SNA (Tokyo) — This SNA Speakeasy features Hiroki Takeuchi on the theme of “Japan at the Center of Trade Rulemaking in Asia-Pacific.”

Transcript

Michael Penn: Welcome to another episode of the SNA Speakeasy. Today we are talking to someone who is all the way across the world in the state of Texas. His name is Hiroki Takeuchi and he’s an associate professor at Southern Methodist University in Texas, Dallas area. And he is going to talk to us today about trade policy in Asia, and in particular Japan’s role in it. So thank you, Professor Takeuchi, for joining us today.

Hiroki Takeuchi: Well, thank you for inviting me and it’s a pleasure to be here.

Michael Penn: Okay, well it’s a pleasure to have you here. So first of all, some people may know you and be familiar with your work, and others may not. So first of all, can you kind of introduce yourself? So who are you, how did you end up in Texas, and what is it that you focus your studies on?

Hiroki Takeuchi: I’m Hiroki Takeuchi, I’m an associate professor of political science at Southern Methodist University, SMU, in Dallas, Texas. And, well, I came to Dallas when SMU invited me to a job interview and then I got a job here. I’m currently directing a Sun & Star program on Japan East Asia in the SMU Tower Center. SMU Tower Center is a policy center in SMU. And the Sun & Star program on Japan and East Asia is an East Asia program that has, that focuses on the whole East Asia, but actually that has, that focuses on Japan. So actually our Sun & Star program is, as long as I know, the only East Asia program in the nation that has Japan before East Asia. I actually grew up in Japan, and then I came to United States for graduate school. And then I was in California for twelve years before coming to Texas. So now, I lived in California for about twelve years, and now like I live in Texas for thirteen years. So I lived in Texas longer than California. I’m enjoying living in Dallas and then teaching at SMU. I was trained as a China specialist, and although I’m originally from Japan. So, my first book is about local governance in rural China, and so I did a lot of interviews in Chinese countryside. And then I published a book in 2014. And then for last few years, I changed my scope to more international political economy. So I’m currently working on the topic of the relationship between trade and peace, or trade and security. And then so, but you know, I’m still doing a lot of research on China, but as well as Japan and the United States. So it was interesting. So many people are interested in China, I know. But because I studied Chinese domestic politics and economics, when I was doing graduate school, and then for to write my first book, I actually know that the Chinese foreign policy is kind of inside out. So Chinese foreign policy is based on its domestic politics. And because I was working on local government, before working on international political economy, so that’s actually how I see foreign policymaking and international relations.

Michael Penn: Okay, excellent. I certainly agree that, you know, to an extreme degree, you know, the country’s internal politics do shape their foreign policy. We saw that very dramatically I think during the Trump administration recently, didn’t we? Alright. Well, so today our topic title is Japan at the Center of Trade Rulemaking in the Asia Pacific. Well, I think most people are going to understand what all of those terms mean. But if there’s any question, it would be over “trade rulemaking.” So what exactly is trade rulemaking? And why is it significant?

Hiroki Takeuchi: So, trade rulemaking is international rulemaking. So, nations negotiate and make rules over international trade. So for a long time, after World War II, GATT was working, playing that role. And then GATT became World Trade Organization, WTO, in 1995. So it’s called a multilateral organization. And so, that kind of, that big organization that consists of many nations all over the world, are making the rules of trade. And international trade skyrocketed after World War II, and then mainly because of those rulemakings at GATT and WTO. And then now, but you know, for last two decades, WTO is not functioning well to make new rules. At the same time, the nature of trade has changed for last two decades. So we need a new rulemaking. And then, so as a result, we have more and more regional trade agreements. And so, like one of them, a typical leader the Trans-Pacific Partnership or now called CPTPP. And then those later, regional trade agreements are now making new rules of international trade, while trade nature has been changing. And then now, we are like in the age of new globalization. So that’s actually what, that’s how rulemaking is, rulemaking of trade is.

Michael Penn: Well, before we get to this, you mentioned something interesting there, which I think is important to set the background. Why has the World Trade Organization, WTO, stalled as the main forum for international trade making now?

Hiroki Takeuchi: Well, actually, I think there’s three reasons. One reason is, it is actually because of the victim of success. That is WTO has been successful in expanding the scope, and then also expanding the membership. So, so many now, like more than 160 countries are a member of the WTO. And then that includes a lot of developing countries. And the developed countries and developing countries have different preferences, and so different interests. And then it’s more and more difficult to adjust interests, differences of interests among the– between the developed countries and developing countries. At the same time, actually, GATT was very successful for thirty or forty years after World War II in lowering tariffs. And lowering tariffs is actually a relatively easy task, because that’s actually all numbers, right? So when you, when you negotiate, you just talk about numbers and then exchanging the conditions of the numbers. But that’s actually, now tariffs are very low in international trade. So now they have to negotiate over more sensitive issues. And then, more and more, a lot of the sensitive issues, new issues are related to domestic regulation. So now trade negotiation discusses a lot about how to like standardize the domestic regulations, and the ones that they talk about, domestic regulation, it’s all very sensitive in domestic politics. So, as a result, it’s very difficult for each nation to have a consensus in domestic politics, and then as a result that makes the international negotiation much more difficult. Another reason is actually the United States is less and less enthusiastic about trade liberalization. So one reason is, mainly because in domestic politics the United States is getting more and more protectionist. And then the United States is receiving protectionist pressure from domestic politics, especially labor unions and also environmental groups. So I think like one reason is the United States was leading the trade liberalization for long time in GATT, and WTO, but for last two decades, the United States finds it difficult, more difficult, to lead trade liberalization. That’s actually another reason why WTO is dis-functioning as a rulemaking organization.

Michael Penn: Well, again a kind of a basic question, but one which could set the stage for our conversation here is: why does it matter who sets the rules of trade? I mean, if you know, every country has to agree to whatever, you know, whatever regime exists, you know, does it make a difference who takes the lead on designing those rules?

Hiroki Takeuchi: Yes. So first of all, whether there are rules makers, so well economists often say like, you know, more trade the better. And then if the nation opens the economy that will be good for its own economy. But the puzzle is why then most of the nations have some kind of restrictions on trade at any time. So, so that’s actually interesting, but key is there are two keys. One is, so even if, like you know, everybody, every country appreciates trade liberalization, so what, how to do it is the question, right? So, so if you have, if the country has a little bit of protectionism, then it’s considered as protectionist policy. So, what is considered as trade liberalization? What is considered as a commitment to the promise of trade liberalization? That’s actually a very– you need to make specific rule, to set the norm of trade liberalization. Second reason is you have to convince the domestic audience to open the economy because, trade actually, trade actually benefits every country as an aggregate, but trade actually creates some winners and losers. The winner’s interest is actually, are always better than the loser’s losses, however, but there are losers, right? So those who lose from trade needs a compensation, or at least in some way the government has to convince those who would lose from trade. So, that’s actually, in that sense, if you have, if in, if you have a specific rules at the international level, then it’s much easier for the government to convince the losers of trade. For those two reasons, actually, both internationally and domestically, making trade rules at the international level is very important.

Michael Penn: Okay. Well, let’s turn to Japan. You know, I think that Japan’s reputation in the postwar period has been as one of the sort of holdouts on trade liberalization in the sense of importing products to its own market. You know, Japan’s agricultural sector in particular is, is known to be quite resistant to allowing, you know, agricultural products from other countries. The giant keiretsu and zaibatsu, or I guess keiretsu happened in the postwar period, were kind of well known for non-tariff barriers. This was something that, you know, the Trade Representative of the United States in the earlier eras used to clash with Japan about. So how is it that in the late part of the last decade during the Abe administration, Japan is now presenting itself as sort of the champion of free trade?

Hiroki Takeuchi: Yeah, that’s very surprising, as you say, you’re right. So Japan was famous, or if not notorious, for just following the US lead, and then very reluctantly opening economy, confronting the pressure from the United States. That was Japan until, let’s say, two decades ago. There are, I think, two reasons why Japan has become leader from the follower. So the one reason is the United States has become kind of passively withdrawing from the leadership role. So if the United States doesn’t lead, who can lead? And China is the second largest economy, but China has a huge state sector and then that actually makes China more difficult to be committed to trade liberalization. So then you know, who are, who is the third largest economy? So Japan, and then also the fourth largest economy, Germany. So now Japan and Germany are the leaders of trade liberalization, or even at a more larger sense, rulemaking of international, sort of, international liberal order. So that’s actually, that’s one reason, that’s an international reason. The other reason is domestics, so the Japanese domestic politics. So in the 1990s, especially under the Hashimoto administration, a lot of administrative and political reform was advanced. And one of them is electoral reform in 1994. But then other reforms like in terms of the relationship between the prime minister’s house, or Kantei, and bureaucracy. So it used to be those bureaucrats, right, especially as your example of agricultural products at the Ministry of Agriculture is colluding with so called Norin zoku of the LDP, that’s actually agricultural tribe in the LDP. They are colluding and then try to block every trade liberalization measures. So that was actually the Japanese politics until the 1990s. But as a result of administrative reform, now, Kantei, the prime minister’s office, is much more powerful compared with the bureaucracy of the government, or so called kasumigaseki in Japan. So I think that’s one reason the Japanese prime minister, Japan, can lead trade negotiation in the international sphere, is the prime minister and the Cabinet is much more powerful over those who have vested interests. Based on the collusion between the tribe politicians and the bureaucrats. That’s actually another reason, so well, one example is, so Japan led the Trans-Pacific Partnership or the joint Trans-Pacific Partnership, and then Japan led the CPTPP negotiation after the US withdrew from the Trans-Pacific Partnership. If that occurred three decades ago, in the 90s, before 1990s, then like, you know, agricultural Ministry of Agriculture officials will take it as a good opportunity to resist trade liberalization, and then probably a prime minister cannot convince officials and officials and the LDP politicians. And then like, you know, Japan cannot, Japan would have no way to lead the international negotiation of the trade agreement.

Michael Penn: Well I think there are probably some who would argue that, that while what you described there is very much what happened, it’s not necessarily a positive development from some perspectives. They would say, well look, what has also increased during this period is sort of neoliberal economics, where essentially the rich get richer and the poor get poorer, and those who used to have more power at the bottom parts of the political structure have lost that power. And that, you know, societies and economic systems have become more authoritarian. Do you feel that this is a legitimate criticism? Or do you think that the benefits of trade in terms of bringing more consumer choice and other positive aspects outweigh this more top-down approach to policy making?

Hiroki Takeuchi: I think overall trade has had a positive impact on increasing the economic welfare of the nation. And then, it’s true that inequality has expanded all over the world actually, especially in the developed countries, more in the United States than in Japan actually. But that actually mainly comes from automation, not globalization actually. So globalization has some impact, but at the same time, much more impact comes from automation. And then so automation is not a humans choice, right? So the automation has occurred because of the technology progress, and we cannot, nobody can stop technology’s progress, right? So when automation occurs, how should we respond? And one way to respond is increasing your trade liberalization and then try to make the trade, make globalization, try to use globalization as a cushion for the impact of automation. And then key is actually social welfare policy. So try to like upgrade, social safety net, it’s necessary. And then so, the United States has not been successful in upgrading social safety net and that’s why inequality expand has expanded and then so-called populist backlash to globalization has occurred. So Japan is better, but at the same time Japan also faces the same problem. So that’s actually the very important point. So overall to me, that criticism against globalization for expansion of inequality is not so fair because it’s not, it doesn’t consider the impact of automation.

Michael Penn: Okay, just to stay one more question with Japan domestic situation, you know, if we’re going to talk about the, you know, expanding and strengthening the social welfare net, or other things that that provide income to lower income people and middle class even, you know, one of the big arguments in Japan and elsewhere, but especially in Japan I think, is that the aging of the population means, and the the shrinking of the workforce means, that this country, which is already, I think, in percentage terms the most indebted country in the world, although it’s owned mostly domestically not internationally, that essentially states can’t afford it. So what’s– you know, so how does that kind of clash with this idea that if automation is driving this inequality, as you see it, and there’s too much debt, and there’s shrinking workforce, and all of these other problems, how is the social safety net going to keep pace with that?

Hiroki Takeuchi: So I think the most important thing is how to create wealth, right? So social safety net, or social welfare policy, that is basically redistribution policy. And in order to redistribute, you have to create the wealth first. So who will create the wealth is the question. And then, so usually the population is the basis of the creation of wealth. So each person that works, and then wealth is created. So that number is shrinking, as you said, because population is shrinking, especially young people’s population is shrinking, right? So that’s why the discussion of immigration is coming in, right? So Japanese government deliberately does not call it immigration, but foreign workers. But you know, actually, economically the same thing. And politically different, economic theory they’re the same thing. So I think to me, like, you know, if you take the position of how to create wealth, and who to create wealth, that will straighten the debate of immigration. And then, hopefully, later on Japan will go to the direction to discuss like how to manage immigration, given that an increase of immigrants is necessary. And then that can be good for our economy, and then, if you, if Japan can manage it, then that will be good for society, and society, and also good for everybody. So that’s actually how, that’s actually one key. And then finally, I think that immigration has become kind of the, one of the important issues in Japan. So that’s actually for next five to ten years that discussion of immigration will increase.

Michael Penn: Okay, well, let’s move more towards the international aspects then, you know, to what extent, I mean, most of the stuff about Japan really embracing free trade came about during the course of the Abe administration, Shinzo Abe. And Shinzo Abe, to a large extent, you know, he’s not an economist, he’s somebody who basically comes out of the rightwing nationalist tradition of Japanese politics, there’s really no doubt about that. But he, for him, it seemed like a lot of his free trade policy was really kind of about soft containment of China. It was really driven by, you know, his ideology that he wanted Japan to take a lead in the region in order to have a stronger position vis-a-vis the Chinese. So to what extent do you think that was the driving force behind Abe’s policy of, sort of, the Free and Open Indo-Pacific, as he called it? And to what extent do you think that that impacts the region itself?

Hiroki Takeuchi: Yeah, I think that’s, yeah, that’s a very interesting point. So overall, I think China was behind every issue. And so, and but, so the question is how? So you know, there’s no question that China is important, and how to manage the relationship with China, that is important for any country, including the United States. And so, but Abe is interesting, well, Abe is an interesting person, and more so, is the Abe administration was very interesting. So Abe came as a, you know, as you said, nationalist politician, but then his, like, legacy is quite internationalist. So, you know, nobody imagined that he would make, he would create, he would conclude the big free trade, the free trade agreement during his term, like nobody would have imagined when he came into office, even second time in 2012. So, I think that the one thing is Abe learned from the first term. He learned that in order to stay in office, he should, he should be away from his original agenda of nationalism, and but he should turn to more internationalism. And that’s actually the key for him to stay in office. And then he thought, you know, staying in office would be more important than pushing his original nationalist agenda, like amending the Constitution. So that’s actually his priority in his second term, and the last actual source of his success. China, well how to manage China is, or a relationship with China, is very important for Japan. It is even more important for Japan than for the United States. Because, one, Japan is very close to China geographically, so security concern is more imminent. And the, secondly, Japan, Japanese economy is more, Japan is more interdependent with China than the United States is. So economic relationship with China is even more important for Japan than for the United States. So to manage in the both security and economic relationship with China is crucially important for Japanese leader. And then so when Abe came in, so when Abe was came into, came back to office in his second term in 2012, I think what he had in mind is a, one, he actually realized the sort of threat of China. So as many of the hawks realized, but at the same time, he also thought of the importance of economic relationship with China. So you cannot take that purely hawkish policy toward China. And then in that sense of concluding the mega free trade agreement, like Trans-Pacific Partnership, was the ideal solution to to solve both problems. So it was that he found that the TPP as like, kind of one stone, killing two birds with one stone.

Michael Penn: The TPP is a very interesting case, especially where we are today. You know, I was covering the news here directly during the time of the Hatoyama administration. And he, of course, he had his vision which was quite new and different of the East Asian Community, which he was pushing during his short administration. And this extremely alarmed Washington and basically all of the Japanese bilateralists who looked to Washington for their policy. You know, they thought, oh my goodness, you know, to create a Japan-South Korea-China, economic and political bloc was like their worst nightmare. And I could see that the idea which they were pushing, especially after Hatoyama fell and Naoto Kan became prime minister, was TPP. They saw it as sort of the anti-East Asian Community policy because its focal point was Japan-US relations, and China wasn’t part of that bloc. But where we stand today is that with Trump coming into office in 2017, the United States withdrew from the TPP. And now it became the CPTPP, without the United States. And it’s probably going to be difficult for the Biden administration to rejoin that, for US domestic reasons. And, at the same time, we have other countries now asking to join. The first official asker is the United Kingdom, way across the world, because of their own Brexit issues. But another country which is thinking about asking is China, which is the greatest of all ironies because, you know, if you accept my analysis that TPP was originally pushed as sort of the anti-China riposte to the East Asian Community, then having China join the TPP, while the United States remains out, is extremely ironic. So how do you see this idea of China being part of the CPTPP?

Hiroki Takeuchi: So, you know, you’re looking at the US traditional China policy, there are two policies. One is called containment, the other is called engagement. And then, like a similar thing can be said for Japanese China policy. And the TPP is actually serving for both, like the containing China and engaging China. When Prime Minister Kan proposed the interest in joining the TPP negotiation, so he actually just talked about containing China. And then when other administration, officially joined the TPP negotiation, basically Japan started taking TPP to be good for both containing and engaging China. So that’s why so, so China, excluded from TPP membership is serving for containing China. But at the same time, in China, if China is included, or at least, giving China an incentive to join the TPP, whether it is possible or not, is serving for the purpose of engaging China. So that’s actually an interesting situation, right now. The reason that the US is out of TPP, and China has been out of TPP, are very different. Right? So they, those two differences, those two reasons, are not actually related to each other, at least from an economic perspective. So the United States cannot be committed to any like trade agreement right now, because of the skepticism coming from domestic politics. Although actually Texas is actually completely, almost completely, for Trans-Pacific Partnership. But, you know, so called the Rust Belt, the Midwest, is quite skeptical. So as a result, Washington overall is quite skeptical about the feasibility of joining TPP. Well, China’s problem of joining the TPP is whether China can satisfy the conditions of state-owned enterprise reform. So, nowadays, you know, free trade agreements like TPP, typically TPP requires the signatories to be committed to a lot of domestic economic reforms. And China, of course, doesn’t want to be kind of preached, that you know what, you should do this, you should do that. And then, also, there is a huge resistance from the vested interests, those who have vested interests in the state-owned enterprise system. So, basically, China’s state capitalist system is based on the benefits, vested interests of the state-owned enterprises. So a lot of jobs are related to that, a lot of the political interests are also embedded. So right, so. So that’s why China finds it difficult to be, to join the TPP at the same time, that will serve for China’s economic interests. So if China joins or China at least tries to join the TPP, then they may have a strong incentive to be committed to economic reform. So in China, there are two groups and those who are so-called reformist, those who are arguing for advancing more economic reforms, they want China to join the TPP. In that way, they are empowered for advancing the reform. But at the same time, those who are against reforms, those who lose the vested interests, in state-owned enterprise system, they oppose the TPP. And then because, you know, that’s actually, it will undermine their vested interests. So China has actually two voices, both reformist and versus anti-reformist. And then they are saying, they’re actually fighting against each other in the Chinese domestic politics. And then we hear, like, you know, both, both voices. So that’s actually interesting.

Michael Penn: Okay, and there’s one other major trade pact that I think we can’t ignore. And that’s the Regional Comprehensive Economic Partnership, or RCEP. So what is its significance? And does it have any dynamics that are different from TPP?

Hiroki Takeuchi: So RCEP is actually the free trade agreement of ASEAN, with originally six countries: Japan, South Korea, China, Australia, New Zealand, and India. And in the last minute, India withdrew from the negotiation. So now it’s actually it’s ASEAN plus five. It’s significant for a few reasons. One, that’s the first mega free trade agreement, including all of China, South Korea, Japan. And then so, secondly, it actually lowered tariffs levels significantly. So even though tariffs of the developed countries have been very low, tariffs of developing countries are still, were still high. So it lowered the tariffs of the developing countries, so that’s actually significant. However, there is various limitations. So that is, one is because, you know, China is a member, and so basically, there is no agreement of no commitment, no requirement for the commitment to domestic economic reforms. So we cannot expect China to be committed to state-owned enterprise reform just with RCEP. So good news is actually RCEP and the TPP are not contradictory with each other. So that could be, they could be complimentary. And then, so it’s actually overall a good thing that, you know, China, well, both China and Japan, lead the conclusion of the RCEP.

Michael Penn: Okay. And before we move to the Patron Q&A, is there any other point about Japan and rulemaking for trading in East, the Asia-Pacific that, that you’d like to touch on, in the open part of this talk?

Hiroki Takeuchi: I think like one thing is, I hope that Japanese people will realize that how much of the world, especially the United States, hopes Japan to lead the international trade negotiation because now, United States is kind of restrained by domestic politics for the ability to lead international trade negotiation. And then so and then, you know, United States also does not want China to lead the international trade negotiations. So really, like the expectation to Japan is very high, especially in the sphere of international trade. So that’s actually, many Americans who are engaged in policymaking realize it, or know it, but I’m not sure how much Japanese people, especially even those who are engaged in policymaking do realize it.

Michael Penn: Okay, well, thank you very much. And now we do move to our Patron Q&A section…

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