Japan: the DPJ wins as the GRU weakens the LDP machine.

As Michael Cucek wrote last week, Japan has witnessed the subdued brutality of the DPJ’s Government Re-vitalization Unit (GRU) taking back Y1.4 trillion from various extremely unhappy NGOs and bureaucrats. This process of creative destruction is rarely seen in Japan, and while comparisons to the Meiji Restoration by some DPJ politicians are exaggerations, the fact is Japan is witnessing a real shake up in power distribution. And like any such shake up, there are winners and losers.

In this case the winners are the DPJ over the LDP and the Ministry of Finance over the other Ministries. Let me talk about the DPJ first.

Not withstanding the fact that the LDP has fallen of its bicycle since the last election, the GRU process has further benefited the DPJ in its political struggle with the LDP in three ways. Firstly, the GRU process was aimed cleaning up the mess of subsidies that years of LDP administration had built up, in the process airing a laundry list of useless and hopeless projects the LDP had let through at the public’s expense. This was always going to have a positive political windfall for the DPJ, unless very poorly stage managed.

Although the decision to freeze spending on developing “super-computer” technology caused some public concern, the general feeling was that the LDP had acted like a bull in a China shop, wrecking public finances by allowing the “Independent Administrative Organs” (dokuritsu gyousei houjin) to build duplicate building or give themselves repeated pay increases without any oversight. And indeed when pressed, to fail to defend the decisions they had made in a reasonable manner; the Educational Facilities IAO in particular is the stand-out example. The DPJ, by taking this “bull by the horns” as it were, is showing leadership and polls show continued support for GRU process and the DPJ.

Secondly, the GRU has weakened the old sinews of powers which connected the LDP to Ministries. The GRU was aimed at cutting budgetary excesses of IAO, but the effect (and quite deliberately so) is to wipe out bureaucrats’ post-career placement at a related IAO (a phenomena called Ama-kudari). The LDP had allowed bureaucrats to build themselves such golden parachutes as a quid pro quo for ministerial policy support in enacting the LDP’s preferred pork-barrel politics; a sort of you scratch my back and I’ll scratch yours relationship.

However, because the DPJ thinks it can do without the back-scratching (and the associated risk of back-stabbing) the former deal is off. This might drive the ministries to support an early LDP return. But as the LDP is cut off from power, they have nothing to offer the ministries that might induce them to turn against their de jure political masters. As such, the lessening of the ministries’ discretionary funds sees them more dependent on the DPJ politicians than before, if not necessarily more loyal.

Thirdly, the GRU has weakened the LDP’s links to rural voters. The importance of rural voters in the LDP’s election strategy is well known (see Tobias), and the GRU anti-pork barrel politics will no doubt be a threat to the LDP. In the past (paywalled, p48-9), the LDP provided a generous budget for the Ministry of Agriculture, Forestry and Fishery (MAFF). The MAFF supported the IAO Japan Agriculture Association (JA), which in turn provided electoral support to the LDP and provided financial support for farming families, ie LDP voters.

However, due to the GRU process, the JA and morphologically similar IAOs have been dealt a serious blow. The GRU recently seeing through a spate of cuts to the MAFF’s budget, including to the JA‘s education programs. Thus weakened, the JA will be less able to perform its traditional role in the LDP election strategy. As argued in the second point, with the LDP out of power and unable to provide the pork, the JA has little incentive to risk attracting the opprobrium of the DPJ by making a stand just yet; although during an election the JA is expected to be right behind the LDP, even with (or especially because) its feathers have been clipped. Additionally, the DPJ (cynical) policy of cutting out the JA and going “over their heads” to provide farming families with a direct support (via the household income support facility) further erodes the old LDP-JA-Rural voter link.

In conclusion, the GRU has seen the DPJ win large versus its rival the LDP. The GRU only by demonstrated the slipshod political guidance of the LDP as contrasted with the DPJ’s ‘fresh’ approach, but also cut important bonds between LDP and the Ministries, the Independent Administrative Organs and voters. The power shake up is on.

Japan-Thai FTA: "Movement of natural persons"

Earlier today in a bookshop I picked a glossy magazine of conservative news type, it may have been "Will", but in honesty I have forgotten.

One of the stories focused on the "vice industry", prostitution in particular, in Japan being controlled by foreigners. A suggestion was made that the Japan-Thailand FTA had made this easier. Dismissing it as conservatism hype, I put the magazine down and moved, but according to more respectable sources - sex workers may indeed find it easier to move (or be moved) to Japan post-FTA (read here).

Then just now, I thought I would read the text of the Japan-Thailand FTA. Sure enough under the "movement of natural persons" is liberalisation of visa requirement for "Spa services." Apparently there is some traditional Thai Spa services for which only a Thai trained and licenced person will do.

But is this for real? It does not take a lot of imagination to see how this could be abused, a massage parlor would simply notify immigration that they had hired a "Thai Spa service provider" to provide "spa services" and then get the visa. In fact it is almost as if the door was left open on purpose. Odd things, these FTAs.

Hatoyama’s FTA strategy; no strategy at all?

PM Hatoyama has now had several opportunities to put forward his view on a Free Trade Area in East Asia. Thus far his “vision” has proven to be more dependent on the audience, rather than economic or strategic factors. I will discuss the CJK-FTA, or China-Japan-Korea trilateral FTA as it is also known, and then zoom out to the larger issue of US partipation in the East Asian FTA project.

Firstly, with regard to the CJK-FTA, Hatoyama proposed on October 10 Beijing Trilateral (Beijing) that such an FTA be accelerated. At the same time Hatoyama proposed that an investment pact among the three be concluded. China’s position from the outset has been than an investment agreement would not be considered outside of an FTA – on reflection this was an early indication that progress had been made on CJK-FTA.

But while Japan’s interests in an investment agreement (to protect intellectual property, manufacture technique and brand-names), have both been aired and are well understood, Japan’s interests in a trade deal with China are much less clear. Indeed, Koizumi had turned down several requests from the Chinese side that an FTA be formed; in the process willfully ignoring the results of joint research which urged an early conclusion to the trialateral FTA[1].

Just over two weeks later in Hua Hin (Thailand), Hatoyama progressed the CJK-FTA idea with the announcement of working groups to do joint research on the CJK-FTA. While this is the third time research has been commissioned, it is the first time government departments are involved.

Why did Hatoyama reverse the LDP's position? Was it because China was doing something important differently, like its internal politics or trade policy? No. Was it because the World Financial Crisis demanded that Japan export to someone, even China, in order to keep jobs? Perhaps, but an FTA with China could just as easily cause the opposite (more unemployment) in the Japanese economy.[2]

Although it is possible Hatoyama or the Trade Minister Naoshima had talks with the relevant bureau in the Ministry of Foreign Affairs, I am told that the Ministry of Economy, Trade and Industry has not been asked to provide any sort of policy brief as to the implications of a CJK to Hatoyama (or his Office) prior to his announcements at either of the above forums.

This is suggestive of a short-term motivation. Considering the manner in which CEPEA was launched, there exists a precedent for Japanese politicians to just announce an FTA/EPA with shocking little 'nemawashi' or domestic consensus building first. Rather each of these announcements by Hatoyama seems to be made on the moment with the current audience in mind.

The commitment to the CJK-FTA was announced suddenly by Hatoyama at the Trilateral summit, and was warmly welcomed by the PRC. Since Japan's benefits are uncertain, and at any rate little effort was apparently made to understand the possible gains, might this be simply a proposal aimed at warming the relationship with China brought on by the fact of the Summit itself. In other words, no summit - no proposal. Or more precisely, this was a policy spectacle produced with audience in mind rather than specific gains. This commitment was re-affirmed at the APT, and the same can more or less be said there too.

Zooming out from the narrow issue of of CJK-FTA, if policy is being made to suit the audience rather than the national interest, it will be difficult to predict where Japan eventually decides to stand on the 'big' issue of US inclusion in the East Asian FTA project. The trajectory thus far has been towards US inclusion, but Hatoyama temperament and "right" series of events might prompt a surprise another turn-around. For the US, PM Hatoyama is man to checked on more, rather than less, frequently.

Intriguingly, the clear statement by US President Obama about the importance of the Pacific to US strategy and US-Japan relations in Tokyo prior to APEC and Singaporean PM Lee’s appeal that the US be included in any regional trade pact seems to have shifted Hatoyama’s assessment [3]. When commenting on membership at a post-APEC forum, Hatoyama (mindful of his APEC audience) noted membership would be 'open', to any who “shared the dream”[4]. Again, the audience counts significantly. Prehaps at new years APEC which Japan will host Hatoyama will put the US in the picture fully and formally. Then again, perhaps not.

1. Alan jr. Yonan, "Asia Economy Watch; Japan, China, S Korea Mull Trade Pact," Dow Jones International News, 30 Janurary 2004.

2. Baldwin, "Multilateralising Regionalism: Spaghetti Bowls as Building Blocs on the Path to Global Free Trade."p1491

3. http://www.eastasiaforum.org/2009/10/13/hatoyamas-east-asia-community/

4. http://www.kantei.go.jp/foreign/hatoyama/statement/200911/15singapore_e.html

Obama in Tokyo

On Saturday, Obama delivered a speech in Suntory hall. I had the good luck to attend. I think others can do better justice to what he said that I can, but several points could be noted.

Obama made clear the US sees itself as part of the region. The message was simple, "Hatoyama, do not try to exclude us from the EAc." Previously, Hatoyama had diplomatically 'not included' the US in the EAc idea (to the surprise of the Chinese). But now, if Hatoyama really wants to exclude the US, he will have to come out and say publicly and explicitly. Obama has made it a fact on the ground that US assumes and expects Japan will support its role in the region, clearly raising the political stakes for Hatoyama.

Secondly, "balanced growth" was a key word. Others have discussed this, and believe Obama is referring to the need more US exports to the region. I get the feeling he was referring to more than that, a warning the US might be able import as much as expected. The "balanced growth" sound bite I heard to mean "scale back your expectations, we are."

Lastly, on a personal note, despite the pomp and ceremony and the "historical" nature of Obama as President and his return to this region, he was extra-ordinary capable of being ordinary and humble. I got the feeling that this incredible man is just a man after all - the occasional mispronunciation of Asian words for example, complete with a sheepish yet presidential smile, was the trigger for this.

America, China and Japan; military and monetary networks misaligned?

At this year’s Japanese Association of International Relations conference, Inoguchi Takashi (editor of International Relations of the Asia Pacific) chaired a session entitled “military and monetary networks.” Speakers included, T.J.Pempel, Daniel Drezner, and Chung-in Moon.

The papers themselves were all of a high quality, but it was in the discussion afterwards that the significance of the theme became apparent. Taken together, what these papers suggested to me was that the military and monetary networks in East Asia are no longer neatly aligned with each other.

It is now common knowledge that East Asia played a major role in the current financial crisis. While not dismissing the negligence of the US authorities, the global imbalance which permitted (or even encouraged) bubbles in US economy to emerge had their origin in the post-Asian Financial Crisis decision of East Asian government’s to build up excessive foreign reserves in a bid to ensure that “never again” would they need to go to the IMF.

What is less common knowledge is that this decision to rely on the dollar in Asia, (and thereby to effectively underwrite the US profligacy) has had major political implications. Make no mistake, East Asian states are not choosing to use the dollar (as a reserve currency, and importantly to denominate their trade and credit) out of the kindness of their hearts. Inoguchi called this “the kindness of strangers.” They expect something in return.

In the case of Japan and Korea, part of the kickback is a security guarantee. Japan (and Korea) support the US dollar in part (perhaps large part) because of a political logic. During the Asian Financial Crisis, Japan’s proposal for an Asian Monetary Fund was seen as a sort treachery by the US. Indeed, as Prof. Chung-In noted Korea did not endorse it for fears of US retaliation. Would a movement away from the US dollar really affect the region’s security order? Who can say. But in the minds of decision-makers at the top, clearly a link existed between the military and monetary networks.

But what about China? Now the world’s largest holder of US treasury bonds and the US’s only potential rival, what does China expect from US in return for supporting the dollar’s role until now? Obviously, China does not want any kind of security guarantee, China will provide protection for its own national integrity, national dignity and nationals - Thank-you. What about political favors? Also unlikely, as a permanent member of the UNSC, China is already at the top. The US played that card in 1972. Taiwan? Maybe, but hard to imagine.

In fact, China is most likely after an economic return. This should hardly be surprising, the CCP’s regime legitimacy depends now on being able to deliver economic growth and development – and to do so consistently. The accumulation of US dollars, whether in foreign reserves, treasury bonds or bank accounts, was a function of the decision to maintain a peg (or de facto peg) of the RMB to the USD. As Drezner argues, it was not a deliberate decision – but rather came out of China’s export orientated development strategy, a strategy which had been successfully road tested by both Japan and Korea (both of whom alliance partners of the US!). The fact that China ended up “supporting” the US hegemonic position in finance was neither here nor there.

Until now. Now China has realized that sitting of 2 trillion of USD is not a proposition that carries no costs – quite the opposite, it is risky. China finds itself having effectively bought ‘war bonds’ from the US, a country which - while a largely benevolent hegemon - is nevertheless a hegemon feeling challenged by China’s rise. China’s is now worried that that investment will not be repaid in full. Simple inflation might wipe out significant value, as would appreciation in the RMB versus the dollar – something China is now under pressure to do.

At the same time that China is reconsidering its position in the US’s monetary network, Japan and Korea are reconsidering their position in the so-called “Pax Americana” military network. Indeed, Hatoyama’s administration’s difficulties in negotiating US base arrangements (over the noise of vocal protests in Okinawa) are suggestive of this shift in Japan. Just how this will effect Japan’s orientation towards the monetary network is still unknown, but it is unlikely that Japan is going more interested in supporting the USD in the longer term.

In a related point, Prof. Tadokoro noted that while all eyes are one the big holders of US debt in North-east Asia, ASEAN countries have the possibility of “sneaking out” the US monetary network, evidence for such can be seen in the Chiang-Mai Initiatives (some of which are denominated in Yen and RMB).

The misalignment of the security network which excludes China, and the monetary network in which China and US so close as to be mutually dependent is thrown into sharp relief by the current World Financial Crisis. A crisis with its origin in this region.

(The papers presented at the session should be released in a special issue of IRAP next year.)

Hatoyama is brave, maybe foolhardy

Hatoyama today stood before the Diet and declared that "if the policies contained within the manifesto are not realised, he as PM will take responsibility." When press further, Hatoyama noted that he would likely call an election as a sort of national judgement on his progress. Of course, this leaves the timing up to him but, nevertheless, this is still brave. Maybe foolhardy, as no doubt in four years (the time he allowed his administration to pass into law the manifesto's various policies), he will be called to account by the opposition. Read it here.

The problem is he has now locked himself into delivering (in principle) on all those policies. But I doubt all of his policies (specifically the toll-free highways) are entirely sensible, either politically (public polling on toll-free policy very negative) or economic. A full dicussion of which was in this week's Economist (the Japanese one, not the UK one).

If the future debate is framed about what the DPJ has achieved in terms of its manifesto, then this strategy might pay off. But it runs higher than usual risks.

Unconvinced by Shiraishi’s column (Yomiuri)

I know Shiraishi to be something of a minimalist, and he is true to form here, arguing that the US-alliance and East Asian community building do not run at cross purposes, the reason being that the DPJ is not trying to unwind the alliance relationship.

Specifically, Shiraishi argues that Hatoyama has been criticized because people tend to think about international relations in a zero-sum manner, when in fact it is not true in this case. Shirashi argues that Japan is able to maintain the US-centered alliance hub-and-spokes regional order while also constructing a new regional order which excludes the US. While in theory the two structures could run parallel, in practice it is unlikely to occur. Firstly, there is the problem of Japan’s actual national interests – which does not necessarily correspond to Hatoyama’s rhetoric. And secondly, there is problem of perception gap in the China-America-Japan strategic triangle

One problem is that Japan’s interests lie with both the US security guarantee (chiefly from China) and excellent political relations and integration with East Asia (chiefly with China). As Shiraishi himself has argued previously, East Asian is economic gravity is moving to China even as the US remains at the center of regional security with Japan caught between the two.

What this means is that as long as Japan feels it is necessity to maintain the U.S. alliance, it is unlikely to simultaneously feel that China can be trusted enough for the kind of deep European-style cooperation that Hatoyama has envisioned. The alliance is hedge against a threat, and no state will actually cooperate with a threatening partner – even Japan.

Let it be remembered that each act of East Asia regionalism thus far has occurred due to failings of the United States, and the consequential shift in Japan’s priorities towards Asia. The current financial crisis has been another such example, with calls within Japan (and China) for internal demand driven growth being short-hand for less dependence on the vagaries of the US, thus consequently greater focus on each other and the region. But each time Japan has not liked what it saw in China and has returned to the US fold, will this time be any different?

The second problem with Shiraishi’s argument is that he does not factor in the current perceptions of the other major players – the US and China. Firstly, the US historically has not viewed regionalism in East Asia positively – even APEC is linked closely to global institutions like the WTO. Under the current Obama administration the US has been more positive about East Asian regionalism, on one proviso – that the US be included. If that proviso is not met, there is every reason to believe that the US will return to a negative position on regionalism. In fact, the United States has no reason to provide regional security to East Asia (through the alliance framework) if they are going to be excluded politically from the region, or face additional economic barriers. Is Hatoyama really going to the one to say no to the US?

In the case of China, integration with Japan is not a politically cost-free endeavor. The CCP’s regime legitimacy depends now on continued economic growth to be sure, but historically its mandate is derived from successfully repelling the Japanese invader. Overcoming these political hurdles (presumably from the PLA) is possible, but it is unlikely as long as American troops are based in Japan. Thus, even if Shiraishi was right about Japan being post-strategic, its putative partner in East Asia is clearly not.

Indeed, Shiraishi seems to believe that the U.S.-alliance can be used to stabilize the balance of power while the EAc can be used to sustain economic growth via the creation of shared technical rules; a sort of narrower (“closed”?) APEC perhaps. If that is all there was to it then mutual co-existence is possible between the two structures.

But while the East Asia community (EAc) is currently envisaged as chiefly an economic community, founded on a Free Trade Area and perhaps later a common currency – it is clearly going to also have a political function as well. One would not expect a unified East Asian foreign policy anytime soon, but the EAc would in time demand it have a final say concerning matters within East Asia. This would be problematic for the United States at best.

In short, Shiraishi has tried to strip out the political connotations of the EAc and the U.S.-alliance and just examine the two structures in a minimalistic and functionalist manner. However, this type of analysis fails to appreciate that the political meaning attached to these structures differs in each of the major actors.

Merging Japanese and Australian proposals for East Asian community-building; US participation.

At the fourth East Asian Summit, held on October 25^th in Thailand, the leaders of Japan and Australia had the opportunity to air their views about the future form and function of East Asian regionalism.

As Acharya has noted, these two visions may be in competition with each other. At this stage however little can be known for sure as both proposals share a level of deliberately in-built vagueness. Indeed, Hatoyama’s proposal is seemly contradictory – or at least unsure – on what role the US ought to play in the region.

While Hatoyama’s is still dissimulating about membership, Rudd’s Asia-Pacific community has signposted from the outset US participation. However, it is likely that Japan and Australia will adopt a common position in favor of US participation (i.e. Japan coming out and supporting the Australian position). Indeed, there are signs that the Japanese and Australian positions are already beginning to merge.

In many ways this is only to be expected. Japan and Australia have a record of diplomatic cooperation and joint leadership in the field of regional organization building. That does not necessarily imply that the two will coordinate this time, but there are some structural reasons which suggests that cooperation is more likely.

Specifically, Japan and Australia have common national interests in the management of China and the desire for a US presence in East Asia. Specifically, the logic of China’s rising power necessitates US involvement in Asia if Japan is to preserve its influence, a fact true also for Australia.

However, for the time being Japan has not endorsed US membership. What would bring that about?

Firstly, ASEAN. As Achrya has pointed out, ASEAN is the base on which regionalist projects will be constructed – and proposals from Australia and Japan will have to be mediated by ASEAN. Hatoyama’s rhetoric leading up to the trilateral summit suggests that Hatoyama seems to have believed that Japan could lead the formation of an East Asia community. However, due to the lack of progress at that summit, Hatoyama has likely realized the importance of ASEAN. As it becomes more likely that ASEAN will invite the US into the region, via the Treaty of Amity and Cooperation, Hatoyama may well decide to “go with the flow.”

However, one ASEAN official has noted that ASEAN’s support for US participation is split 50:50; with the archipelagic southeast states in favor and those bordering China more ambivalent. This split in ASEAN is due to China’s rising influence. Indeed, China has pushed forward its credentials as a leader – this year offering Southeast Asian states a 10 billion dollar China-ASEAN investment fund (chiefly for infrastructure building it seems). Under these circumstances, it is unlikely that ASEAN states would push the US issue.

Secondly, China. It is possible that China is backing away from a strong position on US participation. One newspaper reported China’s Ambassador to ASEAN Xue HanQin (薛捍勤) stating that the US could be a participant, although whether this reflects a real change in policy is still uncertain. Has China embraced Tow’s cynical strategy of sinking a proposal by endorsing it? Certainly Chinese foreign policy makers must be aware that a strong move to exclude the US by China might have exactly the opposite effect. This uncertainty on both sides has created a situation in which neither China or Japan is willing to discuss the role of the US in East Asia, for fear of harming their political relationship.

Lastly, Australia. With ASEAN still divided on the issue of US involvement, and China-Japan circling the issue, active Australian diplomacy is more likely to pay off. What it may take is some “double edged diplomacy”, convincing Japan that ASEAN really does support US involvement. Australia has been able to play this middle power role in the past, and is in a good position now to make a valued, and potentially strategically valuable, contribution.