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Japan’s ‘3-11’ disaster and the FTA negotiations with Australia

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In Brief

Australian Prime Minister Julia Gillard was one of the first among world leaders to visit Japan, over 20–23 April, after the nation was stricken on 3 March by the ‘earthquake-tsunami-radiation triple disaster’.

But the Australian government was tactful and realistic in not placing emphasis on progressing bilateral Free Trade Agreement (FTA) negotiations at that time.


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The negotiations had resumed in Tokyo over 7–10 February 2011 after stalling for almost a year, but a lack of progress — particularly over agricultural market access — then prompted the trade ministers to call for a high-level political summit to regain momentum. The ‘3-11’ disaster generated more urgent priorities for the Japanese government. Indeed, reversing a commitment to decide this question by end-June, in May the Kan administration announced it would defer any decision about whether to join with the nine nations (including Australia) now negotiating an expanded Trans-Pacific Strategic Economic Partnership (TPP) agreement.

Japan has good reasons to resume FTA negotiations with Australia in the wake of 3-11. The ongoing problems afflicting the Fukushima nuclear power plant north of Tokyo, devastated by the tsunami, have resulted in closure of the Hamaoka plant to the east, as well as delays in resuming operations at other plants while extra ‘stress tests’ are carried out. This means that only 19 of Japan’s 54 reactors are now working, leading to nation-wide efforts to limit electricity consumption and adverse effects on the economy and everyday life in Japan.

Japanese power companies are already major buyers of LNG and other natural resources in Australia, also taking equity stakes in mining developments. Australian producers are expanding production capacity in LNG, for example, responding to indications that Japan would need to boost imports. More demand is expected not just for this year’s summer peak period, but also over the long-term as enthusiasm wanes for nuclear power in Japan, as well as in some other parts of Asia. Concluding a bilateral FTA may well help improve energy resource security for Japan. Especially as countries like China, Korea and now India increasingly vie for Australian resources (such as LNG) — with Australia already negotiating bilateral FTAs with all three of those nations.

Liberalisation of agricultural market access remains a large stumbling block to concluding an FTA with Australia. In theory, the devastation unleashed by the 3-11 tsunami on agricultural capacity in five predominantly rural prefectures could create an opportunity to allow in more Australian imports over the short term. In practice, doing so would strike many Japanese as adding insult to injury to afflicted farming communities throughout the Tohoku region, viewed as exemplifying Japan’s stalwart communitarian spirit. Even accelerating and expanding the policy of direct payments to farmers, in exchange for selling off their most inefficient operations, runs up against the added budgetary stress on the Japanese government arising from the 3-11 disaster. Temporary shortages of foodstuffs after the tsunami have also revived old arguments about the need for greater ‘food security’ in Japan.

Yet, as Aurelia George Mulgan points out, there are some signs of hope — at least over the longer term — for FTA initiatives involving Japan and Australia:

The revival of the regional food industry (interlinking agricultural production, processing and distribution stages) will need the input of technology and funds from the industrial sector, which may contribute to the industrialisation of agriculture in that area and engender greater cooperation between the agricultural and industrial sectors rather than conflict (as in the case of the debate over the TPP).

Other factors may reinforce a shift in the dynamics of FTA discussions involving agricultural market access to Japan. Concerns are often expressed in Japan — by consumers, not just farmers and their political or bureaucratic supporters — about ‘food safety’ of imported goods. Ironically, it is locally-produced goods and safety regulations which are now being called into question — for example, by recent reports of irradiated beef from Tohoku getting into the domestic market. If I were in Japan, as I will be with my family over October–November, I would be limiting my consumption to imported beef. And to several other products from Australia, including even our green tea (particularly susceptible to excess radiation, according to random testing of food supplies being systematically carried out in Japan).

The Australian government should work tactfully but vigorously to re-emphasise the safety of its agricultural exports, like it did in the wake of Japan’s ‘mad cow disease’ outbreak. It can also highlight that Japanese firms have recently invested in major Australian food companies. To further appeal to Japanese consumer interests, and indeed Australian consumers who are also increasingly concerned about product safety issues, both governments should add mechanisms in their proposed FTA that require and facilitate product risk information-sharing.

The shadow cast by the existing TPP negotiations may galvanise Japan to conclude first a bilateral FTA with Australia. The US is reportedly pushing strongly for an expanded TPP agreement, bringing in Japan. Yet, in practice, regional agreements — like AANZFTA — often end up preserving liberalisation measures (such as tariff rates) similar to those agreed in bilateral deals.

A resumption of more active FTA negotiations at any level will depend also on political leadership in Japan. The Japanese government became active in concluding FTAs from 2001, coinciding not just with the collapse of multilateral WTO Round negotiations but also with initiatives taken by then PM Koizumi to centralise decision-making and reduce scope for veto-players such as the Ministry of Agriculture. Unfortunately, support for Prime Minister Kan has dropped significantly in recent months (after a brief uptick after 3-11). Indeed, he has promised to step down soon after enactment of legislation related to disaster relief. Kent Anderson suggests that people in Japan may increasingly view this year’s problems as now more of a regional problem, one that does not imply radical rethinking and institutional change on the scale of the transformations occasioned by the ‘9-11’ disaster in the US. From that perspective, it may end up more like ‘business as usual’ for Japan’s FTA negotiations after all.

A final complication is that Australia’s policy on FTA negotiations has seemingly changed direction, with the announcement of the ‘Gillard Government Trade Policy Statement>’. The Statement is a curious mixture of political and economic rhetoric. It blames the previous Howard government for over-indulging in bilateral and regional FTAs, for limited economic gain (presumably those with smaller partner economies, in particular) and/or for geopolitical objectives (presumably, in particular, AUSFTA). The Statement attempts to regain the high ground by urging greater efforts to achieve multilateral trade and investment liberalisation. It draws partly on a Productivity Commission report last December on FTA strategies and policy recommendations, but the Statement also argues that this sounder economic approach was a focus — along with unilateral liberalisation and deregulation — of the Hawke/Keating governments. The new policy direction raises the question of whether this Gillard government will want to press strongly for an FTA even with a very large economy such as Japan.

Another stumbling block in negotiations arises from the Statement’s views on investor-state arbitration (ISA). On one interpretation the Gillard government wishes to eschew completely the incorporation of such protections for foreign investors in all future treaties, even with developing countries. A more contextual interpretation would still allow ISA to be included on much more restrictive conditions than in previous FTAs or investment treaties concluded by Australia. Yet ISA protections are found in almost all of Japan’s treaties, and in the February talks DFAT itself reported that ‘progress on the investment chapter was slower, as key areas of difference remain, including Japan’s priority request to include an Investor-State Dispute Settlement mechanism’.

After 3-11 Japan may agree to exclude or sharply limit ISA protections if Australia presses the point. That seems likely especially now that Australia has been subjected to its first-ever arbitration claim (under its treaty with Hong Kong, brought by the subsidiary of an international tobacco company). More careful drafting of ISA provisions is sensible. But many TPP partners (especially the US, also keen on ISA) will be concerned about the message sent by excluding or watering down ISA provisions in a new major bilateral treaty in the region. And Australia’s stance will certainly slow down the Australia-Japan FTA negotiations. Potential Australian investors into Japan, including now perhaps Jetstar, may also come to regret the omission of conventional ISA protections in such treaties.

Luke Nottage is Associate Professor at Sydney Law School and founding Co-Director of the Australian Network for Japanese Law (ANJeL). This comment is based on his posting to ‘The Conversation’ and the ‘Japanese Law and the Asia-Pacific’ blogs. It draws on research for the project, ‘Fostering a Common Culture in Cross-Border Dispute Resolution: Australia, Japan and the Asia-Pacific’, supported by the Commonwealth through the Australia-Japan Foundation which is part of the Department of Foreign Affairs and Trade.

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