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Japan settles for ’low-risk, low-return’ FTA goals

The Japan Times: April 22, 2005


Japan settles for ’low-risk, low-return’ FTA goals

Staff writers

Prudish about bilateral free-trade agreements just five years ago, Tokyo is now fielding partnership requests from 25 economies and regional blocs.

But there is no denying an element of haphazardness in the way it is selecting some of the candidates.

Earlier this week, Tokyo agreed to launch a joint study on economic cooperation with Switzerland that includes a possible FTA.

"We’re looking to Switzerland because, well, it’s in Europe," a Foreign Ministry official who requested anonymity said when asked why the Alpine country was a potential partner. An agreement with Switzerland would offend no major lobby group, making it "low-risk, low-return," he explained.

His statement is one indication why Japan appears to be failing to effectively introduce a cohesive strategy in its FTA talks, according to Hajime Yamazaki, research fellow at Rakuten Securities Economic Research Institute.

"The FTAs with large economic benefits (for Japan) are also the most politically challenging and most likely to stall," he said.

By following the path of least resistance, Japan could end up with numerous watered-down FTAs that look good on paper, but are "neither harm nor cure" for the Japanese economy, Yamazaki said.

Economic partnership agreements have become more palatable to Tokyo, which fears being the odd man out at a time when 150 such partnerships were reported to the World Trade Organization in 2004, up from 31 in 1990.

According to officials at the trade and Foreign ministries, such agreements would give Japan better access to economic blocs emerging in Europe, North America, Southeast Asia and South America, enhance its presence in Asia, and simultaneously trigger domestic reforms by exposing protected industries to global competition.

But that plan is starting to look fuzzy.

Strong resistance at home — ranging from farmers and steelmakers to leather craftsmen — is stalling negotiations with key countries, including South Korea, which was Japan’s third-largest trading partner in fiscal 2004, with some 7.2 trillion yen in imports and exports.

The government hopes to conclude a Japan-South Korea FTA by year’s end, but officials tasked with the negotiations say the deadline is "impractical."

Stiff opposition is also keeping negotiations from taking off with other countries, including Australia, Japan’s fourth-largest source of imports and a valuable supplier of oil, coal, iron ore and natural gas.

Two years of coaxing by Canberra have done little to overcome objections from Japanese farmers about opening the nation’s doors to more beef, rice and dairy products from Down Under. And in talks with Australian Prime Minister John Howard on Wednesday, Prime Minister Junichiro Koizumi did not commit Japan to an FTA, but to two years of talks on discussing the feasibility of such a pact.

"Japan is sacrificing a good relationship with Australia for the sake of protecting farmers’ vested interests," said Shujiro Urata, a professor of sociology at Waseda University.

Tokyo has two FTAs in place: one with Singapore, which went into effect in November 2002, and another with Mexico, in effect since April 1. It reached a basic agreement with the Philippines in November and hopes to do the same with Malaysia and Thailand within the next few months.

Meanwhile, China, which has agreed to launch FTA talks with Australia, is increasingly becoming a factor to be reckoned with in Tokyo’s FTA negotiations.

Foreign Ministry officials say Beijing places great importance on FTAs as a means of gaining greater political clout within Asia. China’s political structure also enables it to make key decisions quickly.

"It takes time for Japanese officials to make decisions," a high-ranking Foreign Ministry official said.

The "China card" is now being flaunted by opposing negotiators. Representatives of the 10-member Association of Southeast Asian Nations tell Japan during FTA talks that Beijing is more eager for an FTA with ASEAN, he said.

One entity should be given ultimate decision-making power to speed up talks, override objections from individual ministries and coordinate trade agreements with domestic reforms, trade officials and business groups agree.

At the same time, however, one trade official said he would not want that body to be the Foreign or agriculture ministry.

Motoshige Ito, economics professor at the University of Tokyo, agrees with the need for Japan to link FTAs with domestic reforms.

Reforms are necessary to make overly protected sectors like agriculture more internationally competitive, he said.

Some Japanese farmers and fishermen have been successful in exporting high-price, high-quality produce, but they are still exceptions.

Glacially slow deregulation, heavy subsidization and a ban on private firms owning farmland leave few incentives for innovative or productive farming, Ito said.

Last month, the Agriculture, Forestry and Fisheries Ministry announced plans to consolidate small farms into groups of 30, doubling the number of incorporated farms from the current 10,000, and encouraging more large-scale farming by 2015. But the ban on private firms’ ownership of farmland remains.

"Farm reforms are taking place," said one high-ranking Ministry of Economy, Trade and Industry official who participates in FTA negotiations. "But other countries are reforming faster, and Japan is falling behind."

Coordination is also needed if Japan is to use bilateral FTAs to complement a more comprehensive trade pact under the auspices of the WTO. The 148-member body hopes to conclude negotiations on a new global trade agreement by the end of 2006.

"Japan has a vague strategy (of how it should utilize FTAs), but it’s shabby when it comes to the nitty-gritty details," Waseda University’s Urata said.

 source: Japan Times