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Date of Issue:16/July/2001

Proactive Use of Regional Trade Agreements and Economic Partnership Agreements

Yojiro Hatakeyama
Deputy Director
International Economic Affairs Division
Trade Policy Bureau

After the remarkable performance of Japanese athletes in the ski jumping event at the Nagano Winter Olympics, regulations on ski length were changed so that shorter skiers had to shorten their skis while taller skiers were able to lengthen theirs. The length of the ski is critical in that it determines the degree of air resistance, which correlates directly to the length of the jump. This rule change is far more disadvantageous to the Japanese skiers, as they tend to be shorter than their European competition, and it has often been argued that the subsequent performance slump on the part of Japanese ski jumpers is due to the change. In the Nordic Combined event as well (which includes both ski jumping and cross-country), no sooner had Kenji Ogiwara been made champion of the year but the rules were changed to boost the number of points given to the cross-country segment. Because more points were now going to the part of the event where the advantage lay with physically more powerful athletes, Ogiwara faced a sudden handicap. No matter how much an athlete improves their physical strength or skill, it is very difficult to overcome the disadvantage given by rule changes.

The same applies in economics. The end of the Cold War and the rapid development of information technology and transport modes have integrated the world economy and launched us into an era of mega-competition. Economic activities can no longer be contained within national borders, and, as with international sporting events, participants now have to win against global competition. It is not enough, however, for countries simply to pursue structural reform, paring away those inefficient parts of their economies and expanding growth areas. Rules determine whether or not even the most efficient economy will be able to demonstrate its competitiveness. Increasing even slightly the number of rules and ensuring the kind of business environment which will allow your country to shine is a critical issue which countries need to address right alongside structural reform.

Multilateral negotiations such as WTO are important as vehicles for rule creation. Seizing the initiative is the key factor in such negotiations, but success depends on ensuring partners to back your position. Regional trade agreements formed with countries with the same interests are an effective means of creating the necessary partners. While it would be ideal if the rules and business environment suited to your country's strengths would be introduced globally, gaining a consensus among many countries is difficult and takes time. So, initial agreement among a few countries or within a certain region can be meaningful in such a case. As those rules then have the potential to become a global one, use of regional trade agreements can be significant indeed. The worldwide jump in regional trade agreements like NAFTA and the EU since the 1990s reflects this philosophy (see Figure).

Japan too should adopt this approach and make proactive use of regional trade agreements alongside the efforts in the multilateral negotiations such as WTO. In a global economy, not only customs barriers but also the economic systems and practices set in place domestically can have a substantial impact on business activities; regional trade agreements (and economic partnership agreements) should therefore include broad-ranging menus of measures such as the elimination of border measures and the harmonization of economic systems.

What has Japan been doing in this regard? The government has been advancing negotiations with Singapore on an economic partnership agreement which not only eliminates tariffs between the two countries but also addresses a wide range of other measures such as services, investment, mobility of business people, and the harmonization of e-commerce related systems. Next year, Japan seems likely to have its first regional trade agreement. The next step will be to conduct joint study with Mexico on an economic partnership agreement which would dispel the disadvantage currently experienced by Japanese companies doing business in Mexico because of the absence of a regional trade agreement including Japan.

I would like to conclude by noting that the above comments are my personal views and do not represent the views of METI or the government of Japan.


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