Fashionable trade agreements all the rage in Asia
Asia Times, Hong Kong
Fashionable trade agreements all the rage in Asia
4 March 2004
By Jamie Miyazaki
From Tokyo to Mumbai, FTAs - free-trade agreements - seem to be every Asian politician’s favorite new phrase these days. Like an anti-protectionist epidemic, FTAs, RTAs (regional trade agreements) and all manner of abbreviations ending in "TA" are spreading around Asia; multilateralism as embodied by the World Trade Organization (WTO), it seems, is out. Certainly the past four weeks have been busy ones for the apparatchiks at the trade ministries of two of Asia’s biggest economies: South Korea and Japan.
Of course, they have met and are still meeting tough resistance from protectionist forces. Great traders like Japan and South Korea are also lousy liberalizers when it comes to knocking down their own barriers, but business and trading interests may well prevail. And the threat of China might drive Tokyo and Seoul into each other’s FTA arms.
Asia as a whole, and North Asia in particular, have been latecomers to the FTA game. While FTAs were proliferating in Europe, North America and South America, Asia did not get around to signing its first FTA until 1997 with the Association of Southeast Asian Nations (ASEAN) Preferential Trading Agreement. The Asian financial crisis of 1997 and the collapse of the WTO talks at Cancun, Mexico, last year have renewed governments’ interest in the value of preferential trade agreements. India is racing head to sign FTAs with Asian countries, but much of the action is in North Asia these days.
Ironically, Japan and South Korea, two of the region’s biggest economies, have found riding the new bandwagon rough going. After a particularly acrimonious debate, in which it found itself hostage to everything from inter-party rivalries to its vociferous agricultural lobby and trade unions, Seoul finally managed to ratify its first FTA, with Chile, last month. Having signed an FTA with Singapore, Tokyo is now grappling with the bigger task of completing an FTA with Mexico this month - something it failed to achieve last October.
Japan and South Korea are two of the world’s great trading nations, Korea alone relying on trade for 67 percent of its gross domestic product (GDP). Their trading prowess, however, only tells half the story. Both countries have gotten rich off nurturing certain key export industries that are world leaders, while erecting protectionist barriers around the rest of their economies. The agricultural sector, weighted with farmers’ lobbies that can still pack a political punch if need be, stands out in both nations. However, not only farming is protected - the Korean and Japanese footwear and textiles, leather goods, petrochemicals, and a host of other sectors remain cocooned behind protectionist walls.
Tokyo, Seoul seeking more FTAs
It is not surprising that both Chile and Mexico have demanded access to these markets, causing considerable consternation to politicians in North Asia. Korean farmers were the most vocal opponents of the recent deal. Mexico appears poised to drive a hard bargain with Japan, especially in meat and orange juice. Import quotas on pork, at 250 yen (US$2.30) per kilo - nearly 100 yen less the production cost for most Japanese farmers - are expected to climb to 80,000 tons a year should the two sides sign a deal.
Yet despite teething problems, both Tokyo and Seoul remain adamant that they are seeking to strike deals with more countries. East Asian nations, with their high tariffs, are the most likely candidates and would produce the greatest economic benefits for both. Thailand and the Philippines have already launched preliminary talks with Tokyo.
But old protectionist habits die hard; already politicians from Japan’s governing Liberal Democratic Party (LDP) have voiced disquiet about Thai and Filipino doctors and nurses being allowed to practice in Japan should comprehensive FTAs be on the table. Bowing to the influential doctors’ lobby, some LDP politicians have proposed that foreign doctors should be allowed to treat only patients of their own nationalities. (It is not clear whether this proposal would also extend to Danish actors only being allowed to play Hamlet.)
So who better for Tokyo and Seoul to strike a deal with than each other? As protectionist partners in crime, a bilateral FTA would be relatively easy to sign. Neither side would really need to battle its protectionist lobbies as they are nearly identical in both, and they could leverage off a bilateral pact to sign a deal with China. No sooner had the ink dried on the Korea-Chile agreement and Mexican negotiators stepped on to the tarmac at Narita Airport than Tokyo and Seoul agreed to establish another committee to help accelerate talks for a Korea-Japan FTA.
Unfortunately - or not - for both nations, the implications of a Korea-Japan FTA would be far more liberalizing than the governments understand at this time. Other East Asian nations will probably lobby harder for bilateral FTAs with the two nations in agriculture and other protected sectors, making competitive liberalization a reality rather than a buzzword. One preferential trade agreement may well end up prompting another to reduce the margin of discrimination of the former, or if this doesn’t happen, then the intransigent party could risk becoming isolated in trade initiatives.
If Seoul and Tokyo want to maintain open access to foreign markets, then trade liberalization for their own markets will be inevitable.
China threat could push Tokyo-Seoul FTA
China’s formidable economic shadow looms large over Japan’s and South Korea’s new-found efforts for trade agreements. Many politicians in Japan and Korea say that unless they enhance their competitiveness through their own a bilateral free trade agreement, they could be easily overwhelmed by China.
Beijing’s proposal to establish a China-ASEAN FTA by 2010 caught both Tokyo and Seoul off guard, when it was delivered at the 2002 ASEAN summit in Cambodia by Zhu Rongji, then China’s top economic boss. Japanese Prime Minister Junichiro Koizumi, not to be outdone by Beijing, quickly announced proposals for a Japan-ASEAN FTA. However, Beijing deftly tackled the thorny agricultural issue with ASEAN head-on. By offering early-harvest measures for fruits and vegetables to make the FTA proposal more attractive to ASEAN, China won itself a lot of respect in Southeast Asia.
Captains of industry in all three nations and those politicians with a long-term view have even begun talking of a giant China-Korea-Japan FTA. According to a study released last October, support in the business community was 85 percent in China, 79 percent in Japan and 71 percent in South Korea. China is now South Korea’s largest export market and Chinese demand has driven Japan’s recent economic upturn. The importance of the Chinese market to both Seoul and Tokyo is overwhelming. However, with Japan and Korea struggling with their present FTA commitments and China still some distance from ratifying its own ASEAN agreement, a North Asian trade bloc looks like a pipe dream for the moment.
Nonetheless, with the number of farmers in both Japan and South Korea continuing to thin out because of demographic changes and the FTA juggernaut gathering steam across the region, the clout of protectionists in both countries appears to be on the wane. Business leaders in both Tokyo and Seoul have railed against the intransigence of their farming lobbies as an impediment to growth.
Still, diehard protectionists in South Korea and Japan can take comfort that at least one regional government appears determined to continue fighting the tide of FTAs sweeping the region. Upon hearing of the ratification of the South Korea-Chile FTA, the Korean Central News Agency of Pyongyang warned that North Korea would "prevent traitors from selling staple food of the nation and join the peasants in a powerful struggle to protect the agriculture of the nation".
Jamie Miyazaki is a freelance journalist and political risk analyst specializing in North Asia.
