Japan should actively explore the possibility of concluding free-trade agreements with some developing countries while forging closer economic relations with the United States and other industrialized countries through other types of new bilateral arrangements, according to a government report.
According to the still-classified report, which was obtained Friday by The Japan Times, an FTA is not the sole method of forging closer economic ties bilaterally or regionally, and Japan should consider an “appropriate mix of policy options” in the medium- and long-terms in implementing its external trade and economic policy.
The report was compiled by a study group comprising senior officials from the Ministry of International Trade and Industry and the Foreign Ministry. Although the two ministries insist that the study group is private in nature, it is clear that the report reflects a consensus view among their officials.
The report comes at a time when Japan, in a significant departure from its postwar external trade policy, is moving to conclude FTAs with some countries. At present, Japan is the only major industrialized country that does not have such a trade pact with at least one other nation.
Japan and Singapore are expected to formally agree next month to open negotiations on concluding a bilateral FTA. The agreement will be reached at a Tokyo meeting between Prime Minister Yoshiro Mori and his Singapore counterpart, Goh Chok Tong.
South Korea, Canada, Mexico, Chile, Australia, Switzerland have either formally or informally asked Japan to conclude a bilateral FTA.
The report says Japan and its FTA partners would benefit from expanded trade, as a result of elimination of tariffs and non-tariff barriers to imports and liberalization of trade in services.
“Expanded trade would give private companies of both Japan and its FTA partners more business opportunities and consumers more options (for better and cheaper products),” it says.
Domestic industries of Japan and its FTA partners would face increased competition from each other and reforms of industrial and economic structures would inevitably be accelerated. This would eventually help increase the productivity of Japan and its FTA partners and help revitalize their economies.
In addition to these economic gains, Japan would be able to make overall ties with its FTA partners stronger and more stable through increased interdependence. Among other noneconomic benefits, Japan would also be able to increase its voice — and influence — in the international diplomatic arena, the report says.
But at the same time, the report points out that if Japan tried to make further market liberalization and reforms of the industrial and economic structures through FTAs with foreign countries, it would face strong objections from some domestic industries that lack international competitiveness, such as agriculture, petrochemical and textiles.
“Therefore, when Japan considers concluding an FTA with any country, it needs to make a decision on whether to do so from a comprehensive viewpoint, while taking into account its national interests,” the report says.
The report also says that any FTAs to be concluded between Japan and its trade partners must be fully compatible with rules set by the World Trade Organization, the Geneva-based watchdog on global commerce. While pursuing FTAs with some foreign countries, Japan should keep, as its basic policy, contributing to maintaining and strengthening the multilateral trade system under the WTO, it says.
Noting that the WTO rules require any FTA to cover “substantially all the trade” between FTA partners, the report says that even the politically sensitive agricultural sector should never be excluded completely from any FTAs to be concluded between Japan and its trade partners.
Although the report says that closer economic ties with the U.S., Canada and the 15-nation European Union would bring huge benefits to Japan, it suggests that concluding an FTA with them would not necessarily be effective in forging such ties.
The report notes that trade between Japan and the other industrialized countries has already been liberalized significantly and that tariffs are no longer a major obstacle to increased trade.
Therefore, the report says, Japan should consider measures other than an FTA to forge closer economic ties with the U.S. and other industrialized countries.
It proposes a bilateral arrangement to establish a comprehensive framework for harmonizing various economic systems, regulations and standards between Japan and the other industrialized countries.
The report also calls for closer economic ties with some developing countries, especially those in Asia, which it says have many young workers and lucrative growth potential as markets. But the report says it would be too early to even consider concluding an FTA with China, which is still in the midst of changing into a free-market economy.
The report also says that Japan should consider an FTA with Mexico. It points out that Japanese companies are at a competitive disadvantage in the North American country, compared with their U.S., Canadian and EU rivals, because of the lack of a bilateral FTA.
The North American Free Trade Agreement among the U.S., Canada and Mexico went into place in January 1994. The EU and Mexico also concluded an FTA, which took effect in July.
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