Rivalry with China refuels Japan's FTA drive

Posted in Japan | 08-Mar-06 | Author: Hisane Masaki| Source: Crisscross

Japan is revving up its drive toward free-trade agreements, or FTAs, with trading partners, largely fueled by an intensifying rivalry with China, a rapidly ascendant economic as well as military power.

As the World Trade Organization’s trade talks falter, countries all over the world are pursuing their own separate FTAs with trading partners. Bilateral or regional integrations, especially in the form of FTAs, have popped up all over the world since the early 1990s. They include the North American Free Trade Agreement (NAFTA), the European Union (EU) and Mercosur. In East Asia, too, many countries are now competing for FTAs with trading partners in and outside the region.

Japan joined the FTA competition, concluding its first FTA, with Singapore, in 2002. It signed its second FTA, with Mexico, in 2004, and third one, with Malaysia, in December last year. Japan has also reached basic agreements in FTA negotiations with the Philippines in November 2004 and with Thailand in August last year, and has been negotiating FTAs with South Korea, Indonesia and the 10-member Association of Southeast Asian Nations (ASEAN) as a whole in the past year or so.

In mid-February, Japan and Vietnam held preparatory talks in Hanoi for formal FTA negotiations, which are expected to start as early as this summer. In late February, Japan and Chile, a gateway to Mercosur, held the first round of FTA negotiations in Tokyo. Resource-poor Japan plans to open FTA negotiations with the oil-rich Gulf Cooperation Council (GCC) in summer with a view to ensuring stable oil supplies. Japan is also expected to kick off FTA negotiations this year with India and is moving toward FTA talks with Australia, Switzerland and South Africa.

Despite its accelerated FTA moves, however, Japan still has a lot to do if it is to march in step in the ever-intensifying global and regional FTA competition.

Japan has yet to sign FTAs with Thailand and the Philippines. Thai Prime Minister Thaksin Shinawatra’s dissolution of Parliament for snap elections on April 2 will delay the official singing ceremony in Tokyo for the FTA between Japan and Thailand, which was scheduled for April 3. Despite their basic agreement in FTA negotiations, Japan and the Philippines have yet to iron out differences over the number of Philippine nurses and care-givers who are allowed to work in Japan. Japan and Indonesia, the largest ASEAN nations with a population of about 200 million, have set the end of this year as a target date for concluding an FTA. The end-2005 target date for Japan and South Korea to conclude FTA negotiations has passed. The Japan-South Korean negotiations have stalled since November 2004 due to sharp differences over farm trade and also due to chilly political ties. FTA negotiations between Japan and the entire ASEAN, launched in the spring of 2005, have failed to make significant headway.

Beneath the recently accelerated Japanese FTA strategy lies an intensifying rivalry with China over energy resources as well as over political and economic influence in Asia.

Japan has increasingly been competing over scarce energy resources with China. The two energy-hungry Asian powers have been locked in the simmering dispute over gas reserves in the East China Sea. Furthermore, they have each lobbied hard for alternative routes for a pipeline from eastern Siberia's oilfields to Pacific Rim nations. The Sino-Japan rivalry over energy resources show signs of spreading to the Middle East.

In early 2004, Japan and Iran signed a $3 billion deal to develop Iran's massive Azadegan oilfield. But with international tensions rising over Iran’s nuclear program, there are growing concerns in Japan about how the nuclear crisis will play out. China has recently won rights to the Yadavaran oil field in Iran. Many pundits point out that should Japan be forced to give up the Azadegan project as part of international sanctions against Tehran, China would step in to replace Japan. Japan imports almost all of its oil, and the GCC, the customs union comprised of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates (UAE), accounts for more than 70% of Japanese oil imports. Japan plans to seek the inclusion in the proposed FTA a GCC pledge to preferentially supply crude oil to Japan, even in emergencies, like war. China already started FTA talks with the GCC in April last year.

China had a head start over Japan in strengthening ties with ASEAN and other trading partners through spreading FTA nets. Alarmed by the prospects of its political and economic influence being eclipsed by China’s, especially in East Asia, Japan is pulling all the stops in hopes of turning the tables. Even outside Asia, while Japan has just launched FTA negotiations with Chile, China already singed an FTA with the South American country in November. Kicking off FTA negotiations with India — and possibly with Australia — later this year would also be part of Japan’s strategic efforts to counter the influence of China in a proposed East Asian community (EAC), one of the main issues discussed at the first East Asia Summit in Kuala Lumpur, Malaysia in mid-December.

Japan has strongly advocated the inclusion of India as well as Australia and New Zealand in the proposed EAC, the idea opposed by China and some other Asian nations. In a fresh sign of how Japan has begun to place particular importance on ties with India as a counterbalance to the unmatched overall power of China in the region, Foreign Minister Taro Aso chose the world’s largest democracy for his first foreign trip of the year in early January. Nearly a year ago, Prime Minister Junichiro Koizumi also visited India. Koizumi’s Indian counterpart Manmohan Singh is expected to visit Tokyo in summer. Meanwhile, Japan, the U.S. and Australia plan to hold their first foreign-ministerial security dialogue in Australia later this month.

Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy.