Japan faces rocky FTA road
Kyodo News
Japan faces rocky FTA road
By Maya Kaneko
30 July 2006
Now that the global trade talks under the World Trade Organization have collapsed, Japan will be forced to walk down what looks like a rocky road to seek bilateral free trade agreements, marking a departure from its trade policy based on both multilateral and bilateral approaches.
The Japanese government has called the WTO and the FTA "the two wheels" supporting its trade policy, with free trade accords supplementing the slow multilateral process.
But the breakdown of the WTO Doha Round in Geneva last week compels Tokyo to focus on FTAs, though inking such agreements could be a vexing process due to its unwillingness to budge much on opening up its highly protected agricultural sector.
Japan has FTAs with Singapore, Mexico and Malaysia, and has struck basic accords with Thailand and the Philippines. It has been in official FTA talks with Indonesia, Brunei, South Korea, Chile and the Association of Southeast Asian Nations as a whole.
Japan’s trade ministry has proposed creating a 16-nation free trade zone by 2010 in East Asia, involving ASEAN, Japan, China, South Korea, India, Australia and New Zealand, but this idea has triggered negative reactions from the farm ministry, which is reluctant to widely open the country’s farm market.
As a major food importer, Japan heavily protects its domestic farm sector. It imposes a 778% tariff on incoming rice, the country’s staple food, and three-digit duties on other politically sensitive items like wheat, sugar and dairy products.
With agriculture being Japan’s Achilles heel in trade negotiations, it is nervous about entering into official FTA talks with big agricultural producers like Brazil, China, Australia, Canada and the United States.
And since it has had little motivation to push ahead with FTAs from the beginning, Japan lags behind China and South Korea in pursuing them with regional trading partners.
Japan wants to complete negotiations with ASEAN by next March, while China’s FTA with ASEAN has partly taken effect with the gradual reduction of tariffs, and South Korea has signed an FTA with ASEAN, excluding Thailand, on goods trade. Seoul has also been in FTA talks with the United States.
To brace for the possible influx of cheap farm imports as a result of the WTO and FTA talks, the Japanese government has been carrying out agricultural reforms to sharpen the competitive edge of domestic farmers. The measures include funneling subsidies to large-scale farmers to boost their efficiency.
Brushing off speculation that Japan’s ongoing agricultural reforms could slow down with pressures from the WTO process easing, Agriculture, Forestry and Fisheries Minister Shoichi Nakagawa told a press conference in Geneva: "Irrespective of the Doha Round, we will go ahead with domestic reforms."
On the industrial front, where Japan is a strong global player, heading down the FTA path will not necessarily be a panacea as this has more limitations than the multilateral approach.
Naoshi Hirose, director at the Multilateral Trade System Department of Japan’s Economy, Trade and Industry Ministry, said Japan cannot seek to slash relatively high tariffs on industrial items remaining in some developed economies with the FTA approach.
The United States and the European Union retain up to 20% tariffs on trucks and electric appliances.
Tokyo is also expected to face difficulties in forging FTAs with rapidly industrializing nations such as Brazil and India, which keep high tariffs on industrial products to protect their domestic makers, he said.
To press Brazil, India and other emerging economies to lower industrial tariffs, it would be better for Japan to join forces with the United States and the European Union under the WTO framework, another trade ministry official said.
Furthermore, issues such as tightening antidumping rules and cutting farm subsidies can only be dealt with through the multilateral trade talks, Hirose said.
Junichi Sugawara, researcher at the Mizuho Research Institute, indicated that this delay in establishing a multilateral trade system could put more pressure on Japan to consider signing FTAs with the United States and the European Union, but such options would not be easily realized given the size of their economies.
He also warned against a possible slowdown in the FTA negotiations while the WTO process is dormant. "If the WTO is not working, we will try to secure as many benefits as possible in negotiating FTAs, and the process could be very time-consuming," Sugawara said.
As to when the Doha Round could be reopened, Sugawara said the most optimistic scenario would be that the Asia-Pacific Economic Cooperation forum meeting in Hanoi in November just after the U.S. midterm elections would reenergize the negotiations, bringing the round to a successful conclusion next year.
In that case, the U.S. Congress will allow a short-term extension of U.S. special presidential authority on trade known as "fast track," he projected. The presidential privilege, which enables trade agreements to be implemented or rejected on a simple yes or no vote without amendments, is set to expire July 1, 2007.
Kazuhito Yamashita, senior fellow at the Research Institute of Economy, Trade and Industry, forecast that the second half of 2007 would be the critical timing to push ahead with the WTO talks, since elections in major WTO players and revision of the U.S. agricultural law will be over by then.
Yamashita expects that the U.S. presidential trade power will be extended no matter which party - the Republicans or Democrats - secures a majority in the Congress in the midterms.
"The United States is not eager to lose past WTO achievements such as the termination of EU farm export subsidies by 2013, and I believe the Congress will be less allergic to the WTO than to FTAs signed with U.S. neighbors," he said.
Even though the WTO is put on hold for some time, Takumo Yamada, advocacy officer at Oxfam Japan, said Japan should implement its development package, which includes providing duty-free, quota-free market access for essentially all products from least developed countries.
"If Japan’s package truly meets the needs of poor economies and will not be used as a negotiation tool, we will welcome its early implementation" ahead of an eventual WTO accord, Yamada said.
Just before the last WTO ministerial meeting in Hong Kong in December, Japan unveiled a $10 billion aid plan to help developing countries promote trade.
