Japanese Law and the Asia-Pacific

Imagine an international regime with these institutional features:

1. Virtually free trade in goods and services, including a "mutual recognition" system whereby compliance with regulatory requirements in one jurisdiction (eg qualifications to practice law or requirements to offering securities to the public) basically means exemption from compliance with regulations in the other jurisdiction. And for sensitive areas, such as food safety, there is a trans-national regulator.

2. Virtually free movement of capital, underpinned by private sector and governmental initiatives.

3. Permanent residence available to nationals from the other jurisdiction (and strong pressure to maintain flexible rules about multiple nationality).

4. Treaties for regulatory cooperation, simple enforcement of judgments (a court ruling in one jurisdiction is treated virtually identically to a ruling of a local court), and to avoid double taxation (including a system for taxpayer-initiated arbitration among the member states).

5. Government commitment to harmonising business law more widely, eg now for consumer and competition law.

No, the answer is not the obvious one: I am NOT talking about the European Union (EU). I am referring to the Trans-Tasman framework built up between Australia and New Zealand, particularly over the last decade, sometimes through treaties (binding in international law) but sometimes in softer ways (eg parallel legislation in each country). And since both countries are actively pursuing bilateral and now some regional Free Trade Agreements (FTAs), especially in the Asia-Pacific region, can't at least some of these Trans-Tasman initiatives become a template for a broader "Asia Pacific Community"?

This question is particularly timely as the new DPJ-led government in Japan, has declared its support not only for the WTO system but also for FTAs, particularly in the Asian region. It also advocates improvements in food and consumer product safety measures. Whether or not Australia is considered part of Asia, either by Japan or itself, the two countries are continuing bilateral FTA negotiations in the context of growing involvement in regional arrangements in the Asia-Pacific region. Such developments constitute one theme at the NZ Centre for International Economic Law conference, “Trade Agreements: Where Do We Go From Here?”, over 22-23 October 2009 in Wellington. Below is an edited introduction to my four-part paper, extensively updated on 19 November and available in PDF here). Powerpoint slides are also available in PDF here.

A lively and long-overdue debate has emerged recently on the now widely-read East Asia Forum blog. Leading in to their forthcoming 6th edition textbook, economists McTaggart, Findlay and Parkin defended "The state of economics" against charges it failed to anticipate and address well the GFC. Another Australian economist, Steve Keen from UWS, responded with: "Why neoclassical economics is dead". So Richard Pomfret from Adelaide objects that it is: "Too soon for obituaries: economics is alive and (reasonably) well".

I can't resist adding my two yen's worth. Contrary to Pomfret, unfortunately 'neoclassical economics' is not a 'straw man' set up by Keen. Nor has it 'moved on' - enough, especially these days. To give only one example relevant to Australasia: J Mark Ramseyer's simplistic application of Chicago School methodology to the economic analysis of virtually all aspects of Japanese law and the economy.

[Originally posted, with full hyperlinks, at http://eastasiaforum.org/author/lukenottage/]

Many commentators are belatedly pointing out parallels between the financial markets boom and bust cycle in Japan over the 1980s and 1990s, and that now afflicting the US. However, especially when it comes to solutions for the US and hence the world economy, things are not quite as simple as envisaged by Japan’s then financial services minister, Yoshimi Watanabe, who proclaimed in March: “The US should follow Japan’s example and tackle its sub-prime loan problem using public money. The situation is exactly like what Japan saw 10 years ago”.

[Originally posted, with full hyperlinks, at http://eastasiaforum.org/author/lukenottage/]

In 2003, financial journalist Gillian Tett wrote a book with a self-explanatory title: Saving the Sun: How Wall Street Mavericks Shook Up Japan’s Financial World and Made Billions (Harper Collins). It epitomized a school of thought proclaiming a dramatic shift in Japan towards US-style corporate governance more generally. On 24 September, still writing for the Financial Times, Tett concluded that if she were writing her book again, she “would give it a more upbeat slant. Anyone know the Japanese for ‘eating humble pie’?”. The Japan Society of Scotland has already suggested “sunao ni ayamaru (to apologise obediently without protesting)” or “memboku wo ushinau (to lose face)”! Japan’s big financial institutions are certainly now back on the world stage, picking up some big pieces from America’s own financial crisis. And Japanese policy-makers and other commentators now want to lecture the US on how to deal with it.

Who would have thought, even a year ago, that Nomura Securities would be buying up the now-insolvent Lehman Brothers’ operations in Asia (including those in Australia, involving a total 3000 employees – with half in Tokyo) and then Europe (2500 employees)? And for just US$225m and “a nominal sum”, respectively, out of cash reserves of almost $6b Nomura has raised since April? Or that Mitsubishi UFJ, which spent $3.5b to buy out the Union Bank of California, would now be committing up to $9b to take 10-20% of Morgan Stanley, another precarious “Big Five” Wall Street investment bank? Or that Sumitomo Mitsui, which recently spent $1b for 2% of Barclays bank in the UK (which in turn has bought Lehman’s US operations), is prepared to invest US$1-3b in Goldman Sachs if requested by that other precarious Wall Street firm? Or that Mizuho would have recently pumped $1.2b into Merrill Lynch, another troubled firm that took refuge with the Bank of America in a $50b merger announced on 15 September?