1. 2007.11.14.F.K.1 Australian National University ANU/AJRC Seminar Japan’s Free Trade Agreements and Agricultural Protection Fukunari Kimura (Professor, Keio University; Visiting Research Fellow, ANU)

2. 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 Asia/Asia-Pacific Enhanced role of FTAs as a tool of economic diplomacy –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, …)?

3. 2007.11.14.F.K.3 Japan’s FTA/EPA negotiations (As of 01/11/2007)

4. 2007.11.14.F.K.4 The matrix of FTAs involving countries in East Asia JapanKoreaChinaASEANIndiaAUSNZ 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).

5. 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) From Kimura, Itakura, and Kuno (2007).

6. 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- shooting –Link with other policy modes (econ./tech. coop. for capacity building, infrastructure development, …) –These are largely non-discriminatory.

7. 2007.11.14.F.K.7 Preliminary post-evaluation of Japan- Singapore, Japan-Mexico (Ando (2007)) –Limited direct effects of tariff reduction (automobiles, 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

8. 2007.11.14.F.K.8 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 liberalization (cf. tariff-line-based) “De-centralized” negotiation body without top- down leadership –Vertical segmentation along sectoral lines (Mulgan (2007)) Enhancing the liberalization coverage is essential to further strategic moves with Australia and beyond (e.g., US, EU, Asia- Pacific).

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11. 2007.11.14.F.K.11 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 barriers. Typical populist’s policy. –Working Group on EPAs and Agriculture under Council on Economic and Fiscal Policy (CEFP) (http://www.keizai-shimon.go.jp/)http://www.keizai-shimon.go.jp/ Claiming the speed of reform to keep up with international commercial policies –Ref.: Mulgan (forthcoming)

12. 2007.11.14.F.K.12 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 Australia –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 issue!) 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?

13. 2007.11.14.F.K.13 Japan’s Imports from Australia Source: World Trade Atlas, 2006 HS 2- digit level. From Kimura, Itakura, and Kuno (2007).

14. 2007.11.14.F.K.14 Australia as a Main Foods/Natural Resources Supplier Share of Australian Products in Japanese Market Ranking 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).

15. 2007.11.14.F.K.15 Other Natural Resources Imported from Australia Uranium, zinc, bauxite, lead, titanium mineral, zircon, and rare metals

16. 2007.11.14.F.K.16 Japan’s Import Dependency on Australia for Coal and Iron Ores Source: World Trade Atlas From Kimura, Itakura, and Kuno (2007).

17. 2007.11.14.F.K.17 Australia’s Export Destination: to Japan and to China Source: World Trade Atlas From Kimura, Itakura, and Kuno (2007).

18. 2007.11.14.F.K.18 Source: Ando and Kimura (2007).

19. 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 export subsidies between Australia and Japan Not included: effects of service/investment liberalization, trade facilitation, and others Quantified simulation has been an issue in Japan…. (cf. MAFF, Hokkaido Government; criticism in Kimura, Itakura, and Kuno (2007))

20. 2007.11.14.F.K.20 JPN Imports from AUS and Tariffs (million US$, GTAP Data v6.0) From Kimura, Itakura, and Kuno (2007).

21. 2007.11.14.F.K.21 Estimated Benefits of JPN-AUS EPA JapanAustralia GDP (yen)1.94 trillion780 billion ($)16.2 billion6.5 billion (%)0.4%1.8% Exports3.2%3.1% Imports2.7%9.4% Investment0.0% (very small) 4.7% From Kimura, Itakura, and Kuno (2007).

22. 2007.11.14.F.K.22 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 partners 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.

23. 2007.11.14.F.K.23 New “open-regionalism” in Asia-Pacific would lead economic diplomacy after DDA. –WTO is not likely to launch a new round and regain initiatives. –Large policy demand for WTO+. –To avoid micro-protectionism, countries will need some liberalization agenda. –FTA networking is accompanied with strong domino effects. Australia’s position would be highly advantageous!

24. 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.

25. 2007.11.14.F.K.25 References Ando, Mitsuyo. (2007) “Impacts of Japanese FTAs/EPAs: Post Evaluation from the Initial Data.” RIETI Discussion Paper Series 07-E-041. http://www.rieti.go.jp/jp/publications/act_dp.html. 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.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.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)http://www.coe-econbus/keio.ac.jp/data/DP2007-0202.pdf 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.