Free trade pacts

Mainichi Shimbun, 17 May 2000

A consensus is emerging within Japan's government and private sector in support of free trade agreements with Asia and Latin America. The Japan External Trade Organization unveiled a report in April that stresses the merits of a trade pact with Mexico and is expected to release a research report written jointly with South Korea later this month that takes a similar position.

The Japanese government is also expected to begin formal talks with Singapore on a trade accord by the end of this year. The 2000 White Paper on Trade characterizes free trade pacts as complements to the multilateral trade framework of the World Trade Organization. These recent developments suggest that the Japanese government is now committed to signing such pacts with many of its trading partners.

The trend toward regional economic integration accelerated in the 1990s, with the European Union's march toward monetary union, the signing of the North American Free Trade Agreement, which eliminated trade barriers between the United States, Canada and Mexico, and the creation of Mercosur, a customs union for South America.

The contentious Uruguay Round of multilateral trade negotiations may have convinced these countries that they needed to enter such trade pacts if they wanted to be the first to enjoy the fruits of free trade. Today, Japan, China and South Korea remain the only three major economies that have not signed free trade accords.

Perhaps anticipating difficulties in working out agreements at the global level, countries have turned their attention to economic frameworks with a regional focus such as the European Union and Mercosur. So it is only natural that Japan has begun to show an interest in regional free trade agreements.

But Japan is unlikely to reap sufficient benefits if it adopts a passive posture toward these pacts and is content to simply make up for lost time. A pact for regional integration will only succeed if Japan takes three steps. First, it must adopt a long-term, strategic view that links regional integration with economic structural reform at home. A free trade pact not only promotes trade expansion but also serves as a catalyst for increased competition within a region, accelerates industrial restructuring, and triggers institutional reform.

Second, Japan must acknowledge and debate the painful consequences of a free trade pact. Unlike a multilateral agreement, a free trade pact between a limited number of countries tends to accentuate the national interests at stake.

Third, Japan needs to be aware of the international dimensions of a regional free trade pact. Until now, the Japanese government has been critical of free trade agreements because they discriminate against third-party countries. Japan needs to understand that a change in its policy on this issue will have complex repercussions on the countries of the Asia and Pacific region.

If Japan wishes to enter into free trade agreements with a regional focus, it needs to do so while setting forth a vision that will help to expand global free trade while also complementing the multilateral trade framework.