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2 Free trade: Japan and ...
Switzerland?! By Hisane Masaki
TOKYO - Geographical proximity, sizable
trade and investment volume, and resource wealth
are Japan's key criteria for selecting potential
partners for free-trade agreements (FTAs).
Switzerland has become a rare exception.
During a telephone meeting last Friday,
Japanese Prime Minister Shinzo Abe and Swiss
President Micheline Calmy-Rey agreed to launch
negotiations soon on concluding an FTA, which
would eliminate import tariffs on almost all
goods. The two countries aim
to
conclude the accord by the end of the year.
If realized, this would be Japan's first
such agreement with a European country, and as
Tokyo has no plans to pursue agreements with other
European countries, including such trading
powerhouses as Germany or France, the question
then naturally arises: Why Switzerland? One could
respond: Why not?
The trading relationship
is fairly small. Combined trade totals only a
little more than US$7 billion annually, although
Japan is Switzerland's third-largest trading
partner and its largest in Asia. Generally, the
goods are high-value products. There are
relatively few major trade disagreements between
them, so it may be fairly easy to negotiate.
But more important, Switzerland fits
neatly into Japan's overall strategy to use FTA to
enhance its trading position in East Asia,
especially vis-a-vis China, and is seen as a
potential ally at the Doha Round of international
trade talks under the auspices of the World Trade
Organization (WTO).
Since Tokyo and Bern
tend to see eye-to-eye on agricultural
protectionism, concluding a free-trade agreement
with the Swiss can be seen as a kind of warm-up
for the next round of international trade
negotiations. At the same time, anticipated
agreements on intellectual-property protection and
investments can provide a template for further
regionwide negotiations.
As the WTO's Doha
Round of trade talks falters because of sharp
differences among 150 member economies, especially
over farm trade, countries all over the world are
pursuing their own separate FTAs with trading
partners. Bilateral or regional integration has
popped up all over the world since the early
1990s, including the North American Free Trade
Agreement, the European Union, and Mercosur in
South America.
Japan was slow to join the
bandwagon, concluding its first FTA, with
Singapore, in 2002. It signed its second, with
Mexico, in 2004, and a third, with Malaysia, in
December 2005. Having lagged far behind most other
countries in negotiating FTAs, Japan is now fast
trying to catch up.
An agreement with the
Philippines was signed last September. The world's
second-largest economy has also reached basic
agreement in negotiations with Chile, Indonesia
and Brunei since last November. The Japanese FTAs
with the Philippines, Chile, Indonesia and Brunei
are all expected to go into force by the end of
this year.
Tokyo also completed
negotiations with Thailand in August 2005,
although the signing of the agreement, originally
set for last April, has been delayed by Thailand's
prolonged political instability, which culminated
in a military coup in September. Japan has also
been negotiating FTAs with South Korea, the
10-member Association of Southeast Asian Nations
as a whole, the oil-rich Gulf Cooperation Council
(GCC), and Vietnam. Soon to come: India and
Australia.
Japan has put the priority on
fellow East Asian countries in building its FTA
network. The percentage of trade with the rest of
East Asia in Japan's overall foreign trade has
risen to about 45%, and Japan is vying with China,
a rapidly ascending economic as well as military
power, for the leadership role in the world's
fastest-growing region.
In recent months,
however, resource-poor Japan has also turned to
FTAs as a foreign-policy tool to strengthen
relations with countries rich in oil, natural gas
and other resources to ensure stable supplies.
Japan imports almost all of its oil and natural
gas.
The GCC - which groups Saudi Arabia,
the United Arab Emirates, Bahrain, Oman, Qatar and
Kuwait - accounts for more than 70% of Japanese
crude-oil imports. Indonesia is the biggest
natural-gas supplier to Japan. Brunei is also rich
in oil and gas. Australia is a major supplier of
coal, iron ore and gas, as well as uranium. Chile
is rich in such mineral resources as copper.
Mexico is a major oil producer. But the
biggest motive for Japan to conclude the FTA with
Mexico was to eliminate its disadvantages
vis-a-vis the United States, Canada and the EU in
the Mexican market in such areas as tariffs,
service, investment and government procurement.
When the pact was signed in 2004, the bilateral
trade volume was relatively small, about $7.3
billion.
But at the time, Mexico had
already negotiated FTAs with 42 countries,
including the US, Canada and the EU, and Japan
estimated that its export businesses would lose
400 billion yen (about $3.3 billion) annually in
trade with Mexico without the FTA. In 2005,
two-way trade between Japan and Mexico rose to
nearly $9.5 billion. Of the $2.2 billion increase,
about $1.8 billion came from Japanese exports to
Mexico, which soared to $6.9 billion in 2005 from
$5.1 billion in 2004.
So why
Switzerland? To be sure, Switzerland does
not fulfill any of Japan's key criteria for
choosing its potential FTA partners. Japan and
Switzerland are far away from each other, the
volume of two-way trade between them is relatively
small, and the European country is resource-poor.
Nevertheless, there are good reasons for Japan to
covet an agreement with Switzerland.
According to a report released by the two
governments on the findings of their joint study
on the possibility of concluding an FTA, "Japan
and Switzerland share similar interests in
upholding high standards in different economic
policy areas, such as investment and protection of
intellectual-property rights, as well as
cooperation in such fields as tourism and science
and technology."
In addition to
facilitating the flow of goods between the two
countries through the elimination or reduction of
customs duties on both sides, the report listed
some benefits of the yet-to-be-negotiated FTA.
High-level commitments of both countries are
expected in the areas of investment and trade in
services.
The highest level of intellectual-property
protection, on which both countries put critical
importance, can be pursued, in fields such as
anti-counterfeiting and anti-piracy cooperation.
An improved business
environment can be achieved through, for example,
non-application of nationality requirements and
possible relaxation of residential requirements
for company board
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