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Date of Issue:21/February/2011

On Concluding APEC Japan
Prospects for Economic Integration in the Asia-Pacific Region

Hidehiko Nishiyama
Director-General for International Trade Policy

APEC Japan assessed the achievement of the Bogor Goals and went on to present a new vision for the Asia-Pacific region. Ahead of the summit meeting, the Japanese government formulated the Basic Policy on Comprehensive Economic Partnerships. The year 2011 will be critical in terms of moving both these outcomes into action. As part of the IIST lecture series, I would like to mark the start of a new year by thinking about economic partnerships in the Asia-Pacific region as the world’s growth center.

1. Results of the APEC Economic Leaders’ Meeting

Today I would like to explain the results of the 2010 Asia-Pacific Economic Cooperation (APEC) meetings, as well as economic partnerships including agreements such as the Trans-Pacific Partnership (TPP), which has recently been the subject of much debate.

The main theme of the APEC Japan process, which began in December 2009 with the informal Senior Officials’ Meeting (SOM) in Odaiba, was “Change and Action”. The Economic Leaders’ Meeting was held in Yokohama on 13-14 November last year, producing a leaders’ declaration entitled the Yokohama Vision. In addition to assessing the extent of achievement of the Bogor Goals, 2010 was the year in which leaders were required to articulate a vision for the APEC region. APEC was launched in 1989 primarily to tackle trade and investment liberalization and facilitation, and the Bogor Goals were formulated to that end, setting 2010 as the year in which those industrialized economies among APEC’s 21 members should achieve the goals, 2020 for other members.

The Yokohama Vision outlined the current status of the Asia-Pacific region within APEC’s purview, as well as changes that are occurring, including the rising influence of the region on the world economy, the growing importance of cross-border supply chains, and the rapid adoption of new information technologies. The declaration also called for the foundations of the APEC economies and the multilateral trading system to be strengthened, and noted the importance of cooperating with the G20. In relation to the multilateral trading system, leaders reaffirmed their commitment to “bring the Doha Development Agenda to a prompt and successful conclusion” and observed that 2011 will be a “critically important ‘window of opportunity’”. Leaders consequently directed ministers to “engage in comprehensive negotiations with a sense of urgency”. To address protectionism, leaders also agreed to extend their commitment not to introduce new protectionist measures, including export restrictions, up to the end of 2013. The need to address the threat of global climate change was noted, including support for the COP15 Copenhagen Accord.

Recognizing that the word ‘community’ is intrinsic to any vision for the Asia-Pacific, the Yokohama Vision sketched a future for the region with reference to an ‘APEC community’ with a lower-case ‘c’. The declaration notes that the APEC community of the future must have three characteristics. First, it must be an economically-integrated community, namely a community that promotes stronger and deeper economic integration. Second, it must be a robust community that is capable of higher quality growth. Third, it must be a secure community, which means building an economic environment safeguarded against terrorism, disease, natural disasters and hunger.

Here I’d like to look at the Bogor Goals. The Bogor Goals were agreed at the Economic Leaders’ Meeting held in Bogor in Indonesia in 1994. The five industrialized economies whose performance was due to be assessed in 2010 were Japan, the US, Canada, Australia and New Zealand. We were delighted that eight other ‘voluntary’ economies—Singapore, Hong Kong, Chile, Peru, Mexico, Korea, Malaysia and Chinese Taipei—also put themselves forward for assessment, resulting in a review of a total of 13 economies.

The review concluded that while more work remains to be done, APEC members’ efforts toward achieving the Bogor Goals have enabled the Asia-Pacific region to achieve substantial reductions in barriers to trade and investment, increase trade and investment flows, promote economic growth and bring about a vast improvement in public welfare. The declaration therefore judges that “significant progress” has been made, but it took some time to reach agreement on that term. Japan produced the original draft of the review, which was then extensively revised over the year in consultation with member economies, the Asian Development Bank, the World Bank and elsewhere to produce a report of around 100 pages. Leaders have released the essence of the report as a public document.

Having reviewed achievement of the Bogor Goals as above, another key item on last year’s agenda was to develop a growth strategy for the APEC region in order to realize a ‘robust community’ as APEC’s new vision. Leaders agreed on five desired attributes of growth in the context of that strategy, namely that it should be: (1) balanced (balanced growth in the context of the world economy); (2) inclusive (providing all APEC citizens with the chance to participate in economic growth); (3) sustainable (addressing environmental and energy constraints); (4) innovative (encouraging R&D and other innovation and promoting emerging industries); and (5) secure (enabling people to engage in economic activity freely without fear of terrorism, disease, earthquakes, tidal waves, typhoons and other natural disasters). Member economies will also create action plans in areas requiring a comprehensive approach, starting with work elements on structural reform.

Creating the economically-integrated community which is one of the three pillars of the APEC Vision will require regional economic integration, and a key concept in that regional economic integration is the Free Trade Area of the Asia-Pacific (FTAAP). Determining what position to take on the FTAAP was another key agenda item for APEC in 2010. The FTAAP has moved on from being a rather vague concept, to definition ultimately at last year’s APEC Economic Leaders’ Meeting as a free trade agreement.

Key pathways to the FTAAP will be ASEAN+3, ASEAN+6 and the Trans-Pacific Partnership (TPP). As an incubator for new ideas, APEC also intends providing the results of APEC discussions as intellectual input shaping wide-ranging FTA negotiations. Another APEC function will be to continue and further develop its work on sectoral initiatives. Work has already begun in this regard in the US, this year’s APEC Chair. An informal SOM meeting was held last year in Honolulu in Hawaii, and senior officials will meet this year in Washington, while major meetings of trade ministers and ministers in charge of small and medium enterprises will be held in Montana. San Francisco will host a further SOM and other meetings, with the venue reverting to Hawaii in November for the Economic Leaders’ Meeting.

2. EPA and TPP developments

The countries and regions with which Japan has developed economic partnership agreements (EPAs) to date have primarily been places where Japanese firms have production bases, such as ASEAN. However, Japan now needs to lock in major markets. Japan’s next challenge will be pursue EPAs and free trade agreements (FTAs) with these markets. A strong incentive in this regard has been the extremely swift and bold strategy pursued by Japan’s neighbour Korea. Korea has already completed an FTA with the EU, and if the tariffs which the EU formerly levied on Korea are removed over the next five years, it would mean a 10 percent difference between Japan and Korea for exports of cars and 14 percent for flat-panel TVs. If this does actually happen, the impact will be severe. Korea succeeded in concluding an FTA with the US in December last year. 

On 9 November 2010, the Basic Policy on Comprehensive Economic Partnerships was adopted by Cabinet decision. In this extremely high-level document, the Japanese government recognizes the difficulties created by the growing network of high-level EPAs and FTAs among Japan’s major trading partners and states its absolute resolve to “open up the country” and “pioneer a new future” by promoting “high-level economic partnerships with major trading powers that will withstand comparison with the trend of other such relationships”, while also pressing ahead with “fundamental domestic reforms in order to strengthen the competitiveness it will need for economic partnerships of this kind.”

Specifically, having committed to “subject all goods to negotiations for trade liberalization,” the government is currently addressing the various domestic measures that will accompany this step. The policy also lays out separate approaches for the Asia-Pacific region, major countries and regions outside the Asia-Pacific, and other countries and regions. In the Asia-Pacific region, Japan will follow through on negotiations currently underway. Japan’s EPA with Peru was concluded at the recent Japan-Peru summit meeting, but sticking points remain in the negotiations with Australia. While EPA negotiations have been launched between Japan and Korea, these remain suspended because of differences in views. Japan will work towards the realization of regional economic partnership such as the Japan-China-Korea FTA, the East Asia Free Trade Agreement (EAFTA) which covers the ASEAN+3 area, the Comprehensive Economic Partnership in East Asia (CEPEA) which equate to ASEAN+6. Those are currently still at the study stage. In the case of other major countries and regions in the Asia-Pacific with which Japan has not yet entered EPA negotiations, the government will pursue bilateral EPAs. Of these various pathways to the FTAAP, the only one on which negotiations have begun is the TPP. We are currently visiting the nine countries negotiating the TPP to indicate Japan’s position and ask about the current state of negotiations.  

The TPP is currently being negotiated among nine countries partly based on the ‘P4’ EPA which was created by Singapore, New Zealand, Chile and Brunei Darussalam in 2006. The aim now is to include the US, Australia, Peru and Vietnam to create a new broad-based EPA. Malaysia also signed up as of last October, shifting the negotiations on to a nine-country basis. Any other countries wishing to participate must garner the agreement of each of these members. While there is no formal time limit, the participating countries want to reach agreement at the time of the APEC Economic Leaders’ Meeting which the US will host in November this year. Accordingly, if Japan wants its position reflected, it must join the TPP as soon as possible. There is also the issue of the various countries’ domestic procedures.

Outside the Asia-Pacific, the EU is the most critical market.

Next, developing the kind of economic partnerships which I have been discussing becomes tricky unless accompanied by domestic measures. The necessary framework for these measures has already been created within the Cabinet. First, the Ministerial-level Meeting on the Free Trade Area of the Asia-Pacific and Economic Partnership Agreements has been established. A body called the Headquarters to Promote the Revitalization of the Food, Agriculture, Forestry, and Fishery Industries has also been set up with the Prime Minister at its head. Further, the Council for the Realization of the Revitalization of the Food, Agriculture, Forestry, and Fishery Industries has been created for discussion among ministers and private-sector experts. The Headquarters has decided that a Basic Policy will be formulated by around June and an Action Plan by around October.

Those opposed to the TPP seem to expect tariffs to be eliminated on the spot, causing agriculture and other vulnerable industries to collapse, but this is not the case. Liberalization does not mean immediately eliminating tariffs.

If Japan joins the TPP, the tariffs of the other nine member countries will be gradually eliminated. The tariffs which the private sector pays to these countries amounted to 349.7 billion yen in 2009, and not only will these no longer have to be paid, but if various rules can be created, it will also become much easier to do business. Many TPP working groups are currently in the process of creating rules on, for example, trade and investment in the Asia-Pacific, as well as intellectual property rights and small and medium enterprise-related measures. Accordingly, Japan needs to join as quickly as possible and make its own voice heard. Second, we need to strengthen our ties with the US. US intends to focus on the TPP. So if Japan wants to strengthen ties with the US, the best way is through the TPP.

The TPP is not designed to bring prosperity to the manufacturing and service industries at the expense of agriculture. Measures to support and promote agriculture are being considered from a fresh perspective, and we at the Ministry of Economy, Trade and Industry too want to introduce a number of initiatives including export support. Our plan is to move in the direction of Japan joining the TPP once a solid domestic regime has been set in place, cementing Japan’s position and securing our place at the rule-making table.

Reference: METI’s APEC website

This article has been excerpted from the 44th IIST Monthly Lecture on Asian Issues given on 28 January 2011.

(original article : Japanese)


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