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Mercosur ‘ready’ to resume FTA talks with Japan, Paraguay foreign minister says

The Japan Times - 13 March 2024

Mercosur ‘ready’ to resume FTA talks with Japan, Paraguay foreign minister says
By Gabriel Domiguez

After a seven-year hiatus, Japan and Mercosur — Latin America’s largest trading bloc — plan to resume talks next month to decide whether to launch formal negotiations on a major, bilateral free trade agreement (FTA), according to Paraguay’s top diplomat.
“The Mercosur states are in political agreement. Now is the time to do it and we are ready to relaunch the talks,” said Paraguay Foreign Minister Rubén Ramírez Lezcano, as the four-member group seeks new markets in Asia and Tokyo looks to diversify supplies of food and raw materials.

In an interview in Tokyo, Ramirez told The Japan Times that the bloc — which currently comprises Argentina, Brazil, Paraguay and Uruguay as full members — is keen to expand relations with Asian countries, particularly Japan, as it seeks to boost trade and deepen economic integration with partners beyond the United States, Europe and China.

Last December, the group clinched an FTA with Singapore, its first with an Asian country. The bloc is also in talks with South Korea and would like to explore similar deals with countries such as Indonesia, Malaysia, India and Vietnam, noted Ramirez, whose country currently holds Mercosur’s rotating presidency.

The group’s willingness to resume talks with Japan was highlighted earlier this year in talks between Brazilian President Luiz Inacio Lula da Silva and Prime Minister Fumio Kishida, the former of whom said Mercosur should "explore new negotiation fronts" amid delays in finalizing a long-awaited trade deal with the European Union.

As Tokyo seeks to deepen ties with Latin America, Ramirez said that an FTA with Mercosur — whose members have a combined population of nearly 300 million — would represent a huge economic opportunity for both sides.

“The FTA would include goods and services, including agricultural products, which is very important for Japan,” he said, noting that this could help boost Japan’s food security at a time when countries are realigning their supply chains to reduce dependence on China.

Japan’s food self-sufficiency rate on a caloric intake basis stood at 38% in the fiscal year from April 2022, unchanged from the previous year and still near a record low. The dwindling rate on a caloric-intake basis, which is one of the lowest among major economies, underscores the struggle the government faces to reach 45% by fiscal 2030.

Mercosur countries, which will soon add Bolivia as a full member, are major producers of food, including soy, corn, coffee, beef and poultry, some of which could be sticking points during the negotiations, as reducing import tariffs on a number of these could impact Japanese farmers.

Ramirez acknowledged that reaching a deal may face headwinds.

“We cannot exclude potential challenges during the talks, and agricultural products could pose one,” he said. “But that is the reason why we need to start the dialogue and define how we deal with the different issues.”

The two sides hope that an FTA would facilitate greater trade flows through lowered tariff rates and establish transparent investment conditions, including for nearshoring — a process that involves companies moving all or part of their production closer to the final consumer, to reduce costs and avoid logistical setbacks.

Ramirez also said the move would foster cooperation in areas such as sustainable development, emerging technologies, renewable energy, infrastructure, food supply security and digitalization.

These are also the sectors where Asuncion aims to draw in greater know-how and investment from Japan, particularly through nearshoring. Paraguay is taking part in a number of large regional infrastructure projects such as the Bi-Oceanic railway corridor and the Hidrovia a plan by the five countries of the La Plata Basin to convert the Paraguay and Paraná rivers into an industrial shipping channel.

“Nearshoring is a key issue for the development of Japan-Paraguay relations,” Ramirez said, adding that the two sides are also aiming to finalize an investment agreement “as soon as possible” and reach a separate deal on eliminating corporate double taxation.

At the same time, he said his country is aiming to take bilateral ties to a new level, focusing not only on financial cooperation but also on creating opportunities for capacity building and technology transfers.

“Many companies in Japan, including in the food sector, constantly develop new technologies, but they don’t always have the opportunity to apply them here in Japan,” Ramirez said, noting that these firms would have the land, climatic conditions and human resources in Paraguay to develop large-scale production, all the while having access to a roughly $2.8 trillion gross domestic product market.

The minister, who also met with Keidanren, Japan’s largest business lobby, said Japanese firms could make use of Paraguay’s strategic location to provide goods and services to the entire region.

“Paraguay is located at the center of South America and the country can serve as a hub to integrate supply chains with neighboring countries such as Brazil, Argentina, Uruguay, Chile and Bolivia,” he said. This, coupled with a potential FTA, would help Japanese companies develop their regional production capabilities to supply the Mercosur countries, he added.

On the diplomatic front, the foreign minister also welcomed Tokyo’s push to forge closer political ties with the region amid intensifying geopolitical tensions with Beijing.

“Japan is a very important player in the world economy, but it was largely absent from Latin America over the past years, allowing China to become the only major Asian country to fill that role,” he said, pointing out that South American countries welcome Tokyo’s push to enhance relations with the region, particularly as the two sides share the same fundamental principles and values.

The move comes after Tokyo called on Latin America last year to work together with Japan and expand “networks of solidarity” to uphold the rule of law, arguing that “that the very foundations of the international order are threatened.”

 source: The Japan Times