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VOL 4, NO 6 October 2009
Free Trade Agreements in Asia:
A Progress Report
A number of Asian countries have been actively working toward conclusions of Free Trade
Agreements (FTA’s). India and South Korea concluded a pact in August, and this was followed by an
ASEAN FTA with India. Further, ASEAN will be a complete Free Trade Area (AFTA) in 2010, and
customs duties between ASEAN and China as well as between ASEAN and South Korea will be
eliminated, as agreed to in their FTA’s. Progress with a number of FTA’s with ASEAN is expected in
the coming years.
In this report, we review recent developments in Asian FTA’s and the impact on Japanese
companies. We also offer an overview of the issues involved in what is presumably the next step, an
FTA structure covering all of East Asia.
1.
The ASEAN-India FTA (AIFTA)
(1) Outline
On August 13, the Association of South East Asian Nations (ASEAN) and India signed the
Trade in Goods Agreement, which forms the first substantive pillar of the ASEAN-India Free Trade
Area (AIFTA). The pact is expected to take effect on January 1, 2010, following individual approval
procedures by the participating countries. The AIFTA will result in tariffs being lifted on 80% of
goods (75% in terms of trade value) for both signatories, creating a giant economic zone of 1.7
billion people.
Customs duties will be either eliminated or reduced according to graduated schedules,
depending on the classification of the goods involved. Normal Track (NT, further divided into NT-1
or NT-2) tariff line rates will be eliminated gradually. Sensitive Track (ST) tariff line rates will be
reduced gradually to 5%, while Highly Sensitive List (HSL) tariff line rates will be reduced by a
designated rate over 10 or more years. Tariff rates on Special Product List will be reduced by a set
rate within 10 years (See Figure 1, Table 1). According to the AIFTA tariff reduction schedules, 71%
of customs duties on goods traded between India and five ASEAN countries (apart from the
Philippines; Brunei, Indonesia, Malaysia, Thailand, and Singapore) will be gradually eliminated by
the end of 2013, in line with the NT-1 schedule. A further 9% of duties will be lifted by the end of
2016 under the NT-2 schedule. Also, duties on the approximately 600 ST tariff line rates will be
reduced to 5% by 2016.
India has designated five items highly significant to ASEAN as ‘special products’: crude and
refined palm oil (CPO and RPO), coffee, black tea, and pepper. These goods will fall under a
separate customs reduction schedule. India has also placed approximately 500 items––including
agricultural and fishery goods, textiles and apparel, and automobiles and automobile parts––on an
Exclusion List and tariffs will not be cut for those goods.
1
Figure 1：ASEAN-India FTA Tariff Reduction Schedule
※
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 ・・・
Normal Track (NT)
Normal Track 1
①
（NT-1）
②
0% by end of 2018
③
0% by end of 2018
Normal Track 2
①
（NT-2）
②
0% by end of 2013
0% by end of 2016
0% by end of 2019
0% by end of 2021
③
Sensitive Track (ST)
5% + Tariff
①
Cut to 5% by end of 2016
②
Cut to 5% by end of 2019
Cut to 5% by end of 2021
③
5% Tariff
up to 50 tariff lines at current rate (5%)
Common
①
4% of the tariff
lines placed in ST
Cut to 4.5% at implementation, then reduced to
4% by end of 2016
②
Cut to 4.5% at implementation, then reduced to 4% by end of
③
Cut to 4.5% at implementation, then reduced to 4% by end of 2021
0% by end of 2019
①
②
0% by end of 2022
③
0% by end of 2024
Highly Sensitive List (HSL)※
Category 1
Cut to 50% by end of 2019
Category 2
Cut by 50% by end of 2019
Category 3
Cut by 25% by end of 2019
※
Note 1: Schedules are: ①ASEAN 5 - India, Indian side for CLMV - India, ②Philippines-India, ③CLMV side for CLMVIndia. ASEAN 5 is Brunei, Indonesia, Malaysia, Singapore, and Thailand. CLMV is Cambodia, Laos, Myanmar,
and Vietnam.
Note 2: Highly Sensitive List of goods applies only to Indonesia, Malaysia, Thailand, Philippines, Cambodia, and
Vietnam among ASEAN countries. Tariff reduction shall be achieved by end of 2022 for Philippines, and by end
of 2024 for Cambodia and Vietnam.
Source Compiled by BTMU Economic Research Office from ASEAN Secretariat materials
Table 1：India’s Tariff Reduction Schedule for Special Products(SP)
AIFTA Preferential Tariffs
Tariff Line
CPO
RPO
Coffee
Black Tea
Pepper
Base Rate
（％）
80
90
100
100
70
(Not later than 1 January)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 end of 2019
76
86
95
95
68
72
72
90
90
66
68
78
85
85
64
64
74
80
80
62
60
70
75
75
60
56
66
70
70
58
52
62
65
65
56
48
58
60
60
54
44
54
55
55
52
40
50
50
50
51
37.5
45
45
45
50
Source: Compiled by BTMU Economic Research Office from ASEAN Secretariat materials
Under the AIFTA rules of origin, a product must meet two criteria in determining place of
origin: 1) added value of 35% or more; and 2) a change in tariff subheading (HS 6 digit level)i.
Under FTA rules of origin, goods would ordinarily have to satisfy either the 1) value added criteria,
or 2) the change in tariff subheading criteria. (The FTA often stipulates one of the two criteria
initially or allows the parties to choose between the two.) However, India had sought stricter
conditions. Even so, the AIFTA terms are considered relatively easy, compared to India’s FTA’s with
2
Thailand (only duties on 82 products under the Early Harvest Scheme will be lifted) and Singapore
(both criteria, the change in tariff subheading plus value added of 40% or more). Further, the AIFTA
preferential tariff rate will apply to products that meet the criteria of 35% or more cumulative value
added within ASEAN relative to the free on board price (FOB price) of the final export good.
(2) Background to the negotiations
ASEAN and India agreed to an FTA Framework Agreement in October 2003 and commenced
negotiations in March 2004. Initially, both parties aimed to start reducing tariffs in January 2006 and
subsequently eliminate tariffs for ASEAN member countries (excluding the Philippines) by the end
of 2011 and all remaining tariffs by the end of 2016. However, negotiations stalled over the rules of
origin and exemption goods, and a final agreement was not reached until August 2008. The
agreement was slated to be signed in December 2008 and implemented in January 2009, but the
signing was further delayed because of political turmoil in Thailand cancelling international
meetings and the Indian general elections. The FTA was ultimately delayed a full four years beyond
initial plans. The parties will next focus on negotiations concerning trade in services and investment.
The conclusion of an FTA with China (the Framework Agreement in November 2002 and a
Trade in Goods Agreement in November 2004) encouraged ASEAN to pursue FTA negotiations with
more nations outside the region. AIFTA is ASEAN’s fifth FTA, following agreements with China,
South Korea, Japan, and Australia and New Zealand. ASEAN has high hopes for the Indian market,
its second biggest market after China. Meanwhile, FTA’s are already underway between India and
individual ASEAN member countries: Thailand (only early tariff reductions on 82 goods from
September 2004) and Singapore (concluded in June 2005 and implemented in August of that year).
While India is increasingly working toward concluding FTA’s with the East Asian region, it has
started to negotiate FTA’s based upon its Look East Policy in order to counter China’s growing
influence in ASEAN and because of concerns about disadvantageous terms arising from East Asia
FTA structures that exclude India. In addition to its FTA’s with Thailand and Singapore, India also
concluded an FTA with South Korea in August 2009, and negotiations with Japan, Malaysia, and
several South Asian countries are already underway.
(3) Impact on Japanese companies
Japanese companies active in ASEAN and India can expect expanded business opportunities
because of AIFTA. As the India-Thailand FTA has already shown, Japanese companies that do not
have production bases in India have more opportunities to enter the Indian market by exporting
manufactured goods from production bases in ASEAN countries. Further, Japanese companies that
do have production bases in India can benefit from lower procurement costs and offer a bigger
product lineup by importing raw materials and manufactured goods from ASEAN bases. Thus, there
will likely be more opportunities to restructure production and sales networks in ASEAN for India.
India currently levies customs of 5-10% on many goods, and a major accomplishment of the AIFTA
will be the lifting of duties on approximately 80% of goods over seven years after the FTA is
implemented. That said, trade in some goods will not be liberalized or may be subject to different
tariff reduction or elimination schedules––automobiles and automobile parts are among the
approximately 50 items in the Exclusion List on the Indian side. Further, some goods such as auto
parts including airbags, some general electronic appliances such as air conditioners and
fully-automated washing machines, textiles and apparel, and chemicals are on the Sensitive
Track––so individual items must be confirmed separately.
2.
South Korea-India Comprehensive Economic Partnership Agreement
(1) Outline
South Korea and India officially signed a Comprehensive Economic Partnership Agreement
(CEPA) on August 7, shortly before the ASEAN-India FTA. The CEPA will take effect January 1,
2010. The agreement not only covers trade in goods, but more comprehensively addresses services
and investment.
India will end tariffs on 74.5% of imports (in terms of value) from South Korea within eight
3
years, and on a further 11% of goods within 10 years. However, the remaining 14.5% of
imports—including television cathode ray tubes and passenger vehicles—will be treated as
exemptions. South Korea will end tariffs on 84.7% of imports from India over eight years and
gradually reduce tariffs on a further 5% of imports. The remaining 10.3% of imports––including
agricultural products such as beef and pork and kerosene/light oil––will be exempted.
Like ASEAN and India’s AIFTA, the South Korea-India CEPA require both rules of origin
criteria––tariff subheading change (HS 6 digits) and added value (35% or more)––to be fulfilled.
Furthermore, India considers 108 items produced in North Korea’s Kaesong Industrial Complex as
products of South Koreaii.
The South Korea-India FTA is India’s first FTA with a negative list in the area of investment,
and performance requests are prohibited. The FTA does cover national treatment.
Both parties will enjoy openness in services––communications, business services (accounting,
real estate, medical treatment, energy distribution, etc.), construction, distribution (excluding retail),
advertising, leisure/culture, and transport services. Further, specialty service occupations, such as IT
technical specialists, engineers, management consultants, and English instructors will also be opened
mutually. There will likely be more opportunities for Indian skilled specialist workers to work in
South Korea.
Table 2：Korea-India CEPA Tariff Reduction Schedule
(%, Mn USD)
South Korea
India
Number of Share
tariff lines
of
(HS 6 digits) trade
Elimination of Tariffs
Immediately
Eliminated within 5 years
Eliminated within 8 years
Cut to 1-5% within 8 years
Cut by 50% within 8 or 10
years （※）
Exceptions
Total
Import
value
Share Number of tariff Share
of
lines
of
trade (HS 10 digits) trade
Share
of
trade
Import
value
3,739
202
180
3,357
71.5
3.9
3.4
64.2
2,984
1,538
560
886
74.5
38.4
14.0
22.1
9,984
6,824
2,310
850
88.6
60.6
20.5
7.5
1,679
1,248
205
226
84.8
63.0
10.3
11.4
459
8.8
342
8.5
34
0.3
3
0.2
261
5.0
96
2.4
478
4.2
94
4.8
768 14.7
5,227 100.0
580 14.5
4,001 100.0
765
6.8
11,261 100.0
205 10.3
1,981 100.0
Note: India - Within 10 years; South Korea - Within 8 years.
Source: Compiled by BTMU Economic Research Office from South Korea Ministry for Foreign Affairs
(2) Background to negotiations and the impact on Japanese companies
The governments of South Korea and India began FTA negotiations in March 2006, and
provisionally signed the agreement in February 2009. India is South Korea’s 12th largest trading
partner in terms of trade value (exports plus imports), with USD9.2 billion of trade in 2006. India
was also South Korea’s 13th largest recipient of direct investment (2006). For India, South Korea
was its 12th biggest trading partner (FY07) and target of direct investment (2008). Neither India nor
South Korea is an especially important trading partner for the other. That said, South Korea has high
hopes for India’s market growth, and it actively sought negotiation of an FTA in order to improve the
business environment for South Korean companies operating in India and to capture future market
share.
In particular, the South Korea-India CEPA is expected to boost price competitiveness for
automobiles, electronics, and iron and steel by cutting parts procurement costs. South Korean auto
giants hold the second-biggest market share in India, and approximately 10% of small car parts and
the bulk of medium-sized car parts are imported from South Korea. These goods are subject to
4
import taxes of 10-12.5%. Electronic parts are also taxed at a high rate of 5-10%.
We think that any impact on Japanese companies will be limited. Most Japanese companies are
more frequently procuring their parts tax-free either locally or from Thailand under the FTA. Also,
South Korean automobiles and auto parts, which compete with Japanese goods, are either exempted
goods or their tariffs will be lowered only over a long term; it is unlikely that there will be an impact
in the near term. We expect that Japanese companies will be able to overcome any disadvantages that
lie ahead once the ASEAN-India FTA and the Japan-India FTA (currently being negotiated) are
implemented.
3.
ASEAN-China FTA (ACFTA)
ASEAN and China signed the ASEAN-China Investment Agreement on August 15, and the
agreement is set to take effect on January 1, 2010. The parties have already concluded a Trade in
Goods Agreement (that took effect in July 2005) and a Trade in Services Agreement (July 2007), and
the recent signing of the Investment Agreement concludes the series of negotiations between
ASEAN and China since the Framework Agreement of November 2002.
China accounts for a mere 2.4% of all direct investment into ASEAN (as of 2008). However,
Chinese companies are boosting their investment in ASEAN under the country’s ‘Going Global
Strategy’ (zouchuqu, also known as the ‘Go Out Strategy’). The scale of ASEAN direct investment
in China is also relatively limited, but investment has increased in recent years; in particular,
Singaporean investment in China has surged through its government fund. China was Singapore’s
largest investment target in 2008, with USD4.4 billion (1.5 times the sum in 2007) directed there,
and protecting investors remains an issue. The recent investment agreement includes provisions not
only for national treatment and most favored nation status, but safeguards and dispute resolution are
also outlined in the event of forced expropriation by the government. The investment environment
between the two signatories is expected to improve.
The ACFTA Trade in Goods Agreement applies much more to agricultural goods than
manufactured goods at present. This is because in addition to 1) the current reduction in tariffs being
small, 2) of the goods traded between ASEAN and China, many are intermediate goods destined for
exportiii and are subject to non-FTA tariff exemption measures (including exemptions for exports
destined for export processing zones and bonding measures for manufactured export goods), and 3)
the tax rate for most-favored nations will be reduced after the FTA takes effect. Conversely, the
most-favored nation tax rate is lower than the FTA tax rate.
However, the tax rate for Normal Track goods (90% of ASEAN goods in terms of 2001 import
value and 93% of Chinese goods) will be cut to zero in principle by the end of 2009. This is
expected to boost trade by reducing trade barriers (Figure 2). However, it should be borne in mind
that there are separate tax reduction schedules for Sensitive List (SL) and Highly-Sensitive List
(HSL)iv goods (Figure 3).
Automobiles are on either the SL or HSL by both China and ASEAN, while Thailand and the
Philippines consider household appliances including air conditioners, refrigerators, and washing
machines SL goods. It appears that markets will not be fully integrated for some time. Further, the
principle of reciprocity stipulates that goods can only be subjected to preferential tariff benefits if
those goods are designated normal track goods by both trade parties. Even if the goods are
designated as Normal Track goods by one country, there is no need to lift the tariff if they are
considered SL goods by the counterpart country. We therefore assume that the number of goods
whose tax rates actually will be lowered is less than the number of goods designated as NT.
5
Figure 2：ASEAN-China FTA Tariff Reduction Schedule
Enforcement
deadline(year)
2006
2010
2012
2015
2018
2020
0％
Early Harvest
0％
Normal Track
China and ASEAN６
（*１）
0％
Up to 150 items
Sensitive Track
（*2）
20％ or below
Sensitive items
0～5％
50％ or below
Highly sensitive items（*3）
0％
Early Harvest
0％
Normal Track
CLMV
（*1）
0％
Up to 250 items
Sensitive Track
（*2）
20％ or below
Sensitive items
0～5％
50％ or below
Highly sensitive items（*3）
Note 1: ASEAN 6 is Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand. CLMV is Cambodia, Laos, Myanmar, and Vietnam.
Note 2 : Sensitive Track: up to 400 items and 10% of total import amount, up to 500 items for CLMV.
Note 3: Highly sensitive items: maximum is the smaller of (1)40% or below of the number of sensitive items or (2)100 items (for CLMV 150 items) or less.
Source: Compiled by BTMU Economic Research Office from METI materials
Figure 3：ASEAN-China FTA Sensitive/ Highly-Sensitive Lists
Highly Sensitive List
Other manufactured goods
Toys
Furniture
Optical instruments
Transport machinery
Electrical machinery
Machinery
Other metals
Steel, steel products
Precious stones
Stones, ceramics, glass
Footwear
Garments
Textile goods
Paper products
Wood products
Leather article
Sensitive List
Plastic, rubber products
Chemical products
Mineral fuels
Cement
Agricultural products, foods
(number of the tariff lines)
500
450
400
350
300
250
200
150
100
50
0
Note: Total number of the tariff lines placed in the Sesitive List by ASEAN and the People’s Republic of China.
Source: Compiled by the Research Office, Bank of Tokyo-Mitsubishi from Agreement on Trade in Goods between ASEAN and
4.
ASEAN Free Trade Area (AFTA)
Next year will be noteworthy not only because of the various FTA’s involving ASEAN that will
take effect and the further tariffs cuts, but also because the ASEAN Free Trade Area (AFTA) itself is
due to become fully implemented.
The ASEAN member countries sought to reduce or abolish tariffs toward the creation of AFTA,
based on the Common Effective Preferential Tariff (CEPT) concluded in 1992 and that took effect in
January 1993. The six member countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore,
and Thailand) lowered the tax rates on nearly all affected goods to 5% or less by January 1, 2003,
and tariffs on 85% of goods have been abolished (as of August 2009, see Table 3). AFTA is due to
become fully implemented on January 1, 2010, (2015 for Cambodia, Laos, Myanmar, and Vietnam)
as tariffs on affected goods are completely lifted.
6
Note that ASEAN eased its CEPT rules of origin on August 1, 2008, in order to improve
AFTA’s ease of use. Previously, goods were required to have cumulative value added from within the
region of 40% or more in order for goods to be considered produced within ASEAN and for CEPT
tariffs to apply. The rules were eased to allow partners to choose either the 40% or more regional
aggregate value added criteria or the change in tariff subheading criteria (HS 4 digits). Following the
easing of the rules, for example, a high value-added good such as a flat-screen TV panel procured
outside the region (for example, in Japan) and used in assembly within ASEAN would be subject to
CEPT tariff rates when exported as a product assembled within ASEAN to a third country. This
allows Japanese companies in ASEAN more flexible production and sales possibilities.
Table 3：Progress of AFTA (as of August 2009)
No. of items in Inclusion List (IL)
General
of which with
Exception
of which with Share
Share
tariff rate 5%
tariff rate 0% against
against IL List (GEL)
and below
IL (%)
(%)
Total
Sensitive
Share of IL
/Highly
against all
Sensitive
products
List
(%)
(SL/HSL)
Brunei
Indonesia
Malaysia
Philippines
Singapore
Thailand
8,300
8,737
12,335
8,980
8,300
8,300
8,223
8,632
12,239
8,934
8,300
8,300
7,239
6,900
10,157
7,354
8,300
6,643
88.0
79.9
83.0
82.3
100.0
80.0
984
1,725
2,016
1,503
0
1,644
12.0
20.0
16.5
16.8
0.0
19.8
77
96
96
27
0
0
0
9
0
19
0
0
99.1
98.8
99.2
99.5
100.0
100.0
ASEAN 6
Cambodia
Laos
Myanmar
Vietnam
54,952
10,689
8,300
8,300
8,300
54,628
10,537
8,214
8,240
8,099
46,593
755
5,844
4,992
4,575
85.3
7.2
71.1
60.6
56.5
7,872
7,784
2,056
3,248
3,434
14.4
73.9
25.0
39.4
42.4
296
98
86
49
144
28
54
0
11
0
99.4
98.6
99.0
99.3
97.6
CLMV
35,589
35,090
16,166
46.1
16,522
47.1
377
65
98.6
ASEAN Total
90,541
89,718
62,759
70.0
24,394
27.2
673
93
99.1
Note: Inclusion List : Products subjected to tariff reduction.
General Exception List : Products which are not subjected to tariff reduction (defense, academic value related products).
Sensitive List : Products will be transferred to IL on a case by case basis (non-processed agricultural products)
Highly Sensitive List : Products related to rice.
Source: Compiled by BTMU Economic Research Office from JETRO materials
ASEAN not only reduced tariff barriers, it is also working toward creating an ASEAN
Community (AC) by 2015 in hopes of boosting competitive strength by unifying markets. The
ASEAN Economic Community (AEC), the substantive pillar of the effort, is intended to reduce
regional barriers across a wide variety of fields not only for goods, but also for services, investment,
capital, and skilled labor. The detailed plans are presented in the AEC Blueprint adopted in
November 2007.
ASEAN has been reviewing the various agreements and arrangements in order to create a more
comprehensive agreement as part of the efforts toward the AEC. In December 2008, ASEAN signed
two agreements, 1) the ASEAN Trade in Goods Agreement (ATIGA) and 2) the ASEAN
Comprehensive Investment Agreement (ACIA).
The 1) ASEAN Trade in Goods Agreement, or ATIGA, is considered a revised version of the
CEPT Agreement based on AFTA. The CEPT Agreement is extremely short––it covers only 10
items––and there are many ambiguities, amended definition documents and agreements have been
necessary to address the addition of new member countries, expanded liberalization across more
industries, and changes in the tariff reduction schedule (accelerations). ATIGA has 11 chapters and
98 articles. It is a compilation of the agreements and commitments ASEAN has made to date, and
has been restructured to cover more comprehensive agreements. These include tariff
reductions/elimination, non-tariff barriers, rules of origin, trade facilitation measures, customs
procedures, standardization and mutual recognition measures. At present, the separate fields related
7
to tariff concessions are being amended and ratified, and the agreement will take effect once it is
approved by all member countries.
The 2) ASEAN Comprehensive Investment Agreement (ACIA), like ATIGA, is a
comprehensive agreement. It revises and integrates two previous agreements, the Framework
Agreement on ASEAN Investment Area (AIA) of 1998 and the ASEAN Investment Guarantee
Agreement (ASEAN-IGA) of 1987. Previously, investment protection regulations had only applied
to investors from ASEAN member states, but ACIA also applies to extra-regional companies
investing in the region. The agreement is expected to help support investment conditions for foreign
companies.
5.
Outlook and Future Developments ~ Toward a Vast East Asian FTA
Asian market integration through FTA’s is approaching an important milestone in 2010. In
ASEAN, not only will AFTA become fully implemented, but also tariffs between the six original
ASEAN member countries and China and South Korea will be abolished in line with the respective
FTA’s. Also, FTA’s with India and Australia and New Zealand are also scheduled to take effect.
Though there are still many remaining issues, including exempted goods and non-tariff barriers,
significant progress in reducing tariff barriers is anticipated.
As more so-called ‘ASEAN + 1’ FTA’s are concluded between ASEAN and outside countries
like China, South Korea, Japan, India, and Australia and New Zealand, the focus is shifting to an
FTA covering all of East Asia as the next step. Private-sector discussion and study of an East
Asian-wide FTA is already underway, with Japan supporting an ‘ASEAN + 6’ structure (a
Comprehensive Economic Partnership in East Asia, or CEPEA), while China and South Korea
promote an ‘ASEAN + 3’ framework (an East Asia Free Trade Area, EAFTA). Final reports on the
two proposals were presented at the meeting of ASEAN economic ministers in August 2009. If the
reports are approved at the East Asia Summit (EAS) slated for October, the issues will move on to
government-level study. This will be a step toward realization.
Japan has concluded Economic Partnership Agreements (EPA’s) with not only ASEAN, but also
bilaterally with Singapore, Mexico, Malaysia, Chile, Thailand, Indonesia, Brunei, the Philippines,
and Switzerland. On October 1, an EPA with Vietnam, its 11th counterpart country/region, took
effect. EPA’s with South Korea (suspended from November 2004), the Gulf Cooperation Council,
India, Australia, and Peru are also in various stages of negotiation. However, Japan’s trading share
with its EPA counterparties stands at only approximately 16%, well below South Korea’s 40% share.
Therefore, issues for Japan going forward will be FTA’s with its two big trading partners, the United
States and the EU, as well as an FTA covering all of East Asia.
The Democratic Party of Japan (DPJ) administration that took office in September has declared
its desire to focus on foreign relations with Asia (an East Asian Community), and also supports
FTA’s with the US and the EU. However, the DPJ has not outlined a process or schedule toward
realization of these goals, and details will not be released for some time. In particular, should the sale
prices of farm products––expected to take a hit from FTA tariff reductions––fall below production
costs, the gap could be covered through the creation of an income subsidy system. However, it is
unclear how the issues of introducing such a system and procuring resources in excess of JPY1
trillion would relate to raising food self-sufficiency, one of the DPJ’s strategic objectives.
The DPJ’s focus on Asia in its foreign policy has been extremely well-received in the region.
ASEAN can now expect not only Japan’s support through EPA’s, but also stronger leadership in East
Asia through Japan’s improved ties with China and South Korea. The first issue to address will
probably be building ties of trust.
Aki Fukuchi,
October 1, 2009
8
i
The added-value and the change in tariff subheading criteria are used to determine the country of origin
of a good. The added-value criteria refers to the value added in a country or region as a percentage of the
final cost of the good. The change in tariff subheading criteria refers to a change in the final subheading
(the HS code) from the customs classification subheading of the input good.
ii
Under the South Korea-Singapore FTA, goods produced in North Korea’s Kaesong Industrial Complex
are considered South Korean goods. However, the US and EU have not agreed on this point in their FTA
negotiations with South Korea, and the discussion is ongoing.
iii
Interim goods comprise 55.5% of total imports into China (excluding food and fuel), while they
comprise 63.1% of total imports into ASEAN.
iv
Tariff rates on Chinese and ASEAN sensitive goods will be cut to 20% or less by 2012 and to 5% or less
by 2018. Rates will be cut to 50% or less by 2015 for highly-sensitive goods.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
Economic Research Office
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