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Japan needs trade pact with ASEAN

The Yomiuri Shimbun, July 19, 2005

Japan needs trade pact with ASEAN

The Yomiuri Shimbun

A free trade agreement signed between China and the Association of Southeast Asian Nations took effect on July 1. The move represents another boost for China’s efforts to increase its influence on this part of the world. Under the FTA, China and the ASEAN will officially start tariff reductions on Wednesday.

Such initial ASEAN members as Thailand and Singapore, both economically vibrant members of the group, are scheduled to abolish their tariffs by the end of 2010. Meanwhile, Laos, Vietnam and other nations admitted to the ASEAN later are expected to do so by the end of 2015. The two-stage tariff abolition plan has been devised out of consideration for the great economic disparities among ASEAN members.

The earlier-than-planned implementation of tariff reductions by China and the ASEAN may be a calculated move reflecting selfish motives on all sides as they seeking to use the FTA for their own benefit. According to analysts, China wants to use the ASEAN to boost its rapid economic growth while the 10-member group seeks to take advantage of China’s rise to economic excellence in its international trade.

The total value of trade between China and the ASEAN reached 105.8 billion dollars in 2004, more than doubling from 41.6 billion dollars in 2001. Analysts have said it is a matter of time before China will replace Japan as the ASEAN’s largest trade partner.

China’s power growing

In recent years, China has gained a greater say in regional politics, as shown by its active involvement in promoting a proposal to create an East Asian community and in increasing cooperation in the area on regional peace and security efforts, including antiterrorism measures.

Meanwhile, the ASEAN nations have been using their relations with China as a bargaining chip in their foreign policies. Japan, South Korea, Australia and India are fiercely competing to establish FTAs with the ASEAN. This represents an advantage the FTA between China and the ASEAN has provided for the group.

It should be noted, however, that the China-ASEAN pact is far from sweeping. Under the agreement, items subject to a reduction in tariffs to 5 percent or lower account for only 40 percent of goods. The accord will seek to broaden the range of goods in this category two years later—but not to greater than 60 percent of imports.

The agreement has also incorporated many exceptions aimed at putting off reducing tariffs on such important items as cars and rice.

This may be attributable in part to a renewed wariness felt by the ASEAN nations toward China during their FTA talks.

ASEAN members reticent

There is growing concern in Thailand that inexpensive Chinese goods may dominate the domestic market. This is significant in that Thailand has been a chief FTA promoter. Only four ASEAN nations, including Malaysia and Singapore, had ratified agreements related to the FTA pact by July 1.

The sense of caution felt by the ASEAN about China may speed progress in talks between Japan and the group over an FTA agreement.

However, negotiations between the two sides started only this spring. There has been little progress in bilateral talks, either. Although it has reached basic accords with the Philippines and Malaysia, for instance, Japan is finding it difficult to put the finishing touches on agreements with the two nations. Tokyo is unsure whether it will be able to reach even a basic agreement with Bangkok.

The government has emphasized it has a "lofty goal" to pursue in concluding an FTA with the ASEAN, saying its efforts to reach such an agreement are intended to formulate a far-reaching economic partnership that will cover not only goods but services, investment and personnel development.

However, Japan’s delay in establishing an FTA with the ASEAN means China will accomplish more in trade within the region. This country should do all it can to make progress in FTA talks with the ASEAN nations.

 source: Yomiuri Shimbun