In a major shift of trade strategy, Japan is moving toward concluding bilateral and regional free-trade agreements. In January of this year the nation signed its first FTA with Singapore. Now it is negotiating a similar arrangement with Mexico. And looming over the horizon are FTAs with South Korea and the Association of Southeast Asian Nations.
Since the end of World War II, Japan has achieved economic prosperity under the multilateral free trade system represented formerly by the General Agreement on Tariffs and Trade, or GATT, and now by the World Trade Organization. Other nations, however, have been pushing liberalization in trade, investment and other areas under regional FTAs. The North American Free Trade Agreement (the U.S., Canada and Mexico) and the 15-member European Union are notable examples.
Japan’s emphasis on FTAs stems from the realization that promoting trade strictly within the WTO’s multilateral framework — without recourse to bilateral or regional agreements — will not serve national interests in the long run. In this sense, FTAs represent a major shift in Japan’s traditional economic diplomacy and trade strategy.
All of this reflects the limitations of the WTO, a ponderous organization of 144 nations that differ widely in the level of economic development, with each facing its own domestic problems. One major drawback of the WTO is that it takes an inordinate amount of time to build consensus among members. This has, to all intents and purposes, deprived the organization of the flexibility needed to deal with a rapidly changing trade and economic environment.
That is why the United States and European nations, among others, have set up free trade areas. FTAs, however, are designed not to bypass the WTO but to complement it by picking up where it falls short. There is no reason, therefore, why Japan alone should stick rigidly to its WTO-centered policy. The nation also needs to alter its trade policy to meet similar moves by China, which is trying, ahead of Japan, to conclude a wide-ranging FTA with ASEAN.
Mutual benefit is the heart of free trade. Favorable trade and economic ties provide the basis for friendly political relations. Intractable domestic problems, however, often stand in the way of trade reciprocity. Japan’s Achilles’ heel is agriculture. The nation, while exporting massive quantities of industrial products, is erecting high hurdles for imports of certain farm products, particularly rice. Foreign criticism of “protectionism” is not unfounded.
However, liberalizing rice imports is easier said than done. An influx of cheaper foreign rice — from the U.S., for example — would deal a crushing blow to domestic farmers. The “farm tribe” lobbyists in the Liberal Democratic Party — legislators from rural constituencies — are dead set against liberalization. The rice market, they argue, must be protected to maintain “food security.”
But if Japan is to pursue its FTA strategy it must address agricultural problems. In fact, the farm sector holds the key to the conclusion of an FTA. Inevitably, progress in discussing a free trade agreement must depend on the coordination of agricultural interests. The Japan-Singapore agreement is regarded as an exception because agriculture carries little weight in trade between the two nations.
The Foreign Ministry, the vanguard of the FTA campaign, needs to keep farmers’ interests in mind when proposing or negotiating such an agreement. The impression, however, is that the ministry, in its eagerness to project a positive image as an FTA promoter, is putting agriculture on the back burner, or trying to get a diplomatic head start with little regard for farm issues.
At recent APEC and ASEAN meetings Prime Minister Junichiro Koizumi expressed Japan’s desire to conclude FTAs, sending the same message as the Foreign Ministry. The message itself is right, but it may create mistrust among our trading partners if the FTA vision is promoted without a specific road map for agricultural reform. To make its promises credible, Japan must start making serious efforts to work out its agricultural problems.
Beyond that, it is important to remember that, for all its benefits, real or imagined, a free trade area has the potential risk of turning into an exclusive economic bloc. Indeed, history shows that economic regionalism is a double-edged sword, and that conflict of regional economic interests has often driven nations to war. In fact, that was one reason for the Pacific War. The lesson to be drawn is that FTAs should be managed carefully within the broad framework of the WTO.
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