RIETI Policy Debate
Round 9: FTAs Take Off in East Asia—The Absence of a Japan-China FTA is a Loss:Discussion Table
Don't exaggerate the significance of Asian FTAs
Senior Fellow, The Council on Foreign Relations
The article in Sentaku about the rapid rise of free trade areas (FTAs) written by Toshiya Tsugami and posted for us by Eric Dinmore is interesting, but in my mind represents a typical Japanese analysis of the situation. As such it:
1) exaggerates the role of Japan in motivating what has happened in East Asia. It's not even clear that Japan proposed the FTA to Singapore; it appears that Singapore approached Japan and that caused the government to rethink its previous opposition to FTAs. This was part of an existing strategy of Singapore to help extricate itself from dependence on its ASEAN neighbors, especially in the wake of the '97 financial crisis. The idea that China approached ASEAN because Japan had begun negotiations with Singapore I find implausible.
2) It is also an exaggeration to say that there is a lot of activity in East Asia concerning FTAs. ASEAN agreed to an FTA among its members over a decade ago and has been slowly and unevenly implementing it ever since. Singapore has been quite active. Japan has signed one (Singapore) and is negotiating one (Mexico). Korea has signed one (Chile). ASEAN is negotiating with China. But all this is happening in a world where other players have been quite active--the U.S. has several (Canada, Mexico---i.e. NAFTA, Jordan, Singapore) and is negotiating a bunch (FTAA, Central America, Morocco, Australia). World wide, about 100 of these things have been created in the past decade. In that context what is happening in East Asia is not so exciting.
3) This is especially true of Japan, which is having considerable difficulty in moving forward. It has been unable to start negotiations with either Korea or ASEAN despite several years of official study groups. It might eventually do so, but the delay is noticeable.
4) The article by Tsugami extols the virtues of a Japan-China FTA, but this is one that is absolutely not on the Japanese government's radar screen, probably for good reason. China has a long way to go with implementing its obligations under the terms of its accession to the WTO before it will really be ready to participate in such arrangements with advanced nations.
Finally, I may be the only one saying this besides Jagdish Bhagwati, but I think FTAs are a bad idea and deeply regret the enthusiasm that the U.S. government has shown for them.
If anyone is interested, I have a book on these developments coming out later this year, a joint publication of the Council on Foreign Relations and the Brookings Institution.
Response to Edward LINCOLN
Dr. Edward Lincoln writes in his posting on the 19th that my article in SENTAKU "exaggerates the role of Japan in motivating what has happened in East Asia. It's not even clear that Japan proposed the FTA to Singapore; it appears that Singapore approached Japan and that caused the government to rethink its previous opposition to FTAs. This was part of an existing strategy of Singapore to help extricate itself from dependence on its ASEAN neighbors, especially in the wake of the '97 financial crisis."
Let me respond. If my article had given an impression that it exaggerated the role of Japan, it was precisely because I wanted to provoke policymakers in Japan, some of whom are caught by a sense of sufferer with the sudden rise of the China-ASEAN FTA. They are feeling that China intends to downgrade Japan's presence in East Asia; a combination of two theories --"China conspiracy" and "China threat." But I wanted to warn them: it was actually Japan that has inadvertently triggered the current chain reactions of FTAs in the region. It is true that Singapore approached Japan first (summer 1999), but one of the reasons, I believe, must have been the news that Japan started to explore a bilateral FTA with Korea (spring 1999), which was hitherto not heard of nor thought of.
Dr. Lincoln also finds, "(t)he idea that China approached ASEAN because Japan had begun negotiations with Singapore" to be "implausible."
Would it sound more persuasive if I added the following? What China was concerned about was not that Japan was negotiating an FTA with Singapore (or was also exploiting it with Korea). Rather, China was concerned about the consequences of a Japan-centered web of preferential trade networks in the region, coupled with the sentiment of a "China economic threat" abroad, which could have lead to their isolation not only in terms of economic policy but also in terms of foreign policy. In this interpretation, timing mattered: the move started when China was turning the last corner of the WTO entry negotiation (Imagine you finally got to the finish line, and there is nobody here.) In my view, China launched its own regional initiative not offensively but defensively.
Dr. Lincoln also argues: "It is also an exaggeration to say that there is a lot of activity in East Asia concerning FTAs. Worldwide, about 100 of these things have been created in the past decade. In that context what is happening in East Asia is not so exciting."
It may be so, but just because East Asia has continuously failed to join this movement until very recently, the current change is striking. I don't understand why Dr. Lincoln speaks ill of the new movement - only because a rookie cannot play as "excitingly" as a veteran?
Dr. Lincoln goes on to argue, "Japan has been unable to start negotiations with either Korea or ASEAN despite several years of official study groups. It might eventually do so, but the delay is noticeable."
It seems to me that Korea is hesitating to start official negotiations with Japan, not vice versa. In the course of the recent bilateral summit, the Japanese government reportedly sought "joint declaration" of negotiation launch, but the Korean government politely declined the offer partly because it was concerned about another neighbor's (China's) reaction. True, some Chinese doubt if a Japan-Korea FTA is also meant to isolate China.
Regarding ASEAN, the concerned parties prefer bilateral FTAs with Japan rather than a Japan-ASEAN FTA. One of the reasons is that other members need to rebalance the already completed Japan-Singapore FTA (*). The other one, however, might be that they also need to rebalance the rapid development of China-ASEAN FTA negotiations by promoting a bilateral FTA with Japan because a Japan-ASEAN FTA would naturally take time and cannot catch up with the rapid move of China-ASEAN FTA, although saying so might be again criticized by Dr. Lincoln for "exaggerating the role of Japan." Anyhow, I admit Japan's bilateral FTAs with individual ASEAN members are quite uncertain, but they are more or less already being negotiated.
(* For your reference, Please see Singapore Premier Goh Chok Tong's speech (Q&A part, in particular) made last March at my institute)
Dr. Lincoln then says that my article "extols the virtues of a Japan-China FTA, but this is one that is absolutely not on the Japanese government's radar screen."
I have never "extol(ed) the virtues of a Japan-China FTA," but argued the need to face reality. As I wrote in my SENTAKU article, a de-facto economic integration is taking place rapidly and irresistibly between Japan and China with or without an FTA. What is a pity is that Japan might currently suffer more (i.e., hollowing out) than it benefits from this integration. But in my view, Japan itself is responsible for failing to absorb possible merits. To improve this situation, Japan needs to accelerate reform including a psychological adjustment. A Japan-China FTA will be helpful toward this end. Therefore, whether the officials don't want to see or are scared, it must be "on the radar screen of the Japanese government" now.
There is also another reason why I think it is necessary to think about a Japan-China FTA. As mentioned above, there are people in both Japan and China who are suspicious about the other party's FTA policy if it is malign. Korean government has declined to launch a Japan-Korea FTA negotiation partly due to the fear of such suspicions by China. Unfortunately, that is another reality of today's Japan-China relationship (I hope U.S. friends would not be complacent with this). But there are also people in both countries who already realize that neither side can benefit from such a game. Further inaction for a Japan-China FTA would risk giving whole East Asian FTA moves a serious chilling effect. No matter how long it takes to materialize a Japan-China institutional FTA, we need a clear vision now as to the eventual shape of the East Asian economic integration, an effective medicine to erase mutual suspicion.
Finally, Dr. Lincoln thinks "FTAs are a bad idea and deeply regret the enthusiasm that the U.S. government has shown for them."B
If he really thinks so, then I don't understand why Dr. Lincoln lengthily illustrates how "exciting" and "active" other players are, "But all this (FTA) is happening in a world where other players have been quite active--the U.S. has several (Canada, Mexico---i.e. NAFTA, Jordan, Singapore) and is negotiating a bunch (FTAA, Central America, Morocco, Australia)" It doesn't appear that he does so in order to show how foolish U.S. policy makers are.
While Dr. Lincoln calls my article "represents a typical Japanese analysis," it seems to me that his comment also quite vividly represents a "typical" wishful thinking of some U.S. Asian experts. To me, "the enthusiasm that the U.S. government has shown for them (FTAs)" looks more realistic and constructive. If one day, when Japan-China FTA is really going to be materialized, then the two countries will naturally face an intervention from the opposite side of the Pacific Ocean. It might even be something that both Japan and China should welcome in order to avoid "a clash of civilization" across the Pacific and to secure constructive U.S. commitment toward East Asia. I believe this is also the best way for the U.S. to preserve its interest in East Asia. Why don't you engage in debate constructively, and give the Asian side time to hug before the game. You can take a rest for a while, as it is true it will take time.
If anyone is interested, and has no problem reading Japanese, my above arguments are elaborated in my book ("CHUUGOKU TAITOU --NIPPON HA NANI WO NASUBEKIKA" ("China's Rise --What Japan ought to do?",) Jan., 2003, NIKKEI Shinbunsha).
* Reprinted from Japan-U.S. Discussion Forum, National Bureau of Asian Research
June 30, 2003