Sun, Apr 04, 2004 page11

• Japan desperately seeking FTAs to stave off Beijing

  • AP
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  Suddenly, free trade agreements are all the rage in Japan.

  Before a pact with Mexico last month, Japan had signed just one trade agreement, with Singapore in 2001. But by year's end it hopes to wrap up talks with Thailand, Malaysia, and the Philippines.

  It also wants a trade deal with South Korea next year and has begun negotiating with Indonesia.

  After years of sparring between farmers who want to keep cheap foreign produce out and industrialists eager to export more, free traders appear to be gaining the upper hand in a country with a long history of erecting walls around its markets.

  Toyota Chairman Hiroshi Okuda, who also heads Japan's most powerful business lobby, said he was "extremely delighted" by Japan's deal to liberalize trade with Mexico. Prime Minister Junichiro Koizumi hailed the pact as "very meaningful."

  Few expect the haggling over how open Japan will be to Thai rice or South Korean beef to be easy. Japan is home to 2 million-plus politically influential farmers keen on protecting their livelihoods.

  But a realization is spreading that Japan needs to break down trade barriers to keep with the times.

  The biggest reason for the shift is China, which has already signed free trade pacts with 10 countries in Southeast Asia -- including some of Japan's most important trading partners. At stake is Japan's influence, or even relevance, as an economic power.

  "The fear of being left behind, of `missing the bus,' has really accelerated the process," said Toshiya Tsugami, a senior fellow at REITI, a government-funded think tank. "The signing of free trade agreements between China and the ASEAN countries was a big shock."

  By concluding individual free trade deals with all of the countries in the ASEAN by 2010, Japan hopes to directly counter the China challenge.

  The prime minister's office says a free trade pact with ASEAN would add as much as ?2 trillion (US$18 billion) to Japan's economic output and create as many as 260,000 jobs.

  China, however, already has a headstart. It launched its free trade zone with ASEAN this year and by 2010, the two sides are due to eliminate nearly all tariffs on goods and liberalize trade in services.

  As long as Japanese goods are slapped with high tariffs in Southeast Asia, the costs of products assembled in local factories from parts made in Japan will stay high, making them less competitive. In response, manufacturers would shift more production out of Japan, adding to the deterioration of Japan's manufacturing base, said Tsugami.

  Koizumi has been listening to such warnings.

  His Liberal Democratic Party, long the bastion of farmer-coddling lawmakers, last year established a committee to promote free trade agreements. The prime minister also convened his first Cabinet meeting on free trade this week.

  "The government and the ruling party have become much more forward-looking about the importance of free trade to Japan," said Keiichi Nagamatsu, managing director of Nippon Keidanren, the lobby headed by Okuda.

  Nagamatsu said Tokyo should eventually try to sign a pact with Beijing, given the close economic ties between the countries. Beyond simply being a regional rival, China is Japan's second-largest export market after the US and its largest source of imports.

  Of course, enthusiasm alone will not ensure Japan's free trade negotiations go smoothly.
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