Fran O'Sullivan: Japan keen to kick off free trade game

Japan is changing was the message that top Japanese business people wanted to impress on their New Zealand counterparts in Tokyo last weekend as the Kiwis turned up in force for "some rugby diplomacy" and more chin wagging on free trade.

There was a frisson of excitement among senior Japanese players at two bilateral business soirees which took place in the run-up to the historic Bledisloe Cup match.

The toppling of Japan's long-term "natural party of Government" - the Liberal Democratic Party (LDP) - has provided an opportunity for Prime Minister Yukio Hatoyama's new Japanese Government to slaughter a few sacred cows and to start doing something about the sclerotic nature of the Japanese economy.

But, the business players' appetite for change is over-laden with considerable concern that Hatoyama - who has staked out an ambition to provide an "economy for the people" - has yet to provide a roadmap spelling out just how his Government will keep its campaign promises and rein in snowballing debt that threatens to engulf a fragile economic recovery.

The issue is clearly so top-of-mind for Japanese businesspeople that the question of whether Japan should embark on the type of big-ticket economic reform programmes which took place in New Zealand in the mid-1980s and early 1990s, like central bank independence, was seriously mooted.

But it wasn't Labour's Sir Roger Douglas nor National's Ruth Richardson who were the subjects of Japanese awe. But those well-known economic reformers David Lange and Jim Bolger.

Hatoyama has fingered the Japanese bureaucracy as the villains in a subversive ring which has repeatedly stalled significant economic reform, including any full-blooded attempt to talk free trade deals with New Zealand.

At the Japan New Zealand Partnership Forum, a well-crafted signal was sent that last year's attempt by former Prime Minister Helen Clark to seriously explore an FTA with then Prime Minister Yasuo Fukuda's Government was considered a done deal by both political leaders that stalled once powerful Japanese officials decided it was a waste of space tackling vested interests in Japan's agriculture sector.

This time round Prime Minister John Key also found a willing partner in Hatoyama as he used an official state visit to renew Clark's seduction effort.

It is notable that the pair have "instructed" a Japan New Zealand officials group to "deepen discussions in a constructive manner to take the partnership forward".

Even more instructive is that Hatoyama has issued an instruction to officials from Japan's Ministry of Agriculture to join the formal working group.

It is no accident that New Zealand Inc decided to leverage last Saturday's historic Bledisloe Cup match as the vital timing for the latest attempt to seduce Japan into opening free trade negotiations with New Zealand.

There were plenty of protestations on the ground (of course) particularly from Murray McCully who clearly had a case of "political Tourette's Syndrome" as he swiftly shifted emphasis among his three prime portfolios: foreign affairs, sports and the Rugby World Cup, performing to diverse audiences ranging from his foreign minister counterpart through to business people, foreign correspondents and rugby fans and officials.

But NZ Inc - like its Japanese counterparts - knew their dual-purpose focus.

John Key - who was clearly leading the NZ Inc charge - clearly struck an accord with Hatoyama based on their relative newness as prime ministers.

In "Michelle and Barack" mode, the two political leaders hammed it up for the cameras with their respective wives getting in on the important action such as pinning a silver fern broach on the Japanese PM's lapel.

Japanese businesspeople were also delighted to be given All Black scarves and other rugby paraphernalia.

Simple things, like the fact that Japanese and New Zealand businesspeople got to their feet at one occasion to do "the Tokyo dance" was a signal that barriers are coming down.

But the salient point from a New Zealand business perspective is that Hatoyama went out of his way to make sure that the Kiwi business delegation was made welcome by ensuring personal messages were delivered on his behalf at both the forum and the adjoining 36th meeting of the Japan New Zealand Business Council.

Japan faces difficult challenges: It needs to boost its current low level of outward and inward foreign direct investment; it also wants to develop more overseas markets for its service industries, invest in emerging economies and promote operational businesses offshore.

From a Japanese perspective, New Zealand is already partnering Japan in diverse sectors ranging from forestry to fishing. It has advantaged itself well by investing into primary sectors then controlling the supply chain through to market.

But New Zealand needs to keep on ramming home the point that Japanese tariffs on NZ dairy products (25-245 per cent), meat (50 per cent) and Kiwifruit (6.4 per cent) damage NZ companies' profitability.

Time for some quid for Japan's quo.

In reality, Japan's economic growth prospects are currently languid at best. The Japan External Trade Organisation has factored in growth of just 1.3 per cent of GDP for next year.

But Hatoyama - who wants to put on a more brave front when Japan hosts Apec next year - is promoting an East Asian Community as a mechanism to unite Asia.

Professor Yorizumi Watanabe believes Japan should simply sign an FTA with New Zealand as the first step towards building that high quality economic community.

Others suggested the focus should be on Asia's major democracies: Japan, India, New Zealand and Australia, which share common values.

Watanabe believes the business sectors of both countries should simply get on and fund their own joint study to put more pressure on the bureaucrats.

The absurdity of Japan holding free trade negotiations with Australia (but not New Zealand) was also the subject of detailed analysis.

One forum attendee focused on the fact that Australia exports many more agricultural products to Japan on a quantitative basis than New Zealand. Which country presented the largest threat to Japan's vested interests?

But basic issues like Japan's need for food security are likely to have more internal pull in the long run.

The important takeout of NZ Inc's Tokyo onslaught is that preliminary FTA talks are on the agenda again; Key and Hatoyama can do business.

And exciting for a country that will host the 2019 World Rugby Cup - the All Blacks thrashed the Wallabies.

* Fran O'Sullivan participated in the Japan New Zealand Partnership Forum.