Japan Economic Foundation

Chairman's Speech

2 . Possibility of an FTA between the Arab Maghreb Union Countries and Japan

Possibility of an FTA between the Arab Maghreb Union Countries and Japan


March 31, 2008

Noboru Hatakeyama Chairman and CEO Japan Economic Foundation

Let me start with talking a little bit on the history of this issue.

Several years ago, the then Ambassador to Japan, Dr. Hannachi invited me to a dinner. There were Ambassadors there from other Maghreb countries. At that time, someone referred to the possibility of having a Maghreb-Japan FTA. Perhaps it was Dr. Hannachi who said the Egyptian Ambassador seemed not to be interested in a Maghreb-Japan FTA, because, if necessary, Egypt was thinking about negotiating an FTA with Japan bilaterally. Anyway, this was the first time for me to become interested in a Maghreb-Japan FTA [MJF]. Since then I have been cherishing the idea.

There are four reasons for us to be interested in an MJF.

Firstly, this year can be called the year for Africa in Japan. Africa is a top issue to be discussed along with global warming in the agenda of G8 Summit Meeting to be held in Toyako, Hokkaido, Japan, in June of this year. How to strengthen economic relationship between Africa and Japan without depending too much on Japan's ODA is the issue. Although Japan ranked number 1 in ODA between 1991 and 2000, Japan's generous ODA is no longer available due to its fiscal problem. Therefore private sector partnership is important, including an FTA between African countries and Japan. However, when it comes to an FTA, most of the Sub-Saharan countries are much less developed than Japan. That is why we decided to explore the possibility of an MJF.

Secondly, the economic relationship between Japan and Maghreb has been very weak relative to the size of its economy. This shows there is a lot of room for improvement.
The total GDP of the 5 Maghreb countries in 2007 was $272 billion, which is almost identical to South Africa's GDP of $271 billion. However, the total amount of trade in 2006 between Japan and South Africa was $10.7 billion. This was 7.25 times greater than that between Japan and Maghreb. When it comes to direct investments, there were only around $10.4 million recorded as Japanese investments in Algeria and Morocco, although Japan's investments in South Africa were $1359 million, more than 100 times those of Maghreb, on a net cumulative basis.

Thirdly an MJF can play a role as a base for Japanese products to enter into the EU market. Last year the EU and South Korea started negotiations on their own FTA. If this is concluded successfully and comes in to effect, it would be a big blow to Japan, because the EU imposes rather high customs tariffs of 14% on flat TVs and on passenger cars at 10%. These would be exempted for South Korea. In order for Japanese companies to cope with this situation, they would have to make investments to construct factories of flat TVs or passenger cars in the EU. However, such investments are usually accompanied by imports of capital goods and core parts and components from Japan – parts that are necessary to produce the final products. The EU imposes tariffs of around 10% on those capital goods, core parts and components. Algeria, Tunisia and Morocco have an FTA with the EU. Libya is negotiating the same. Therefore if an MJF comes into force and Japanese companies make investments in Tunisia or Morocco with imports of capital goods and core parts and components from Japan, they can do so without having tariffs imposed, and the final products can be exported to the EU free of tariffs, thanks to the FTA between the EU and Algeria, Tunisia or Morocco (and Libya in the future). This implies that an MJF will increase Japan's investments in this area.

Last but not least, Morocco has FTAs with the EU and the US. Generally speaking, Japanese products are competing with products from the EU and the US. If these competing products are given tariff free status in a country thanks to its FTAs with the EU and the US, Japanese products have a big disadvantage. To overcome this situation, Japan also has an FTA with such country as Mexico and Chile that have FTAs with both the EU and the US. Therefore it is only natural for Japan to consider having an FTA with Maghreb, including Morocco.