Japan eyes Latin America for mega-FTA to secure minerals, food security
Nikkei Asia - 20 January 2024
Japan eyes Latin America for mega-FTA to secure minerals, food security
By Shigeru Seno
Japan is gearing up to enhance its economic ties with Central and South America in 2024 by pursuing an Economic Partnership Agreement deal with the Southern Common Market known as Mercosur, a trade bloc that encompasses Brazil, Argentina and other countries. A potential Japan-Mercosur EPA would likely be Japan’s last mega-FTA.
The move reflects Japan’s strategy to secure resources and food security while countering China’s rising sway in the region. Here are some of the challenges and opportunities of Japan’s diplomacy with Central and South America.
In the region, which is often referred to as the "backyard of the United States," China has been increasing its clout. However, there is still ample room for Japan to make diplomatic efforts to boost its supply chains and food security as the "fourth pole" of the region after the U.S., China and the European Union.
Japan’s diplomacy agenda with Latin America is packed in 2024. Brazil will host the Group of 20, and Peru will be the chair of the Asia-Pacific Economic Cooperation, both of which Japan participates in as a member.
In addition, this year marks the "Japan-CARICOM Friendship Year," and the Japanese government is arranging to hold a foreign ministers’ meeting in Japan within the year with the Caribbean Community (CARICOM), which comprises 14 member states of Central and South America.
Japanese Prime Minister Fumio Kishida postponed his visit to Brazil and other Latin American countries originally scheduled for January, for domestic reasons including his party’s slush fund scandal. However, diplomatic authorities appear to be exploring the possibility of his visiting Brazil during the Golden Week holiday period in May or after the end of the regular session of the Diet in late June. The immediate focus will be on whether Kishida can agree on a joint study on the Japan-Mercosur EPA with Brazil.
Mercosur now has five member countries — Brazil, Argentina, Uruguay, Paraguay and Bolivia, which joined in December 2023. It is the largest economic bloc in South America, with a population of nearly 300 million and a gross domestic product of nearly $3 trillion, the International Monetary Fund estimated in 2023.
Member countries of Mercosur are prohibited in principle from negotiating trade with outside parties on their own. Mercosur recently clinched a free trade agreement deal with Singapore, its first with an Asian nation. It is also eyeing a deal with South Korea. An FTA between the EU and Mercosur is in the final stages of negotiation. In November 2023, the Japan Federation of Economic Organizations (Keidanren) called for an early conclusion of a Japan-Mercosur EPA, and expressed fear that "Japan could fall behind in trade and investment.’’
Kishida on Jan. 10 spoke with Brazilian President Luiz Inacio Lula da Silva on the phone, discussing a "a possible commercial agreement between Mercosur and Japan."
Following this summit by telephone, the Brazilian presidential office issued a press release highlighting Brazil’s seriousness on the deal. Officials on the Japanese side sensed that their Brazilian counterparts were shifting gears.
Central and South America is a strategically critical region for Japan for at least two reasons, although it is not familiar to Japanese in general because it is far from Japan.
Firstly, many Central and South American countries are rich in mineral resources.
Chile and Peru are major copper exporters for Japan. Lithium, an essential ingredient of batteries for electric vehicles, is imported in large quantities from Chile and Argentina.
Further cooperation with resource-rich countries in Central and South America will certainly boost Japan’s robust supply chain.
Secondly, from the perspective of food security, stable agricultural imports from Central and South America will enable Japan to vastly reduce food supply insecurity.
However, agricultural products such as beef and poultry could be a sticking point. Agricultural products are a double-edged sword for Tokyo as the possible Japan-Mercosur EPA could be a heavy blow to Japan’s livestock farmers. This is because most Mercosur member countries are beef exporters, while most of the poultry Japan imports comes from Brazil. If relatively high tariffs on beef and poultry were reduced, imports of those items to Japan would likely surge.
The prime minister’s office faces a test of whether it can lead the discussion while taming cautious voices over the trade deals within the ruling Liberal Democratic Party until negotiations on the Japan-Mercosur EPA begin.
The U.S. and China have been Latin America’s main trading partners, with Japan accounting for less than 10% of the total, but there are growing calls among Mercosur members to strengthen ties with Japan in order to reduce dependence on China.
For Japan, it is also indispensable to collaborate with its counterparts in Central and South America on environmental measures, such as securing raw materials for sustainable aviation fuel, which reduces greenhouse-gas emissions.
Brazil will host the U.N. Climate Change Conference, COP30, in 2025.
Ambassador Octavio Cortes, Brazil’s envoy to Japan, pitched its promising renewable fuel, saying, "Brazil is the largest producer of ethanol (the raw material for biofuels)."
Meanwhile, Shorna-Kay Richards, the Jamaican ambassador to Japan, expressed the need for a new regular consultation framework with Japan in a recent interview with Nikkei.
"A high-level political forum with a structural nature, such as the Tokyo International Conference on African Development (TICAD), is a very useful mechanism," she said on behalf of the Caribbean Community, calling for a regular consultation framework with Japan’s prime minister and foreign minister to represent the views of the Caribbean Community.
To date, Japan and the Caribbean Community have held seven foreign ministers’ meetings, but only one summit was hosted in Trinidad and Tobago in July 2014, with the participation of then Prime Minister Shinzo Abe.
For the Caribbean Community, which is a collection of small and midsize countries, a framework like TICAD, where leaders gather every three years, seems attractive as a way to strengthen relations with Japan on a sustained basis.
Furthermore, Central and South America is the main battlefield where China and Taiwan compete for diplomatic relations, another geopolitical reason this region is so important.
Since 2017, China has established diplomatic relations with Panama, the Dominican Republic, El Salvador, Nicaragua and recently Honduras as a result of its diplomatic efforts in those nations.
On the other hand, among 12 countries that recognize Taiwan as a sovereign country, the majority, seven, are in Central and South America.
Among Caribbean countries, Jamaica hosts a large Chinese investment. "We believe in cooperation, not confrontation" between the U.S. and China, said Jamaica’s Richards when asked about her policy toward China during the interview.
"We have two major players in the international system which could benefit from their cooperation in addressing pressing global challenges, including climate change, food security and emerging technologies," she added.
As China’s economy slows, will there be any changes in Beijing’s investments and aid to Central and South America? Japan may need diplomatic savvy to seize business opportunities as China’s influence starts to show gaps in the region.
A Japan-Mercosur EPA will likely be the last mega-FTA for Japan after it concludes the Trans-Pacific Partnership (TPP), the Japan-EU EPA, and the Regional Comprehensive Economic Partnership (RCEP) in East Asia, which includes Japan, China and South Korea.
