Japan could be left behind in the global trend of free trade agreements unless it resolves the problem of its protected agricultural sectors, Keio University professor Fukunari Kimura stressed at the Sept. 28 East Asia symposium.
Tokyo has signed FTAs with several countries, mainly with those in southeast Asia but also with nations outside the region such as Mexico and Chile. Japan is now set to conclude a pact with the Association of Southeast Asian Nations later this year, an agreement that would be the nation’s first with a regional bloc.
Professor Kimura described Japan’s FTA strategy as “pragmatic — in both a good sense and a bad sense.”
According to Kimura, Tokyo has emphasized creating better business environments for Japanese firms operating in East Asia in its FTA strategy aimed at further promote cross-border production and distribution networks.
This strategy has been successful to a certain extent in improving trade and investment rules, protection of intellectual property and securing channels of private-public sector communication in Japan’s trading partners, he noted.
At the same time, Kimura pointed out, Japan’s FTAs are often criticized abroad as being “dirty” or “not comprehensive” in terms of liberalization of goods trade because a number of items — including many farm products — have been exempted from the tariff cuts.
In fact, the scope of liberalization offered by Japan is narrower than that pledged by most of Japan’s FTA partners — unusual in that advanced economies tend to offer greater degrees of liberalization than developing countries, Kimura pointed out.
Japan’s FTA partners have so far accepted the uneven terms because of Tokyo’s strong bargaining power and the expectation that agreements could lead to increased economic cooperation and investments from Japan, he said.
However, Kimura warns that Japan cannot use such tactics with more advanced economies like South Korea or Australia. The FTA talks with South Korea have remained stalled for years. Negotiations launched in April with Australia are expected to have agriculture as a major stumbling block as Japanese farm lobbies oppose the inclusion of rice, wheat and dairy products in any deals with the major farming nation.
Also at the symposium, Masahiro Yonekura, a vice chairman of the Japan Business Federation (Nippon Keidanren) and president of Sumitomo Chemical Co., stressed that FTAs with East Asia are crucial to Japan’s sustained growth, especially in light of the challenges posed by globalization and Japan’s declining birthrate.
Japan should also pursue an FTA with the U.S., he advised, in order to serve as a bridge between the U.S. and East Asia.
Kimura, however, warned that Japan must resolve the politically sensitive farm trade protection issue or risk being unable to make initiatives in the global effort for trade liberalization.
Future FTAs with the U.S. or the European Union will be impossible if Japan fails to conclude a deal with Australia, Kimura stressed, and advised Japan to first do its “homework” concerning agricultural industry reform before talking about regional community building in East Asia.
Recent years have seen a rapid expansion in FTAs worldwide and Shujiro Urata, professor of economics at Waseda University’s Graduate School of Asia-Pacific Studies, said one of the reasons for this is that more and more countries have realized that domestic economic reforms implemented as part of free trade deals will act to accelerate growth.
Urata agreed that, for Japan, key questions needing to be addressed are farm industry reform and the labor market.
He also pointed to a “competition” of various FTA arrangements for the whole of East Asia, with major economies such as Japan, China and South Korea each concluding or negotiating deals with the 10-member Association of Southeast Asian Nations. The question, he said, is whether this will evolve into a single region-wide FTA.
Suthiphand Chirathivat, chairman of the Economics Research Center and the Center for International Economics at Chulalongkorn University in Thailand, said the current competing schemes and tracks for East Asian regionalism, whether it is ASEAN plus three, plus six or an even larger membership, must be resolved.
Suthiphand also said efforts will be needed to drive the process of regional cooperation and integration beyond the overlapping rules and commitments of different free trade deals. He pointed out that multiple rules of origin under a jumble of overlapping FTAs would be burdensome and could increase transaction costs.