The Japan Times: Tuesday, April 18, 2006

SEIZING THE INITIATIVE BEFORE IT’S TOO LATE

METI’s Asia-Oceania FTA pitch surprises but is predictable

By YUMI WIJERS-HASEGAWA

Staff writer

Trade minister Toshihiro Nikai’s announcement earlier this month that Japan plans to start talks with 15 other nations in 2008 to create an Asia-Oceania free-trade zone took many by surprise — not only experts but also those within government — sparking speculation about the ministry’s true intentions.

On April 4, the Ministry of Economy, Trade and Industry proposed a new economic framework to strengthen trade relations beyond current bilateral free-trade agreements, saying it involves not only tariff reductions but also investment, services and rules on intellectual property — a comprehensive economic partnership agreement.

"The EU took many years to establish such an economic union. This is a proposal from Japan to East Asia to take the first step toward an economic community," said Takeshi Fujimoto, deputy director of METI’s Economic Partnership Division.

METI has already received a lot of positive feedback from the 15 countries, which include the 10 in the Association of Southeast Asian Nations plus China, South Korea, India, Australia and New Zealand.

But many experts question the timing of the proposal.

"There’s nothing worse than the current situation where Japan and China are split over such (trivial) issues as Yasukuni," said Takashi Shiraishi, vice president of and professor at the National Graduate Institute for Policy Studies. "The trade minister might have made the announcement so that East Asian order will be considered in a much wider perspective."

Other experts speculate METI felt pressure to move forward because China and South Korea are ahead of Japan in terms of FTAs struck with ASEAN, which includes Indonesia, Malaysia, Thailand, Singapore, the Philippines, Brunei, Vietnam, Laos, Cambodia and Myanmar.

China signed an agreement in 2004 on trade in goods with ASEAN, while South Korea signed a framework accord with ASEAN last December. A Japan-ASEAN deal is still under negotiation.

But the concept of an Asia-Oceania economic community isn’t new. In the past, similar proposals have been made by leaders of South Korea and Malaysia.

During a visit to Singapore in January 2002, Prime Minister Junichiro Koizumi also proposed such an economic community, saying Japan would strengthen ties with ASEAN as a first step.

After Koizumi’s proposal, however, the plan never moved forward as there was no consensus within the government, according to experts.

"While the Foreign Ministry appeared to want to move quickly toward bilateral free-trade agreements with Asian countries, METI was committed to strengthening multilateral ties. The difference remains, leading to the current conflict (between the ministries)," Shiraishi said.

There also appears to be an "American factor" that slowed the Japanese government’s move.

"Until recently, the U.S. was against the idea of creating an East Asian community, fearing that such a group would shift the focus of East Asian security to China," Shiraishi said.

The U.S. was against last December’s summit for that reason, he said. In December, Japan and the 15 states launched the first-ever East Asian Summit in Kuala Lumpur with the aim of eventually creating a regional bloc.

"But the U.S. has recently realized that the East Asian community is really about economics, and that the U.S. can also benefit from it," he said, noting the U.S. expressed interest in joining the summit about a month ago and indicated it wants to hold top-level talks with ASEAN.

Some also point out that Japan’s latest proposal went beyond East Asia to include India, Australia and New Zealand, in an attempt to dilute the influence of China.

"Member states probably saw METI’s move as a sign of Japan’s willingness to finally take leadership (in the regional economic framework)," said Hiroshi Oe, professor of international relations at the University of Tokyo.

The question, however, remains whether such a regional framework is feasible.

Eisuke Sakakibara, a former vice finance minister for international affairs and now a professor at Waseda University, said close economic cooperation between Japan and China may be difficult now, but will be possible "probably after Koizumi’s era."

Shujiro Urata, a professor at Waseda University’s graduate school of Asia-Pacific studies, figured it will take many years for the proposed community to resemble a bloc like the EU.

"Members of the original six EU states had quite a lot in common, such as their economic levels and objectives, but it still took 50 years to realize the EU," he said. "The 16 states proposed for the (Asia-Oceania accord) are at very different levels economically and politically — some being democratic, some communist, and some military regimes."

Experts say a community already exists in East Asia as a de facto economy without the government having to give a new name to it.

In 2003, trade within the EU stood at about 60 percent of the bloc’s total business, while trade between 13 East and Southeast Asian countries — ASEAN, Japan, China and South Korea — made up about 50 percent of their total.

But to create an official political framework among all 16 states, Japan’s proposal needs to be made more attractive, as it does not mention anything about agricultural trade or labor — both issues of great importance to Japan’s Asian neighbors, the experts said.

Thai Ambassador to Japan Suvidhya Simaskul welcomes the idea of a free-trade zone, but added he wants Japan to open its doors more to agriculture.

"You are now reforming the agricultural sector, and we are here to cooperate for our mutual interests. We have to together find a comfortable level for the Japanese society for it," he said.

If the regional economic zone were to become a reality, could it be seen as a threat to other parts of the world, including the EU?

Matthijs van Bonzel, head of the economic section at the Netherlands Embassy, said he thinks an East Asia-Oceania community is certainly possible given the amount of business that already goes on in the region.

While welcoming the move as a positive step for the world economy, he said member states must be careful not to make it a bloc that excludes the rest of the world.

"Europe has dealt with both the WTO (World Trade Organization) and the regional European integration at the same time. It must be remembered that worldwide and regional deals go hand in hand," he said.

Athanassios Karapetsas, economic and commercial councilor at the Greek Embassy, said there will be an enormous impact if the proposed economic community is created, but he does not believe it will be a threat to the EU.

"Looking at what happened (with the recent labor unrest) in France for example, it is clear Europe’s enemy is in Europe itself. We need deep social reforms and a new development model to be able to compete again with regions like Asia," he said.