"CEAC Commentary" introduces news analyses andopinions in Japan on the concept of an East AsianCommunity, but they do not represent the views ofCEAC as an institution.

July 22, 2007

Political Decisions Urgently Needed for Japan'sFTAs
By ITO Takatoshi
In April, South Korea and the US concluded an FTA (Free Trade Agreement), which seems tohave shocking implications for Japan.
First of all, this agreement is almost like a truly free trade arrangement, where US markets willbe 100% liberalized except agricultural products, while Korea's non-agricultural markets will be99% open and its agricultural products will be liberalized except rice (completely exempted) andbeef (gradual tariff reductions over 15 years). Very few people expected that Korea would gothat far to conclude an FTA.
Second, Korea started its FTA negotiations with the EU as soon as it reached an agreement with
the US. If Korea and the EU agreed, Korean products could possibly wipe out Japanese productsin the EU region where tariffs are fairly high (10% on auto, 14% on flat TV, etc.).
As of now, Japan is yet to decide how to use FTAs strategically. Japan has so far concluded (andsigned) FTA agreements with six countries (Singapore, Mexico, Malaysia, the Philippines, Chileand Thailand), and reached basic (framework) agreements with two countries (Indonesia andBrunei) and one region (10 ASEAN countries). In addition, negotiations with Australia and someother countries are currently under way.
However, these FTA agreements, called EPAs (Economic Partnership Agreements) by theJapanese government, are somewhat problematic in that Japan's liberalization rate is lower thanthat of developing countries such as Mexico, Thailand, the Philippines and Malaysia. In fact, theformer is at most 90% and the latter exceeds 95% on the trade value basis. It is a shame that anadvanced country like Japan is less open than those developing countries.
One of the main reasons for this is protection and high tariffs for the agricultural sector. Strong
objections are often expressed within Japan to FTAs on the ground that Japan's agriculturalindustry would be destroyed if tariffs were eliminated.
In view of the Korea-US agreement, however, it is not impossible to exempt rice from FTA
negotiations. The important thing is to identify to what extent tariff protection is absolutely

1necessary and what other measures can replace those tariffs that are not so essential.
There may also be an objection that if Japan and the US concluded an FTA, it would cover
approximately 40% of the world's GDP, negatively influencing discussions for WTO to decide
on a global framework for free trade, and possibly inviting some criticisms from developing
countries.
However, a Japan-US FTA would not constitute a trade bloc to impose high tariffs on othercountries. Both Japan and the US would be willing to extend their FTAs to other countries withvery lower tariffs, possibly except for agricultural products, so this would not be a trade bloc. If
the US concludes an FTA with any other country, it would cover 30% of the world's GDP
anyway and, therefore, the 40% figure for the Japan-US FTA would not have any particularsignificance.
In Japan's FTA negotiations from now on, the following points should be taken into account.
First, try to accelerate negotiations to reach an agreement with Australia, and start joint studies
for FTA negotiation with the US and the EU, respectively, as soon as possible.
Second, pursue FTAs with high liberalization rates both on the trade value basis and on the tariffline basis.
It is imperative that Japan make progress toward FTAs with the US and the EU before Japanesecompanies become disadvantaged due to Korea's FTAs, and possibly accelerate their investmentin the EU and the US in order to avoid such a disadvantaged position. Japan's political decisions
are urgently needed in this regard.
(This is an article by ITO Takatoshi, Professor of the University of Tokyo and a Member of
the Council of East Asian Community (CEAC), which originally appeared in Japanese in
the June 9, 2007 issue of Weekly Toyo Keizai. The English translation of this article wasthen posted on the website “Global Communications Platform” on June 11, 2007.
http://www.glocom.org/opinions/essays/20070611_ito_political/ )2