2007.11.14. F.K. 1

Australian National UniversityANU/AJRC Seminar

Japan’s Free Trade Agreements and

Agricultural Protection

Fukunari Kimura

(Professor, Keio University;

Visiting Research Fellow, ANU)

2007.11.14. F.K. 2

1. FTA networking in Asia-Pacific

• De facto and de jure economic integration• Bilateral/plurilateral FTAs within and beyond East Asi

a/Asia-Pacific• Enhanced role of FTAs as a tool of economic diploma

cy– WTO-DDA: delayed liberalization efforts, limited scope– Speed, scope, and sequencing accommodating a variety of

motivations and contents– Heading for “open regionalism” with “high-quality FTAs with

all major trading partners” (ASEAN, Korea, Australia, …)?

2007.11.14. F.K. 3

Counterpart Negotiation startedAgreement signed Entry into force

Singapore 01/2001 01/2002 11/2002Mexico 11/2002 09/2004 04/2005Malaysia 01/2004 12/2005 07/2006Chile 02/2006 03/2007 09/2007Thailand 02/2004 04/2007 11/2007Philippines 02/2004 09/2006Brunei 06/2006 06/2007Indonesia 07/2005 08/2007ASEAN 04/2005GCC 09/2006India 01/2007Vietnam 01/2007Australia 04/2007Switzerland 05/2007

(Korea) 12/2003 (11/2004: negoriation suspended.)

Source: MOFA, GOJ (http://www.mofa.go.jp).

Japan’s FTA/EPA negotiations(As of 01/11/2007)

2007.11.14. F.K. 4

The matrix of FTAs involving countries in East Asia

　 Japan Korea China ASEAN India AUS NZ

Japan 　 ○ △ ○／◎ ○ ○ 　

Korea ○ 　 △ ◎* ○ △ △

China △ △ 　 ◎ △ ○ ○

ASEAN ○／◎

◎* ◎ ◎ ◎ ○／◎ ○／◎

India ○ ○ △ ◎ 　 　 　

Australia ○ △ ○ ○／◎ 　 　 ◎

NZ 　 △ ○ ○／◎ 　 ◎ 　

(As of August 2007)

◎: Entered into force or signed (*Korea-Thailand has not signed yet)○: Under negotiation or agreed to negotiate○ ／◎ : Some bilateral FTAs are while plurilateral FTA is ○◎△: Under consideration (G-G base) or feasible study initiated

From Kimura, Itakura, and Kuno (2007).

2007.11.14. F.K. 5

Bilateral FTAs involving countries in Asia-Pacific

Under negotiation/agreed to negotiate

Entered into force/ Signed

(As of August 2007)

Korea

Singapore

Australia

NZ Chile

Mexico

Canada

US

Japan

From Kimura, Itakura, and Kuno (2007).

2007.11.14. F.K. 6

2. Good aspects of Japanese FTAs

• In addition to tariff removals, they include various policy measures for the improvement of business environment, particularly for production/distribution networks in ASEAN/East Asia and Mexico.– Trade/FDI facilitation– Institutional building (investment rule, IPRs, …)– Business-governments dialogue for trouble-shooti

ng– Link with other policy modes (econ./tech. coop. for

capacity building, infrastructure development, …)– These are largely non-discriminatory.

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• Preliminary post-evaluation of Japan-Singapore, Japan-Mexico (Ando (2007))– Limited direct effects of tariff reduction (automobile

s, some ag. products, Cf. flat TV)– Business-Governments dialogue works (logistics,

safety, overall business environment)– Government procurement

• Effects of FTAs with ASEAN will surely be large, particularly on further activating production/distribution networks

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3. Problems in Japanese FTAs

• Minimal “cooperation” of so-called sensitive sectors (e.g., agriculture)– Low coverage of liberalization for trade in goods– Trade-value-based evaluation of trade liberalizatio

n (cf. tariff-line-based)• “De-centralized” negotiation body without top-

down leadership– Vertical segmentation along sectoral lines (Mulgan

(2007))• Enhancing the liberalization coverage is esse

ntial to further strategic moves with Australia and beyond (e.g., US, EU, Asia-Pacific).

2007.11.14. F.K. 9

Within-10-year liberalization coverage for merchandise trade in Japanese EPAs

(Based on the Government of Japan; trade value basis)

% Base year % Base year

Japan-Singapore EPA 95% 2005 100% 2000

(Before reneg.: 94%)

Japan-Mexico EPA 87% NA 98% NA

(96% for both directions in total)

Japan-Malaysia EPA 94% 2004 99% 2003

Japan-Philippines EPA 92% 2003 97% 2003

Japan-Indonesia EPA 93% 2004.05-2005.04 90% 2004.05-2005.04

(96% with iron & steel for special use)

Japan-Thailand EPA 92% 2004 97% 2003

Japan-Brunei EPA 99.99% 2005 99.94% 2005

Originally drawn from MOFA and METI.

Source: Kuno and Kimura (2007). Available in http://www.coe-econbus.keio.ac.jp/data/DP2007-002.pdf.

On the Japanese side On the couterpart's side

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Within-10-year liberalization coverage for meachandise trade in Japanese EPAs and others

(Based on Kuno and Kimura (2007); 9-digit HS tariff line basis)

Number of tariff lines

Agricultural Mining/manufacturing All goods

Japan-Singapore EPA 18.8% 92.4% 75.8% 6,858

Japan-Mexico EPA 41.7% 98.0% 85.4% 7,720

(with GSP) 86.7% 7,835

Japan-Malaysia EPA 54.0% 98.3% 88.3% 7,988

(with GSP) 88.4% 7,994

Reference (Jan. 2007):

MFN enforced tariffs 18.8% 46.9% 40.6% 3,671

With GSP 24.7% 70.2% 60.0% 5,421

With LDC-GSP 43.3% 98.5% 86.1% 7,784

Source: Kuno and Kimura (2007). Available in http://www.coe-econbus.keio.ac.jp/data/DP2007-002.pdf.

For your reference, Korea in Korea-Chile FTA: 96.3%; the US and Australia in their FTA: 98.1% and 100%;

Australia in Australia-Thailand FTA: 100%; Korea and the US in their FTA: 99.7% and 100%.

%

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• Direction of agricultural reform– MAFF=LDP

• Focus has shifted from food security/multi-functionality to competitiveness (who will do it?; efficient land use…)

– The opposition party• Direct income subsidy “without (!)” mentioning border bar

riers. Typical populist’s policy.

– Working Group on EPAs and Agriculture under Council on Economic and Fiscal Policy (CEFP) (http://www.keizai-shimon.go.jp/)

• Claiming the speed of reform to keep up with international commercial policies

– Ref.: Mulgan (forthcoming)

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4. The Australia-Japan FTA:how can we motivate Japan?

• Direct economic gains would be small; need to emphasize political motivation, strategic alliance in Asia-Pacific, …

• Natural resources– Heavy dependency on imports of natural-resource-based products from Aus

tralia– Recent hike of resource prices, emergence of China as a big importer– Can FTA do anything for stable supply of resources? (Tariffs are not the iss

ue!)• Trade and investment• e.g., NAFTA Article 605, Japan-Indonesia FTA, …

• Importance of Australia as food security; should be an important agenda

• Services and others– Any “offensive” agenda?

2007.11.14. F.K. 13

Japan’s Imports from Australia

Meat andedible meat

offal7%

Aluminum andarticlesthereof

5%

Otherproducts

18%

Ores, slag andash

19%

Mineral fuels51%

Source: World Trade Atlas, 2006 HS 2-digit level.

From Kimura, Itakura, and Kuno (2007).

2007.11.14. F.K. 14

Australia as a Main Foods/Natural Resources Supplier

　　　　　　　　　　　　　　　　　　　Share of Australian Products

in Japanese MarketRanking

Mineral fuel

(HS27)8.7% No. 4

Ores, slag and ash (HS26)

26.8% No. 1

Meat and edible meat (HS02)

30.5% No. 1

Aluminum and articles thereof (HS76)

4.8% No. 2

Source: World Trade Atlas, 2006

From Kimura, Itakura, and Kuno (2007).

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Other Natural Resources Imported from Australia

• Uranium, zinc, bauxite, lead, titanium mineral, zircon, and rare metals

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Japan’s Import Dependency on Australia for Coal and Iron Ores

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

1995 1997 1999 2001 2003 2005

Australia China Other Countries

CoalÅ@(HS2701)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1,995 1,997 1,999 2,001 2,003 2,005

Australia Brasil Other Countries

Iron ores and concentrates (HS2601)

Source: World Trade AtlasFrom Kimura, Itakura, and Kuno (2007).

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Australia’s Export Destination:to Japan and to China

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1995 1997 1999 2001 2003 2005

Japan China

Australia's Export by Destination

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

1995 1997 1999 2001 2003 2005

Japan China Other Countries

Iron ores and concentrates (HS2601)

Source: World Trade Atlas

From Kimura, Itakura, and Kuno (2007).

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Table 10 Imports of agriculture-related products and the tariff rates in Japan: imports from Australia in 2005

Total imports: 2706.15 billion yenAgriculture-related imports: 497.36 billion yen (share in total imports:18.38%)Agriculture-related imports (incl. wood) : 580.36 billion yen (share in total imports:21.45%)

Major imported commodities: import share and tariff rate

Import share (%) Tariffs

in agri. in agri.(wood) (in total) General WTO Preferential Temporary

Beef 47.55 40.75 (8.74)

Beef (fresh, chilled, or frozen) 39.97 34.26 (7.35) (50%) (50%) 38.5%Tongues, livers, and internal organs (fresh, chilled, or frozen) 6.09 5.22 (1.12) 15% 12.8%Prepared or preserved (corned beef, other) and frozen (other) 0.74 0.64 (0.14) 25% 21.3%Frozen cheek meat and head meat 0.03 0.03 (0.01) (50%) (50%)Live, with weight of more than 300kg 0.71 0.61 (0.13) 45000yen/each 38250yen/eachLive, with weight of not more than 300kg 0.00 0.00 (0.00) 75000yen/each 63750yen/each

Wheat (excl. durum wheat) and barley 8.04 6.89 (1.48)

Wheat imported by Japanese government 4.41 3.78 (0.81) (65yen/Kg) (Free) FreeBarley imported by Japanese government 3.62 3.11 (0.67) (46yen/Kg) (Free) FreeBarley (other) 0.00 0.00 (0.00) (46yen/Kg) (39yen/Kg) 10.4yen/Kg

Cheese 5.93 5.08 (1.09)

Fresh cheese, blue-veined cheese, and others 4.41 3.78 (0.81) 35% 29.8%Used as materials for processed cheese, within a pooled quota 1.49 1.27 (0.27) 35% 29.8% *FreeProcessed cheese 0.03 0.02 (0.01) 40% 40%

Dog or cat food for retail sales 1) 3.22 2.76 (0.59)In airtight containers or more than 70 yen/kg in value forcustoms duty, etc

3.20 2.74 (0.59) Free

Other 0.02 0.02 (0.00) 60yen/kg 36yen/kg 18yen/kg

Rape or colza seeds 3.03 2.60 (0.56) Free

Tunas (fresh, chilled or frozen) 2.89 2.48 (0.53) 5% 3.5%

Fodder 2.88 2.47 (0.53) Free

Sugar and confectionery 2.36 2.02 (0.43)

Sugar centrifugal 2.35 2.01 (0.43) Free (71.8yen/kg)Others 2) 0.01 0.01 (0.00) * * * *

Shrimps and prawns 1.93 1.65 (0.35) 4% 1% *Free

Wood in chips 13.62 (2.92) FreeNote: " *Free" denotes free for only those originated in the LDCs.1) Excluding those containing lactose of not less than 10% of the weight.

2) Others include candies and other sugar confectionary, lactose and lactose syrup, sugar syrup and so on. WTO tariffs, for instance, are 25% forcandies and other sugar confectionary, 8.5% for lactose and lactose syrup, and 35.4% or 47yen/kg, whichever is the greater, for sugar syrup.

Commodity

Source: Ando and Kimura (2007).

2007.11.14. F.K. 19

5. Economic effects of A-J FTA

• Simulation by CGE-GTAP model• Effects of the removal of bilateral tariffs and e

xport subsidies between Australia and Japan• Not included: effects of service/investment lib

eralization, trade facilitation, and others• Quantified simulation has been an issue in Ja

pan…. (cf. MAFF, Hokkaido Government; criticism in Kimura, Itakura, and Kuno (2007))

2007.11.14. F.K. 20

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Electronics

Rice

Automobile

OtherGrain

Machinery

Sugar

Chemical

Wheat

Dairy

Transport

Service

Food

OtherAg

OtherMnfct

BovineMeat

Metal

Mineral

Imports Tariffs

JPN Imports from AUS and Tariffs (million US$, GTAP Data v6.0)

From Kimura, Itakura, and Kuno (2007).

2007.11.14. F.K. 21

Estimated Benefits of JPN-AUS EPA

Japan Australia

GDP (yen) 1.94 trillion 780 billion

($) 16.2 billion 6.5 billion

(%) 0.4% 1.8%

Exports 3.2% 3.1%

Imports 2.7% 9.4%

Investment 0.0% (very small) 4.7%

From Kimura, Itakura, and Kuno (2007).

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6. Australia’s positioning• Unilateralism?

– Understand the political economy of protection!• WTO?

– Important, but have problems in its speed and scope• FTAs!

– Little direct economic effects?• Maybe for Australia, but not necessarily for counterparts.

– Dirty? Discrimination? Spaghetti bowl?• Not necessarily. Clean FTAs with all major trading partn

ers would be equivalent to “open-regionalism.”– Opposing to WTO?

• No. FTAs can accelerate MFN-based trade liberalization. FTAs can cover various policy modes such as trade facilitation, investment, competition, government procurement, IPR, development, and others.

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• New “open-regionalism” in Asia-Pacific would lead economic diplomacy after DDA.– WTO is not likely to launch a new round and regai

n initiatives.– Large policy demand for WTO+.– To avoid micro-protectionism, countries will need s

ome liberalization agenda.– FTA networking is accompanied with strong domin

o effects.

• Australia’s position would be highly advantageous!

2007.11.14. F.K. 24

7. Conclusion• To extend its FTA strategies beyond ASEAN,

Japan has to clean up domestic resistance and enhance the coverage of trade liberalization.

• Australia-Japan FTA is important for both political implication and economic effects; a “must” in East Asia/Asia-Pacific.

• Australia can encourage Japan to accelerate its domestic reform by taking care of concerns on food/resource security.

2007.11.14. F.K. 25

References• Ando, Mitsuyo. (2007) “Impacts of Japanese FTAs/EPAs: Post Evaluation from t

he Initial Data.” RIETI Discussion Paper Series 07-E-041. http://www.rieti.go.jp/jp/publications/act_dp.html.

• Ando, Mitsuyo and Kimura, Fukunari. (2007) “Japanese FTA/EPA Strategies and Agricultural Protection.” http://www.coe-econbus/keio.ac.jp/data/DP2006-024.pdf.

• Kimura, Fukunari; Itakura, Ken; and Kuno, Arata. (2007) “Strengthening the Strategic Partnership through a Japan-Australia EPA.” A report commissioned by the Japan Australia Business Co-operation Committee (translated in the courtesy of the Australian Embassy in Japan). http://www.tokyo-cci.or.jp/support_m/kokusai/kaigi/epa_report0711e.pdf.

• Kuno, Arata and Kimura, Fukunari. (2007) “The Evaluation of Trade Liberalization in Japanese EPAs: the Methodological Issues and the Sectoral Evaluation.” http://www.coe-econbus/keio.ac.jp/data/DP2007-0202.pdf. (In Japanese)

• Mulgan, Aurelia George. (2007) “Japan’s FTA Politics and the Problem of Agricultural Trade Liberalization.” Presented at the ANU Symposium “Australia and Free Trade Agreements” on 1-2 November 2007.

• Mulgan, Aurelia George. (forthcoming) “Where Japan’s Foreign Policy Meets Auricultural Trade Policy: the Australia-Japan Free Trade Agreement (FTA).” Forthcoming in Japanese Studies, May 2008.