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Japan needs more FTAs

Japan Today

Monday, September 20, 2004

Japan needs more FTAs

Yasushi Azuma

In the face of the rapidly growing Chinese economy and a rising number of free trade agreements, Japan is scrambling to reinforce its flagging leadership status in Asia by accelerating FTA negotiations with regional trading partners.

Two years ago, Mexico was the only country Japan planned to launch FTA talks with. Now, its trade negotiation schedules are fully booked, with Asian partners FTA talks almost every month.

Since Japan aims to conclude talks for FTAs with Malaysia, the Philippines and Thailand by the end of this year, the negotiations will likely pick up speed.

In East Asia, China’s presence has become more evident every year on the back of ample cheap labor and a market of 1.3 billion people. While proposing an economic tie-up among China, Japan and South Korea, Beijing is trying to seal an FTA with the Association of Southeast Asian Nations.

The 10-member ASEAN is also becoming active about seeking economic collaborations with countries and regions outside the group, including the United States, the European Union, India and Australia and New Zealand.

South Korea and ASEAN also agreed last month to start negotiations next January for an FTA with a view to implementing it from 2008.

Japan’s policy of placing priority on East Asia in pursuing FTAs is more a political move than the result of taking economic efficiency into account, said Hirokazu Hiratsuka, a senior economist at Mizuho Research Institute Ltd.

Given that East Asia is a focus of attention among trade players around the world, it is natural for Japan to defend its leadership in the region, he said.

"China is moving actively toward ASEAN and South Korea has also begun to move. Japan’s leadership will decline if it takes no action," he said.

"Japan has assumed Asia is its playing field, but someday it may find itself in a situation like that with Mexico," Hiratsuka said, meaning Tokyo could be at a disadvantage because of FTAs involving other trade powers.

Since Japan was left behind the United States and the European Union in gaining equal opportunities in Mexico due to the lack of an FTA, Japanese industry suffered huge economic damage.

Asked about enthusiasm in the private sector for FTAs with Asian countries, Hiratsuka said Japanese companies are rather apathetic, partly because many already have production networks in Asia.

That is a sharp contrast to the FTA with Mexico in that strong demand from Japanese industry propelled the government to complete the negotiations.

But Hiratsuka warned against excessive expansion in trade partners for FTAs, saying doing so will lead to a distorted trade structure because of the discriminative nature of FTAs against outside economies.

"The ideal way is to establish common rules under the framework of the World Trade Organization. But an FTA between Japan and ASEAN would be the second-best and will benefit Japanese companies."

Now that the deal with Mexico has been signed, Japan is focusing on hammering out FTAs with the three ASEAN countries. But many observers believe Japan and the three will miss the target of concluding talks by the end of the year.

"We have already seen the negotiations with Mexico delayed because of the agricultural sector. The same thing could happen again," said Kenichi Takayasu, a senior economist at Japan Research Institute Ltd.

Touching on Malaysia’s protective automobile industry policy, Takayasu said, "Malaysia will not easily agree to lower tariffs on automobile imports from Japan."

Following criticism that Japan lacks a coordinated trade policy with the four ministers in charge, it appears that the Japanese government has finally begun to reinforce policy coordination among government ministries involved by launching a ministerial council on FTAs.

Many critics are not satisfied with the step, however.

"My impression is that the mechanism is not functioning well. Japan should enter negotiations after finishing domestic coordination, but that is not the case," Takayasu said.

On a call by the Japan Business Federation to create a new Cabinet minister post in charge of FTA policy, he said such an idea should take a back seat to an economic diplomacy strategy.

"Japan must make serious commitments to the establishment of an economic zone encompassing East Asia and realize it cannot survive without doing so," Takayasu said.

Then, Japan should set an economic diplomacy strategy based on such a view, he added.

For Tokyo, the liberalization of its closed labor market will also be a big challenge. The Philippines and Thailand have demanded Japan accept various kinds of workers from their countries such as nurses and cooks.

Since the scope of the FTAs with the three ASEAN countries is even broader than the one with Mexico, Japan will not be able to win tough bargaining unless the government coordinates policy among ministries concerned, critics say.

 source: Japan Today