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Saadia PEKKANEN


Japan Invests in Asian Regionalism

Saadia PEKKANEN
Job and Gertrud Tamaki Associate Professor, Henry M. Jackson School of International Studies University of Washington
Associate researcher, Fondation France-Japon de l’EHESS
 

                                                      


The idea of Asian regionalism is in vogue, and has affected the tenor of Japan’s foreign economic policies.  As the intra-regional trade shares of ten East Asian nations were estimated to be around 51 percent by the early 2000s, ahead of the NAFTA countries but behind the European Union ones, Asian economic regionalism seemed a fact in progress[1] One source of controversy, as well as opportunity, is that the intra-Asian integration underway is decreasing the dependence of Asian countries on partners outside the region, including the United States. As the economic importance of East Asian countries becomes increasingly more important to Japan’s trade structure, some experts suggest that the importance of countries like the United States and Australia has declined from the 1990s onwards.[2] By the mid 2000s, the influential United States-Japan Business Council (USJBC) began to note that, despite the long-standing prominence of the economic ties between their two countries, merchandise trade flows between the United States and Japan were becoming a casualty of changing circumstances.[3] In fact, Japan was the only major US trade partner with which US exports to and total trade with were lower in 2006 than before. Meanwhile, as China was rising to prominence among Asian countries in the Non-NAFTA portfolio of the United States, it also replaced the United States as Japan’s top trade partner, with enormous consequences for Japan’s attitudes and orientations towards the United States in the country’s economic future.[4]
 
With an Asia-bound economic structure, it is little surprise that institution-building in trade, finance, and investment is the order of the day for the Japanese trade policy establishment across Asia. Whatever the nature of statistical disputes about the underlying facts, Japan analysts also forged forward with the country’s new economic directions under the rubric of Asian regionalism. Around 2004, the Japanese government took visible steps to reorient its foreign trade diplomacy. As the so-called Economic Partnership Divisions went into place formally at both the Ministry of Economy, Trade, and Industry (METI) and the Ministry of Foreign Affairs (MOFA), Japan scholars turned their attention increasingly to free trade agreements (FTAs). Parallel to this focus on trade flows, analysts also began to examine the rise of cooperation in the field of finance that was supposed to guard the region in the face of another devastating financial crisis as in the late 1990s.
 
Investment rule-making, however, remains a little known aspect of Japan’s foreign trade politics overall.[5] The Japanese government’s painstaking but clear goal of establishing rules on investment are manifested at four distinct levels – and all of them reflect the interests of Japanese corporations operating in the global and regional economies.As Japanese manufacturing investments in various industries have spread out and embedded themselves in an integrated fashion across Asia since the late 1980s, the search for governing institutional arrangements by Japanese multinational corporations has also correspondingly increased. The more specific pressing concern for these Japanese actors is to reduce regulatory inconsistencies affecting business operations in different countries, and to guard against the arbitrary whims of foreign governments. Whether individually or collectively through Nippon Keidanren, Japanese multinational corporations have been aggressive seekers of such institutionalized protections.
 
First, beginning in the 1990s, Japan spent a considerable amount of effort on pushing for investment rules within multilateral forums, such as the Organization of Economic Cooperation and Development (OECD) and the World Trade Organization (WTO). But multilateral rules on investment proved to be highly controversial in both these venues, in large part because of pressure from Nongovernmental organizations (NGOs). Second, as the tide turned away from multilateral investment rules in both the OECD and the WTO, Japan’s publicized Economic Partnership Agreements (EPAs) from the early 2000s onward moved beyond traditional FTA concerns with market access to also include so-called WTO-plus issues such as investment rules. Third, Japan devoted more attention to a rising phenomenon in the governance of investment flows, namely Bilateral Investment Treaties (BITs), which it had begun signing in the late 1970s and which thus even preceded its better known EPAs in terms of preferential diplomacy.  Fourth, perhaps the most important venture from the perspective of Japan’s efforts at legitimating and boosting the processes of Asian regionalism lie in a concerted trilateral effort among the Japanese, Chinese, and South Korean governments. Japan already has an older BIT with China, and a more recently concluded BIT with South Korea. But Japan is not satisfied with the bilateral BIT structure, preferring instead a formal trilateral treaty among them all that can serve as a building-block to an East Asia FTA in the near future, and that can also put the whole of Asia on the global institutional-legal map more cohesively than might otherwise be possible.[6] This refers specifically to the Trilateral Investment Agreement that has been in the works since the late 1990s between these three governments, with the possibility of helping create a more cohesive East Asia FTA later down the line.  Hopeful signs are emerging that the three nations are moving toward closer and more formal investment cooperation – a process which has now even been blessed by the top political leadership in all three countries. This was evidenced by the first ever China-Japan-Korea summit in Fukuoka Japan in December 2008, followed by one in Beijing China in October 2009, and most recently in Jeju Korea in May 2010.[7]
 
In all, given the Asia-centric orientation of its economy at present Japan is continuing to strengthen its rule-making activity within the region, particularly in investment. For the Japanese trade policy establishment and Japanese corporations, the exercise of setting such operational legal frameworks also makes them important rule-makers in the global and regional economies.
 


[1] Masahiro Kawai, “Regional Economic Integration and Cooperation in East Asia,” Paper prepared for the Experts’ Seminar on the ‘Impact and Coherence of OECD Country Policies on Asian Developing Economies,” esp. pp. 1-4, 8-13, esp. Table 2a and 2b. The figures cited are for 2001. European Union refers to EU-15.
[2] Tadahiro Yoshida, “East Asian Regionalism and Japan,” IDE APEC Study Center Working Paper Series 03/04, no. 9 (March 2004), esp. pp. 13–15.
[3] US-Japan Business Council (USJBC), 2006 Policy Statement, available online at www.usjbc (accessed 1 September 2010), esp. pp. 3-8; and also USJBC, “U.S.-Japan Business Council Urges Measures to Revitalize U.S.-Japan Economic Relations,” Press Release, 26 April 2007, available online at www.usjbc.go.jp (accessed 1 September 2010).
[4] “China Replaces United States as Japan’s Top Trade Partner,” The Asahi Shinbun, 27 January 2005, available online at www.asahi.com (accessed 20 March 2007); and “China Becomes Japan’s Top Trade Partner,” China Daily, 26 January 2005, available online at www.chinadaily.com.cn (accessed 10 March 2007).
[5] On the story of Japan as a rule-maker in investment see Saadia M. Pekkanen, “Investment Rules in Preferential Trade Agreements,” in Japan’s Aggressive Legalism: Law and Foreign Trade Politics Beyond the WTO (Stanford University Press, 2008), esp. 225-271.
[6] Interview, METI official, Tokyo, 15 July 2010.
[7] Information on these summits is from MOFA, “Japan-China-ROK Trilateral Summit,” available online at www.mofa.go.jp (accessed 1 September 2010).
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