Free Trade Agreements Strengthen Domestic Reform Efforts in Japan

Business/Government/Assignment Editors

NEW YORK -- April 19, 2005

The Japan External Trade Organization New York (JETRO NY) released a newsletter today highlighting Japanese free trade agreement (FTA) and economic partnership agreement (EPA) negotiations, including potential discussions with Australia on the occasion of Prime Minister Howard's visit to Japan this week. It can be viewed at: http://www.kwrintl.com/library/2005/focus39.html

A summary is presented below::

• The Rising Importance of Bilateral Trade and Economic Partnership Agreements

Japan entered into its first FTA with Singapore in 2003 and a second agreement with Mexico this month. Japan has also completed negotiations with the Philippines and is currently active or considering FTA talks with ASEAN as a whole, South Korea, Malaysia, Thailand, Chile, Indonesia, India and several other nations.

• FTA/EPAs Can Serve as an Engine to Promote Domestic Growth and Reform

FTAs are valued in Japan, as in the United States, for their ability to expand market access. Equally important, however, is the ability of FTAs to serve as a liberalizing force. This is due to their ability to introduce market forces into sectors that have not been challenged sufficiently through true and open international competition.

• Domestic Inefficiencies Have Influenced Japanese FTA/EPA Negotiations

The shift toward a greater reliance in Japan on FTA/EPAs has not been easy. Nor has it been without problems and pain. Many analysts cite the case of Japanese farmers and agricultural producers, who have traditionally been able to exert strong influence to protect their interests. These analysts note this resistance has impinged on the nations ability to remove the inefficiencies that constrain growth and the overall competitiveness of Japan's domestic economy. Notwithstanding these, and other barriers, Prime Minister Koizumi and his government understand Japan's long-term competitiveness is at least partially predicated on the benefits that can be realized through free trade and economic partnership agreements.

• The Differentiation Between Winners and Losers Now in Process

Movement toward FTAs is providing reformers with an opportunity to accelerate change in Japan's domestic economy. Many analysts also point out the Koizumi Administration has the full support of urban voters, who must bear the higher prices that must be paid for protected Japanese products. This provides another important force for change.

In another significant development, Japan's Ministry of Agriculture, Forestry and Fisheries is now developing a new agricultural policy, which will be announced in the near future. It will constitute a change from the maintenance of prices through high customs duties to one that implements a system for supporting the incomes of farming families.

• Success with Australia Would Facilitate Structural Reform Efforts as Well

Australia's Prime Minister, Mr. John Howard, who views passage of an FTA with Japan as a priority, is scheduled to visit Japan on April 21st. Facing pressure from Australian farmers, he is expected to push hard to establish a date to begin FTA negotiations with Japan.

An FTA with Australia would be Japan's first agreement with an advanced economy -- which possesses highly competitive agricultural and service industries. Progress in these areas will introduce additional efficiencies and structural reform into sectors that have lacked free and open competition. Closer relations with Australia would also strengthen Japan's energy and food security and provide it with a closer relationship with a nation that shares its strong commitment to the modern values of democracy, constitutionalism and capitalism.

• Despite Obstacles, There is Substantial Reason for Optimism

Whether the Japanese Government will enter into negotiations with Australia is still unclear, however, further progress was achieved last month during talks between Foreign Minister Downer and Japanese Prime Minister Junichiro Koizumi. Irrespective of any progress -- it is clear that Japan can benefit from the use of FTA/EPAs, utilizing these mechanisms as a tool to upgrade its economic structure and vitality.

 Data, statistics and the reference materials presented within this newsletter have been compiled by JETRO from publicly-released media and research accounts. Although these statements are believed to be reliable, JETRO does not guarantee their accuracy, and any such information should be checked independently by the reader before they are used to make any business or investment decision.   For additional information on economic and financial trends in Japan, please contact Akihiro Tada, Executive Director of JETRO NY at Tel: 212-997-0416, Fax: 212-997-0464, E-mail: Akihiro_Tada@jetro.go.jp