Japan wants piece of free trade pie

Japan wants piece of free trade pie

Hardev Kaur, New Straits Times, Kuala Lumpur

A day after China signed an agreement with ASEAN for a Free Trade Area, Japan, the world's second largest economy, not to be left behind, took steps to be part of the regional trade pact, the Joint Declaration on the Comprehensive Economic Partnership.

The declaration spells out the makings of a free trade area (FTA) between Southeast Asia's 10 nations and Japan a reality within 10 years.

Japan has been a major investor and a major trading partner for many ASEAN members over the years and now sees competition from the emerging China, which signed the ASEAN-China agreement creating the world's largest FTA.

Japanese officials deny any competition with China, saying the gains of one are gains for all.

"I do not subscribe to this theory that China is a competitor," Koizumi said over the weekend, adding that China's closer ties with ASEAN should be taken as an expression of the enthusiasm by China for the market economy.

China, now a member of the World Trade Organization, poses challenges to countries and opens up new opportunities, not least for Japan.

The contrast between the two countries is sharp.

Japan is an economy struggling to emerge from 10 years of recession while China basks in a decade of close to 10 percent average growth a year.

China posted year-on-year growth of 8.1 percent in the July- September quarter this year, while Japan's economy shrank 1.3 percent in 2001-2002.

Japanese industry, according to observers, is not in a position to boost its investments in the region. China, in addition to attracting foreign direct investments, is also moving into the region.

Under the deal signed on Monday between China and ASEAN, the group established a framework to set up a free trade area with early harvest.

The Japanese pact is only at the stage of agreeing to develop a framework which kicks off a 10-year process of building a "broadbased economic partnership covering not only liberalization of trade and investment, but also trade and investment promotion and facilitation".

The ASEAN-Japan framework to develop the free trade zone will create an economy worth at least US$4.9 trillion.

It is estimated that by 2020, the export value from ASEAN to Japan would increase by $20.6 billion, which would be equivalent to 44.2 percent of 1997. The export value from Japan to ASEAN would increase by $20.2 billion, which would be equivalent to 27.5 percent of that in 1997.

In comparison, the ASEAN-China FTA will open up a market of 1.7 billion consumers with a combined gross domestic product of $1.5 trillion to $2 trillion and two-way trade of $1.2 trillion.

The ASEAN-China FTA takes note of the needs of the newer members of ASEAN -- Cambodia, Laos and Myanmar -- which will be given more time to comply with the agreement.

They will have till 2015 while the older members will comply by 2010.

To yield results, the FTA provides for an "early harvest". Of the estimated 5,400 products covered by the agreement, some 600 selected agricultural products will have their tariffs reduced by next year. And discussions on free trade in goods, services and investments are due to be held next year.

Agriculture is highly protected in Japan. Its first ever FTA, which Tokyo signed with Singapore earlier this year, makes no mention of trade in agriculture.

Similarly the joint declaration signed yesterday makes no mention of agriculture, and the strong farm lobby in Japan makes it difficult to move into the farm trade area.

Observers note that as agriculture is important to most ASEAN members, except Singapore, a comprehensive trade agreement with the grouping might not be that easy. And Japan may be left playing catch up to the emerging China.

But Japan is not the only one wanting a piece of the pie. According to Ong Keng Yong, who takes over as ASEAN secretary- general in January next year, in the coming months the United States and even the European Union would be actively pursuing FTAs with ASEAN.