At the beginning of the discussion, Professors Kimura and Suzuki gave the keynote speeches (see the Japanese materials of keynote speeches on our website). A panel discussion was then held, including questions from the general public and an exchange of opinions.
 

1. Outline of the keynote speech"About the Promotion of FTAs"by Professor Fukunari Kimura (Keio University)

• The networks of international production and distribution in East Asia are further along than those in America or Europe from the standpoint of their importance to each economy, multilateral development, and promotion of not only intra-business networks but also inter-business ones.
• Behind the formation of such networks lies the policy switchover of the East Asian countries from import substitution to allowance of foreign investments to the export industries (the latter half of the 1980s and the first half of the 1990s), and the high level of global competitiveness of machine manufacturers of the East Asian countries.
• Efficient restructuring of import substituting industries to match the dual structure of manufacturing industry, cuts in service link costs (transportation cost, telecommunication cost, coordination cost, economic and legal systems), the build-up of agglomeration (economic infrastructure, formation of human capital) and the promotion of integration beyond the liberalization of trade in goods are crucial for economic integration in East Asia.
• Judging from the position of Japan in today's East Asia,Japan may play a large part in the economic integration of East Asia, so it is necessary to design economic integration making the most of the specifics of East Asia.

• There are concerns about the long-term consequences of the formation of blocs, but, at the moment, it is impossible to deny the existence of losses of countries that did not conclude FTAs the countries that turned into hubs of FTAs (Singapore, Mexico) and necessity of countervailing power to European and American blocs (establishment of an Asian economic zone). Criterion of pros and cons of FTAs should be the pursuit of national interests rather than global welfare.
• Nevertheless, there is a possibility that exclusion of agriculture from the FTAs coincides with Japanese national interests, due to the increase in international prices distorted by protection, the decrease in the amount of tariffs income may exceed the amount of consumers' benefit in the importing countries.
• However, as long as the partner is interested in the agricultural products, Japan will not be able to exclude agriculture from FTAs. It is possible to exclude the most sensitive commodity items and to include a quite large range of commodity items as subject to abolition of tariffs.
• Agriculture is not a barrier to the promotion of FTAs. The real barrier is different. For example, in the case of South Korea, it is not tariffs, but rather non-tariff barriers such as medical inspections, standards, indication of country of origin, ambiguous business practices, and service sectors with various restrictions that represent problems. Comprehensive elimination of restrictions in both countries is essential for the establishment of a Japan-Korean FTA.
• When tariffs are cut, provision of direct compensation is necessary. In principle, the welfare losses are lower when direct subsidies are provided to farms. Nevertheless, it is necessary to examine whether the budget burden will permit this.

(Hatakeyama)

• (To Professor Kimura) How could service link costs be cut within FTAs?
• (To Professor Suzuki) There is no "pure" Asian free trade region. First of all, it is necessary to promote development of the East Asian economic zone. Establishment of an FTA will promote the reform of domestic industry.

(Honma)

• (To Professor Kimura) FTAs are effective even from the standpoint of political presence. It is important to consider FTAs in Asia, including China.
• (To Professor Suzuki) How should the relationship of FTAs and the WTO be considered, from the standpoint of global benefit? The theory of optimum tariffs also points out that welfare is higher if agriculture is excluded from FTAs, but that the global welfare is enhanced if agriculture is liberalized as well. It is good to narrow down a target of subsidies to full-time farm households.

(Suzuki)

• We should establish such FTAs that enhance global economic welfare. In connection with Japanese national interests and global welfare, in the situation of a growing number of the free trade regions in Europe and America, there is no other choice but to expand Asian FTAs.
• It is important to narrow down targets and to provide subsidies.

(Kimura)

• Service links tie production in remote places; they include not only services. FTAs should incorporate not only cuts in tariffs, but also facilitation of trade and investment, standards and certification, intellectual property rights, dispute settlement, and others. FTAs are more efficient at solving such problems than the WTO is.

(Hatakeyama)

• Unlike the WTO, FTAs do not require promoting liberalization uniformly in regard to all countries. Within the principle of substantially all trade, FTAs can limit targets to the range of goods that do not represent danger from the standpoint of competition.
• FTAs should incorporate a clause that export countries cannot impose export restrictions even during lean harvests.

(Honma)

• To stimulate agriculture, subsidies provided for a limited period are effective as adjustment costs of the promotion of retirement among the elderly.
• Since dispute settlement is indispensable to FTAs, it is important that member countries have not only economic, but also social and cultural points in common. In this sense, some regionalism is appropriate.

(Hatakeyama)

•  In connection with a Japan-U.S. FTA, neither Japan nor the United States show much positive attitude toward it.  In addition, if the globe's two largest economies sign an FTA, it may damage the WTO.
• There is a rule set by the WTO that it is impossible to exclude wholly an industry from an FTA.

(Kosai)

• Without the vision of the long-term ideal, FTAs will turn out to be costly.
• When thinking about economic integration, it is necessary to consider relations with the United States and China over the long term.

(Audience)

• 1) Were there any policies undertaken to increase productivity in, for example, Mexico or Chile for the transitional period?
• 2) Operation of FTAs will become more difficult in practice with respect to the principle of origin, won't it? What measures should be implemented?
• 3) Are FTAs possible with countries that have different political systems, like China or Vietnam?
• 4) Is sustainability of domestic agriculture or diversification of suppliers to secure food provision?

(Hatakeyama)

•  In connection with the first question, the results are not seen yet in Chile or Mexico, but I think the reform analogous to that of the Canadian wine industry is possible. Furthermore, the investments of the United States and other countries contribute to the promotion of domestic industrial development.
• With regard to the second question, it is necessary to harmonize the rule of origin.

(Honma)

• Concerning the third question, creation of a rule-set for dispute settlement is indispensable. The problem is how to keep the international promise; it is possible even if the political systems are different.

(Kimura)

• With respect to the second question, the rule of origin should be made simpler and, at the same time, tariffs should be cut.
• As for the third question, first we should conclude an FTA with South Korea and ASEAN that would serve as a prototype for an FTA with China.

(Suzuki)

• Regarding the fourth question, it is necessary to consider how to protect agricultural villages, not how to sustain the ongoing protection.

(Audience)

• Are organizations like USTR necessary?

(Hatakeyama)

• I object to the creation of an organization analogous to the USTR since it will only increase number of councils.

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