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OVERVIEW

Establishment of Disciplines on Formation of Economic Partnerships

Reasons for Discussing Economic Partnership Agreements in this Report

Recently, the number of Free Trade Agreements (“FTAs”) and Economic Partnership Agreements (“EPAs”) entered into has been rapidly increasing. The number of notifications to the WTO regarding FTAs/EPAs that were in force sharply increased from 27 in 1990 to 261 in 2009（9/30）. 1

Such rapid increase in FTAs/EPAs can be attributed to several factors. It is likely that the establishment of the EU and its expansion inspired the establishment of NAFTA and AFTA (the ASEAN Free Trade Area). The establishment of a customs union or an FTA/EPA gives non-member countries that are disadvantaged thereby an incentive to enter into a regional trade agreement with such customs union or FTA/EPA. With respect to countries such as Singapore, Mexico, or Chile, which have entered into FTAs/EPAs with relatively many countries, the extent of the disadvantage in competition to non-member countries becomes large; and therefore, the incentive for non-member countries to enter into regional trade agreements is likely to be greater. Thus, the FTA/EPA network expands through a snowball effect. It is attractive for countries to enter into a regional trade agreement with an FTA/EPA which consists of a large economic area (i.e., AFTA, which came into effect in 1993). East Asia is experiencing a trend of economic partnership, where, in addition to China-ASEAN, which already is in effect (Agreement on Trade in Goods came into effect in 2005), Korea-ASEAN, which is already signed (Agreement on Trade in Goods signed in 2007), and Japan-ASEAN (which came into effect in January 2008), India-ASEAN (Agreement on Trade in Goods) and Australia-New Zealand-ASEAN came into effect in January 2010 (See the next section “Global Trends of Economic Partnership” for global trends in FTAs/EPAs.) Thus, taking a global view, the trend of developing regional trade agreements in the big three trade areas (centering on the United States, EU, and Asia), and the

It is also believed that there are many FTAs/EPAs that are not notified to the WTO. We presume that such increase in the number of FTAs/EPAs goes beyond the intentions of the drafters of GATT, which considered FTAs and customs unions as exceptions.

1 http://www.wto.org/english/tratop_e/region_e/regfac_e.htm.

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trend of regional cooperation advancing in the Asia Pacific region with APEC as an axis, are expected to complement the WTO framework for multilateral trade liberalization and ultimately contribute to the liberalization of trade and investment throughout the world.

As indicated above, the efforts toward multilateral trade policies in the WTO and the efforts for bilateral agreements in EPAs are complementary. However, subject to international economic rules, under the WTO framework (which sets forth most-favored nation treatment as the primary principle), EPAs (which provide for special agreements for certain areas) are persistently positioned as an exception. In addition, GATT and GATS provide requirements relating to establishing FTAs for goods and for the purpose of preventing FTAs from eroding the WTO’s multilateral trade framework. (See Part II, Chapter 15 “Regional Trade Agreements”.)

Japan has been aggressively attempting to enter into EPAs since the Japan-Singapore EPA, which came into effect in 2002. If FTAs are strictly understood to eliminate import duties on goods or liberalize trade in services within the region, the EPA concept may more widely include maintenance of the investment environment, reinforcement of intellectual property protection, technical cooperation, and the like. Furthermore, Bilateral Investment Treaties (BITs), which are part of EPAs and provide for investment protection, liberalization, transparency, and so forth, have been increasing globally. Japan has accelerated its efforts to conclude BITs in recent years.

Focusing on investment treaties, there were said to be 2,676 BITs in the world as of the end of 2008.2 As of July 2009 , Germany, China, Switzerland, the United Kingdom and the United States had entered into 135, 123, 113, 105 and 47 BITs respectively.3

While Parts I and II of this Report assess trade policies of major countries from the viewpoint of rights and obligations under the WTO Agreements, it is important to focus also on securing national governments' compliance with rules provided by the rapidly increasing number of FTAs/EPAs and BITs and ensuring their consistency with the WTO Agreements. Part III explains the contents of the disciplines for international economic rules and examines relevant measures taken in each country, regarding FTAs/EPAs and BITs that Japan has concluded. It also introduces recent examples of FTAs/BTAs and BITs signed between third-party countries.

Many BITs provide investment-related terms as part of FTAs/EPAs. In addition, although under the WTO Agreements, the TRIMS Agreement and GATS regulate measures related to investment to a limited extent, it is important, as with FTAs/EPAs, to secure compliance with investment treaties and to secure harmonization of such investment treaties with the WTO Agreements.

2 UNCTAD Recent developments in international investment agreements (2006 – June 2007) 3 http://www.unctad.org/Templates/Page.asp?intItemID=2344&lang=1

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Global Trends of Economic Partnership (as of February2010) (1) Global Trends

Since the 1990s, regional integration has accelerated, and the number of regional trade agreements (including free trade agreements (“FTAs”)) notified to the World Trade Organization (“WTO”) that were in force reached 261 as of September 30, 2009, rising from 27 in 1990. Since the Seattle WTO Ministerial Conference, new trends have emerged with regard to FTAs and EPAs.

Following the collapse of the non-western cold war regimes, and with the pursuit of a new international economic system, western countries began accelerating regional integration. With the establishment of a single market through the intra-regional market integration plan within the European Economic Community (“EEC”) (1992) and the inauguration of the North America Free Trade Agreement (“NAFTA”) (1994), European and North American countries actively promoted efforts aimed at: (i) increased corporate income through market expansion and productivity improvements;, and (ii) economic structural reforms through high-level trade and investment liberalization and facilitation with those neighboring regions with which they had close economic relationships.

The breakdown of the Seattle WTO Ministerial Conference (1999) revealed the difficulties of promoting multilateral free trade within the WTO, and further accelerated the trend of pursuing bilateral or regional FTAs and EPAs. Since the meeting, new trends have emerged with regard to FTAs and EPAs.

First, there were more agreements involving, not only the elimination of tariff and non-tariff barriers to trade, but also the establishment of rules in new areas (such as investment, competition, environment, economic cooperation and the movement of natural persons). (One such example is the fact that Japan has concluded wide-ranging EPAs covering matters such as the elimination of border controls and domestic restrictions and the reconciliation of various economic frameworks to further liberalize and facilitate the movement of goods, services, persons, and capital.) An advantage of FTAs/EPAs over WTO multilateral negotiations is that, under FTAs/EPAs, it is possible to establish international economic rules promptly and flexibly while taking into consideration actual economic conditions among the contracting parties with respect to the rules of various areas that are not covered by WTO agreements.

A second feature of recent FTAs/EPAs is that they are likely to be among countries and regions that are not neighbors for example, the EU-Mexico FTA, EFTA-Mexico FTA, Korea-Chile FTA and EU-South Africa FTA. We presume that the motivations underlying such FTAs/EPAs between non-neighboring countries are to: (i) function as a trade “hub” by obtaining favorable conditions in connection with access to economically important countries/regions; (ii) increase employment by enhancing the attractiveness of a member country as a target for investment; and (iii) remove disadvantages that would exist in the absence of an FTA/EPA.

A third feature is that “regional integration”-type FTAs/EPAs have increased. Certain trends in “regional integration” type FTAs/EPAs can also be seen. Remarkable progress has been made in the Americas after the breakdown of the Cancun WTO Ministerial Conference (September 2003). In November 2003, 34 countries in the Americas agreed on a framework

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to establish the Free Trade Area of the Americas (“FTAA”) (negotiation thereof is currently suspended). In December 2003, the Southern Cone Common Market and the Andean Community (the “MERCOSUR/MERCOSUL”) signed a framework agreement aiming to establish free trade areas (currently in the process of being ratified). The FTA between the United States and five Central American countries and the Dominican Republic (“CAFTA-DR,”) was signed in August 2004 and has since come into effect.

In East Asia, where efforts had previously stalled, regional integration is rapidly progressing. This is especially true for the Association of Southeast Asian Nations (“ASEAN”). With regard to ASEAN intra-regional trade, promotion of the “ASEAN Free Trade Area” was agreed upon in 1992 and tariff reduction commenced the following year. There are plans to establish an economic community among member countries of the ASEAN by 2015. Moreover, the “ASEAN Charter” came into effect in December 2008. With the charter maintaining the principles of “consensus” and “non-intervention” and the ASEAN countries agreeing on the establishment of the “ASEAN Human Rights Organization,” it can be said that regional integration in East Asia has entered a new phase of sharing the same values. In February 2009, the “ASEAN Trade in Goods Agreement (ATIGA)” was signed, replacing the CEPT Agreement (See 3) (a) below), as was the “ASEAN Comprehensive Investment Agreement (ACIA),” which integrated and revised the ASEAN Agreement on the Promotion and Protection of Investments (IGA).” The “ASEAN investment region framework agreement,” was also signed. On January 1, 2010, six ASEAN countries (Brunei, Thailand, Malaysia, Indonesia, Singapore, and the Philippines) totally eliminated intra-regional tariffs. ASEAN countries have also actively promoted efforts with non-ASEAN member countries and regions. ASEAN and China began to reduce tariffs in July 2005 based on the “Agreement on Trade in Goods,” and, as of January 2010, eliminated tariffs on 90% of ASEAN goods covered by the agreement. In July 2007, “Agreement on Trade in Services” came into effect, and in August 2009 the “ASEAN-China Investment Agreement” was signed. ASEAN and the Republic of Korea began to reduce tariffs in June 2007 based on the “Agreement on Trade in Goods,” which was signed in August 2006. In November 2007, ASEAN countries (with the exception of Thailand) signed an “Agreement on Trade in Services” with the Republic of Korea and the agreement came into effect in May 2009. Thailand and the Republic of Korea signed protocols for agreements on trade in goods and agreements on trade in services in February 2009. In June, a Korea-ASEAN investment agreement was signed. Furthermore, an agreement on trade in goods with India and an FTA with Australia and New Zealand (Australia New Zealand Free Trade Agreement (CER Agreement)) came into effect.

Japan’s EPA with ASEAN came into effect in December 2008. Japan also focuses on bilateral EPAs with ASEAN countries; EPAs with Singapore, Malaysia, Thailand, Brunei, Indonesia, the Philippines and Vietnam are already in force. (See “3. Efforts in Japan.”)

In East Asia, various efforts to establish broad regional economic partnerships are being made in a multi-layered manner through the following frameworks: ASEAN+1 (as mentioned earlier), ASEAN+3 (ASEAN plus Japan, China and the Republic of Korea), and ASEAN+6 (ASEAN+3 plus India, Australia and New Zealand). (See ➂ (d), (i) (ii) below)

In the Asia-Pacific region, a comprehensive quadripartite agreement among New Zealand, Singapore, Brunei and Chile (Trans-Pacific Strategic Economic Partnership (TPP)) came into effect in November 2006.

Because of the progress of efforts regarding regional integration in the regions of the American States, East Asia, Oceania, and so on, the Best Practices for FTAs was adopted at the APEC Ministerial Meeting held in November 2004. FTAs entered into by the APEC

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member countries are expected to be consistent with both APEC’s principles and the WTO Agreements (featuring comprehensiveness, transparency, trade facilitation, and the like). In addition, in November 2006, a plan to establish a free trade area in the Asia-Pacific region (FTAAP) was proposed at the APEC Economic Leaders Meeting, stimulating discussions on regional economic integration in the area. In 2007, methods for promoting regional economic integration were reported to the APEC leaders and they agreed to examine existing bilateral and multilateral FTAs in the Asia-Pacific region. In the following year, a progress report was submitted to the APEC summit in 2008. Regarding the TPP, the United States announced in September 2008 that it would expand the scope of negotiations to all fields, and Australia and Peru announced their intention to take part in negotiations at a meeting of APEC leaders held in Peru in November. Later, Vietnam expressed its intention to participate in the negotiations in the future.

(2) Summary of Major Regional Integration and Trends in Individual Countries 1) The Americas

(a) Overview of the North American Free Trade Agreement (“NAFTA”)

NAFTA, the regional FTA between Canada, the United States and Mexico), was signed in December 1992 and came into effect in January 1994. This agreement provides for the regulation of commerce in goods and services (including the elimination of intra-regional tariffs and quantitative restrictions, and the unification of rules of origin), and rules in respect of investment, intellectual property, and competition policies. NAFTA has been reinforcing relationships with Latin American countries. All three NAFTA member countries have entered into FTAs with Chile.

(b) Overview of the Free Trade Area of the Americas (FTAA)

The idea behind the FTAA is to establish a free trade area among the 34 countries in the Americas (excluding Cuba). These countries negotiated with the aim of concluding an agreement by December 2005. Negotiations progressed slowly because Brazil opposed the treatment of investment, intellectual property rights, labor, the environment, and other areas supported by the United States, and because the United States opposed the elimination of agricultural subsidies, which MERCOSUR/MERCOSUL demanded, claiming that this should be dealt with under the WTO framework. At the Miami Ministerial Conference in November 2003, the FTAA participant countries agreed to aim for the conclusion of FTAA Light, which was to provide for minimal obligations to be applied commonly to all the agreeing countries, and required individual negotiation between countries for liberalization beyond such requirements. However, the discussions regarding the negotiation method for FTAA Light reached a deadlock at the 17th Trade Negotiations Committee in February 2004, and were suspended. No substantial negotiations have been conducted thereafter.

At the Summit Implementation Review Group (SIRG) of the Summit of the Americas (34 American countries excluding Cuba) held in Mar del Plata in November 2005, MERCOSUR/MERCOSUL opposed promotion of the FTAA stating that there were differences in economic strength within the Americas, and therefore the conditions necessary

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for a fair FTAA did not exist. Venezuela also rejected the idea of an FTAA and insisted that a program different from the FTAA should be pursued. Consequently, FTAA negotiations have ceased, and it is unknown if or when they will restart.

(c) Overview of the Southern Cone Common Market (MERCOSUR/MERCOSUL: Mercado Comun del Sur/Mercado Comun du Sul)

MERCOSUR/MERCOSUL, which came into effect in January 1995, is a customs union of five countries - Brazil, Argentina, Uruguay, Paraguay, and Venezuela. Venezuela was required to adopt the common external tariff and to eliminate its intra-regional tariffs. It entered into the “Acuerdos de Complementación Económica” (Economic Complementarity Agreements) with Chile and Bolivia in 1996, with Peru in 2003, and with Colombia and Ecuador in 2004, each such country being an associate member of MERCOSUR/MERCOSUL. There is currently an initiative to include Mexico as an associate member of MERCOSUR/MERCOSUL.

With respect to the integration of MERCOSUR/MERCOSUL, Uruguay and Paraguay have expressed dissatisfaction with the imbalance within the region, stating that they have not been able to enjoy the benefits of MERCOSUR/MERCOSUL. Uruguay is independently seeking FTAs with the United States, China, India, and others. Furthermore, taking into account Venezuela’s entry into MERCOSUR/MERCOSUL, which appears primarily politically motivated, MERCOSUR/MERCOSUL is now facing questions of how it should maintain, expand, and cultivate integration.

FTA negotiations between MERCOSUR/MERCOSUL and the EU reached a deadlock with respect to the treatment of agricultural products, but at the EU-Mercosur Ministerial meeting of September 2005 it was agreed that the negotiations would continue. However, no substantial negotiations have occurred. Many believe that this situation exists because both sides decided to watch the progress of the agricultural negotiation in the WTO rather than continue the FTA negotiations. MERCOSUR/MERCOSUL and the Andean Community entered into an FTA in December 2003, and at the MERCOSUR/MERCOSUL summit meeting in June 2005, it was confirmed that members of each agreement would treat the members of the other agreement as associate member countries, reinforcing the South American common market. In addition, an FTA negotiation between MERCOSUR/MERCOSUL and Israel has been underway since December 2007, and efforts for possible future FTA negotiations are being made through Preferential Trade Agreements (PTAs) negotiations and cooperative research with China, the Republic of Korea, India, Pakistan, the Gulf Cooperation Council (“GCC,” the members of which are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates), Egypt, Morocco, Canada, Mexico, Panama, Cuba, the Commonwealth of Dominica, the Central American Integration System (“SICA” - Sistema de la Integración Centroamericana; comprised of Guatemala, El Salvador, Costa Rica, Nicaragua, Honduras, Panama, and Belize), and the Caribbean Community (“CARICOM”; comprised of 14 Caribbean countries and one region).

With respect to MERCOSUR/MERCOSUL’s member countries’ relationships with Japan, at its 11th meeting in May 2005, the Japan-Brazil Economic Cooperation Committee released a Joint Communiqué regarding the establishment of a joint workshop for a Japan-Brazil EPA. The economic organizations of both countries (Nippon Keidanren (Japan Business Federation) and Brazilian National Confederation of Industry) agreed to make efforts to execute a Japan-Brazil EPA. The Japan-Argentina FTA workshop of the Japan

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Chamber of Commerce and Industry in Argentina and the Japanese Commission of the Japan-Argentina Economic Commission submitted a request for early execution of the Japan-MERCOSUR/MERCOSUL FTA to the Japanese government in March 2004.

(d) Overview of the Andean Community (“CAN” - Comunidad Andina)

The Andean Community, established in 1996 by a reorganization of the Andean Subregional Integration Agreement (which came into effect in 1969), is a customs union consisting of: Colombia, Peru, Bolivia and Ecuador. Venezuela announced its withdrawal in April 2006, but the commerce-related system has remained in force and continues to apply to Venezuela for five years from the date of its withdrawal. MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay) joined the CAN as associate members in July 2005. Chile joined the CAN as an associate member in September 2006.

Colombia, Bolivia and Ecuador eliminated intra-regional tariffs by 1993. Peru commenced reductions of tariffs in 1997 and achieved complete elimination thereof at the end of December 2005. The free trade area started in January 2006.

Under CAN, a new common external tariff with four levels was planned to be applied by 2004, but the discussion temporarily stalled due to conflicting interests among the member countries, and due to Colombia, Peru, and Ecuador conducting FTA negotiations with the United States. Agreement was reached to suspend the implementation of common external tariffs until January 31, 2008.

In June 2006 at their summit, the four member countries of CAN signed a letter addressed to the head of EU, requesting the commencement of negotiations for an EPA; and they have been conducting negotiations for conclusion of an FTA since September 2007. In November of 2006, Colombia signed FTAs with the United States and in February 2009 the Peru-U.S. FTA came into force. However, Ecuador’s negotiations with the United were suspended due to the cancellation of a concession agreement with a United States petroleum company, which occurred in May 2006.

(e) Major Movements of Countries Regarding Regional Integration (i) United States

Prior to the establishment of the Trade Act of 2002 (which included Trade Promotion Authority (TPA)), the U.S. had entered into only two FTAs (Israel in 1995; and Jordan in 2000) and the North America Free Trade Agreement (NAFTA). Since then, the U.S. has signed FTAs with Chile, Singapore, Australia, Morocco and Bahrain. This trend has been accelerating following the failure to reach an interim agreement on the Doha Development Agenda at the Cancun WTO Ministerial Conference in September 2003. The United States does not consider FTAs merely from the economic viewpoint of trade liberalization, but also as tools to establish political alliances both to support countries emerging from poverty and to conduct economic reform and implement security and anti-terrorism measures. The United States has shown its intention to enter into FTAs on a global scale, covering areas such as Latin America, Asia/Oceania, the Middle East and Africa.

The United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua signed the CAFTA-DR in August 2004. FTAs with the six countries are now in force as the FTA with Costa Rica came into effect in January 2009.

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Negotiations were completed with respect to an FTA with Oman in January 2009． With respect to FTAs with the Andean countries, the FTA with Peru was signed on April , 2006; and the FTA with Colombia was signed in November 2006. Negotiations with Ecuador were suspended in May 2006.

The U.S. completed negotiations for FTA’s with Panama and the Republic of Korea in 2007. All are currently pending Congressional approval.

The following FTAs are under negotiation: the FTAA (the 34 countries of the Americas, excluding Cuba); the Southern African Custom Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland); and FTAs with Thailand, Malaysia and the United Arab Emirates. In November 2006, the United States proposed the establishment of a free trade area in the Asia Pacific region (FTAAP), and in September 2008 the country announced that it would launch negotiations to participate in the Trans-Pacific Strategic Economic Partnership (TPP: Singapore, New Zealand, Brunei, Chile) in all fields(See 3) (d), (iii) for FTAAP trends). President Barack Obama announced his involvement in the TPP in November 2009, and notified the Congress of the start of negotiations in December. The first negotiation meeting is slated for March 2010.

(ii) Mexico

In addition to the Japan-Mexico EPA, which came into effect in April 2005, Mexico has entered into FTAs with the United States, Canada, the EU (see the section referring to the EU), EFTA, Israel, and some Latin American countries. Mexico also agreed with the Republic of Korea to complete a “Strategic Economic Complementation Agreement” in September 2005. The two countries began negotiations in February 2006 but failed to make progress in three rounds of negotiations that ended in June 2006, as the Republic of Korea was focusing on its FTA negotiations with the United States. However, after the inauguration of the new government led by President Felipe Calderon in December 2006, Mexican trade policy has become more open and in August 2007 Mexico and the Korea announced that they have agreed to upgrade the “Strategic Economic Complementation Agreement” and to commence negotiations for conclusion of an FTA.

(iii) Chile

Chile has FTAs in effect with Canada, Mexico, Costa Rica, El Salvador, the EU, the United States, the Republic of Korea, EFTA, China, Panama, Peru and Colombia, Australia; an economic framework agreement with the EU and the P4 (Singapore, New Zealand and Brunei), and Economic Complementarity Agreements or partial tariff agreements with other Latin American countries and India. Chile signed an FTA with Turkey in July 2009 and has also commenced negotiations with Malaysia and Vietnam.

Negotiation for entering into an EPA with Japan commenced in February 2006 and an agreement in such respect was signed by Chile and Japan in March 2007 and came into effect in September the same year.

2) Europe (a) Overview of the European Union (EU)

The EEC, which was established in January 1958 by the Treaty of Rome, aimed to establish a common market, and led to a customs union and common agricultural policy by

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1968. Following the elimination of intra-regional barriers to trade and liberalization of the movement of “goods, persons, services and capital,” the Treaty of Maastricht (which promotes economic/currency integration as well as integration in political phases) came into effect in November 1993, and the European Union (“EU”) (consisting of 12 countries) was born. In January 1995, Austria, Finland, and Sweden joined the EU and the number of member states became 15. In addition, the Treaty of Amsterdam and the Treaty of Nice, which were amendments to the Treaty of Maastricht, came into effect in May 1995 and February 2003, respectively. Ten countries, mainly from Central and Eastern Europe (Poland, Hungary, Czech, Slovakia, Slovenia, Estonia, Lithuania, Latvia, Cyprus, and Malta), joined the EU and became official member states thereof in May 2004. Negotiations for the membership of Croatia and Turkey commenced in October 2005. Romania and Bulgaria joined the EU and became member states thereof in January 2007, bringing the EU to a 27 country regime.

As part of the steadily expanding EU, the Treaty Establishing the Constitution for Europe was adopted in 2004 with the purpose of maintaining forward momentum and deepening integration. In October of the same year, that Treaty was signed by all EU member states. Each member state was then to ratify the Treaty, subject to its domestic laws, but referendums in France and the Netherlands rejected ratification of the Treaty. Accordingly, in June 2007, member states agreed to draft a Reform Treaty which basically maintains the content of the Constitution of Europe while excluding elements peculiar to a “Constitution”. At the informal European Summit in June 2007 the Reform Treaty was adopted. The Treaty came into effect on December 1, 2009 after going through the process of ratification by all member countries.

(b) Trends of the EU Regarding New FTAs

The EU has actively promoted FTAs with neighboring countries. In January 1994, the EU established the European Economic Area (“EEA”) with the EFTA Member States (Norway, Iceland and Liechtenstein, excluding Switzerland), and then non-member states of the EU Sweden, Finland, and Austria, with the intention of “reinforcing and expanding cooperation in the areas of free movement of persons, goods, capital, and services; research and development; environment; and so forth.” This was broader in scope than a free trade area.

The EU is increasing its efforts to reinforce economic relationships with the Mediterranean countries. To replace the agreements entered into in the 1970s, the EU is advancing negotiations for new FTAs with the Mediterranean countries. These agreements will provide for trade liberalization, and liberalization of investment and services. The EU is aiming to establish a free trade area with the Mediterranean countries by 2010.

There is also a trend to establish regional cooperation relationships in wide areas with member countries other than neighboring Member countries.

The EU and the 77 countries of the African, Caribbean and Pacific states (the ACP states) entered into the Cotonou Agreement in June 2000. It replaced the Lomé Convention, through which the EU had maintained economic assistance relationships with the ACP states since 1975. The purpose of the Cotonou Agreement, which consists of an FTA and a Generalized System of Preferences (GSP), was to form a new cooperative relationship between the EU and the ACP states. Pursuant to this agreement, negotiations between the EU

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and the regional integration groups within the ACP states (four regions in Africa, the Caribbean region, and the Pacific countries region); commenced in September 2002. There are plans to maintain and reinforce several regional integrations within the ACP, to enter into EPAs with integrated regions by the end of 2007．

With respect to Latin American countries, the EU-Mexico FTA, which also includes political cooperation came into effect in July 2000. This is a comprehensive agreement including intellectual property rights, governmental procurement, competition, and investment. In the area of market access, non-agricultural products are fully liberalized, and services are mostly liberalized (except for audiovisual services, air transport services, and marine transport services). However, the liberalization schedule varies depending on the sensitive nature of the domestic industry. The schedule also reflects the divergent level of economic development of the EU and Mexico. Since Mexico is a member country of NAFTA, the Mexico-EU FTA allowed the EU to gain a foothold, not only in Latin America, but also in NAFTA. On the other hand, Mexico can now reduce excessive dependence on the United States, as well as expect further expansion of trade and investment, serving as a trade hub, by entering into FTAs with two large markets (the United States and the EU). An economic framework cooperation agreement between Mexico and Chile, including an FTA, came into effect in November 2002.

The EU and MERCOSUR/MERCOSUL signed the Inter-regional Framework Cooperation Agreement, with a view to preparing for an EU-MERCOSUR FTA, which aims at comprehensive political and economical partnership including improvement of the legal environment for promoting both technical cooperation and investment. The agreement came into effect in December 1995. Because of a significant difference in opinion regarding opening the agricultural products market, negotiations came to a temporary deadlock. At the EU-Mercosur Ministerial meeting of September 2005, the two sides agreed to continue negotiations. While the EU requests MERCOSUR/MERCOSUL to make larger concessions on investment and services, MERCOSUR/MERCOSUL requests the EU to further open the markets for agricultural and food products.

The EU and the GCC commenced FTA negotiations in 1990. At the EU-GCC Ministerial meeting in 2005, it was agreed to accelerate negotiations by: (i) focusing on the areas of trade in services, import duties on industrial goods and public procurement; and (ii) conducting negotiations in a “Single Undertaking method,” which requires agreement in all areas for settlement.

As for Asian countries, the EU put high priority on FTA negotiations with Korea, ASEAN and India in the “Global EUROPE competing in the world,” which mentioned foreign strategy of European Committee in October 2006. With respect to India, at the EU-India Summit held on October, 2006, the EU endorsed commencing negotiations for a comprehensive trade and investment agreement. With respect to ASEAN, the EU commenced negotiations in May 2007 but suspended them in March 2009 and instead shifted to bilateral negotiations with individual countries, starting with Singapore in December 2009. (See “3. Efforts in Japan” for Japan-EU trends).

With Canada, the EU commenced negotiations in October 2009, following an agreement on the start of negotiations at an EU-Canada summit meeting in May 2009.

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3) Asia

(a) Overview of the ASEAN Free Trade Area (AFTA) AFTA, a free trade area covering the 10 member countries of the ASEAN, has now been virtually established. It was agreed upon at the ASEAN Summit of January 1992. Tariff reduction commenced in January 1993. Pursuant to the Common Effective Preferential Tariff (CEPT) framework, the plan was to gradually reduce the intra-regional tariff, from 0-5% over the next 10 years, and eliminate quantitative restrictions for CEPT products, both by 2003. However, at the ASEAN Summit in December 1998, it was agreed to expand the scope of CEPT products and to accelerate the reduction of intra-regional tariffs on CEPT products by one year (from 2003 to 2002). Subsequently, at the AFTA Council in September 2002, the target to reduce the intra-regional tariff for the Philippines, Thailand, Malaysia, Singapore, Brunei and Indonesia (the ASEAN-6) was achieved on January , 2002.

The ASEAN Industrial Cooperation (AICO) scheme came into effect in November 1996, preceding the CEPT. Under this system, 0-5% preferential tariff rates were mutually applied to trade between two or more countries within the region with respect to products which the member countries authorized as AICO Products that met certain conditions (including a minimum 30% national equity requirement (for manufacturers) and a minimum 40% ASEAN country local content requirement). At the ASEAN Economic Ministerial Meeting in 2002, Brunei, Cambodia, Indonesia, Malaysia, and Singapore agreed to reduce the AICO tariff rate to 0% by January 2003. In April 2004 at the ASEAN Economic Ministerial Meeting, a protocol was signed and the process for implementation is currently underway in each member country of the ASEAN.

Additionally, at the ASEAN Summit and the ASEAN Economic Ministerial Meeting held in 1999, the following were declared for the first time: targets to eliminate intra-regional tariffs among the ASEAN-6 by 2010, and to eliminate them among the remaining four countries of the ASEAN (Cambodia, Laos, Myanmar and Vietnam) by 2015. At the ASEAN Summit held in November 2004, with a view to establishing the ASEAN Economic Community (AEC), it was agreed that out of 11 priority sectors (wood-based products, automotives, rubber-based products, textiles and apparel, agro-based products, fisheries, electronics, IT, healthcare, air travel and tourism), intra-regional tariffs for the nine manufacturing business sectors (i.e., those other than air travel and tourism) would be eliminated by 2007 for the original member countries of the ASEAN, and by 2012 for the new member countries. This accelerated the original plan by three years. Furthermore, at the ASEAN Economic Ministerial Meeting held in September 2005, it was agreed to complete liberalization by 2015 in all service areas.

With respect to the ASEAN economic integration, it was agreed in 2003 to establish the ASEAN Economic Community by 2020. At the ASEAN Summit in January 2007, it was agreed to accelerate the establishment of an “ASEAN Community,” including an economic community, by changing the deadline to 2015. The legally binding “ASEAN Charter” was signed at a meeting of ASEAN leaders in November 2007 and it came into effect in December 2008. While maintaining the principle of “consensus,” which so far has resulted in the characterization of ASEAN as a loose association, the EU and ASEAN agreed to take flexible approaches with respect to economy-related issues. In February 2009, the ASEAN Trade in Goods Agreement (ATIGA) was signed, replacing CEPT agreements.” The ASEAN

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Comprehensive Investment Agreement (ACIA), which integrated and revised the ASEAN Agreement on the Promotion and Protection of Investments (IGA) and the ASEAN Investment Region Framework Agreement, was also signed in February 2009.” In 2010, intra-regional tariffs among six ASEAN countries were totally eliminated.

(b) Recent Events Related to the ASEAN (Efforts of “ASEAN+1”) Recently, in addition to the United States, the EU and Japan, China, the Republic of Korea, India, and Australia and New Zealand (ANZ-CER) are also actively working to enter into FTAs/EPAs with the ASEAN in order to revitalize their respective economies by benefiting from the ASEAN’s growing economic power.

(i) China-ASEAN FTA At the summit between China and the ASEAN countries’ leaders held in November 2000, Premier Zhu Rongji proposed a China-ASEAN FTA. At a subsequent meeting in November 2001, it was agreed to: 1) build an “economic cooperation framework” between China and the ASEAN, and establish a “China-ASEAN Free Trade Area (FTA)” within 10 years; and 2) conduct consultations to determine the items in respect of which liberalization measures would be accelerated (“early harvest” measures). Working-level meetings commenced in January 2002, and in June of the same year discussions were held by the Trade Negotiation Committee. In November 2002, the “Framework Agreement on Comprehensive Economic Co-operation” was signed. It included the establishment of a China-ASEAN FTA within 10 years. The framework agreement became effective in July, 2003. In November 2004 China and the ASEAN, signed an agreement on the liberalization of the trade in goods provided for in the “Framework Agreement on Comprehensive Economic Co-operation.” Tariff reduction commenced in July 2005. In June 2007, the China-ASEAN FTA on Trade in Service signed in January 2007 came into effect. China also signed China-ASEAN Investment Agreement in August 2009. (ii) Korea-ASEAN FTA (references to “Korea” refer to the “Republic of Korea”) The Korea-ASEAN FTA Experts Group Meetings were held from March until August of 2004. Later, at the Korea-ASEAN Summit in November 2004, it was agreed to commence negotiations with a view to eliminate tariffs on 80% of all products by January 1, 2009 (separately set for Cambodia, Laos, Myanmar and Vietnam). Following eight rounds of negotiations that began in February 2005, the “Framework Agreement on Comprehensive Economic Cooperation” was signed at the Korea-ASEAN Summit in December 2005. Also, the “Agreement on Dispute Settlement Mechanism” was signed at the Korea-ASEAN Economic Ministerial Conference, which was held during the same period. Apart from this, the ASEAN countries (excluding Thailand) and the Republic of Korea agreed on a tariff reduction method for the FTA on goods and started reducing tariffs in June 2007. The ASEAN countries (excluding Thailand) and the Republic of Korea also signed services trade agreements in November 2007. Thailand and the Republic of Korea signed a protocol concerning agreements on trade in goods in February 2009 and signed an investment agreement in June.

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(iii) India-ASEAN FTA In November 2002, at the first summit between the ASEAN and India, it was agreed to reinforce economic cooperation and to set liberalization of trade and investment as a long-term objective. They established an intergovernmental task force, signed a Framework Agreement in October 2003. Although negotiations over the number of products exempted from liberalization by India deadlocked at one point, India and ASEAN reached an agreement in August 2008 and signed the agreement in August 2009. The agreement came into effect in January 2010. India and ASEAN are also conducting negotiations in the area of investment and services. (iv) Australia-New Zealand (ANZ-CER)-ASEAN FTA At the ASEAN-CER Economic Ministerial Meeting in September 2002, Australia-NZ (CER) and ASEAN signed the “AFTA-CER CEP” Joint Ministerial Declaration. (The agreement did not include an FTA between the parties.) Establishment of the framework to promote trade, investment, and regional economic integration was agreed to by the ASEAN and CER and it was agreed that by 2010, cooperate in each field with the purpose of doubling the trade and investment between the ASEAN and CER. At the ASEAN-Australia and New Zealand Commemorative Summit held in November 2004, it was agreed to commence negotiations for an FTA between the ASEAN and Australia-NZ. Negotiations commenced in February 2005. In August 2008, ASEAN and Australia/New Zealand reached an agreement on FTA including services, investment, and intellectual property, in addition to goods, and signed the FTA in February 2009. The FTA came into effect in January 2010.

(c) Major Movements of Countries Aiming for Regional Integration (i) Singapore Singapore is aggressively pursuing the objective of entering into FTAs/EPAs. The FTAs/EPAs it has entered into include New Zealand (January 2001), Japan (November 2002), EFTA (January 2003), Australia (July 2003), the United States (January 2004), Jordan (August 2005), India (August 2005), the Republic of Korea (March 2006), Panama (July 2006)、Peru（August 2009）、China（January 2010）. The country has also concluded a Trans-Pacific Strategic Economic Partnership (TPP) with Brunei, New Zealand and Chile (New Zealand in May 2006, Brunei in July 2006, and Chile in November 2006). It signed an FTA with the Gulf Cooperation Council (GCC) in December 2008 and is conducting negotiations with Pakistan, Canada, Ukraine and India. However, negotiations with Mexico remain suspended. Singapore agreed to commence negotiations with Egypt and Cost Rica, but has yet to do so. (ii) Thailand Thailand has been active in reinforcing economic partnerships with many countries. In July 2004, Thailand signed an agreement with Australia, which came into effect in January 2005. An agreement with New Zealand came into effect in July 2005 and with Japan came into effect in November 2007. Thailand has entered into framework agreements with Bahrain, Peru and India. However, the agreement with Bahrain was derailed as the GCC did not allow Bahrain to conduct FTA negotiations singlehandedly. Negotiations with Peru are

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underway (the Early Harvest (EH) portion has already been signed), and plenary negotiations with India are underway (the Early Harvest (EH) has already been implemented). Thailand also commenced negotiations with the United States (June 2004) and EFTA (October 2005). (iii) Malaysia Following the commencement of EPA negotiations with Japan in January 2004, Malaysia has been promoting efforts for EPA negotiations. The FTA/EPA with Japan came into effect in July 2006, and that with Pakistan in January 2008. Malaysia commenced negotiations with New Zealand in March 2005 and signed an agreement in October 2009. The agreement is expected to come into effect in 2010. The country has also commenced FTA negotiations with Australia (May 2005), the United States (June 2006), Chile (June 2007), and India (February 2008). It is taking part in efforts being made by the ASEAN as a whole. (iv) The Republic of Korea In order to respond efficiently to the trend of FTA/EPA expanding worldwide, the Republic of Korea established the “FTA Roadmap” in 2003 and confirmed its policy to promote high-level FTAs covering comprehensive areas such as tariff elimination, service investment, intellectual property rights and government procurement at the same time with different countries. The Republic of Korea accelerated the execution of its FTAs/EPAs by establishing an FTA Bureau under the Ministry of Foreign Affairs and Trade in December 2004 for the purpose of efficiently responding to the global proliferation of FTAs/EPAs. Accordingly, from 2005, it was simultaneously negotiating FTAs/EPAs with numerous countries and regions. At present, the Republic of Korea has signed FTA/EPAs with three countries (Chile, Singapore, and India) and 2 regions (EFTA, ASEAN) already have entered into force, signed FTA/EPA with the United States, and provisionally signed FTA/EPA with the EU. Negotiations commenced with the United States in June 2006 and arrived at an agreement in April 2007. Although the agreement was signed in June the same year, it has yet to be ratified due to a difference of opinions within the United States. The Republic of Korea commenced negotiations with the EU in May 2007 and signed an interim agreement in October 2009. The agreement is expected to come into force by the end of 2010. The country commenced negotiations with India in March 2006 and signed an agreement in August 2009. The agreement came into effect in January 2010. Besides Japan, with which negotiations remain suspended, the Republic of Korea has been conducting negotiations with Canada, Mexico, the GCC, Peru, Australia, New Zealand and Colombia. The country has agreed on joint studies or agreed to start joint studies with four countries (China, Turkey, Russia and Israel) and three regions (Japan-China-Korea, MERCOSUR and SACU). (v) China China aggressively promotes the reinforcement of economic partnerships with many countries and regions. To date, China has concluded FTAs between Hong Kong (June 2003), Macao (October 2003), ASEAN (November 2004), Chile (November 2005), Pakistan (November 2006), New Zealand (April 2008), Singapore (October 2008) and Peru (April 2009) (dates in parenthesis reflect month of signature). In April 2008, China concluded an

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FTA with New Zealand after 15 rounds of negotiations. It was the first FTA that China concluded with an advanced country. China has been conducting negotiations with SACU (the Southern African Customs Union), GCC (Gulf Cooperation Council), Australia, Iceland, Costa Rica, and Norway. The country has completed joint studies regarding the possibility of an FTA with India, and has been conducting intergovernmental studies and industry-government-academia joint research with the Republic of Korea and Switzerland. Japan, China and the Republic of Korea have agreed to commence joint research.

(vi) India India entered into the Framework Agreement on Comprehensive Economic Cooperation with ASEAN, and commenced FTA negotiations in October 2003. India entered into a similar agreement with Thailand, commenced FTA negotiations simultaneously, and conducted an early harvest with respect to 82 specified products in September 2004. The CECA between India and Singapore came into effect in August 2005. The South Asian Association for Regional Cooperation (SAARC) Summit was held in January 2004, and the seven member countries signed the South Asian Free Trade Area (“SAFTA”) framework agreement. This agreement came into effect in January 2006. It provides for establishing a South Asian Free Trade Area by 2016 (discussed later). India concluded a comprehensive economic partnership agreement (CEPA) with Sri Lanka in July 2008. The country also concluded an FTA with the GCC; FTA framework agreements with South Africa, SACU (South AFRICAN CUSTOMS Union), and BIMSTEC (discussed later); and PTAs (preferential tariff agreements) with MERCOSUR/MERCOSUL, Afghanistan and Chile. In addition, India held workshops for FTAs/EPAs with Australia and Russia, and agreed to hold FTA/EPA workshops with Egypt. In January 2008, India concluded a workshop with China. India began CEPA negotiations with the Republic of Korea in March 2006, and signed an agreement in August 2009. The India-Korea CEPA came into effect in January 2010. India has been negotiating for a CEPA with the EU since June 2007. India also commenced EPA negotiations with Japan in January 2007 (see the section, “Efforts in Japan”).

(vii) Australia

Australia has been actively promoting FTA negotiations with other countries, and has so

far concluded and put into effect FTAs with New Zealand, Singapore, the United States, Thailand, Chile and ASEAN-NZ. Currently, the country is in the process of negotiating with Japan, China (negotiations started in May 2005), the Republic of Korea (negotiations started in May 2009), and Malaysia (negotiations started in May 2005). Australia has implemented joint study programs with India and Indonesia. In November 2008, Australia announced its participation in the Trans-Pacific Strategic Economic Partnership（TPP） aimed at 100% elimination of tariffs by 2015.

(viii) New Zealand New Zealand has so far signed FTAs with Australia, Singapore, Thailand, China and

ASEAN-Australia. The country also put into effect TPP with Singapore, Brunei and Chile. New Zealand signed an FTA treaty with Malaysia in June 2009, and agreed to conduct

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negotiations with the GCC in October 2009 and Hong Kong in November 2009. In June 2009, the country commenced negotiations with the Republic of Korea. (ix) SAFTA In January 2004, the South Asian Association for Regional Cooperation (SAARC) Summit was held, and the SAFTA Framework Agreement was signed by seven member states (India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and Maldives). This agreement came into effect in January 2006. Under it, the Non-LDC states (India, Pakistan, and Sri Lanka), were to reduce the maximum tariff rates to 20% by the end of 2007 except in respect of certain exceptional items. The least developed countries (“LDC” states) similarly were to reduce maximum tariff rates to 30%. The agreement states that the member states will establish a South Asian free trade area by 2016, under which the maximum tariff rates will be reduced to 0-5%. (x) BIMSTEC BIMSTEC is comprised of seven countries: Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal, and Bhutan. In February 2004, the FTA Framework Agreement was entered into by all member countries except Bangladesh, and in June of the same year was signed again, with Bangladesh included. BIMSTEC planned to commence tariff reduction in July 2006．

(d) Broad Regional Economic Partnerships in East Asia/Asia Pacific Region

In the Asia Pacific region (with East Asia being the center), various efforts to establish broad regional economic partnerships are being made in a multi-layered manner through the following frameworks: ASEAN+1 (as mentioned earlier), ASEAN+3 (Japan, China, the Republic of Korea and ASEAN), ASEAN+6 (ASEAN+3, India, Australia and New Zealand), and APEC (Asia-Pacific Economic Cooperation). (i) East Asian Community (ASEAN+3 and ASEAN+6) The trend of economic integration and political cooperation in East Asia was triggered by the East Asia Economic Centre (“EAEC”) framework proposed by Malaysia in 1991. In 1997, the year of Asia’s financial crisis, the first ASEAN+3 Summit was held; thereafter it was established as a standing summit. At the third ASEAN+3 Summit, the “Joint Statement on East Asia Cooperation,” which provided for the basic policy for future cooperation in East Asia, was issued. The East Asia Vision Group (“EAVG”) was formed to advise the ASEAN+3 Summit with respect to institutionalization for the purpose of establishing an integrated East Asian community. In 2002, the East Asia Study Group (“EASG”) advised on specific measures, including 17 measures which should be achieved in the short term and 9 measures which should be achieved in the medium and long term. Thus, the impetus to establish the East Asian Community grew. The Tokyo Declaration was adopted at the ASEAN-Japan Commemorative Summit held in 2003. It confirmed the intention to deepen cooperation for the establishment of the East Asian community as one of the common strategies between Japan and the ASEAN.

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In December 2005, pursuant to the agreement at the ASEAN+3 Summit of the preceding year, the first East Asia Summit (“EAS”) was held with the ASEAN+6 as participating countries. A joint declaration was issued at the summit confirming, that the EAS would be convened regularly and that it would play a “significant role” in establishing a community in this region (the third EAS was held in November 2007). The ASEAN+3 Summit was also held, and in its joint declaration, stated that ASEAN+3 was the “main vehicle” for establishing the East Asian Community. In the discussion at the EAS, Japan and Singapore insisted that both the EAS and the ASEAN+3 are important vehicles through which to establish the East Asian community. In the fourth EAS held in October 2009, the participants welcomed the decision made at a meeting of economic ministers to conduct inter-governmental discussions and studies on the results of private research on the Comprehensive Economic Partnership in East Asia (CEPEA). (ii) East Asian Economic Integration (EAFTA, CEPEA, ERIA) The EASG report mentions the East Asia Free Trade Area (“EAFTA”) as a goal to be met in the medium to long term. In April 2005, based upon China’s proposal, research regarding the feasibility of EAFTA by experts of the ASEAN+3 commenced. In July 2006, they completed a report stating that discussions between governments should be launched in order to establish an FTA for the ASEAN+3. At the ASEAN+3 Economic Ministers Meeting held in August 2006, many representatives of the member countries expressed the view that discussions between governments were premature, and at the ASEAN+3 Summit held in January 2007, it was decided that further research should be undertaken by experts. The research began in May 2007 and its progress was reported to the ASEAN+3 Summit held in November 2007 and ASEAN+3 Economic Ministers Meeting held in August 2008. A final report was submitted to the ASEAN+3 Economic Ministers Meeting held in August 2009. An agreement was also reached to submit the final report to ASEAN leaders and to propose that they commence inter-governmental discussions on proposals made by experts. In October the same year, a final report was submitted to the meeting of ASEAN+3 Summit, where the leaders welcomed the decision made at the Economic Ministers Meeting to start discussions between governments on private research proposals. With respect to the ASEAN+6, firmer connections in the form of actual economic conditions (such as rapidly increasing trade within the region, and expansion of a transnational production network) have been established. There is a strong impetus to attempt institutionalization of such economic conditions, and efforts towards FTAs/EPAs between the ASEAN and Japan, China, the Republic of Korea, India, Australia and New Zealand are progressing. Because it is able to attempt broad regional economic partnerships based on such FTAs/EPAs, in August 2006, Japan proposed a study to be conducted on the Comprehensive Economic Partnership in East Asia (“CEPEA,” an East Asian EPA) by the ASEAN+6. With respect to the commencement of research by experts, which was agreed upon by the leaders of the Second EAS held in January 2007, six rounds of meetings were held by June 2008 and a report was compiled. With respect to the agreement to continue research, which was agreed upon at the ASEAN+6 Economic Ministers Meeting in August 2008, the study group met four times during the period from November 2008 to July 2009. A final report was submitted to the ASEAN+6 Economic Ministers Meeting in August 2009 and an agreement was reached, as in the case of EAFTA, to submit the final report to the ASEAN leaders and to propose that they commence inter-governmental discussions on the experts’

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proposals. At the meeting, in keeping with the move towards the economic integration of East Asia, Japan proposed holding workshops on rules of origin, and the ministers present at the meeting expressed their approval of the plan. In the fourth EAS, held in October 2009, the leaders welcomed the decision by economic ministers to conduct inter-governmental discussions and studies on the results of private research on the Comprehensive Economic Partnership in East Asia (CEPEA). The decision represented a confirmation of their intention to shift the discussions to inter-governmental levels, in the same vein as discussions on the EAFTA proposal. Japan also proposed the establishment of the Economic Research Institute for the ASEAN and East Asia (“ERIA”), to provide support (such as policy proposals) regarding policies for the purpose of East Asia’s sustainable growth. It was approved at the Second EAS. In the Third EAS held in November 2007, the leaders of participating countries formally agreed on the establishment of the ERIA. Based on the agreement, the ERIA held its inaugural meeting in June 2008 and commenced research activities in earnest. In the Fourth EAS held in October 2009, leaders expressed appreciation for ERIA’s contribution to regional cooperation and called on the ERIA to collaborate with the ADB and ASEAN secretariats to accelerate the move toward the completion of a “Comprehensive Asian Development Plan.”

(iii) APEC (Asia-Pacific Economic Cooperation) APEC is a regional cooperation framework in Asia and the Pacific established in 1989 by countries led by Japan and Australia. At the Economic Leaders’ Meeting held in Bogor, Indonesia in 1994, APEC set as a goal (“Bogor Goal”) free and open trade and investment

ASEAN and East Asian EPA

ASEAN is making efforts at FTAs/EPAs with Japan, China, Korea, India, and Australia and New Zealand.

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among the industrialized economies by 2010 (and by 2020 for developing economies). FTAs are an effective measure to achieve the Bogor Goal. As a specific effort to improve the quality of FTAs within the region, “model measures for FTAs” have been developed to serve as a reference for FTA negotiations with regard to major areas of FTAs. (As of the end of 2009, 15 chapters had been completed.) Furthermore, at the Economic Leaders Meeting held in November 2006, it was agreed to consider methods for promoting regional economic integration (including an FTAAP) as a long-term objective. Since then, discussions concerning regional economic integration in APEC have progressed rapidly. At the Economic Leaders Meeting in 2007, a report on the results of the discussions was presented and the leaders agreed to conduct research on existing bilateral and multilateral FTAs. At the Economic Leaders Meeting in 2008, a progress report on the research was presented and the leaders agreed that work should continue. Japan, as the chair country of APEC, is scheduled to host a series of meetings in 2010, ranging from APEC summit and ministerial meetings to expert-level meetings. The meetings will provide a valuable opportunity for Japan to promote economic integration in the region. Therefore, Japan is required to contribute to the stability of the region by promoting economic integration not only in the field of goods and services but also in the field of funds, human resources, and information.

(iv) Trans-Pacific Strategic Economic Partnership (TPP)

In 2005, Singapore, New Zealand, Chile and Brunei signed an Trans-Pacific Strategic Economic Partnership (TPP) agreement. The TPP is an FTA which is in principle designed to eliminate 100% of tariffs by 2015. It is equipped with wide-ranging provisions from services to intellectual property systems and cooperation. In March 2008, the United States took part

Stratified Framework in Asia Pacific

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in negotiations for investment rules and financial services, areas that are not covered by the TPP and, in September the same year, the country announced that it would expand the scope of its negotiations to all fields. At a meeting of APEC leaders held in Peru in November, Australia and Peru announced their intention to take part in the negotiations, and then Vietnam announced its intention to be involved in the negotiations on condition of becoming a negotiating member in the future. No formal negotiations were held for nearly one year after the Vietnamese announcement. In November 2009, however, U.S. President Obama announced that the United States would engage TPP member countries and in December the President notified Congress of his intention to commence negotiations. The first round meeting is scheduled to start in Australia in March 2010.

Since TPP signatory countries are aiming to increase the number of participating countries, the TPP has a potential to become the core of Asia–Pacific region-wide economic integration or lead to an APEC-wide FTA (FTAAP). Japan should study how it should respond to the TPP as one of the important moves for regional economic integration in the Asia and Pacific region.

Efforts in Japan Japan’s basic trade policy is to maintain and reinforce common international rules by: (i) actively participating in relevant trade mechanisms (including the WTO Doha Round); and (ii) maintaining a free and transparent environment for international economic activities. However, in the WTO, efficient negotiations and expeditious agreements are becoming difficult due to the increasing number of Member countries, diversification of negotiation items, and other factors. At the same time, the environment surrounding Japan’s external economic policy has recently been subject to remarkable changes (such as foreign countries accelerating efforts to reinforce economic partnerships). Under such circumstances, it is necessary for Japan’s external economic policy, while considering the WTO’s maintenance and reinforcement of basic international trade rules and the WTO’s rules-based dispute settlement procedures as the basic infrastructure, to develop multi-layered external economic policies by strategically and flexibly utilizing inter-region or bilateral FTAs/EPAs as a complement to its efforts in the WTO. With respect to EPAs, Japan aims to expeditiously reach agreement on rules or agreements with contracting party countries, properly reflecting their actual economic conditions, and covering a wide range of areas, including not only the liberalization of trade in goods and services, but also the establishment of investment rules, the facilitation of human exchange, and so forth. In choosing the countries and/or regions for negotiating economic partnerships, it is important that they contribute to Japan's interests, while taking into consideration all relevant circumstances (including Japan’s economic and diplomatic interests) and conditions in the negotiating countries and/or regions. To deal with problems which cannot be solved through only bilateral frameworks, efforts in regional frameworks are also being promoted. By achieving high-level agreements, Japan is pursuing the goal of establishing a more free and open business environment in the future. Summarized below are the anticipated benefits Japan could receive by entering into FTAs/EPAs:

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i) Increased competition among companies within the region and the best

allocation of management resources in the broader region, therefore helping to improve the profitability of businesses and promoting reform of the domestic economic structure. In addition, from Japan’s perspective, they may help to increase the attractiveness of the other country or region as a direct investment site.

ii) Secure preferential access to markets which Japan considers important

through tariff elimination and harmonization of domestic systems, thereby expanding trade and investment opportunities and enabling enterprises to enjoy economies of scale.

iii) By expeditiously working out trade rules between countries and/or

regions sharing the same basic ideas as Japan, such FTAs/EPAs will enable Japan to form a framework agreement in areas where specific rules are not agreed to in the WTO forum; and if that framework is adopted widely, it will be easier for Japan to take the initiative in discussing these areas in the WTO.

Japan can enjoy these benefits of FTAs/EPAs by entering into them before other countries. In contrast, if foreign countries enter into FTA/EPAs prior to Japan, then Japan, and Japanese companies, would be at a disadvantage. After the collapse of the cold war structure, Western countries aggressively promoted FTAs throughout the 1990s, but Japan was far behind. For Japan to enter into FTAs/EPAs, the liberalization of Japan’s sensitive sectors (such as agricultural areas) has been a major and critical issue. In circumstances where the execution of FTAs/EPAs has accelerated in East Asia, which has a deeply interdependent relationship with the Japanese economy, it is believed that, for the purpose of protecting the national interest, far-reaching endeavors to promote FTAs/EPAs are required. As mentioned above, FTAs/EPAs are a complement to multilateral efforts under the WTO, and not substitutes. For example, agreements under the WTO increase multilateral economic welfare, and have the effect of resolving complications that arise out of the various systems, which result from a multitude of FTAs/EPAs (the so-called “spaghetti bowl” phenomenon). In addition, unlike under FTAs/EPAs, if a country and/or region does not comply with matters under the relevant multilateral agreement and causes the economic welfare of other countries to deteriorate, it would be easy to establish corroborative and cooperative relationships among countries/regions to manage the situation. The WTO’s dispute settlement system also contributes to compliance with and clarification of the disciplines among the Member countries in a transparent and effective form in a wide range of areas, and this is an aspect lacking in FTAs/EPAs. Thus, although it is not easy to reach agreements under the WTO framework, the effect of such agreements, when achieved, is immeasurable. Japan should consider making positive contributions to the cultivation and expansion of the basic international trade rules under the WTO, but also demonstrate its position of active participation in the formation of regional order through negotiations of FTAs/EPAs.

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Overview of Japan’s Efforts ① EPAs in effect (a) EPAs with the ASEAN Japan is advancing bilateral efforts with both member countries of ASEAN and, in parallel, with Japan-ASEAN (as a whole). (i) EPA with the ASEAN as a whole In April 2005, Japan commenced negotiations with ASEAN for an ASEAN-Japan comprehensive economic partnership (AJCEP), based on the November 2004 agreement of the leaders of the involved countries. The AJCEP agreement came into force on December 1, 2008 after it was signed by the countries involved in April 2008 (as of February 2010, the agreement is in effect in Japan, Singapore, Laos, Myanmar, Vietnam, Brunei, Malaysia, Thailand and Cambodia). An EPA between Japan and ASEAN as a whole would institute a free economic area (Japan and ASEAN as one area) with a population of 700 million and an economic scale of 5.6 trillion US dollars. This would have a significant effect, stimulating the economies of both Japan and the ASEAN. In the East Asia region, the ASEAN continues to provide the deepest trade and investment relationship with Japan, and is therefore an important region. An EPA with the ASEAN is also important from the viewpoint of effectively utilizing assets in the ASEAN, which have accumulated due to large investments made to date. Furthermore, an EPA with ASEAN as a whole would facilitate harmonization over a wide region, which would be difficult to achieve through bilateral EPAs between Japan and the ASEAN member countries, and would contribute to strengthen industrial competitiveness in a form fitting into the actual pattern of economic activities conducted broadly between Japan and the ASEAN. For example, while bilateral EPAs might not necessarily be useful where final products exported within the region are processed within ASEAN using high value-added parts manufactured in Japan, the AJCEP offers opportunities to enjoy preferential treatment, as cumulative rules of origin are applied in Japan and within ASEAN countries. (ii) EPA with Singapore Japan’s EPA with Singapore was signed on January 13, 2002, and came into effect on November 30 of the same year. This agreement, Japan’s first Regional Trade Agreement (RTA), promotes a comprehensive economic partnership between the two countries, whose partnership is to have the effect of expanding trade and investment within the region and harmonizing systems in such areas as paperless trade and mutual recognition. By liberalizing and facilitating trade and investment and harmonizing economic systems, the EPA would have the further effect of improving bilateral cooperation in the areas of information and communication technology (“ICT”), and trade and investment.

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In addition, the negotiation for review, which commenced in April 2006, reached agreement in March 2007 and the agreement came into effect in September the same year. Thus, further liberalization is being implemented. Since this agreement came into effect, Japan’s trade in goods with Singapore has steadily increased. Exports to Singapore have increased by 44.6%, while imports from Singapore have increased by 32.3%, resulting in a 27.2% increase in Japan’s trade surplus with Singapore. Japan’s service trade account with Singapore got into the black, with receipts increasing 2.7-fold and payments increasing by 67.0%. The balance of Japan’s direct investment in Singapore increased by 59.8% and the balance of Singapore’s direct investment in Japan increased 9.1 fold (comparison between 2002 and 2007). (iii) EPA with the Philippines Negotiation of the EPA with the Philippines commenced in February 2004, and the EPA was signed at the Japan-Philippines Summit Meeting held in September 2006 and came into effect in December 2008. This agreement is the first EPA entered into by the Philippines. It aims to advance a comprehensive economic partnership between the countries, so as to a) promote the free movement of goods, persons, services and capital, as well as the harmonization and clarification of legal frameworks for intellectual property, competition policies and maintaining the business environment, and the development of economic activity of both countries; and b) improve bilateral cooperation in the areas of intellectual property, competition policy, business environment maintenance, training of human resources, trade and investment, information and communication technology, and small/medium-sized companies. Based on the agreement, a total of 310 nurse and caregiver candidates came to Japan from the Philippines in May 2009. (iv) EPA with Malaysia Negotiation commenced in January 2004, and in May 2005, both countries confirmed an agreement in principle on major issues. The EPA was signed by the leaders of both countries in December 2005, and came into effect in July 2006. Many Japanese-owned companies have been established in Malaysia, indicating that there is a strong economic relationship between the countries. The establishment of an economic partnership between the countries has had the effect of facilitating procurement and sales of parts and expanding trade and investment between the countries. It is noteworthy that the agreed tariff elimination and reduction would have a large economic effect. In addition, for many Japanese companies establishing entities in Malaysia, it is very important that a subcommittee on the improvement of the business environment has been established, whereby the governments and industries of both countries work on establishing investment rules, liberalizing trade in services, and otherwise improving the business environment. The subcommittee had held a total of four meetings by November 2009, starting in March 2007. The subcommittee is highly valued in industrial circles, as it has discussed various problems

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involving business and resolved some of them. In addition, Japan and Malaysia also established subcommittees on issues concerning country of origin, services, and cooperation. (v) EPA with Thailand Negotiation for the EPA with Thailand commenced in February 2004, and agreement in principle on major issues was reached at the Japan-Thailand Summit Meeting in September 2005. The agreement was signed and came into effect in November 2007. Under this agreement, Thailand will eliminate tariffs on almost all non-agricultural products, excluding certain classes of automobiles, within 10 years while Japan will implement comprehensive tariff elimination including many agricultural products. In the investment area, Thailand will declare that it will not tighten restrictions on investment in the manufacturing industry and services sectors, and will relax foreign investment restrictions on some manufacturing industry-related services (such as repair and maintenance, and retail and wholesale). In the area of movement of natural persons, Japan and Thailand are now discussing the acceptance into Japan of spa therapists and healthcare workers from Thailand and the relaxation of conditions related to visa and work permits for Japanese nationals in Thailand. Japan has implemented industrial cooperation for automobiles, steel, and agricultural cooperation. Thailand ranks first among ASEAN countries as the destination of Japanese exports, but most exports are subject to high tariff rates. The EPA will create the benefit of tariff elimination. Also, Thailand is the core manufacturing base in ASEAN for Japanese companies, with Japan being the largest investor in the country and many Japanese companies operating there (as of 2009, the number of Japan Chamber of Commerce and Industry member companies operating in Thailand being the largest among ASEAN countries). In order to solve business problems faced by these Japanese companies, a “subcommittee concerning the improvement of business environment” has been set up. The subcommittee had held two meetings by 2009 and has produced some benefits. The EPA is also expected to produce good results also from the standpoint of improving business environment through the establishment of investment rules and the liberalization of trade in services. (vi) EPA with Indonesia Japan and Indonesia commenced negotiations for a bilateral EPA in July 2005 and reached a broad agreement on major issues in November 2006. The agreement was signed at the Japan-Indonesia Summit Meeting held in August 2007 and came into effect in July 2008. In addition to reducing or dismantling trade barriers, the economic partnership agreement between Indonesia and Japan is effective in harmonizing the existing legal systems of the two countries, promoting the reasonable administration and transparency of each administration system, and improving investment environment. Since Indonesia has rich underground resources, such as natural gas and petroleum, the two countries have included a chapter on energy and mineral resources in the EPA. For Indonesia, Japan is the ninth largest trading partner (in 2008) and their economic ties are deep. Indonesia has the largest population (228 million) within ASEAN. The

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formation of the EPA will secure preferential access to this promising market for Japanese companies. Since Japan and Indonesia have been implementing bilateral cooperation in the field of manufacturing (27 projects in 14 fields), the economic relationship between the two countries is expected to be further strengthened. Based on the EPA, a total of 570 nurse and caregiver candidates came to Japan from Indonesia in August 2008. (vii) EPA with Brunei The negotiation of an EPA with Brunei started in June 2006 based on the decision to start official negotiation made at a Foreign Ministers Meeting between Minister Aso and Minister Mohamed. Both countries came to general agreement in December 2006 and signed the EPA in June 2007; it came into effect at the end of July 2008.

Brunei is one of the important countries for Japan that supplies energy such as natural gas. The Japan-Brunei EPA sets the first independent Energy Chapter among Japan’s EPAs. The chapter includes provisions relating to contractual relationship in the application of energy regulatory measures; implementation of written notice to and consultation with the other Party; consideration for environment, cooperation and consultation mechanism through a Sub-Committee. All will contribute to maintain and strengthen stable relationship beneficial for both countries.

(viii) EPA with Vietnam

Japan and Vietnam commenced negotiations for an EPA in January 2007, following an agreement at a summit meeting between the two countries in October 2006. The two countries largely agreed on a bilateral EPA in September 2008, following 15 rounds of meetings. The EPA was formally signed in December the same year and came into effect in October 2009. It is the first bilateral EPA for Vietnam.

Recently, Vietnam has been attracting keen interest from Japanese companies, including automobile- and electronic-related manufacturers, and their investment in the country has been increasing steadily. This is partly due to the effects of the Japan-Vietnam Joint Initiative (started in 2003) and the Japan-Vietnam Investment Treaty (enacted in 2004) that constitute frameworks for the establishment of a business environment. However, high tariff rates on parts and materials, and underdeveloped supporting industries pose challenges for the future. The Japan-Vietnam EPA is expected to contribute to dealing with such problems and to further reinforcing bilateral political and economic relations as the third economic pillar between the two countries. As a result of the conclusion of the EPA, Vietnam is expected to reduce or eliminate tariffs mainly on parts and materials that are necessary for local manufacturers. Vietnam has also promised to liberalize its high tariff rates, a point which the country did not concede in the China-ASEAN FTA and the Korea-ASEAN FTA. Japan, for its part, eliminated tariffs on almost all industrial products and improved access to the market for agriculture and fishery products. In the area of movement of natural persons, Japan has promised to promote the movement of Vietnamese IT engineers within the scope of the current immigration control system, and to continue consultations on the possibility of accepting Vietnamese nurses and caregivers in the future, now that the EPA has come into effect. The EPA also provides for cooperation to foster supporting industries and reinforce food sanitation control and animal and plant quarantine systems.

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(c) EPA with Mexico Japan and Mexico commenced negotiations for an EPA in November 2002, and in March 2004, after almost two years of vigorous negotiation, the ministers of each country reached an agreement in principle on major issues. Following completion of the technical legal details, an agreement was formally signed by the leaders of the countries in September 2004. The agreement was ratified in November 2004, and came into effect on April 1, 2005. Under this agreement, a large portion of the average tariff rate (16%, based on annual average effective tariff rate as of 2001) previously imposed on export products to Mexico are to be eliminated within 10 years. In areas such as investment and services, and governmental procurement, Japan enjoys a competitive environment similar to that enjoyed by Western countries with Mexico. After the coming into effect of this agreement, the volume of exports from Japan to Mexico in 2008 increased by approximately 1.6 times and the volume of imports from Mexico to Japan increased 1.5 times compared to those in 2004 before effectuation of the agreement. With regard to investment, there is a trend for automobile-related industry to increase production and establish sales outlets. In addition, efforts to strengthen economic partnership between both countries have been made by holding committee meetings under the agreement, including the Sub-Committee on Improvement of Business Environment where representatives of private sectors have participated (the fourth committee has already been held).

Column: Relationship between Japan’s Bilateral EPA with Individual ASEAN countries and the Japan-ASEAN EPA

Japan’s bilateral EPAs with individual ASEAN countries (Japan-Singapore, Japan-Malaysia, Japan-Thailand, Japan-Brunei, Japan-India, Japan-Indonesia, Japan-Philippines, and Japan-Vietnam have already come into effect) and the Japan-ASEAN EPA (AJCEP) are completely different agreements, having no legal binding force on each other. Since AJCEP is an agreement with the 10 ASEAN countries, it covers Cambodia, Laos and Myanmar, with which Japan does not have an EPA. In trade between Japan and an ASEAN country covered by both AJCEP and a bilateral EPA, it is possible to apply a preferential tariff rate based on either the AJCEP or the bilateral EPA. Which preferential rate can be applied basically depends on which agreement the importer applies in submitting a certificate of origin. Therefore, the importer can choose either AJCEP or the bilateral EPA after comparing them. In the case where parts of a product are manufactured in Japan and exported to an ASEAN county A and then exported to an ASEAN country B after being processed or without modification, the ASEAN country B cannot apply the bilateral EPA with Japan but may be able to apply AJCEP. Therefore, AJCEP is very important for Japanese companies, who operate in complex production networks that connect Japan with ASEAN member countries.

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(d) EPA with Chile At the meeting of the leaders of Japan and Chile in November 2004, the two countries agreed to establish an industry-academia-government “Joint Study Group” to examine the feasibility of an EPA between them. The Joint Study Group started at the end of January 2005 and four meetings were held thereafter. In November of the same year, based on the report by the Joint Study Group, it was agreed to commence EPA negotiations. Negotiations were held four times between February and September of 2006, and in September 2006, agreement was reached in principle on major issues, focusing on market access. A fifth negotiation was held in November, and at the summit meeting held in the same month, agreement on the negotiations was confirmed. The Japan-Chile EPA was signed at the end of March 2007 and came into effect in September the same year. Similar to Japan, Chile is aggressively promoting an open economic policy as a trading nation. Chile’s political and economic climates are stable, and Chile is an important supplier of mineral resources to Japan. Chile has already entered into FTAs with approximately 50 countries, including the United States, Canada, the EU, EFTA, the Republic of Korea and China, and it was thus important for Japan to resolve the economic disadvantage with Chile due to the non-existence of an FTA/EPA with it. (e) EPA with Switzerland At the summit meeting in April 2005, Japan and Switzerland agreed to establish a joint governmental study, which would include an analysis of the pros and cons of an FTA/EPA between the two countries, and an analysis of the methods of economic partnership reinforcement for developed countries. Joint study meetings were held five times between October 2005 and November 2006. Following the final report thereof, in January 2007, it was agreed by the leaders of both countries to commence EPA negotiations. After eight rounds of negotiations, the two countries reached an interim agreement in principle in September 2008 and signed an EPA in February 2009. The EPA came into effect on September 1 the same year. The Japan-Switzerland EPA is the first EPA signed by Japan with a developed western country. The EPA is rich in content and is expected to serve as a model for EPAs with other western countries. Specifically, it allows for high-level liberalization of trade in goods (elimination of tariffs on more than 99% of two-way trade within 10 years after the EPA came into effect, including the immediate elimination of tariffs on major industrial products); introduced a system of self-certification by approved exporters with regard to certificates of origin, the first such system in Japan’s EPA; and created a chapter on electronic commerce systems, also the first such system in Japan’s EPA. Moreover, the EPA has achieved high-level results with regard to investment, services, and intellectual property. ➁ EPAs under negotiations (a) EPA with the Republic of Korea Efforts to resume the EPA negotiation with the Republic of Korea, which commenced in December 2003 but have remained suspended since November 2004, have picked up momentum since 2008. At a summit meeting between Japan and the Republic of Korea,

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which was held in February 2008, shortly after the inauguration of President Lee Myung-Bak, the two countries agreed to consider resuming negotiations for a bilateral EPA. At another summit meeting held in April 2008, the two countries agreed to hold “working-level talks to consider and to create a favorable environment for the resumption of EPA negotiations.” Based on the agreement, the two countries held division chief-level and working-level meetings in June and December 2008. At the Japan-Korea summit in January 2009, the two countries agreed to upgrade the working-level negotiations to vice ministerial-level talks, and based on the agreement held vice ministerial-level talks in July and December 2009. Japan and the Republic of Korea have a relatively similar industrial structure and the two countries share an international, horizontal division of labor. Executing an EPA with the Republic of Korea is important to both countries because the market integration resulting from an EPA would be expected to stimulate transnational competition and cooperation between Japanese and Korean companies, as well as facilitate economic structure reform and spur the development of reciprocal investments. This would improve both productivity and efficiency for both countries. This EPA would also provide both countries the opportunity to realize the true potential of their economic relationship, symbolizing the “new Japan-Korea era” which was agreed upon at the summit meeting of the two countries in February 2008. Japan and the Republic of Korea are now the sole set of neighboring developed countries which have not entered into an EPA. 56.6% of Japan’s exports to the Republic of Korea now are subject to tariffs, while only 24.0% of exports from the Republic of Korea to Japan are subject to tariffs, The major tariff items and their tariff rates among the exports to the Republic of Korea (as of 2008) include automobiles (complete vehicles (8~10%) and auto parts (8%)), plastic products (4~8%), general machinery (3~13%), and general machinery\electrical machinery (3~16%). On the average, the tariff rate on industrial products is 6~8% in the Republic of Korea.). (b) FTA with the GCC In March 2006, Japan and the GCC composed of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates agreed to commence negotiations on an FTA with respect to goods and services. In April 2006, in a Joint Statement, former Prime Minister Junichiro Koizumi and His Royal Highness Prince Sultan Bin Abdulaziz Al-Saud, The Crown Prince of the Kingdom of Saudi Arabia, announced the commencement of negotiations. The first negotiating session was held in September 2006. The GCC region accounts for over 70% (2008) of Japan’s raw petroleum imports, and the aggregate value of exports from Japan is over 2.8 trillion yen (2008). It is important to form and maintain a friendly relationship (including an economic relationship) between the countries from the viewpoint of Japan’s energy security and expansion of trade. For areas that would not be covered by the FTA between Japan and the GCC, Japan established and strengthened bilateral frameworks between Saudi Arabia, Qatar, UAE and Kuwait. Japan has resumed negotiations on an investment agreement with Saudi Arabia (the first negotiation was held in October 2006). The seventh negotiation was held in May 2008 and both parties came to substantial agreement. As for relations with Qatar, Japan established the Japan-Qatar Joint Economic Committee to discuss both the area of energy and Japan’s

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investment and business environment with Qatar. The joint committee held four meetings between November 2006 and November 2009 and the two countries agreed to strive for an early conclusion of an investment treaty. Japan also established a joint economic committee with the United Arab Emirates and it met for the first time in December 2007. In July 2008, Japan agreed to establish a joint committee with Kuwait. (c) EPA with India In November 2004, at the meeting of the leaders of Japan and India, agreement was reached to establish a Joint Study Group to comprehensively discuss ways to reinforce the economic partnership between the countries. The Joint Study Group held discussions four times between July 2005 and June 2006. Based on the report by the Joint Study Group, at the Japan-India Summit Meeting held in July 2006, direction was given to start preparation for negotiations. At the Japan-India Summit Meeting held in December 2006, it was agreed to commence the negotiations in January 2007 with the aim of completing the substantial negotiations as soon as possible within two years. At the Japan-India Summit Meeting in December 2009, the two countries agreed to accelerate the negotiations to reach an agreement at an early date. India imposes high tariffs on most exports from Japan. Tariff elimination, therefore, would promote exports from Japan and further enable Japanese companies, mostly in the manufacturing industry, to establish entities in India to conduct duty-free procurement activities. In the area of investment and services, it is important for Japan and India to work out rules which are free, transparent, and stable and to improve the business environment. The major tariff items and their tariff rates among the exports to India (as of 2007) include auto parts (10%), iron and steel products (10%), precision instruments (7.5%), and machine tools (7.5%). (d) EPA with Australia Based on the “Australia-Japan Trade and Economic Framework” signed at the summit meeting held in July 2003, a governmental joint study concerning the costs and benefits of the liberalization of trade and investment, cooperation on measures, etc. to facilitate trade and investment between Australia and Japan was conducted. This joint study was completed in April 2005. Subsequently, at their meeting held in April of the same year, the leaders of Japan and Australia, while mutually recognizing the difficult issues in respect of agriculture, agreed to jointly conduct a study on the methods for reinforcing economic relationships (that are tailored for the relationship between developed countries) between them, including with respect to the pros and cons of an FTA/EPA. Joint study meetings were held five times from November 2005 to September 2006. Following the final report thereof, in December 2006, Prime Minister Shinzo Abe of Japan and Prime Minister of Australia John Howard agreed to commence negotiations for an EPA starting in 2007. The first negotiation was held in April 2007 and there have been ten negotiations as of today. The benefits Japan can expect from a Japan-Australia EPA are many: expanded trade due to tariff elimination (price competitiveness against other countries will be improved) and further reinforcement of economic relations between the two countries, such as ensuring stable supply of energy, mineral resources (Japan is heavily dependent on Australia for such minerals as iron ore and coal), and food.

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The major tariff items and their tariff rates among the exports to Australia (as of 2008) include passenger cars (complete vehicles (5%)), commercial cars (complete vehicles (5%)), auto parts (passenger cars) (5%), shovel loaders (5%), video camera (5%) and color televisions (5%). Tariff rates on completed vehicles and auto parts (Chapter 87) were reduced to 5% in January 2010. (e) EPA with Peru At the Japan-Peru Summit Meeting held in November 2008, it was agreed to

commence negotiations for a Japan-Peru EPA, a step that the Peruvian side in particular embraced with great enthusiasm. The two countries held three rounds of private-level study meetings between January and March of 2009. Based on the report by the study group, the two countries agreed at the Summit Meeting held in April 2009 to commence negotiations for a Japan-Peru EPA. So far, the two countries have completed four rounds of negotiations and are continuing negotiations for an early conclusion of an EPA. Since the Republic of Korea has also been conducting FTA negotiations with Peru, it is very important for Japan not to lag behind the Republic of Korea.

The major tariff items and their tariff rates among the exports to Peru (as of 2008)

include automobiles (9%), motorcycles (9%) and TVs (9%). ➂ Efforts for wide-region economic partnership Between Japan and East Asian countries, a deep economic relationship of mutual dependence has already been established, as reflected by actual conditions including the spread of outlets of Japanese companies. Moreover, Japanese share of total imports and exports have increased respectively from 44% and 39% in 1999 to 47% and 52% in 2008, as well as an increase of Japan’s direct investment to East Asia from 18.1% in 1999 to 23.3% in 2008. This shows that the mutual dependent relationship between Japan and East Asia had rapidly deepened. For the Japanese economy, whose growth is expected to slow down with respect to both the ability of domestic production and domestic demand as the birthrate declines and the population ages, the further strengthening of economic partnership with East Asia where rapid growth is expected to be continued is indispensable. This will occur through multiple channels such as capital transactions including goods trade and direct investment and exchange of highly-skilled personnel. In order to strengthen economic partnerships, EPAs that have an impact as that set out above can be an extremely effective means. The effects of EPA with East Asia includes following: (i) As explained above, although the importance of East Asia has been growing both in

trade and investment, tariff rates in East Asia are generally high compared those in other developing countries. Besides, there are some countries where there are restrictions on investment including foreign investment restrictions, business related regulations and unclear implementation of systems. By concluding EPAs, expanded trade and investment are expected through elimination or reduction of restrictions on trade and investment, leading Japan to maintain markets and East Asia to further

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economic growth owing to the increase of investment. (ii) At present, division of labor and intra-industry trade have been expanded within East

Asia. Elimination or reduction of restrictions on trade and investment, improvement of systems within the region and economic cooperation policy through EPAs reduce the transaction costs and contribute to strengthen competitiveness of industry, a pillar of such production and distribution network.

(iii) In addition, EPAs with East Asia are important in order not to weaken the

competitiveness of Japanese companies due to the lack of EPAs while other countries are actively concluding EPAs.

In this way, EPAs with East Asia are significant not only for Japan but also for the other East Asian countries in that an EPA is expected to produce virtuous circles as it can bring various benefits like the increase of regional division of labors and transactions by eliminating restrictions among the region, further economic growth through promotion of investment, and stability of politics and economy based on these effects, which allow economic development by calling for further investment. Such a process can ultimately bring stability and prosperity to East Asia as a whole. For the future goal of creating a free and mature economic zone in the whole of East Asia where goods, services, persons and capital can freely move, Japan at first is undertaking efforts to conclude bilateral EPAs with ASEAN, the Republic of Korea and India or regional EPAs with all of ASEAN, while it also works on research on future regional economic partnership in East Asia as a whole. Concretely, at the Sixth Trilateral Economic and Trade Ministers’ Meeting in 2009, Japan, China and the Republic of Korea agreed to reach substantive agreement on the Trilateral Investment Agreement negotiations in early 2010 and start the joint study about a trilateral FTA among government officials, business and economic participants in the first half of 2010. Furthermore, in response to the expansion of production networks in East Asia and development of economic partnerships with ASEAN and the surrounding countries in recent years, Japan proposed to launch expert study of a Comprehensive Economic Partnership in East Asia (CEPEA) in the “ASEAN+6” framework (consisting of Japan, China, the Republic of Korea, India, Australia and New Zealand in addition to ASEAN) and the final report of the study group was submitted to leaders. Leaders agreed to start inter-governmental discussion (above-mentioned). . ➃ Provisions for Countries with a Large Domestic Market

The Republic of Korea signed an FTA with the United States in June 2007 and a

provisional FTA with the EU in October 2009. These developments have raised concerns among Japanese companies that the Republic of Korea is ahead of Japan in FTA negotiations with countries with large domestic markets including the United States and the EU. Based on a recommendation made at the Japan-EU Business Dialogue Round Table (BDRT) in June 2007, the business communities of both Japan and the EU established respective task forces to explore the feasibility of a Japan-EU Economic Integration Agreement (EIA). After examining a potential for economic cooperation in various sectors, the task forces held joint meetings and submitted a “Joint Report by Japan-EU Task Forces” to a BDRT meeting held in July 2008. They also delivered the report to the leaders of Japan

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and the EU. The report addresses the importance for Japan and the EU of strengthening joint efforts in a broad range of fields—including regulatory cooperation, innovation, environment, safety, and improvement of trade and investment environment— in order to deal with common issues, such as aging population, energy efficiency, competition against emerging economies, and climate change. Thereafter, calls from the Japanese business community have increased. In June 2009, the Japan-EU Economic Integration Agreement (EIA) study group, which is composed of Japanese business bodies and companies with secretariat at JETRO, completed a report on specific matters on which Japan and the EU can cooperate through the EIA. In November 2009, Nippon Keidanren (Japan Business Federation) published a third proposal calling for the start of Japan-EU EIA negotiations as soon as possible.

With respect to a Japan-U.S. FTA, still in the research stage, Japan plans to steadily advance the research, while giving due consideration to raising Japan’s food self-sufficiency ratio and promoting farming villages.