Abenomics and Japan's Trade Policy in a New Era

• DOI: http://doi.org/10.1111/aepr.12205
• Published date: 01 January 2018
• Date: 01 January 2018
• Author: Shujiro Urata,Mireya Solís

Abenomics and Japan’s Trade Policy

in a New Era

Mireya SOLÍS

1

and Shujiro URATA

2

†

1

Brookings Institution and

2

Waseda University

Trade policy, in particular, the Trans-Pacific Partnership Agreement (TPP), has been a centerpiece

of the Abe administration’s economic strategy. The TPP’s contributions to Japan’s growth strategy

include: (i) creating trade and investment opportunities abroad for Japanese companies through

ambitious liberalization targets; (ii) advancing domestic reforms –with the largest service and

agricultural liberalization commitments to date; and (iii) increasing bargaining leverage in other

trade negotiations. But the domestic reform goals of Abenomics in agriculture have come up short

due to opposition from domestic lobbies. American trade politics –which culminated in the US

withdrawal from the TPP –have upended the goals of trade policy under Abenomics. Japan’s best

option in this new environment is to deliver on high quality, multi-party trade agreements: con-

cluding negotiations with Europe; scaling up the ambition of Regional Comprehensive Economic

Partnership; and salvaging a TPP 11. The merits of a bilateral free trade agreement with the USA

will depend on how the Trump administration operationalizes its America First policy.

Key words: Abenomics, domestic reform, Japan, trade policy, Trans-Pacific Partnership

JEL codes: F13, F15, F53

Accepted: 19 July 2017

1. Introduction

Japanese Prime Minister Shinzo Abe must have been disappointed with the decision of

the newly inaugurated US President Donald Trump to withdraw the USA from the

Trans-Pacific Partnership (TPP).

1

Nevertheless, Prime Minister Abe is still hopeful for

the return of the USA, since the TPP, a high level and comprehensive free trade agree-

ment (FTA) that involves 12 Asia-Pacific countries, has been central to his administra-

tion’s economic and foreign policy strategies.

The central aim of Abenomics is to recover the Japanese economy from a long

recession, and among trade policy instruments, FTAs are expected to play an impor-

tant role. Under this strategy, the total share of trade covered by FTAs is targeted to

increase to 70% by 2018 from 19% in 2013. The TPP was given special attention for its

potential to become a new rules framework for the Asia-Pacific region. The 2016 Japan

Revitalization Strategy heralded the historically significant signing of the TPP agree-

ment in February 2016 (Prime Minister’sOffice [Japan], 2016).

The authors are grateful to Jennifer Mason for her capable research assistance.

†Correspondence: Shujiro Urata, Graduate School of Asia-Pacific Studies, Waseda University,

1-21-1 Nishiwaseda, Shinjuku, Tokyo 169-0051, Japan. Email: surata@waseda.jp

106 © 2018 Japan Center for Economic Research

doi: 10.1111/aepr.12205 Asian Economic Policy Review (2018) 13, 106–123

The TPP was also an important foreign policy to strengthen Japan’s alliance with

the USA. One of the important challenges for Abe, after returning to the prime minis-

tership in 2012, was to rebuild a good relationship with the USA, since it had worsened

under the Democratic Party of Japan (DPJ) government. The importance of this goal

increased as Japan’s relationship with China became more problematic.

In light of these developments, the present paper evaluates Japan’s trade policy

under Abenomics, focusing on both the outcomes of the TPP negotiations and the set

of alternative trade policies, now that the original TPP is not likely to be enacted.

Section 2 reviews Japan’s recent trade policy, and Section 3 offers an overview of the

outcomes of the TPP’s negotiations. Section 4 discusses the potential direction of US

trade policy under President Trump, as it has brought into question the viability of the

TPP project, while Section 5 makes suggestions for Japan’s trade policy in light of the

emerging trade environment. Section 6 concludes with an evaluation of Japan’s trade

policy under Abenomics.

2. Japan’s New Trade Policy: FTAs

Japan became interested in FTAs in the late 1990s, as it was approached by several

countries including Mexico, Singapore, and Korea.

2

Previously, Japan had deemed that

discriminatory FTAs would undermine the multilateral trade system, which is built

upon the basic principle of nondiscrimination that had benefited Japan substantially.

But FTAs have become the most important trade policy for many countries as multi-

lateral trade negotiations under the World Trade Organization (WTO) have been in a

stalemate. Japan changed its view toward FTAs as an increasingly large number of

countries concluded FTAs, resulting in discrimination against Japan.

Japan began to establish FTAs actively in the early 2000s. As of the end of June

2017, Japan had 15 FTAs (14 bilateral FTAs and 1 regional FTA with the Association

of Southeast Asian Nations [ASEAN]). Japan is involved with three mega-FTAs: the

TPP; the Regional Comprehensive Economic Partnership (RCEP) which involves

16 East Asian countries including Japan and China; and the Japan–European Union

(EU) FTA. The RCEP and the Japan–EU FTA are currently under negotiation. For

Japan, the TPP is the most important initiative because of its high quality and compre-

hensive coverage, and its geopolitical implications.

3. The TPP: The Most Important Trade Initiative for Abenomics

Japan joined the TPP negotiations in July 2013, 3 years and 4 months after the negoti-

ations began. Japanese leaders showed interest much earlier but strong opposition,

mainly from the agriculture sector, prevented the Japanese government from joining.

The negotiations had to overcome a number of difficult issues, but a deal was struck

on October 5, 2015. This section reviews Japan’s involvement in the negotiations and

examines possible impacts of the TPP on the Japanese economy.

Mireya Solís and Shujiro Urata Abenomics’Trade Policy

© 2018 Japan Center for Economic Research 107