Wednesday, April 19, 2017

Unedited Crib Notes for 2017/4/17 FCCJ Event on Japan-US Bilateral Economic Dialogue

Jun Okumura went straight from school to what is now the Ministry of Economy, Trade and Industry. After thirty years in its ecosystem, though, it dawned on him that he had no aptitude whatsoever for administration and/or management. Armed with this epiphany, he went to the authorities and arranged an amicable separation. He currently holds the titles of “visiting researcher” at the Meiji Institute for Global Affairs (MIGA). He spends way too much time saying mean things about everything under the sun. He does not mean to, which probably makes it worse.

Minimal attention in Japan to Vice President Vice Pence’s visit.
Anecdote: Friday conversation with former CEO, First Section of the Tokyo Stock Exchange, retired but follows news fairly closely as private investor. “No, I wasn’t aware.”

1. Chances of any substantive agreement even lower than usual first meetings because of Pence’s policy background (largely domestic) and lack of support team.
Wilbur Ross, Secretary of Commerce
Steven Mnuchin, Secretary of the Treasury
But no US Trade Representative (Robert Lighthizer), and second, third-tier political appointments slow in coming. (Economy, probably less problematical, but…)
2. Also overshadowed by North Korea’s big day (and failed missile launch). Which Pence is totally unequipped to handle on his own.
3. Also overshadowed on Nikkei by 11-nation TPP (Nikkei, April 15)

Also keep in mind that on the economic front, it’s China, NAFTA (= Mexico), and Japan, in that order.

On the Japanese side, Deputy Prime Minister Taro Aso has historically been a front man for Ministry of Finance orthodoxy, no more, no less.

What Round 1 (April 18-19) of the Japan-U.S. Economic Dialogue (Pence-Aso talks) will produce:
Three WGs to tackle:
1) Economic cooperation:  (infrastructure (high-speed rail), energy (unconventional gas and oil))
“…exploring cooperation across sectors that promote mutual economic benefits to the United States and Japan.”
Dressing up public procurement and commercial transactions to have something to point to as successful results.

2) Macroeconomic collaboration
“…using the three-pronged approach of mutually-reinforcing fiscal, monetary, and structural policies to strengthen domestic and global economic demand.”
US goal: Keep Japan from driving down yen.
Japanese goal: Keeping a free hand on monetary policy (and the direct intervention option).

3) Bilateral framework on trade and investment
“…discussions between the United States and Japan on a bilateral framework as well as Japan continuing to advance regional progress on the basis of existing initiatives”
“…deepening their trade and investment relations and of their continued efforts in promoting trade, economic growth, and high standards throughout the Asia-Pacific region.”
Japanese goal: Rope the United States back into TPP. (Used to think Abe was nuts, and that he should go for a TPP-11. But maybe they are compatible.)
US goal: Get a better bilateral deal than it got in TPP.

The easy ones first. 1) Economic cooperation: and 2) Macroeconomic collaboration.
1) Economic cooperation:
The Japanese Government wants to help Japanese businesses sell “high-quality infrastructure” overseas. Essentially, high-speed railway systems. JBIC and NEXI can provide long-term financing, but they don’t need the Talks for that. The US doesn’t either. It could actually be harmful if it stood in the way of international consortiums, which it won’t. The outcome will be the result of international competition with the groups coming up with the most attractive package of performance, financing and operation conditions, and local production, not necessarily in that order.

2) Macroeconomic collaboration:
Japan last intervened in November 2011 when it was around 78JPY=1USD, where it remained for most of 2012. Barring another global financial crisis, it’s hard to see Japan intervening again.
On the other hand, Prime Minister Abe caused a stir by talking about the salutary effect of quantitative easing on the exchange rate. Abe went on to deny the linkage, but people remember, partly because it’s actually true. But for now, the macroeconomic circumstances are such that this is something you can keep at the back of your minds.

And now:

3)  Bilateral framework on trade and investment

Why does Abe want TPP? (Many angles, but boils down to)
a. Key element of Abenomics: 2.7 percentage-point boost to Japanese GDP by 2030 (WB).
b. Depoliticize international trade and investment relations. (Another way of saying Keep China in check. Case in point: rare metals scare. More recently, retaliation against THAAD.)
c. Keep the United States engaged in Asia (as a foil for the regional hegemon China). It’s not just about the economy.

Why does Trump want a bilateral deal?
To prove that he can cut a better deal than Obama.

Key US actors:                  
Anti-deal:
1. US automakers (Chrysler? Really?)
Want: inconvenience competitors’ global sourcing, manufacturing and marketing strategies.  Reduce their flexibility. Platforms are going global!
Not want: Open up Japanese market.
GM: Gave up on Isuzu. Ford: Gave up on Mazda.
Better deal:
2. Pharmaceuticals: Biologics data protection 12 years (TPP: 5, effectively 8, Japan and Canada, currently)
TPP deal:
1. US beef and pork industry. Lost market share to Australia, Canada and NZ due to mad cow disease. Has been making gradual but steady comeback, now overshadowing Australia in supermarkets. Will suffer as tariff rates on Australian meat go down over time. (So will Canada, NZ.)
2. Copyright owners: 70-year post-mortem works for them.


Likelihood?
Better deal? Linkage got a lot more difficult as Mike Flynn (LOL), Mad Dog Mattis and now H.R. McMaster have pulled Trump ever more deeply into center-right national security establishment against more general background of mainstreaming Trump as a GOP president. Japan is a clear, major military asset for the United States. (ROK is vastly more ambiguous.)
US meat industry gets antsy as time goes by.
Disney gets antsy as Japan (and TPP-11) refuse to adopt 70-year post-mortem copyright protection.
Long-term, US auto manufacturers will start worrying if Thailand et al decide to join TPP-11. Can India be far behind?

TPP-11 may be the lever that brings the United States back. And Abe knows it.


Thursday, February 09, 2017

On the Eve of the Abe-Trump Summit

- Key things to watch out for in Abe-Trump meeting

Anything out of kilter from the following. Because if there is, that will be the big headline that everyone will be talking about. One way to annoy Trump? Go on at length about the virtues of TPP. Are you trying to tell me Obama was right, and I’m wrong? One way to annoy China? Specifically mention East China Sea and South China Sea… and THAAD.

Expect:

Overall, warm and cordial. The entire visit is being stage-managed that way. And Prime Minister Abe brings that out from authoritarian willful strong leaders (Putin, Erdogan, Mugabe…). Besides, President Trump is actually a good host/guest. It’s usually the CNN coverage and twitter feed that get him worked up.

1) On the economy:
From the US side, the imbalance in automobile trade; from the Japanese side, how Japan has eliminated tariffs and changed regulations to accommodate imports, and what wonderful things Japanese automakers and others are doing to create jobs in the United States.

From the US side, a bilateral FTA, under which currency manipulation should be addressed. From the Japanese side, Monetary Policy and FOREX Market Intervention 101, and an expression of willingness to  take up FTA as an issue in a high-level political dialogue.

2) On security
Expression of concern on regional security issues; and firm commitment to the bilateral alliance, relocation of US forces including the new helicopter base at Henoko, and a Japanese commitment to keep increasing defense speeding (this last merely a confirmation of  the 2%/year increase in real terms in FY 2014-2018 defense plan increases)

3) General
An Aso-Spence high-level dialogue going forward, where discussions on a future FTA are likely to end up among other things. “Deputy Prime Minister” is a description, not a legal title, but Aso is a former prime minister with only a one-year tenure, useful to trot out when a run-of-the-mill cabinet minister won’t do but the prime minister would be too much.

- Top hot button issues between Abe and Trump (eg trade, currency etc)

I don’t really see a hot button issue, if by hot button issue you mean something that has a serious chance of directly upsetting the bilateral relationship. There is no JAFTA that the United States could threaten to pull out of. Heck, the Trump administration hasn’t even shown any signs that it will designate China as a currency manipulator any time soon. I do expect that Japan will eventually enter negotiations on a bilateral FTA and that the FTA will ultimately include a currency clause, if such a clause is acceptable to the United Kingdom. The Trump administration needs something to point to as being better than TPP, and I don’t see much elsewhere, except perhaps up to a 12 years’ protection on biologicals data.

- Views on the future of Japan-US relations under Trump and Japan-US-China relations

The US-Japan bilateral relations will be fine. The Detroit Three (in terms of headquarters only; and is Chrysler really a “US” company?) will keep on carping, but only to inconvenience their competitors, not to engage in the Japanese market. They gave up controlling stakes in Japanese automakers years ago, and the Japanese market is in the very early stages of its senescence. And Japan as a military base on the cheap is a genuine military asset for the United States, unlike, say, South Korea.

It’s the Japan-US-China triangle that worries me. Japan has been passive towards China on economic issues. I suspect that the Trump administration will want the Abe administration to be more engaged on industrial espionage charges, IP issues more broadly, as well as other, less politically charged problems.  But Japan has little leverage against China. And more vulnerable to counter-pressure. Security is even more problematical, since the Abe administration see China as Japan’s most important security threat, followed by North Korea, which is also China’s Whitey Bulger if you will. Again, if and when the United States escalates and Japan follows, Japan will feel the heat. Remember, if the US forces suddenly disappeared from Japan, North Korea would stop caring about Japan. So would China (although it might decide that it was high time to seize the Senkaku Islands altogether, which is a good reason for making sure that the US forces remain). Japan is not exactly a mouse, but a mongoose, say, will also suffer mightily when elephants fight.

- Views on the future of Japan's investments in the US

There are likely to be cases where Japanese businesses already based in the United States decide to reinvest in the United States to be on the safe side, particularly until there’s more clarity on how NAFTA is likely to end up. We’ll never be sure, though, because it will be just one of the factors in the cost/benefit analysis.

Likewise, major greenfield investment decisions by new entries will also affected. They don’t want to find out later that the Trump Hotel that they checked into has turned into Hotel California. .The Trump administration will not be around forever, but it could be up to eight years, and who’s to say that the United States will return to normal post-Trump?

Certain mergers and acquisitions will be a little less attractive for truly global companies, since there is likely to be political pressure over cross-border consolidation. Hotel California.
The infrastructure investments that Mr. Abe will be talking about is what I call his no-regrets policy in investment. Something that he would be doing anyway. Support for exporting “high-quality” infrastructure is an important feature of Abenomics 2.0. Essentially, the Japanese Government will provide financial support to Japanese firms bidding for infrastructure projects. Local manufacturing will be an important factor in the tender process. And the eventual outcome, years from now, may be very different from the headline numbers of today. But that’s always the case in investment deals packaged for summit pageantry.

- Anything in particular you would like to discuss?

No.


Sunday, April 24, 2016

Abenomics and the Limpness of the Third Arrow

The fundamental problem with Abenomics is that Mr. Abe does not have a coherent perspective on economic reform to work from, whether from personal expertise (he is not a trained economist and has minimal business experience), conviction (the economy is far from his first love), or through an economic czar to delegate the task to (there is no Heizo Takenaka to Junichiro Koizumi, no Zhu Rongji to Jiang Zemin). This was not been a problem for releasing the first QE arrow, essentially following in the footsteps of US and European monetary orthodoxy. The only meaningful opposition came from the Keidanren leadership, reflecting the elderly businessmen’s natural suspicion of easy money. But the businesses themselves? Probably not as reluctant to embrace what should be good for their bottom line. Besides, Keidanren had progressively lost its political relevance since it gave up the role of super-bundler for financing the LDP. The second, fiscal arrow, meanwhile, was essentially an extension of what the LDP and politicians in general are inclined to do and have been doing through the ages: spend public money.

The third arrow, which is (was?) structural reform, is a different animal. Reform requires whacking away at vested interests, but when you’ve been in charge for the better part of 60 years of a highly homogeneous society like the LDP, most of those vested interests will also be your bedrock constituencies. A difficult task indeed, and made more difficult by the lack of leadership. The uneasy coalition-secretariat of ministry bureaucrats do appear to have a core of consisting largely of the usually reform-minded METI, but without political vision and leadership, there is no way to take measures that run the risk of the dissatisfaction of vested interests and their ministerial representatives boiling over.

Here, the one notable exception to Abe’s unwillingness to seriously challenge powerful vested interests is instructive: his decisions around the Trans-Pacific Partnership negotiations. I believe that here, his main concern was the perceived need to reinforce the Japan-US alliance and cement the US pivot/rebalancing towards Asia—basically keeping the US onside. Barring such non-economic concerns, only incremental, largely tactical advances as far as the third arrow/structural reform is concerned are likely to emerge.

Monday, January 25, 2016

Political Dying Wishes? Not in Japan or (Mostly) in America

A close friend of mine who read “The dead people of America really don’t want Hillary Clinton to be president” and asked if we “Japanese make such requests in obituaries?  I doubt Europeans do.  I guess one other example of American exceptionalism.” I responded:

Few Americans make such death wishes; these are examples of "exceptional" Americans, not American "exceptionalism." More generally, they are examples of the tradition of the dying wish—last meal of the condemned, "No grass shall grow on the grave of this innocent man..." "Bury me where this arrow falls" etc. etc.—that has a long Anglo-Saxon and I suspect European tradition.

We do not have that tradition in Japan. The increasingly rare newspaper obituaries are almost always prosaic, formulaic even, affairs. We did have the tradition of the poem as one leaves this world (辞世の句) in the 5-7-5/7-7 tanka form (with the 5-7-5 haiku form becoming acceptable far more recently). If people of any substance (or people close to them) were not skilled enough to compose one, they could pay for-hire poets to do it for them. In fact, some wealthy nobles would hire them full time, much like illiterate European nobles hired scribes to do their writing for them, at a time when composing such poetry for any and all occasions public or private was de rigeur.

Those last poems, though, were typically meant to be words of wisdom, an intangible epitaph that exemplified the life of the dying, usually not a wish. The most famous by far are the words of the near-mythical robber Ishikawa Goemon, who is reputed to have said as he was about to be boiled in oil (yes, we did that too around the rough and tumble warlord years), "Ishikawa and the sands of the shores may come to an end, but the seeds of robbers will not (my translation)."

(Edited for clarity.)

Footnote: Apparently, it was a Trump tweet that touched off all the commotion. Will the US media never tire of him?

Saturday, December 26, 2015

Helping William Sposato Make the Japanese Labor Force Story Sausage

I am quoted here. Here are the salient parts of the two exchanges behind it.

"…there has been less attention on the decline in the male participation rate, especially among young males (it has fallen from 97% in 1997 to under 94% today). Getting that back to its previous level would add 1% to the workforce overall."

Some, perhaps much, of that should be accounted for by a rise in young males seeking higher education. A Wikipedia entry shows that there has been a 10.3 percentage point rise between 1997 and 2013 (using 5% for junior colleges for 2013.) No, this does not distinguish between males and females (it is likely that the rise has been steeper for females), and yes, many students are likely to be counted as part of the workforce, busking tables and the like. Still, you cannot make a robust point about raising the male participation rate without looking into this. And for that, you need to look at the original data, which should be available through the MEXT website.

******

1.       With PM Abe apparently ruling out immigration, do you see any way to bring back the size of the labor force amid an overall declining population?

The first thing to keep in mind is that anything that the Japanese government can do to raise the birth rate will have very little effect on the labor force for at least 18 years (19 years to be precise.) A major expansion of the “training” system? But Abe will be gone in three years; I suspect that future leaders will be more amenable to a gastarbeiter program with prospects for permanent resident status leading to citizenship drawing from China, Indonesian, and (why not?) North Koreans.

2.       Do you think that labor participation is an important goal or should the focus be elsewhere, such as in pushing up productivity?

Governments can provide a better institutional framework for labor participation, that’s for sure, and the Abe administration is oriented in the right direction on that. But pushing productivity? I don’t know enough to understand what the government can do about that.

3.       What steps do you think the government should be taking?


Dunno. But I can list a few things that do not require fiscal appropriation but are not being done.

(The following was missing from the original post.)
1)      Set an example. Make a pledge that every make cabinet member and subcabinet political appointee will undertake 25% of the housework when he leaves office and 50% when he retires from politics.

2)      Make changing surnames on marriage optional.

3)      Cut 10% of non-need-based welfare payments to the elderly and use it for childcare.

4)      Eliminate all fiscal incentives for marriage and use the savings for childcare.

4.       Do you think Womenomics has been more PR than substance?

There’s plenty of both, but not enough of the latter. Now if I were Abe, I would focus on the birth rate, with Womenomics the corollary.

On Foreign Minister Kishida’s Upcoming Trip to Seoul

I whacked out the following answers to the questions from a media organization. I know that it will not use a certain part of it in its report, so here’s it is, for public viewing in its entirety.

What are the prospects for progress in the comfort woman talks when Japanese and SKorean foreign ministers meet Monday?

I will be astounded if the two foreign ministers do not come forth with a substantive and irreversible framework for resolution.

What would that mean for bilateral relations? What do the two sides stand to gain from improving relations?

It should produce an immediate improvement in the background to the bilateral relations, which should lead most prominently to more Korean entertainment (TV programs, pop groups) coming Japan’s way and more Japanese tourists going the other way. Prospects for progress in the Japan-China-ROK FTA negotiations will also be marginally improved. Over the long-run, if the improvement holds, the direct investment climate will also improve, leading to more synergy between the two economies. Beyond the economic, we can expect better cooperation between the two militaries and more broadly security establishments, which should please Washington no end.

What other sticking points are there in moves to repair relations between the two sides?


There’s the back wages of the conscripted workers (about which I could go on forever, as someone close to be was a conscripted Japanese student worker who went on to work after the war at a company that had employed Korean workers (as well as Japanese student workers, presumably)), but I suspect that the Blue House will lean on the courts, who are themselves good at reading the prevailing public view. There’s Takeshima, but South Korea has possession, so what the Japanese authorities have to say and do about it is of less significance than the symbolism that the comfort women issue has taken on. Another Yasukuni visit by a Japanese prime minister would be problematic, but it’s more of a China issue—Korea never fought a war against Japan, so the Class A war criminals are not their problem—and the last thing that Mr. Abe wants to do at this point is to provoke Mr. Xi Jinping and the PLA unnecessarily.

Monday, November 02, 2015

My July 16 CRI Q&A on Peace and Security Legislation (and Japan-China Relations)

I also found that the CRI website claims that I said that “the security bills go against Japan's pacifist constitution” when it passed the lower house. Nothing of the sort. Sure, I'm critical of the way the Abe administration handled the issue. The following is the script. Haven't heard the audio, but I don't think that I said anything that could have led to a misunderstanding.

1 First up, could you please tell us what collective self-defence is? How does it influence Japan’s military?
Simply put, it’s an arrangement where two or more countries in an alliance agree to come to the defense of the others. In Japan’s case it is going to be very limited because we will only come to the defense of its allies when those allies are acting in defense of Japan. Aegis, Japan Sea, DPRK. It will help coordinate operations with the United States in the nearby area.

2 The bill now awaits the approval of both the lower and upper houses of Japan’s parliament. How do you evaluate the likelihood of it getting passed? If it gets passed, how will it influence Japan’s position regionally and globally?
Almost 100%. It will make Japan a more active player in UN sanctioned operations, but strictly in a non-combat role, unless you count minesweeping operations as combat. It will enable the Self-Defense Forces to work more seamlessly with Japan’s allies, mainly the United States.

3 There were protest going on outside the parliament building when the voting happened. Also opposition lawmakers shouted their disapproval and mobbed the chairman of the committee who was in charge of the voting. AP even reported that some began slapping and grabbing him. Is this common phenomenon in Japanese politics? What does the intensity tell us?
Protests around the Diet complex are not that unusual, but physical altercations in the Diet have been rare in recent years. There are many people, including the overwhelming majority of constitutional scholars, who strongly believe that the reinterpretation to allow collective self-defense is unconstitutional. More generally, there is a broader, and vague, fear that the bills—not just the constitutional reinterpretation—could draw Japan into war. On the first point, I am not a constitutional scholar, though I note that most constitutional scholars used to think that the Self-Defense Forces were unconstitutional, but they no longer do. On the second point, I strongly disagree. However, the Abe administration has done a poor job of explaining what is a very complicated political compromise legislation to the public, and the Liberal Democratic Party has made a couple of serious tactical blunders along the way, adding fuel to the fire.

4 Shotaro Yachi, Japan’s National Security Advisor is now visiting China at the invitation of Chinese State Councilor Yang Jiechi. The two met in Beijing last year and reached a four point consensus aiming at restore relations between the two.

----How would read the timing of his visit this time?
The bilateral political relationship is on the mend, but August 15 is only a month away. What Prime Minister Abe says on the 70th anniversary of the end of the war will be crucial in keeping the process on-track. I’m sure the Chinese authorities would appreciate some reassurance from Mr. Abe’s most trusted envoy.

----So what are the possible topics that might be discussed during his visit this time?
Beyond the anniversary statement, I assume that Chinese activities around the Senkaku Islands and in the East China Sea near the median line will be raised by the Mr. Yachi, and the Chinese authorities may wish to know what Japanese intentions are in the South China Sea. Talk will not change anything, but it’s better than not talking to each other at all, because it helps keep these matters of contention from doing harm to the broader relationship. I am sure that there will also be talk on broader, more positive issues, and there may be a renewed invitation to join the Asian Infrastructure Investment Bank and/or talk on cooperation with the Asian Development Bank, but I don’t see much happening.

5 There are speculations that Abe might meet Chinese President Xi Jinping and attend commemoration activities of the World War II in this coming September. If the two countries really want the meeting of two to happen, what are further needed to be done from both sides?
In his 70th anniversary statement, Mr. Abe should hold to the line that he expressed in his speech to the U.S. Congress. A specific reference to China would be highly desirable. The Chinese authorities would very much like to hear a specific reference to the Murayama Statement, though I would be surprised if Mr. Abe did so. On the Japanese side, no Chinese escalation around the Senkaku Islands and more broadly, the East China Sea.

6 Former Japanese Prime Minister Fukuda Yasuo is also reportedly visiting China. What is his mission and how he might help improve ties between the two sides?
I am not informed well enough to know what he’s doing there specifically, but the fact that a former Japanese prime minister who is very well-liked in China is shuttling back and forth, presumably with Mr. Abe’s blessing, surely helps to calm the waters and keep it that way.

7 On another note, Chinese Vice President Li Yuanchao has met with a group of war-displaced Japanese orphans who were raised by Chinese families after World War II. We know that there are also people from this group of orphans who returned to Japan later.

----How are they coping with life in Japan?
I am not well-informed. All I can say is that some are coping better than others.

----The orphans left in China to a certain degree have helped tighten the ties between people of the two countries. What other measures do you think should be taken to further promote people to people exchanges between the two countries?

It certainly reminded us of the good will that existed at the people-to-people level that endured the brutality of war, and the kindness was not forgotten here in Japan. I don’t have any specific ideas, but there needs to exist a sense among the common folks in Japan that China is a safe and healthy place where we Japanese are welcomed. This will come from the perception of Japanese journalists, businessmen, and tourists, not from government-sponsored exchanges.

Thursday, October 29, 2015

East Asia Trilateral Summit

1: The China-ROK-Japan Trilateral Summit is expected to be resumed over the weekend after a 3-year hiatus. Can you first give us a brief introduction to the background of this meeting this time?
I believe that the gradual but steady thawing of the Japan-China from the spring of 2014 including the two summits on the edges of multilateral sessions has set the stage for normalization of the political relationship. More specifically, I believe that the bilateral improvement spurred South Korea to seek a rapprochement of its own. And what better venue for this than the trilateral summit, which is South Korea’s turn to host—a home game, if you will? And Japan has always been working tirelessly to this end. Indeed, it is unnatural for the heads of three neighbors with deeply intertwined economies and highly reliant on the global market for manufactured exports and commodity imports not to discuss issues of common interest and/or concern. Moreover, each of the three economies now faces serious structural challenges that it must confront forcefully or suffer the long-term consequences. The trilateral summit goes a long way in defusing a political distraction.

2: What sort of issues do you expect that this summit will try to focus on? How important are they to the three countries?
A recent news report says that they will confirm cooperation in such areas as disaster prevention, the environment, and tourism, and talk about cybersecurity and making progress on the China-ROK-Japan FTA. Now the summit will have no substantial bearing on most of these matters. They would move ahead just as smoothly if the three heads kept kicking the trilateral can down road. One exception is that it would give the ROK authorities sufficient political cover at home if they decide to seriously pursue the trilateral FTA.

3: The three countries also resumed negotiations over the China-ROK-Japan FTA. China and ROK have already signed a bilateral FTA. The obstacles apparently remain between China and Japan as well as ROK and Japan. How likely do you think that they may make a breakthrough?
The three governments will behave constructively on the trilateral FTA. However, I am rather pessimistic about the prospects for a breakthrough. ROK does not have much to gain, since Japan already imports most manufactured products tariff-free. And why would ROK want to compete in the Chinese market with Japan on an equal footing? As for China, I’m sure that it wouldn’t mind having Japan compete with ROK for its favors on an equal footing, but as I said, Japan already imports most manufactured products tariff-free, so there’s not as much urgency for China than there is for Japan. And, of course, it takes three to tango. I will be very happy, though, if I’m proven wrong.

4: South Korea and China are not members of the TPP. How will this affect China-ROK-Japan FTA negotiation? Will this pushed the two countries to seek an early conclusion of the China-ROK-Japan FTA negotiations?
I think that it affects ROK negatively with regard to the trilateral FTA. I expect ROK to focus on joining the Trans-Pacific Partnership (TPP), which promises more substantial benefits than a trilateral FTA and is unlikely to include China in the near future. As for China, I believe that it will find that the TPP hurdle is too high, but a trilateral FTA is too small a consolation prize. Instead, I expect China to focus on another broad-scope trade agreement, the Regional Comprehensive Economic Partnership (RCEP), which will also serve as a geopolitical counterweight to TPP.

5: Earlier this week, China’s state councilor Yang Jiechi visited Japan, where he met with Japanese Prime Minister Shinzo Abe. Both sides expressed the willingness to improve ties. Can we see this meeting as well as the upcoming summit as a thaw in relations between China and Japan? Why do you think that this is happening even when the key thorny issues between the two sides still remain unsolved?
This is the culmination of a painstaking process of rapprochement since Prime Minister Abe’s visit to Yasukuni in 2013. The “key thorny issues” are mostly matters of perception; on their own, they have very little tangible effect on the real world. Japan is not executing a landfills and building air strips on the Senkaku Islands. China is not digging for oil on the Japanese side of the median line. And so on. Now, Prime Minister Abe issued a 70th Anniversary statement that was tolerable to the Chinese authorities, and has stayed away from Yasukuni. There remained no reason that the heads of two neighboring countries highly reliant on manufactured exports and commodity imports should not meet to give their blessings to engagement in areas of common interest and/or concern.

6: Do you expect the summit to add strength to the China-Japan trade relations, which are going downhill since 2012?
I expect it to make Japanese-brand goods and services marginally more acceptable, but not by much. For better or worse, it has been business-as-usual on the economic front for the last couple of years, and so it will remain. The vector of the bilateral trade relations will mostly be determined by the same factors that affect the rest of China’s trade relations. You know, things such as what China will or won’t do with regard to what it considers to be strategic industries or flagship companies, whether Chinese wages keep going up, and so on.

7: Will this summit have any impact on the denuclearization of the Korean Peninsula in any way?

No. The most that I expect to emerge from the summit on this issue is some vaguely worded admonishment of North Korea. China is the only one that can turn the screw hard enough to force North Korea to give up its nuclear weapons and ballistic missile programs completely, and it probably would if it could do so without decisively destabilizing the North Korean regime. But it is not going to risk the collapse of the Kim dynasty just to make Japan feel safe, or even to make the United States happy.

Sunday, April 26, 2015

Good Luck, Mr. Abe…

Let’s see…

Cheer up friends of America in the Middle East: President Abdel Fattah el-Sisi, Egypt, check; King Abdullah, Jordan, check; Israeli Prime Minister Benjamin Netanyahu, check. DONE!

Bind Japan more tightly to US security policy: change interpretation of Constitution to allow collective self-defense, check; push base relocation to Henoko against Okinawa’s wishes, check; fully engage the U.S.-centric weapon systems development network, check. DONE!

Support U.S. global economic structure: commit to TPP negotiations, check; stay away from Asian Infrastructure Development Bank, check… um, only two? Oh well, done.

All supported by the Obama administration, but even more copacetic for the Republican Congress. But did the rumored coolness between Prime Minster Abe and President Obama also help the former secure this speech before a joint session of Congress? Not nearly Netanyahu-Obama bad, but still, I wonder.


I can already see the post-talk editorials lining up, WSJ on one end, NYT on the other, and WaPo somewhere in between. I also think that I could write an op-ed on any and all points of that spectrum (I don’t know, extended out to BBC, say) send them out now, with little need to edit them after the speech. But it would be so much more fun if Mr. Abe proves me wrong and surprises us all.

Saturday, April 25, 2015

5No Bilateral TPP Deal until Final Collective Deal

There, I’ve said it.

There has been a lot of public doodling by the media and analysts around the progress, impasses and, in the fevered imagination of Yomiuri Shimbun, “effective agreement” at various stages in the TPP negotiations between the United States and Japan. Now, I’m seeing reports that there will be no deal during Prime Minister Abe’s visit to Washington.

And that’s news?

Give me a break. It’s not even about TPA. Look, no bilateral deal will be made public until all the bilateral deals have been cut. To illustrate, let’s say that Japan and the United States make a deal on beef that is more favorable to the United States than the one that Australia got in their bilateral FTA with Japan. That would displease the Australian government, who would want a similar deal from Japan. But not only is that likely to induce the Japanese government to demand a quid pro quo but would also displease U.S. and Japanese beef producers, who would make new, mutually conflicting demands of their own. So any bilateral deal on tariffs will have to be kept under wraps until all the chickens come home to roost, as it were.

So what was all the “negotiating” about? My guess is that it was a mixture of sounding out the other side to figure where and what the real issues and the other side’s priorities were, ironing out technical issues, establishing and reinforcing relationships with the other side so that the endgame could proceed expeditiously, and otherwise doing their best to minimize glitches along the way. The rest, I would argue, was camouflage.

I could, of course, be wrong. But I think that I’ve done a better reading of the process so far than most. And I’m not worried that I’ll be proven wrong this time either.

Friday, April 24, 2015

A Few More Words regarding Prime Minister Abe’s Bandung Speech

If Japanese media reports are to be believed, China is officially disappointed that Prime Minister Abe did not assume responsibility and South Korea is officially disappointed because he did not refer to “colonial rule.” I’m not sure what the operative meaning of “responsibility” is here for the Chinese government. Is it for domestic consumption, to prepare the Chinese public for further improvement of bilateral relations? South Korea frets, in case anyone missed the point, because “colonial rule,” not “the war,” is the source of its complaint. And how bad was it for the Koreans compared to, say, Native Americans or Australian aborigines? Look to the biographies of their most recent Presidents Geun-hye Park and Lee Myung-bak for perspective.

And while we’re on the subject of Native Americans and Australian aborigines, if Americans and Australians of European descent want to jump on the bandwagon criticizing Mr. Abe’s latest speech, shouldn’t they apologize and go back to Europe first? I mean, clean hands and all? At least we left. (Okay, not of our own volition. Still…) As for Germans who want to chime in, have you petitioned your government to respond positively to Greek demands for multibillion Euro reparations, or do you agree with your finance mister that a deal is a deal so the Greeks should STFU?

But if you must, please at least have the decency to remember that “China and South Korea” and “Asia” are not interchangeable terms.


Okay. Rant over. Back to real life.

Thursday, April 23, 2015

Prime Minister Abe’s Speeches

Good friend Paul Sracic has been invited to attend Prime Minister Abe’s speech before a joint session of Congress, so I decided to give his some unsolicited advice on what to look for.

Here's the preview, Paul.


Money quote:

"Refraining from acts or threats of aggression or the use of force against the territorial integrity or political independence of any country."

"Settlement of all international disputes by peaceful means...."

Those are some of the principles Bandung affirmed. And Japan, with feelings of deep remorse over the past war, made a pledge to remain a nation always adhering to those very principles throughout, no matter what the circumstances.

In keeping with this same spirit, it was our friends in Asia and Africa who propelled Japan after the Second World War to make possible our reentry into the international community.
To those friends of ours, let me take this opportunity to extend our heartfelt gratitude.

History made it inevitable, one could say, for those countries gathered here three score years ago to show their strong unity, since our forefathers then had a common wish, a wish for peace.

Edit the first two and last two paragraphs as appropriate for the U.S. audience, and you have Mr. Abe's take on the history issues in his speech.  He uses the word "remorse," but he doesn't make it personal. He uses the word "aggression," but its connection to Japanese "remorse" is contextual, only implied. Did it work? The meeting with President Xi Jinping went off without a hitch, and that's all that mattered. As for President Park, Mr. Abe is content to wait her out. It would be nice to have South Korea on our side, but it's not essential to Japan's well-being. They need us much more than we need them. Be polite, but firm. I think this is the outline of what Mr. Abe and his associates are thinking, and I think that they are right.

As for the substance of the speech, the new bilateral guideline and TPP will be the highlights on the bilateral relationship going forward.


And speaking of TPP, it's so nice to see bipartisanship break out after years of increasing acrimony. I did read your comments, and I agree. But I think that she'll come out in clear support with the caveat that she will make sure to enforce both the letter and the spirit of the eventual environmental and labor provisions. I don't think that she has a choice. Neither "non-committal" nor "against" works for her. (See Paul’s take here on Hillary Clinton’s dilemma on what Paul and Eurasia Group both consider a close call in Congress.)

Tuesday, April 14, 2015

My Take on the Asian Infrastructure Investment Bank

Actually, they are two of my comments on the draft of a weekly newsletter. They went largely unheeded, alas, but good friend Tag Murphy sent me the link to a vastly more exhaustive (and professional) analysis, which appears to be broadly in the same vein, so I am emboldened to post them here.

“I too think that it's a better than even bet that Japan will announce its participation in the AIIB by June but with a decent interval after Abe's DC visit. I also think that it's unfair to blame the Obama administration for the landslide participation of its European and Asia-Pacific allies Japan and South Korea were the only countries that the US had meaningful leverage over, and when the UK knocked out the rest of the dominoes, even that mostly dissipated.

“That said, don't overestimate the significance of the AIIB challenge. The ADB will still be around; likewise the WB--and more importantly the IMF and BIS, as well as SWIFT, VISA, Mastercard and other non-governmental institutions that have grown up around the international financial and monetary systems. What does it mean in this context for the Renminbi to challenge the dollar? It means the existence of a large and highly liquid market in Renminbi-denominated financial assets (including banking deposits). In other words, the Renminbi would become just another reserve currency, like the yen and Euro, but much bigger than the former and more trustworthy than the latter. And that's by no means a bad thing. Of course if the Renminbi (and Chinese financial institutions) become big enough, China could conceivably use that leverage as a weapon in the same way that the US is using it. It's something to keep at the back of your head, but it'll remain highly hypothetical, at least during my lifetime.

“Something similar can be said for RCEP, which excludes the US. As long as it does not replace WTO and TPP come through, it's not something to worry about.”

Also...


“I also think that it will be useful to remind your readers that the United States essentially was the only game in town from an economic perspective, although the USSR did provide an alternative model. China is not nearly as dominant, never will be. For that matter, the US is no longer so either.”