As globalization leads to intensifying competition worldwide, East Asia is witnessing an expansion of economic activities thanks to trade liberalization enhanced by the introduction of the ASEAN Free Trade Area (AFTA), China's joining the WTO, and efforts toward ASEAN-China Free Trade Area. There are also significant efforts to revitalize the economies of the region through competition. Discussions on ASEAN-China Free Trade Area is progressing faster than initially planned. Japan as well faces a pressing need to reconsider its present assessments of trade and investment relations with both ASEAN and China.
Under a prolonged recession, rejuvenating Japan's domestic economy through the promotion of structural reform is an urgent task. It is undisputable fact that East Asia will become more dynamic as an engine of global economic growth. And it is essential that Japan should contribute to establishing an integrated East Asian market in which ASEAN +3 (Japan, China, and South Korea) plays a central role, and to maintaining and enhancing economic vitality through free competition among companies.
In this circumstance, Prime Minister Junichiro Koizumi announced the Initiative for Japan-ASEAN Comprehensive Economic Partnership in January this year. The initiative seeks to deepen economic relations between Japan and ASEAN even further, and through this process, it strengthens their international competitiveness. It also represents an important step toward economic cooperation throughout the entire East Asian region. Japan's business community is urging the early implementation of this initiative. Parallel to this effort, Nippon Keidanren is ready to make another recommendation in relation to its effective measures.
In recent years, Japanese companies have accelerated their efforts to establish their business operations in China looking for its abundant supply of high quality labor on various levels, remarkable improvement in technological capacities, and emerging massive consumer market which will be brought by the introduction of market economy accompanying WTO membership and to economic development.
ASEAN, meanwhile, remains as important as ever to Japanese companies, owing to a depth of human resources and industrial concentration resulting from the operations of Japanese companies over the past 40 years and to the development of an infrastructure that serves as a base for exports.
Japan needs to reconfirm the strategic importance of ASEAN and should pursue balanced development in East Asia. For this purpose, it is important that Japan should provide leadership to ensure the early implementation of a comprehensive economic partnership initiative with ASEAN. Japan should strive to build an integrated East Asian market in which ASEAN +3 plays a central role, which also entails economic cooperation with South Korea and China. This effort is vital to Japanese companies, as it deregulates flow of people, goods, capital, and services, resulting in lower costs.
Going forward, in order for Japan to continue prospering as a nation built on trade, it must keep promoting trade liberalization and the strengthening of trade rules through WTO's multilateral negotiations. To facilitate this process, Japan needs to make better use of bilateral and regional agreements than it has in the past.
ASEAN is comprised of a diverse range of races, cultures, histories, and levels of economic development, and several member countries face instability under democratization process. Under such circumstances, Japan still has a significant role to play in the economic development of most ASEAN countries. Japan needs to be fully aware of the characteristics and diversity of this region, considering specific approaches to economic partnership that fit conditions of each country. Issues for consideration include the conclusion of investment agreements, the strategic use of ODA, training and education, and so forth. This means that comprehensive coverage of sectors is important, and the Japan-Singapore Economic Agreement for a New Age Partnership, which aims for economic partnership in a wide range of sectors, should be used as a reference for the new initiative.
At the same time, maintaining the solidarity and stability required for a unified ASEAN to be a major force is important for Japan as well. Accordingly, it is important for Japan to maintain the comprehensive coverage of countries, and within this, urgently to pursue measures that strengthen cooperation at the highest level possible.
Concerning specific actions, Japan should adopt a dual approach which simultaneously pursues bilateral negotiations with individual countries and with ASEAN as a whole. By doing this, Japan could expect synergies from using negotiations with individual countries as a base for negotiations toward ASEAN and from using ASEAN negotiations to encourage individual country negotiations.
There are several issues that Japan must tackle in order to create an integrated East Asian market, and the implementation of the Initiative for Japan-ASEAN Comprehensive Economic Partnership should serve to accelerate efforts to address these issues.
Japan will be unable to maintain and strengthen its industrial competitiveness as a location for business activity without efforts to promote structural reform based on deregulation, to address its high cost structure, and to improve its business environment. Japan must upgrade its industrial structure by promoting reforms in agriculture and certain manufacturing sectors that are not internationally competitive through improvements in market access. It is also important to deregulate the movement of people. To expand its economy in the future, Japan urgently needs to develop strategic industrial sectors such as health care, the environmental technology, biotechnology, nanotechnology, and information & communication technology. Japan also needs to develop a system to help Japanese companies repatriate profits earned overseas.
Japan should aim to find solutions to these issues quickly in order to implement this new initiative.