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Prof.Yorizumi WATANABE Faculty of Policy Management, Keio University, SFC December 15, 2006

Emerging East Asia and Japan ’ s New Trade Policy --- Domestic Structural Reform and Japan ’ s New Economic Diplomacy ---. Prof.Yorizumi WATANABE Faculty of Policy Management, Keio University, SFC December 15, 2006. Table of Contents.

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Prof.Yorizumi WATANABE Faculty of Policy Management, Keio University, SFC December 15, 2006

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  1. Emerging East Asia and Japan’s New Trade Policy--- Domestic Structural Reform and Japan’s New Economic Diplomacy --- Prof.Yorizumi WATANABE Faculty of Policy Management, Keio University, SFC December 15, 2006

  2. Table of Contents • Japanese Economy in Expansion: Renewed Dynamism generated by Koizumi Reform • Shift in Trade Policy reflecting Changes in Trade Pattern and Investment Flow • Reshaping Japan’s Economic Partnership with Major Partners • Beyond Bilateral FTAs ? Asian “Noodle Bowl” or Stepping Stone to Global Liberalization Y.WATANABE

  3. Basic Facts on Japan Today • The second-largest economy after the US: GDP of Japan = $4.6 trillion ( $11.7 trillion for US, $2.7 trillion for Germany, $12.8 trillion for EU, 2004) • GDP per capita of Japan = $36,574 ( $39,934 for US, $32,695 for Germany, 2004) • Sources of economic strength: ①Advanced Technology, ②Household Wealth, ③Social Stability Y.WATANABE

  4. The Japanese Economy is Recovering Y.WATANABE

  5. In an Expansion Phase since 2002 Y.WATANABE

  6. The Key to Recovery: Structural Reform • Koizumi’s “No Growth without Reform” Policy • Priority to private sector initiatives: smaller government and less dependence on fiscal stimuli • Japanese version of “Subsidiarity” : leave to the localities what they can do Y.WATANABE

  7. Successful Structural Reform Y.WATANABE

  8. Structural Reforms: Unfinished Business • Over 1000 regulatory reform items have been implemented, and more than 500 Special Zones for Structural Reform had been created by Spring 2005 • “Invest Japan” Campaign: to double the cumulative stock of FDI in Japan since 2003 • Privatization of Japan Post (the bills passed in October 2005, to be privatized in October 2007) • 136 out of 163 public corporations were abolished, privatized or underwent other reorganization measures Y.WATANABE

  9. Employment is also Improving Y.WATANABE

  10. Japan China EU USA Japan’s Trade with Major Trading Partners（2004, $billion） 76.3 73.9 143.9 34.7 60.5 113.1 53.7 54.4 89.3 128.6 172.9 289.0 Y.WATANABE source：IMF Direction of Trade, MOFA

  11. Japan China EU USA FDI net-flow with Major Partners（2005, Y100million） 13 7,258 -80 8,637 2,173 13,492 Y.WATANABE ＊“net-flow” includes capital withdrawals and return on investment.（Source: Bank of Japan、MOFA)

  12. ＥＵ Member States __ （since 2004.5） future members/candidate Non-EU countries Japanese Companies in Europe <country> Number of Japanese companies（manufacturers） Norway 18(1) Finland 21(6) Manufacture ：989 West Europe：814 Central&East:160 Turkey　　 ：15 Sweden 66(15) Denmark 29(8) Ireland 48(21) Germany 633(103) United Kingdom 839(248) Ukraine 2(0) Poland 63(36) Netherlands 373(54) Estonia 3(0) Czech Rep. 63(62) Belgium 149(41) Slovakia 16(9) Latvia 1(0) Luxembourg 17(2) France 384(146) Hungary 59(42) Lithuania 1(1) Switzerland 62(2) Austria 48(10) Romania 10(9) Croatia 1(0) Italy 192(67) Portugal 32(18) Bulgaria 2(0) Spain 157(68) Greece 11(4) Serbia Montenegro 2(1) Turkey 28(15) Slovenia 4(0) Y.WATANABE Source: JETRO, Toyokeizai( 2004), MOFA

  13. Intra-regional Trade (%) Y.WATANABE

  14. Japanese Car Industry:Optimal Supply System in Asia Japan：high-value added Engine parts and components Indonesia：Gasoline Engine、 Horn Tariff Rates：5-15% Malaysia：Engine Parts、 Condenser、 Tariff Rates：5-80% Thailand：Diesel Engine、 Air Conditioning、 Tariff Rates：40-60% Philippines：Transmission、 Combination Meter Tariff Rates：3% Y.WATANABE

  15. Guideline for EPAs(Ministerial Council’s Decision, Dec.21 2004) • EPA to complement the multilateral trading system embodied in WTO • EPA to develop further Japan’s external economic relations and ensure its economic benefits • EPA to enhance domestic structural reform • EPA as a diplomatic device to create sound international environment, notably in East Asia • EPAs to be concluded expeditiously by the Government in its totality Y.WATANABE

  16. Criteria to Specify Partner Countries and/or Regions • Whether it contributes to create beneficial international surroundings for Japan (East Asian economic community, diplomatic agenda, WTO negotiations, etc) • Whether it contributes to enhance Japan’s economic welfare • Feasibility and accommodation of sectoral difficulties of either side, impact on third countries, domestic system for implementation, etc. Y.WATANABE

  17. Economic Partnership Agreement Y.WATANABE

  18. Japan-Singapore New-Age Economic Partnership Agreement • Japan’s first FTA in force since Nov.2002 • Comprehensive coverage; goods, services, investment, movement of natural persons, information and communication technology, human resources • Over 98% of tariffs eliminated • Liberalization in trade in services beyond WTO commitments (134 /102 sectors for Japan, 139/62 sectors for Singapore) Y.WATANABE

  19. Japan-Mexico EPA • Japan’s first FTA to involve agricultural sectors substantially • Japan’s second FTA to redress disadvantages in the absence of FTA • Gateway to Americas for Japan, Gateway to Asia for Mexico • Bilateral cooperation • Entered into force as of April 1st 2005 Y.WATANABE

  20. Strong business demand for FTA • Disadvantageous conditions in tariff rates (average: 16%) • Decline of Japan-Mexico Trade • Unfavorable condition in government procurement • Access to 10th economy • Possible gateway to North/South America • Better business environment for Japanese companies Y.WATANABE

  21. Japan’s FTA/EPAAchievement so far • Japan-Singapore EPA (in force since Nov.2002) • Japan-Mexico EPA (in force since April 2005) • Japan-Malaysia EPA (agreement in substance May, signed Dec. 2005, in force since July 2006) • Japan-Philippines EPA (agreement in substance Nov.2004, signed in September 2006) • Japan-Thailand EPA (agreement in substance Sept. 2005) • Japan-ASEAN EPA (negotiations started in April 2005) • Japan-Korea EPA (negotiations started in Dec.2003) • Japan-Indonesia EPA (agreed to start negotiations in June 2005, the first round was held in July 2005, agreement in substance in November 2006) • Japan-Chile EPA (JSG’s 1st meeting in Jan.2005, negotiations started in February 2006, agreement in substance in November 2006) • Preliminary talks: Vietnam, Brunei (early 2006) • Joint Study Group (JSG): India, Australia, Switzerland, GCC Y.WATANABE

  22. Overall Picture Y.WATANABE

  23. Why with Chile? Chile: A Pivotal Point in Latin America • MERCOSUR: Since 1995 • Chile: Associate member to MERCOSUR since 1996 through FTA • Santiago⇒Mendoza⇒Buenos Aires ⇒San Paulo • Potentiality of “Eje MERCOSUR-Chile” • Chile’s FTA network with 35 countries • Chile, the major source of minerals; e.g. copper (50.6%), molybdenum (55.8%) Y.WATANABE

  24. Mexico, Chile, and Beyond?Case for Brazil and Mercosur • Motorcycle: Moto Honda (since 1976) 896,000 units in 2004 (market share 80%) • Passenger car: Toyota Mercosur 17,424 units (2002) ⇒37,747(2004, market share 40%), CKD parts exported to Argentine • TV sets, Audio, DVD, PC: Toshiba with SEMP (Sociedade Eletro Mercantil Paulista) TV sets 1.7 million units (2004, the size of the national market is about 7million units) Y.WATANABE

  25. FTA schedule in East Asia AFTA AFTA（Excl.CLMV） AFTA（CLMV） ASEAN Economic Community Joint Declaration FTA （Excl.CLMV） FTA （CLMV） Framework Agreement FTA （Excl.CLMV） FTA （CLMV） Framework Agreement FTA （Excl.CLMV） FTA （CLMV） Framework Agreement ASEAN・India （Excl.CLMV） ASEAN・India （CLMV） Framework Agreement FTA （CLMV） Y.WATANABE

  26. East Asian Economic Community • AFTA: completed by2010(excl.CLMV) • China + ASEAN: by 2010 (excl. CLMV) • Korea + ASEAN: by 2009 (excl. CLMV) • Japan +ASEAN: by 2012 (excl. CLMV) • Australia +ASEAN: by 2007 (excl. CLMV) • Japan-China-Korea FTA maybe forthcoming after the Investment talks Y.WATANABE

  27. Issues to be considered • WTO consistency: “substantially all the trade”, “within a reasonable period of time (= 10 years)”, “not to raise barriers to third countries” • Relationship with two other mega-regions, i.e. EU and Americas (NAFTA, FTAA) • APEC & ASEM: inter-regional cooperation • Multilateral liberalization through WTO/DDA Y.WATANABE

  28. Regional Trade Arrangements Y.WATANABE

  29. Three Mega-Regions WTO Y.WATANABE

  30. Conclusions :Japan’s New Approach • FTA/EPA as complementary device to multilateral trade liberalization • East Asia: providing legal frameworks to secure de-facto business-driven integration：Japan-ChinaFTA is crucial • World-wide: from “defensive FTA” to “strategic FTA” (Chile, CH, GCC, Australia, India) • Further commitment in WTO, APEC, ASEM • Closer cooperation with US and EU in trade and investment through Regulatory Reform Talks Y.WATANABE

  31. Thank you for your kind attention! Freer trade for the better future Y.WATANABE

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