Japan’s New Economic Strategy in Asia-Pacific:

Implications for the EU

July X, 2012

Shujiro URATAWaseda University

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Contents

I. Japan’s Economic Situation

II. High Economic Growth and Regional Economic Integration in Asia-Pacific

III. Japan’s New Economic Strategy in Asia-Pacific

IV. Japan-EU EPA/FTA

V. Concluding Remarks

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1. Japan’s Economic SituationCurrent situationLow economic growthRecovering from the Eastern Japan Disaster (March 11, 2011)Closed economyFuture prospectsDeclining and aging populationDeclining savings rateIncreasing government debtChallenge for achieving economic growthIncrease productivityIncrease economic interaction with growing AsiaSolutions New Economic Strategy in Asia-PacificJapan-EU EPA

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GDP Growth Rates (%)

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GDP

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Trade-GDP Ratios (%)

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II. High Economic Growth and Regional Economic Integration in Asia-Pacific

Market-driven Regional Economic IntegrationHigh economic growth achieved by rapid expansion of foreign trade and foreign direct investment (FDI) Advances in regional economic integration Expansion of trade and FDI in machinery sector (electronic machinery, transportation machinery)Increase in parts and components tradeFragmentation strategy by multinational corporations: formation of regional production networksLiberalization of trade and FDI policies

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Total Trade (Exports+Imports) : EU, East Asia and North America

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Intra-regional Trade Dependence (%)

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Intra-regional Trade Ratio (%)

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Shares of East Asia’s Trade with Regions (%)

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Share of Parts and Components in Intra-regional Trade (%)

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Declining Tariff Rates

0.0

10.0

20.0

30.0

40.0

50.0

60.0

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%

ChinaIndonesiaMalaysiaPhilippinesThailand

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Trade Liberalization: Declining Tariff Rates (%)

Primary ManufacturedTotalgoods goods

Japan 1988 8.3 3.5 4.22007 11.4 2.9 4.2

China 1992 35.1 40.6 40.42007 9.0 8.9 8.9

Korea 1988 19.3 18.6 18.62007 20.8 6.6 8.5

Indonesia 1989 18.2 19.2 19.22007 6.6 5.8 5.9

Malaysia 1988 10.9 14.9 14.52007 2.8 6.5 5.9

Philippines1988 29.9 27.9 28.32007 6.0 4.8 5.0

Singapore 1989 0.2 0.4 0.42007 0.2 0.0 0.0

Thailand 1989 30.0 39.0 38.52006 13.6 10.4 10.8

Australia 1991 3.0 14.1 12.82007 0.9 3.1 2.8

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Emergence of institution-driven regional economic integration

Rapid expansion of free trade agreements (FTAs) in East Asia in the 21st century

FTA (free trade agreement): free trade (elimination, reduction of tariff and non-tariff barriers among FTA members)

In East Asia ASEAN has become a hub of FTAs: 5 ASEAN+1 FTAs have been implemented 4 initiatives have been proposed for region-wide FTA:

ASEAN+3 (East Asia FTA), ASEAN+6 (CEPEA), ASEAN++ (RCEP), Free Trade Area of Asia-Pacific (FTAAP)

The US has become active in region-wide FTA: Trans-Pacific Partnership (TPP) 18

FTAs in East Asia (December 2011)

Bangkok Treaty (1976) Thailand-NZ (2005) Japan-Brunei (2008)AFTA (1992) Singapore-India (2005) China-NZ (2008)Singapore-NZ (2001) Korea-Singapore (2006) Taiwan-Nicaragua (2008)Japan-Singapore (2002) Japan-Malaysia (2006) Singapore-Peru (2009)

Singapore-Australia (2003) Korea-EFTA (2006) China-Singapore (2009)Singapore-EFTA (2003) China-Chile (2006) Japan-Switzerland (2009)Singapore-US (2004) Korea-ASEAN (2006) Japan-Vietnam (2009)Korea-Chile (2004) Singapore-Panama (2006) India-ASEAN (2010)China-Hong Kong (2004) Japan-Chile (2007) ASEAN-Australia-NZ (2010)China-Macao (2004) Japan-Thailand (2007) China-Peru (2010)Taiwan-Panama (2004) China-Pakistan (2007) China-Taiwan (2010)Singapore-Jordan (2004) Malaysia-Pakistan (2007) Korea-EU (2011)Japan-Mexico (2005) Japan-Philippines (2008) Japan-India (2011)China-ASEAN (2005) Japan-ASEAN (2008) China-Consta Rica (2011)Thailand-Australia (2005) Japan-Indonesia (2008) Korea-Peru (2011)

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FTAAP: Free Trade Area of the Asia-Pacific77

Viet Nam

TPPTPPPeru

Australia

Vietnam　　

　　

　　

　　

Malaysia

　　　　　　　　

RussiaChina

CH. TaipeiCH.

HongKong

Australia　　

New Zealand

Canada

US

Mexico

Peru

Chile

BruneiThailand

Malaysia

PhilippinesVietnam

Korea Japan

Singapore

Indonesia PNG

Efforts under various frameworksEfforts under various frameworks

FTAAP (APEC)

TPPASEAN+6 （ CEPEA)

（ ASEAN+JP, CH, KR, IND, AUS, NZ ）ASEAN+3 （ EAFTA ）（ ASEAN + JP, CH, KR ） Current members

Launch of negotiations in 2012

Establishment of 3 working groups (for trade in goods, services and investment) in 2012

RCEP

(Source: METI, Japan)

Japan-China-Korea

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Motives behind FTAs in East Asia Increase market access through trade and FDI Rapid expansion of FTAs in the world Promote domestic reform Rivalry between East Asian countries

Motives behind region-wide FTAs in East Asia Financial crisis in 1997-98 Global financial crisis in 2008- Overcome Spaghetti bowl effect Establish region-wide single production base and

unified market21

Rapidly Increasing FTAs in the World

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Expected Impacts of FTAs

Trade and FDI expansion between and among FTA members

Economic growth

Economic Obstacles to FTAs

Opposition from non-competitive sectors

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IV. Japan’s New Economic Strategy in Asia-Pacific Comprehensive Economic Partnership

Agreement (EPA) including trade and FDI liberalization, facilitation, economic cooperation

Export infrastructure such as transportation system and water supply system including hard and soft infrastructure

Export agricultural products Attracting foreign direct investment inflows and

high skilled personnel Attracting foreign tourists etc.

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Japan’s FTAs (EPAs): June 2012Under Under

Implemented negotiation studySingapore November 2002 Korea ASEAN+3Mexico April 2005 GCC ASEAN+6Malaysia July 2006 Australia China, Japan, Korea

Chile September 2007 Mongolia EUThailand November 2007 TPPIndonesia July 2008 CanadaBrunei July 2008 ColombiaPhilippines December 2008ASEAN December 2008Switzerland September 2009Vietnam October 2009India August 2011Peru March 2012 　 　Share inJapan's trade 18.7% 20.0%(2010)

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Motives Expand export market for Japanese firms Improve investment environment for

Japanese firms Obtain energy and natural resources Promote structural reform in Japan Improve and establish good relationship Provide economic assistance to developing

countriesOpposition Agriculture, fishery

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Impacts of FTAs on GDP (%): Simulation ResultsASEAN+3 ASEAN+6

FTA FTAJapan 0.44 0.54China 4.72 4.84Korea 3.55 3.71Indonesia 3.94 4.14Malaysia 8.62 9Philippines 6.28 6.52Singapore 4.24 4.42Thailand 7.02 7.32Vietnam 9.67 9.92Other Southeast Asia 2.91 2.95Australia -0.09 1.35New Nealand -0.06 1.87India -0.1 3.45Hong Kong 0 -0.01Taiwan -0.08 -0.01NAFTA -0.01 -0.01EU15 -0.01 -0.01Rest of the World -0.06 -0.08

ASEAN 5.67 5.89ASEAN+3 1.93 2.05ASEAN+6 1.68 2.11 27

High Tariff Agricultural Products (%)

0 200 400 600 800 1000 1200 1400 1600 1800

Konnyaku potato

Rice

Peanuts

Starch

Corn

Pork

Sugar

Barley

Wheat

Dairy products

Beef

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Japan-EU EPADevelopmentsScoping exercise for Japan-EU EPA began in May 2011 and ended in May 2012Waiting for the negotiations to begin

Expected benefitsStrengthen economic and non-economic relationsExpand exports and FDI not only bilaterally but with other countries, contributing to economic growth: EU GDP to increase 0.14 percent, Japan’s GDP 0.31 percent (Copenhagen Economics, 2009) Contribute to rule-making in the global economic system

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Japan’s Trading Partners: 2010 (%)

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Japan’s Foreign Direct Investment Destinations: 2011 (%)

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Japan’s PositionEager to start negotiations with an interest in

strengthening economic relations and overcoming disadvantageous position in the EU market vis-à-vis Korean firms: EU tariffs--cars (10%), flat screen TVs (14%), microwave ovens (5%) etc.

EU position Somewhat hesitant in starting negotiations immediately (in response to Japan’s inability to join TPP negotiations?)Eager to open Japan’s government procurement market and reduce non-tariff measures, in order to expand trade and FDI

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V. Concluding Remarks

Faced with many difficult challenges, Japan has to open up its economy and carry out structural reforms, in order to achieve economic growth or to maintain high living standard, to contribute to economic growth in Asia-Pacific and in the world.

WTO liberalization being stalled, free trade agreements (FTAs) are second-best solution for promotion of trade and FDI

Japan can gain a lot from FTAs not only in East Asia but also with countries in other parts of the world such as the US, the EU, and Latin American countries

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Japan should play active roles in establishing region-wide FTAs: RCEP, TPP by liberalizing its market

Then expand these FTAs by merging with other FTAs, leading to global trade liberalization

FTAs face opposition from non-competitive sectors For Japan, trade liberalization in agriculture faces

strong opposition Various measures including gradual phase-in

liberalization, and temporary assistance to negatively affected workers can moderate the negative impacts during the process of transition

Need strong political leadership to promote FTAs

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