Agricultural reform key to global free trade

The Daily Yomiuri, Asia News Network, Tokyo

"When the Chinese character for monkey (expressed as one of the twelve animals of the Chinese zodiac) is combined with the (left-hand) radical that indicates a person, that character means 'growth.' I hope this year (the Year of the Monkey) will be one when things make progress and grow." So wrote Prime Minister Junichiro Koizumi in the latest edition of his Cabinet's e-mail magazine.

The biggest challenge for the world economy this year is to get on a recovery track. For Japan, negotiations over free trade agreements with other countries and regions, which will hold the key to mid- and long-term stable growth for the national economy, will reach a crossroads.

Koizumi should not only "hope" for growth and progress in various fields; he is responsible for realizing it.

The Organization for Economic Cooperation and Development, in its outlook for the global economy revised late last year, expressed the optimistic view that the "strong trends of recovery in Asia, North America and Britain are about to support the economic recovery of the world."

Yet we should not be overoptimistic. The U.S., which has been the engine of the global economy, is burdened with so-called twin deficits -- a current account deficit and a fiscal deficit. There is a possibility that the U.S. economy will slow down after the presidential election this autumn. We should not disregard the possible adverse effects on the global economy of the delay in the postwar reconstruction of Iraq and concerns over international terrorism.

Japanese and European economies have yet to make a self- sustained recovery led by domestic demand. There are concerns that given that these economies are beset with sizable fiscal deficits, the rise in the value of the yen and euro against the dollar may dampen their economic recoveries.

Meanwhile, China, whose economy has continued to enjoy a high growth of about 8 percent in recent years, has yet to eliminate the ever-widening economic disparity among its regions, and its financial institutions have not yet written off their nonperforming loans.

All countries are obliged to solve their own problems and at the same time realize a solid economic recovery.

On the trade policy front, the issue of promoting free trade is important. By activating the international flow of goods, people and services, the basis for sustainable and stable economic growth can be formed.

The Doha Round of global trade liberalization talks, held under the auspices of the World Trade Organization, became deadlocked in autumn due to a conflict between major industrialized countries and developing economies over such issues as liberalizing markets for agricultural products.

While the prospect of reaching a package agreement by the end- of-2004 deadline has dimmed, moves toward concluding bilateral or interregional FTAs are accelerating.

The U.S.' FTAs with Singapore and Chile came into effect on Jan. 1, while it is negotiating FTAs with other countries, including Australia and five Central American countries.

In Asia, China is moving fast. It has concluded an agreement with the Association of Southeast Asian Nations to completely liberalize trade in 2010, while moving forward the lowering of tariffs on certain agricultural products. India also concluded an agreement with ASEAN to complete trade liberalization by 2011.

In this regard, Japan's sluggishness is conspicuous. While Japan is to start preparatory talks on an Free Trade Agreement (FTA) with ASEAN shortly, full-scale negotiations will not begin until next year. Tokyo is eyeing complete trade liberalization in 2012.

As for bilateral FTAs, Japan is about to begin negotiations with South Korea, Thailand, the Philippines and Malaysia, following its FTA signed with Singapore that came into effect in the autumn of 2002.

But as was shown by the collapse last year of the Japan-Mexico FTA talks due to discord over liberalizing trade in such farm products as pork, there is little likelihood of FTA talks with other countries making progress for the time being.

If this trend continues, Japan will be left behind in the trade liberalization race, and Japanese products will be at risk of being driven out of markets around the world.

The main reason for the nation being in this situation is that agricultural organizations and Diet members in both the ruling and opposition camps who represent the interests of the agricultural sector have jealously guarded their respective turfs and are adamantly opposed to trade liberalization, thus blocking farm reform.

Agricultural production, which accounted for 4.2 percent of Japan's gross domestic product in fiscal 1970, accounted for only 1.1 percent of GDP in fiscal 2002. No matter how determined the agricultural organizations or lawmakers are to protect the interests of the agricultural sector, the farming industry's decline will continue.

To check the farming industry from declining further, while at the same time promoting FTA negotiations with other countries, Japan has no choice but to drastically reform the agricultural sector from the perspective of enhancing its international competitiveness.

In autumn, Prime Minister Koizumi said, "Taking into consideration our economy as a whole, we need to concede what needs to be conceded and reform what needs to be reformed (in the agricultural sector) so we can succeed (in FTA negotiations)," indicating at long last his intention of dealing with farm reform.

The Agriculture, Forestry and Fisheries Ministry, for its part, began late last year revising the Basic Plan of Food, Agriculture and Rural Areas, the guiding principle for the nation's agriculture.

The ministry targets a shift of agricultural policy from that designed to protect the domestic agricultural sector with tariff barriers to an aggressive one aimed at realizing a competitive agricultural sector by subsidizing ambitious and enthusiastic producers.

Eligible for direct income compensation would be producers of key products, such as rice and meat, who have a certain hectarage of farmland or raise a certain number of cattle.

What is to be subsidized and how the compensation system is to be managed will be reviewed periodically, with an eye toward facilitating competitiveness.

Opposition from legislators in both camps who lobby on behalf of farmers is strong. With the House of Councillors election slated for summer, they are intensifying their opposition to the liberalization of farm trade so as to retain support from their patron agricultural organizations.

More than 30 years ago, negotiations over regulating textile exports to the U.S. market experienced rough going due to fierce opposition from the textile industry and legislators representing its interests.

Shortly after he assumed the post of international trade and industry minister, Kakuei Tanaka said the negotiations would be settled without fail within three months.

While asserting to Washington that Tokyo would implement a voluntary restraint on textile exports to the U.S., Tanaka outmaneuvered those opposed to the reform by taking such bold actions as promoting the scrapping of textile-related facilities through the injection of state funds, and the talks were concluded on schedule as he had promised.

Strong government leadership is needed for both agricultural reform and the promotion of FTA negotiations.