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