Japan and the Association of Southeast Asian Nations will next week set up a study group on the conclusion of a free trade agreement in a bid to compete with emerging powerhouse China and growing trade blocs in Europe, as well as both North America and Latin America, government sources said Saturday.

Tokyo and the 10-member ASEAN will formally agree to set up the group of government economic experts in a ministerial-level meeting on Friday in Siem Reap, Cambodia, to be held on the sidelines of a gathering of economic ministers from ASEAN, China, Japan and South Korea, the sources said.

The group will compile and submit its proposals to the economic ministers when they next meet in Hanoi this fall, and the ministers will report on the outcome of their discussions of the proposals to the following Japan-ASEAN summit in Brunei, also in fall, the sources said.

Participants from Japan will include officials of the Ministry of Economy, Trade and Industry, they said.

The envisaged FTA is expected not only to lower customs duties and tariffs, but also facilitate investment and harmonize the conventionally distinct domestic rules and systems between the two sides, including those related to information technology, the sources said.

The planned proposals will cover broad issues ranging from trade, investment and IT to cooperation in the environment and energy issues, policies to enhance competitiveness and small companies and coordinating industrial standards and patent policies.

Japan expects the FTA with the region to help numerous Japanese companies operating in Southeast Asia expand cross-border operations region-wide, the sources said.

It will be mutually beneficial for both sides, they said, even though Japan will risk touching the domestically sensitive issue of a surge in imports of agricultural products. Japan on Monday imposed emergency import curbs on three agricultural products.

ASEAN, meanwhile, is eager to enhance economic ties with Japan in the face of intensifying competition from China, whose low-cost labor attracts Japanese companies, contributing to its rapid export-driven economic expansion, they said.

Growth of Japanese investment in the region has slowed somewhat amid the protracted economic doldrums in Japan and with companies increasingly opting to seek new investment chances in China rather than ASEAN, one official said.

The Japan-ASEAN framework is also aimed at countering the recent move by China to conclude, for its part, an FTA with ASEAN, the sources said.

Beijing in November proposed that the region set up a similar working group. ASEAN hailed the idea, but seems to be worried about the rising competitiveness of China, particularly in light of its approaching entry into the World Trade Organization, the official said.

ASEAN itself is pursing regional trade liberalization under the ASEAN Free Trade Area (AFTA) arrangement. ASEAN groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Japan had been reluctant to sign an FTA out of fear it would lead to regional protectionism, but changed its stance recently to accept it as a way to supplement multilateral trade liberalization under the WTO, given that such moves have spread worldwide.

Tokyo is currently negotiating with Singapore to conclude by the end of this year an FTA of similarly broad coverage. It would be Japan’s first FTA with a trading partner.

Japan and ASEAN also aim to counter the European Union and growing Pan-American moves to increase free trade arrangements, such as expanding the North American Free Trade Agreement of Canada, Mexico and the United States into the proposed Free Trade Areas of the Americas, including Latin America and the Caribbean.

Japanese METI Minister Takeo Hiranuma is to skip the meeting because of political factors in Japan.

A string of ASEAN-plus-three meetings of finance, economic and foreign ministers were held last year after East Asian leaders agreed in 1999 to increase cooperation through ministerial meetings. The economic ministers first met in May last year in Yangon.

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