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Fashionable trade agreements all the rage
in Asia
By Jamie Miyazaki
From
Tokyo to Mumbai, FTAs - free-trade agreements - seem to
be every Asian politician's favorite new phrase these
days. Like an anti-protectionist epidemic, FTAs, RTAs
(regional trade agreements) and all manner of
abbreviations ending in "TA" are spreading around Asia;
multilateralism as embodied by the World Trade
Organization (WTO), it seems, is out. Certainly the past
four weeks have been busy ones for the apparatchiks at
the trade ministries of two of Asia's biggest economies:
South Korea and Japan.
Of course, they have met
and are still meeting tough resistance from
protectionist forces. Great traders like Japan and South
Korea are also lousy liberalizers when it comes to
knocking down their own barriers, but business and
trading interests may well prevail. And the threat of
China might drive Tokyo and Seoul into each other's FTA
arms.
Asia as a whole, and North Asia in
particular, have been latecomers to the FTA game. While
FTAs were proliferating in Europe, North America and
South America, Asia did not get around to signing its
first FTA until 1997 with the Association of Southeast
Asian Nations (ASEAN) Preferential Trading Agreement.
The Asian financial crisis of 1997 and the collapse of
the WTO talks at Cancun, Mexico, last year have renewed
governments' interest in the value of preferential trade
agreements. India is racing head to sign FTAs with Asian
countries, but much of the action is in North Asia these
days.
Ironically, Japan and South Korea, two of
the region's biggest economies, have found riding the
new bandwagon rough going. After a particularly
acrimonious debate, in which it found itself hostage to
everything from inter-party rivalries to its vociferous
agricultural lobby and trade unions, Seoul finally
managed to ratify its first FTA, with Chile, last month.
Having signed an FTA with Singapore, Tokyo is now
grappling with the bigger task of completing an FTA with
Mexico this month - something it failed to achieve last
October.
Japan and South Korea are two of the
world's great trading nations, Korea alone relying on
trade for 67 percent of its gross domestic product
(GDP). Their trading prowess, however, only tells half
the story. Both countries have gotten rich off nurturing
certain key export industries that are world leaders,
while erecting protectionist barriers around the rest of
their economies. The agricultural sector, weighted with
farmers' lobbies that can still pack a political punch
if need be, stands out in both nations. However, not
only farming is protected - the Korean and Japanese
footwear and textiles, leather goods, petrochemicals,
and a host of other sectors remain cocooned behind
protectionist walls.
Tokyo, Seoul seeking
more FTAs
It is not surprising that both Chile
and Mexico have demanded access to these markets,
causing considerable consternation to politicians in
North Asia. Korean farmers were the most vocal opponents
of the recent deal. Mexico appears poised to drive a
hard bargain with Japan, especially in meat and orange
juice. Import quotas on pork, at 250 yen (US$2.30) per
kilo - nearly 100 yen less the production cost for most
Japanese farmers - are expected to climb to 80,000 tons
a year should the two sides sign a deal.
Yet
despite teething problems, both Tokyo and Seoul remain
adamant that they are seeking to strike deals with more
countries. East Asian nations, with their high tariffs,
are the most likely candidates and would produce the
greatest economic benefits for both. Thailand and the
Philippines have already launched preliminary talks with
Tokyo.
But old protectionist habits die hard;
already politicians from Japan's governing Liberal
Democratic Party (LDP) have voiced disquiet about Thai
and Filipino doctors and nurses being allowed to
practice in Japan should comprehensive FTAs be on the
table. Bowing to the influential doctors' lobby, some
LDP politicians have proposed that foreign doctors
should be allowed to treat only patients of their own
nationalities. (It is not clear whether this proposal
would also extend to Danish actors only being allowed to
play Hamlet.)
So who better for Tokyo and Seoul
to strike a deal with than each other? As protectionist
partners in crime, a bilateral FTA would be relatively
easy to sign. Neither side would really need to battle
its protectionist lobbies as they are nearly identical
in both, and they could leverage off a bilateral pact to
sign a deal with China. No sooner had the ink dried on
the Korea-Chile agreement and Mexican negotiators
stepped on to the tarmac at Narita Airport than Tokyo
and Seoul agreed to establish another committee to help
accelerate talks for a Korea-Japan FTA.
Unfortunately - or not - for both nations, the
implications of a Korea-Japan FTA would be far more
liberalizing than the governments understand at this
time. Other East Asian nations will probably lobby
harder for bilateral FTAs with the two nations in
agriculture and other protected sectors, making
competitive liberalization a reality rather than a
buzzword. One preferential trade agreement may well end
up prompting another to reduce the margin of
discrimination of the former, or if this doesn't happen,
then the intransigent party could risk becoming isolated
in trade initiatives.
If Seoul and Tokyo want to
maintain open access to foreign markets, then trade
liberalization for their own markets will be inevitable.
China threat could push Tokyo-Seoul
FTA
China's formidable economic shadow looms
large over Japan's and South Korea's new-found efforts
for trade agreements. Many politicians in Japan and
Korea say that unless they enhance their competitiveness
through their own a bilateral free trade agreement, they
could be easily overwhelmed by China.
Beijing's
proposal to establish a China-ASEAN FTA by 2010 caught
both Tokyo and Seoul off guard, when it was delivered at
the 2002 ASEAN summit in Cambodia by Zhu Rongji, then
China's top economic boss. Japanese Prime Minister
Junichiro Koizumi, not to be outdone by Beijing, quickly
announced proposals for a Japan-ASEAN FTA. However,
Beijing deftly tackled the thorny agricultural issue
with ASEAN head-on. By offering early-harvest measures
for fruits and vegetables to make the FTA proposal more
attractive to ASEAN, China won itself a lot of respect
in Southeast Asia.
Captains of industry in all
three nations and those politicians with a long-term
view have even begun talking of a giant
China-Korea-Japan FTA. According to a study released
last October, support in the business community was 85
percent in China, 79 percent in Japan and 71 percent in
South Korea. China is now South Korea's largest export
market and Chinese demand has driven Japan's recent
economic upturn. The importance of the Chinese market to
both Seoul and Tokyo is overwhelming. However, with
Japan and Korea struggling with their present FTA
commitments and China still some distance from ratifying
its own ASEAN agreement, a North Asian trade bloc looks
like a pipe dream for the moment.
Nonetheless,
with the number of farmers in both Japan and South Korea
continuing to thin out because of demographic changes
and the FTA juggernaut gathering steam across the
region, the clout of protectionists in both countries
appears to be on the wane. Business leaders in both
Tokyo and Seoul have railed against the intransigence of
their farming lobbies as an impediment to growth.
Still, diehard protectionists in South Korea and
Japan can take comfort that at least one regional
government appears determined to continue fighting the
tide of FTAs sweeping the region. Upon hearing of the
ratification of the South Korea-Chile FTA, the Korean
Central News Agency of Pyongyang warned that North Korea
would "prevent traitors from selling staple food of the
nation and join the peasants in a powerful struggle to
protect the agriculture of the nation".
Jamie Miyazaki is a freelance
journalist and political risk analyst specializing in
North Asia.
(Copyright 2004 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
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