Importance of Proactive "Economic" Diplomacy

Takatoshi ITO (Professor, University of Tokyo)

One of the major pillars to support Prime Minister Abe's policy agenda is, in his own words, "Proactive Diplomacy." The Japanese National Security Council is said to become established within the Office of the Prime Minister and is expected to discuss such key diplomatic issues as the contents of summit meetings, nuclear armaments and missile developments of neighboring countries, and pursuit of a permanent seat in the UN Security Council. But diplomacy is not limited to areas of international politics or national security. The international economy is also an important area of diplomacy.

In terms of international relations, those with strong economic power have a better chance of their political claims being accepted, and those with strong political power can conduct economic negotiations with advantage. In other words, security strategy and economic strategy are two sides of a diplomatic means to obtaining a desired outcome. A pressing issue for Japan now is the advancement of FTA negotiations with Asian countries. (Japan apparently prefers to use the term EPA - Economic Partnership Agreement, which is an expanded FTA, or an FTA plus something extra.)

A trade minister of an ASEAN country recently commented to the author of this column, in essence, as follows.

"ASEAN has concluded FTAs in the form of ASEAN+1 separately with China and S. Korea. ASEAN would like to secure a similar arrangement with Japan, but the attempt has so far been unsuccessful. Japan has said that it would use the already existing FTAs with a number of ASEAN countries to bundle them into a single agreement in the form of ASEAN+Japan. But Japan's existing FTAs with ASEAN countries differ in detail, so they need to be streamlined - and that in favor of ASEAN countries - to formulate a comprehensive agreement. China and S. Korea already have FTAs with ASEAN, which could put Japan in disadvantageous positions in certain cases."

So far, Japan has concluded bilateral FTAs with Singapore, Mexico, Malaysia, and the Philippines. But the negotiation with Thailand has been concluded but a political turmoil in Thailand prevents signing the treaty, and the discussion with S. Korea is shelved. Talks with Indonesia are at a critical point, and President Yudhoyono's visit to Japan in November should provide a good opportunity to move forward.

A drawback of an FTA is that each FTA has its own list of exceptions and rules of origin so that even when a country has separate FTAs with two other countries, it does not mean that they can be consolidated to establish a single FTA among the three countries.

Recently, Japan has floated the idea of "East Asia EPA (ASEAN+6)", but this has raised the suspicion among ASEAN countries as to whether Japan has given up the earlier proposal of ASEAN+Japan and ASEAN+3.

Many believe Japan put forward the idea of ASEAN+6 in lieu of ASEAN+3 because it was afraid that China would be leading the discussions if ASEAN+3 were to be pursued, and Japan has not denied that perception. This makes Japan look very weak and undependable.

It is annoying that Japan has not voiced its own criteria deemed ideal in the areas of goods and services trade (FTAs) and liberalization and standardization and harmonization of investment rules and regulation (areas beyond FTAs to be covered by EPAs). It is possible that Japan's policy is so immersed in protecting its farming that making productive proposals is impossible. But it must be realized that only through showing the determination to lead the way toward Asian economic integration and proposing high standards that Japan would be able to get the upper hand in Asian economic diplomacy.

Japan should speed up concluding bilateral FTAs with ASEAN countries while wrapping up the ASEAN+Japan agreement, which should eventually lead the way to ASEAN+3 and then ASEAN+6. Speed and timing are the keys.

(The original Japanese article appeared in the October 16, 2006 issue of Weekly Toyo Keizai)