Falling Behind in the FTA Race

Free trade is taking a new shape. With the World Trade Organization's new round of multilateral talks on the rocks, countries around the world are taking increasingly to bilateral and regional free trade agreements, or FTAs. Japan is falling far behind in this race, largely because of its protected agriculture.

The FTA, designed to reduce or scrap tariffs and other trade barriers, does not contradict the WTO's principles of free trade. The possibility remains, though, that the world will be divided into exclusionary economic blocs unless the WTO's universal principles are maintained. The FTA's basic advantage is convenience: It allows member countries to adjust their differences relatively easily, thus creating greater opportunities for trade expansion among them.

The United States late last year agreed to sign a Central America Free Trade Agreement with four countries, including Guatemala and Honduras. CAFTA is essentially a sequel to the generally successful North America Free Trade Agreement, which brought together the U.S., Canada and Mexico. Trade among the three countries has expanded dramatically since the pact went into force in January 1994. With a bilateral agreement between the U.S. and Singapore taking effect this month, the U.S. now has six FTAs, including CAFTA.

No less notable are China's moves. The emerging economic power is currently negotiating with the Association of South East Asian Nations to conclude a wide-ranging agreement by 2010. In a preliminary step, China and ASEAN earlier this month put into effect a set of tariff-cutting measures for selected items, such as agricultural products.

Meanwhile, seven South Asian countries, including India, Pakistan and Bangladesh, agreed at the beginning of this year to create a South Asia Free Trade Area in 2006 -- an area that will have more than twice as many consumers as the ASEAN Free Trade Area.

In contrast, Japan is lagging far behind. Of more than 180 FTAs now in effect around the world, only one -- with Singapore -- involves Japan. Negotiations with Mexico are stalled over tariff-free import quotas for orange juice.

It is not that Japan is just watching from the sidelines. Japan late last year entered negotiations with South Korea and is now scheduled to initiate talks shortly with Thailand, the Philippines and Malaysia, respectively. Negotiations with ASEAN are expected to begin next year, with a final agreement likely by 2012.

A study by the Ministry of Economy, Trade and Industry shows that a Japan-ASEAN agreement will increase the nation's gross domestic product by 1.1 trillion yen to 2 trillion yen and create 150,000 to 260,000 jobs. An FTA will not only boost economic efficiency and vitality through mutual trade expansion; it will also stimulate structural reform at home through international division of work. Sustained economic development will contribute to regional stability and peace as well.

The other side of the coin, though, is the fear that free trade threatens protected or vulnerable domestic industries. For example, tariffs on fishery products are a key issue in the negotiations with South Korea. FTA talks with other countries also involve various problems, such as tariffs on rice and chicken and the qualifications of massagers from Thailand; tariffs on plywood and fishery products from Malaysia; and duties on bananas and the entry of nurses and lawyers from the Philippines.

The biggest problem is agriculture. For decades the Ministry of Agriculture, Forestry and Fisheries has been reluctant to open up sensitive sectors of the farm market. That policy is now coming home to roost. As yet there is no practicable blueprint for agricultural reform. The ministry's negotiating position, in effect, is that reform is necessary but should not destroy agricultural diversity. This well-intentioned policy, however, could delay reforms. The pace of change should be accelerated with market liberalization as the lever. What is needed is a strong and sustainable agriculture.

Japan's agricultural production today represents only 1.3 percent of GDP. Agriculture's multidimensional functions, such as land conservation, must be taken into account, of course, but this should not be used as an excuse for delaying or scuttling FTA negotiations. Farm policy needs to be reviewed in the broad context of the national interest.

"Japan cannot continue a policy of agricultural isolation," Prime Minister Junichiro Koizumi has said, referring to FTAs. "There is no way to avoid agricultural reform. We should make necessary concessions from the viewpoint of the national economy." He is exactly right. The question is whether action will follow.