Japan's Free Trade Agreement Strategy

Abstract

After World War II, Japan promoted the liberalization of trade and direct investment and domestic structural reforms using the external pressure being exerted by the United States and international organizations, including the General Agreement on Tariffs and Trade (GATT), the World Trade Organization (WTO), and the Organization for Economic Cooperation and Development (OECD). As a result, the Japanese manufacturing industry became more competitive and achieved success in overseas markets through export expansion. After the collapse of the bubble in the early 1990s, however, the Japanese economy tumbled into a prolonged downturn, and even with the dawn of the twentieth century, has not firmly found its way back onto the path of economic growth. For Japan to overcome these circumstances and achieve its potential growth rate, efforts must be made to improve competitiveness while also expanding business opportunities in overseas markets. Trade and investment liberalization at the global level are effective means of achieving these goals, but trade and investment liberalization under the WTO is becoming more difficult as a result of an increase in the number of member nations and the conflicts that exist between them. Given the difficulties in achieving trade and investment liberalization at the global level, free trade agreements (FTAs) that liberalize trade between Japan and a specific partner country (or countries) offer a viable alternative. Given the proliferation of FTAs in recent years in the world economy, and in East Asia in particular, Japan's interest in FTAs primarily in the East Asian region has been growing in the early twenty-first century. Entering into an FTA with the countries of East Asia would make sense given the high economic growth being achieved by the East Asian countries and their geographical proximity. FTAs have the potential to be highly advantageous to Japan in several ways: by expanding export opportunities, promoting structural reform, and leading to closer ties with the countries of East Asia. However, there are both domestic and international obstacles preventing Japan's FTA promotion efforts. Domestically, there is strong FTA opposition from agriculture and other noncompetitive industries that expect to be harmed by such agreements. Internationally, problems still exist with countries like South Korea and China due to differences in interpretations of history. Several policies might be adopted to overcome these obstacles. For example, it might be effective to provide those who might become unemployed or be otherwise economically harmed by the adoption of an FTA with temporary income subsidies or support to help them improve their technical skills through education and training programs. To address the historical, political, and social problems that exist between Japan and the other countries of Asia, efforts could be made to introduce programs to expand interpersonal exchange based on the notion that deepening mutual understanding plays an important role in international relations. Promoting FTAs, which are going to be an important part of Japan's political future, is going to require leadership by politicians who adequately understand the advantages and disadvantages of FTAs, and a general public that supports them.