Toward an Economic Partnership Agreement for Japan and the U.S.

Keikichi HONDA (Special Advisor, NCR Japan)

With regard to Japan-U.S. relations, the Japanese economy may have appeared "heterogeneous" from the U.S. viewpoint when the Structural Impediment Initiatives (SII) talks were conducted between the two countries in the latter part of the 1980s. Japan has since tried to reform its economic and societal systems in a rather fundamental way, and by now Japan and the U.S. may well be regarded as more or less "homogeneous" economies. The relationship between the two is now considered stronger than ever in many respects and much is to be credited to the accomplished degree of homogeneity.

On the other hand, however, this close interrelationship itself is breeding a kind of "dilution" in Japan-U.S. relations. Given current trends in Asia, many Japanese might well think of its relationship with China as becoming more important than that with the U.S. That could be considered as a problematic trend. On one hand Japan and China have different socio-economic systems that may not be changed anytime soon, and on the other hand it is difficult to predict what the future holds for the US relationship with China. Japan must sagaciously steer the gear to balance its relation with China. In this respect now is the time to think about what can be done to enhance the maintenance of shared values and homogeneous socio-economic systems with the U.S.

What is needed now is some kind of binding agreement to facilitate economic and societal integration between the two countries. It should not be just a free trade agreement (FTA), as being currently examined between the U.S and South Korea. Japan and the U.S. should consider a more comprehensive arrangement than that.

Nippon Keidanren's Committee on the U.S. Affairs is contemplating a comprehensive economic partnership agreement (EPA) between the two countries, where not only free trade of goods and services, but also human interaction as well as institutional coordination are to be encouraged in every spectrum of society. This is similar to the comprehensive arrangement among the EU member nations under the two guiding principles: (1) mutual recognition of national differences, and (2) minimum harmonization for regional integration. If Japan and the U.S. adopted these principles, the relationship between the two countries would be strengthened in terms of policy coordination as well as institutional harmonization.

There seem to be, however, two major problems on the Japan side, preventing such an EPA from being officially explored. One problem is the agricultural issue. Japan would have to abandon its policy to overly protect farmers as family business, especially as rice producers. They should be allowed to sell their farm land to large-scaled corporations in agriculture, and then they can become owners or shareholders of such corporations in Japan or possibly in the U.S.

Another problem is institutional barriers for human interaction and mobility in the Japanese labor market, especially in such fields as education and public services. Such barriers should be lifted immediately so that more native English speakers can be hired to teach English at Japanese schools, for example.

If these problems are resolved on the Japan side, serious talks about an EPA between the two countries could readily take place, since there seem to be no major obstacles on the U.S. side.

There may be some concern that such an agreement between Japan and the U.S. could possibly alienate other Asian countries, who might be tempted to make a move toward formation of an Asian Economic Community without Japan. In my opinion, however, that is unlikely to be the case, because Japan and the rest of Asia are becoming more and more integrated in terms of trade and investment, and Japanese business is growing strongly in the Asian region, especially in China. Furthermore, China and other Asian countries seem to be taking a realistic approach to their economic relations with Japan, knowing that they economically benefit from the relationship with Japan no matter what happens in their political or diplomatic relations. In any event, however, Japan and the U.S. should try to avoid politicization of any economic agreement between the two in order not to make China and other Asian countries feel alienated.

Finally, some comment must be made on Japan's EPA with other Asian countries. While Japan and other Asian countries may be able to conclude a bilateral FTA or a partial EPA, it would not be possible to move to a comprehensive EPA arrangement, at least in the foreseeable future, given the wide gaps in the stage of economic development and also in the socio-economic systems. It should take a long time for Japan and the rest of Asia to integrate their economies and societies through comprehensive partnership agreements. Meanwhile, Japan and the U.S. should go ahead and set a standard for a comprehensive EPA, based on the already attained degree of economic and social homogeneity between the two countries.