Economic partnerships between Japan, ASEAN essential

Takashi Shiraishi, Historian, Kyoto University's Center for Southeast Asian Studies, The Yomiuri Shimbun, Asia News Network, Tokyo

Economic partnerships between Japan and member countries of the Association of Southeast Asian Nations most likely will be the major topic of discussion when Thai Prime Minister Thaksin Shinawatra, Philippine President Gloria Macapagal Arroyo, and Malaysian Prime Minister Mohamed Mahathir visit Japan next month.

Thaksin is certain to propose the official launching of bilateral negotiations on economic partnership when he meets Prime Minister Junichiro Koizumi. The Philippine and Malaysian leaders may also present similar proposals.

However, the Agriculture, Forestry and Fisheries Ministry and the Liberal Democratic Party (LDP) reportedly are determined to reject the Thai proposal because they are opposed to the scrapping of tariffs on agricultural products, which Thaksin is expected to put forward. There is, therefore, some uncertainty over whether the Japanese government will agree with Thailand to begin formal negotiations.

Economic partnerships between Japan and ASEAN countries are of strategic importance to Japan's Asia policy. It will be most unfortunate if the negotiations fail or bog down due to opposition by the ministry, by LDP lawmakers with vested interests, and by agricultural lobbies such as the Central Union of Agricultural Cooperatives.

It is imperative that the prime minister show strong leadership in the face of strong opposition.

Economic partnerships between Japan and ASEAN were first proposed by Koizumi in Singapore during his Southeast Asian tour in January 2002 as the first step toward the establishment of an East Asian community.

From the 1980s through the mid-1990s, Japan, through its direct investments, was a driving force behind the regional economic development in East Asia.

As a consequence, Japan, South Korea, China, Hong Kong, Taiwan, and ASEAN have achieved a significant degree of integration, economically and culturally (as seen more recently in the phenomenal spread of Japanese pop culture through the entire region).

Economic partnerships with Southeast Asian countries are a crucial component of the Japanese government's initiative to promote further integration of the East Asian region by building on existing relationships in the region.

However, Japan is not the only country pushing for such an initiative. The Chinese government is also actively promoting free trade agreements with the ASEAN.

Japan has so far maintained a strong presence in the region because of its market size, trade, investments, and provision of economic aid.

But what about the future? In light of Japan's current economic stagnation and the rise of China, many ASEAN countries are starting to feel that their futures will be more closely linked with China than with Japan.

Under such circumstances, if Japan is unable to open formal negotiations on economic cooperation because of opposition by agricultural interests, it will be seen as unreliable. Its sphere of economic influence in Southeast Asia will diminish, while China's will expand. This only underscores the strategic importance of economic partnerships with ASEAN countries as a cornerstone of Japan's Asia policy.

What, then, are the goals of economic partnership, and why are they important?

Economic partnership is sometimes viewed as just another name for free trade agreement, but it is not.

The Japan-ASEAN economic partnerships have three aims. One is to conclude a free trade agreements to promote trade liberalization. The second is to develop and standardize various systems, such as streamlining customs procedures, increasing the transparency of government procurement, developing a protection system for intellectual property rights, and standardizing professional qualifications to reduce the cost of cross-border economic activities. The third is to promote intellectual and personnel exchanges, and environmental cooperation, among other issues.

Thus, even though a free trade agreement is a core element of economic partnership, the partnership itself goes beyond the framework of the free trade agreement.

A free trade agreement, by definition, must comply with the rules of the World Trade Organization by covering, in effect, all trade items. Agricultural or any other trade sectors cannot be excluded from the agreement.

This is why Japan-ASEAN economic partnerships discussions, especially when they involve agricultural issues, are met with stiff resistance.

Those who oppose the official launching of Japanese-Thai economic partnership negotiations argue that if Japan begins formal negotiations with Thailand, Thailand likely will propose the abolition of tariffs on all agricultural products, including those closely associated with Japan's agricultural mainstays like rice, chicken and starch.

But is opposing the partnerships really beneficial to Japan?

Those who insist on the partnerships' possible negative impact on specific agricultural products must present statistics showing the precise extent of damage to their respective industries if tariffs are abolished.

The fact of the matter is that Japan has already significantly reduced tariffs as part of its WTO trade negotiations. Tariffs on some agricultural products have been reduced to less than 10 percent, while others have even dropped to 1 percent. Besides, at a time when exchange rates regularly fluctuate more than 10 percent, tariffs are really not much of a protective measure.

So why are Japan-ASEAN economic partnerships important? One is that such partnerships are needed to maintain our current living standards. Japan is still reeling from a decadelong economic slump. The declining birthrate and aging of the society are also becoming serious problems.

Notwithstanding the slump, economic development in East Asia has significantly contributed to the Japanese economy. Japanese companies have invested in ASEAN countries and China. They have established offshore production and marketing which have enabled Japan to maintain its international competitiveness. Asian companies also import consumer and capital goods from Japan.

Another reason is that economic partnership will help promote reforms within Japan itself.

Japan must keep pace with the rapid changes in this age of globalization. When a free trade agreement is discussed, issues such as "protection of employment" and "protection of domestic industries" are always raised. However, if an industry that has lost its international competitiveness is protected, resources are tied up in inefficient enterprises and cannot be reinvested in ventures with growth potential.

The resulting economy lacks dynamism and forces companies and individuals with potential and innovative business ideas to seek opportunities outside Japan. Domestic industries will be hollowed out, unemployment will rise, and incomes will fall. Moreover, protected industries will lose their domestic markets and decline further.

What is needed now is not protection, but the creation of industrial products crafted by advanced technologies and sophisticated designs, food products (beef, Japanese cherries and other fruits) with high international competitiveness backed by brand names and quality, and services to meet the needs of nation's decreasing and aging population. Economic partnerships have much to offer toward realizing these goals.

Japan is now at the crossroads. If we maintain a defensive stance on economic partnership, we won't have a future. What we need now is a political leadership capable of transcending domestic vested interests and sectionalism.