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ECONOMY > Trade

Gov’t to create new body to overhaul trade strategy

By political reporter Daishi Tajima and economic reporter Sachiko Aoki

 

In light of President Donald Trump’s signing of an executive order withdrawing the U.S. from the TPP, the government has decided to create a new body reporting directly to the Kantei (Prime Minister’s Official Residence) to serve as the “control tower” for trade negotiations. This is meant not only to underscore Japan’s position of promoting free trade, but also to prepare for bilateral negotiations, an option which Trump favors. Dealing with Trump, who has been making strong statements on trade policy, is bound to be tricky.

 

Prime Minister Shinzo Abe proudly stated at the House of Councillors plenary session on Jan. 25: “According to the U.S. Department of Commerce, Japanese companies in the United States have made accumulated direct investments in excess of $411 billion and have created some 840,000 jobs. Japanese companies have contributed to the U.S. economy as good corporate citizens.”

 

Trump has repeatedly attacked Japanese companies in his statements since around the time of his inauguration. Abe refuted him confidently. He intends to cite concrete examples of Japanese companies’ contributions to the U.S. at the Japan-U.S. summit meeting, which is being arranged for Feb. 10.

 

However, Abe was vague when asked how he would deal with Trump’s proposal for bilateral trade negotiations in place of the TPP. He said: “I would like to refrain from speculating on U.S. policy.”

 

For now, the government’s official position is that it will “persevere in obtaining [Trump’s] understanding of the TPP” (in Abe’s words). However, there has been an opinion in the administration since the presidential election last November that “it will be difficult to make Trump change his mind” and that a new organization capable of negotiating with the U.S. is necessary. “We must avoid a situation where trade with the U.S. declines due to a stalemate resulting from Japan’s insistence on the TPP,” says a Kantei source.

 

It appears that the history of tough trade negotiations in the bilateral relationship, under which Japan relies on U.S. forces for its security, also influenced the decision to create a new body.

 

After former Prime Minister Yasuhiro Nakasone assumed office in 1982, he built a close personal relationship with President Ronald Reagan and the two leaders were on a first name basis. Nakasone even showed consideration to the U.S. by proposing to remove the 1% of GDP ceiling on Japan’s defense spending, but the U.S. still took issue with its trade deficit with Japan. Bilateral trade frictions intensified over autos and semiconductors.

 

With regard to security, Trump has been threatening to demand an increase in Japan’s share of the costs of stationing U.S. forces in Japan. A senior government official explains that the new body will report directly to the Kantei because “security should not be used as a bargaining chip for economic issues, and this is meant to demonstrate Japan’s strong determination to promote free trade.”

 

On the other hand, Japan, which has set the TPP as the main pillar of its growth strategy and had led the TPP negotiations with the other countries, cannot agree easily to bilateral talks with the U.S., according to a senior Foreign Ministry official.

 

As a matter of fact, demands from the two sides are more prone to clash fiercely in bilateral negotiations, which tend to strongly reflect the positions of the stakeholders, such as businesses and farmers. Internationally, multilateral agreements are favored over bilateral accords, where national interests are more likely to collide.

 

A government source suggests that the new organization, which will take charge of economic partnership agreement (EPA) talks with the EU and discussions with TPP members other than the U.S., “is also meant to promote multilateral trade frameworks in order to demonstrate their merits to Trump.”

 

Abe is expected to have a tough time discussing trade policy with Trump at their first summit meeting after Trump’s inauguration. The Japanese government intends to gauge Trump’s strategy through the coordination process with the U.S. government.

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