Japan Faces Threat of Chinese Exports
When Japan and China make a deal, Mikako Murakami watches her wallet.
Recently, the two Asian giants agreed to settle a heated trade dispute over leeks, mushrooms, reeds and auto parts that threatened to turn into China’s first test of World Trade Organization trade rules.
Even before China joined the Geneva-based group, it had threatened to drag Japan up for blocking its farm products.
Instead of hashing it out under international trade rules, however, the two announced Friday a plan under which China would “voluntarily restrain” its exports to Japan. The details are a bit hazy, but essentially bureaucrats from both countries will sit down several times a year and decide how much trade should flow.
That’s what has Murakami and like-minded consumers worried. The 29-year-old Tokyo housewife uses lots of leeks, known as negi in Japanese, in her favorite dishes, including nabe stews, miso soup and fermented natto soybeans.
At her neighborhood supermarket, Chinese negi at 70 cents for three stalks sells for half what the Japanese negi costs, yet the quality and appearance are identical.
“Sure I sympathize with Japanese farmers, but I definitely choose Chinese negi. Among other things, my husband’s bonus has been reduced,” she said. “Cheaper is better.”
Consumers aren’t the only ones worried that backroom deals spell trouble. Japan had an opportunity to establish clear rules for what will almost certainly be a string of trade disputes ahead with China, says Masayoshi Honma, economics professor at Seikei University.
Instead, it copped out and bowed to special interests to mollify its politically sensitive farm industry.
“This settlement is very close to managed trade,” Honma said. “This doesn’t settle the issue.”
The amount at stake is relatively small, a few tens of millions of dollars in a $115-billion two-way trade relationship.
But the case has been closely watched around the world for several reasons, including clues on how Japan will deal with the growing competitive threat from China, the broader geopolitical implications for these two historical rivals and what tactics American farmers and others can employ against this brash new kid on the block with its enormous export potential.
Unfortunately, this deal puts off many of those issues for another day, analysts say.
Although conventional wisdom suggests Japan’s advanced economy has little to fear from China’s low-end industries, Tokyo has long subsidized and otherwise kept alive many low-value, inefficient industries well after other rich nations might have been tempted to let them wither.
Japan’s political paralysis, a strong anti-reform camp and growing unemployment make politicians more vulnerable to pressure as entrenched interest groups dig in their heels. That’s made China an obvious domestic target, especially when it comes to agriculture, Japan’s political Achilles’ heel.
The spat started early this year when Chinese shipments surged of leeks, mushrooms and reeds, used to make tatami mats. In April, Japan enacted emergency safeguards to cap the rising volumes.
Almost immediately, however, a host of other Japanese industries cried out for similar relief, from hand towels and kimono fabric makers to eel farmers and other producers. In June, China retaliated with 100% tariffs on auto parts, pitting one Japanese interest group against another.
Both Japan and China had their reasons for avoiding the WTO. Japan probably would have lost the case, says Satoshi Oyane, a professor with Kanazawa University, based on a look at other cases.
On the other hand, China would probably have lost a counter-case Japan probably would have filed on China’s auto parts retaliation move.
The irony, says Oyane, is that Japan long resisted pressure from the United States and Europe to voluntarily restrain its own auto and other exports. In fact, it argued repeatedly when the WTO was formed that voluntary restraints should not be allowed.
Now that the world’s second-largest economy finds itself on its heels with no growth in sight, however, it’s become far more fond of this short-term form of relief. Given Japan’s importance in the global economy, this sets a bad example, economists say.
Even before this deal, Japanese bureaucrats sought to control the trade by exerting pressure on trading companies, many of which invest in China to control the distribution channel.
Japan’s resistance to greater competition only delays adjustment and reforms it needs to make eventually, economists add. It also calls into question Japan’s stated goal of entering into free-trade agreements with other East Asian nations in line with developments seen in other major regions.
Short-term winners in the deal include Japanese farmers, Japanese auto makers and politicians in both governments, economists say.
“This was a political deal rather than just an economic deal,” said Zhang Xiao Guang, analyst with Daiwa Research Institute.
That said, concerns remain that even with a restraint agreement, China may not be able to fully control its own exports.
Losers include the Chinese farmers, their Japanese trading company partners and the likes of Murakami. “When producers get together to reduce their own pain, it’s the consumers that get hurt,” said Seikei University’s Honma.
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Hisako Ueno in the Tokyo Bureau contributed to this report.
