Think of it as entering a long tunnel with no light at the other end anywhere in sight.
A joint Japanese-Mexican study group will meet for the first time in Mexico next month to discuss ways to strengthen bilateral economic relations, including the possibility of concluding a free-trade agreement.
The study group, comprising about 10 government officials, academics and business people from each side, will try to compile a report on its findings by next summer, possibly paving the way for the two countries to launch negotiations on an FTA.
The study group’s first meeting will come about three months after Prime Minister Junichiro Koizumi and Mexican President Vicente Fox agreed at a Tokyo meeting to establish the team.
If FTA negotiations are actually launched following the study group’s report, Mexico could become the second country with which Japan will likely conclude an FTA; Singapore is likely to be the first.
Japan is the only major economic power that has not yet concluded an FTA with any of its trading partners. But in a significant shift in policy, Japan launched FTA negotiations with Singapore in January, a few months after a study group of government officials and private-sector experts — which is similar to the one to be inaugurated between Japan and Mexico next month — compiled a report recommending the negotiations.
Japan and Singapore are now in the final stage of negotiations. The expected FTA will be formally called the Economic Partnership Agreement because it will go beyond just import-tariff elimination and will contain cooperation in a broader range of areas, including electronic commerce and stock trading.
The two Asian countries are expected to sign the Economic Partnership Agreement by the end of this year and put the pact into force on April 1.
But unlike Singapore, which Japan chose as an FTA policy guinea pig, Mexico is a major agricultural producer, and Japan will face vehement domestic objections to taking the plunge and agreeing to open FTA negotiations.
Agriculture is one of the most protected, least competitive and weakest segments of the Japanese economy.
Therefore, it is far from a foregone conclusion that Japan will actually go beyond merely studying the possibility of concluding an FTA and launch FTA negotiations.
To do so, Japan will have to overcome strong resistance from within the ruling Liberal Democratic Party and from well-connected farmers.
For its part, Mexico appears to be taking it for granted that Japan will launch FTA negotiations once the joint study group has completed its work.
Indeed, Mexican Economy Minister Luis Ernesto Derbez said during a Tokyo visit last month that Mexico hopes to conclude an FTA with Japan by early summer 2003 — about one year after the joint study group finishes its work and reports on its findings.
Apparently giving its top priority to concluding an FTA, Mexico also has refused to resume stalled negotiations with Japan on establishing another pact aimed at protecting and facilitating Japanese investments in the Latin American country. The investment pact would become unnecessary if the two countries concluded an FTA that covers the investment area as well.
If Mexican expectations about an FTA with Japan are betrayed, bilateral relations may suffer.
“We have just agreed to study the possibility of concluding an FTA as one of the options to strengthen bilateral economic ties,” a senior Japanese government official said. “If Mexico believes that the launch of the joint study group will automatically lead to opening of FTA negotiations, then we will have to make efforts to remove that misunderstanding.”
Many Japanese companies have strongly called for an early FTA conclusion between Japan and Mexico, a major manufacturing base for products exported to the U.S., in recent years, for fear of being put at an even further disadvantage in their increasingly-tough global competition with U.S. and European rivals.
Mexico has already concluded FTAs with some 30 of its trading partners; it is a member of the North American Free Trade Agreement along with the U.S. and Canada; the 15-nation European Union put an FTA with Mexico into force in July 2000.
The Japanese industry’s fear of losing competitiveness has grown even further with the abolition this year of the Mexican Maquiladora system — under which foreign companies with operations in the Maquiladora zone along with the U.S. border were permitted to import raw materials and parts tariff-free.
The two-way trade between Japan and Mexico totaled $7.6 billion last year, with Japan exporting $5.2 worth of products — mostly machinery — and importing $2.4 billion worth of Mexican products.
Proponents of FTAs within the Japanese government, especially those within the Ministry of Economy, Trade and Industry, also believe that such arrangements will encourage structural reforms in internationally weak domestic industries and eventually revive the struggling Japanese economy.
But the Ministry of Agriculture, Forestry and Fisheries and LDP politicians with close links to domestic farm lobbies, as well as politically powerful farmers, are dead-set against any further liberalization of the Japanese farm markets.
Unlike Singapore, Mexico would be much more than a mere laboratory experiment.
Singapore produces almost no farm products. Its agriculture exports to Japan — mainly gold fish and processed sugar products — account for only a few percentage points of overall Japan-bound exports.
Therefore, it is thought that an FTA between Japan and Singapore that basically excludes farm products will not violate rules set by the World Trade Organization, which stipulate that any FTA should “substantially cover all trade.”
Then there’s Mexico.
Farm products account for more than 20 percent of overall Mexican exports to Japan, with the biggest farm item being pork, one of the most politically sensitive and heavily protected items in Japan.
The upshot is this: Japan will find it very difficult — maybe even impossible — to reach an FTA with Mexico while keeping domestic farmers well fed with political pork.
Tokyo may decide the only way out of the tunnel is to turn around.
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