.

"No nation should assume that their path to prosperity is simply paved with exports to America," Obama said.

Granted, but in times of recession and definitely as the region emerges from a global economic meltdown all "assumptions" go out the window and all that remains are facts and a harsh reality. As regards Japan, the facts are that the nation has been unable to escape from post-bubble deflation and has since antiquity been an export-driven economy.

Added to this, the harsh reality is that until Japan's economy develops beyond its fledgling recovery, the employment situation will continue to present a serious problem for the government and consumers will not spend until business conditions improve. Long story short, domestic demand will follow an export-led recovery.

"It's true that Japan relies heavily on exports and it's for this reason that the government must tread carefully and deal with first things first, like enhancing relationships and reestablishing healthy diplomatic ties with its closest neighbors, " Maasaki Sakai, Senior Equities Strategist at Nomura Holdings Ltd. , told Xinhua in an exclusive interview.

"Japan's economy is based on its ability to export its technology and whilst taking steps towards freer trade initiatives has certain advantages, to achieve this there must firstly be domestic political and economic consensus, which there isn't, a healthy diplomatic and economic relationship with Japan's closest neighbors and trading partners, which there isn't, and until the government overcomes these obstacles, I think it's slightly premature to be leaping into TPP dialogues (and ultimately joining the FTAAP (Free Trade Area of the Asia-Pacific) as Japan has more pressing issues to deal with before any of this can move from theory to reality. Pragmatism is the way forawrd," he said.

Obama's failure to conclude a free trade agreement this week with South Korea, and the G-20's refusal to go along with the U.S. stance of formally criticizing China's alleged controls on its currency, highlighted the reduced U.S. influence in the region and hence if the government does indeed decide that joining the TPP is to take precedence, a proposition that is looking increasingly likely, there could be some turbulent times ahead for Kan and his frangible Democratic party, both in terms of domestic politics and economic and diplomatic ties in the East Asian region.

If the government decides to prioritize new trade deals over more pressing issues, "..it (the Japanese government) better be prepared for a three-pronged fight: among political parties in the Diet, among interest groups, and in the court of public opinion," writes Harris.

Source: Xinhua

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