An Abe reset

The Japanese ruling coalition’s re-election victory provides a unique opportunity to hit the reset button on the Obama administration’s relationship with Prime Minister Abe. 

The Obama administration’s attempt to reset the troubled relationship with Russia after the Bush administration didn’t go very well.  Perhaps this time it should focus on trade policy. 

{mosads}At the November Asia-Pacific Economic Co-operation (APEC) Summit Obama announced a new trade agreement with the People’s Republic of China (PRC) on information technology.   

The U.S.-PRC trade announcement focused on  a proposed one trillion dollar expansion of the four trillion dollar 1996 World Trade Organization (WTO) Information Technology Agreement (ITA) that might save as much as $15 billion a year in tariffs on trade in the most advanced technological products and boost U.S. exports by as much as $100 billion annually.   

Unfortunately, it did not take long for this proposed agreement to become unraveled.  Other WTO members, such as South Korea and Taiwan, objected to the exclusion of as many as one third of the 300  products that should be included in such a deal.  The obstacle is the PRC interest in protecting its homegrown, often state-owned, equipment manufacturers. 

The Obama administration would be well-advised to support the South Korean and Taiwanese effort to include all new computers, telecommunications equipment, semi-conductors, software and scientific equipment in the ITA expansion over PRC objections. 

But the Obama administration should also begin work on a separate track in the Trans-Pacific Partnership  (TPP) negotiations that would lead to increased growth and prosperity for our closest allies in the Pacific Region. 

Many remember when the Japanese electronics industry was the envy of the world.   

Now the massive Japanese electronics sector faces zero or minimal growth as a result of protectionist Japanese trade policies that have resulted in a so-called “Galapagos effect” of advanced technology in a unique cultural environment unable to expand outside of Japan.   

Japan leads the world in applications such as photography and electronic money, but Japanese companies in a protected home market have been unable to replicate their success in the adoption of international standards similar to that provided by facsimile machines. 

Obama can help.  The United States should insist upon an opening of the Japanese telecommunications market as part of the TPP negotiations. 

Before the Japanese election Prime Minister Abe considered slashing Japanese corporate tax rates to level competitive with China, Singapore, South Korea and Taiwan and to delay a consumption tax hike in an already overtaxed Japanese economy, but those insisting upon fiscal discipline made his effort untenable. 

U.S. trade pressure now could help.

The TPP has many chapters but few deal with traditional trade issues. 

The Obama administration should make rapid progress on traditional sector-specific deals that would garner easy bipartisan support and set the stage for future trade liberalization rather than continuing to rely on a one-time grand trade bargain. 

A TPP expansion of the ITA elimination of tariffs to several hundred new products offers the opportunity for an early harvest of low hanging trade liberalization fruit. 

This would also provide an important incentive for the PRC to go along with a WTO ITA expansion. 

The Obama Administration should follow this success with an effort to reform the antique Japanese NTT Law that provides for NTT market domination of the critical last mile for land lines in Japan.  Just as important it would permit an end to the NTT Law legal requirement that the Japanese government own a third or more of NTT issued shares. 

This outdated requirement is overdue for reform given the Federal Communications Commission approval of the Japanese Soft-Bank acquisition of Sprint. 

Unnecessary ITA tariffs and other protectionist measures hamper progress in substituting telecommunications and its positive impact on reducing carbon emissions related to global warming. 

A TPP expansion of the ITA would provide the basis for the revitalization of the Japanese electronics industry just as a privatization of NTT would provide an alternative source of revenue for long suffering Japanese taxpayers. 

The successful introduction of sector specific TPP market liberalization would promote Prime Minister Abe’s goal of modernization of the Japanese information and telecommunications industries would provide the basis for the export of Japanese technology to the United States and facilitate the wider use of English desired by many Japanese multinationals as U.S. internet companies expand into Japan. 

The continuation of the analog approach of the NTT law would continue a unwise protectionist policy of splendid isolation that might lead to the tragic results of years past. 

A TPP that focuses on market liberalization of the Japanese Internet economy would promote peace and prosperity and secure the Japanese position in the free world.    

This is a time to wish the new Japanese Prime Minister well in this quest and to see if we can help. 

Kirsch is a former FCC and USTR staff official and was a member of U.S. Uruguay Round and NAFTA trade delegations.