While various free trade agreements (FTA) have been struck in Asia, no bilateral deals have been reached between Japan and China or between Japan and the South Korea.

With Japan and 14 other countries having agreed to the Regional Comprehensive Economic Partnership (RCEP), a major question is if Japan, China and South Korea can overcome their political differences to move forward on economic cooperation.

Naoko Munakata, who was closely involved in the negotiations that led to Japan’s first FTA with Singapore, as well as the Trans-Pacific Partnership (TPP) free trade arrangement, was asked about the significance of the FTAs.

Munakata was a former commissioner of the Japan Patent Office before becoming adviser to Dai-Ichi Life Research Institute Inc. 

Excerpts of the interview follow:

Question: With the agreement reached on the RCEP, do you think negotiations on FTAs between Japan, China and South Korea, which have long been stalled, will get back on track? More than 15 years have passed since private-sector research on such FTAs began.

Munakata: The first summit meeting of the ASEAN members and Japan, China and South Korea (10+3) was held in 1997. That led in turn to a framework for the leaders of Japan, China and South Korea to discuss possible cooperative arrangements. The possibility of a trilateral FTA was on the agenda from the very beginning. The RCEP agreement was realized because the framework includes others such as ASEAN and Australia, Japan, China and South Korea alone will have difficulty reaching an agreement. If the three countries were to sign trilateral FTA, it would have to be at a level higher than that of the RCEP in order to have any economic significance. At present, however, they don't seem to share the political will to work together to create such an agreement.

South Korea was originally the first country Japan began joint research with as a possible FTA partner. The two countries are neighbors, and both are U.S. allies and members of Organization for Economic Cooperation and Development as advanced economies. It was naturally expected that economic integration would help strengthen their bilateral political ties. When government-affiliated research institutes of Japan and South Korea began a study group in 1998 on the topic, Singapore was quick to notice Japan's move away from single-minded dedication to the multilateralism based on the World Trade Organization (WTO) to an approach that allows for  considering bilateral agreements. In 1999, Singapore proposed entering into bilateral negotiations with Japan.

Q: That was at a time when coordination of interests among advanced and developing countries in the WTO became more difficult because of the expanding membership. Western countries began moving toward bilateral or other agreements among a small number of partners. Can you talk about your role at that time of promoting FTAs?

Munakata: I was attracted by bilateral FTAs for the flexibility in choosing partners and for the ability to manage the pace of negotiations, as opposed to the situation where countries can be forced into a corner by other countries. As Singapore did not pose Japan many difficult issues, such as in agriculture, negotiations started the next year and led to Japan's first FTA in the following year.

On the other hand, FTA negotiations with South Korea finally began in late 2003, only to be suspended less than a year later with no progress since then.

Q: Early in the 21st century, expressions such as “East Asia community” and “regional integration” were frequently heard at international conferences, but that is no longer the case. The government in recent years has also stopped using such expressions. Why is that?

Munakata: After Mahathir Mohamad, then prime minister of Malaysia, advocated the East Asian Economic Caucus (EAEC) in 1990, the United States reacted against any framework that only included East Asia. After the currency crises, however, there was a growing argument that East Asia, not just the Americas or Europe, should also move toward a legally binding economic integration.

In the mid-2000s, the government proposed going beyond 10+3 and came up with the idea of 10+6 that included Australia, New Zealand and India in addition to the 10 ASEAN members and Japan, China and South Korea.

That proposal was a reflection of changes in the reality of economic integration, which until the end of the 1990s, had been limited to Northeast Asia and parts of ASEAN, but started to extend to the Southern Hemisphere and South Asia. The inclusion of Australia and New Zealand may also have helped soften the possible concerns that the United States might raise. It was also believed important to have India, a developing major power in Asia alongside China, take part.

In 2005, the East Asia Summit meeting began with the United States as a member. Negotiations for the RCEP began in 2012. Thus, the focus of discussions shifted from whether to have regional cooperation and economic integration to the specific content of such regional initiatives.

Q: The 10+6 proposal made by Japan after the initial 10+3 framework led to the RCEP agreement. But after 2013, the government placed priority on the TPP rather than RCEP negotiations. Why was that?

Munakata: Before Japan participated in the TPP talks, its FTA negotiation approach was to protect at all costs such sensitive areas as agriculture while making aggressive moves on industrial goods. But nations that imported industrial goods from Japan and wanted to expand exports of food products would be inclined to negotiate only on industrial goods it thought would help promote investment in their nation since the areas they were really interested in were not open to negotiations. That meant that even though Japan had limited the negotiating partners for the FTAs, it was unable to produce results that significantly exceeded the existing commitments under the WTO.

Q: Regarding negotiations with developing countries, did Japan lower the degree of opening up its market because of the limited prospects of asking the other party to open up its market? For example, in the recently agreed to RCEP, five important agricultural products, such as rice, wheat and dairy products, were removed from the negotiation table without causing much of a problem.

Munakata: Those factors may have played a role. Regardless of whether the other party was an advanced country or a developing one, however, the future path for Japan would not have opened up unless it reconstructed its own trade policy.

The TPP had the very ambitious objective of eliminating all tariffs. Participating in those talks, gave Japan the opportunity of thinking through whether a line of defense that had been drawn farther out could be brought closer to home as well as what support measures had to be implemented to prepare for trade liberalization.

Europe in the 1980s took advantage of the Uruguay Round of trade talks to reform its common agricultural policy. In the same manner, there were expectations that the TPP talks would help Japan break out of its shell and negotiate in a more strategic manner.

Of course, there would be no agreement if the deal was unacceptable, so I thought Japan should definitely try and join in the negotiations at least.

Japanese farm products can sufficiently compete in the high-end market not only in Asia but around the world. Japan’s traditional agricultural policy, however, focused on helping those who were not very competitive, leaving entrepreneurial farmers without much encouragement. The path toward joining the TPP negotiations opened up as more people recognized the need for policy changes to prepare for the future in response to the aging of farmers.

Q: Japan played a leading role in reaching an agreement among 11 countries for the TPP after the United States decided to leave. It has also signed agreements with the European Union and Britain as well as signed the RCEP. What is the significance of such results?

Munakata: Having gone through difficult TPP negotiations and prepared measures to help those who held concerns about the negative effects of liberalization, Japan came to be able to move in a more agile and strategic way. I believe those results are the greatest highlights in the history of trade policy for Japan which for a long time after World War II had only been a taker of the regime established by Western countries. The trust Japan has thus earned in its leadership will be an important asset in creating a new economic order in a world that is increasingly chaotic.

Trade agreements are for lowering barriers to global trade and defining new common rules so as to promote healthy competition and stimulate the economy. Consumers will enjoy greater choices and companies with high competitiveness will be able to expand into the global market. At the same time, there will be some sectors that face difficulties due to  changes in environment. The extent to which a structure is in place to allow workers in such negatively affected sectors to seek out new avenues of employment will eventually determine how effectively the negotiations can be conducted.

Changes in the environment are not limited to changes in the system that requires the approval of the Diet, such as regulatory reforms or trade agreements. There are many instances in which dramatic change is brought about through the emergence of new technology or new business models. People’s lives are also deeply affected by natural disasters. While the focus of trade negotiations tends to be on which side compromised, I believe that in the long run what affects the results are the overall ability to adapt to changes as well as to create positive changes by taking advantage of new trade agreements.

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Naoko Munakata entered the then Ministry of International Trade and Industry in 1984 after graduating from the Faculty of Law at the University of Tokyo. She served as director-general of the Multilateral Trade System Department and the Trade and Economic Cooperation Bureau. She also served as an executive secretary to then Prime Minister Shinzo Abe before becoming commissioner of the Japan Patent Office. She has an MBA from Harvard University.