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US-China Power Shift and Japanese Foreign Policy

Overview

Leader Takashi Terada (Doshisha University)
Researcher Koji Murata (Doshisha), Rumi Aoyama (Waseda), Hironori Kawauchi (IDB)
Term April 2015 – March 2016
Research Outline

Research Outline (Background, Objectives and Methods, etc)
China’s behaviors and influences in the field of international politics and economy after the 2008 Lehman Shock can be viewed as not merely the rise of an emerging power but of a true superpower. China’s political and military influences have been enhanced by the decades-long two-digit high economic growth with a population of 1.3 trillion, allowing China to become a country whose actions can have an enormous impact on both global political and economic affairs.
The project aims to examine the causal factors behind Japanese new approaches to the rise of China, with a focus on the effect of the changes in the regional structure caused by China’s superpower behavior. This analysis helps trace what impacts China’s policy actions as the regional structural change has on Japan and clarify what Japan has wanted to achieve through pushing for new foreign policy approaches such as its participation in the TPP and the proposal of a proactive pacifism. Characterisation of regional structure is methodologically used as a springboard to considering how Japan, as the agent in this case, interpreted these regional features, and how they were related to the actual impetus behind Japan’s new foreign policy approaches. As neoclassical realists claim, this project also includes domestic level analysis, including the individual policy actions and evolution of policy ideas. The project shall focus on TPP and AIIB as two major case studies.

Report

Leader Takashi Terada (Doshisha University)
Researcher Koji Murata (Doshisha), Rumi Aoyama (Waseda), Hironori Kawauchi (IDB)
Term April 2015 – March 2016
Achievements Outline

Two USJI WEEK Panels were jointly organized by Woodrow Wilson Center, and both panels successfully attracted more than 70 audiences, creating active discussions with panelists in the Q&A sessions. The panels also acted as useful platforms of cultivating the research networks. The first panel (USJI WEEK 1) included Shihoko Goto (Wilson Center), Zhiqun Zhu (Bucknell University), Meg Lundsager (Wilson Center) and Sourabh Gupta (Samuels International Associates), in addition to Terada. The second panel (USJI WEEK 2) included Shihoko Goto (Wilson Center), Kent Hughes (Wilson Center), and Mauricio Mesquita Moreira (Inter-American Development Bank), in addition to Terada.

Takashi Terada, Operating Advisor , USJI / Professor, Doshisha University

Terada (project leaders) also attended a symposium concerning the TPP negotiation and the prospect held in Waseda University in May 2016. He also made a presentation on topics relevant to the project, NUS (Singapore), De Lassale (The Phillipines), ANU (Canberra) in August, followed by Chatham House (London), Dutch Foreign Ministry (The Hague) in November and IFRI (Paris) in February 2016.

In 2015-16, Terada published eight journal articles, book chapters, magazine columns and policy briefs on the topics related to the project in Japanese and English, as detailed in the next section. He final publishes a major policy brief from the USJI Voice, the first issue in 2016-17.

Activity Contents

Terada, Takashi (2016) “Japan and Entanglement of Regional Integration in the Asia-Pacific: Combining Cutting-Edge and Traditional Agendas” in S.B. Dus and M.Kawai (eds.) Trade Regionalism in the Asia-Pacific: Developments and Future Challenges, (Singapore: Institute of Southeast Asian Studies), pp,85-102.

Terada, Takashi (2016) “Japan and Geo-Economic Regionalism in Asia: The Rise of TPP and AIIB”, EAI Issue Briefing, (Soeul: East Asian Institute), 6 February, pp. 1-7.

Terada, Takashi (2015) “Japan-ASEAN Partnership in an Era of Multiple Regional Integration Frameworks” in R. Sukma and Y. Soeya (eds.) Navigating Change: ASEAN-Japan Strategic Partnership in East Asia and in Global Governance (Tokyo: Japan Center for International Exchange), pp.83-98.

Terada, Takashi (2015) “Assessing Abe's Economic Agenda: Abenomics, TPP, and Domestic Politics", ASAN Special Forum, 3 (4)

Relative URL(s)

http://www.us-jpri.org/en/week/feb2016#event7
http://www.us-jpri.org/en/week/sep2015#event4

Policy Paper

Leader Takashi Terada (Doshisha University)
Researcher Koji Murata (Doshisha), Rumi Aoyama (Waseda), Hironori Kawauchi (IDB)
Term April 2015 – March 2016
Title The China-US Struggle Over a New Regional Economic Order

It took five and half years for 12 member states to reach general agreement over the Trans-Pacific Partnership (TPP), which in encompassing 40 percent of the global economy now proposes to emerge as the largest free trade agreement (FTA) in history. Qualitatively, TPP can be viewed as one of the most ambitious FTAs ever. Dubbed the “platinum standard,” the agreement imposes greater tariff concessions and deregulations than afforded by the World Trade Organization (WTO)—WTO-plus provisions—and includes additional economic rules—WTO-extra provisions—, which affect state-owned enterprises, intellectual property, government procurement, and environmental and labor standards. These provisions took shape at the US-chaired TPP ministerial meeting in Atlanta, September 30 – October 5, 2015, where the last-minute efforts of the 12 trade ministers and their staff not only struggled against domestic politics advancing particular interests at the negotiation table, but also accommodated conflicting demands from other parties. The ministers’ final press conference was rescheduled three times, thus extending the total negotiation period from two to six days, which ultimately produced a draft agreement only 20 minutes before the final ministerial meeting was due to begin. Given that China’s slowing economy has hurt the exports of TPP member states such as Japan, Australia, and New Zealand, the recent consensus was desperately needed for these countries’ economic prospects; by establishing common rules for trade and investment in the Asia-Pacific region, TPP expects to catalyze interconnections in pursuit of common economic rules that will ultimately reduce export dependence on China.

Despite a variety of extant economic and security cooperation initiatives in the Asia-Pacific, China has proposed its own regional institutions in recent years, including the AIIB and the Conference on Interaction and Confidence-Building Measures in Asia (CICA) as well as the Shanghai Cooperation Organization (SCO). China also leads the BRICS Development Bank with possibly USD 50 billion in capital and the USD 100 billion–scale Contingent Reserve Arrangement (CRA). In trade and investment cooperation, China has promoted bilateral and regional economic integration; in scale, the most promising initiatives are RCEP with ASEAN and its six dialogue partners, and the China-Japan-Republic of Korea (CJK) FTA—both are under negotiation, but China is expected to engage more seriously towards the conclusion of these deals in response to the TPP general agreement.

A key feature in the US Asian rebalancing strategy is to engage in multilateral arrangements in Asia and the Pacific, and the United States has increasingly resolved to counter the rise of China through an effort to undertake coalition-building with like-minded countries amid the ongoing US-China competition in the region. The decision to implement a coalition-building approach through its participation in TPP was a response to China’s inclination towards East Asian integration through, for instance, an FTA with ASEAN, which became strongly oriented towards developing countries and would contain more exemptions in the form of tariff-elimination duties, with few deregulation requirements that would reform domestic economic systems.

Despite a variety of extant economic and security cooperation initiatives in the Asia-Pacific, China has proposed its own regional institutions in recent years, including the AIIB and the Conference on Interaction and Confidence-Building Measures in Asia (CICA) as well as the SCO. China also leads the BRICS Development Bank with possibly $50 billion in capital and the $100 billion–scale Contingent Reserve Arrangement (CRA). In trade and investment cooperation, China has promoted bilateral and regional economic integration; in scale, the most promising initiatives are RCEP with ASEAN and its six dialogue partners, and the China-Japan-Republic of Korea (CJK) FTA–both are under negotiation, but China is expected to engage more seriously towards the conclusion of these deals in response to the TPP general agreement.[i]

China’s policies towards regional cooperation have comprehensively expanded, especially in South and Central Asia together with India and Russia, as seen by the overlapping memberships. China also expressed its ambition to create a “new Silk Road economic zone” covering these areas, as a potential counterbalance to TPP. Yet, it does not mean that China has entirely escaped from global and regional cooperation where the United States and its allies take their seats. Rather than simply balancing by creating parallel regional concepts, China has preserved its membership in multiple regional cooperation initiatives that sustain cooperation with the United States and even Japan, with which political relations had deteriorated since 2012. Hitherto, the CICA and SCO, at least ostensibly, targeted terrorism, separatism, and extremism, which could be regarded as common threats to security by China, Russia, and India. China’s actions to establish and revitalize regional cooperation could be seen as complementing regional institutions. As the ADB President Nakao Takehiko acknowledged, the ADB can provide about $13 billion in new lending every year, “while Asia needs to spend around $8 trillion on national infrastructure over the next decade to sustain its growth trajectory,” adding, “I understand the reason behind these banks (BRICS Bank and AIIB), so they should be welcomed.”[ii]

These optimistic perspectives should be closely scrutinized. China has aimed through these frameworks to create institutions instrumental in realizing China’s interests or helpful in forging an environment to hamper American and Japanese attempts to realize their interests. Especially, in the field of security, President Xi Jinping’s emphasis on “Asia”[iii] indicates China’s adversarial approach to US intervention in sensitive sovereign issues. Japan and the United States are not members in either CICA or the SCO. Meanwhile, China’s external economic cooperation is more complicated. As RCEP and CJK FTA are regional integration frameworks in which the Chinese way of rule-making attempts to exclude the United States,and could not be simplistically seen as complementary to TPP; it is highly unlikely that China would let these integration frameworks deal with SOEs, for instance, as People’s Daily once acknowledged.[iv] Finally, the BRICS Bank and CRA are increasing China’s political clout, expanding into areas where the global and extant regional institutions have failed to reach.

In short, the upsurge in “new” regionalism in Asia and the Asia-Pacific is a sign of the intensifying Sino-US struggle to shape the regional economic and political order, imposing one’s own sets of norms and rules on regional economic and security agendas. This power struggle has primarily developed around setting standards, not any direct military arms race or trade frictions, as a new way to dominate the regional order-building process. To establish their preferred economic and political rules, the United States and China have employed a coalition-building approach that entails attracting like-minded states and formulating arrangements designed to discourage the other superpower’s involvement. These tactics are intended to support the dominance of one side in standards-setting processes and negate advantages of the other superpower.

The US push for TPP and China’s promotion of AIIB indicate the conspicuous rise of a conceptual competition over economic development and governance. The launch of AIIB may contribute to China’s development model being more popular and gaining more supporters, challenging the US preference for democracy and a market economy. For instance, after the United States suggested that AIIB should “incorporate the high standards of the World Bank and the regional development banks,”[v] Lou Jiwei, China’s finance minister, offered a rebuttal, stating “the West puts forwards some rules that we don’t think are optimal.”[vi] In “The Beijing Consensus,” Halper labeled governance which China has fostered in developing countries “market authoritarianism,” attributing to it a syncretism of capitalism and dictatorship–trade liberalization while keeping at a distance political liberalism and democracy.[vii] The concept inevitably postulates that government should undertake strong interventions in the economy. Bremmer characterizes the concept as China swelling its market to mainly accomplish domestic political goals such as the maximization of national power, and stresses the differences from conventional Western capitalism.[viii]

These views hold open the possibility that the development of AIIB will lead to the proliferation of China’s state-intervening form of capitalism, and that the norm of respecting a free service and investment regime will not be adopted in other integration frameworks such as RCEP. TPP serves as a body on which the United States can rely for emphasizing the values of deregulatory systems in the region. This is the essence of Obama’s repeated statement: “If we don’t write the rules, China will write the rules out in that region.”[ix] With Japan’s economy twice the size of the eight founding participants in the TPP negotiations with the United States, Japan’s entry was viewed as important for the pact’s emergence as the preeminent trade agreement in the Asia Pacific.

According to an optimistic schedule, TPP is expected to launch by 2017 following its ratification by the various member-state congresses. The general agreement reached in the TPP ministerial meeting in Atlanta raised the cost of non-participation in the partnership; outsiders will continually fail to secure maximum trade and investment benefits. This is the crux of strategic significance which Japan and the United States attach to TPP, as China has become more wary of TPP. One lingering question is whether China will seek to join TPP. China’s participation would mean the transformation of TPP into a gigantic economic zone encompassing the world’s three largest economies, which should be welcome by every TPP member state. Transparency concerning business activities in its SOEs, for instance, would be required, thereby levelling the playing field for members’ companies in the huge Chinese market. Froman therefore set the conclusion of a bilateral investment treaty with the United State as a precondition for China’s entry by declaring “it’s a good test case to see whether China is willing and able to meet the high standards that we insist on.”[x] Furthermore, ntry into TPP as a latecomer will also require China to accept all 31 chapters agreed upon by the 12 current member states, including those regarding environmental standards and stronger intellectual property rights, which will leave China little room to introduce national preferences into the agreement’s structure. At this point, however, it is uncertain when China will become ready to commit to TPP’s high-standard agendas.

Since Obama and Abe perceive that China is challenging them in a bid to cultivate a different economic order in the region, as evident in their decision not to join the AIIB, China’s entry into TPP would bring it more benefit than cost. China’s domestic reforms, as seen in the Shanghai Free Trade Zone, in which 18 service sectors, including finance, tourism, and medical care, are being liberalized, can be instrumental in concluding the investment treaty with the United States and promoting its eventual participation in TPP, and altering such adversarial views. With China as a member, TPP could serve as a practical platform, nurturingshared interests, facilitating expanded political dialogue toward reducing differences, and further increasing commonalities regarding economic rules among the three biggest world economies. This is a pragmatic way for realizing the FTAAP concept, which three nations are commonly pursuing as a long-term objective of their trade strategy, conducive to stabilizing the region.

[i] Terada Takashi, “Trade winds: Big Power Politics and Asia-Pacific Economic Integration,” Global Asia, Vol. 7, No. 1, (Spring 2012), pp. 90-95.

[ii] Bloomberg News, May 11, 2014.

[iii] Xi Jinping keynote speech delivered at 4th CICA Summit, May 21, 2014.

[iv] People’s Daily, March 2013.

[v] The Guardian, March 12, 2015.

[vi] China Spectator, March 23, 2015.

[vii] Stefan Halper, The Beijing Consensus: How China’s Authoritarian Model Will Dominate the Twenty-First Century, (New York: Basic Books, 2010)

[viii] Ian Bremmer, “State Capitalism Comes of Age: The End of the Free Market?,” Foreign Affairs, May/June 2009..

[ix] The Wall Street Journal, April 27, 2015.

[x] The Wall Street Journal, October 15, 2015.

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