Japan’s continuing zeal for free trade agreements
East Asia Forum | 3 September 2024
Japan’s continuing zeal for free trade agreements
by Saori Katada, University of Southern California
- In Brief
Japan is actively pursuing new free trade agreements to enhance its economic security and resilience against a hostile global trade environment, having already established major FTAs covering 80 per cent of its trade. The Kishida government aims to counter economic coercion and maintain an open trade regime while addressing ongoing protectionism and vulnerabilities, especially through strategic partnerships with resource-rich regions.
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With three mega free trade agreements (FTAs) — the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the Japan–EU Economic Partnership Agreement and the Regional Comprehensive Economic Partnership (RCEP) — all in effect, and the US–Japan trade agreement in place, FTAs covered almost 80 per cent of Japan’s total trade volume in 2022. But the Japanese government still seems unsatisfied.
In 2024, the Japanese government announced the relaunching of FTA negotiations with the Cooperation Council for the Arab States of the Gulf, started FTA negotiations with Bangladesh and engaged in consultations to start FTA negotiations with South American trade bloc Mercosur. Japanese Prime Minister Fumio Kishida also agreed to restart the China–Japan–South Korea Trilateral FTA negotiations at the Trilateral Summit on 27 May. Though the economic gains from these additional FTAs are not large, there are several geoeconomic benefits the Japanese government can achieve with these new initiatives, especially as the global environment for free trade becomes increasingly hostile.
FTAs underpin supply chain resilience in manufacturing and secure Japan’s access to essential inputs, especially natural resources. The costs and risks from supply chain disruptions became apparent during the COVID-19 pandemic and worsened with Russia’s invasion of Ukraine in 2022, which introduced further uncertainty in energy and food supplies.
Advances towards supply chain resilience include the 2024 Supply Chain Agreement reached in the context of the Indo-Pacific Economic Framework for Prosperity, which includes 14 members. The Japanese government also signed a Critical Minerals Agreement with the United States. Still, FTAs continue to be crucial for Japan to establish close connections with resource-rich regions like the Middle East and South America.
FTAs are also an essential avenue for Japan to maintain an open global trade regime and resist protectionism, evident in many places in the last decade. In the United States, President Joe Biden’s administration continues to pursue domestically focused economic agendas, such as the Inflation Reduction Act and former US president Donald Trump is heightening concerns ahead of the November US presidential election by proposing massive trade tariff increases.
Even in Europe, strategic autonomy has become paramount, with the European Union tightening regulations that could hinder trade. Resource nationalism is also on the rise in the Global South. Active FTAs could counter these trends and such fragmentation of the global economy.
Though Japan’s agricultural protectionism has declined since the original TPP negotiations in the early 2010s, it still remains significant, demonstrated by the low liberalisation rates on agricultural products in RCEP. This protectionism is also an obstacle to emerging FTAs with Mercosur.
Arguably the most important strategic objective for Japan’s contemporary FTA strategy is countering economic coercion and pursuing economic security grounded on a rules-based order. Economic security is by far the most important foreign economic concern for the Kishida administration and its supporting ministries. The Economic Security Promotion Act, enacted in 2022, exemplifies this focus. The Ministry of Economy, Trade and Industry installed a new Trade and Economic Security Bureau in June 2024 to further these aims.
The restarting of the China–Japan–South Korea tripartite FTA aptly aligns with such economic security objectives. Only a few items, such as certain auto parts, will benefit from further tariff reductions under this agreement, as these three economies are covered by RCEP, which already includes significant tariff reductions.
Besides the diplomatic gesture of cooperation that this tripartite FTA represents, Japan aims to install trade and investment rules with this negotiation restart to counter China’s abuses. Japan hopes to incorporate important rules from the CPTPP in this FTA, which are lacking in RCEP. These include rules against subsidies, regulations of state-owned enterprises and liberal rules on digital commerce.
Given the World Trade Organization’s limited functionality, a minilateral FTA could combat economic coercion and predatory behaviour by opening more channels of communication and increasing reputational costs. As the Japanese government strives to achieve strategic indispensability and autonomy, these FTAs serve as vital instruments to contain threats in the form of economic coercion.
Given its high dependence on trade, both in terms of manufacturing exports and resource imports, the free trade regime has been fundamental to Japan’s prosperity. But the current geopolitical environment poses a major challenge for the government. With its trade strategy having evolved substantially since its first FTA with Singapore in the early 2000s, Japan’s FTA strategy is now a vital instrument to tackle supply chain precarity and contain protectionism and economic coercion.
Saori N Katada is Professor of International Relations and Director of the Center for International Studies at the University of Southern California.
