2005 Annual Meeting: Border-Crossing Sessions

JAPAN SESSION 165

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Session 165: New Directions in Japanese Trade Policy

Organizer and Chair: Amy Searight, George Washington University

Discussant: Leonard Schoppa, Jr., University of Virginia

Keywords: Japan, international political economy, business lobby activities, trade policy, World Trade Organization (WTO), regionalism, legalism.

After decades of continuity in Japan’s mercantilist and U.S.-centric trade policy, Japan in recent years has embarked in strikingly new set of policy directions to promote its trade interests. These changes include its growing embrace of legalism at the WTO in Geneva, its new interest in negotiating bilateral FTAs in Asia, and the slow but steady growth in the use of trade remedies at home. This panel examines the interaction of domestic and international factors that have shaped these policy choices. How significant are these changes for Japan’s economy and the international trade system? Do they represent a sharp departure from the defensive and U.S.-centric trade policies of the past, or are they a continuation of the same goals by other means? What do these policy changes tell us about the changing preferences and relative power of business interests, bureaucrats and politicians in Japan? The papers explore these questions by examining the rise of Japan’s new offensive and defensive trade policies. Searight argues that Japan’s recent turn towards FTAs represents an outgrowth rather than a departure from its earlier embrace of multilateralism and legalism, while Iida argues that weak political commitment and low legal capacity will reverse Japan’s embrace of trade legalism. Naoi shows that domestic interest group pressure has led Japan to use international trade rules for protectionist goals. Also focusing on the role of domestic interest groups to shape trade policy, Davis and Shirato find that industry preferences determine the pattern for initiation of WTO disputes.


Reverse Course or Changing Lanes? Multilateralism, Regionalism, and FTAs in Japan’s Changing Trade Strategy

Amy Searight, George Washington University

Japan’s sudden embrace of an Asia-centered FTA strategy in recent years is usually viewed as a sharp departure from its previous attachment to multilateralism. This policy shift is especially striking given that it is emerging in the wake of a previous dramatic policy change, a shift from bilateral trade management and passive support for the GATT trade system to a far more active engagement in multilateral rule-making and legal dispute settlement beginning in the late 1980s. And indeed the implications of Japan’s new FTA strategy, if successful, are significant for Asian regionalism and the broader trade system. But does Japan’s new focus on FTAs represent a policy reversal of its earlier multilateral embrace? Or is it an outgrowth of that earlier embrace, motivated by similar ideas and interests and designed as a parallel track towards the same set of goals? This paper examines the politics underlying Japan’s new FTA strategy and argues that the new policy focus signals more continuity than change from Japan’s previous policy shift to aggressive multilateralism.


The Rise and Fall of Japan’s Trade Legalism

Keisuke Iida, Aoyama Gakuin University

Japan’s trade legalism, especially that at the World Trade Organization (WTO), has been touted as one of the main features of its new trade strategy. This paper critically examines such legalism and its possible demise or at least hiatus. The WTO’s dispute settlement mechanism is known as one of the most legalized systems at the global level. Consequently, as a response, Japan’s trade strategy became much more "legalized" than that during the previous GATT period. In particular, since the inception of the WTO, it has litigated a relatively large number of disputes against not only minor countries but also against the United States in that forum. In so doing, it has had to incorporate an increasing dose of "legalism" in its trade policy. But does this mean that Japan has become more like the United States or the European Union, which emphasize a great deal of legalism in their trade relations? My tentative answer here is no. In many ways, Japan’s trade legalism has been paper thin. First, its support for the legalized dispute settlement system even during the Uruguay Round was only tepid. Second, its in-house legal expertise is still weak, at least in comparison with its Quad partners. Third, an increasing disillusionment about the effectiveness of the WTO in the disputes against the United States is setting in.


Navigating a Two-Way Street: Global Trade Regimes and Domestic Choice of Trade Policy Instruments in Japan, 1980–2001

Megumi Naoi, Columbia University

While the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) have set uniform conditions under which member states are allowed to adopt protection measures, such as safeguard and anti-dumping measures, the states’ use of these provisions significantly differs among OECD countries. In particular, Japan’s application of these measures deviates substantially from other advanced economies in three respects: (1) the infrequency with which it uses GATT/WTO protectionist provisions; (2) regional biases in the targets of these measures; and (3) its increasing recourse to safeguard provisions instead of anti-dumping measures after 1995. In contrast to dominant claims that a government resorts to international rules for the purpose of enhancing its credibility or to shift blame in order to appease domestic interest groups, I argue that the pattern of Japan’s choice of one policy instrument over another can be explained by different distributional implications of the three policy instruments.

This paper introduces a new data set on Japan’s trade policy choices between 1980 and 2001. The data set covers 103 commodity cases that (1) suffered from a rise of imports and (2) were granted one of three protectionist instruments by the Japanese government—domestic subsidies, voluntary export restraints and the GATT/WTO legal protectionist measures. The data set is analyzed using a conditional logit framework. Conditional logit allows for a government’s utility to vary not only across the commodity cases and time periods, but also across the three policy alternatives. The results of the conditional logit estimation support the distributional hypothesis.


The Corporate Perspective on WTO Adjudication: A Study of Japanese Strategies

Christina Davis, Princeton University; Yuki Shirato, Princeton University

Political lobbying by economic interests is the starting point for most studies of trade policy, but little is known about corporate decision-making. Some firms and industry associations lobby the government, and even make specific policy demands. Others take little political action. What accounts for this variation in the lobbying strategies firms employ in order to solve their trade problems. In this paper, we explore the conditions under which firms and industries lobby their home government to use the WTO adjudication process. Firms must weigh the greater efficiency of informal negotiations against the greater effectiveness of adjudication. While WTO adjudication is seen as costly and slow, a positive ruling is perceived to bring broader benefits in terms of publicity and deterrence against future discrimination. We argue that the nature of an industry’s business environment and market concentration will determine firm preferences over different negotiation strategies. Specifically, firms with a large number of new product lines each year and those with a smaller presence in the global market will try to maximize efficiency through directly lobbying the foreign government or requesting bilateral negotiations. Firms in industries with low product turnover and with a small number of firms will try to maximize effectiveness through advocating WTO adjudication. A strong industry leader also helps firms to overcome domestic collective action barriers and mobilize firms to help pay the costs of supporting a WTO case. We empirically evaluate our argument by analyzing the pattern of WTO disputes initiated by Japan and evidence from surveys and interviews of Japanese business officials.