Japan is test case for Pac Rim free trade zone

Protesters shout slogans during a rally against China near the venue of the APEC forum in Yokohama, near Tokyo, Sunday, Nov. 14, 2010. Chinese President Hu Jintao is visiting the economic summit among a territorial dispute between the Asian giants.

YOKOHAMA, Japan — Although Asia-Pacific leaders have committed themselves to achieving a Pacific-wide free trade zone following an annual summit, host Japan may prove a key test case for how realistic that vision is.

Acknowledging that Japan's economic power is declining, Prime Minister Naoto Kan declared his country must open up its markets and embrace free trade — or risk getting left further behind other regional rivals.

"Japan is determined to reopen itself," Kan said at a press conference Sunday that wound up the Asia-Pacific Economic Cooperation forum, alluding to the historic role that Yokohama, which hosted the summit, played more than 150 years ago as one of the first Japanese ports to open up to the West.

That bold declaration represents a change for Japan, which for decades had been ruled by conservative administrations that were reluctant to engage in trade liberalization and were closely tied with farmers who fiercely oppose lowering protective tariffs. Imported rice, for example, is subject to a 778 percent tariff.

Japan and the other 20 members of APEC will face many such tough choices as they strive to execute their shared commitment to free trade and greater regional integration as outlined in the leaders' communique issued at the end of the weekend meeting.

Their overarching goal: To work toward establishing a Free Trade Area of the Asia-Pacific that would envelope all members, from behemoths China and the U.S. to tiny Brunei and New Zealand. Slashing tariffs and other barriers to imports and investments, the so-called FTAAP would cover half the world's global commerce and two-fifths of its trade. Kan said the rough target date was 2020.

The Asia-Pacific region has led the world's still-weak recovery from the financial crisis, and the region's leaders are convinced that open markets are a sure way to ensure future growth. Still, creating such a huge free trade zone is a highly complicated endeavor given the region's diversity and vested interests opposed to opening markets.

China's transformation into the world's second-largest economy — overtaking Japan this year — and the dynamism that has helped it lead the global recovery, was made possible mainly by opening to foreign trade and investment. While Washington complains that Beijing keeps its currency artificially low, giving China's exports an unfair price advantage, consumers have benefited enormously from lower-priced imports.

Japan's economy, meanwhile, has been stagnant for two decades, stymied by weak demand and a shrinking population even as regional rivals such as South Korea — which is racing ahead of Japan in free trade deals — are becoming formidable competitors.

"Other Asian economies are catching up to or surpassing Japan," Kan said Sunday after the summit ended.

"Japan would like to stay as a country with vigor, and to survive in this context, we really need to have economic integration with Asian and Pacific Rim friends and countries so that together we can grow," he said.

Although Japan has long sought to boost demand at home, the resource-scarce country remains strongly dependent on exports.

Driven by a sense of urgency, Japan's government — led by the ruling Democrats, who overthrew the long-ruling conservatives last year — announced a striking new openness toward free trade in a policy paper last week, just before the APEC meetings, as a way to revive growth.

Calling the present a "watershed moment," Tokyo promised to "open up the country." It pledged to wrap up free trade negotiations with Australia, resume suspended trade talks with South Korea, and seek new free trade partners, warning the country needed to become a more attractive place to invest. On Sunday, Japan signed a free trade deal with Peru.

Japan must now decide whether to join a U.S.-backed free trade grouping called the Trans-Pacific Partnership, which the APEC leaders held up as a building block for an eventual Pacific-wide free trade zone. The U.S., Australia, Malaysia, Vietnam and Peru are negotiating to join the TPP bloc, which currently brings together the small economies of Chile, New Zealand, Brunei and Singapore.

Big Japanese corporations are urging Kan to join or put Japan at a disadvantage, but he is already facing an intense fight from farmers who fret that a flood of cheaper agricultural products will ruin them.

"We small-scale farmers cannot compete with large-scale growers abroad," said Ryoichi Fujimaki, a 43-year-old vegetable farmer near Yokohama.

While Kan has also promised to revitalize Japan's farming industry and overhaul agricultural policy, but hasn't given details.

Some APEC leaders urged Japan to consider the big picture.

"You cannot guide your integration policy on only one sector," said Chilean President Sebastian Pinera, noting that agriculture represented less than 2 percent of Japan's economy. "If the country as a whole will win because of the FTA, that means it can compensate the losers and still there will be something for the winners."

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G-20 leaders not inclined to compromise

At the Group of 20 summit in Seoul, Obama's effort to win consensus on a unified approach to boost the world economy appears doomed, raising the specter of countries pursuing their own interests.

G-20 summit protesters clash with South Korean riot police in Seoul.

President Obama appeared to fall short in his attempt to forge a unified approach to boosting the global economy as a frequently rancorous meeting of world leaders seemed set to conclude in Seoul on Friday without agreement on specific steps to avert damaging currency and trade wars.

Leaders of the world's biggest economies showed that they were in no mood to compromise during the two-day summit. Instead, they were headed toward broad, general pledges that did little to mask their inability to find common ground for immediate action.

That failure to find consensus among the Group of 20 nations — a self-appointed steering committee of the global economy — raised the specter of countries pursuing their own interests at the expense of coordinated and balanced global growth.

British Prime Minister David Cameron warned of the risks of that route at the summit opening, saying failure by the G-20 to accomplish some sort of global accommodation could lead to "a return to what happened in the 1930s: protectionism, trade barriers, currency wars, countries pursuing beggar-thy-neighbor policies; trying to do well for themselves but not caring about the rest of the world."

Many countries, however, appeared to be doing just that. In particular, they took aim at the Federal Reserve's recent decision to pump $600 billion into the U.S. financial system, a move that critics saw as an attempt to lower the value of the dollar and therefore make U.S. exports more competitive.

As the leaders gathered in Seoul, Bank of China Chairman Xiao Gang called the Fed's move "dangerous," writing in the semiofficial China Daily newspaper that it had driven the dollar down in value, raised expectations of inflation and hurt other economies. That position was backed by former Federal Reserve Chairman Alan Greenspan, who said the U.S. was "pursuing a policy of currency weakening."

U.S. officials declared they were doing no such thing. And, in fact, the U.S. dollar has been rising in value in recent days.

"We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy," Treasury Secretary Timothy F. Geithner told CNBC from Seoul. "It's not an effective strategy for any country, and it's not for the U.S. We'll never do that."

But sharp opposition to the move from China and Germany, among others, also scuttled Obama's original goal of getting countries with large trade surpluses to agree to reduce those imbalances to measurably lower levels.

Instead, G-20 negotiators have agreed to delay creation of "indicative guidelines" — which would assess economic imbalances — until finance ministers and central bankers meet again in 2011, a G-20 source told Reuters news agency. Negotiators also said they would seek the aid of the International Monetary Fund to find ways to measure those imbalances.

The concessions Obama sought on trade, while potentially beneficial to developed and developing countries in the long run, could rein in growth for nations that have rebounded from the recession faster than the U.S. — notably China, Germany and South Korea.

The limits of Obama's bargaining power, eroded by the frail domestic economy and recent devastating Democratic losses at the polls, were reflected in the president's failure to wrap up a new free-trade agreement with South Korea on Thursday. Continuing disputes over beef, auto imports and other issues forced him to abandon a self-imposed deadline of wrapping up the long-stalled deal before the summit.

Obama held separate meetings Thursday with the heads of China and Germany — two export powerhouses opposed to his agenda.

In particular, Obama sought to persuade Chinese President Hu Jintao to speed up the rise of the yuan's value against the dollar, which could help the United States on exports and jobs.

Hu told Obama that China was committed to having a more flexible exchange-rate system, officials said. But the 80 minutes of talks produced no new signs of progress.

Germany's leader, Chancellor Angela Merkel, who met separately with Obama, also refused to give any ground in her opposition to an earlier American proposal to set concrete limits on trade imbalances.

In Seoul, Obama is visiting his third nation in less than a week, part of a four-country swing through Asia aimed at strengthening American relations and presence in this fast-growing region, in both economic and national security terms.

The president began the day Thursday visiting U.S. troops stationed here, and he later took up the issue of North Korea, saying the rogue regime must demonstrate its sincerity about giving up its nuclear weapons program if new diplomatic talks are to begin.

"We have to see a seriousness of purpose by the North Koreans in order to spend the extraordinary time and energy that's involved in these talks," Obama said at a news conference with South Korean President Lee Myung-bak.

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U.S., South Korea fail to reach free-trade deal

SEOUL - Negotiations over a U.S.-Korea free-trade agreement broke down on Thursday after four days of discussions, a setback for the leaders of the two nations and a blow to efforts to rekindle broader world trade talks.

Despite optimism from both sides as they began bargaining, domestic political concerns weighed heavily on the talks and ultimately appeared to have prevented the final compromises needed to secure the agreement.

South Korean President Lee Myung-bak and President Obama began their scheduled meeting around noon Thursday in Seoul without a deal in hand. A White House official familiar with the talks said the discussions foundered over long-standing disagreements over U.S. access to the Korean auto and beef markets.

The meeting between the two heads of state ended without an accord. At a news conference afterward with South Korean President Lee Myung-bak, Obama said, "We believe that such an agreement, if done right, could be a win-win for our people."

"We have asked out teams to work tirelessly in the next days and weeks to get an agreement, and we are confident we will do so," Obama said.

The failure to produce a signed agreement at the summit is significant. Obama had set a personal goal of completing the Korea deal during the meeting of the Group of 20 world leaders, and Lee had cast the agreement as way to deepen the strategic and political ties between the two nations, as well as the economic ones.

Corporate and trade officials have been watching the talks as a barometer for trade issues as a whole, and how they might fare at a time when many countries are struggling with high unemployment and trying to boost their exports as a way to create jobs.

Obama has pressed for the trade pact as part of his effort to boost U.S. exports. New data released by the federal government Wednesday showed sluggish growth in U.S. overseas sales in September, which were up less than one half of 1 percent over the month before. Imports also fell, narrowing the monthly trade gap to $44 billion from $46.5 billion.

In the United States, opponents of the South Korea deal, originally negotiated by the George W. Bush administration, say the agreement would siphon away more U.S. manufacturing jobs without creating a truly open market for U.S. products.

Obama had criticized the deal during his presidential campaign, and officials from the Office of the U.S. Trade Representative have pushed for ways to increase U.S. auto sales in the country and persuade South Korea to lift a lingering restriction on U.S. beef.

Officials involved in the talks had reported progress on the auto issue, including a possible agreement by South Korea to accept slightly weaker U.S. emissions standards as long as imports remained below a certain level. Such an agreement would have spared U.S. automakers the expense of modifying a small number of vehicles for the South Korean market.

But in the end, negotiations did not advance enough to assure U.S. officials that American carmakers would gain better access to Korea's market.

Beef has been another major sticking point. South Korea has insisted that it retain for now a restriction on imports of U.S. beef produced from the slaughter of cattle that is more than 30 months old. That limit was set when Lee lifted a more general restriction on U.S. beef put in place after the mad cow scare several years ago.

Though the rule affects only a small portion of the market, South Korean officials think that public opposition would be too great if they did away with it 

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Free-Trade Pact With South Korea Still Not Finished

SEOUL, South Korea — Aides to President Obama and President Lee Myung-bak of South Korea were scrambling early Thursday to reach agreement on a revised free-trade pact that they hoped would show their commitment to expand commerce ahead of the G-20 conference of leading nations.

As Mr. Obama and Mr. Lee prepared for a face-to-face meeting, negotiators were working furiously to resolve last minute-sticking points concerning South Korean imports of American beef and automobiles.

People monitoring the negotiations say that if the deal is sealed, it will be the result of the direct talks between the two leaders. Mr. Obama and Mr. Lee have scheduled a joint news conference for midday Thursday in Seoul. For Mr. Obama — who is trying to reframe his presidency around improving the American economy and who has made the doubling of exports a centerpiece of his agenda — walking away without an agreement could prove to be an embarrassment.

The trade accord, an update of one the Bush administration negotiated and signed in 2007 and that has expired, has languished in the Democratic-controlled Congress. Mr. Obama, though, has thrown his weight behind it while calling for technical modifications that would be more favorable to American automakers and industrial unions. With Republicans soon to control the House of Representatives, some believe he will have a better chance of winning approval for the agreement.

“We’re all better off if we move forward on an export agenda that is robust, bipartisan and thoughtful, and there’s an opportunity for that right now,” said Representative Peter Roskam, an Illinois Republican who met the Korean foreign minister to discuss the accord. “There’s a collapsing window to get this done. We’ve seen what happens when these free-trade agreements languish.”

Mr. Obama is on a 10-day, four-nation swing through Asia that he is promoting as an effort to create jobs at home. The president is also trying to repair ties with the American business community, and the South Korean deal is a priority of the U.S. Chamber of Commerce, whose president, Thomas J. Donohue, has said he can round up the Congressional votes to get it approved.

In the three years since Mr. Bush negotiated the first free-trade pact, other nations, including Australia and Canada, have put similar deals in effect, and the chamber argues that the United States is falling behind.

“The landscape in Asia has changed,” said Tami Overby, the vice president for Asia at the Chamber of Commerce, who is here to monitor the talks. “It’s much more competitive, so I think the pressure on both sides to get this deal done is greater than ever.”

Ms. Overby said the negotiators had a “bumpy night,” but that was not uncommon. “It’s a very typical intense Korean negotiation, where things do tend to go very much to the last minute, so this is not really unexpected,” she said. “It’s a bit like déjà vu from the original negotiation.”

The biggest sticking point is over auto imports. In Washington, the Democratic leadership has been pushing for lower nontariff barriers to American exports of automobiles to South Korea, and for an easing of restrictions on American exports of beef, which have been a source of controversy since an outbreak of mad cow disease in 2003.

While the agreement would lower or eliminate tariffs on cars in both countries, the Obama administration has pushed for reductions in other export barriers like emissions, mileage and safety requirements and tax and insurance rules.

“If we can reach the standard for a fair trade agreement that the president has set out on particularly autos, we will move forward,” said Jen Psaki, the deputy White House communications director, who is traveling with Mr. Obama. “We hope to continue making progress.”

Automakers have complained that the South Koreans want to impose onerous fuel efficiency standards — stricter than those required in the United States — as a way of keeping American cars out of South Korea. Last week, the Ford Motor Company placed newspaper advertisements calling the deal unfair. Ford said it had backed every free-trade agreement approved by Congress since 1965, but said it could not do so for this one.

The consumer advocacy organization Public Citizen, which often opposes trade pacts, and groups like it have also questioned the benefits of the deal, saying that in the short term it could cost more jobs than it would create.

Supporters say the deal would promote growth in both countries and solidify an alliance that goes back to the Korean War.

“South Korea has been our most reliable Asian ally since the Vietnam War, and Washington has not done enough to recognize that in the recent past,” said Donald P. Gregg, the American ambassador here from 1989 to 1993.

The talks have been going on at a high level since last week, when top trade negotiators from both countries began meeting. They were joined on Monday by Ron Kirk, the United States trade representative, and his Korean counterpart, Kim Jong-hoon. Congressional staff have also been included, and three members of Congress are here for support: Senator Daniel K. Inouye, Democrat of Hawaii; Senator Thad Cochran, Republican of Mississippi, and Mr. Roskam.

Trade is a tough sell at home, especially during difficult economic times in hard-hit manufacturing communities, where workers tend to view trade pacts as drawing American jobs overseas. A survey released Wednesday by the Pew Research Center for the People and the Press found substantial skepticism about trade deals like Nafta and the policies of the World Trade Organization. The poll found that 35 percent of adults said free-trade agreements had been good for the United States, while 44 percent said they had been bad.

While most Americans say that increased trade with Canada, Japan and European Union countries — as well as India, Brazil and Mexico — would be good for the United States, reactions to increased trade with South Korea and China were mixed, according to the survey, which was conducted Nov. 4-7 among 1,255 adults. The margin of sampling error was plus or minus four percentage points. Republicans and Republican-leaning independents who were aligned with the Tea Party movement had a particularly negative view of the impact of free-trade agreements.

Japan to Decide on Joining U.S. Trade Talks by June

Japan will decide whether to participate in negotiations for a U.S.-led Asia Pacific free trade agreement by June, the government's top spokesman said.

Prime Minister Naoto Kan's Cabinet today endorsed a decision to begin preliminary talks with nine countries involved in the Trans-Pacific Partnership four days before he hosts the Asia-Pacific Economic Cooperation summit. The U.S. is pushing Japan and South Korea to join the negotiations as it seeks to counter China's free-trade efforts in the region.

Kan faces resistance from members of his Democratic Party of Japan to joining the negotiations because the agreement would lift tariffs in the agriculture industry, a key voting bloc. Kan and Foreign Minister Seiji Maehara have argued in favor of joining the agreement to boost trade in the world's third- largest economy.

"We intend to promote a comprehensive economic partnership and agriculture revitalization," Chief Cabinet Secretary Yoshito Sengoku told reporters today in Tokyo. The decision on the TPP will be made "around" June when the government announces a new farm policy, he said.

The TPP involves the U.S., Australia, New Zealand, Brunei, Singapore, Chile, Vietnam, Peru, and Malaysia. Obama administration officials last year said they would urge South Korea and Japan to join the talks for what would be the largest U.S. trade accord since the 1994 North American Free Trade Agreement with Canada and Mexico.

'Begin Consultations'

"Japan will begin consultations with TPP member nations while moving expeditiously to improve its domestic environment," according to a government statement released three days ago. "It is necessary to act by gathering further information."

Conflicting reports last month pointed to benefits and drawbacks for Japan. The Cabinet Office on Oct. 27 said the accord would boost gross domestic product by as much as 3.2 trillion yen ($39 billion). The agriculture ministry the same day said the size of the economy might fall by 7.9 trillion yen if tariffs on rice and 18 other farm products are lifted.

"The government couldn't make a bold decision because of a failure to make political coordination on the farm sector," said Yoko Takeda, a senior economist at Mitsubishi Research Institute in Tokyo. "We must show strong will to join the talks by building a consensus within the government as well as among the public."

More than 60 percent of the public favors joining the talks, according to a Yomiuri newspaper survey released yesterday. The paper polled 1,052 people on Nov. 5-7 and provided no margin of error.

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