Wednesday, October 1, 2014

Abe's Anti-TPP Cabinet

Mr. Moriyama meets with Cargill in Washington
Shinzo Abe Bows to the Farm Lobby
The conditions were ripe for Japan's prime minister to act on structural reform. Instead, he's allowed trade talks for the Trans-Pacific Partnership to break down.

Wall Street Journal, 29 September 2014

By RICHARD KATZ, APP Member and editor of The Oriental Economist Alert, a newsletter on Japan.

See End of essay for additional information on the anti-TPP members of the Abe Cabinet

The U.S.-Japan cabinet-level talks on the Trans-Pacific Partnership trade pact broke down on Wednesday largely because of Tokyo's refusal to sufficiently lower farm tariffs and other associated import barriers. The irony is that Japan, not America, has the most to gain from liberalizing food trade, as Japan's own reformers recognize.

Consider the costs of protecting farmers, most of whom are part-timers over the age of 60. Japanese consumers spend 13.7% of their total household budget on food, far more than the 6.3% spent by Americans, or even the 9.3% spent by Britons. If this share were reduced even to 11% by opening the food market to more competition, Japanese households would save 7.5 trillion yen ($72 billion) per year.

To put that in perspective, the output of Japan's entire farm sector is only worth 5.4 trillion yen. The five "sacred" farm sectors that Prime Minister Shinzo Abe resists liberalizing—rice, beef and pork, dairy, wheat and sugar—produce just 3.6 trillion yen, or 0.8% of Japan's gross domestic product.

Then there is the hidden cost to taxpayers, who provide almost half of farmers' income through subsidies. This compares to 23% in the European Union, 10% in the U.S. and 2.7% in Australia. In 2009, these subsidies amounted to 4.3 trillion yen.

Tax breaks for farmland have to be taken into account too. No one knows exactly how much revenue is lost because the land assessments are not transparent. However, Nikkei reports that farmland is typically taxed at a rate of one yen per square meter—a negligible $20 per year for the average-sized farm. By contrast, residential land is commonly taxed at 180 yen per square meter.

This tax break is most harmful in the three big metropolitan areas surrounding Tokyo, Osaka and Nagoya. In these areas, which comprise 17% of Japan's territory, almost one-third of the entire nonforest area is farmland. Much of that is only under cultivation because the laws make it difficult for the aging owners to sell the land for other uses. If the land tax were increased to just half the residential level for all farmland throughout Japan, the revenue gain could be 4.2 trillion yen per year.

The combination of ending subsidies and equalizing land taxes could reduce Japan's budget deficit by perhaps as much as 8.5 trillion yen per year. That's more than the 7.5 trillion yen gain projected from this year's hike in the consumption tax.

Land-use laws were originally aimed at keeping farmland in the hands of the farmers who till the soil that they own. But this has resulted in small, inefficient farms. It creates an artificial scarcity that raises the price of land throughout the nation, thereby suppressing new development and lowering GDP growth.

And this policy doesn't even help farmers, since it deprives them of potential capital gains. According to research by Yoshihisa Godo of Meiji Gakuin University, the tiny amount of farmland that is allowed to be converted to nonfarm purposes often appreciates in value several times over.

Instead, 8% of all Japanese farmland lies fallow. Even more remarkable, 13% of Japan's houses are abandoned and now sit on unused land, much of which is farmland. If they were torn down, the taxes on the land would quadruple because they would no longer be eligible for tax breaks on land with a residence.

Adding to Japan's fiscal crisis are political distortions created through the Local Allocation Grants that Tokyo gives to prefectural and local governments, amounting to about 3.5% of GDP and one-quarter of the national budget. In theory, the grants are supposed to redistribute money from richer prefectures to poorer ones. But in reality the money goes disproportionately to rural areas, regardless of per capita income. The biggest gainers are prefectures whose Diet members have held the balance of power in the last three Upper House elections. The national government pays out more in these Local Allocation Grants than it takes in via the consumption tax.

Why are all these self-destructive practices retained? Because as far as the ruling Liberal Democratic Party is concerned, the purpose of small farms is not to grow food but to cultivate voters. Despite Supreme Court decisions calling for more equality in voting power, the most rural half of Japan's population chooses more than 60% of the Diet members elected to district seats.

That helps explain why the new head of the LDP's Task Force on the TPP is Hiroshi Moriyama. In 2010, Mr. Moriyama founded an anti-TPP caucus whose membership now includes 63% of the 408 LDP members in both houses.

Still, the conditions are ripe for a determined prime minister to override the powerful farm lobby. The LDP's opposition is weak, as are Mr. Abe's leadership challengers within his own party. He could even pick up votes from opposition representatives who support the TPP.

Import liberalization and reform of land taxes and land-use laws would raise government revenues immediately and stimulate GDP, boosting the goals of Abenomics. If Mr. Abe will not act on structural reform when he has all these advantages, one has to question if he will ever act at all.

ADDITIONAL INFORMATION


Can Abe’s third arrow pierce Japan’s agricultural armour? by Aurelia George Mulgan, UNSW Canberra, East Asia Forum, 6 April 2014
      On balance, none of the proposals for reform to date constitute serious structural reform. They offer no evidence that the Abe administration is willing to create domestic conditions conducive to agricultural trade liberalisation under the TPP — another central pillar of Abe’s growth strategy. This would require, most importantly, a shift from supporting farm prices with subsidies and import tariffs to a system of direct income support which would compensate farmers for income losses stemming from agricultural trade liberalisation.

Anti-TPP Caucus

Although the Abe administration is officially pro-TPP, many Cabinet Ministers are openly opposed. Seven of the 19 current Cabinet Ministers belong to a parliamentary league called the Association Seeking the Immediate Withdrawal from Participation in the TPP [TPP sanka no sokuji tekkai wo motomeru kai TPP参加の即時撤回を求める会]

All seven were appointed earlier this month in the September 3 cabinet reshuffle. All seven also belong to the conservative nationalist parliamentary Shinto League, Yasukuni League, and (with the exception of Obuchi) Nippon Kaigi. Three of the five women appointed are anti-TPP. 

Lower House member Hiroshi Moriyama (Kagoshima #5) is chairman of the Association, which he founded in 2010. This anti-TPP caucus includes 63 percent of the 408 LDP members in both chambers of the Diet.  Members believe that American security concerns would dampen a Washington hard-line on trade. In April 2014, he said “The U.S. might seek major concessions in return for security.”**

In deference to Prime Minister’s Abe’s stated goal of joining TPP, the Association was renamed March 21, 2013 as "TPP kosho ni okeru kokueki wo mamorinuku kai" [TPP 交渉における国益を守り抜く会, which means roughly "The Association Protect to the End the National Interests in TPP Negotiations”].*

Moriyama—elected to the Lower House four times and to the Upper House once—is a senior member of the LDP who was passed over in recent Cabinet appointments. Possibly as a consolation, a member of his Association was made Agriculture Minister and on September 13th he was appointed to head the LDP's Task Force on the TPP.

In addition to the LDP anti-TPP association, there is a multipartison one, The Association for Thinking Seriously About TPP (TPP wo shincho ni kangaeru kai TPPを慎重に考える会). It is chaired by former DPJ Agriculture Minister YAMADA Masahiko “Giving serious thought to TPP” is Japanese political code for a conservative nationalist, anti-America stance on free trade and TPP. Thus, it was significant on September 19th that Japan’s top TPP negotiator AMARI Akira—who is not a member of any anti-TPP group—stated that he intends “to give serious thought” to overcoming Japan’s differences with the US, including tariffs on agricultural products and automobiles, that are hindering Japan’s commitment to TPP.

Cabinet members who are members of Moriyama's anti-TPP Association

TAKAICHI Sanae, Minister for Internal Affairs and Communications

OBUCHI Yuko, Minister of Economy, Trade and Industry (METI)
Minister in charge of Industrial Competitiveness
Minister in charge of the Response to the Economic Impact caused by the Nuclear Accident
Minister of State for the Nuclear Damage Compensation and Decommissioning Facilitation Corporation

MOCHIZUKI Yoshio, Minister of the Environment
Minister of State for the Nuclear Emergency Preparedness

ARIMURA Haruko, Minister in charge of Women's Empowerment
Minister in charge of Administrative Reform
Minister in charge of Civil Service Reform
Minister of State for Consumer Affairs and Food Safety
Minister of State for Regulatory Reform
Minister of State for Measures for Declining Birthrate
Minister of State for Gender Equality

YAMAGUCHI Shun’ichi, Minister of State for Okinawa and Northern Territories Affairs
Minister of State for Science and Technology Policy
Minister of State for Space Policy
Minister in charge of Information Technology Policy
Minister in charge of "Challenge Again" Initiative
Minister in charge of "Cool Japan" Strategy

TAKESHITA Wataru, Minister for Reconstruction
Minister in charge of Comprehensive Policy Coordination for Revival from the Nuclear Accident at Fukushima

NISHIKAWA Koya, Minister of Agriculture, Forestry and Fisheries



**”LDP welcomes agreement to strengthen Japan-U.S. alliance,” Yomiuri, April 25, 2014 – p. 4.

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