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Japan’s New Trade Policyin Asia-Pacific
August 22, 2013
Shujiro URATAWaseda University
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Contents
I. Japan’s Economic SituationII. High Economic Growth and Regional
Economic Integration in Asia-PacificIII. Japan’s New Trade Policy in Asia-PacificIV. Japan-Colombia Bilateral Economic
RelationsV. Concluding Remarks
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1. Japan’s Economic Situation
Current situationLow economic growthDeflationShortage of demandSign of recovery (Favorable impacts of Abenomics?)
Structural Problems Declining and aging populationDeclining savings rateIncreasing government debtRegulated sectors (agriculture, medical services, etc)Closed economy
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Challenge for achieving economic growthIncrease productivityIncrease economic interaction with growing Asia-
Pacific countriesSolutions
Implement structural (policy) reforms New Trade Policy in Asia-Pacific
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GDP Growth Rates (%)
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Inflation/Deflation (% change in consumer prices)
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20.000
40.000
60.000
80.000
100.000
120.000
140.000
1,000Japan’s Declining Population
65-
15-64
0-14
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% Gross Domestic Savings (% of GDP)
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50
100
150
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
%Government Debt-GDP Ratios (%)
Japan
US
UK
Germany
France
Italy
Canada
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Trade-GDP Ratios (%)
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Inward FDI Inflows-GDP Ratios (%)
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II. High Economic Growth and Regional Economic Integration in Asia-Pacific
Market-driven Regional Economic IntegrationHigh economic growth achieved by rapid
expansion of foreign trade and foreign direct investment (FDI)
Advances in regional economic integrationExpansion of trade and FDI in machinery sector
(electronic machinery, transportation machinery)Increase in parts and components tradeFragmentation strategy by multinational
corporations: formation of regional production networks (Supply-chain)
Liberalization of trade and FDI policies 12
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Intra-regional Trade Ratio (%)
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Shares of East Asia’s Trade with Regions (%)
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Share of Parts and Components in Intra-regional Trade (%)
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Trade Liberalization: Declining Tariff Rates (%)
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Emergence of institution-driven regional economic integrationRapid expansion of free trade agreements (FTAs) in East Asia in the 21st centuryFTA (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 implementedLong term goal: Free Trade Area of Asia-Pacific (FTAAP) APEC-wide FTA2 major initiatives have been negotiated: Trans-Pacific Partnership (TPP), RCEP (ASEAN+6)
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Viet Nam
Singapore
Brunei
New ZealandChile
USA
TPPPeru
Australia
Vietnam
Malaysia
RussiaChina
CH. TaipeiCH. HongKong
Australia
New Zealand
Canada
US
Mexico
Peru
Chile
BruneiThailand
Malaysia
PhilippinesVietnam
Korea Japan
SingaporeIndonesia PNG
Australia& NZ
India
ChinaKorea
Japan
Efforts under various frameworks
ASEAN+1 FTA
FTAAP (APEC)
FTAAP: Free Trade Area of the Asia-Pacific
TPPRCEP(ASEAN+6)(ASEAN+JP, CH, KR, IND, AUS, NZ)
Japan‐China‐Korea
Current members
(Source: METI, Japan)
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TPP vs. RCEPPositions in FTAAP
FTAAP: Long-term goal of regional economic integration in Asia-PacificTPP and RCEP are both pathways to FTAAPTPP and RCEP should be complementary
Issue CoverageTPP: comprehensive coverage not only market access, services, and investment but also labor, environment, and cross-cutting “horizontal issues” such as regulatory coherence, competitiveness and business facilitation, development and Small and Medium Enterprises (SMEs)RCEP: limited coverage, trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, other areas 19
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ObjectivesTPP: To establish a high standard, regional
agreement that addresses new and emerging issues, incorporates new elements reflecting our values and priorities, and responds to the 21st century challenges our citizens face. (USTR website)
RCEP: To support and to contribute to economic integration, equitable economic development, and strengthening economic cooperation among the participating countries (Guiding Principles and Objectives)
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Some ComparisonsLevel of trade and FDI liberalization:
TPP: highRCEP: ?
Mode of Agreement TPP: Single undertakingRCEP: Stepwise, gradual (?)
Developing and Least-developed countriesTPP: Capacity building, staging of commitmentsRCEP: Flexibility, special and differential
treatment
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Expected Impacts of FTAs
Trade and FDI expansion between and among FTA members Economic growth
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III. Japan’s New Trade Policy in Asia-PacificComprehensive Economic Partnership Agreement (EPA) including trade and FDI liberalization, facilitation, economic cooperationExport infrastructure such as transportation system and water supply system including hard and soft infrastructureExport agricultural productsAttracting foreign direct investment inflows and high skilled personnelAttracting foreign tourists etc.
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Abenomics: Abe Economics
Three Arrows Strategy1) Aggressive monetary policy: radical quantity
easing, inflation targeting2) Flexible fiscal spending: large scale public
works3) Growth strategy (Japan Revitalization
Strategy, June 14, 2013): (1) industry revitalization plan, (2) strategic market creation plan, (3) strategy of global outreach (FTAs, TPP, RCEP)
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Current Status of Japan’s FTAsEnacted relatively a large number of FTAs, butLow country coverage in terms of trade: FTA
coverage ratio Low tariff elimination: lower than 90% in
terms of tariff lines, whereas for the US, higher than 95%
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Japan’s FTAs (as of August 2013)
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MotivesExpand export market for Japanese firmsImprove investment environment for Japanese firmsObtain energy and natural resourcesPromote structural reform in JapanImprove and establish good relationshipProvide economic assistance to developing countries
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FTA Coverage Ratios:Proportion of trade with FTA partners in total trade (%),
FTA (July, 2012), Trade data (2011) Source: JETRO
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FTA Trade Liberalization Ratio (%)
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Impacts of TPP on Japanese Economy (GDP)
Japan’s Cabinet Office:0.66% (TPP 12 countries)
Petri, Plummer and Zhai (2012): 2.0% (TPP 12 members)1.8% (RCEP)4.3% (FTAAP)
The Trans-Pacific Partnership and Asia-PacificIntegration: A Quantitative Assessment,Petersons Institute of International Economics
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Economic Obstacles to FTAs, TPP
Opposition from the agriculture sectorDecline in already low self-sufficiency in food supplyNegative impacts on environmentNegative impacts on regional economyNegative impacts on vested interest groups
Opposition from the medical service sector
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IV. Japan-Colombia Bilateral Economic Relations
Bilateral trade has not been growing fast (for 2011, 0.9 percent of Colombia’s exports, 2.6 percent of Colombia’s imports): Challenge, establish Japan-Colombia FTA.Japan’s FDI in Colombia has been rather limited (0.3 percent of total cumulative FDI inflows from 1994 to 2011)Challenge, increase in human exchange at various levels such as college student, which would promote bilateral economic relations
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Colombia’s exports to Japan, China, and Korea ($million)
Colombia’s imports from Japan, China, and Korea ($million)
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IV. 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 FDIJapan 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
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Japan should play active roles in establishing region-wide FTAs: TPP, RCEP by liberalizing its marketThen expand these FTAs by merging with other FTAs, leading to global trade liberalizationFTAs (particularly TPP) face opposition from the agriculture sectorVarious measures including gradual phase-in liberalization, and temporary assistance (safety net) to negatively affected workers can moderate the negative impacts during the process of transition Need strong political leadership to promote FTAs, particularly TPP
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