Japan looks to play leading role in regional trade

Daily Yomiuri, Japan

Japan looks to play leading role in regional trade

Takashi Kikuchi/ Yomiuri Shimbun Correspondent

15 September 2006

Amid growing concern that Japan could be left behind by the proliferation of regional trade agreements, the government recently floated a proposal for what it describes as a comprehensive economic partnership for East Asia.

Economy, Trade and Industry Minister Toshihiro Nikai presented the proposal, which would involve Australia, China, India, Japan, New Zealand and South Korea as well as 10 Southeast Asian nations, on Aug. 24 when he met with his counterparts from these countries in Kuala Lumpur.

The proposal was followed by the conclusion on Saturday of an economic partnership agreement between Japan and the Philippines, a development that is expected to give rise to further calls to create a regional free-trade system in Asia.

The proposed East Asian economic partnership agreement aims to make Asia a "high-quality economic bloc" by eliminating tariffs on manufactured goods and agricultural, forestry and marine products within the trading area.

The plan also envisages the liberalization of investment and services and the adoption of a common set of rules to protect intellectual property rights.

Nikai and his counterparts in the Association of Southeast Asian Nations agreed to start studying the proposal in 2007.

The combined population of the 16 countries in the proposed trading area stands at 3.1 billion people, accounting for almost half of the world’s total population.

Their combined economic strength is equivalent to more than 9 trillion dollars in terms of nominal gross domestic product, compared with 12.7 trillion dollars for the European Union and 13.3 trillion dollars for the North American Free Trade Agreement market.

If a regionwide EPA is realized in East Asia—which is widely anticipated to be at the center of global economic growth in the 21st century—Japan could increase its GDP by 5 trillion yen, while the 16 countries combined could see their GDP grow by 25 trillion yen, according to projections by the Economy, Trade and Industry Ministry.

The government is said to be keen to take the lead in promoting the East Asian EPA plan as parts of its efforts to strengthen the country’s industrial competitiveness and help businesses make inroads into overseas markets.

According to Nikai, China, South Korea and the ASEAN countries will continue to be of crucial importance as production hubs and markets for Japanese companies.

India, a newly emerging economy, is attracting foreign corporations at a rapid pace, while Australia is expected to remain an important supplier of natural resources.

Japan hopes to start negotiations on the East Asian EPA proposal as early as 2008 with a view to reaching agreement with the relevant countries by 2010.

It intends to unveil more specifics concerning the East Asian EPA proposal during the second East Asia Summit scheduled for December in Cebu, the Philippines, where leaders of the 16 countries will also participate in negotiations.


China moving ahead of Japan

However, regional leaders have since 2004 been discussing a similar proposal, originated by China, for an East Asia Free Trade Area.

The proposed regional free trade area embraces 13 countries, including the 10 ASEAN member countries, China, Japan and South Korea, a framework known as the ASEAN plus Three.

In August, economic ministers from the ASEAN plus Three group were presented with a report by a group of experts compiled after a series of discussions on the free trade area plan.

The report recommended that the Chinese-initiated proposal be subject to governmental discussion in 2007 before formally involving 13 countries in negotiations in 2009 and concluding such talks by 2011.

The Japanese proposal for a 16-nation regional system reflects Tokyo’s concern over the possibility of a new East Asian regional economic partnership being realized under the leadership of China.

China and South Korea have already concluded comprehensive FTAs, respectively, with the whole of ASEAN. In contrast, Japan has been having difficulty with its FTA negotiations, a situation that has placed Japan at a disadvantage to China.

FTAs are an agreement mainly on the abolition of tariffs and regulations on bilateral trade, while EPAs are a pact governing a wide range of investment, trade and service sectors, which can include liberalizing investment, accepting foreign workers, protecting intellectual property rights and enhancing industrial cooperation.

Japan’s strategy is to position itself in a leadership role by encouraging the region to adopt the 16-nation EPA system with the participation of Australia, India and New Zealand.

While the ASEAN economic ministers voiced support for Japan’s East Asian EPA initiative, they have also strongly urged Tokyo to prioritize negotiations with the whole of ASEAN for a comprehensive FTA.

Japan and the 10-nation association earlier agreed that both sides will abolish tariffs on more than 90 percent of items traded between them. However, Japan-ASEAN FTA negotiations have made little headway as Japan remains reluctant to agree to raise the figure to close to 95 percent.

To realize the Japanese-proposed East Asian EPA bloc, it is essential for Japan to conclude FTAs with Australia and China, both of which will almost certainly ask Japan to open itself up to more of their agricultural imports.

The government also has plenty of work to do at home—it must persuade domestic groups affected by trade liberalization to assist with the smooth continuation of FTA talks with these two major farm produce exporters.