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e-Magazine (For the Japanese version of this article)

TPP Participation Signals Prime Minister’s Shift to the Offensive? Consumption tax issue will determine administration’s fate | Keisuke Yamada, Political correspondent Jiji Press [Date of Issue: 30/November/2011 No.0201-0817]

Date of Issue: 30/November/2011

TPP Participation Signals Prime Minister’s Shift to the Offensive?
Consumption tax issue will determine administration’s fate

Keisuke Yamada
Political correspondent
Jiji Press

Almost three months have passed since Prime Minister Yoshihiko Noda launched his Cabinet. Progress is being made both on recovery from the Great East Japan Earthquake and in mopping up the massive damage caused by the accident at TEPCO’s Fukushima Daiichi Nuclear Power Plant. Positioning these two issues as his immediate priorities has previously kept Noda in defensive mode, but he now seems to be shifting to the offensive. His first volley has been the decision to pursue participation in the Trans-Pacific Partnership Agreement (TPP) negotiations. The key political theme next year will be the consumption tax hike issue.

The TPP issue sparked fierce opposition and intense wariness not only from the Liberal Democratic Party (LDP), the New Komeito and other opposition parties but also within the Democratic Party of Japan (DPJ) itself. Noda’s careful wording in announcing his TPP decision repaired the splits within the party at least temporarily. However, debate will soon gear up on the consumption tax hike issue—the ‘castle keep’, as it were, for the Noda administration. There will inevitably be a violent clash of views for and against the hike within the DPJ, offering a prime chance for the LDP and the New Komeito over on the opposition side to pressure the administration. Here we look at the background to the decision to participate in the TPP negotiations and political prospects for the year ahead.

Real motives behind the Prime Minister’s decision

At the Asia-Pacific Economic Cooperation (APEC) Economic Leaders’ Meeting held on 13 November in Hawaii, the Prime Minister announced that Japan would enter into consultations with the countries concerned toward participating in the TPP negotiations. In a nod to a TPP petition from within the party reflecting the views of DPJ lawmakers opposed to or cautious on the issue, he avoided stating that Japan would participate in the negotiations, but his announcement effectively signals that Japan will be at the table. The Prime Minister’s effort to placate appears to have had some effect, with Masahiko Yamada, former agriculture minister and leader of TPP opposition within the party, noting that he was relieved that Noda had heeded the party’s recommendation and held off committing Japan to the negotiations.

While Yamada and others in his camp will continue their resistance towards quashing Japan’s participation, the issue seems highly unlikely to cause a major split in the party over the coming months. The main reason is that while many members of the group supporting former DPJ Secretary-General and party heavyweight Ichiro Ozawa (currently on trial over a political fund scandal) are reluctant to see Japan join the TPP negotiations, Ozawa himself appears to have decided to adopt a wait-and-see stance.

The government will now step up its preparations toward entering the negotiations as of spring next year. The rationale presented by Prime Minister Noda for participation in the TPP negotiations is that “in order to pass down the affluence we have cultivated to our future generations and to develop our society into one with vigor, we must incorporate the economic growth of the Asia-Pacific region.”

That is of course only part of the reason. What should not be overlooked is consideration for the US-Japan alliance. While the Japanese government’s focus on the US is hardly new, it has basically operated in the areas of diplomacy and security. Trade, however, has been regarded as a separate issue in that, unlike the Ministry of Foreign Affairs (MOFA) and the Ministry of Defense (MOD) which handle Japan’s foreign policy and security, the Ministry of Economy, Trade and Industry (METI) and the Ministry of Agriculture, Forestry and Fisheries (MAFF) go into negotiations on behalf of domestic industry. Kasumigaseki bureaucrats sometimes say that while MOFA and MOD basically go along with the US, METI and MAFF are different. The US often becomes an adversary to be battled.

Nevertheless, the TPP participation issue will cast a major shadow over the US-Japan alliance. When Yukio Hatoyama became Prime Minister in September 2009, his suggestion that the 2005 US-Japan agreement to shift the US Futenma Airbase in Okinawa Prefecture to the Henoko district of Nago City be scrapped chilled Japan-US relations entirely. While Hatoyama later recanted that suggestion, since then the DPJ administration as a whole has become, according to one Cabinet minister, “very reluctant to oppose US wishes”. The US-led TPP initiative too sits within that context.

The second reason is to rein in China, which is aiming to expand its economic and military influence in Asia. In particular, China is said to be aiming to establish a free trade area in the Asian region that excludes the US. Simply the action of Japan joining the TPP negotiation framework will in itself cause consternation in China. The government is of course hardly rushing to highlight this point as one of the effects of the TPP. As one party involved in Japan-US diplomacy notes, Japan does not want to unnecessarily provoke China. The government probably also wants to avoid weakening the argument for an economic effect through trade liberalization, which is the primary objective of the TPP.

The government will now step up preparations toward joining the negotiations as of spring next year. The first major issue will be the Noda administration’s negotiating ability. While former DPJ Secretary-General Ichiro Ozawa, who is currently on trial for political fund reporting irregularities, may basically support trade liberalization, he has also let slip his concern whether Japan really has people capable of negotiating with the US. Back in 1989 in the days of the Takeshita administration, Ozawa had the experience as Deputy Chief Cabinet Secretary of going head to head with the US in the Japan-US telecommunications talks. Grounded in the reality of the DPJ administration’s serious shortage of human resources, his comment may hit the mark. While domestic opinion may lean more toward participation in the TPP negotiations than away, there is still deep-seated concern over Japan’s negotiating skills.

At the same time, the LDP too faces a complex internal situation. While LDP executives have marked themselves out in opposition to participation in the TPP negotiations, many LDP lawmakers strongly support Japan’s presence at the table on the grounds that, according to former Policy Affairs Research Council Chairman Shigeru Ishiba, the country does not have the option of not participating. This situation too was undoubtedly a factor in Prime Minister Noda taking this step toward joining the negotiating table.

Consumption tax will be the major issue

Along with participation in the TPP negotiations, the other major political theme in the months ahead will be a potential hike in the current five-percent consumption tax rate. The Prime Minister made an international commitment at the 3 November Group of 20 summit meeting in Cannes, France to Japan raising its consumption tax rate to 10 percent by the mid-2010s. The Prime Minister also repeated his intention to submit a tax system reform bill that includes a consumption tax hike to the regular Diet session next year.

Immediately after Naoto Kan became Prime Minister in June 2010, he announced out of the blue that the rate could be lifted to 10 percent in a move that echoed the LDP’s campaign pledge. Public displeasure with that proposal led to the DPJ suffering a crushing defeat in the July Upper House elections. The election result saw the party fall well below the 122 seats needed for a majority, uncontested seats included. Prime Minister Noda, on the other hand, has given high priority to restructuring Japan’s finances ever since his days as Minister of Finance. Since his appointment as Prime Minister too, he has been extremely keen to boost the consumption tax.

The Noda administration plans to table preparatory legislation toward lifting the consumption tax rate to 10 percent by the mid-2010s at the regular Diet session convening in January next year. Ahead of that, the party leadership will work together to achieve internal consensus on the timing and extent of the hike by the end of the year. However, opinion is deeply divided within the party as to whether the consumption tax rate should be raised, and opposition will undoubtedly be far more vigorous than over the TPP. In particular, both Policy Affairs Research Council Chairman Seiji Maehara, who is regarded as a strong rival for the Prime Minister in his shot at re-election in the DPJ presidential elections in September next year, and Ichiro Ozawa have taken the position that raising the consumption tax would be premature.

Recently, Prime Minister Noda has used in relation to himself on a number of occasions the proverb ‘a wise man changes his mind’, apparently in the sense that he may so far have prioritized harmony within the party, but when it comes to the consumption tax issue, he is prepared to stand up against party opposition. The consumption tax debate is the biggest hurdle faced by the Prime Minister in terms of getting himself reinstated at the September 2012 party leadership elections. In his answers to the Diet recently, when pushed by the opposition to dissolve the Lower House and hold general elections when the tax reform bill and its consumption tax hike component are submitted, the Prime Minister rejected this proposal on the grounds that he wanted to consult the will of the people through a general election before lifting tax rates. He also expressed his intention to submit the bill to the Diet even in the face of opposition party resistance.

According to a source close to the Prime Minister, the LDP too is making a lot of noise in public while privately realizing that it can’t oppose a consumption tax hike as such. However, if the issue widens internal fissures in the party, the LDP is likely to submit a no-confidence motion again at the end of the June 2012 regular Diet session just as it did this year to pressure for dissolution of the Diet and the calling of a general election. Moreover, if the Cabinet’s support rating is struggling at less than 20 percent toward the end of the Diet session, the opposition could well try to force the Noda administration to dissolve the Diet in return for cooperation in passing the consumption tax hike bill. LDP President Sadakazu Tanigaki, who has been criticized within the party for failing to push the DPJ administration into dissolving the Diet dissolution during the current session, is in fact gambling on that very ‘dissolution for consumption tax’ trade-off.

The fate of the Noda administration will rest on the outcome of the consumption tax debate. The TPP issue was just a preface to political turmoil.

(original article : Japanese)
(For the Japanese version of this article)


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