Japan and ASEAN have agreed in principle to the establishment of a free trade zone between the two parties. Representatives from both sides came to a consensus on an outline for the agreement at a three-day ASEAN economic conference in Manila. The deal is expected to be finalized at the upcoming ASEAN summit meeting this November (Voice of America).
The FTA with Japan is one of many on ASEAN's plate at the moment. It is currently also pursuing FTAs with China, South Korea, India, Australia, and New Zealand, and is exploring the potential for an FTA with Pakistan (Forbes). The FTA with China, like the one with Japan, is expected to be completed by the end of this year. The other agreements are all in more preliminary phases. ASEAN Secretary-General Ong Keng Yong expects that all five agreements (excl. Pakistan) will be completed by 2013 (Forbes).
ASEAN's FTA offensive is part of a broader ASEAN strategy to build an Asian Economic Community (AEC) by 2015, a strong Southeast Asian economic bloc capable of running with economic giants like China and India into the 21st century (Voice of America). As Asia continues to grow economically and China and India continue to acquire political influence, ASEAN continues to look for ways to compete economically and remain relevant. By casting a wide net into regional trade waters, ASEAN diversifies its economic portfolio and expands its prospects for growth. It also helps balance external political influence on the Southeast Asian bloc.
The ASEAN-Japan FTA is the latest step in this process. The agreement hopes to expand on already strong trade and investment relationships with Japan. Japan accounted for 12% of ASEAN's trade in 2006 (BBC News), and as of around 2003-2004, unless I am mistaken, Japan was ASEAN's largest source of investment (Lincoln, East Asian Economic Regionalism). The agreement also helps ASEAN balance the influence of China.
For Japan, free trade agreements with Southeast Asia have become common practice. It has already concluded 6 bilateral FTAs with Southeast Asian states, including one just last week with Indonesia (The Economic Intelligence Unit Briefing). Expanding economic relations with the region provides Japan with access to energy resources - the deal with Indonesia, for example, features a comprehensive resource acquisition/investment agreement. It also allows Japan to diversify away from its economic reliance on the United States, and balance against the regional influence of China. This multilateral agreement with ASEAN compliments the previous bilateral trade pacts and contributes to all three of Japan's regional goals.
Analysts are skeptical however that this FTA, or any other regional FTA on ASEAN's plate, can yield concrete results. Southeast Asia lacks infrastructure and suffers from poor product standards that contribute to an overall unappealing climate for foreign investment (Voice of America). Furthermore, the ever-present issue of agricultural in Asia-based trade deals means that any substantive gains from an FTA could be years, if not decades, away.
Personally, I will be greatly surprised if these FTAs can actually materialize into an Asian economic bloc, as ASEAN seems to be envisioning with the AEC. The economic obstacles, political obstacles and competing interests in the region seem too great to overcome in just a decade. Nonetheless, last week's economic conference marked an important step in the right direction, and I suppose November's summit meeting will yield more clues as to the fate of the would-be Asian economic bloc. Keep an eye out.
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