Two decades ago, U.S. Ambassador to Japan Mike
Mansfield raised the idea of a free trade agreement between Japan
and the United States that would formalize bilateral economic ties
across a broad range of sectors. The idea never gained much traction,
though, falling victim to larger priorities in multilateral trade
institutions and a lack of enthusiasm from domestic interests in
both countries. Bilateral trade has proceeded apace without an
FTA, reaching a total value of 193 billion dollars last year.
Interest in a Japan-U.S. FTA may soon be rekindled with the possible
completion this year of a U.S.-South Korea FTA. If an agreement
is reached, Tokyo may feel pressure to consider a corresponding
trade deal with the United States to avoid losing out to Seoul.
Launching a Japan-U.S. FTA, however, would necessitate a radical
shift in Japanese trade policy, in particular by requiring the
liberalization of the staunchly protected agriculture sector. While
the onus for reducing the obstacles to an FTA may lie largely on
Japan, both Tokyo and Washington should start to review whether
or not such an agreement makes sense for their long-term interests.
The U.S.-South Korea FTA addresses both economic and political
considerations. Proponents say the deal could enhance the value
of two-way trade from 73 billion dollars to an estimated 90 billion
dollars. Over the next five years, U.S. exports to South Korea
could rise by 54 percent and South Korea's GDP could increase by
as much as 2 percent. Beyond trade, both governments hope the FTA
will shore up their alliance, which has been shaken by differences
over North Korea, the realignment of military bases and future
ties with China. Washington also views the South Korea FTA as part
of its strategy to engage China via a network of enhanced political
and economic relations with key regional players.
Launched just over a month ago, the U.S.-South Korea FTA negotiations
are on a fast track toward completion. Seoul has taken action on
a number of long-time trade irritants to set the stage for FTA
negotiations, and South Korean trade officials say they understand
what will be required to conclude a comprehensive U.S.-style FTA.
Both U.S. President George W. Bush and South Korean President Roh
Moo Hyun have directed their administrations to close a deal by
early next year at the latest, before Bush's trade promotion authority
(TPA) expires in mid-2007. The South Korean National Assembly and
the U.S. Congress must still approve the agreement, which is likely
to stir up opposition in both capitals, but with so much at stake
there is a sense that the FTA cannot afford to fail.
Japan can do little more than watch as Seoul and Washington move
toward a deal. Some groups in Japan still seem skeptical that the
South Korea-U.S. FTA will pass. No serious effort has been made
so far in Tokyo or Washington to lay the requisite groundwork for
an FTA of their own. Even if preliminary steps were taken, there
is no way bilateral negotiations could be wrapped up before the
TPA expiration date (after which, it is unclear whether Congress
will renew presidential fast track authority on trade agreements).
Yet the ripple effect of a South Korea-U.S. trade deal will hit
Japan the hardest. Competition between Japan and South Korea is
always a factor--the operating principle being what is good for
one country is bad for the other, particularly regarding ties to
the United States. As the far larger economy and more critical
U.S. strategic partner, Japan is accustomed to winning this contest.
Now, with the prospects of a South Korea-U.S. FTA, it is hard not
to see Seoul as having outmaneuvered a flatfooted Japan.
Losing out to South Korea is all the more painful given the extraordinarily
high expectations of the Japan-U.S. relationship. In Washington,
Japan is seen as the preeminent ally in Asia and close partner
in an expanding list of initiatives, from cooperation in the war
on terrorism to the long-term shaping of China into a "responsible
stakeholder" in the global community. Officials on both sides
of the Pacific say bilateral cooperation rests on a solid foundation
of shared values and common interests.
Yet if Japan cannot reach a trade deal with the United States
similar to the one that country has with Seoul, it may call into
question how deep these common interests really run. Fair or not,
this question may resonate more broadly as the reality of a South
Korea-U.S. FTA sinks in.
That does not mean Japan and the United States should move hastily
to ink an FTA of their own. The possibility of a South Korea-U.S.
agreement raises the ante, but does not make the creation of a
Japan-U.S. FTA imperative. If there is any truth to the notion
that the Japan-U.S. relationship is strong--and there is--the bilateral
relationship can survive without a comprehensive trade deal.
Nevertheless, Tokyo and Washington should begin to explore whether
an FTA makes sense in the future. There are several potential benefits
to such an agreement. Although the overall economic impact of a
trade agreement would not necessarily be dramatic, due to the already
high trade volume between both nations, an FTA could harmonize
the two governments' policies in areas such as pharmaceuticals,
intellectual property rights, services and direct investment. Most
importantly, measures to liberalize Japanese agriculture would
be required to conclude an agreement with the United States.
Over the long-term, a Japan-U.S. FTA could have significant political
implications. Just as a South Korea-U.S. trade deal would demonstrate
the broad foundation of their alliance, so also could a similar
agreement add institutional credibility to the "shared interests" now
touted by Tokyo and Washington. Further, Japan and the United States
have their own military base realignment problems; it is not inconceivable
that, if tensions grew much worse, they might likewise emphasize
the economic underpinnings of their alliance through a comprehensive
trade agreement.
A Japan-U.S. FTA could help both allies present a united front
on trade issues as they engage China in multilateral forums. Indeed,
with agriculture protections greatly reduced, Japan could join
the United States in leading the charge for free trade in the World
Trade Organization, the Asia-Pacific Economic Cooperation forum,
and other international institutions.
At this point, however, the idea of a Japan-U.S. FTA still seems
as remote as Mike Mansfield's call decades ago. Any free trade
agreement requires a confluence of top-level political will and
lobbying by potential stakeholders to get off the ground. These
factors have not yet converged in Tokyo and Washington, but a South
Korea-U.S. FTA could soon catalyze a debate in both capitals, particularly
in Tokyo, over the risks and benefits of a similar bilateral deal.
With the target date of the South Korea-U.S. agreement right around
the corner, Tokyo and Washington should begin preparing their sides
of the argument.
Weston Konishi is program director at the Maureen and Mike Mansfield
Foundation.
The Maureen and Mike Mansfield Foundation
1401 New York Ave. NW Suite 740
Washington, DC 20005
Telephone: (202) 347-1994
Fax: (202) 347-3941 matwater@mansfieldfdn.org
