Negotiating free trade accords

Japan, China and South Korea held the first round of talks to form a tripartite free trade agreement on March 26 in Seoul. Also, Japan and the European Union have agreed to launch talks in April to set up an economic partnership agreement.

If the Japan-China-South Korea FTA and the Japan-EU EPA are inaugurated, they will have a great impact because of the size of the economies involved.

The aggregated gross domestic product of the countries taking part in the tripartite FTA would account for about 20 percent of the world economy. The FTA would also serve as a basis for creating a larger free trade zone in Asia. The Japan-EU EPA would establish a free trade zone in which the two partners’ total GDP would amount to one-third of the global economy.

Japan is likely to greatly benefit from the tripartite FTA and the Japan-EU EPA. The Japan-China-South Korea agreement may also help bring an end to regional political instability caused by territorial disputes. But Japan must prepare for hard negotiations because all of the participants have different stances and goals. It must develop clear strategies on what demands it will push aggressively, what concessions it can make and what domestic interests it will defend.

China is a bigger market for Japanese exports than the United States or the EU. China and South Korea are Japan’s largest and third largest export markets, respectively.

From Japan’s viewpoint, the tripartite FTA would supplement the Trans-Pacific Partnership free trade zone scheme, since China and South Korea are not TPP members. The Abe government has decided to take part in the TPP talks despite various problems the TPP may cause to Japan. Currently, 11 countries are taking part in the talks, including the United States, Canada, Mexico, Australia, Malaysia and Vietnam.

In the tripartite talks, Japan and South Korea are likely to call on China to lower its high tariffs for automobile and television imports. They are also likely to demand improvement of the protection of intellectual property and greater transparency of regulations in China. On the other hand, China may intend to use the tripartite free trade scheme as a means of countervailing the TPP. It is likely to call for a reduction of Japan’s high tariffs on agricultural and textile products.

In the talks with the EU, Japan will likely demand that it abolish its 10 percent tariff imposed on Japanese automobiles. But the European auto industry is lobbying hard against an increase in automobile imports from Japan.

Although Japan has already abolished its tariff on automobile imports from the EU, the EU is expected to demand the abolition of nontariff barriers in Japan on automobiles and drugs. It may also demand that Japan reduce its tariffs on pork and cheese.

As in the case of the TPP, Japan may be asked to make large concessions in the field of agriculture in the talks for both the tripartite FTA and the Japan-EU EPA. Japan must prepare thoroughly to deal with the expected demands.