Policy Update 018 Pre-event Interview No.3

What Stance Should Japan Take in the Doha Round Agriculture Negotiations?

ISHIKAWA Jota Faculty Fellow, RIETI/ Professor, Graduate School of Economics, Hitotsubashi University

The recent RIETI Symposium, entitled "Prospects for the Doha Round: Major Challenges in the Multilateral Trading System and their Implications for Japan" examined key issues facing the WTO from the following four perspectives: 1) the relationship of the multilateral trading system to the regional trade liberalization agenda; 2) functioning of the WTO system; 3) domestic processes of trade policymaking; and 4) global governance. In the third of our series of interviews with key participants in the Symposium, we spoke with RIETI Faculty Fellow Jota Ishikawa about the stance Japan should take in the Doha Round, particularly in the agriculture negotiations, and how the BRIC countries are likely to influence the round.

Dr. Ishikawa served as Post Doctoral Fellow at Department of Economics, University of Western Ontario (1990-91); Assistant Professor (1991-94) and Associate Professor (1994-2001) at Faculty of Economics, Hitotsubashi University. He was also Visiting Scholar at Department of Economics, University of Colorado at Boulder; and Faculty of Commerce & Business Administration, University of British Columbia; and Visiting Professor at Bocconi University. His research interests are in international trade theory. He received his Ph.D. in Economics from University of Western Ontario in 1990. His major works include "Greenhouse-gas Emission Controls in an Open Economy"(with K. Kiyono), International Economic Review (forthcoming); "Trade Liberalization and Strategic Outsourcing" (with Y. Chen and Z. Yu), Journal of International Economics 63, 2004; "Rent-shifting Export Subsidies with an Intermediate Good" (with B. J. Spencer), Journal of International Economics 48, 1999.

RIETI: If negotiations for the Doha Development Agenda (DDA) are carried to a successful conclusion, what benefits will it bring to Japan? What do you think Japan should concede in exchange for such benefits?

Ishikawa: As the Japanese economy is based on international trade, successful negotiations will surely bring great benefits to Japan. I think trade negotiations should be carried out, in principle, on a multilateral basis. At present 148 nations are members of the World Trade Organization (WTO), and foreign commerce among the member countries accounts for 90% or more of all international trade. Accordingly, if nations reach an agreement through the DDA negotiations and succeed in establishing some rules, Japan will enjoy great benefits. As the negotiations are carried out on the basis of reciprocity, one of the WTO's most important principles, Japan should not simply make unilateral demands. It should give something as well. Other countries will certainly seek greater access to Japan's agricultural market, and the extent to which Japan makes concessions to develop a multilateral framework will be important.

Of the "Singapore Issues," competition, investment, and transparency in government procurement are not being dealt with in the Doha Round, although Japan has an interest in all three of these issues, especially investment. If the Doha Round concludes successfully, however, these issues can be put on the agenda for the next round. Japan might have to offer some concessions this time, in the area of agriculture, for instance, to bring the negotiations to a successful conclusion. Then issues such as investment and competition polices may be discussed at the next round, which will mean tighter discipline and ultimately more benefits for Japan.

RIETI: There are conflicts in WTO agriculture negotiations between exporting and importing nations, and between developed and developing countries. What common medium- and long-term interests do they share?

Ishikawa: Finding common interests between these diverse groups is quite difficult, but I suppose their biggest common interest must be the multilateral free trade system itself. If members can reach an agreement through agricultural negotiations and the system can be maintained, it will be favorable to all. As you said, countries are taking different stances. There are now three issues that loom largest. The first is market access. Because Japan imposes high tariffs on rice, konnyaku (devil's tongue) bulbs, and other products to protect domestic farmers, Japanese markets are difficult for overseas producers to enter. There is a problem of market access, and this problem originates with importing countries.

Another problem lies on the side of exporting countries. Many exporters provide considerable export subsidies to allow their agricultural products to be sold on the most favorable trade terms possible. Export subsidies have been allowed for agricultural products under an exception to WTO rules, but countries are now talking about how these export subsidies can be reduced.

The final problem common to both exporting and importing nations is domestic support for agriculture such as agricultural subsidies and other forms of domestic support.

These problems are quite complex. When we speak of "agriculture problems," some may think of Japan's market access issues, while others may think of export subsidies. We need to fully understand the different positions among member countries. The structures of conflicts are also diverse. There are conflicts between exporting and importing countries, between the Cairns Group and importers such as Japan and Korea, for example. There are also disagreements among exporters. Developing and developed countries also have different ideas about domestic support. These conflicting interests must be well balanced to facilitate the smooth functioning of the international trading system. This will serve in the interests of all countries.

RIETI: The government of Japan has decided to object to the introduction of a "tariff cap," or upper limit on duties, because of concerns about the effects of such a cap on rice and other items on which higher tariffs are imposed. What do you think of this decision?

Ishikawa: Rice is a politically sensitive product for Japan and other nations have similar issues, so there is a consensus that consideration must be given to sensitive products. But problems occur when one country makes excessive demands. Is it really necessary for Japan to impose tariffs of 490% on rice, or 990% on konnyaku bulbs? Japan's insistence that such high tariffs be maintained will obviously make negotiations difficult. This was apparent at the Cancun ministerial meeting of the WTO. The European Union, the United States, and Japan seemed at first to be working in cooperation to negotiate a compromise with developing countries. However, while the United States and the EU strengthened their cooperation, Japan, which was tied down by agricultural issues, was kept completely out of the loop, with the result that the negotiations completely broke down in the end. Some agricultural lobbies claimed this was actually a strategy. There may be others who actually saw this outcome as a "success." But for Japan's overall trade interests it was an unfavorable result. Japan was actually slighted as its interests were ignored (the "Japan passing" phenomenon), and this in turn allowed Brazil, China, India, and others to rise. If other countries come to believe they can gain no concessions from Japan regardless of how much they negotiate, this will be dangerous for Japan because its bargaining power might weaken. Some may oppose the tariff cap for political reasons, but they should think more carefully about the losses that will be incurred if Japan refuses to compromise. Politicians who ignore these costs may rightly claim that they are defending the interests of Japanese farmers, but they can hardly claim to be promoting or securing Japan's national interests in the international community with such a stance.

RIETI: The BRIC countries (Brazil, Russia, India, and China) have recently achieved such remarkable economic growth that the structure of the global economy may change. How will the Doha Development Agenda negotiations be influenced by these four countries?

Ishikawa: First, it is said that Russia will be admitted to the WTO soon, but it is not a member yet. If the DDA negotiations go smoothly, the talks will be completed next year. If that happens, it is unlikely Russia will be among the players as it probably will still not be a member by next year. But in fact the Doha Round negotiations are expected to be prolonged, as happened in the Uruguay Round. There is little chance the negotiations will come to a conclusion next year. Ministers are scheduled to meet in Hong Kong in December 2005, where it is hoped they can reach an outline agreement. This month will be crucial in working toward that end. By the end of July, ministers are expected to have prepared some rough schemes for discussion at the ministerial conference in Hong Kong, and they hope to be able to reach a conclusion next year. But experience suggests that it will be difficult to maintain this schedule. If the negotiations drag on, Russia may be able to take part.

Second, each of the four countries has different interests. Brazil, for instance, is a member of the "Friends of Anti-Dumping Negotiations," a group of countries concerned about abuse of anti-dumping measures that is seeking to tighten the WTO's anti-dumping agreements. Brazil is thus working actively to strengthen anti-dumping regulations. India and China, on the other hand, are not as active as Brazil on this issue.

The BRIC economies, as seen in this case, have different interests. However, they may have a chance to develop certain common interests as well. For example, as I said before, if Japan's demands are too strong, it might be relegated to a weaker position, which would give the BRIC economies a more influential voice. If the BRIC economies succeed in building a consensus among developing countries before negotiations with developed countries begin in earnest, it will be advantageous for them because their bargaining power will increase. And as I mentioned earlier, of the three Singapore Issues, competition, investment, and transparency in government procurement are not on the agenda. Developing countries and developed countries are in dispute over these three issues. There is a chance, therefore, that the BRICs will get together at a future round.

The four countries, however, have their own interests. Accordingly, they could disrupt the Doha Development Agenda negotiations, or they could create a nucleus that draws in other developing countries around a common negotiating position. It is hard to predict how they will behave. It is especially difficult to forecast the actions Russia will take when it is admitted to the WTO. Due to its non-market economy status, China has been subject to discriminatory treatment since it joined the WTO. It is in China's interest to end this discrimination, and it is striving to do so. I must repeat that the BRICs do not necessarily have common interests. They may come together or split, depending on the issue. The outcomes will depend on the kinds of coalitions they form.

>> Original text in Japanese

Interview conducted by Takako Kimura, online editor, on July 11, 2005.

August 5, 2005

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