GMF - The German Marshall Fund of the United States - Strengthening Transatlantic Cooperation

TOKYO — At the same time the cherry blossom season is ending here, the bloom is fading from the Japanese government’s signature international-trade initiative: participation in talks on creating the Trans-Pacific Partnership agreement that now involve the United States and eight other Pacific Basin countries.

Japanese Prime Minister Yoshihiko Noda will meet with President Obama on April 30, and officials here acknowledge that there is now a less than 50-50 chance he will bring concessions with him that would convince the White House to announce formal acceptance of Tokyo’s participation in the negotiations on the TPP agreement.

Moreover, legislation that is about to pass the Japanese Diet would effectively repeal an earlier privatization of the postal service, raising new doubts about Tokyo’s willingness to open its domestic market to greater foreign competition. And continued infighting within the Japanese government over raising the national sales tax and restarting nuclear reactors that were shut down after last year’s earthquake and tsunami have made TPP a lower priority for the embattled Noda government.

In the end, the best hope for Japan’s eventual participation in the TPP talks may be that the December deadline set by Obama for finalizing the deal is unlikely to be met. And Japanese elections, which once seemed imminent, may now slide into next year. These developments could buy time to iron out impediments to Japan’s participation in TPP talks. But Tokyo’s inclusion in the deal, once almost a foregone conclusion, now appears far less certain.

Japanese officials had hoped that during the Noda visit the Obama administration would start the clock running on the 90-day consultation process with Congress, which is required by U.S. law before Japan can officially join the TPP negotiations. But Detroit’s fierce opposition to Japan’s inclusion in the talks means there is little prospect this notification will be sent to Capitol Hill any time soon.

U.S. automakers believe TPP wouldn’t give them any meaningful access to the Japanese market due to Tokyo’s alleged nontariff trade barriers. The American industry wants an end to Japanese currency manipulation, which Detroit argues keeps the yen artificially weak, thereby discouraging imports and boosting exports. The U.S. industry points to huge overcapacity in Japanese automaking and calls for Japanese downsizing comparable to what the American industry has gone through. And U.S. companies note that in the recent U.S.-Korea free-trade agreement, Seoul recognized U.S. safety and emissions standards for up to 25,000 imported vehicles to jump-start imports. A similar gesture by the Japanese would be seen as a mark of good faith.

Officials here say such concessions are not in the cards. “It is out of the question that we would accept U.S. standards,” said one senior Japanese official. “The Koreans made concessions that we will not make.”

Meanwhile, insurance issues suddenly loom as a major obstacle, even though they appeared to be a minor hurdle to Japan’s joining the TPP talks just a few months ago.

By the end of April, the Japanese Diet is expected to approve revisions to the privatization of Japan Post, which sells insurance along with postal services. U.S. firms complain that the revisions will allow Japan’s postal insurance to expand the scope of its business through regulatory exemptions, impairing a level playing field for foreign firms. “The legislation sends exactly the wrong message about regulation that could result in harm to insurance companies regardless of where they are based,” concluded a joint letter of protest signed by the American Council of Life Insurers, among others. The new legislation will only complicate TPP deliberations if Japan is a party to the talks.

TPP opponents here are also raising new questions about Tokyo’s joining the talks. They claim that too many decisions have already been made in the TPP negotiations and Japan’s involvement will be too late to influence the outcome. “Its like the Tokyo subway system,” said one opponent. “Once the doors close, the train leaves the station.”

Opponents here want new restrictions on the American ability to impose antidumping duties. They demand U.S. concessions on government procurement that would limit “Buy American” provisions in current U.S. public spending. And if Japan is to further open its insurance market, they want Washington to curtail state-level insurance regulation that impedes Japanese companies from doing business in the United States. They also worry that the Obama administration’s desire to include rules in TPP that limit the operation of state-owned enterprises—an initiative aimed at Chinese entities—will also curtail Japan’s publicly owned regional electrical and railroad monopolies.

Observers here think that no progress can be made on Japan’s joining TPP until the Noda government resolves the domestic sales-tax issue and the local debate over reopening nuclear power plants. But the longer the TPP decision remains in limbo, the more time opponents will have to raise objections.