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Japan’s New Economic Strategy in Asia-Pacific: Implications for the EU

Japan’s New Economic Strategy in Asia-Pacific: Implications for the EU. July X, 2012 Shujiro URATA Waseda University. Contents. I. Japan’s Economic Situation II. High Economic Growth and Regional Economic Integration in Asia-Pacific III. Japan’s New Economic Strategy in Asia-Pacific

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Japan’s New Economic Strategy in Asia-Pacific: Implications for the EU

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  1. Japan’s New Economic Strategy in Asia-Pacific: Implications for the EU July X, 2012 Shujiro URATA Waseda University

  2. Contents I. Japan’s Economic Situation II. High Economic Growth and Regional Economic Integration in Asia-Pacific III. Japan’s New Economic Strategy in Asia-Pacific IV. Japan-EU EPA/FTA V. Concluding Remarks

  3. 1. Japan’s Economic Situation Current situation • Low economic growth • Recovering from the Eastern Japan Disaster (March 11, 2011) • Closed economy Future prospects • Declining and aging population • Declining savings rate • Increasing government debt Challenge for achieving economic growth • Increase productivity • Increase economic interaction with growing Asia Solutions • New Economic Strategy in Asia-Pacific • Japan-EU EPA

  4. GDP Growth Rates (%)

  5. GDP

  6. Trade-GDP Ratios (%)

  7. II. High Economic Growth and Regional Economic Integration in Asia-Pacific Market-driven Regional Economic Integration • High economic growth achieved by rapid expansion of foreign trade and foreign direct investment (FDI) • Advances in regional economic integration • Expansion of trade and FDI in machinery sector (electronic machinery, transportation machinery) • Increase in parts and components trade • Fragmentation strategy by multinational corporations: formation of regional production networks • Liberalization of trade and FDI policies

  8. Total Trade (Exports+Imports) : EU, East Asia and North America

  9. Intra-regional Trade Dependence (%)

  10. Intra-regional Trade Ratio (%)

  11. Shares of East Asia’s Trade with Regions (%)

  12. Share of Parts and Components in Intra-regional Trade (%)

  13. Declining Tariff Rates

  14. Trade Liberalization: Declining Tariff Rates (%)

  15. Emergence of institution-driven regional economic integration • Rapid expansion of free trade agreements (FTAs) in East Asia in the 21st century • FTA (free trade agreement): free trade (elimination, reduction of tariff and non-tariff barriers among FTA members) • In East Asia ASEAN has become a hub of FTAs: 5 ASEAN+1 FTAs have been implemented • 4 initiatives have been proposed for region-wide FTA: ASEAN+3 (East Asia FTA), ASEAN+6 (CEPEA), ASEAN++ (RCEP), Free Trade Area of Asia-Pacific (FTAAP) • The US has become active in region-wide FTA: Trans-Pacific Partnership (TPP)

  16. FTAs in East Asia (December 2011)

  17. FTAAP: Free Trade Area of the Asia-Pacific 7 Efforts under various frameworks TPP ASEAN+6（CEPEA) ASEAN+3（EAFTA） （ASEAN+JP, CH, KR, IND, AUS, NZ） （ASEAN + JP, CH, KR） Current members Vietnam Viet Nam Malaysia Peru TPP Australia RCEP Establishment of 3 working groups (for trade in goods, services and investment) in 2012 Brunei FTAAP (APEC) USA Japan-China-Korea Russia Canada China Japan Korea CH. HongKong CH. Taipei Thailand US Brunei Singapore Mexico Malaysia Vietnam Philippines Peru Singapore Chile Indonesia PNG New Zealand Australia Chile Launch of negotiations in 2012 New Zealand (Source:METI, Japan)

  18. Motives behind FTAs in East Asia Increase market access through trade and FDI Rapid expansion of FTAs in the world Promote domestic reform Rivalry between East Asian countries Motives behind region-wide FTAs in East Asia Financial crisis in 1997-98 Global financial crisis in 2008- Overcome Spaghetti bowl effect Establish region-wide single production base and unified market

  19. Rapidly Increasing FTAs in the World

  20. Expected Impacts of FTAs Trade and FDI expansion between and among FTA members Economic growth Economic Obstacles to FTAs Opposition from non-competitive sectors

  21. IV. Japan’s New Economic Strategy in Asia-Pacific • Comprehensive Economic Partnership Agreement (EPA) including trade and FDI liberalization, facilitation, economic cooperation • Export infrastructure such as transportation system and water supply system including hard and soft infrastructure • Export agricultural products • Attracting foreign direct investment inflows and high skilled personnel • Attracting foreign tourists • etc.

  22. Japan’s FTAs (EPAs): June 2012

  23. Motives Expand export market for Japanese firms Improve investment environment for Japanese firms Obtain energy and natural resources Promote structural reform in Japan Improve and establish good relationship Provide economic assistance to developing countries Opposition Agriculture, fishery

  24. Impacts of FTAs on GDP (%): Simulation Results

  25. Japan-EU EPA Developments • Scoping exercise for Japan-EU EPA began in May 2011 and ended in May 2012 • Waiting for the negotiations to begin Expected benefits • Strengthen economic and non-economic relations • Expand exports and FDI not only bilaterally but with other countries, contributing to economic growth: EU GDP to increase 0.14 percent, Japan’s GDP 0.31 percent (Copenhagen Economics, 2009) • Contribute to rule-making in the global economic system

  26. Japan’s Trading Partners: 2010 (%)

  27. Japan’s Foreign Direct Investment Destinations: 2011 (%)

  28. Japan’s Position • Eager to start negotiations with an interest in strengthening economic relations and overcoming disadvantageous position in the EU market vis-à-vis Korean firms: EU tariffs--cars (10%), flat screen TVs (14%), microwave ovens (5%) etc. EU position • Somewhat hesitant in starting negotiations immediately (in response to Japan’s inability to join TPP negotiations?) • Eager to open Japan’s government procurement market and reduce non-tariff measures, in order to expand trade and FDI

  29. V. Concluding Remarks • Faced with many difficult challenges, Japan has to open up its economy and carry out structural reforms, in order to achieve economic growth or to maintain high living standard, to contribute to economic growth in Asia-Pacific and in the world. • WTO liberalization being stalled, free trade agreements (FTAs) are second-best solution for promotion of trade and FDI • Japan can gain a lot from FTAs not only in East Asia but also with countries in other parts of the world such as the US, the EU, and Latin American countries

  30. Japan should play active roles in establishing region-wide FTAs: RCEP, TPP by liberalizing its market Then expand these FTAs by merging with other FTAs, leading to global trade liberalization FTAs face opposition from non-competitive sectors For Japan, trade liberalization in agriculture faces strong opposition Various measures including gradual phase-in liberalization, and temporary assistance to negatively affected workers can moderate the negative impacts during the process of transition Need strong political leadership to promote FTAs

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