Policy Proposals Trade, Investiment, EPA/FTA Call for Economic Integration in the Asia-Pacific Region -- Towards FTAAP in 2020 --
December 13, 2011
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Asia continues to maintain high levels of economic growth even as the European debt crisis escalates and the outlook for the global economy becomes increasingly unclear. To ensure this growth sustainable and balanced, as an engine for the global economy, there is a need to further promote economic partnership in the Asia-Pacific region to create a business environment where people, goods, and services can move seamlessly across borders, in addition to developing both "hard" and "soft" infrastructure.
Japan needs to move beyond disaster recovery and reconstruction to push ahead with new technology development and other forms of innovation in the aim of creating a "new Japan." To this end, the public and private sectors must work together to further open up the country and play a leading role in regional economic integration so that Japan could take in the vitality exhibited by other countries, notably in Asia.
Set out below are Keidanren's proposals for Japan's efforts to work toward economic integration in the Asia-Pacific region.
2. Fundamental Approach
Prior to the recent APEC leaders' meeting, the Japanese government announced its intention to enter into consultations with relevant countries with a view to participating in Trans-Pacific Partnership (TPP) negotiations. In addition, the East Asia Summit agreed to work towards a comprehensive regional economic partnership agreement under the ASEAN+6 framework. Keidanren welcomes these government decisions. We call upon the public and private sectors of Japan to take a clear stance of greater openness and unite in leading regional economic integration by first pressing ahead with TPP while also pursuing an ASEAN+6 economic partnership agreement that will include non-TPP countries, with a view to achieving a Free Trade Area of the Asia-Pacific (FTAAP) by 2020. As well as underlining values shared across this highly diverse region and using these to help shape a stable regional order, FTAAP is expected to have positive economic ramifications for Japan. The Yokohama Vision, the APEC Leaders declaration released in November 2010, refers to taking concrete steps towards realization of FTAAP as a comprehensive free trade agreement to further APEC's regional economic integration agenda by developing and building on ongoing regional undertakings#1, while Honolulu Declaration of 2011 advocates APEC's intention to strengthen regional economic integration by addressing next-generation trade and investment issues through trade agreements including FTAAP#2. Japan also needs to work energetically towards achieving these goals.
In "Proposals for Japan's Trade Strategy"#3 issued in April 2011, Keidanren noted the importance of taking the initiative in introducing rules adapted to new products, services, and business models as well as wider-area application of rules specified in economic partnership agreements (EPAs) when advancing regional economic integration. The 2nd Asian Business Summit#4 held on September 29, 2011 also discussed economic integration in the Asia-Pacific region, and Asian business leaders agreed on the following points#5:
- (1) To support the best use of existing EPAs/FTAs and efforts to conclude agreements including an ASEAN+6 EPA and TPP in accordance with the circumstances and needs of each economy as a pathway towards achieving FTAAP.
- (2) To achieve high-quality regional economic integration, it will be crucial to make stronger efforts to encourage cross-border movement of natural persons with specialized knowledge and skills, to liberalize investment and services by easing foreign capital restrictions and rectifying opaque domestic regulations, to further cut tariffs, and to eliminate export controls and other restrictions.
In cooperation with business organizations from other Asia-Pacific economies, the Japanese business community will also take a leading role in promoting more wide-ranging EPAs and regional economic integration, for example by gathering examples of specific obstacles to trade and investment faced by manufacturers and other businesses operating in the region so that these can be addressed in negotiations of these agreements.
3. Participating in the TPP Negotiations
Canada and Mexico announced their intention to join TPP negotiations at the same time as Japan. If these three countries join, TPP will contain 12 of the 21 APEC economies, accounting for approximately 40 percent of world GDP. Based on the expectations listed below, Japan needs to take an active part in TPP negotiations and do its utmost to reach an agreement that will contribute to regional growth.
- (1) Japan will reflect its positions in all 21 areas covered by TPP negotiations#6 and contribute to achieving a high degree of liberalization and quality rules. The new 21st-century rules TPP aims to achieve will provide a boost to Japan's strategies in areas such as concluding a sophisticated Japan-China-Korea FTA and Japan-Korea EPA compliant with such rules and entering into negotiations for a Japan-EU economic integration agreement (EIA). Such rules can also be expected to apply to business throughout the region in the future via FTAAP, and to shape global rules set in forums such as the WTO#7.
- (2) Elimination (including progressive elimination) or reduction of tariffs in substantially all trade can ensure the competitiveness of Japanese exports#8 and prevent the hollowing out of domestic industry.
- (3) Joining TPP will strengthen ties with the other Asian nations that are members (Brunei, Malaysia, Singapore, and Vietnam). In fact, Asian countries have high expectations that Japan will represent Asian interests in TPP negotiations#9. The negotiation process can also help to enhance existing EPAs with these countries.
In joining TPP we need to conduct structural reform aiming at making Japanese agriculture more competitive. Japan's agricultural output is worth 8 trillion yen annually, placing the country among the top ten producers in the world by value. Japan also has the technology to produce high-quality agricultural products. Thus Japan has the basis for a world-class agricultural sector and needs to achieve a high level of international competitiveness through promotion of structural reform#10. The business community will help to meet this goal by raising productivity and enhancing management in the agriculture, forestry, and fisheries sectors.
4. Achieving the ASEAN+6 EPA
Turning to Asia, ASEAN members are working to eliminate all tariffs within their region and complete the ASEAN Free Trade Area (AFTA) by 2015. Liberalization of trade and investment is also progressing through "ASEAN+1" arrangements such as the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) and bilateral EPAs. However, there are still no FTAs linking Japan, China, and Korea, and the latter two countries have not joined TPP discussions at this stage. Moreover, economic integration has not been achieved between these three countries, India, Australia, New Zealand, and ASEAN. In conjunction with complete integration of the ASEAN zone through AFTA, an ASEAN+6 EPA needs to be established promptly to invigorate trade and investment throughout Asia, promote infrastructure development, provide goods to meet the needs of fast-growing middle classes, and facilitate cooperation on environmental issues#11.
A key factor on the path to constructing FTAAP is creating a free economic zone in a form involving participation by ASEAN, which is expecting complete integration, Japan/China/Korea, which account for more than 70 percent of ASEAN+6 GDP, India, which is experiencing remarkable growth, Australia, which is an important supplier of food and mineral resources, and New Zealand, which is proactive in liberalization of services. To ensure that ASEAN+6 EPA does not compare unfavorably with TPP, it is vital to aim for a high-quality agreement that covers a wide range of issues such as elimination or reduction of tariffs in substantially all trade, liberalization of investment and trade in services through a negative list approach#12, protection of intellectual property rights, and enhancement of the business environment.
At the ASEAN Economic Ministers Meeting held in August 2011, Japan and China jointly proposed working toward ASEAN+6 as well as ASEAN+3, and at the East Asia Summit in November it was decided to promote discussions at a working group with a view to launching negotiations. The business community welcomes this progress and requests that joint industry-government-academia studies and other appropriate research are conducted to ensure that the views of each country's business community are sufficiently reflected in all the fields set out in the "Initial Steps"#13, namely, (1) trade in goods, (2) customs procedures, trade facilitation/logistics, (3) economic cooperation, (4) industrial policy, (5) hard infrastructure and enhancement of connectivity, (6) investment and trade in services, and (7) movement of skilled labor.
After joining TPP negotiations, Japan should build a basis for the ASEAN+6 EPA by reviewing existing EPAs with ASEAN countries#14 and making active use of the Japan-India EPA. Similarly, there is a need to promptly conclude a Japan-Australia EPA and Japan-Korea EPA#15. In particular, we hope that a Japan-Australia EPA will contribute to prohibition of resource and energy export restrictions and enhance the environment for Japanese companies investing in the resource and energy fields#16.
5. Launching the Japan-China-Korea FTA Negotiations
In order to make ASEAN+6 a reality, we first need to conclude an FTA covering Japan, China, and Korea, which together account for more than 70 percent of ASEAN+6 GDP, and invigorate trade and investment.
For Japan, improving access to the Chinese market is an especially crucial issue. Annual imports to Japan from China are worth US$152 billion, and 70 percent of these are free from tariffs. By contrast, tariffs are levied on approximately 70 percent of annual exports to China, worth US$149 billion in total#17. Since there are also significant restrictions on cross-border services and investment, liberalization of trade and investment is required through realization of the Japan-China-Korea FTA. Tariff elimination is expected to diversify products appearing in the market, increase consumer choice, and boost consumption in the region. Elimination of tariffs on parts and components will link directly to revitalization of local production. Moreover, liberalization of services and investment will encourage companies to expand their operations across borders and create local employment. The Japan -China -Korea FTA should also address other issues of major importance to the business community, including protection of intellectual property rights, measures to deal with environmental issues, easing of resource and energy export restrictions, international standardization, and enhancement of the business environment.
The Industry -Government- Academia Joint Study on the Japan -China -Korea FTA is currently being conducted#18, and is due to finalize a report by the end of 2011 that will provide a basis for negotiation. Keidanren has participated in this joint study and reflected the views of the business community. Keidanren calls for the launch of Japan-China-Korea FTA negotiations early in 2012#19.
Further liberalization of trade and investment through TPP and ASEAN+6 on the path to achieving FTAAP will be significant in advancing the process of international specialization that is already under way and strengthening supply chains within the region. It is also expected that progress in these areas will contribute to a prompt start of negotiations for a Japan-EU EIA, which will have important effects on the future international competitiveness of Japanese firms.
Faced with such vital issues, Japan's economic diplomacy must show its true worth. We strongly request the Prime Minister to take the lead in united government efforts embracing all relevant ministries. The business community will strive to build consensus at every level across all industries to facilitate an "all-Japan" approach.
- Representatives of the following 13 business organizations from 11 Asian economies took part in the summit: China Enterprise Confederation, China Council for the Promotion of International Trade, Confederation of Indian Industry, Indonesian Chamber of Commerce and Industry, Federation of Korean Industries, Malaysia-Japan Economic Association, Philippines-Japan Economic Cooperation Committee, Inc., Singapore Business Federation, Taiwan Committee on East Asia Businessmen's Conference, Chinese National Association of Industry and Commerce, The Joint Standing Committee on Commerce, Industry and Banking of Thailand, Vietnam Chamber of Commerce and Industry, and Keidanren
- 2nd Asian Business Summit Joint Statement (September 29, 2011)
- Market access for goods, rules of origin, customs, sanitary and phytosanitary standards (SPS), technical barriers to trade (TBT), trade remedies, government procurement, intellectual property, competition, cross-border services, temporary entry, financial services, telecommunications, e-commerce, investment, environment, labor, legal issues, dispute settlement, cooperation and capacity-building, and cross-cutting trade issues
- The appendix to Keidanren's Proposals for Japan's Trade Strategy (April 2011) sets out goals to be realized through TPP and gives examples of rules that should be established with a view to economic integration in the Asia-Pacific region. In addition to elimination of tariffs, etc., these include areas such as liberalization of service trade and investment, protection of investment and intellectual property rights, opening up of government procurement markets, and acceleration of import and export procedures.
- For example, it is expected to ensure competitiveness in fields such as automobile and appliance exports.
- Statement by Singapore at the 2nd Asian Business Summit
- In Proposals for Japan's Trade Strategy (April 2011), Keidanren suggests that in order to withstand competition Japan needs to: (1) secure high-quality domestic farmland, (2) ensure that it has diverse farmers with strong business awareness by encouraging the entry of new farmers and companies into the agricultural industry, (3) give these farmers substantial land through regional consensus-building and increase the scale of operation, (4) enhance productivity, (5) promote "sixth-sector industrialization" (i.e., add value to the primary sector through food processing, distribution, and sales) and cooperation among agriculture, commerce, and industry, and (6) encourage exports of agricultural products.
- In parallel with this process, Japan needs to consider an investment agreement with Myanmar, with which it has no individual EPA.
- Under a negative list approach, parties commit to liberalization of all investment and service sectors in principle, with exemptions made only for items on the list of reservations.
- Proposal made by Japan to the ASEAN Economic Ministers Meeting held in August 2010 suggesting medium- to long-term direction for an ASEAN+6 EPA.
- There are plans to review EPAs with Thailand, Malaysia, Indonesia, and Vietnam. For Thailand, refer to Keidanren's "Call for Enhancing the Japan-Thailand EPA and Business Environment" (November 2011).
- Japan-Korea EPA negotiations began in December 2003, but have been suspended since November 2004. The Japan-Korea Summit held in Seoul in October this year agreed to full-scale working-level discussions with a view to re-starting negotiations.
- Keidanren's "Urgent Request for the Commencement of the Japan-Australia Economic Partnership Agreement Negotiations" (September 2006)
- 2010 figures (based on JETRO documents and other sources)
- The study began in May 2010, and the study group has held 6 meetings thus far (as of December 13, 2011). Committee on Promotion of Economic Partnerships has mainly taken part as representative of Keidanren and in November 2010 provided input in the form of its "Towards the Early Conclusion of the Japan-China-Korea FTA."
- Keidanren hopes that launch of negotiations will be agreed at the 2012 Japan-China-Korea summit.