The panacea for Japan’s long-standing economic woes is more vigorous engagement in regional free trade agreements, believes prominent Japanese academic Shujiro Urata.
Japan, still the world’s second-largest economy and South Africa’s third-largest trading partner, has been stricken by deflation and slow growth for more than a decade.
Urata, professor of economics at Tokyo’s Waseda University, recently visited South Africa. He told a South African Institute of International Affairs forum on trade at Wits University that Japan lacked a sense of urgency in promoting free trade “investments”.
Free trade pacts with neighbouring countries had already added significantly to Japan’s gross domestic product (GDP), he said. The most striking example was the deal between Japan, Singapore, South Korea, the “Asean 4” countries (Thailand, Indonesia, Malaysia and the Philippines) and China, which had increased Japan’s GDP by 1,02%.
Between 1948 and 1994, the General Agreement on Tariffs and Trade (GATT) received 124 notifications of regional trade agreements relating to trade in goods. Since the creation of the World Trade Organisation (WTO) in 1995, more than 130 additional arrangements have governed trade in goods or services.
Exclusion from such trade schemes also has an impact. Urata said another pact between China, Singapore and the Asean 4 countries, which excluded Japan, had reduced Japan’s GDP by 0,05%, compared with the 10,4% value added to Singapore’s GDP.
Japan’s share of the world’s GDP declined from a peak of 18,2% in 1994 to 15,4% in 2000. The declining importance of Japan in East Asia is, however, more striking: its share of East Asia’s GDP declined from a peak of 78,3% in 1988 to 68,1% in 2000. Urata said this reflected rapid GDP expansion in developing East Asian economies.
Standing out among them is China, including Hong Kong, which has grown its share of East Asia’s GDP from 9,6% in 1988 to 17,5% in 2000.
Japan has also become a less important trading partner for developing East Asian economies, with the share of imports from Japan falling from 22,1% of overall imports in 1990 to 16,5% in 2001.
In contrast, developing East Asia has become an increasingly important trading partner for Japan, with exports (as a share of overall exports) increasing from 29,8% in 1990 to 39,2% in 2001. The corresponding share for Japan’s overall imports also increased sharply, from 29,8% to 42,3%, during the same period.
These findings, says Urata, indicate the increasing importance of sustainable economic growth in developing East Asia for Japan’s growth.
The WTO agreements recognise that regional arrangements and closer economic integration can benefit countries. They also recognise that under some circumstances regional trading arrangements could hurt the trade interests of other countries.
Normally, setting up a customs union or free trade area would violate the WTO’s principle of equal treatment for all trading partners, but Article 24 of GATT allows regional trading arrangements to be set up as a special exception, provided certain strict criteria are met.
There are 100 developing countries belonging to the 146-country WTO.