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No. 47 — December 17, 1999

 

Feature Article

JAPAN, NORTHEAST ASIA AND FREE TRADE: COMING TOGETHER AT LAST?

Marc Castellano

Summary

The emergence of regional free-trade agreements in the 1990s has changed the nature and the structure of global trade relationships. A decade ago, international commerce largely was conducted under a complex, multilateral framework that supported only a few viable free-trade areas. Today, however, regional trade groupings are much more common, and an increasing number of nations consider such arrangements not only economically beneficial but also strategically necessary.

Tokyo long had shunned free-trade agreements, believing that they were counterproductive to the development of the broader, multilateral system. However, in 1999, that thinking gave way to a different perspective when, in its annual white paper on trade, the Ministry of International Trade and Industry highlighted the benefits of economic integration and recommended that Japan establish free-trade pacts with its neighbors. Unlike most other industrialized nations, Japan is not part of any regional trade grouping — a fact that, according to MITI's report, will hurt its global competitiveness in the future.

Japanese and South Korean business leaders agreed in October 1998 to conduct a joint study on the feasibility a free-trade zone. Support for such an arrangement gained momentum on the back of a general warming trend in Japan-South Korea relations, and a pending bilateral investment accord likely will boost integration efforts further. Significant obstacles remain, however. Studies show that quantitative gains may be slim, and that opposition in some quarters is strong. Nevertheless, Tokyo and Seoul are talking seriously and remain committed to reaching a workable free-trade arrangement, even if it takes some time.

The next big step would be to fold the People's Republic of China into such an agreement. Although Beijing has expressed little interest, South Korean research has indicated that a trilateral pact would provide substantial benefits to all involved. Of course, economic disparities present a significant complication that would need to be addressed before meaningful negotiations could begin. Northeast Asia is a long way from becoming a free-trade zone, but Tokyo and Seoul are working together at an unprecedented official level and pace to achieve that goal.

*** JEI Report will not be published December 24, 1999 and December 31, 1999 ***
*** because of the Christmas Day and the New Year's Day holidays. ***
*** The Next Issue will be dated January 7, 2000 ***

While we take a printing holiday,
keep up-to-date on breaking Japan-related developments
by visiting the
JEI Spin On The News page

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Weekly Review

 

TANKAN RESULTS IMPROVE BUT STILL DISAPPOINT by Douglas Ostrom

Business conditions in Japan are slowly getting better — but the emphasis is on "slowly." Coming a week after the Economic Planning Agency announced disappointing gross domestic product data for this past summer (see JEI Report No. 46B, December 10, 1999), the results of the Bank of Japan's December 13 tankan (survey of short-term business prospects) support the view that recovery as well as efforts at corporate restructuring are underway in the world's second-largest economy. While downsizing, mergers and similar moves by the business community will strengthen the economy over the long term, the latest tankan, which included responses from nearly 9,000 companies, suggests that restructuring is in conflict with recovery over the short to medium run.

 

GOVERNMENT WRESTLES WITH FY 2000 BUDGET PRIORITIES by Jon Choy

The Liberal Democratic Party and its governing partners, the Liberal Party and the New Komeito, are having some trouble seeing eye-to-eye on priorities for the FY 2000 general account budget. With the most recent gross domestic product statistics showing that the economy unexpectedly reversed gears in the third quarter (see JEI Report No. 46B, December 10, 1999), ruling-bloc politicians are worried that a double-dip recession could hurt their prospects in the lower house elections that must be held before October 2000. Given that the government's recent fiscal stimulus binge (see JEI Report No. 45B, December 3, 1999) has heightened fears about the long-term economic consequences of the public sector's large cumulative debts, discussions about how to allocate funds for the year beginning April 1, 2000 and how to pay for the spending have taken on a sharper edge.

 

PUMP-PRIMING, SMALL BUSINESS NEEDS TAKE PRECEDENCE IN SPECIAL DIET SESSION by Barbara Wanner

With a keen eye trained on the upcoming lower house elections, lawmakers wrapped up the 48-day special Diet session December 15 with a flurry of activity meant to address the concerns of their constituents about the nation's recovery as well as the anxieties of small business proprietors about staying afloat in still-rough economic seas. The administration of Prime Minister Keizo Obuchi failed, however, to change campaign financing laws, trim the Diet's membership or enact legislation that would broaden the role of the Self-Defense Forces in United Nations-backed peacekeeping operations. These issues were key planks of the October 5 agreement among the Liberal Democratic Party, the Liberal Party and the New Komeito to form a coalition government (see JEI Report No. 39B, October 15, 1999).

 

JAPAN SAYS IT IS READY FOR JANUARY 1, 2000, BUT JUST IN CASE ... by Jon Choy

With zero hour just days away, Tokyo continues to assure the public that all the work done by government and industry will prevent problems from occurring when computer clocks tick past midnight December 31 (see JEI Report No. 4A, January 29, 1999). Public and private providers of utilities and other key services — electricity, water, finance, medical care, telephone and transportation — report that their systems have been tested for so-called Y2K problems and that computer "bugs" have been eradicated. Nevertheless, Prime Minister Keizo Obuchi thought it prudent to advise the public in late October to prepare for disruptions if things do not go as smoothly as planned.

 

JAPAN TO CONSIDER RESUMPTION OF LIMITED AID TO MYANMAR by Marc Castellano

In a historic meeting held on the sidelines of the November 27-28 summit of the Association of Southeast Asian Nations (see JEI Report No. 45B, December 3, 1999), Prime Minister Keizo Obuchi promised Gen. Than Shwe, the leader of Myanmar (formerly Burma), that Japan would consider extending a limited amount of aid to the struggling Southeast Asian nation. According to a senior official in the Ministry of Foreign Affairs, Tokyo does not plan to resume full-scale financial assistance to Myanmar but will study the possibility of funding projects on a case-by-case basis — provided that Yangon (formerly Rangoon) "grapples seriously with reform" in both the political and the economic arena. Japanese aid administrators are particularly concerned about progress in human rights and democratization. They will begin to monitor the situation for improvements.

 

NOTES

The National Space Development Agency has scrubbed its showcase H-II satellite booster program in the wake of the second straight failure of the country's all-domestic heavy-lift launch vehicle (see JEI Report No. 45B, December 3, 1999). Contrary to what a scan of the headline news might suggest, the December 8 decision does not mean that Japan has abandoned its quest to become a competitor in the international commercial satellite launch market. Only one more H-II mission, the eighth, had been planned before the H-IIA rocket, a less expensive, more reliable version of the H-II, became the sole focus of Japan's drive to go head to head with the likes of Europe's Ariane launcher or America's Delta/Atlas boosters in placing big payloads into geostationary transfer orbit.

 

There will be no follow-on to the five-year transpacific flat glass market-opening pact, which expires December 31. This outcome never was in doubt as far as relevant Ministry of International Trade and Industry decisionmakers were concerned. However, Clinton administration trade officials had lobbied for a new five-year deal, frustrated that world-class competitors Guardian International Corp. and PPG Industries, Inc. have been unable to make any headway in Japan despite their considerable marketing efforts and Washington's simultaneous attempts to persuade Tokyo to implement the terms of the December 1994 agreement. The draft arrangement that the White House offered during mid-November talks incorporated most of the conditions of the expiring accord. From the U.S. perspective, though, it would require the Japanese government to deal more forcefully with the anticompetitive business practices and the manufacturer-distributor equity ties that experts believe are the fundamental reasons why foreign glass suppliers unaffiliated with Japan's Big Three producers have failed to gain market share in the second half of the 1990s.

 

After two rounds of working-level discussions, most recently December 13 and December 14, Washington and Tokyo are at loggerheads over the cuts that the Ministry of Posts and Telecommunications has committed to make next year in the inflated fees that alternative long-distance and other communications carriers now must pay Nippon Telegraph and Telephone Corp.'s two regional operations to access their vast networks to initiate or complete calls. The Clinton administration blasted the results of MPT's initial attempt to calculate future NTT interconnection charges using the market-based cost methodology of its recently adopted long-run incremental cost model (see JEI Report No. 34B, September 3, 1999). The second cut the ministry made at setting LRIC-derived rates was no more acceptable to White House trade officials. In their view, MPT still was factoring inappropriate costs into the connection charges.

*** JEI Report will not be published December 24, 1999 and December 31, 1999 ***
*** because of the Christmas Day and the New Year's Day holidays. ***
*** The Next Issue will be dated January 7, 2000 ***

While we take a printing holiday,
keep up-to-date on breaking Japan-related developments
by visiting the
JEI Spin On The News page

 

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