The Australian | May 18, 2011

Fears for FTA as Japan stalls on Pacific bloc: a US-backed trade group is heading for the ’too hard’ basket

Rick Wallace, Tokyo correspondent

JAPAN has finally admitted it will not be able to decide by next month whether it should join the emerging US-backed trade bloc, the Trans Pacific Partnership.

The export-dependent country’s support of the TPP was supposed to mark a new opening up of Japan and the overdue removal of its substantial tariff walls.

But Prime Minister Naoto Kan’s cabinet move yesterday to toss a decision on the TPP into the post-tsunami "too hard" basket has thrown its commitment to trade liberalisation into disarray.

The decision also augurs badly for the long-awaited Japan-Australia free trade agreement, although both Mr Kan and Julia Gillard insisted negotiations remained on track during her visit to Japan last month.

Japan’s government said it had decided to delay the decision on the TPP which Australia is poised to join — because it was giving priority to relief efforts after the earthquake, tsunami and nuclear crises.

The delay in Japan comes as other entrants step up efforts on the TPP’s expansion in accordance with a November deadline set by US President Barack Obama, who will host an APEC meeting in Hawaii in that month.

Japan gave no time frame on the delay, although one cabinet member, Kaoru Yosano, said a decision would have to be reached by November.

Manuel Panagiotopoulos, a consultant who runs the Australia-Japan Economic Institute, said he expected both the TPP and the FTA would be pushed back by the disaster.

However, he Japan and Australia remained strongly committed to the FTA and the complexity of negotiations over the TPP would likely mean Japan was not at any real risk of missing the boat.

Professor Shujiro Urata, a specialist in trade policy at Tokyo’s Waseda University, said the decision would disappoint Japanese industry and could rob Japan of a role in shaping the terms of the trade bloc to minimise economic damage.

"There are a number of issues (under discussion) such as intellectual property rights, government procurement and competition policy that will affect Japanese companies," he said.

"If Japanese companies are going to be affected they would like to have the government getting involved in negotiations."

Professor Urata, a supporter of Japan joining the TPP, said the delay could be costly as it would put Japan further behind, and there was also doubt over the future of Mr Kan, who is the TPP’s main supporter in Japan.

He said he believed Japan was capable of tackling the TPP decision and disaster relief at the same time, and it needed to increase its efforts on trade liberalisation.

The Japan-Australia FTA could be delayed along with the TPP decision, Professor Urata conceded, although he said the crisis could be seen as an opportunity to trade off agricultural reform for greater energy access.

"There are raw materials we need to import from Australia and if we could get some agreement on stable supply of these from Australia we could open up dairy markets for example," he said.

Ms Gillard and Mr Kan discussed co-operation on energy supplies last month in the wake of the nuclear crisis which has clouded the future of nuclear energy in Japan and the Australian government has pledged to keep the LNG flowing.

But most LNG contracts in the short to medium term are already accounted for and both countries acknowledge that trading in LNG is negotiated between companies rather than countries.