Repeal of the Rice Laws in Japan :
The Role of International Pressure to Overcome Vested Interests
Christina Davis and Jennifer Oh
Princeton University
Abstract: Agriculture has long been one of the most protected sectors in advanced industrial democracies. The rural biases of electoral systems, high organization by farmer interest groups, and an autonomous policy community have allowed agriculture to resist reform efforts. Over the past decade, however, major policy changes have begun to introduce market principles and partial liberalization. We examine this process in the case of Japan, which has among the highest levels of agricultural protection. Political changes, budget constraints, consumer demands, and international pressure all pushed for a major overhaul of Japanese agricultural policies, but international pressure was necessary to produce substantive reforms. We highlight the role of international agreements to bring domestic reforms in policy areas with strong vested interests.
Christina Davis () is Assistant Professor of Politics and International Affairs at Princeton University, Jennifer Oh () is a Ph.D. candidate in the Department of Politics at Princeton University.
Introduction
The repeal of the Corn Laws in 19th century Great Britain represents the classic example of a shift towards specialization for comparative advantage and support of free trade. Most countries, however, have been unable to undertake such policy reversals, and have increased protection for their declining agriculture sectors in the process of industrialization. Japan stands out as a rich industrial state that cannot abandon its agricultural roots even when its small-scale farms require massive government subsidies to survive. Nevertheless, a series of reforms have occurred in the past decade. The ‘rice laws’ that formed the core of Japanese agricultural protection were repealed in part, and replaced with a new support system that is more complementary with existing international frameworks.
What explains the ability to achieve reform in sticky areas such as Japanese agricultural policy? Pressures on Japan to reform its agricultural policies come from several sources: political change, economic constraints, public opinion, and international trade negotiations. While all of these sources generate pressure for policy reform, only international trade negotiations bring external monitoring of implementation. We argue that external monitoring is essential to reform policy areas with strong vested interests. Therefore we expect to see the most substantial change where reforms represent compliance with international agreements, and expect less change in areas where reforms are largely domestic in origin.
This is an important question for evaluating the impact of trade agreements on domestic policy. Increasingly, trade negotiations focus on “behind the border” measures, but debates about the effectiveness of international trade rules still focus on trade flows and border policies.[1] Our purpose is to evaluate whether trade agreements that reach behind the border have achieved substantive reform. Thus our focus is on the post-negotiation phase when states change domestic laws in order to comply with international agreements that reach deeply into existing policy regimes.
We evaluate our argument through an analysis of the pressures on Japanese agriculture and the reforms of the past decade. By connecting specific factors with different goals and reform policies we attempt to distinguish between domestically-driven and internationally-driven reform. Research on retrenchment in the agricultural protection policies of the United States and Europe during the 1990s has highlighted the role of a shift in political ideology, changes in farm group interests, and international pressure.[2] We examine the role of similar pressures in the Japanese reform process on outcomes such as cost reduction, structural adjustment, food self-sufficiency, and liberalization. While reforms have achieved moderate structural adjustment where domestic and international pressures overlap, the domestic demand to increase self-sufficiency has produced little results. Likewise, budget pressures have failed to reduce the amount of compensation given to farmers. In the area of liberalization, however, Japan has complied fully with its commitments under the international agreement in terms of changing border protection measures, increasing market access, and reducing the trade distorting form of domestic subsidies. These findings fit with our expectation that reform policies subject to international monitoring would be more likely to produce substantive results than those based primarily on domestic pressures.
In Section 1 we review the Japanese policy context and present our argument about the role of international pressure to bring domestic policy reform. In Section 2, we compare four different pressures for reform and connect them with expected policy changes. Then in Section 3, we evaluate the policy outcomes and analyze how the variation reflects the level of external pressure. We offer conclusions in Section 4.
Section 1. Explaining Reform in the Presence of Vested Interests
Looking at the market orientation of agricultural policies, a simple breakdown categorizes four kinds of reform in terms of the direction and degree of policy change: 1) increase state intervention in markets, 2) maintain the status quo, 3) modify the level and form of protection, or 4) end state intervention in markets. We find that Japan’s past decade of agricultural policy reforms represent the third case as policy instruments were changed and moderate liberalization occurred.[3]
The agricultural sector of advanced industrial democracies represents a hard case for market-oriented reforms given the strong demand for protection. As an import-competing sector with low mobility, political economy theories predict that agricultural interests will be harmed by free trade and favor protection. Theories of collective action suggest that narrow interests with strong incentives will organize effectively to influence the political process.[4] Once established, domestic institutions will have considerable stickiness that prevents reforms even after changes in the underlying interests.[5] Cross-national evidence shows that as the agricultural sector weakens, it is likely to receive more protection.[6] Indeed, the rapid decline of comparative advantage for Japan’s agricultural sector during Japan’s post-war economic boom led Japan to increase its agricultural protection at a faster pace and to higher levels than other industrial countries. Honma calculates that over the period from 1955 to 1987, the nominal rate of protection across major agricultural commodities (a measure of the difference between domestic and border prices) rose from 18 to 151 in Japan, which was a sharp increase compared to France (rising from 33 to 81) or the United States (rising from 2 to 23).[7]
The policy context for Japanese agriculture represents a classic example of iron triangle between interest group, politicians, and bureaucracy. Mulgan comprehensively documents the closed policy community dominated by the centralized producer group N ō ky ō (Japan’s Association of Agricultural Cooperatives), special interest politicians – the n ō rinzoku (agriculture tribe), and interventionist bureaucrats in the Ministry of Agriculture, Forestry, and Fisheries (MAFF).[8] Virtually all farmers belong to N ō k y ō , which lobbies actively through petitions, demonstrations, and campaign mobilization in support of its demands for more subsidies and less liberalization. As a powerful vote gathering machine, N ō ky ō has often succeeded in electing their members as politicians.[9] The fact that politicians on the agriculture committees of the ruling Liberal Democratic Party (LDP) Policy Affairs Research Council outnumber any other policy area is one sign of politicians’ concern to serve their farmer constituencies.[10] MAFF works closely with N ō ky ō and the n ō rinzoku, both to preserve the farming sector that justifies the ministry’s existence and to maximize its budget and authority. Mulgan describes how the legal foundation of agricultural policy includes an establishment law granting MAFF broad discretionary authority and specific laws and ordinances that provide tools for intervention (e.g. requirements for permits).[11] Similar patterns of close ties between politicians, bureaucrats, and farm groups are observed in the United States and Europe.[12]
The agricultural policy community composed of N ō ky ō, n ō rinzoku, and MAFF has remained autonomous from the demands of outside actors. The formal policy process often includes representatives of other interests, but their recommendations have little influence. For example Schwartz documents that the rice price council, which included scholars and representatives from consumer, producer, and other societal groups, carried little weight in a decision-making process dominated by coordination among N ō ky ō, n ō rinzoku, and MAFF.[13] Expert commissions on economic reform have recommended agricultural restructuring and liberalization to no avail. Likewise, the widely discussed tendency for each ministry to exercise exclusive control within its jurisdiction is readily apparent in agricultural policy. A senior MITI official commented that since agriculture was a “MAFF area,” the trade ministry could not directly pressure MAFF on agricultural liberalization.[14]
MAFF policy autonomy allows the ministry, with the active support and cooperation of its partners N ō ky ō and n ō rinzoku politicians, to reduce the impact of reforms through delayed targets, side payments, and other measures. This creates the risk that reform from above will be eroded through resistance from below. On the one hand, the senior political leadership holds monitoring mechanisms, such as the threat to pass new statutes with more specific instructions or to intervene in personnel appointments, that limit the degree to which policies deviate from the intention of legislation.[15] Yet these threats lack credibility when confronting vested interests closely tied to the electoral fortunes of the party, such as farmers.
International institutions serve a monitoring function that substitutes for weak domestic monitoring. In this case, the WTO offers robust enforcement of commitments through provisions for transparency and litigation against violations. Member state governments are requested to file notifications of their policy measures (i.e. tariff changes, spending for agricultural subsidies), and their policies are reviewed periodically by the Trade Policy Review Mechanism, in which the WTO Secretariat writes a report that is discussed in a “peer review” process by all WTO members. Under the Dispute Settlement Understanding, states submit complaints for formal third party adjudication against any suspected violation of treaty commitments. The normative pressure to comply with international law is backed up by the threat to withdraw concessions (de facto sanctions). The value of gains from cooperation and concern for international reputation make states reluctant to violate their commitments. In short, the WTO has brought teeth to enforce international trade commitments.[16]
The literature on two-level games has already documented how domestic constraints influence international negotiations in terms of the bargaining outcome.[17] Governments can increase their leverage vis-à-vis foreign governments through delegation to a domestic veto actor[18], and international constraints shape domestic interests.[19] Calder shows Japanese economic policy to be reactive to foreign pressure, and the notion that gaiatsu (foreign pressure) is necessary to change Japanese policy has become conventional wisdom among scholars and practitioners.[20] Subsequent research addresses conditions under which gaiatsu is more effective[21], and how specific international mechanisms interact with domestic politics.[22] Most of these studies, however, focus on the agreements negotiated and their ratification.
Here we suggest that international monitoring of compliance introduces a two-level game at the implementation stage.[23] We offer further empirical evidence to support Staiger and Tabellini’s insight that international trade rules operate not only to resolve commitment problems between states, but also to resolve commitment problems between a government and domestic actors.[24] International institutions provide a new policy tool for leaders who must restrain a policy community that has long received discretion over policy decisions. The external monitoring function prevents backsliding on international commitments even where domestic credibility problems would be expected to be high due to the strength of domestic opposition.
This produces two observable implications. First, although vested interests will delay accepting international commitments, they will not cause compliance failures. Second, we expect that policy reforms subject to international monitoring will have greater impact than policy reforms with only domestic origin.
Section 2. What pressures for reform?
Post-war land reform initiated the predominance of small farmers that we continue to see in Japan today. Inefficient farms make agriculture a small source of revenue for farmers and a small share of production in the economy. Agriculture accounted for 2.7 percent of the GDP in 1987, dropping to a mere 1.3 percent in 2004.[25] Given the predominant trend of part-time farmers, on average Japanese farmers only receive eight percent of their total income from farm production.[26] Yet, tax benefits and strong attachment to their farmland lead farmers to demand continued support from the government in order to sustain their farming way of life.
The 1990s brought to bear a combination of domestic and international pressure on Japanese agriculture. At the domestic level, farmers confronted political changes that could upset their position as a favored support group of the leading party. In a period of tight budgets and as a declining industry, economic conditions were also unfavorable. Consumers and farmers raised new demands for food security. At the international level, trade negotiations urged liberalization of markets and reduction of trade-distorting subsidies. In this section we will analyze each of these four pressures for reform in terms of the policy goals and reform proposals being advocated.
1. Political change
The 1990s have been a decade of major political changes in Japan, and many of the changes have had the potential to reduce the influence of agricultural interests. First, the onset of coalition governments since 1993 ended LDP monopoly rule. Farmers and rural districts were historically a core base of the LDP. The rise in influence for parties such as the K ō meit ō and Minshut ō (Democratic Party of Japan) that rely on urban voters could introduce new pressures for agricultural reform. It is unclear, however, whether political instability would make the LDP more or less dependent on its farmer base. Calder argues that during periods of political crisis, the government was more likely to provide compensation spending for farmers.[27] Davis finds that the LDP was less likely to accept agricultural trade liberalization agreements when it was politically weak.[28] Moreover, political parties in Japan share a strong consensus favoring the need to support Japanese farmers. Rather than differentiating themselves from the LDP as an urban party, there appears to be continued competition among opposition parties for farmer votes. Today, the Minshut ō is vying for rural votes by calling for a more generous definition of farmer’s qualification for government income subsidies than the LDP.[29]