Global trade, moreover, has evolved over the past two decades. As it became clear that the reforms of the 2001 Doha Round would not be resurrected, countries got more ambitious in their trade agreements. Nations such as South Korea, whose carmakers and electronics firms directly competed with Japanese companies, took a more proactive approach to negotiating trade deals, and Japan soon found itself outmaneuvered. Mega-regional trade pacts — for instance the Trans-Pacific Partnership (TPP), the Transatlantic Trade and Investment Partnership (TTIP) and the Regional Comprehensive Economic Partnership (RCEP) — also began to take shape. To join in on a regional deal of this scale, Japan would have to compromise more than it ever had before. If it refrained, on the other hand, it could find itself at an enormous disadvantage in key markets. The Japanese government, bearing these factors and the implications of its demographic decline in mind, chose to try a new strategy of proactive engagement. Prime Minister Shinzo Abe outlined extensive structural reforms in areas such as agriculture, corporate governance and labor through his Abenomics policies. Japan has forged on with its new liberalizing course even as the TPP and TTIP have foundered and the United States moved away from mega-regional arrangements under President Donald Trump's administration. Nevertheless, deep down Tokyo still yearns for the pre-1995 days of multilateral trade engagement, when it could protect its vulnerable domestic sectors secure in the knowledge that its competitors could not outmaneuver it, even if they were willing to make more sacrifices.
is still the most sensitive area for Japanese trade negotiators. Food self-sufficiency has dropped to just 39 percent, down from 79 percent in 1960, but it is no less a concern for the Japanese public. In a 2009 poll, 89 percent of Japanese people surveyed cited national security as a reason they were willing to pay high prices for domestic produce. Japan's trade protectionism focuses on five key areas of agricultural production: rice, wheat and barley, sugar and starch, dairy products, and beef and pork. The tariff barriers around these categories are so high — well over 100 percent — that they skew the applied average for agriculture. While negotiating the TPP agreement, Japan tried to exclude these products as usual, but the United States resisted and in the end only rice, wheat and barley were exempt. The deal sparked controversy among the Japanese public; JA collected 11 million signatures protesting the TPP. Even so, Japan saw the negotiations to completion and even lobbied its fellow signatories in the region to ratify the deal without the United States' accession
Going forward, signs suggest that Japan may continue its agricultural liberalization. For one thing, the Abe administration has introduced legislation to limit JA's power. For another, a few concurrent trends in Japanese agriculture stand to make the sector more competitive. As more farmers retire, and as legislators ease laws prohibiting corporate ownership of agricultural land, small plots could be consolidated into larger, more efficient farms. Japan, moreover, is on the cutting edge
of automating and digitizing agricultural procedures, and it is an early proponent of vertical farms, multistory indoor compounds that could eventually produce high-quality agricultural goods in large quantities. These advances will play to Japan's strengths, requiring less land and more capital and highly skilled labor than traditional farms do. Depending on their progress, in fact, the developments could enable Japan to assume a more offensive stance on agricultural trade. The country has already made attempts to increase its agricultural exports with a view to becoming more competitive.
Japan is also sensitive about its currency. A weak yen, after all, helps maximize income from foreign investments, while a stronger currency has the opposite effect. Abe rolled out the first part, or arrow, of his Abenomics plan — a massive monetary policy intervention — as a measure to stimulate inflation in the Japanese economy after more than two decades of deflation. But the measure had the added benefit of keeping the yen's value in check. (Consequently, Tokyo will have to tread lightly in trade negotiations to avoid allegations of currency manipulation.)
Foreign investment is another of Japan's defensive interests, albeit perhaps a counterintuitive one. Japan has the world's largest net international investment surplus. Rather than pursuing investor-state dispute settlement (ISDS) clauses to protect its investments abroad, though, popular antipathy toward foreign interference has prompted Tokyo to avoid the provisions at every opportunity. Japan has omitted ISDS clauses from bilateral trade agreements with countries such as Australia, and its legislature, the Diet, debated the subject at length before it conceded to including one in the TPP. Furthermore, the country has filed just two ISDS cases in its history, compared with the United State's 148 total cases and 67 from the United Kingdom.
Finally, Japan staunchly defends its non-tariff barriers. Negotiating such measures with trade partners can be challenging, since they often include subjective issues such as standards, regulations and legal practices. Foreign automakers, for instance, may chafe at the size standards for cars in the Japanese market, while Japanese negotiators may insist that they are necessary to ensure vehicles will fit into the country's high-tech self-parking machines. Today, however, Japan is growing more flexible about non-tariff barriers. Before entering talks over a free trade agreement with Japan, the European Union compiled a list of the non-tariff barriers it wanted removed. The TPP contained similar stipulations, along with a mechanism to detect and remove new non-tariff barriers that might subsequently emerge. Future moves to reduce non-tariff barriers will probably hit sectors of the country's domestic economy, including retail, construction, food processing and financial services, the hardest. But over time, Abe's changes to corporate governance laws, as well as his prospective labor reforms, will likely make these industries more competitive. They could also expose Japan's automotive sector, which has been sheltered by non-tariff barriers, to increased foreign competition.
Automobiles are Japan's number one product. Toyota is the world's leading automaker, and Honda and Suzuki also rank in the top 10. Although much of Japan's automotive industry has moved abroad to be near its target markets, the country is always working to topple what lingering trade barriers stand in the way of its cars and trucks. During TPP negotiations, Japan was keen to remove the United States' 2.5 percent tariff on cars and 25 percent tariff on trucks. The country has likewise made getting rid of the European Union's 10 percent automobile tariff a key priority in its talks with the bloc. Japan pursues the same objective, though to a lesser extent, in its other competitive sectors such as machinery and electronics.
Japan also strives to remove barriers to export its agricultural goods. Though they struggle to compete on price, commodities such as Japanese rice have found a niche on the high end of the market. And agriculture may prove to be an increasingly important export sector as it becomes more efficient. But exports aren't Japan's only concern. As an island nation with limited natural resources, Japan must also prioritize certain essential imports, a consideration that has led to bilateral agreements with metals and natural gas exporters such as Chile, Australia and Mongolia.