Japan Economic Foundation

Chairman's Speech

1 . EAFTA, CEPEA, FTAAP and beyond

International Symposium
"EAFTA, CEPEA, FTAAP and beyond"
Kuala Lumpur, Malaysia
October 30-31, 2008
Noboru Hatakeyama, Chairman and CEO

Recently or in the near future, there were and will be five important meetings which have many things to do with international trade and investment within this year with the first four being attended by presidents or prime ministers of countries concerned. They are the ASEAN plus 3 Meeting in Beijing on October 24th, the ASEM Leaders Meeting in Beijing on October 24th and 25th, the Financial Summit Meeting in the US on November 15th, the APEC Leaders Meeting in Lima in November 22nd and 23rd, and the COP 14 from December 2nd until 12th in Poznan, Poland.

Firstly, in relation to the ASEAN plus 3 Meeting and the APEC Leaders Meeting, there are three proposals on the table for discussions on East Asian or Asia Pacific economic integrations;
1) East Asia Free Trade Area (EAFTA) proposed by China which chaired a joint team consisted of professors and experts from ASEAN + 3 countries
2) Comprehensive Economic Partnership in East Asia (CEPEA) proposed by Japan, consisting of ASEAN +6
3) Free Trade Area of the Asia-Pacific (FTAAP) proposed by the United States.
What would be the relationship between the EAFTA, CEPEA and FTAAP? What merits and demerits does each of the three proposals have? What roadmap should we draw to realize them? I think it would be better to have these three studies compete with each other with an assumption that an FTA, one of three above will start on the first come first served basis.

Secondly, regarding the ASEM, leaders of it discussed international finance, food security and safety, and global warming in Beijing just a couple of days ago. However, they did not discuss a FTA among ASEM countries.
Last year, Korea started negotiations with the EU on a FTA between the EU and Korea. Provided that these negotiations are concluded successfully and a FTA between Korea and the EU comes into force, those Asian goods other than Korean ones have to be discriminated in the EU market as compared to Korean goods unless an ASEAN-EU FTA will have been completed. Of course even in that case, Japanese and Chinese goods are discriminated in the EU market as compared to Korean or ASEAN goods.
In addition, an idea to start a study on a possible FTA of APEC as I referred to already has been in the agenda of APEC leaders meeting.
In view of these developments, it would not be too early to start a study on an FTA among ASEM member countries.
Regarding food security, it would be a useful idea to prohibit the ban of exports, which is admitted by WTO in the case of critical shortage of goods in the exporting countries.

Thirdly, regarding the Financial Summit Meeting in the US, information on financial turmoil is dominating the media nowadays. My concern is that big impact brought@about by financial turmoil, being unable to be contained just in financial area, may spill over into trade and investment area. The great depression in 1929 and early 30's was the cause for blocked economies being formulated and Smoot and Hawley Act being enacted at that time. We have to be vigilant against such trade protectionism sneaking in taking advantage of financial turmoil this time. We have to make every effort to resume the Doha Round negotiations.

Fourthly, as of now global warming issue can have many things to do with trade and investment. Although the EU seems to be discussing whether to apply trade measures against non-participating countries, I think it would be quite difficult to do so. In the case of Freon gases, import restrictions were imposed upon the products such as cars and refrigerators including Freon gas based upon the Montreal Protocol.
However, in the case of CO2, it cannot be contained in products. Therefore it would be quite difficult to introduce trade measures against non-participating countries in the Post Kyoto Protocol. Rather, it would be an interesting idea to restrict foreign direct investments in non-participating countries. If a country is not participating in the Post Kyoto Protocol, requiring quantified target to reduce green house gas[GHG] emissions, there is a high probability that many companies in developed countries will invest in such a non-participating country.
Of course the purpose of those direct investments would be to take advantage of freedom of GHG emissions in such a country, escaping from obligations to reduce GHG emissions in their own developed countries. In the Kyoto Protocol, this type of behavior on the part of companies in developed countries is even encouraged under the name of "clean development mechanism."
However, in the Post Kyoto Protocol, this type of obligation-evasive behavior on the part of developed countries'companies should at the very least not be encouraged, but may have to be actively discouraged through investment regulations of developed countries because these companies are trying to escape from an obligation to reduce GHG emissions in their home countries on the one hand, and they will contaminate the atmosphere of recipient countries on the other.
This idea is very provocative, but I would like to float this idea trying to listen to logical opposition to the idea.

If you are interested in my rather personal proposal, please pick up papers that I prepared. My proposal includes a necessity to draw a line between 2013 and 2050 for reducing global GHG emissions by half by 2050 and to introduce a reasonable, fair, transparent, objective and common formula for distributing each yearfs global target to each country in the world. Thank you.