Japan's FTA Network : Comparing between the Bilateral and Regional Options

Abstract

Using GTAP's CGE Model, this paper implements a comparative analysis of bilateral and regional free trade arrangements between Japan and partner countries within Asia-Pacific region with which negotiations are currently under way. These countries include Singapore, Mexico, Korea, Thailand, Philippines, Malaysia, China, and Indonesia. Some of these negotiations have already been concluded giving rise to the Japan-Singapore FTA (concluded in 2002), Japan-Mexico FTA (2004), Japan-Philippines FTA (2005) and Japan-Malaysia FTA (2005). Negotiations are still advancing with other countries. At the same time, negotiations are ongoing with ASEAN bloc of countries towards a regional trade agreement. The scenarios employed in this paper involve a complete elimination of tariff in all tradeable commodities between Japan and the partner countries. We employed both Version 5 (1997) and Version 6 (2002) of GTAP base data for the simulations. Simulation results with the different base data show that there is a significant decrease in gains (both in welfare and GDP expansion) over the two years—a situation that points to the aftermath of the 1997 Financial Crises. Comparing the bilateral and regional options, simulation results show that, in tune with now established theory, the benefits accruable from a regional or multilateral free trade regime far outweigh that from a bilateral trade strategy.JEL classification : D58, R13, F13