ANALYSIS: Japan, Asia face bumpy road toward free trade

3 September 2004

ANALYSIS: Japan, Asia Face Bumpy Road Toward Free Trade

By Masayuki Kitano

FUKUOKA, Japan (Reuters) - Japan, keen not to lose ground to China, is stepping up its pursuit of regional and bilateral free trade pacts, but the path to success will be bumpy and some experts question how committed Tokyo really is.

Already in talks on bilateral free trade deals with Thailand, Malaysia, the Philippines and South Korea, Japan has also agreed with the 10-member Association of Southeast Asian Nations (ASEAN) to try to start discussions on a free trade agreement (FTA) at the start of 2005, with the target of forging a pact by 2012.

Now, Tokyo appears to be drafting more ambitious schemes.

Under a mid-term plan being formulated, the government wants by 2010 to sign economic partnership agreements with at least 10 countries and regions including China, Brazil, India and Australia, the Nihon Keizai Shimbun daily reported on Friday.

In a rare gesture, members of Japanese business lobby Nippon Keidanren will accompany Prime Minister Junichiro Koizumi when he visits Brazil this month to help him start talks on an FTA with Latin America’s largest economy, the group said.

Doubts, however, persist about how quickly Japan can push ahead with its trade pact agenda given objections from politically powerful farmers.

"China has already expressed its political will. It is Japan that has not yet expressed its political will," Nipon Poapongsakorn, senior consultant for the Thailand Development Research Institute, said at a gathering of Japanese and other Asian trade experts in Fukuoka, southern Japan, this week.

So far, Japan has concluded only two FTAs. Its first, with Singapore, did not include farm products.

Its second, a hard-won pact with Mexico that was basically clinched in March after bitter disputes over pork and orange juice, is expected to be signed this month when Koizumi visits that country.

Japanese and ASEAN trade ministers may agree on a starting date for their FTA talks at a meeting in Jakarta on Saturday.

But in a sign of the difficulties ahead, Japan wants to wait until next April to start formal talks, Japanese media said.

For its part, China aims to conclude a free trade pact with six ASEAN countries by 2010 and with the other four by 2015.

ASEAN is comprised of Indonesia, Singapore, Malaysia, Brunei, the Philippines, Thailand, Cambodia, Laos, Myanmar and Vietnam.

VARIABLE ENTHUSIASM

The benefits of a free trade zone combining the world’s second-biggest economy with 10 countries that together boast an annual trade volume of over $750 billion, roughly equal to Japan’s, and a population more than four times as large, might seem obvious. But not all countries are equally keen.

Indonesia, which has yet to recover fully from the 1997/98 Asian financial crisis, has taken a very passive stance toward FTAs, said Yose Rizal Damuri, a researcher with the Center for Strategic and International Studies in Indonesia.

Many Indonesian politicians and officials see limited benefits from FTAs, and Jakarta’s participation in efforts toward an ASEAN-Japan FTA are "for the sake of formality because Indonesia is part of ASEAN," Damuri said.

As in many countries, big Japanese manufacturers are keen but globally uncompetitive farmers are not.

The differences reflect the fact that FTAs are likely to widen economic disparities both between and within countries, experts said. According to a study by Kenichi Kawasaki, a consulting fellow at a trade ministry think tank, an FTA between Japan and ASEAN would boost the gross domestic product (GDP) of Thailand and Malaysia by far more over a decade than those of the less competitive economies of Indonesia and the Philippines.

Within Japan, the biggest growth boost would go to the central prefecture of Aichi, home to Toyota Motor Corp., the world’s second-largest auto maker.

By contrast, prefectures that rely on industries such as leather and agriculture would be hit the worst, the study showed.

Still, Japan cannot turn its back on the trend toward more trade deals, Tokyo University professor Yukiko Fukagawa said.

"Japan can’t take quick action like China or South Korea, but once convinced, it will keep heading in that direction," said Fukagawa, a specialist on East Asian economics.

source: Reuters