Japan Alone May Gain From Free-Trade Zone

The Japan Automobile Manufacturers Assn. is making a strong pitch for Japanese membership in the 9-nation Trans-Pacific Partnership, a regional free-trade bloc seen by many as the forerunner to an Asia/Pacific free-trade zone.

The cover on a new JAMA brochure claims boldly that “Free Trade is Good for Everyone,” followed by “Making the Trans-Pacific Partnership a Win-Win-Win for All Member Countries.”

Multilateral talks to enlist more Eastern and Western Pacific Rim countries as TPP members are under way, but nothing has been settled yet.

Both U.S. President Obama and Japanese Prime Minister Yoshihiko Noda are pushing for a broader, regional free-trade bloc to boost their countries’ exports, despite serious misgivings about fairness and autonomy on both sides of the Pacific.

U.S. opposition to more liberal Asia/Pacific trade is strong among auto makers, suppliers and labor unions, all fearful of deeper foreign inroads into the domestic market. In Japan, industrialists seeking new markets and better access to old ones are heartily in favor, but farmers are furiously opposed, certain that imports will bury their subsidized products.

The JAMA brochure indicates no such misgivings, claiming that “TPP-enabled free trade will bring major benefits to consumers through more diversified market choices.”

Among the benefits cited by JAMA are increased exports from the U.S. to TPP member countries and a boost in employment and the U.S. economy. The Japanese auto makers’ group also notes proudly that it has become an integral part of the U.S. auto industry, with nearly 70% of the Japanese vehicles sold in the country made in North America.

JAMA claims its members had invested a combined $34 billion in the U.S. by 2010, when 2.56 million vehicles were produced, $43.1 billion was spent on U.S.-made auto parts and 407,500 U.S. workers were employed by Japanese auto makers and their dealers.

“Unsubstantiated claims have been made that Japan’s market is closed to imports,” the JAMA publication states. “On the contrary, Japan’s auto market is completely open to other countries’ products. No restrictive customs or other regulations apply to imported vehicles.”

That may be true, but history shows foreign auto makers’ import opportunities in Japan have been limited.

Not a single foreign-owned automotive assembly plant has ever operated in Japan. Imports, present and past, have played a minor role in the domestic market, with sales peaking in 1996 at 454,108 units, representing 6.4% of the 7 million vehicles sold that year.

Sales of imported vehicles in Japan have declined steadily along with overall domestic demand. Deliveries of 275,644 units in 2011 yielded a market share of 6.5%, virtually unchanged from 15 years earlier.

Moreover, total import shares have been routinely inflated each year by products from Japanese plants abroad; the 69,787 sales recorded in 2011 reduced the truly foreign share to 4.8%.

The automotive-import leader in Japan last year was Volkswagen, with sales of 50,635 cars, followed by Nissan with 50,269. BMW, Mercedes-Benz, Audi and Toyota were next; the six auto makers combined accounted for more than 85% of total imports.

“European manufacturers mainly launched new models that combined engine downsizing and newly developed transmissions, pursuing environmental performances while not sacrificing the fun of driving,” says Chairman Roland Kruger of the Japan Automobile Importers Assn.

U.S. brands never have captured much attention in Japan, selling no more than a few thousand cars annually and claiming a share of under 1% in each of the past 13 years.

What may diminish any new foreign enthusiasm for importing into Japan is the sorry state of a domestic economy that basically has been stagnant for the past two decades.

Economic growth in recent years has been low and even negative. The Japanese government’s debt is twice the size of the economy, and a record high yen has become a burden. The population is aging rapidly, the workforce is shrinking and deflation has been inhibiting consumer spending for more than two decades.

Even so, JAMA members believe participation by Japan, still the world’s third-largest economy, is “key to the role of TPP” and will contribute to the development of rules “that promote free trade, open investment and the protection of intellectual property rights, among other benefits.”

At present, it is not clear whether an Asia/Pacific free-trade area that includes Japan and other newcomers will emerge from amid the controversy.

Current members are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the U.S. and Vietnam. Canada and Mexico have shown interest, while China and South Korea are prospective members as well.

Whatever happens, a regional tariff-free trading bloc would be an unlikely “win-win-win” for everyone, since each member’s unstated though obvious objective is a better trade balance with more exports than imports – hardly a real-world possibility.

Obama, Noda and the Japanese auto makers may get what they want. But as vehicle sales keep dwindling in Japan and production continues shifting overseas, foreign car companies may find Japan looking like a one-way street leading out, not in.