tv Professor Discusses Japans Economic Outlook for 2019 CSPAN February 21, 2019 3:06pm-4:09pm EST
bridge the gap between domestic and international with his expertise in trade in the region. we have some sandwiches outside that you are welcome to. bring them back here and eat. we will start at 1:00 sharp. in the meantime, please join me in thanking our wonderful panelists. it was terrific. thank you. [ applause ]
>> welcome back to the second half. i feel like it's the second half and stood in line at the rest room and now we're ready to begin. we have a great way to kick off the second half. before we turn it over to our keynote speaker, it's my pleasure to introduce the interim president of the japan/america society of washington, d.c. she's the founder and ceo of wisteria group, a consulting firm and previously she was senior adviser to the asia foundation where she led strategic engagement with japan and advised with other conflict-afflicted regions. she had a long career at the state department. abo she has been a terrific leader. it's great to welcome her here at carnegie. >> thank you so much. it feels a little odd to
introduce the introducer. but thank you all for coming here today. we have got a great speaker who many of you already know, because he has had such an illustrious career in the economic front. he will speak today about international asia trade dynamics in 2019. he is currently the representative director of arena, the economic research institute for northeast asia, which is based in nigata, which i find interesting because so often we see things happening in tokyo or washington, d.c. that having based in a perspective outside of the main city is great. he is also a professor -- he is the representative director of the economic research institute of northeast asia. but also a professor at the graduate school of public policy
at the university of tokyo. he also served as previously as deputy vice-minister of finance for international affairs at japan's ministry of finance. he is a stanford university graduate. has his master's and ph.d. in economics from stanford. he began list career as a research fellow at brookings. am i allowed to say that word here? then he was an assistant and associate professor in the economics department at johns hopkins. afterwards, he was a full professor at the university of tokyo. and he also served during this time as a consultant at the board of governors of the federal row desereserve system imf at washington, d.c. he worked as chief economist from 1998 to 2001.
then subsequent to that, he was with the ministry of finance, the japanese ministry of finance. he also joined the asian development bank and served as head of the office of regional economic integration and special adviser to the adb president in charge of regional economic cooperation and integration. he published a number of books and numerous articles on economic globalization, on regional financial integration and cooperation in east asia, including lessons from the asian financial crisis and on the international currency system. so i think you can see from this brief bio that he has covered all the bases on the economic front and on international trade. [ applause ]
>> good afternoon. it's a great honor and a pleasure for me to be here to talk about the japan/u.s. economic relations and the future of tpp 11. i think i want to get a bit closer to the slide, since i cannot -- i don't have it just in front of me. maybe the best way would be to -- i see. okay. thank you. very much. okay.
president trump withdrew from tpp on day one or two after assuming his presidency. and japan started to lead negotiations on tpp 11. japan was then the largest economy among the 11 countries. so japan was a natural leader to do so. in the meantime, mr. trump started to focus on trade issues to reduce trade deficits and particularly he focused on china. he has been very tough on china. people around him were probably tougher towards china.
than mr. trump himself. but mr. trump also wants to forge fdas or trade agreements with eu and japan, which would be very favorable from the u.s. perspective. and he has been using the threat of imposing additional tariffs on automobile imports. japan now started to work with other ten countries within the tpp 11 context to expand membership. japan also came up with an epa, economic partnership agreement,
with the eu. and this epa is going to be enforced on february the 1st, this year. japan has also been working with other east asian countries to forge the regional comprehensive economic partnership agreement. so japan and mr. abe has been working very intensively on fdas and supporting the liberal trading system for not only japan but for asia and for the world. so the question is, where do we go from here?
now, we know that the u.s. has the largest trade deficit with china, followed by the eu, mexico and japan, according to the number for 2017. so japan's trade surplus against the united states is not too gigantic in comparison to china's. but still, mr. trump wants to reduce deficits. japan has been pursuing its own fta strategy and abenomics as part of growth strategy. the japanese government has been
making it clear that maintaining the rules based liberal and multilateral world trading system under the wto, would be the most important strategy for japan. for that purpose, japan has been working with the eu, other g-7 countries and like minded countries to support the multilateral trading system. japan has been -- japan has continued to try to convince the u.s. to return to this multilateral trading arrangement. the u.s., mr. trump has
complaints of wto practices and, of course, wto has many problems. together with the u.s., it's very fortunate that mthey suppot reform. japan, the eu and the u.s. have been supporting wto reform. another important pillar of japanese trade strategy is to convince china to return to reform an opening policy which was successful, but which was recently reversed towards more closed nature. to shift away from the so-called state capitalism model to a
truly market oriented open economy development model. also, implementing several ftas has been very important. that's why he wanted -- mr. abe wanted to revive tpp after mr. trump's withdrawal. now, the data in the table is a bit old. but even though japan has been integrating with many other asian countries in terms of people's movement, trade, foreign direct investment, the role of china for that matter has become very important and economic relationship with rok
continues to be very important. you realize that the u.s. is also a very important economic partner. for outbound international tourism and trade and for indirect investment. so the u.s. is there economically in japan. mr. abe came up with a kpi key performance indicator with regards to its fta strategy. mr. abe wanted to achieve the fta trade coverage ratio of 70% by 2018, last year.
this was not achieve d. but still, this policy continues to be important. so to achieve it, japan has to forge an fta with tpp level member countries and the u.s. also and eu, which will be realized very soon. and then korea and china. so working with many countries continues to be quite important. now, for this audience, i don't think there's really need to re-emphasize the strategic importance of tpp. just i want to say that tpp was a high standard fta, including
developing countries. so that was a very excellent attempt. even by including developing countries, very high standard fta could be achieved. and actually, tpp 11 has done so. also, tpp was intended to put pressure on china to further open up and to pursue further reform. so in the future, china could be invited to be a member of tpp. so in the sense that tpp was a very important instrument to encourage china to go through important structural reforms.
mr. trump decided not to use that path. tpp 11 remains significant. tpp 11 was launched by six countries, australia, canada, japan, mexico, new zealand and singapore. and also, this month, vietnam joined tpp 11. three other countries are now going through domestic procedures. malaysia, another country, is a signatory member of tpp 11, is now considering what it should be doing. hopefully -- hopefully, malaysia
is soon ratified. but we don't know. tpp 11 member countries suspended 22 provisions. i have a list of suspended provisions and items under tpp 11. most of the provisions and items suspended are related to intellectual property rights. half of the -- more than half of 20 suspended provisions are related to intellectual property. so basically, those provisions which the u.s. really insisted
on putting in, into tpp, which many developing countries and even some developed countries like australia and new zealand did not quite appreciate were put in place. but they were now suspended. they have been suspended. so even though there are these suspended items, still tpp 11 can be a model for the 21st century trade and investment rules. if the u.s. accepts the entirety of tpp text and does not demand
anything more, and if the u.s. wants to come back, the u.s. can come back, and those suspended provisions would be restored. we may want to discuss later if the u.s. wants to do it. but if the u.s. wants to come back to tpp, will the u.s. accept the existing text of tpp? more likely, the u.s. would like to add something more to the text. then there would have to be a lot of negotiations between the u.s. and existing members of tpp 11. there are still economic
benefits to tpp 11, even though the u.s. is not there. so economic benefits are smaller than tpp, which includes the united states, but still there are economic benefits. membership expansion for tpp 11. japan and other tpp 11 member countries believe that membership expansion is going to send a strong message to the international community that these countries really care about liberal trading
arrangement and multilateral syst system. but there are several issues. there are still countries which have not ratified tpp 11. those three countries plus malaysia. if a new discussion starts with new potential members, then who should be more seriously negotiating with the new members? only those members -- those tpp 11 members which have become
legitimate members or would that include other tpp members which have not ratified? those countries which have not ratified may be concerned about new members coming into members of tpp 11 because that may create competitive pressure for the countries which have not ratified. another question is should a very high standard be required in terms of tariff reduction? tariff elimination. would looser agreement be possible? you may remember tariff
discussions done on the bilateral basis. so between any two countries, there may be a lot of concessions given to particular countries. so there's some unclarity about the direction towards tariff market access issues. although, trade investment rules of tpp 11 would have to be accepted by new members. also, it may take some time to finalize tpp 11 expansion. there are several countries which have expressed interest to become tpp 11 members, like
colombia, thailand, indonesia, philippines, taiwan, uk. china has not expressed inter t interest. china may be a future member. even the eu. but these countries do have various domestic issues. colombia, after the new government, doesn't seem to be too keen. there's some uncertainty about colombia's direction. thailand and indonesia will go through general -- go through elections. so we have to wait after the election outcomes are known.
the philippines -- so the philippines may be concerned about its economic relationship -- economic and political relationship with china and current president. taiwan has been expressing very strongly to join tpp and also tpp 11. but tpp 11 members may be concerned about possible conflict with china. you remember in the case of the wto entry, china insisted that china should enter the wto first and then taiwan. china and eu may be good candidates. but is it really a good idea to
invite them in the absence of the united states? so there are many, many issues to think about. prospects for rcep, the regional comprehensive economic partnership. this is an asean centered fta among 16 countries. the 10 asean member states plus japan, china, korea, india, australia and new zealand. so rcep is not as ambitious as tpp or tpp 11. but it's a very important fta because it does include china and india and also a large
country like indonesia. differences among the major countries are large. initially between japan and china on the level of tariff reduction and trade and investment rules. but after the start of u.s./china trade war, china has suffered. china wants to strengthen economic friendship with neighboring countries. but india has been a reluctant member. rcep also generates a lot of economic benefits.
mainly because china's level of protection is still high and india's level of protection very high. rcep negotiations, out of the total 19 chapters, seven chapters have been basically agreed on. some progress is going on. but there are difficult chapters which are market access issues, in particular india is very much afraid of the negative impact of trade liberalization on domestic industries, because already
chinese -- cheap chinese products are now flowing into india. india would be further exposed to chinese products. intellectual property, ecommerce, these are difficult issues and differences in views among countries relatively large. but negotiation will likely be concluded this year. china's softening position and, of course, it depends on india's election outcome. hopefully, modi continues to be supported and can be more forthcoming because a lot of time -- more time and leeways
are provided to india and rcep. after all, india's per capita gdp is about the same as clmv countries. so treat india just like cambodia and laos. so india should be able to come. my paper contains rcep chapters and some progress made. highlighted part, it's difficult part. next likely steps, tpp 11 is now
in place. a lot of progress will be made on rcep cl would inclu, which ws i said, china and india. just in the minute or so, what are the prospects of tag or u.s. jta negotiation? japan calls this japan/u.s. trade negotiation tag, trade agreement on goods. the u.s. calls it u.s./japan trade agreement. there's some difference in approach.
major issues between the u.s. and japan are autos and agricultural sector problems. the u.s. runs large trade deficits in automobiles. accounting for about three-quarters of total u.s. bilateral deficit with japan. i have some data. automotive vehicles, parts and engines had a trade deficit for the u.s. of $53 billion. total trade deficit on goods for the u.s. was about $70 billion. so the automotive part is the
most important part. mr. trump wants to reduce this deficit. but that's very difficult. japan imports a very small amount of american automobiles. japan exports a massive amount. how can this be adjusted? it's going to be very difficult. agricultural trade is also an important part. but the u.s. runs a surplus on foods, feeds and beverages. the u.s. wants to increase this part trade surplus on agricultural products. also, the u.s. is indicating a
possible currency clause. now looking at new nafta arrangement and ongoing discussion about the nature of u.s./eu trade negotiation, the u.s. could demand a lot of things. there are several key issues for the u.s./japan negotiation. from the japanese perspective, there are several things that should be avoided. very restrictive trade policies against japanese auto imports. this is something that needs to be avoided. like increasing tariffs.
mr. trump threatens. setting a knew marnumerical lim. in the case of new nafta, it's not binding. in the future, the limit may bi bind. but we are very much concerned about the introduction of a binding limit. or the u.s. may want to set a very high rules of origin requirement for auto trade between the two countries. in the case of new nafta agreement, the rules offing or begi origin was increased. currency policies should be avoided, because japanese
monetary policy continues to be expansi expansionary and there's no possibility at this point to exit from this ultra-easy monetary policy. japan will be ready to accept a comprehensive fta deal, not simply on goods, services, investment, you know, other issues. japan can import more gas and also earlier there was a discussion on the imports of military equipment which japan is doing. japan can further open the agricultural market to the
extent of original tpp and japan eu epa deals. maybe japan could go a bit more if necessary. japan can invest more in auto plants in the united states to expand automobile industry capacity in the united states. my conclusion, mr. trump has been very tough against china. but so far, against canada, mexico, eu and japan, the u.s. has been less tough, which is good. but the u.s., eu and japan need to make concerted efforts to
work on china to induce changes in china. so the u.s. must work with the eu and japan and other like minded countries. also, they have to work together to implement wto reform in an effective way but, of course, this process would have to involve china. japan and other tpp 11 member countries will start membership expansi expansion. japan, china and other members will likely reach an early conclusion of rcep this year.
japan can contribute to the u.s. economy by keeping to try to convince the u.s. that the free and multilateral trading system is the best. by purchasing more goods from the u.s. and investing more in the auto and other key manufacturing sectors in the u.s. and, of course, japan and the u.s. share a lot of common interests going beyond bilateral trade. china's change, china's reform, north korea issue and free and open indopacific initiative to give economic substance to this
indopacific initiative would be very, very important. thank you very much for your attention. [ applause ] >> thank you so much, professor. that was really quite excellent. i sort of wish we had a crystal ball and we could say, okay, what does the future look like for this and for that. we will open up for questions. but i will, in the tradition here, ask the first one. it's been interesting to me to watch the u.s. domestic approach to tpp as we all know was great resistance. this wasn't just something that
president trump was against. but there was a bipartisan grass-roots opposition. which eventually killed tpp for the u.s. japan historically had a very powerful grass-roots lobby that resisted international agreements. and yet here we now see japan taking the lead on tpp, signing the eu/japan fta, engaging with rcep. what's the magic that's working that is making this possible in japan? what's the japanese public reaction to this? what is the business community reaction to this? why is this working? >> okay. a professor discussed this issue
earlier. japan had two decades of economic stagnation. and everybody understands that japan should get out of long-term economic stagnation. otherwise, the japanese debt will continue to expand relative to gdp and social security system could be under stress. to avoid it, economic growth is needed. opening -- market opening and more proactively participating in the global economic management would be quite important and is necessary. and i think that's been accepted by the majority of people. the only sector that has been
complaining -- i should say almost the only sector is the agricultural lobby. the japanese government has been spending a lot of money for tpp itself and japan eu epa, now preparing for tpp 11. and even preparing for the u.s. -- japan/u.s. trade negotiation. in order to give comfort to the agriculture sector, a lot of physical money has been spent. and at the same time, a lot of reform pressure has been applied to the agricultural sector.
the son of the former prime minister has been very active on agricultural reform. agricultural reform. a combination of these has been working very well. and general population of japan is supporting japan's openness. >> thank you. i won't be selfish, so i will open it up now to questions from the audience. please. jim? >> jim zumwalt, peace foundation usa. thank you very much, professor kawai, of that really good tour of japan's trade policy. my question concerns your comment on tpp or cptpp expansion where you mentioned
that taiwan's succession would be difficult because of china. so my question is, are you saying that china effectively has a veto power over who joins an organization that it is not in, or do you think that japan recognizing that cptpp expansion without taiwan would lead to marginalization of taiwan and that's not in japan's interest, so japan will stand up to this pressure? >> well, ideally, we want china to be in in tpp. we want both the u.s. and china to be in tpp or in the future sort of reformed tpp, if the u.s. wants to come in in the future, the u.s. may want to demand a bit more. so, but in principle, tpp would be very useful for the u.s. and china.
so we want china to be in, so tpp-11 inviting taiwan first may alienate china, may give another reason for china to be hostile toward tpp or tpp-11. so that's the reality. so it's not an easy -- easy decision, but hopefully in the future when china joins, taiwan will also join. but changing this order can upset china which we don't want to see.
>> thank you. thank you, professor. thank you very much for your presentation. you made a brief reference to one of your graphs to the japan/rok/china trilateral negotiations but no other collaboration. is that alive, is that going on? where does it fit into rcep and tpp-11? >> okay. thank you very much. the so-called cjk/fta negotiation has been going on, but negotiators are now putting a lot of efforts on rcep. the strategy for japan is after
rcep, cjk should be more intensively pursued. and in a deeper way. going very deep at rcep will be very difficult because of india, because of, you know, other countries like c.l., cambodia/laos, and a few other countries, but on china/japan/korea, they can go deep. so for rcep, the agreement may be shallow and not so satisfactory from the perspective of economists like
myself, for many people, but i think first it will be useful to lock in china into a multilateral agreement, and seek avenue for the next step for cjk. so there, china and japan can talk about much deeper issues, soe reform issues, e-commerce international, you know, cross-border transfer of data, and so, the cjk would be -- the role of cjk is clearly there.
>> thank you. i have a question. for the expansion of tpp. you wrote in the presentation that we have a question whether it is appropriate to call china or uk or eu to be a part of partnership of the tpp. just so i can say a question, but i'd like to know your answer. and secondly, can you say -- i'm curious -- how probable would be the case that the eu after -- hypothetically, after the hard brexit, so to be a member of the tpp and eu, as well. thank you. >> okay. i answered on taiwan. taiwan should come after china.
so that would be a very -- very long-term project. china, this is a difficult issue, but we can openly invite china to start negotiation on tpp-11. i think that would give a good indication about china's willingness to change. so we should have many ways to induce china to change. through wto reform, through unilateral pressure from the u.s., multilateral process.
i think many ways would be -- using many ways would be useful. so inviting china to tpp-11 would be one of them. but the u.s. may not be happy, and this new nafta poison bill clause on market economy, so the u.s. may be concerned, but this is something i want to, you know, advocate. eu -- eu, i am more positive toward inviting eu. discussing, enacting, tpp-11 and eu. and forging a very large fda,
mega fda. and hopefully, this would have some impact on the u.s. trade policy. to induce the u.s. to think about coming back to multilateral arrangement. so i think tpp-11 has a lot of potential. to change china, to change the u.s. and in a positive way. we are not destroying the world. we are trying to help reconstruct liberal multilateral trading system for the world. well, i think current tpp-11 members have to start
negotiations with several, few potential member countries, and then the brexit, what's going to happen to brexit, has to be observed. and, of course, the uk can be a very strong member country. strong candidate for membership expansion. and the eu also. so -- so i cannot quite assign probability, but i hope tpp-11 member countries would consider linking with the eu very, very seriously.
>> professor kawai, marilyn myers, retired foreign service officer. two rather brief questions. the first one is about the trade deficit with japan. i find it really striking thereat 30 years on from when i was in tokyo, auto exports continue to be sort of the bu bugaboo in the relationship. the answer then was many japanese companies started to invest here. honda went into ohio, toyota into kentucky. et cetera. i wonder if you could tell me at this point in time, approximately, what percentage of the japanese cars sold in the u.s. market are made in the u.s. versus made in japan. and the second very short question, one of your shocharts showed the difference in projected economic growth if the u.s. was in the tp, or without the u.s. being in a member.
it seems the only country dramatically that had a much bigger economic growth forecast if the u.s. was not in was new zealand. i wonder if you could comment on why that is so. thank you. >> if i understand it correctly, first question is what percentage of cars made in the u.s. -- japanese cars are made in the u.s. as opposed to made in japan and -- >> exported. >> -- exported into the u.s. >> okay. about, think, about half. half imported from japan. sorry. about half imported from japan, and half imported from canada and mexico. i think that's roughly speaking. >> there's a --
>> manny from the japan automobile manufacturers association. give you a few stats here. it's 50% roughly that are sold in the u.s. or built in the u.s. another 25% or so built in canada and mexico and imported to the u.s., and the rest -- about a quarter, 25% -- >> okay. thank you. thank you. >> so you got the answer right. you got an "a can the" on the e >> important fact for the crowd to know. thank you. >> excellent. excellent. thank you. what was the second question? >> the growth would be much greater than with the u.s. as a member, and i wanted a reason for that. maybe i said it wrong -- >> you want me to -- i can help
out here, if you'd like. >> okay. okay. somebody -- yeah. yeah. yeah. so somebody wants to help? okay. okay. great. >> you know, some of the major concessions japan made on agricultural products are products where the united states, new zealand, and australia are all competitive, so by removing the united states from the agreement, particularly, japan has some quotas so if the united states does not compete for that quota, that is a huge advantage for countries like australia and new zealand, so i'm guessing that's the reason for the change. >> thank you. >> you get an "a," too, jim.
let's see. do we have time for one more very brief question? >> i'm with smu. i agree with your argument of encouraging -- using tpp to encourage china for more reforms, and especially soe reforms. but when we say about -- talk about it, you know, tpp includes the rules of state-owned enterprise, and also intellectual property rights, and then that's actually the -- our -- usually the issue of our complaint. now you say that many of the rules of the intellectual property rights and soe are kind of suspended. so do you think, still, tpp is a good tool to encourage china for
reform? >> yes, still, tpp-11 would be great. about 11 provisions have been suspended with regard to intellectual property, but that's okay. that's okay. soe, you know, making sure that a level playing field would be maintained for soes. so, subsidies and favorable treatments of soes should be dismantled under tpp 11. malaysia made a request for a change, for the petrol soe.
but that -- that was the only exception. china may want to ask for exceptions, but too many exceptions, you know, cannot be accepted. and i think tpp-11 is actually may be better for china than tpp-12 where the u.s. is in because then u.s./china confrontation would become the issue. now, in the absence of the u.s., china cab change, and china can show to the u.s. and the rest of the world that china can change i think that would be very useful. of course, over how many years
change should take place may be the subject matter of negotiation, but i think even including that, if china comes to the table of tpp-11 membership expansion, i think that would provide a very productive opportunity for everybody. >> well, unfortunately, our time is up. i really enjoyed this conversation and lecture. so please join me in welcoming and thanking professor kawai. >> thank you.