Regional FTA quests playing off each other

by Miya Tanaka

Kyodo

Japan is entering a new stage in its pursuit of free-trade agreements as it begins bilateral and multilateral FTA negotiations involving its three major trade partners — the United States, the European Union and China.

Just about a week before declaring the launch of free-trade talks with the European Union on Monday, Japan said it decided to join negotiations on the U.S.-led Trans-Pacific Partnership pact that seeks to achieve a high degree of trade liberalization.

Work to forge a deal between Japan, China and South Korea also started Tuesday, and the first round of talks to create another huge free-trade zone called the Regional Comprehensive Economic Partnership, which will bring together 16 Asia-Pacific countries, including Japan, China and India, is scheduled for later this year.

Experts say Japan sees a chance to stage a comeback in the intensifying global FTA race, having felt it was lagging after rival South Korea reached trade deals with the United States and the European Union.

“2013 could be an epoch-making year because the portion of Japan’s trade covered by existing and potential FTAs will dramatically increase by adding the United States, the European Union and China as negotiating partners, and because we will see a move toward catching up with South Korea,” said Junichi Sugawara, a trade policy expert at Mizuho Research Institute.

While each negotiation process has evolved under different circumstances, Sugawara said it is not a coincidence that various talks, with the participation of Japan, are starting around the same time.

“I think Japan’s eagerness to join the TPP talks served as a stimulant (to other arrangements), leading other countries to renew their awareness of the importance of the Japanese market and the country’s position in the Asian market,” he said.

The TPP originated in a tiny regional FTA among Brunei, Chile, New Zealand and Singapore and is now an accord under negotiation among the original four countries plus the United States, Australia, Canada, Mexico, Peru, Malaysia and Vietnam.

Although the 11 countries have already been working to complete the negotiations this year, the United States has attached importance to bringing Japan into the talks because the involvement of the world’s third-largest economy will increase the significance of the envisioned deal that could also set the standards of trade across the whole region.

Seeing Japan attracted to the TPP, Beijing, for its part, has apparently been inspired to push for other undertakings that do not include the United States, such as the RCEP and the Japan-China-South Korea grouping, so as to make rules that it will be comfortable with.

Economy, Trade and Industry Minister Toshimitsu Motegi told a Diet committee meeting Friday that he hopes various negotiation tracks will affect each other “positively” as they proceed in parallel.

Sugawara echoed the view that the bilateral and multilateral negotiations involving Japan would mutually influence each other, but acknowledged that if one process were to slow down, so could others.

“If the TPP talks do not move swiftly, China may feel that it does not have to go so far as making concessions to wrap up talks on the RCEP, or the Japan-China-South Korea pact,” he said.

The recent announcement that the United States will enter negotiations on a trade agreement with the European Union could also complicate matters, given that the United States, the European Union and Japan will likely try to harmonize the trade rules each of them are discussing under separate frameworks.

Japan, meanwhile, has been seen as having the potential to delay the progress of the ongoing TPP talks due to its eagerness to secure certain exceptions on tariff elimination.

Japan has signed FTAs with 12 countries and the Association of Southeast Asian Nations, but the liberalization rate has been between 84 percent and 88 percent because it has not eliminated tariffs on hundreds of agricultural and fishery products.

Under the TPP, the number of items to be exempted from tariff elimination is likely to be limited to a few percent, even if such exceptions are allowed, meaning Japan would likely have to undergo the difficult process of opening up its agricultural market.

Hidetoshi Nakamura, an associate professor at Waseda University specializing in Japan-Europe relations, said Japan should move ahead with the TPP talks also from the viewpoint of seeking progress in negotiations with the European Union, which Japan has been eager to launch in order to benefit from the removal of EU tariffs on cars and electrical appliances.

“If the TPP initiative gets stuck, the EU will likely be less pressured to swiftly reach a deal with Japan. So Japan should not be satisfied with the fact that talks with the EU are going to start, presuming that it is a process separate from the TPP,” he said.