Economic Partnership Agreements and Trade Liberalization —An … · 2009. 12. 21. · Economic...

2 RIM Pacific Business and Industries Vol. VIII, 2008 No. 28

Economic Partnership Agreements and Trade Liberalization —An Analysis Based on New Trade Liberalization Ratios—

Summary

1. Traditionally Japan has approached trade liberalization within the GATT/WTO framework. In recent years, however, the focus has shifted to economic partnership agreements (EPAs). The aim of trade liberalization under EPAs is, in principle, to achieve substantially all liberalization within a reasonable period, as stipulated in Article 24 of the GATT, by removing tariffs from at least 90% of imports between the partners within 10 years from the effectuation of the agreement. Japan’s progress toward trade liberalization can be traced through the progress of its EPAs. 2. There have been persistent accusations that Japan has been slow to liberalize its trade. Japan has also come in for criticism on other grounds, including the details of liberalization under EPAs, and the methods used to calculate the level of liberaliza-tion. The interpretation of trade liberalization under EPAs is an important perspec-tive when considering Japan’s approach to trade liberalization. For this article, we calculated trade liberalization ratios by comparing the removal or reduction of tariffs under schedules of concessions with trade data and effective tariff rates, in order to ascertain Japan’s real progress toward liberalization. This comparison covered three countries with which Japan has signed EPAs: Malaysia, Thailand and the Philip-pines. 3. Specifically, we calculated liberalization ratios not only on the basis of imports (import-based liberalization ratios) and effective tariff rates for specific items (tar-iff item liberalization ratios), but also on the basis of total exports from the partner countries (export-based liberalization ratios), in order to ascertain the level of market access for key export items from those partner countries. 4. Import-based liberalization ratios rise to over 90% on both sides within 10 years (by the 11th year) after the effectuation of the agreements. In the 11th year, Japan’s liberalization ratio is lower than that of its partners. However, Japan has taken the lead in removing tariffs, while its partners are still in the process of a phased im-provement in their liberalization ratios. However, import-based liberalization ratios can lead to over-estimation, since they do not to reflect progress toward the liberal-ization of restricted items. An analysis using liberalization ratios based on tariff items confirms that Japan’s liberalization ratios are lower than that of its partners, and that many items are still subject to tariffs. On the Japanese side, this is especially true of agricultural products and foodstuffs, while the partner countries commonly apply tariffs to automobile-related items. Export-based liberalization ratios are generally high, indicating that liberalization ratios under the EPA reflect the export mix of the partner countries. This can be seen as evidence that liberalization by Japan has made a significant contribution to export promotion and growth in the partner countries. 5. On the other hand, Japan’s liberalization ratios for agricultural and food items re-main low. The fact that many of these items are excluded from negotiations is indica-tive of the Japanese government’s reluctance to discuss liberalization in this area. In addition, there is a strong possibility that Japan is limiting exports of key agricultural and food items from the three partner countries. 6. In terms of trade liberalization ratios, Japan has made substantial overall prog-ress toward trade liberalization through EPAs. The fact that its export-based trade liberalization ratio is especially high suggests that Japan’s trade liberalization efforts have been of high quality and compatible with the export structures of its partners. However, there is clear evidence that Japan’s trade liberalization ratio for agricultural and food items is low. The time has come for Japan to indicate at home and interna-tionally the stance that it plans to take toward liberalization in this area.

By Keiichiro OizumiSenior ResearcherCenter for Pacific Business Studies Economics DepartmentJapan Research Institute

3RIM Pacific Business and Industries Vol. VIII, 2008 No. 28

Introduction

For many years Japan has pursued trade liberal-ization within the GATT/WTO framework. In re-cent years, however, Japan’s liberalization efforts have been based primarily on economic partner-ship agreements (EPAs). In addition to trade liber-alization, EPAs are also designed to facilitate ser-vice trade and investment, ease restrictions on the movement of people, protect intellectual property rights and strengthen economic cooperations in a wide range of areas, including the establishment of frameworks for cooperation. To maintain com-patibility with World Trade Organization (WTO) rules, EPAs are based on the principle that sub-stantially all trade will be liberalized within a cer-tain fixed period. With WTO negotiations stalled, Japan’s progress toward trade liberalization can be measured by its progress toward the establishment of EPAs.

Japan is frequently accused of being slow to open up its markets, and there has been persistent criticism about the liberalization of agricultural products in particular. There has also been criti-cism relating to the quality of EPAs, including a comment by Ito [2007] that Japan is achieving a lower standard of liberalization than its partners. Hisano and Kimura [2007] are critical of the evi-dence used by the government to calculate liberal-ization levels.

The method used to measure progress toward trade liberalization under EPAs will be a key per-spective when considering the future of liberaliza-tion in Japan. However, information released by the government merely provides an overview of the situation and not a full picture. For example, we cannot be certain about the path along which liberalization will proceed in the first 10 years after the effectuation of an EPA, or what prog-ress has been made toward the liberalization of agricultural and food items. The only informa-tion about liberalization levels consists of import-based calculations about levels 10 years in the fu-ture.

For this article, we compiled a data base by col-lating timetables for the removal or reduction of tariffs under schedules of concessions with trade

statistics and effective tariff rates for each coun-try. We then calculated the percentages of tariff-free imports (hereafter import-based liberalization ratios), which are the usual indicators of levels of trade liberalization and the percentages of tar-iff items that are tariff-free (hereafter tariff-based liberalization ratios). Furthermore, because the purpose of an EPA is to strengthen economic ties with the other partner, we introduced a new con-cept of calculating liberalization ratios based on the total exports of partner countries (hereafter ex-port-based liberalization ratios). This concept can be used to indicate the level of liberalization in relation to the major export items of partner coun-tries.

Malaysia, Thailand and the Philippines, which have already signed EPAs with Japan, were cho-sen for this analysis. Since an EPA requires lib-eralization by both parties, we calculated liberal-ization ratios not only for Japan but also for these three partner countries.

This article is structured as follows. In Part I, we confirm that Japan is implementing trade lib-eralization within the framework of EPAs. In Part II, we analyze trade liberalization negotiations within EPAs and examine the content of schedules of concessions. In Part III, we use calculations of import-based liberalization ratios to identify time differences in the tariff removal timetables of Ja-pan and its partners. In Part IV, we list the results of calculations of tariff-based liberalization ra-tios and confirm that many items are still subject to tariffs on the Japanese side. In Part V, we use calculations of export-based liberalization ratios to show that there is a close correlation between trade liberalization on each side and the export mix of the other partner, and that the benefits of liberalization are generally substantial. In Part VI, we use the results of calculations of liberalization ratios for agricultural and food items to show that Japan is limiting imports of many key agricultural food items from its partners, and that the quality of the negotiations is being affected by the large number of items excluded from the negotiations by Japan.


I. Economic Partnership Agree-ments and Trade Liberalization by Japan

(1) Japan’s FTA Strategy

For many years Japan has pursued multilateral trade liberalization primarily within the GATT/WTO system. In this context, advocacy of region-al free trade agreements (FTAs) and economic in-tegration has actually been seen as working coun-ter to the GATT/WTO system. However, in recent years three factors have caused FTAs to become the main focus of Japan’s trade liberalization ef-forts (Urata [2007]).

First, at the global level, there has been a dra-matic increase in the number of FTAs signed. Be-tween 1950 and 1989, only 19 FTAs were signed. Eighteen were signed between 1990 and 1994, 30 between 1995 and 1999, and 57 between 2000 and 2004. As the number expanded, there was a growing perception within Japan that delays in signing FTAs could disadvantage Japan economi-cally. For example, Japanese companies exporting to Mexico were placed at a disadvantage after the North American Free Trade Agreement (NAFTA), linking Mexico with the United States and Cana-da, took effect in 1994, and after Mexico signed a FTA with the EU in 2000. When the Mexican gov-ernment ruled limited government procurement to FTA partners, Japanese companies were also shut out of that market. To avoid discriminatory treat-ment in the Mexican market, Japanese companies pressured the Japanese government to negotiate an FTA with Mexico. This situation provided the im-petus that led to the signing of the Japan-Mexico Free Trade Agreement.

Second, the path to global-level multilateral negotiations was closed when the GATT/WTO Doha Round stalled. Thereafter, the WTO be-came involved in a wide range of areas, such as non-agricultural market access (NAMA), agricul-ture, services, development, rules relating to anti-dumping measures, subsidies and other aspects, trade facilitation, and intellectual property rights. However, progress was uneven because of Third World opposition to the liberalization policies

sought by developed countries, and because of the EU’s reluctance to liberalize agricultural products. Ultimately, the WTO negotiating process became dysfunctional. This situation focused attention on fact that progress could be achieved more rapidly by negotiating FTAs among a limited number of countries. There was also general acceptance of the view that the establishment of FTAs would complement the role of the WTO and accelerate the move toward trade liberalization on a global scale.

Third, FTAs came to be seen as a policy tool for revitalizing Japanese economy. Japan’s East Asian neighbors were enjoying remarkable economic growth, and there was increasing concern that Japanese companies would be at a disadvantage when using East Asian production networks if Ja-pan failed to ride the FTA wave. Japan’s growth potential has been weakened by a falling birthrate, demographic aging and a shrinking population. In this context, economic partnership agreements, in-cluding FTAs with East Asian economies, are seen as important policy tools for maintaining sustain-able growth.

(2) What is Economic Partnership Agreement?

Since signing its first EPA with Singapore in January 2002, Japan has since signed agreements with Mexico, Malaysia, the Philippines, Chile, Thailand, Brunei and Indonesia. Agreements with

Table 1 Economic Partnership Agreements (March 2008)

Start of Negotiations Signing Effectuation

Singapore* January 2001 January 2002 November 2002

Mexico November 2002 September 2004 April 2005

Malaysia January 2004 December 2005 July 2006

Philippines February 2004 September 2006 —

Chile January 2005 March 2007 September 2007

Thailand February 2004 April 2007 November 2007

Brunei February 2006 June 2007 —

Indonesia January 2007 August 2007 —

All ASEAN April 2005 — —

* The agreement with Singapore was revised in January 2007, signed in March, and took effect in September.

Source: Compiled using data from the website of the Ministry of Foreign Affairs


five of these eight countries—Singapore, Mexico, Malaysia, Chile and Thailand—are already in ef-fect (Table 1). In August 2007, Japan also reached basic agreement with ASEAN.

Each of the agreements consists of the basic agreement and annexes. They are weighty docu-ments, with some consisting of over 1,000 pages.

Table 2 shows the contents of Japan’s EPAs

with Malaysia, Thailand and the Philippines, to-gether with the annex titles for each agreement. The common items covered in all three agree-ments are (1) the trade in goods, (2) rules of ori-gin, (3) customs procedures, (4) the trade in ser-vices, (5) investment, (6) intellectual property, (7) cooperation, (8) the dispute settlement, and (9) competition. Agreements with some countries also

Table 2 Comparison of Economic Partnership Agreements

Japan-Malaysia Japan-Thailand Japan-Philippines

Preamble

Chapter 1 General provisions General provisions General provisions

Chapter 2 Trade in goods Trade in goods Trade in goods

Chapter 3 Rules of origin Rules of origin Rules of origin

Chapter 4 Customs procedures Customs procedures Customs procedures

Chapter 5Compulsory standards, voluntary standards, conformity assessment procedures

Paperless trading Paperless trading

Chapter 6 Sanitary and phytosanitary measures Mutual Recognition Mutual Recognition

Chapter 7 Investment Trade in services Trade in services

Chapter 8 Trade in services Investment Investment

Chapter 9 Intellectual property Movement of natural persons Movement of natural persons

Chapter 10 Controlling anti-competitive activities Intellectual property Intellectual property

Chapter 11 Improvement of business environment Government procurement Government procurement

Chapter 12 Cooperation Competition Competition

Chapter 13 Dispute settlement Cooperation I m p r o v e m e n t o f b u s i n e s s environment

Chapter 14 Final provisions Dispute settlement Cooperation

Chapter 15 Final provisions Dispute avoidance and settlement

Chapter 16 Final provisions

Annexes

1Schedules in relation to Article 19(Chapter 2)

Schedules in relation to Ar ticle 18 (Chapter 2)

Schedules relating to Article 18 (Chapter 2)

2 Product specific rules (Chapter 3) Product specific rules (Chapter 3) Product specific rules (Chapter 3)

3Minimum data requirement for certificate of origin (Chapter 3)

M i n i mu m d a t a r e q u i r e m e n t fo r certificate of origin (Chapter 3)

Minimum data requirement for certificate of origin (Chapter 3)

4Reservat ion for ex is t ing and future measures (Chapter 7)

Annex on electrical products (Chapter 6)Sectoral annex in relat ion to Article 61 (Chapter 6)

5 Financial services (Chapter 8)Schedule of specific commitments in relation to Article 77 (Chapter 7)

Financial services (Chapter 7)

6Schedule of specific commitments in relation to Article 99 (Chapter 8)

Schedules in relation to investment (Chapter 8)

Schedule of specific commitments and list of most-favored-nation treatment exemptions (Chapter 7)

7Lists of most-favored-nation treatment exemptions in relation to Ar ticle 101 (Chapter 8)

Specific commitments for the movement of natural persons (Chapter 9)

Reservation for existing and future measures (Chapter 8)

8Specific commitments for the movement of natural persons (Chapter 9)

Source: Compiled from the respective economic partnership agreements


cover the movement of natural persons, govern-ment procurements, and the improvement of the business environment. The sections of the agree-ments relating to trade liberalization are Chapter 1 (“trade in goods”), Chapter 2 (“rules of origin”) and Chapter 3 (“customs procedures”).

On the question of why Japan has opted for EPAs rather than FTAs, the Ministry of Foreign Affairs stated in 2007 that “given the economic reality of interdependence driven by Japanese di-rect investment, agreements should be compre-hensive in their coverage and not limited to border measures, such as tariffs and foreign investment rules.” In fact many Japanese companies are ac-tive overseas, and moves to strengthen Japan’s economic relationships with other countries need to focus not only on the revitalization of trade, but also on the facilitation of the overseas activi-ties of Japanese companies. In particular, the re-inforcement of the production networks that Japa-nese companies have built in East Asia since the 1970s is seen as absolutely essential to sustainable growth in Japan. These EPAs with their wide-ranging content can be seen as an evolved type of FTA.

II. Liberalization Negotiations under Economic Partnership Agreements

(1) Compatibility with WTO Rules

We will now look at the relationship between trade liberalization under EPAs and the WTO.

In principle, the WTO prohibits its member states from treating specific countries on a dis-criminatory basis. However, the WTO has adopted a stance of tolerating regional FTAs, provided that they result in the elimination of barriers on “substantially all the trade” “within a reasonable length of time,” on the grounds that “closer inte-gration between the economies of the parties to such agreements” can contribute to the expansion of free trade.

These ambiguous criteria—“within a reasonable length of time” and “substantially all the trade”—

were partially clarified in the “Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade,” which was ad-opted during the 1994 Uruguay Round. “Within a reasonable length of time” is taken to mean within 10 years of the signing of an agreement, while calculations to determine whether measures relate to “substantially all the trade” have been based on weighted averages of the value of trade. No specific ratios have been provided for the latter criterion, but the EU regards 90% of trade (more precisely, 90% of imports) as the standard, and in recent years this figure has been used as a basic yardstick.

Japan’s moves toward trade liberalization through EPAs conform to these broad WTO guide-lines, since in principle Japan aims to eliminate tariffs on at least 90% of total trade (specifically imports) within 10 years (Table 3). For example, tariffs will be removed on 94.7% of Japan’s im-ports from Malaysia and on 99.3% of Malaysia’s imports from Japan within 10 years of the effectu-ation of the Japan-Malaysia EPA. The correspond-ing figures for the Japan-Thailand EPA are 91.6% and 97.4%, and those for the Japan-Philippines EPA are 91.6% and 97.0% respectively.

(2) Trade Liberalization Negotiations

Trade negotiations under EPAs are handled col-

Table 3 Tariff Elimination Levels (within 10 Years of Effectuation)

(%)

Japan Other Partner

Pre-Effectuation After 10 years Pre-Effectuation After 10 years

Japan-Singapore EPA 86.3 94.7 99.99 100.0

Japan-Mexico EPA 64.2 86.8 40.2 98.4

Japan-Malaysia EPA 86.0 94.1 69.4 99.3

Japan-Philippines EPA 87.3 91.6 59.6 97.0

Japan-Chile EPA 72.2 90.5 1.4 100.0

Japan-Thailand EPA 79.5 91.6 16.7 97.4

Japan-Brunei 99.98 99.99 31.8 99.9

Japan-Indonesia 71.2 93.2 33.9 89.7

Source: Council on Customs, Tariff, Foreign Exchange, Saikin no Kanzei wo Meguru Kokusaiteki Shomondai ni Tsuite [Recent Interna-tional Problems Relating to Tariffs]


laboratively by the Ministry of Foreign Affairs, the Ministry of Economy, Trade and Industry, the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Finance (known as the “joint chair ministries”). The Ministry of Foreign Affairs coordinates activities by the other ministries and drafts agreement documents, while the other min-istries handle negotiations in individual product

areas. For example, minerals and manufactured goods are handled by the Ministry of Economy, Trade and Industry, agricultural goods, forest products and fish by the Ministry of Agriculture, Forestry and Fisheries, and liquor, tobacco and salt by the Ministry of Finance. The Ministry of Finance is also responsible for general negotia-tions concerning the administration of import tar-

Table 4 HS Codes and Items in Effective Tariff Schedules

(Items, %)

Major Sections

Japan Malaysia Thailand Philippines

HS2(Chapter)

HS4(Heading)

HS6(Item)

HS9 Rate HS9 Rate HS9 Rate HS10 Rate

1 Live animals and animal products 1-5 44 228 581 6.4 314 3.0 344 4.1 351 3.3

2 Vegetable products 6-14 79 291 563 6.2 363 3.4 392 4.7 407 3.8

3Animal or vegetable fats and oils and their cleavage products, prepared edible fats; animal or vegetable waxes

15 22 58 85 0.9 167 1.6 150 1.8 151 1.4

4Prepared foodstuffs; beverages, alcohol, vinegar; tobacco and manufactured tobacco alternatives

16-24 56 208 793 8.7 459 4.3 385 4.6 442 4.1

5 Mineral products 25-27 66 158 219 2.4 204 1.9 219 2.6 226 2.1

6 Products of the chemical or allied industries 28-38 178 846 1,034 11.4 1,232 11.6 1,098 13.2 1,295 12.0

7 Plastics and articles thereof; rubber and articles thereof 39-40 43 232 296 3.2 657 6.2 392 4.7 650 6.0

8Raw hides and skins, leather, fur skins and articles thereof; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut

41-43 25 105 228 2.5 103 1.0 85 1.0 126 1.2

9Wood and articles of wood; wood charcoal; cork and articles of cork; manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork

44-46 27 101 233 2.6 1,991 18.8 137 1.6 263 2.4

10Pulp of wood or of other fibrous cellulosic materials; waste and scrap paper or paperboard; paper and paperboard and articles thereof

47-49 41 178 172 1.9 346 3.3 224 2.7 371 3.4

11 Textiles and textile articles 50-63 153 873 2,064 22.7 1,122 10.6 928 11.2 1,149 10.7

12

Footwear, headgear umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof; prepared feathers and articles made therewith; artificial flowers; articles of human hair

64-67 20 57 134 1.5 88 0.8 63 0.8 83 0.8

13Articles of stone, plaster, cement, asbestos, mica or similar materials; ceramic products; glass and glassware

68-70 49 299 160 1.8 192 1.8 185 2.2 263 2.4

14Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal, and articles thereof; imitation jewelry; coins

71-72 47 444 396 4.3 503 4.8 335 4.0 302 2.8

15 Base metals and articles of base metal 73-83 128 859 526 5.8 598 5.7 566 6.8 751 7.0

16

Machinery, mechanical appliances, electrical equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

84-85 133 859 959 10.5 1,213 11.5 1,795 21.6 2,545 23.6

17Vehicles, aircraft, vessels and associated transport equipment

86-89 38 132 147 1.6 476 4.5 427 5.1 644 6.0

18

Optical, photographic, cinematographic, measuring, inspection, precision, medical or surgical instruments and apparatus; clocks and watches; musical instruments; parts and accessories thereof

90-92 56 255 294 3.2 284 2.7 339 4.1 402 3.7

19 Arms and ammunition; parts and accessories thereof 93 7 21 24 0.3 27 0.3 28 0.3 28 0.3

20 Miscellaneous manufactured articles 94-96 32 133 200 2.2 228 2.2 212 2.5 305 2.8

21 Works of art, collectors’ pieces, and antiques 97 6 7 8 0.1 10 0.1 10 0.1 16 0.1

Total 1,250 6,344 9,108 100.0 10,577 100.0 8,314 100.0 10,770 100.0

Source: Effective Tariff Schedule (January 2006) for Japan, World Tariff Data Base (downloaded November 2007) for Malaysia, Thailand and the Philip-pines


iffs.Before negotiations begin, each country pre-

pares requests and offers to be presented to the other party. The negotiating process starts with the exchange of these requests and offers, and specific negotiations are based on each country’s schedule effective tariff rates. These schedules are compiled according to the nomenclature in the Interna-tional Convention on the Harmonized Commod-ity Description and Coding System (HS Codes). The HS system is divided into 21 major sections, which are subdivided into 97 in 2-digit codes (chapters), approximately 1,250 in 4-digit codes (headings), and approximately 6,350 in 6-digit HS codes (items), together with 9-digit or 10-digit codes. Down to six digits, the same codes are used throughout the world, but the more detailed 9- and 10-digit categories are left to the discretion of in-dividual countries. For example, Japan has 9,108 in 9-digit codes, while Malaysia has 10,577, Thai-land 8,314, while the Philippines has 10,770 in 10-digit codes (Table 4).

Liberalization negotiations for EPAs cover vast numbers of items on each side, and different items may be linked together as focal points for these talks. For example, when Japan and Thai-land negotiated their EPA, Thailand asked Japan to liberalize agricultural products in exchange for a reduction in import tariffs on motor vehicles and steel. Furthermore, negotiating cards are not nec-essarily goods. Japan uses ODA and other forms of cooperation as negotiating cards when discuss-ing tariff reductions with other countries.

(3) Schedules of Concessions

Items for which tariffs have been reduced or removed as a result of trade liberalization negotia-tions are listed in schedules of concessions. Tables 5 and 6 are extracts from the schedules of conces-sions for the Japan-Thailand EPA(1).

Outcomes from trade liberalization negotiations are broadly divided into the following six catego-ries.

The first category is immediate removal, shown in the table as “A.” In these cases, tariffs are re-moved from the date on which the agreement

takes effect, and items that have zero tariff rates before the date of effectuation are also included. Japan’s effective tariff rates on most mineral and manufactured goods are set to zero from the dates on which agreements take effect.

The second category is phased removal (B). Tariffs on items in this category are removed over a specified number of years. Sometimes items in this category may be designated as “B5” or “B7.” Tariffs on B7 items are removed over seven years, which means that tariff rate falls to zero in the seventh year after effectuation(2). In the annex to the EPA with Thailand, items in this category are designated simply as “B,” but a reduction sched-ule is also shown (Tables 5, 6). Usually tariffs are reduced by the same percentage each year.

The third category is phased reduction (P). Tar-iffs on these items are gradually reduced but not entirely removed. For example, the tariff on chick-en meat imported from Thailand to Japan falls from 11.3% immediately after the EPA took effect to 8.5% in the sixth year and is maintained at that level after that time.

Items in the fourth category (Q) are subject to quotas, and low or zero tariffs are applied to the items in question within quantitative limits. Nor-mal tariff rates (effective MFN rates) apply to im-ports in excess of these quotas. Examples include bananas imported into Japan and steel imported by partner countries (3).

The fifth category (R) consists of items sched-uled for renegotiation after a specific period. Ex-amples include palm oil imported from Malaysia into Japan.

Items in the sixth category (X) are excluded from negotiations and are not covered by any commitments made during EPA negotiations. Many items in this category are agricultural prod-ucts, such as rice in Japan and tobacco in Malay-sia and Thailand.

Detailed conditions may also be added to agree-ments as notes. For example, the EPA with Thai-land provides for an import quota of 440,000 tons with a zero tariff rate for Japanese steel in the first year, with subsequent quotas to be determined by consultation. In some cases there is no timetable for the removal of tariffs, and notes stipulate that


the provisions of the ASEAN Free Trade Agree-ment (AFTA) and the ASEAN Korea Free Trade Agreement (AKFTA) will apply mutatis mutandis.

EPA negotiations proceed from basic agree-ment to signing, followed by effectuation. Liber-alization negotiations concerning goods are com-pleted at the basic agreement stage. This means that if too much time is taken between the basic agreement stage and the signing and effectuation stages, the full benefits of trade liberalization may not be achieved. For example, timetables for the removal of tariffs in schedules of concessions are reckoned from the date on which the EPA takes effect (such as in the sixth year after effectuation).

If the interval between basic agreement and ef-fectuation is too long, there will be proportionate delay in the timetable. In fact, political instability in Thailand caused the effectuation of the Japan-Thailand EPA to be delayed longer than expected after basic agreement was reached, with the result that the prevailing tariff rates were actually lower than the tariff rates in the schedule of concessions. The Philippines also lost its advantage because of delays. Negotiations with the Philippines began around the same time as negotiations with Thai-land, but the schedule of concessions for imports from the Philippines was more favorable, includ-ing early tariff reductions. However, this advan-

Table 5 Schedule of Concessions under Japan-Thailand EPA (Japanese Import Tariffs)

Column 1 Column 2Column

3Column

4Column 5

Tariff item number

Description of goods Category NoteRate of customs duty

1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year 9th Year 10th Year 11th Year 12th Year 13th Year 14th Year 15th Year As from16th Year

Chapter 9 Coffee, tea, mate and spices

09.01 Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion

Coffee, not roasted

0901.11 Not decaffeinated A 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0901.12 Decaffeinated A 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Coffee, roasted

0901.21 Not decaffeinated R 1

0901.22 Decaffeinated R 1

0901.90 Other A 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

09.02 Tea, whether or not flavored

0902.10 Green tea (not fermented) B 15.9% 14.9% 13.8% 12.8% 11.7% 10.6% 9.6% 8.5% 7.4% 6.4% 5.3% 4.3% 3.2% 2.1% 1.1% 0

0902.20 Other green tea (not fermented)

Waste, unfit for beverage A 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Other B 15.9% 14.9% 13.8% 12.8% 11.7% 10.6% 9.6% 8.5% 7.4% 6.4% 5.3% 4.3% 3.2% 2.1% 1.1% 0

0902.30 Black tea and partly fermented tea in immediate packings of a content not exceeding 3 kg

Black tea B 10.9% 9.8% 8.7% 7.6% 6.5% 5.5% 4.4% 3.3% 2.2% 1.1% 0 0 0 0 0 0

Other B 15.9% 14.9% 13.8% 12.8% 11.7% 10.6% 9.6% 8.5% 7.4% 6.4% 5.3% 4.3% 3.2% 2.1% 1.1% 0

0902.40 Other black tea and partly fermented tea

Waste, unfit for beverage A 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Source: Japan-Thailand EPA, Annex 1


under EPAs, as measured according to the propor-tion of the value and number of items for which tariffs have been removed (the liberalization ra-tio)(5). Liberalization ratios are typically based on the value of imports (import-based liberalization ratios) or the number of tariff items (tariff-based liberalization ratios). For this article, we have also added new liberalization ratios based on partner countries’ shares of exports to the world (export-based liberalization ratios). Calculations of these liberalization ratios are based on items from which tariffs have been removed, which are shown in

tage was negated by delays in putting the EPA into effect. Another problem is that the HS Codes used during EPA negotiation were based on the 2002 standards, while current effective tariff rates are based on 2006 revised standards. This makes the EPAs more difficult to administer(4).

III. Import-Based Liberalization Ratios

We will next look at trade liberalization levels

Table 6 Schedule of Concessions under Japan-Thailand EPA (Thai Import Tariffs)

Column 1 Column 2 Column 3 Column 4 Column 5

Tariff item number

Description of goods Category Note

Rate of customs duty

1st Year 2nd Year 3rd Year 4th Year 5th Year 6th Year 7th Year 8th Year 9th Year10th Year

As from 11th year

8473 Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of heading 84.69 to 84.72.

8473.10 -Parts and accessories of the machines of heading 84.69

B 11.25% 7.50% 3.75% 0 0 0 0 0 0 0 0

-Parts and accessories of the machines of heading 84.70

8473.21 --of the electric calculating machines of subheading 8470.10, 8470.21 or 8470.29

A 0 0 0 0 0 0 0 0 0 0 0

8473.29 --other A 0 0 0 0 0 0 0 0 0 0 0


A 0 0 0 0 0 0 0 0 0 0 0


B 11.25% 7.50% 3.75% 0 0 0 0 0 0 0 0

8473.50 -Parts and accessories equally suitable for use with machines of two or more of the heading 84.69 to 84.72

A 0 0 0 0 0 0 0 0 0 0 0

8474 Machinery for sorting, screening, watshing, crushing, grinding, mixing or kneading earth stone, ores or other mineral substance in solid (including powder or paste) from; machinery for agglomerating, shaping or moulding solid mineral fuels, ceramic paste,

8474.10 -Sorting, screening, separating or washing machines

A 0 0 0 0 0 0 0 0 0 0 0

Source: Japan-Thailand EPA, Annex 1


imported from Thailand are still subject to tariffs. The only section with a liberalization ratio below 70% for imports from the Philippines is Section 8 (leather products). However, the ratio for that sec-tion is very low at 58.8%, and 41.2% of items are excluded from negotiations, indicating that Japan has not yet sufficiently opened up its market to leather products from the Philippines.

An analysis of import-based liberalization ra-tios for the partner countries reveals that tariffs are still applied to a wide range of manufactured goods. The liberalization ratios for Section 17 (automotive products) are especially low at 88.4% for Malaysia, 73.2% for Thailand and 21.7% for the Philippines. Malaysia’s ratio for Section 4 (prepared foodstuffs) is also low at 70.2%, as is Thailand’s ratio for Section 1 (animal products) at 80.6%. The Philippines’ ratio for Section 14 (pre-cious metals) is only 33.9%.

High liberalization ratios were not achieved on both sides immediately after the EPAs came into effect, and Japan has led the way in removing tar-iffs (Figures 1, 2). Japan removed tariffs on most minerals and manufactured goods immediately after effectuation, resulting in first-year liberal-ization ratios of 94.0% for Malaysia, 86.5% for Thailand and 89.4% for the Philippines. Although Japan has been criticized for having lower liberal-ization ratios than its partner countries (Ito [2007]), none of the three countries studied will achieve higher liberalization ratios than Japan until the 11th year.

The slower rise of liberalization ratios in the partner countries is attributable to the fact that tariffs on minerals and manufactured goods have been removed in phases. For example, all three countries have introduced numerical quotas for steel. The quotas and tariffs will not be removed until the 11th year. Malaysia will remove quo-tas and tariffs on passenger cars over 3000cc by 2010, but this measure will not be extended to all assembled vehicles until 2015.

In terms of import-based liberalization ratios, trade liberalization advances substantially on both sides when an EPA takes effect. However, it is important to recognize that import-based liberal-ization ratios do not reflect delays in liberalizing

schedules of concessions in Category A (immedi-ate removal) or Category B (phased removal)(6). The calculation methods for liberalization ratios and the results of those calculations are shown be-low.

An import-based liberalization ratio represents zero-tariff items as a percentage of the total value of imports in a given year. This method, which is advocated by the WTO, is used to calculate Ja-pan’s liberalization ratio. The formula is as fol-lows.

A’s import-based liberalization ratio =Total value of zero-tariff items imported from B by A

× 100Total value of A’s imports from B

To calculate the import-based liberalization ra-tio, we need to collate detailed import data corre-sponding to the schedule of concessions. For the purposes of this article, we used import data from the World Trade Atlas. Liberalization ratios pub-lished by the government are based on imports in the year in which negotiations commenced (2004). For this article, we used the average value of im-ports in 2004, 2005 and 2006.

The results are shown in Table 7. While these figures differ somewhat from official data pub-lished by the government, they confirm that over 90% of imports will be tariff-free on both sides in the 11th year. However, there are also a few items with low liberalization ratios. For example, the liberalization ratio for Japan’s imports from Ma-laysia are below 70% in Section 1 (animal prod-ucts), Section 3 (animal or vegetable fats), Section 4 (prepared foodstuffs), Section 9 (wood and arti-cles of wood) and Section 19 (arms and ammuni-tion). The ratio for Section 3 (animal or vegetable fats) is especially low at just 19.0%. There are two sections in which imports from Thailand have lib-eralization ratios below 70%: Section 1 (animal products), Section 2 (vegetable products) and Sec-tion 4 (prepared foodstuffs). While the number of sections is smaller than for Malaysia, 15% of items in Section 7 (plastics) and Section 12 (leath-er products) are excluded from the negotiations, even though the liberalization ratios for these sec-tions are over 80%. This indicates that many items


items that are subject to controls. For example, Thailand levies high tariffs on assembled vehicles imported from Japan. As a result, even though motor vehicles are a major export item for Japan, they make up only 2% of Thailand’s imports. If

Thailand retained its tariff on assembled vehicles while removing tariffs on all other items, its im-port-based liberalization ratio would be 98%. In fact, Thailand agreed to cut tariffs on passenger cars over 3000cc from 80% to 60% by the fourth

Table 7 Import-Based Liberalization Ratios

Liberalization ratios based on imports into Japan (%)

Major Section

HS CodeJapan-Malaysia EPA Japan-Thailand EPA Japan-Philippines EPA

Liberalized Excluded Liberalized Excluded Liberalized Excluded

1 1-5 68.7 31.2 64.2 14.1 77.1 5.5

2 6-14 94.0 6.0 68.8 19.6 86.4 0.1

3 15 19.0 0.1 89.2 0.0 100.0 0.0

4 16-24 52.1 37.4 47.7 6.7 70.9 7.8

5 25-27 100.0 0.0 100.0 0.0 100.0 0.0

6 28-38 99.9 0.1 80.1 0.0 100.0 0.0

7 39-40 100.0 0.0 100.0 0.0 100.0 0.0

8 41-43 99.8 0.2 84.8 15.2 58.8 41.2

9 44-46 39.5 0.0 97.6 0.0 100.0 0.0

10 47-49 100.0 0.0 100.0 0.0 100.0 0.0

11 50-63 100.0 0.0 99.9 0.0 100.0 0.0

12 64-67 99.8 0.2 84.3 15.7 99.8 0.2

13 68-70 100.0 0.0 100.0 0.0 100.0 0.0

14 71-72 100.0 0.0 100.0 0.0 100.0 0.0

15 73-83 100.0 0.0 100.0 0.0 100.0 0.0

16 84-85 100.0 0.0 100.0 0.0 100.0 0.0

17 86-89 100.0 0.0 100.0 0.0 100.0 0.0

18 90-92 100.0 0.0 100.0 0.0 100.0 0.0

19 93 ― ― ― ― ― ―20 94-96 100.0 0.0 100.0 0.0 100.0 0.0

21 97 ― ― ― ― ― ―

All 91.7 0.4 91.4 1.8 97.9 0.3

Liberalization ratios based on imports into partner countries

Major Section



1 1-5 100.0 0.0 80.6 0.0 100.0 0.0

2 6-14 99.4 0.5 93.9 0.0 99.0 0.0

3 15 100.0 0.0 99.8 0.0 100.0 0.0

4 16-24 70.2 29.8 90.4 8.0 100.0 0.0

5 25-27 100.0 0.0 100.0 0.0 100.0 0.0

6 28-38 99.2 0.0 100.0 0.0 100.0 0.0

7 39-40 96.9 0.1 100.0 0.0 100.0 0.0

8 41-43 100.0 0.0 100.0 0.0 100.0 0.0

9 44-46 100.0 0.0 100.0 0.0 100.0 0.0

10 47-49 88.8 0.0 100.0 0.0 100.0 0.0

11 50-63 100.0 0.0 100.0 0.0 99.9 0.0

12 64-67 100.0 0.0 100.0 0.0 100.0 0.0

13 68-70 100.0 0.0 100.0 0.0 100.0 0.0

14 71-72 92.1 0.0 88.6 0.0 33.9 0.0

15 73-83 100.0 0.0 100.0 0.0 99.8 0.0

16 84-85 99.9 0.0 99.7 0.0 97.9 0.0

17 86-89 88.4 0.0 73.2 0.0 21.7 0.0

18 90-92 100.0 0.0 100.0 0.0 100.0 0.0

19 93 0.0 100.0 100.0 0.0 100.0 0.0

20 94-96 100.0 0.0 100.0 0.0 99.1 0.0

21 97 100.0 0.0 100.0 0.0 100.0 0.0

All 98.0 0.0 95.7 0.0 90.4 0.0

Source: Calculated using Annex 1 of each EPA, Effective Tariff Schedule (January 2006) for Japan, World Tariff Data Base and World Trade Atlas


year, but the subsequent schedule is subject to renegotiation. The tariff on passenger cars up to 3000cc will also be renegotiated in the sixth year,

but Thailand has not undertaken to reduce tariffs. The fact that its liberalization ratio for Section 17 (automotive products) is high at 73.2%, while its overall liberalization ratio will reach 95.7% is at-tributable to the fact that Thailand currently con-trols imports of assembled vehicles from Japan. In this sense, import-based liberalization ratios can result in the over-estimation of liberalization levels. The same applies to assessments of Japan’s progress toward the liberalization of imports of agricultural goods.

IV. Tariff-Based Liberalization Ra-tios

We next need to examine the types of items on which import tariffs are retained. Tariff-based lib-eralization ratios indicate the percentage of items for which tariffs have been removed, based on the effective tariff schedules. The following formula is used to calculate these ratios.

A’s tariff-based liberalization ratio =Number of zero tariff items imported from B by A

× 100Number of items subject to tariffs in A

Schedules of concessions are based on effec-tive tariff schedules. However, the following two processes are required in order to calculate tariff-based liberalization ratios.

First, the sections used in schedules of conces-sions were based on the 2002 standard for HS Codes, but in January 2007 the codes were revised to reflect the 2006 standard. The codes will there-fore need to be adjusted for use with current effec-tive tariff schedules. To minimize the adjustments required, we used Japan’s effective tariff schedule for January 2006, which is based on the 2002 HS code standard. However, only current tariff sched-ules(7) were available for Malaysia, Thailand and the Philippines, so adjustment was required.

Second, in Japan’s schedule of concessions, items with the same tariff reduction/removal schedules are combined into the next highest code level, which means that this data must be com-pared with the effective tariff schedule in order

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA

Japan-Philippines EPA

(%)

(Year)

Fig. 1 Japan’s Import-Based Liberalization Ratios

Fig. 2 Import-Based Liberalization Ratios for Partner Countries



0

10

20

30

40

50

60

70

80

90

100

1 3 5 7 9 11(Year)

Japan-Malaysia EPA

Japan-Thailand EPA


(%)


to ascertain the number of items with zero tariff rates. This applies only to Japan’s schedule of concessions. The other countries list their tariff re-duction/removal schedules for each item down to 9- or 10-digit HS codes.

The results of these calculations are shown in Table 8. Japan’s liberalization ratios in the 11th year will be lower than its import-based liberaliza-tion ratios, at 87.5% for Malaysia, 86.0% for Thai-land, and 91.7% for the Philippines. The percent-

Table 8 Tariff-Based Liberalization Ratios

Liberalization ratios based on imports into Japan (%)

Major Section



1 1-5 46.1 50.5 43.2 56.1 49.2 50.1 2 6-14 68.1 20.4 67.3 21.4 76.9 20.1 3 15 90.0 0.0 92.0 4.0 91.5 4.3 4 16-24 30.5 38.1 28.3 46.3 58.2 34.2 5 25-27 99.5 0.5 90.7 0.5 99.5 0.5 6 28-38 99.6 0.3 99.1 0.8 99.7 0.3 7 39-40 100.0 0.0 97.0 0.0 100.0 0.0 8 41-43 59.6 12.0 60.9 12.4 89.4 10.6 9 44-46 87.4 0.0 100.0 0.0 100.0 0.0 10 47-49 100.0 0.0 100.0 0.0 100.0 0.0 11 50-63 99.9 0.1 99.4 0.6 99.4 0.6 12 64-67 42.2 20.3 39.8 20.3 80.3 19.7 13 68-70 100.0 0.0 100.0 0.0 100.0 0.0 14 71-72 100.0 0.0 100.0 0.0 100.0 0.0 15 73-83 100.0 0.0 100.0 0.0 100.0 0.0 16 84-85 100.0 0.0 100.0 0.0 100.0 0.0 17 86-89 100.0 0.0 100.0 0.0 100.0 0.0 18 90-92 100.0 0.0 100.0 0.0 100.0 0.0 19 93 100.0 0.0 100.0 0.0 100.0 0.0 20 94-96 100.0 0.0 100.0 0.0 100.0 0.0 21 97 100.0 0.0 100.0 0.0 100.0 0.0

All 87.5 7.5 86.0 9.5 91.7 7.4

Liberalization ratios based on imports into partner countries

Major Section



1 1-5 93.6 6.4 92.7 0.0 100.0 0.0 2 6-14 97.5 2.2 86.7 0.0 95.3 4.7 3 15 100.0 0.0 88.0 0.0 100.0 0.0 4 16-24 88.9 11.1 89.1 7.5 100.0 0.0 5 25-27 99.5 0.0 100.0 0.0 96.7 3.3 6 28-38 99.2 0.0 99.8 0.0 100.0 0.0 7 39-40 97.0 2.1 100.0 0.0 100.0 0.0 8 41-43 100.0 0.0 100.0 0.0 100.0 0.0 9 44-46 99.9 0.0 100.0 0.0 100.0 0.0 10 47-49 99.4 0.0 100.0 0.0 100.0 0.0 11 50-63 100.0 0.0 100.0 0.0 100.0 0.0 12 64-67 100.0 0.0 100.0 0.0 100.0 0.0 13 68-70 100.0 0.0 100.0 0.0 100.0 0.0 14 71-72 96.8 0.0 47.8 0.0 81.3 0.0 15 73-83 100.0 0.0 65.4 0.0 100.0 0.0 16 84-85 99.3 0.0 92.4 0.0 100.0 0.0 17 86-89 61.6 0.0 40.7 0.0 34.9 0.0 18 90-92 100.0 0.0 100.0 0.0 99.0 0.0 19 93 0.0 100.0 100.0 0.0 100.0 0.0 20 94-96 100.0 0.0 99.5 0.0 99.7 0.0 21 97 100.0 0.0 100.0 0.0 100.0 0.0

All 96.7 1.1 89.2 0.3 91.3 0.2



ages of excluded (X) items are especially high, at 7.5% for Malaysia, 9.5% for Thailand, and 7.4% for the Philippines. The major sections in which Japan’s liberalization ratio is below 70% are Sec-tion 1 (animal products) and Section 4 (prepared foodstuffs). Malaysia and Thailand have low ratios for Section 2 (vegetable products) at 68.1% and 67.3% respectively, indicating that their progress toward the liberalization of agricultural products has been slower. Their ratios for Section 12 (head-gear, footwear, etc.) are only 42.2% and 39.8% respectively, which reflecting the fact that tariffs are still imposed on labor-intensive manufactured goods.

The liberalization ratios for partner countries are 96.7% for Malaysia, 89.2% for Thailand, and 91.3% for the Philippines. The ratios for both Ma-laysia and Thailand are lower than their import-based ratios. However, all have lower percentages of excluded items, at 1.1% for Malaysia, 0.3% for Thailand and 0.2% for the Philippines. All three countries have liberalization ratios below 70% for Section 16 (automotive products). Malaysia’s ra-tio is 61.6% and Thailand’s 40.7%, while that for the Philippines is just 34.9%. Thailand’s results are characterized by low liberalization ratios for Section 14 (precious metals) and Section 15 (steel, etc.).

While Japan’s liberalization ratio exceed 80% immediately after the EPAs take effect, those of its partners are lower. Malaysia’s ratio is relatively high at 74.4%, but those for Thailand are low at 37.6% and 57.0% respectively (Figures 3, 4)(8). Malaysia’s ratio first surpasses Japan’s in the eighth year, while Thailand and the Philippines overtake Japan in the 11th year, when the ratio for the Philippines climbs from 69.7% to 91.3%. It remains to be seen whether this dramatic liber-alization can be achieved, and whether Japan can ensure the fulfillment of these undertakings.

Both Japan and its partner countries have tariff-based liberalization ratios that are lower than their import-based ratios. Some observers believe that to speed up trade liberalization, tariff-based liber-alization ratios should be included in the delibera-tion process (Kimura [2007], Council on Econom-ic and Fiscal Policy [2007]).

74

76

78

80

82

84

86

88

90

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA


(%)

(Year)

0

10

20

30

40

50

60

70

80

90

100

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA


(%)

(Year)

Fig. 3 Japan’s Tariff-Based Liberalization Ratios

Fig. 4 Japan’s Tariff-Based Liberalization Ratios




V. Export-Based Liberalization Ratios

The preceding analyses have focused on im-port-based ratios and tariff-based liberalization ratios. A problem with these ratios is that they do not provide an accurate picture of the level of lib-eralization in relation to the key export items of partner countries.

This problem is illustrated by Japan’s imports of rice from Thailand. Thailand is the world’s big-gest exporter of rice, but Japan severely restricts rice imports by imposing a tariff of ¥490 per kilo-gram. If this import tariff were removed, imports of rice from Thailand would generally increase. However, Japan has retained its tariff on rice while removing tariffs from other items, with the result that its liberalization ratio rose to 99.7% in 2006. This ratio is based on total imports of $14.76 bil-lion and rice imports of just $5 million (0.3%) from Thailand. Japan’s tariff-based liberalization ratio rises to 99.9%, since tariffs are levied on just eight 9-digit items relating to rice (HS1006). Ja-pan’s claim that its liberalization ratio is close to 100% is unlikely to be find acceptance in Thailand while Japan continues to impose a tariff on rice, which is a key export item for that country.

To take this factor into account in this article, we included the concept of liberalization ratios based on the total exports of partner countries. Export-based liberalization ratios are calculated using the following formula.

A’s export-based liberalization ratio =Total value of exports from B to the world that are tariff free in A

× 100Total value of exports from B to the world

On this basis, while Japan (A in the above for-mula) maintains a tariff on rice from Thailand (B), Japan’s liberalization ratio will be reduced by 2%, since rice makes up 2% of Thailand’s exports. Since the purpose of an EPA is to strengthen eco-nomic relations between the partner countries, the liberalization ratios for key export items from the other partner should rise. A high export-based lib-eralization ratio can thus be seen as sign of high-quality trade liberalization in keeping with the

aims of the EPA. Conversely, even if the import-based or tariff-based liberalization ratios are high, a low export-based liberalization ratio suggests the quality of trade liberalization is poor from the perspective of the other partner. In other words, export liberalization ratios indicate the level of af-finity with the other partner’s exports.

However, it can be difficult to calculate export-based liberalization ratios. As with the import-based liberalization ratios, we used data from the World Trade Atlas. Unfortunately, the inclusion of data in greater detail than 6-digit HS codes is left to the discretion of individual countries, which means, for example, that Thailand’s export data (9-digit HS codes) cannot be collated against Ja-pan’s schedule of concessions or effective tariff schedule (9-digit HS codes).

We therefore decided to calculate liberalization ratios using 6-digit HS codes, which are the small-est units used throughout the world. If there were differences in schedules for the reduction/removal of tariffs at a more detailed level than 6-digit HS codes, we calculated liberalization ratios for the fastest and slowest liberalization scenarios. As shown in Fig. 5, we assumed that the fastest lib-eralization scenario for any product will be Cat-egory A (immediate removal), and that the slowest will be Category X (excluded from negotiations). This means that export-based liberalization ratios will fall within such as a range of 85-90%. The results of these calculations are shown in Tables 9 and 10.

Japan’s liberalization ratios are all high at 93.9-94.6% for Malaysia, 91.0-95.5% for Thai-land, and 95.6-96.7% for the Philippines, indicat-ing that Japan’s trade liberalization has a strong affinity with the export mixes of its partners. As

Fig. 5 Export-Based Liberalization Categories

6-digit HS codes 9-digit HS codes

Immediate removal (A)

Product 1Removal in 5th year (B5)

Excluded from negotiations (X)


discussed below, Japan’s liberalization ratios for agricultural goods and foodstuffs are low. How-ever, this does not have the effect of reducing the overall liberalization ratios.

Some see Japan’s high import-based liberaliza-

tion ratios and low tariff-based liberalization ratios as evidence that it has been slow to open its mar-kets and needs to improve market access in the ar-eas of agricultural goods and foodstuffs. However, Japan’s export-based liberalization ratios for the

Table 9 Export-Based Liberalization Ratios Japan’s export-based liberalization ratios (%)

Major Section



1 1-5 38.9～ 57.9 25.4～ 36.2 53.9～ 90.7 3.6～ 40.8 43.2～ 60.7 27.4～ 41.32 6-14 83.0～ 88.4 7.3～ 10.9 17.4～ 31.0 60.6～ 71.4 90.8～ 99.5 0.4～ 3.13 15 19.7～ 22.8 0.0 90.3～ 97.7 0.0 99.8～ 99.9 0.04 16-24 33.7～ 63.6 22.7～ 53.4 30.3～ 77.8 2.1～ 30.9 14.3～ 43.4 10.7～ 36.65 25-27 100.0 0.0 99.9～ 100.0 0.0～ 0.1 45.1 0.06 28-38 99.9 0.1 93.9 0.0 100.0 0.07 39-40 100.0 0.0 100.0 0.0 100.0 0.08 41-43 95.7～ 97.6 2.4～ 4.3 91.0～ 99.7 0.3～ 9.0 63.6～ 96.6 1.1～ 34.29 44-46 59.5 0.0 98.6 0.0 98.6 0.010 47-49 100.0 0.0 100.0 0.0 100.0 0.011 50-63 100.0 0.0 100.0 0.0 100.0 0.012 64-67 32.0～ 89.2 10.8～ 68.0 29.1～ 61.5 38.5～ 70.9 86.7～ 98.0 0.3～ 12.513 68-70 100.0 0.0 100.0 0.0 100.0 0.014 71-72 100.0 0.0 100.0 0.0 100.0 0.015 73-83 100.0 0.0 100.0 0.0 100.0 0.016 84-85 100.0 0.0 100.0 0.0 100.0 0.017 86-89 100.0 0.0 100.0 0.0 100.0 0.018 90-92 100.0 0.0 100.0 0.0 100.0 0.019 93 100.0 0.0 100.0 0.0 100.0 0.020 94-96 100.0 0.0 100.0 0.0 100.0 0.021 97 100.0 0.0 100.0 0.0 100.0 0.0

All 93.9～ 94.6 0.5～ 1.1 91.0～ 95.5 2.6～ 5.8 95.6～ 96.7 0.4～ 1.3

Export-based liberalization ratios of Malaysia, Thailand and the Philippines

Major Section



1 1-5 95.1～ 96.5 3.5～ 3.6 83.3～ 84.3 0.0 100.0 0.0

2 6-14 95.4～ 96.0 2.0 61.4～ 62.6 0.0 98.0 2.03 15 100.0 0.0 56.4 0.0 100.0 0.04 16-24 46.6～ 63.8 29.2 75.9～ 76.7 17.9 100.0 0.05 25-27 100.0 0.0 100.0 0.0 99.8 0.26 28-38 98.9～ 99.7 0.0 99.8 0.0 92.4～ 93.3 0.07 39-40 93.4～ 95.5 0.0 100.0 0.0 74.5～ 87.8 0.08 41-43 35.9～ 83.1 0.0 100.0 0.0 100.0 0.09 44-46 77.6～ 78.3 0.0 99.8 0.0 99.6～ 99.7 0.0

10 47-49 52.3～ 87.1 0.0 100.0 0.0 97.6～ 98.1 0.011 50-63 100.0 0.0 100.0 0.0 99.7～ 100.0 0.012 64-67 31.4～ 39.5 0.0 100.0 0.0 99.9 0.013 68-70 42.1～ 57.9 0.0 100.0 0.0 98.4～ 98.7 0.014 71-72 91.1～ 93.2 0.0 85.6 0.0 91.6 0.015 73-83 70.3～ 81.0 0.0 77.6 0.0 99.9～ 100.0 0.016 84-85 81.4～ 94.8 0.0 97.3 0.0 94.4～ 97.7 0.017 86-89 28.4～ 90.8 0.0 34.9～ 73.6 0.0 38.9～ 57.6 0.018 90-92 99.8 0.0 100.0 0.0 100.0 0.019 93 ― ― 100.0 0.0 100.0 0.020 94-96 62.9～ 87.7 0.0 100.0 0.0 99.6 0.021 97 99.4～ 100.0 0.0 100.0 0.0 100.0 0.0

All 86.3～ 94.1 1.2 93.3～ 94.7 0.6 95.2～ 97.4 0.1



three countries are all over 90%, indicating that trade liberalization under the EPAs has brought significant benefits in terms of facilitating exports from the partner countries.

Rice and shrimps are obviously important ex-port items for Thailand, as are bananas for the Philippines and palm oil for Malaysia. However, Japan’s trading relationships with these countries are not typical of the normal pattern of trade be-tween developed and developing countries, where developed countries export manufactured goods and import agricultural goods. Furthermore, ag-ricultural goods and foodstuffs already make up

a small percentage of total exports (Fig. 6). For example, although Thailand is the world’s biggest exporter of rice, rice accounts for only 2% of its total exports. Trade between Japan and Malaysia, Thailand and the Philippines is in fact based on reciprocal trading of manufactured goods through the production networks of manufacturing indus-tries. This means that Japan’s EPAs can be seen as contributing to the export growth of its partners, at least as far as these three countries are concerned.

The liberalization ratios for the partner coun-tries are 86.3-94.1% for Malaysia, 93.3-94.7% for Thailand, and 95.2-97.4% for the Philippines. Ma-laysia has the widest range of liberalization ratios, and its ratio under the slowest scenario is low at 86.3%. This points to the possibility that Malaysia is still imposing tariffs on detailed categories of manufactured goods and restricting exports from Japan. All three countries have low liberalization ratios for Section 17 (automotive products), at 28.4-90.8% for Malaysia, 34.9-73.6% for Thai-land, and 38.9-57.6% for The Philippines. This indicates that these countries are restricting motor vehicle exports from Japan.

As with the other types of liberalization ra-tios, Japan’s ratios are high immediately after the EPAs take effect, and the ratios rise sharply in

Table 10 Export-Based Liberalization Ratios

Japan’s liberalization ratios (all trade) (%)

Japan-Malaysia EPA

Japan-Thailand EPA


Year 1 89.1～93.4 83.0～92.2 91.1～95.1

Year 2 89.1～93.4 83.0～92.2 91.1～95.1

Year 3 89.1～93.4 83.0～92.2 91.1～95.1

Year 4 89.1～93.4 83.0～92.4 91.1～95.1

Year 5 89.1～93.4 83.0～92.4 91.1～95.1

Year 6 89.8～94.2 88.9～94.0 93.8～95.6

Year 7 89.8～94.2 88.9～94.0 93.8～95.6

Year 8 89.9～94.5 89.7～95.2 94.4～96.1

Year 9 89.9～94.5 89.7～95.2 94.4～96.1

Year 10 90.0～94.5 89.7～95.2 94.4～96.1

Year 11 93.9～94.6 91.0～95.5 95.6～96.7

Subtotal: Excluded

0.5 2.6～5.8 0.4～1.3

Liberalization ratios of partner countries (all trade) (%)

Japan-Malaysia EPA

Japan-Thailand EPA


Year 1 81.3～91.6 58.2～63.3 46.8～55.5

Year 2 81.3～91.6 58.2～63.3 46.8～55.5

Year 3 81.3～91.6 60.1～64.4 46.8～55.5

Year 4 81.4～91.6 73.2～74.7 46.8～55.5

Year 5 81.4～91.6 73.4～74.9 47.2～57.3

Year 6 83.8～92.8 85.3～87.0 78.6～84.8

Year 7 84.0～93.1 85.4～87.1 78.6～84.8

Year 8 84.0～93.1 87.4～88.2 78.6～84.8

Year 9 84.0～93.1 90.3～90.8 78.6～84.8

Year 10 84.5～93.5 90.3～90.8 78.6～84.8

Year 11 86.3～94.1 93.3～94.7 95.2～97.4

Subtotal: Excluded

1.2 0.6 0.1


Fig. 6 Export Ratios for Agricultural Goods and Foodstuffs

Source: ADB, Key Indicators

0

5

10

15

20

25

30

35

1990 92 94 96 98 2000 02 04 06

(%)

Thailand

Malaysia

Philippines

(Calendar years)


the 11th year, especially in the case of the Philip-pines (Table 10). By the 11th year, there is little difference between Japan’s liberalization ratios and those of its partners. This means that Japan is not lagging behind the other countries, and that trade liberalization under the EPAs shows a strong affinity with the export mixes of the partner coun-tries.

VI. Liberalization of Agricultural Goods and Foodstuffs

Some commentators (Kimura [2007]) take the view that while trade liberalization under EPAs has made a significant contribution, Japan’s lib-eralization ratios are far from creditable for a de-veloped economy. From this perspective, further progress toward liberalization will obviously re-quire the liberalization of agricultural goods and foodstuffs.

The Japanese government claims that Japan is also making progress toward liberalization in these areas. For example, information released by the government states that Japan has reached agreement with Malaysia on the immediate re-moval of tariffs on tropical fruit and the provision of a tariff-free quota for bananas, with Thailand on the immediate removal of tariffs on tropical fruit, shrimp and prepared shrimp products, and with the Philippines on the immediate removal of tariffs on seafood, including marlin, and the phased reduction of tariffs on bananas (specified varieties only), leading to full removal in the 11th year. However, the level of liberalization that has been achieved in the area of agricultural goods is not entirely clear.

To clarify this situation, we calculated all three liberalization ratios just for agricultural goods and foodstuffs. The calculations are based on items in-cluded under HS Codes 01-11 and 16-24, accord-ing to the standards of the Japan External Trade Organization (JETRO). Japan’s import-based lib-eralization ratios in the 11th year are 71.2% for Malaysia, 53.1% for Thailand, and 80.7% for the Philippines (Figures 7, 8). The ratio for the Phil-ippines shows a particularly conspicuous rise,

0

10

20

30

40

50

60

70

80

90

100

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA


(%)

(Year)

0

10

20

30

40

50

60

70

80

90

100

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA


(%)

(Year)

Fig. 7 Import-Based Liberalization Ratios for Japan (Agricultural Goods, Foodstuffs)

Fig. 8 Import-Based Liberalization Ratios for Partner Countries (Agricultural Goods, Foodstuffs)




increasing 60 points from 21.0% to 80.7% in the 11th year. This reflects the removal of tariffs on bananas, which make up 60% of imports of agri-cultural goods and foodstuffs from the Philippines, in the 11th year. The fact that the liberalization ratio for Malaysia is relatively high immediately after effectuation is explained by the removal of tariffs on key imports from that country, including cut flowers, shrimp and cocoa butter.

The partner countries all have higher liberal-ization ratios than Japan, at 80.7% for Malaysia, 84.1% for Thailand, and 99.1% for the Philip-pines. However, the ratio for the Philippines climbs from 10.4% to 99.1% in the 11th year. By the 11th year, Japan’s liberalization ratio for agri-cultural goods and foodstuffs is lower than the ra-tios of its partners, and by a wider margin than for all trade. As noted earlier in this article, import-based liberalization ratios do not reflect delays in liberalization in product categories in which the value of imports is currently low due to the im-position of high tariffs. It is important to recog-nize that this factor results in an overestimation of Japan’s liberalization of imports of agricultural goods and foodstuffs.

This becomes clearer when we look at tariff-based liberalization ratios. Although liberaliza-tion ratios rise gradually on both sides, the levels are extremely low (Figures 9, 10). Japan’s liber-alization ratios are 44.9% for Malaysia, 54.2% for Thailand, and 52% for the Philippines. This is because Japan’s imports reflect Japan’s stance of liberalizing in some areas while maintaining restrictions on certain items. Further evidence of this can be found in the large number of items that excluded from negotiations (Category X) on the Japanese side, the ratios for which are 41.2% for Malaysia, 31.6% for Thailand and 30.6% for the Philippines. The ratios for the partner countries are significantly lower, at 7.5% for Malaysia, 2.2% for Thailand and 1.7% for the Philippines. This difference is indicative of Japan’s reluctance to liberalize agricultural goods and foodstuffs under EPAs.

The export-based liberalization ratios for the partner countries are higher than the import-based ratios, at 92.4% for Malaysia, 89.7% for Thai-

0

10

20

30

40

50

60

70

80

90

100

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA


(%)

(Year)

0

10

20

30

40

50

60

70

80

90

100

1 3 5 7 9 11

Japan-Malaysia EPA

Japan-Thailand EPA


(Year)

(%)

Fig. 9 Tariff-Based Liberalization Ratios for Japan (Agricultural Goods, Foodstuffs)

Fig. 10 Tariff-Based Liberalization Ratios for Partner Countries (Agricultural Goods, Foodstuffs)




land and 98.3% for the Philippines. Thailand and the Philippines start with low ratios of 22.1% and 33.0% respectively in the first year but sub-sequently phase out tariffs. Japan’s tariff-based liberalization ratios are also lower than those of its partners, and the gap is larger than with the im-port-based ratios.

An analysis of export-based liberalization ra-tios provides clear evidence of Japan’s reluctance to liberalize in the areas of agricultural goods and foodstuffs. The gap in liberalization ratios is wide

compared with ratios for all trade (Table 11). In the 11th year the liberalization ratios on the Japa-nese side are 9.0-60.2% for Malaysia, 19.6-65.9% for Thailand, and 51.2-69.2% for the Philippines. The ranges are especially wide for Malaysia and Thailand, and under the slowest liberalization scenario, the ratios would be 9.0% for Malaysia, 29.7% for Thailand, and 51.2% for the Philippines Even under the most advanced liberalization sce-nario, none would exceed 70%.

The partner countries have higher export-based liberalization ratios than Japan, at 76.0-83.4% for Malaysia, 69.1-70.1% for Thailand, and 99.4% for the Philippines. Japan’s exports of agricul-tural goods are minimal, and imports from Japan have little impact on the agricultural sector in its partner countries. However, there is considerable room for improvement on the Japanese side.

Overall, the situation is that, even under EPAs that are compatible with the export mixes of part-ner countries, Japan is limiting imports of agri-cultural items and foodstuffs, which are areas in those partners are competitive. Another problem is Japan’s stance toward negotiations on the liber-alization of agricultural goods and foodstuffs. For example, most of the items that Japan excludes from negotiations are in these categories. Of the 840 items excluded from negotiations under Ja-pan’s EPA with Malaysia, 752 are agricultural goods and foodstuffs. In the case of Thailand, 572 of the 645 excluded items are these categories, while the figures for Philippines are 559 out of 640.

Conclusions

In this article we have used liberalization ratios calculated using three different methods to ex-amine liberalization under EPAs with Malaysia, Thailand and the Philippines. The overall conclu-sions that emerge from this analysis are that EPAs have brought progress toward trade liberalization in Japan, that liberalization ratios are high—espe-cially export-based liberalization ratios calculated to reflect the export mixes of partner countries, and that EPAs have been beneficial, at least as far as the three countries studied in this article are

Table 11 Export-Based Liberalization Ratios (Agricultural Goods and Foodstuffs)

Japan’s liberalization ratios (%)

Japan-Malaysia EPA

Japan-Thailand EPA


Year 1 7.5～ 49.6 12.0～ 44.7 17.1～ 45.8

Year 2 7.5～ 49.6 12.0～ 44.7 17.1～ 45.8

Year 3 7.5～ 49.6 12.0～ 44.7 17.1～ 45.8

Year 4 7.5～ 49.6 12.0～ 44.7 17.1～ 45.8

Year 5 7.5～ 49.6 12.0～ 44.7 17.1～ 45.8

Year 6 8.4～ 52.3 21.7～ 60.1 21.5～ 55.8

Year 7 8.4～ 52.3 21.7～ 60.1 21.5～ 55.8

Year 8 8.7～ 59.4 24.8～ 65.4 32.1～ 66.4

Year 9 8.7～ 59.4 24.8～ 65.4 32.1～ 66.4

Year 10 8.7～ 59.4 24.8～ 65.4 32.1～ 66.4

Year 11 9.0～ 60.2 29.7～ 65.9 51.2～ 69.2

Subtotal: Excluded

21.8～ 44.9 19.6～ 44.6 11.7～ 22.6

Liberalization ratios of partner countries (%)

Japan-Malaysia EPA

Japan-Thailand EPA


Year 1 64.3～ 80.7 17.1～ 17.2 23.3～ 27.0

Year 2 64.3～ 80.7 17.1～ 17.2 23.3～ 27.0

Year 3 64.3～ 80.7 18.9～ 19.0 23.3～ 27.0

Year 4 64.3～ 80.7 27.0～ 27.8 23.3～ 27.0

Year 5 64.3～ 80.7 29.3～ 29.7 23.3～ 27.0

Year 6 75.9～ 83.4 42.1～ 42.5 23.3～ 27.0

Year 7 75.9～ 83.4 43.6～ 44.0 23.3～ 27.0

Year 8 75.9～ 83.4 45.5～ 45.9 23.3～ 27.0

Year 9 75.9～ 83.4 63.1～ 63.5 23.3～ 27.0

Year 10 75.9～ 83.4 63.1～ 63.5 23.3～ 27.0

Year 11 76.0～ 83.4 69.1～ 70.1 99.4

Subtotal: Excluded

13.3 6.9 0.6



concerned. Although the liberalization ratios of these partner countries are low immediately after their EPAs take effect, they are least above 85% by the 11th year. Given the wide income gaps be-tween the partner countries and Japan(9), the fact that these EPAs could even be drafted can also be seen as a tribute to the negotiating skills of the Japanese government.

While Japan’s high import-based liberalization ratios are laudable, further improvement in liber-alization ratios will require the liberalization of agricultural goods and foodstuffs. There is clear evidence that liberalization ratios are especially low in these areas, and that the Japanese govern-ment has maintained a negative stance toward im-ports of these items. Of course, Japan’s imports of agricultural goods and foodstuffs need to be considered not only from the perspective of trade liberalization, but also in the context of agricultur-al reform within Japan. However, to ensure food security, Japan needs not only to increase domes-tic production, but also to establish reliable sup-ply routes from neighboring countries, including ASEAN members.

Japan aims to provide leadership for economic integration in East Asia. The time has come for it to clarify its stance on the region’s agricultural problems in both domestic and international fo-rums, and to explain why so many items are ex-cluded from negotiations, and why its liberaliza-tion ratios for agricultural goods and foodstuffs are lower than those of its partners.


End Notes

1 For the sake of convenience, the Japanese Ministry of Foreign Affairs publishes Japanese translations of schedules of concessions relating to Japan’s trade lib-eralization. However, other countries publish their schedules of concessions only in the original language (English). Given that one of the benefits of EPAs is to open up markets and promote exports, the translation of partner countries’ schedules of concessions into Ja-pan should be treated as urgent.

2. This means within six years of effectuation.

3. In Thailand’s schedule of concessions, the import quota for steel is shown as (P) rather than this category.

4. The schedule of concessions resulting from this revi-sion can be found at http://www.mof.go.jp/jouhou/kan-zei/fta_epa/gaiyou/chui.htm.

5. Progress toward liberalization is also measured using average tariff rates.

6. Also included in the calculations were steel, for which Thailand will remove its import quota in the 11th year, and automotive products, for which the Philippines will remove tariffs in 2010.

7. These were downloaded from the World Tariff Data Base (http://www.jetro.go.jp/biz/tariff/).

8. However, the strength of both countries’ commitment to liberalization is apparent from the fact that Thai-land’s liberalization ratio before the EPA took effect was 3.9%, and that for the Philippines 3.1%.

9. Japan’s per capita GDP in 2006 was $34,000, com-pared with $5,807 in Malaysia, $3,279 in Thailand, and $1,345 in the Philippines.


References

1. Ito, T. (2007), Gurobaruka no Katsuryoku wo Seicho e [Harnessing Globalization to Growth], in Cabinet Of-fice, Government of Japan, EPS Gurobaruka Kaikaku [EPS Globalization Reforms], August 2007, No. 424.

2. Urata, S. (2007), Nippon ni Totte no FTA no Igi to Ka-dai [The Significance and Issues of FTAs for Japan], in Urata, S., Ishikawa, K., Mizuno, R., ed., FTA Gaid-obukku 2007 [FTA Guidebook 2007], JETRO.

3. Economic Policy Division, Ministry of Foreign Affairs, Japan (2007), Nippon no Keizai Renkei Kyotei (EPA) Kosho—Genjo to Kadai [Japan’s EPA Negotiations—Current Situation and Issues] (downloaded in August 2007).

4. Subcouncil on Tariffs of the Council on Customs, Tar-iff, Foreign Exchange and Other Transactions, Customs and Tariffs Bureau, Ministry of Finance, Japan (2007), Saikin no Kanzei wo Meguru Kokusaiteki Shomondai ni Tsuite [Recent International Problems Relating to Tariffs].

5. Kimura, F. (2007), Nippon no EPA ni Okeru Boeki Ji-yuka Suijun to Kongo no Tenbo [Current and Future Trade Liberalization Levels under Japan’s EPAs], in Cabinet Office, Government of Japan, EPS Gurobaruka Kaikaku [EPS Globalization Reforms], August 2007, No. 424.

6. Kimura, F. (2008), ASEAN Shudo no Higashi-Ajia Keizai Togo to Kokusai Tsusho Seisaku no Arata na Choryu [ASEAN-Led Economic Integration in East Asia and New Trends in International Trade Policy], in Sekai Keizai Hyoron, January 2008.

7. Hisano, S., Kimura, F. (2007), Nippon no Keizai Renkei Kyotei (EPA) ni Okeru Boeki Jiyuka Suijun no Hyoka [Assessing Economic Liberalization Levels in Japan’s EPAs].

8. JETRO (2007), Yoku Wakaru EPA/FTA (Kanzei Bunya) [Understanding EPAs/FTAs (Tariff Categories), 2007 edition.

9. Globalization Working Group, Council on Economic and Fiscal Policy (2007), Gurobaruka Kaikaku Senmon Chosakai Dai-Ichiji Hokoku—Gurobaruka no Kat-suryoku o Seicho e [First Report of the Expert Group on Globalization Reform—Harnessing Globalization to Growth], (Downloaded March 2008).

10. Mizuno, R., (2007) FTA to ha Nani ka [What is an FTA?] in Urata S., Ishikawa, K., Mizuno, R. ed., FTA Gaidobukku [FTA Guidebook], JETRO.

11. Watanabe, Y., Negotiating Team, Economic Policy Division, Ministry of Foreign Affairs, Japan (2007), Kaisetsu: FTA/EPA Kosho [FTA/EPA Negotiations Ex-plained], Nippon Keizai Hyoronsha.

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