The Office of Commercial Affairs,
Royal Thai Embassy in Tokyo, Japan
Japan, India To Nix 90% Of Tariffs In 10 Years
TOKYO (Nikkei)--The economic partnership agreement concluded Monday by Japan and India calls for eliminating customs duties on 94% of trade between the two countries.
The agreement, which for Japan has the added aim of checking an increasingly assertive China, is expected to take effect next year. Over the subsequent decade, tariffs will be eliminated on about 90% of Japan's exports to India, which totaled 569.6billion yen last year, and around 97% of India's 344.5 billion yen in exports to Japan.
Japan is looking to ship more autoparts and steel to fast-growing India. India's 10% tariff on Japanese-made fenders and mufflers will be dropped in 10 years, while the 5% levy on hot-rolled and galvanized steel sheet will disappear in five years. The tariff on diesel engines will fall from 12.5% to 6.25% over six years.
Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association, said he hopes the agreement will "help maintain the Japanese auto industry's brisk business in India." The latter country has a free trade agreement with the Association of Southeast Asian Nations. Suzuki Motor Corp. (7269) Chairman and President Osamu Suzuki said he looks forward to a mutually accommodative division of labor in autoparts in Asia, including Japan.
Japan Iron and Steel Federation Chairman Eiji Hayashida, who heads JFE Steel Corp., told a news conference that he is "very optimistic" about the trade deal. JFE Steel, part of JFE Holdings Inc. (5411), plans to export raw steel sheet to India, where it will be finished for sale to Japanese carmakers and other customers.
Goldman Sachs reckons India's economy will grow at an average pace of about 6% a year in real terms from 2011 to 2020. Japanese firms have high hopes for the country, whose growth is being driven in part by a rising middle class.
But the devil lies in the details of the agreement. One problem is the slow schedule for tariff reductions. According to a similar deal between India and South Korea that took effect in January, many products will become tariff-free in as little as eight years.
India secured a hoped-for commitment to fast-track the approval of generic drugs, but the issue of expanding job opportunities was put off. Japan will simplify the visa approval process for Indian information industry workers, but job support for Indian nurses and caregivers could take up to two years to be decided.
Japan now has economic partnership agreements with 12 countries and is aiming to make Peru the 13th. Australia, South Korea, the U.S. and the European Union will move to the top of the agenda after that, but Japan's agricultural products are likely to prove a stumbling block in negotiations. The deal with India excludes Japanese imports of corn, beef and other farm goods from the scope of tariff reductions. South Korea has been able to overcome opposition from farmers to sign free trade agreements with the U.S. and the European Union.
Source:The Nikkei Oct. 26,2010
Farm Lobby Threatens Kan's Free Trade Push
TOKYO (Nikkei)--Prime Minister Naoto Kan's pledge to consider Japanese participation in the ongoing talks on the Trans-Pacific Partnership (TPP) agreement has created a stir within the nation's political community.
The TPP is essentially a free trade agreement among Pacific Rim countries. It is not a brand new trade liberalization framework. It originated in a modest attempt for market integration among four small countries -- Chile, Brunei, Singapore and New Zealand. The trade agreement among them came into effect in May 2006. It was the Obama administration's first Asia-focused trade policy initiative.
U.S. participation has given the TPP strategic importance and enormous gravitational pull as the North American country has a huge market for foreign goods and services. Obama's declaration prompted Australia, Peru, Vietnam and Malaysia to join the talks, increasing the number of participants to nine. Canada and Colombia are also showing interest in taking part.
Diplomatic ripples from Obama's move have spread across the Pacific and grown into a big wave. Being part of a free trade accord with the U.S. as the core member would mean being exempt from barriers to exports to the U.S. Failing to belong would mean continuing to face U.S. tariffs.
If Japan fails to take part in the TPP, Japanese companies will be at a disadvantage with their foreign rivals in exports to the U.S. Japan's economic fortunes depend greatly on its exports. Kan's TPP initiative, announced in his policy speech Oct. 1, makes good sense from the perspective of the nation's economic future.
Great deal to lose
So why is the Kan administration flinching at opposition from some ruling Democratic Party of Japan members and opposition lawmakers? One reason is the scheduled unified local elections next April.
Kan cannot afford to ignore calls from local constituencies to protect the domestic farm market with high tariffs or the growing political clout of the farm lobby and politicians serving agricultural interests.
The TPP is an accord for a high degree of free trade, but would require no immediate and complete elimination of tariffs on all imports. There is room to negotiate on a grace period for eliminating tariffs and exemptions from the requirement.
Moreover, the difference between producer prices of rice in Japan and those in China are smaller than generally believed. It is a myth that the cost of agricultural production in Japan is far higher than the international average.
Raising Japan's agricultural productivity to a level allowing Japanese farm products to be internationally competitive is possible through reform conducted during a grace period for farm trade liberalization. There are also political forces trying to undermine the Kan administration's power by taking advantage of its dithering on the TPP.
The TPP has huge implications for Japan's future since it is related to many key policy challenges confronting the nation, such as how to restructure the domestic agricultural sector, enhance the competitiveness of Japanese exports, strengthen Japan's alliance with the U.S. and fix the government's diplomatic relations with China.
Japan stands to lose a great deal if the government's decision on this issue is based solely on the political power of numbers rather than serious and rational consideration of the initiative's policy merits.
Source: The Nikkei Oct. 27,2010
Farm Leader Opposed To Japan Participating In Trans-Pacific FTA
TOKYO (Kyodo)--A Japanese farm industry leader Thursday reiterated the industry's opposition to Japan possibly participating in a trans-Pacific free trade agreement to lower tariffs on agricultural and other products.
Mamoru Moteki, president of the Central Union of Agricultural Co-operatives, told a press conference that government subsidies to farming families alone cannot prompt farmers to accept Japan's participation in the FTA. Even if a government policy secures income for farming families, such an agreement will allow cheap foreign farm products to flood into Japan and will lead the Japanese farm industry to collapse, he said.
The union, known as JA-Zenchu, will stage a rally of some 3,000 farmers against the trans-Pacific FTA in Tokyo when a ministerial meeting of the Asia-Pacific Economic Forum opens in Yokohama on Nov. 10, Moteki said.
Free trade supporters have urged the government to offer at the Yokohama APEC meetings for Japan to participate in negotiations to join the Trans-Pacific Partnership, which will be built on a regional FTA signed by Singapore, New Zealand, Chile and Brunei.
Moteki also noted Japan's participation in the TPP negotiations may make it difficult for the government to raise the nation's food self-sufficiency rate to 50 percent over the next decade from around 40 percent in 2007.
Source:The Nikkei Oct 28, 2010
Cabinet OKs Extra Budget To Cover Y5tln Stimulus
TOKYO (Kyodo)--The Cabinet of Prime Minister Naoto Kan approved Tuesday a draft supplementary budget for fiscal 2010 to partly finance an additional stimulus package worth some 5 trillion yen, which aims to fight the impact of the recent strength of the yen and kick-start the deflation-plagued economy. The budget plan, which will be submitted to the ongoing Diet session for deliberations, includes the expenditure of 4,429.2 billion yen. Kan, who has championed the restoration of the country's fiscal health, the worst among major industrialized nations, has refused to issue any new government bonds for the extra budget.
The stimulus comes as the second in a series, following the 918 billion yen package approved last month, and highlights Kan's strong resolve to prevent the Japanese economy from falling into a recession while data shows high unemployment, falling prices, weakening exports and sliding industrial output.
The yen has risen to the highest level to the U.S. dollar in more than 15 years despite the government's market intervention conducted last month for the first time in over six years. The strength of the Japanese currency has negatively affected the country's export-oriented economy.
The new stimulus package, revealed earlier this month, focuses on boosting domestic demand while improving the business environment. The extra budget would cover 3,070.6 billion yen in spending to revitalize regional economies, develop infrastructure and offer financial support to small and medium-sized companies.
The 1,123.9 billion yen portion would go to upgrading medical and social welfare services. The government also earmarks 336.9 billion yen to accelerate economic growth through such measures as securing overseas energy and mineral resources, as well as 319.9 billion yen to help young people find jobs by giving incentives to employers.
Source:The Nikkei Oct. 26,2010
Zero Rates Likely Here To Stay For At Least 2 Years
TOKYO (Nikkei)--Zero interest rates may remain in place for two years or longer, suggest consumer price projections in the Bank of Japan's latest Outlook for Economic Activity and Prices report.
"Based on our latest forecasts, we will maintain the zero-rate policy," BOJ Governor Masaaki
Private-sector economists on average expect the consumer price index to rise 0.21% in fiscal 2012, while the new BOJ report projects 0.6%. Since both of these figures fall short of the stable price level, zero rates are not going away anytime soon. The policy "may continue for at least two years," says Yasunari Ueno of Mizuho Securities Co.
In the October report, the BOJ also downgraded its forecast real gross domestic product growth for fiscal 2010 by 0.5 percentage point from the July projection to 2.1%. It downgraded its fiscal 2011 forecast by 0.1 point to 1.8% but sees real GDP growth recovering to 2.1% in fiscal 2012.
Source:The Nikkei Oct 29, 2010
Retail Sales Up 1.2% In Sept; Ninth Month Of Growth
TOKYO (NQN)--Retail sales rose 1.2% on the year to 10.66 trillion yen in September, marking the ninth straight month of expansion, according to preliminary data released Thursday by the Ministry of Economy, Trade and Industry.
Sales at large retail stores, together with department stores and supermarkets, dropped 1.1% to 1.47 trillion yen. Same-store sales fell 1.7%, with those at department stores down 5% and those at supermarkets inching up 0.1%.
Sales at convenience stores climbed 15.1% to 761 billion yen, with both figures the highest since comparable data was first compiled in April 1997. The strong results were attributable to a last-minute jump in cigarette demand before a tobacco tax hike in October.
Same-store sales at convenience stores advanced 12.2%. Notable factors in September pointed out by the ministry include the jump in cigarette demand as well as the end of tax breaks and incentives for purchasing eco-friendly vehicles.
Source: The Nikkei Oct. 28,2010
Japan To Draw Up Social Security, Tax Reform Guideline By Year-End
TOKYO (Kyodo)--The government and ruling parties held the first meeting Thursday of their task force on Japan's social security and tax reforms in a bid to come up with a reform guideline, including how to treat the consumption tax, within this year.
''I would like you to provide a vision on a secure social security system for the next 50 years,'' Prime Minister Naoto Kan told the meeting. The government, the Democratic Party of Japan and the People's New Party plan to invite opposition parties to join talks on the social security and tax reform guideline from next year.
''We should have a framework to form a wide consensus even at cost of much time,'' Chief Cabinet Secretary Yoshito Sengoku, who chairs the task force, told a press conference. Even the government and ruling parties are expected to face difficulty reaching a consensus after Prime Minister Kan's call for a consumption tax hike contributed to the DPJ's serious setback in a House of Councillors election in July. For the immediate future, the task force is expected to refrain from touching on any specific consumption tax hike. Former Finance Minister Hirohisa Fujii told the task force meeting that consumption tax revenues should be set aside exclusively for social security covering pensions, health care, nursing care and birthrate-boosting measures. He chairs the DPJ's panel on tax and social security reforms.
Other participants in the task force include Finance Minister Yoshihiko Noda, Health, Labor and Welfare Minister Ritsuo Hosokawa, DPJ Secretary General Katsuya Okada and PNP Secretary General Mikio Shimoji.
The government is urgently required to secure financial resources for social security now that social security outlays total some 27 trillion yen, accounting for a half of general expenditures, and are estimated to automatically increase by more than 1 trillion yen per year.
Source:The Nikkei Oct 28, 2010
Listed Firms' Pretax Profits Up 80% In July-Sept: Nikkei
TOKYO (Nikkei)--Japanese listed nonfinancial companies' aggregate group pretax profits surge 86% on the year during the July-September quarter, led by auto and consumer electronics makers exploiting growing emerging market demand, according to a Nikkei survey. A total 215 firms -- nearly half the 475 firms that close their books every March and had reported their earnings for the previous quarter by Friday -- posted sales and profit growth.
Driven by streamlining efforts, strong sales in emerging economies and a demand recovery in the U.S. and Europe, all the surveyed firms' aggregate pretax profit reached 98% of the level recorded for the April-June 2008 quarter, the period before the onset of the global financial crisis. It also rose 14% from the April-June 2010 quarter, when profit recovery became noticeable.
By industry, carmakers' combined profits tripled from year-earlier levels, while those of consumer electronics makers quadrupled. The firms in the two industries accounted for 35% of the overall profit gains. Mitsubishi Electric Corp. (6503) posted the highest pretax profit for the July-September quarter since it began to release such data, led by strong sales of factory automation equipment in China.
Honda Motor Co. (7267) benefited from strong motorcycle sales in emerging market economies and a 20% rise in unit sales of sport utility vehicles and other cars in North America.
Panasonic Corp. (6752) saw its domestic sales of flat-screen TVs and air conditioners jump nearly 50% in July-September, helped by hot summer weather and a government program promoting green electronics.
Tokyo Electric Power Co. (9501) saw this summer's heat wave alone boost its revenues 120 billion yen from June onward. Despite the profit surge, many companies remain cautious about the fiscal second half through next March, citing such concerns as the yen's rapid appreciation and the slowing U.S. and European economies. The yen recently broke into the 80 range to the dollar. Against this backdrop, Sharp Corp. (6753) has lowered its earnings outlook for the fiscal year through next March.
"LCD panel prices will continue to fall due to a worsening supply-demand balance," President Mikio
Sony Corp. (6758) is unlikely to turn a full-year profit in its TV business, said a company executive. The 475 companies expect their combined pretax profit will dip 2% on the year during the second half.
Source:The Nikkei Oct. 31,2010
Overseas Projects A Lifeline For Japan Firms
TOKYO (Nikkei)--Burgeoning demand for infrastructure in emerging and developing economies has become vital to the growth of Japanese companies. Projects that provide essentials for living, such as electricity and water, are especially seen as promising as they bring in stable earnings over a long period of time, regardless of the marketing strategies companies adopt.
The recent deal with Vietnam to choose Japan as the country's main partner in nuclear power generation is one example of how an overseas market can give a boost to Japanese industry.
"We will invest 1 trillion yen abroad through 2020," said Masataka Shimizu, president of Tokyo Electric Power Co. (9501), better known as Tepco, when he discussed the utility's medium-term business plan recently.
Tepco has already invested in 10 thermal power plants in six countries, including the Philippines, Indonesia and Vietnam. It is also expanding its wind-power business, acquiring stakes in projects in Britain, the U.S. and South Korea. Tepco now has an overseas generating capacity of 3.53 million kilowatts, based on its equity holdings. That is equal to half the total electricity generated by Shikoku Electric Power Co. (9507).
Tepco is expanding overseas in search of stability and high returns.
In 2009, Tepco had 79.6 billion yen in overseas sales, including electricity production, of which 14.8 billion yen was net profit. It also did well in 2008, raking in a net profit of 10.6 billion yen from 82.9 billion yen in overseas sales.
Most of its overseas projects are funded through project finance. That method does not affect its balance sheet and thus helps foster further expansion.
About a decade ago, Tepco set a target of generating 500 billion yen, or 10% of its total sales, from non-electricity operations, including overseas projects. It launched new businesses, such as selling gas and building houses, but due to sluggish demand in Japan, the target remains unmet.
Look away
Emerging markets are an increasingly important source of growth, even for a utility that was traditionally focused on Japan. A failure to cash in on brisk demand in rapidly growing economies means accepting long-term decline. Touting high quality and stable supply in the domestic market alone cannot ensure growth.
Trading houses, on the other hand, are no strangers to foreign markets. Marubeni Corp. (8002), in partnership with Kansai Electric Power Co. (9503), Kyushu Electric Power Co. (9508) and others, bought Singapore's largest thermal power plant operator, Senoko Power Ltd. It is involved in generating power in 20 countries and is becoming an increasingly important electricity wholesaler.
Besides wholesale power, Marubeni is also involved in water and sewage projects in China and Latin America.
The developing world is finally living up to its label as industries grow and living standards rise. Governments are scrambling to make sure infrastructure keeps up with demand, giving priority to power plants and water systems, rather than roads and ports, but their financial capacity is often limited.
The long haul
Financial arrangements that allow overseas firms to invest in infrastructure over a long period and recoup those investments by charging fees works to the benefit of both sides. Faced with feeble demand in industrialized countries and a glut of capital, companies are flocking to emerging markets. But that does not guarantee they will get deals on favorable terms. To seize growth opportunities, Japanese firms must make the most of their edge, seeking to enhance their expertise in building, operating and maintaining plants and developing their capabilities in training local staff.
Japanese firms' overseas rivals can often outbid them on price. Even if Japanese companies receive orders, doing so by lowballing contracts would prove a pyrrhic victory. China and South Korea offer cut-rate prices, turning infrastructure projects into greater international clout. For Japanese firms to challenge them effectively, public-private cooperation and governmental financial support is urgently needed.
"The government's involvement will help the private sector to reduce intractable risks, such as breach of contract or changes in regulations in countries where infrastructure projects take place," said
Source: The Nikkei Nov 1,2010
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