75. Japan’s Trade Policy with Asia

Abstract

Japan’s economic relations with Asian countries have rapidly become increasingly close in recent years, mainly through trade and direct investment. In Asia, Japanese companies have pursued a “fragmentation strategy,” which refers to breaking down production processes and assigning each process, through direct investment, to the country or region suited to implement it most efficiently. As a result, when a certain product is manufactured, its intermediate materials and parts are actively traded between production bases located in various Asian countries, leading to the formation of a regional production network. The formation of such networks has significantly contributed to the economic growth not only of Asian countries but also of Japan. Factors behind the formation of such networks include the presence of wide gaps in the quality of workers and the level of wages between Asian countries due to differences in the degree of economic development as well as the liberalization of policies on trade and direct investment in Asian countries. However, barriers on trade and direct investment remain. To further promote the economic growth of Japan and Asian countries, it is necessary to reduce and abolish such barriers. However, as trade liberalization negotiations under the auspices of the World Trade Organization have stalled, concluding free trade agreements with specific countries to liberalize bilateral/plurilateral trade and investment is one of the few effective policy options available. In Asia, many FTAs have been concluded, mainly involving member countries of the Association of Southeast Asian Nations (ASEAN). However, as for an FTA that covers the whole of Asia, negotiations have just started on the Regional Comprehensive Economic Partnership (RCEP). The negotiations will proceed with a target year of 2015 for the conclusion of an agreement. As the most developed country in Asia, Japan must actively exercise its leadership in designing a partnership that will contribute to the economic growth of Asian countries and concluding an agreement by the target year. When developing a trade policy toward Asia, Japan must firmly recognize that the growth of Asian countries is essential to its own growth.