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Use Japan-ASEAN EPA as leverage to bolster ties

The Yomiuri Shimbun, Japan

Use Japan-ASEAN EPA as leverage to bolster ties

22 November 2007

The endorsement of an economic partnership agreement between Japan and the Association of Southeast Asian Nations should be a good chance for strengthening economic relations between Japan and the regional bloc in areas such as investment and human exchanges, in addition to boosting trade.

On Wednesday, Japan and ASEAN reached a final agreement on the conclusion of the ASEAN-Japan Comprehensive Economic Partnership Agreement. Both sides expect the agreement to take effect in autumn next year after the pact is signed by the relevant parties concerned as early as next spring.

Japan has already concluded and signed EPAs with six major ASEAN members, including Malaysia, the Philippines and Singapore. In total, Japan has signed eight EPAs, including one with Mexico, and some of them have already gone into effect. The ASEAN agreement is the first to be concluded with a regional bloc.

Yet, China and South Korea, which are very keen on improving economic partnerships with other parts of Asia, have been ahead of Japan by one or two years in negotiations on free trade agreements with ASEAN. South Korea signed an FTA with the Untied States in April and has already started FTA negotiations with the European Union.


Advantages for Japanese firms

Japan’s negotiations with South Korea on a free trade agreement have been suspended, while those with Australia, an agricultural giant, are facing difficulties. But the agreement with ASEAN has brought Japan a little forward in the race with China and South Korea. Strengthening economic ties with ASEAN—dubbed the growth center of Asia—brings about various advantages for Japan, which is experiencing a population decline.

The pact is expected to give a division of labor advantage to Japanese corporations that have production bases in the ASEAN area.

Six major ASEAN countries such as Indonesia, Singapore and Thailand, will abolish tariffs within 10 years on at least 90 percent of imports—calculated in monetary terms—from Japan. Vietnam and three other countries also will gradually abolish tariffs within 15 to 18 years, respectively.

Because of the EPA, Japan will be able to export parts of liquid crystal display TV sets to Thailand and export finished products assembled in the country to the Philippines or other ASEAN countries without tariffs being imposed. This will greatly enhance the price competitiveness of Japanese manufacturers.

Meanwhile, Japan will immediately abolish tariffs equivalent to 90 percent of the imports—calculated in monetary terms—from ASEAN. An additional liberalization of tariffs equivalent to 3 percent of the imports will take effect in five to 10 years.


Create truly open market

However, some agricultural products such as rice and dairy products are exempt from the agreement. This is because, as usual, Japan maintains a reluctant stance in liberalizing the agricultural market.

Japan has proposed a Comprehensive Economic Partnership in East Asia initiative with 16 countries, involving Japan, the 10-members of ASEAN, Australia, China, India, New Zealand and South Korea. Some see the conclusion of the EPA with ASEAN as the first step toward realizing this initiative.

However, it is quite difficult to realize this initiative of creating a truly international open market unless it includes agricultural products. This means Japanese products’ price competitiveness in the agricultural sector should be enhanced. Japan should accelerate structural reforms in agriculture to allow concerned parties to weather problems that will arise from market liberalization.

In its summit meeting, ASEAN leaders agreed to liberalize trade and investment within the area and establish a single market by 2015, aiming at becoming a regional economic community. They signed the ASEAN Charter, which will serve as the basic law for strengthening ties. It is certain that ASEAN’s significance will continue to increase.

As China and South Korea, as well as India, have been strengthening ties with ASEAN, Japan should use the EPA with the bloc to forge a strategic trade policy with the area.