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Wednesday, Oct. 8, 2003

Japan hopes to find key to Mexico FTA behind locked doors


Staff writer

Japanese and Mexican negotiators will lock themselves away in a conference hall in Tokyo's Minato Ward beginning Wednesday in an attempt to hammer out a free-trade accord.

The main hurdle between them and a deal that could forever change their countries' economic relations remains Japan's closed agriculture market.

If they clear that and other road blocks, they would allow Mexican President Vicente Fox and Prime Minister Junichiro Koizumi to shake hands and beam for the cameras as they sign a basic agreement on bilateral free trade. Fox begins a state visit to Japan on Oct. 15.

Free-trade accords have never been easy for Japan. The country has signed only one, with Singapore.

Mexico, on the other hand, has more than 30.

And pressure is mounting on Japan.

Mexico recently started excluding companies from nations with which it has no FTA from participating in bids for government procurement contracts.

What's more, lack of an FTA with Mexico costs Japanese corporations 400 billion yen per year.

"If the negotiators fail to reach an agreement this time, the whole FTA momentum would subside," warned Toshihiro Iwatake, director general of the Japan Automobile Manufacturers Association's international department.

Japan is also feeling some global pressure, as the aftershocks from the recent World Trade Organization breakdown reverberate.

In September, trade ministers from 146 WTO members got together in Cancun, Mexico, to agree on basic principles on a wide range of trade -- agriculture, industrial and investment.

But the talks failed as developing nations, which now make up more than two thirds of WTO membership, viewed the proposals on the table as only hurting their interests.

"The Cancun failure will prompt many nations to pursue regionalism, or put more emphasis on FTAs," said Tsutomu Sugiura, director of Marubeni Research Institute, a think tank affiliated with the major trading house.

In this regard, Tokyo is playing a game of catch-up.

Apart from Mexico, Japan is in discussions with South Korea, Thailand, Malaysia, the Philippines, Taiwan and Indonesia. South Korea is emerging as the most likely third FTA partner, with both sides agreeing last week to enter government-level talks next year.

Many experts say the pact with Singapore, which took effect in November, was merely an "experiment" that may lead to future FTA negotiations.

Singapore had already effectively eliminated tariffs on virtually all imports -- except beer -- and, unlike other nations discussing possible FTAs with Japan, Singapore has no politically sensitive items, such as Japan's farm products.

In fact, trade between the two countries had flowed so smoothly that Singapore-Japan trade volume shrunk 3 percent during the January-July period compared with last year.

The current talks with Mexico, which began in 1999 on a preliminary basis, would be the real litmus test of how Japan can compromise on agricultural imports.

"If we can't cut a deal with Mexico, we won't be able to cut a deal with any" country, said a senior METI official requesting anonymity.

Both sides, however, have major unresolved points of contention. But the biggest sticking point is over pork.

Mexico is particularly keen on expanding exports of pork, which account for nearly half of its agricultural exports to Japan.

In 2001, Mexico exported agricultural, forestry and fisheries products worth 52.6 billion yen, of which pork accounted for 24.8 billion yen.

To protect its 10,000 pig farmers, Japan imposes a tariff of around 50 percent on imported pork.

During a September meeting, Japan offered to abandon tariffs for other Mexican exports, including avocados, pumpkins, watermelons and asparagus. A farm ministry official called the concession "quite big for us."

Mexico remains dissatisfied, saying it will not sign an agreement until the pork issue is resolved.

The farm ministry official said Mexico is demanding a zero-tariff quota.

Mexico also wants Japan to open up its markets for chicken and beef, of which the country exports little but sees huge potential for growth.

The agriculture ministry and a group of Liberal Democratic Party politicians backed by powerful farm lobbies firmly oppose opening up these markets, claiming Japan is in the midst of restructuring and that a surge in cheap, imported meat would derail reforms in these sectors.

The pork sector, at least, appears to be restructuring itself. Ten years ago there were 30,000 pig farmers in Japan, each of whom raised an average of just over 300 hogs. Those remaining today average 961 per year.

Japanese exporters, while hoping their government will make trade more efficient, are not merely sitting on their hands.

A year ago, anticipating the start of the FTA with Singapore, Asahi Breweries Ltd. started shipping its star brand Super Dry beer to Singapore directly from Japan, instead of from its facilities in China. The move allowed the brewery to reap the rewards of zero tariffs.

It also created a new segment of customers craving for original Super Dry from Japan, according to the company.

Then in September, the company added a route to Singapore from Thailand, where the firm started production in 2001.

Behind the move was another trade agreement in the region -- the ASEAN Free Trade Agreement -- which was set up in 1992 by the six core members of the Association of Southeast Asian Nations.

"For us, FTAs are welcome, because they help us diversify our shipping strategy," company spokesman Toru Okajima said. "In Singapore, the original Super Dry is popular with affluent customers, and there is also demand for the cheaper Thai version."

The automaker association's Iwatake suggested that if Japan doesn't act quickly in hammering out FTAs, companies might start leveraging other trade arrangements.

He said Japanese carmakers might find it easier to move production bases to Canada and then export cars to Mexico under the North American Free Trade Agreement.

That would further accelerate the hollowing out of industries and lead to job losses at home. "Is that good for Japan?" Iwatake asked.



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