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Japan breaks with past on trade policy

TOKYO: In Japan, where radical policy departures are as rare as a slim sumo wrestler, a fundamental change is quietly taking place in the country's trade strategy.

A staunch champion of multilateral trade liberalisation, Japan is debating a new approach that would twin support for the World Trade Organisation with a number of bilateral free trade agreements (FTAs). Feasibility studies on pacts with Singapore, Korea and Mexico should be completed in the coming months.

Officials say the new policy is unrelated to the failure in December of talks in Seattle aimed at launching a new round of world trade talks. The decision to explore FTAs was made much earlier. Nevertheless, officials hope the initiative will keep up the momentum of both regional and global trade liberalisation.

"The Japanese government attitude toward FTAs has changed, at least in respect to studying the possibility of FTAs with other countries," said Noboru Hatakeyama, chairman of JETRO, the Japan External Trade Organisation.

"I personally hope that the government of Japan will launch -- not just study, but launch -- a real FTA, appropriate for the new globalised world, from the very early part of the 21st century," Hatakeyama said in a speech in Tokyo last week.

Japan's commitment to multilateralism is reflected in the fact that it is one of only four countries among the world's 30 biggest economies not to be a member of an FTA. The others are China, Taiwan and Korea.

But officials stressed that the new twin-track approach was meant to bolster the world trade watchdog, not to weaken it.

TOP PRIORITY

Shun Kosugi, a trade analyst with the Japan Institute for Social and Economic Affairs, agreed. "Japan itself sees the WTO and the multilateral trading regime as its first priority, and FTAs are a way to supplement that," he said.

Indeed, foreign policy-makers seem relaxed that Japan is latching on to the trend toward regional integration. After all, there are already 198 FTAs and customs unions in the world.

"I think we are now shifting to a world trade system which is more of an international governance system, and in this respect the fact that regional trade liberalisation can start addressing the problem of rules, cultures and systems which are different can be important," Pascal Lamy, the European Union's trade commissioner, told a recent EU-Japanese conference.

But the devil will be in the details of any agreements.

The FTA most likely to come to fruition is the one with Singapore, a free-trade trailblazer that expects to sign an FTA with New Zealand in the coming months and has agreed to open free-trade talks with Chile and Mexico.

A joint working group held its first meeting recently and set November as a target date to complete their study.

Singapore's trade minister, George Yeo, has said the aim is to reach a "new age" FTA with Japan focusing on high-growth service sectors such as communications, finance and information.

KOREA PLAN FLAGGING

By contrast, the odds of an FTA with Korea getting off the drawing board are extremely long.

Korea's rapid recovery and looming parliamentary election had "taken some of the steam out of the proposal", Hatakeyama said. But diplomats said an even more compelling reason was that Seoul had done its sums and concluded that it would lose from a deal.

"There has been an imbalance in trade that adds to the sensitivity of the issue," a Korean official acknowledged.

"So although some people may agree on the need for an FTA on general terms, when you start thinking about it in detail it seems to be quite an enormous matter to be untangled," he said.

JETRO is leading the Japanese study on Korea and hopes to release its assessment by the summer. Its report on Mexico should be ready in early April, Hatakeyama said.

Even if Japan tests the FTA waters and decides not to take the plunge, experts believe the trend toward regional and bilateral trading arrangements in Asia will continue.

For instance, the Asian Free Trade Area, set up by the 10 members of the Association of South East Asian Nations, agreed at a meeting in Jakarta last month with representatives of Australia and New Zealand to aim for a zero-tariff FTA by 2010.

Advocates of closer regional ties say such market-opening plans are welcome as long as FTA members hold the door open to other nations to join and do not discriminate against outsiders.

"If like-minded trade partners come together and say they wish to proceed a step further and faster, they should be encouraged to do so and the world should welcome that kind of arrangement," said Mignon Chan, Singapore-based director-general of the Pacific Economic Cooperation Council. -Reuters