US-ROK pact may prompt govt to rethink FTA stance
The Daily Yomiuri (Tokyo) | Apr. 4, 2007
U.S.-ROK pact may prompt govt to rethink FTA stance
Kazumasa Higashi
Yomiuri Shimbun Staff Writer
The government is likely to reconsider its stance on free trade agreements in light of a pact concluded Monday between South Korea and the United States.
Until recently, Tokyo had yet to even schedule negotiations with Washington. However, if Seoul uses its new FTA as a means to rapid expansion into the U.S. market, Japan will be forced into its own quick response.
"A combined U.S.-South Korean economy would rank third in the world, just behind the European Union and the North American Free Trade Agreement," a media packet for the Monday announcement stated.
When the FTA comes into effect, tariffs on South Korean industrial, forestry and marine products will be removed, giving that country’s firms a decisive advantage over their Japanese counterparts.
The agreement calls for the immediate removal of tariffs on some items—such as on certain cars and car parts including tires—and eliminating the remaining import taxes within 10 years. This means a U.S. importer would be able to purchase a South Korean-made car with an import price of 1 million yen (including shipping cost) for the same price.
But Japanese cars carry a 2.5 percent tariff, while tires and other parts are taxed at 4 percent. This means the same importer would have to pay 1.025 million yen for a car made in Japan with the same import price.
Japan’s automakers would have to reduce their profits to sell their goods at the same price as their Korean competitors.
Prime Minister Shinzo Abe’s administration has touted its intent to tackle Asia’s economic growth from within Japan, a policy in which FTAs play a significant role.
At a meeting of the Council on Fiscal and Economic Policy in November, the government set a goal of tripling the nation’s FTAs over the next two years. Agreements with China and the United States are among possible pacts under consideration.
But in light of the conclusion of the U.S.-South Korea FTA, the government is likely to undertake a major policy discussion over what should be done about a free trade agreement with Washington.
In November, the Japan Business Federation (Nippon Keidanren) released a paper demanding joint research with an eye to an economic pact between the two countries. In it, the business grouping demanded the hastening of moves toward a Japan-U.S. FTA.
However, Keidanren does not propose only the lifting of tariffs, but also liberalizing U.S. import restrictions. Currently, plastic goods are taxed at 3.9 percent to 4.8 percent, and a 4.1 percent tax is levied on aluminum products. Alternatives are not available for some of these products in the United States, so the cost of importing the parts greatly affected due to the added cost of the tariffs.
At a press conference Monday, Administrative Vice Foreign Minister Shotaro Yachi said, "There won’t be immediate negotiations [on an FTA with the United States], but there is a need to study the issue."
Yachi also said he was concerned that the World Trade Organization’s Doha Round of negotiations would suffer a setback if Japan and the United States, whose combined scale accounts for nearly 40 percent of the global economy, were to complete an FTA.
But as both Japan and the United States already have relatively low tariffs on manufactured goods, the government has yet to truly discuss the advantage of concluding an agreement with its closest ally. The government needs to conduct a general study of the potential FTA and then explain its worth to the people of Japan.
