Japan and Mexico sign free-trade agreement

Kyodo

Japan and Mexico signed a bilateral free-trade agreement Friday, Tokyo’s first comprehensive free-trade pact covering a broad range of areas including the politically sticky agricultural sector.

The deal, signed by Prime Minister Junichiro Koizumi and President Vicente Fox, is Japan’s second FTA, following one inked with Singapore in January 2002.

The two leaders expressed hope in a joint statement that the two countries “will be able to make the most of their economic complementarity and to further promote the development of their respective economies, through creating a large-scale harmonized market for both countries and accelerating the structural reforms.”

“We share the view that enhanced economic ties between Japan and Mexico will promote Japan’s economic relationship with Latin America, and Mexico’s economic relationship with Asia, thereby giving a fresh impetus to trade and investment flows across the Pacific,” the statement said.

“The FTA is not to diminish but to expand bilateral trade,” Koizumi said. “Even if the accord meets some opposition (from Japanese farmers), other Japanese products can be received in return.”

The FTA is expected to give momentum to ongoing negotiations between Japan and four Asian countries — South Korea, Malaysia, the Philippines and Thailand — as well as talks with the Association of Southeast Asian Nations set to start in April.

The arrangement with Mexico, expected to take effect in April, has been long awaited by Japanese businesses because they have been at a disadvantage compared with U.S. and European industries that are given equal treatment with domestic competitors in Mexico under respective free-trade pacts.

According to an estimate of the Ministry of Economy, Trade and Industry, the financial damage Japan has suffered from trade with Mexico without a free trade pact is up to 400 billion yen a year.

For Mexico — the world’s 10th largest economy — Japan is the third-largest supplier of imports and the seventh-largest export market with imports of $7.62 billion and exports of $605.8 million in 2003.

In contrast, the FTA will pose a severe challenge to Japanese farmers as they will have to compete with low-priced Mexican products.

Mexico will abolish tariffs on all types of steel products from Japan within the next 10 years.

Mexico will also create additional duty-free import quotas for Japanese automobiles including passenger cars and small buses and trucks, which are equivalent to 5 percent of the Mexican auto market, on top of the current duty-free import quotas. Auto imports from Japan will become tax-free by the seventh year.

Japan, for its part, will establish an import quota of 4,000 tons for orange juice on which tariffs will be halved for the first year. The quota will be expanded to up to 6,500 tons from the fifth year.

Japan will also halve tariff rates on 38,000 tons of high-quality pork from Mexico in the first year, and expand the quota to 80,000 tons from the fifth year.

For both oranges and beef, Japan will introduce duty-free import quotas of 10 tons for the initial two years. It will set 10 tons in a duty-free quota for chickens in the first year.

Thereafter Japan will raise the duty-free import quotas to up to 4,000 tons for oranges, 6,000 tons for beef and 8,500 tons for chicken in the fifth year.

The road to sealing the FTA was rocky.

Initially, Japan and Mexico planned to conclude an FTA during a visit to Japan by Fox in October 2003. But marathon ministerial talks in Tokyo failed, mainly because of differences over how to treat Mexican farm products.

The two countries managed to reach a basic agreement in March after nearly 16 months of negotiations.

Japan aims to conclude FTA negotiations with the three ASEAN countries by the end of this year and with South Korea by the end of 2005. It will also launch negotiations for an FTA with ASEAN in April with the goal of concluding them within two years from the start of the negotiations.