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Mexico free trade founders on Japan's
farmers
By Hussain Khan
TOKYO
- The failure of bilateral trade talks between Mexico
and Japan on October 16 has shocked both sides,
particularly Japan. The talks foundered on the question
of what to do about Japan's farmers, among the most
highly subsidized in the world and the power base of the
ruling Liberal Democratic Party (LDP).
Having
reached a general agreement on non-agricultural issues,
three ministries, including the Ministry of Economy,
Trade and Industry (METI), thought they had reached an
effective agreement to create Japan's most extensive
free trade pact. The outline was to be announced in a
summit statement, but the passages were omitted when
Mexico refused to accept a pact that excluded farm
products. The failure of the talks has dismayed Prime
Minister Junichiro Koizumi, fresh off victorious party
elections that analysts have interpreted as a mandate
for change and reform of Japanese society.
The
talks collapsed despite strong political will on both
sides to conclude them and despite instructions from
both Mexican President Vicente Fox and Koizumi to their
working-level ministers to make the necessary
concessions. President Fox had made a personal four-day
trip to Japan in an attempt to seal the trade pact,
which would have put an end to nearly a year of
intensive negotiations that began last October.
However, the reasons for the failure go deep
into Japanese society and extend back for centuries.
Japan's political leaders still have no clear plan as to
how they are going to compensate the country's
politically powerful farmers, who, for instance, are
protected by tariffs against foreign rice of up to 406
percent according to the World Bank. That drives
Japanese consumers to pay on average twice as much for
farm produce as they would if there were no price
supports. Without first making such plans acceptable to
its farmers, Japan is not in a position to offer
tangible concessions to any trading partner. To expect a
successful conclusion without risking the wrath of the
LDP's power base was nothing more than wishful thinking.
Japanese politicians are thus not prepared to
face this bitter reality. They cannot think of any
realistic plan that would really satisfy the farmers,
who have kept the LDP in power for more than a
half-century, since the end of World War II when the
victorious United States ordered Japan to start its
experiment with democracy. The LDP has lost power only
for one extremely brief period during the last 50 years
or more.
The party's base stems from a social
system in place long before the Meiji revolution, or
reformation, more than 150 ago. At that time, Japan's
new era of modernity and industrialization gave birth to
the leftist labor movement, which later flourished in
the chaos of post-World War II as Marxist governments
started to spread across Asia. Japan's main opposition,
the Socialist Party, thrived on the support of the labor
movement in industrialized areas and in the cities.
Japan, however - and especially the LDP - never
lost the traditions of its daimyos, the territorial
magnates who dominated much of the country from about
the 11th to the 19th century. Like the big landlords in
almost all developing countries, the daimyo dynasties
had a strong hold on the rural population over several
centuries. This cultural and traditional background
propped up the LDP and steered it safely through the
postwar turbulence.
Most present LDP members of
the Diet (Parliament) are the grandsons of
first-generation parliamentarians. They have inherited
their seats in the Diet like the landlords who inherited
their ancestral lands and passed them on to later
generations. Although the post-World War II land reforms
wiped out the landlords, the traditional cultural and
political influence of the daimyo dynasties still
dominates Japanese rural society.
This is a
major reason why what started out as a multi-party
democracy has been dominated for more than a half
century by the LDP. Ruling party members have no
intention of taking the risk of eliminating their own
political existence for the sake of concluding an FTA
with Mexico or any other country, which would spread
discontent in their electoral college from an uprising
by the farmers in their respective rural areas.
Therefore, they seriously did not try to envisage any
compensation plan.
The Japanese media, the
trading companies and the manufacturers have been
pressing the Japanese government hard to conclude as
many FTAs as Mexico has - the country has signed more
than 30 free trade agreements and famously enjoys the
benefits of the North American Free Trade Agreement
(NAFTA) with the United States and Canada.
NAFTA
not only almost tripled American trade with Mexico and
nearly doubled it with Canada, but also made all three
members more competitive internationally. NAFTA proved
definitively that both developed and developing
countries gain from free-trade partnerships. It enabled
Mexico to bounce back quickly from its 1994 financial
crisis, launched the country on the path to becoming a
global economic competitor and supported its
transformation to an open democratic society.
In
2002, Japan's exports to Mexico totaled 472.4 billion
yen (US$4.3 billion), while Mexico's exports to Japan
came to 225.3 billion yen, according to Japanese trade
statistics. By taking a tough stand on farm products,
Japan is costing its industrial exporters an estimated
400 billion yen a year.
In the beginning,
negotiators had bridged gaps in most areas except for
tariff-free quotas on items such as pork and orange
juice, sources said. The main stumbling block has been
Mexico's demand to remove tariffs on pork, which
accounts for about 10 percent of Mexico's exports to
Japan. Japan sought to break the impasse with low
-tariff import quotas on pork and targeted their level
to around double the current amount now imported from
Mexico. According to Japanese officials, the proposal
offered tariffs of around 2 percent on pork imports from
Mexico, compared with the current 4.3 percent.
Under the plan, the lower tariff would have been
applied to 70,000 to 80,000 tonnes of Mexican pork.
However, Mexico was not impressed, and made a counter
demand for a 250,000-tonne tariff-free quota.
"Considering the reaction of domestic farmers, 70,000
tonnes is the most we can compromise," commented a
senior Japanese official in the Agriculture Ministry. A
representative of the Mexican negotiating team said the
proposal did not even amount to a compromise. But Japan
rejected the plan to protect its 9,000 domestic pig
farmers, who are spread over all 47 prefectures of
Japan. It would have affected all LDP electoral seats
throughout all rural areas of Japan.
Mexico
first accepted Japan's proposal to increase low-tariff
imports of pork to 75,000 tonnes from 40,000 tonnes over
five years, on condition that the agreement be reviewed
after three years. But later, Mexico increased its
demand over orange juice. Mexico initially wanted Japan
to phase out tariffs on imports of orange juice over 10
years. Japan rejected this and later proposed creating a
tariff-free quota on orange juice imports, sources said.
Mexico agreed on the idea of a quota but pushed
for a larger volume, which the Japanese then rejected.
The Japanese side agreed to establish a low-tariff quota
for pork imports but rebuffed the Mexican tariff-free
juice plan, a product that Mexico has nearly no track
record of exporting to Japan.
The failure of the
agriculture provisions opened up other problems. Mexico
recently started excluding companies from nations with
which it has no FTA from participating in bids for
government procurement contracts. Mexico argues that the
pact should cover a variety of agricultural and other
products. Aside from pork, which makes up nearly half of
Mexico's agricultural exports to Japan, Mexico wants
access to product markets of which it exports little now
but sees substantial potential for growth, such as
chicken, beef, sugar, flour, alcohol and leather
products.
Meanwhile, Japan is demanding that
Mexico change its stance on the "rule of origin" on
steel imports. Mexico has offered to open its market for
steel imports but has imposed a rule that would make it
impossible for Japanese steel makers to move into the
market. The ore used to make the steel products must be
from Japan - a subterfuge at best. Japan, a nation with
few natural resources, imports virtually all of its iron
ore. The country had sought a shortening of the grace
period set by Mexico for the repeal of tariffs on
automobile imports and the deregulation of limits on
steel production origins as well.
A Japanese
official slammed Mexican negotiators after the meeting.
He said that despite an agreement earlier in the day
between Koizumi and Fox to "agree on the FTA by the end
of the day", the Mexican side came up with demands too
tough for Japan to swallow. Observers attributed the
breakdown to political pressure on both sides, making it
difficult to compromise.
Both countries are at
precarious stages politically. In July, Fox's National
Action Party lost seats in its lower-house election for
Congress. Fox's public support has declined amid a
struggling domestic economy, and pressure has mounted
from industry groups. Representatives of these groups
accompanied the Mexican delegation. Japan, meanwhile,
will have its own lower-house election in November and
an upper-house election is scheduled for next summer.
The negotiations have been overshadowed by a looming
general election for the House of Representatives on
November 9, making Japan hesitant to make concessions
that could hurt domestic farmers, one of the main
support groups of Koizumi's Liberal Democratic Party.
In an interview with reporters on Tuesday,
Fernando de Jesus Cabales Clariond, Mexico's secretary
of the economy, said that agricultural issues inevitably
become political, given Japan's impending elections.
Analysts suggest that Mexico, understanding that the
Japanese government is reluctant to compromise before
the general election, may be counting on gaining further
concessions by postponing negotiations. Fox has said the
issue is not the timing of the FTA but its content.
As the ministerial talks resumed, the Mexican
side showed no sign of compromising. In fact, a request
to establish a tariff-free quota for orange juice could
have been interpreted as a conscious effort to delay the
negotiations. "Their demands are too high," said
Agriculture Minister Yoshiyuki Kamei, sealing the fate
of the latest round of talks. He blamed the impasse on
Mexico, complaining that Mexico "presented too high a
hurdle" over products such as orange juice and pork.
The FTA with Mexico would have been Japan's
second, following one with Singapore signed in January
2002. It was a litmus test for Japan, which is lagging
in bilateral agreements compared to Europe, America and
even China. Japan was feeling restless on the speed with
which China was concluding FTA agreements China with the
South Asian countries and it wanted to compete with
China in this respect.
After the success with
Mexico, Japan wanted to conclude such agreements with
other Southeast Asian countries. Koizumi had expressed
such a desire in a recent Association of Southeast Asian
Nations (ASEAN) conference held in Indonesia. At an
upcoming ASEAN summit meeting in December, the Japanese
government plans to agree to FTA talks with Thailand,
Malaysia and the Philippines.
But after noting
Mexico's negotiating stance, domestic farming interests
are likely to strengthen their guard. Given that the
Asian countries are demanding a lifting of restrictions
on worker mobility, the negotiations may be even more
difficult than those with Mexico. Unless Japan
structurally reforms its agriculture and labor markets,
it will fall behind in the global trend of securing
FTAs. The schedule for future talks has not been set,
putting the original plan to sign an FTA within the year
in doubt. This does not bode well for the future FTA
negotiations with such Asian nations as Thailand, which
will require even more compromises on agricultural
imports.
(Copyright 2003 Asia Times Online Co,
Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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