Hopes of Japan free trade deal

By BRIAN FALLOW

If Japanese Prime Minister Junichiro Koizumi visits New Zealand and Australia as expected in early May he might propose talks on bilateral free trade agreements with both countries.

It has yet to be officially confirmed that Koizumi is coming.

And a question mark hangs over his ability to deliver on a reformist agenda in trade or anything else.

But Dr John Edwards, HSBC's chief economist in Sydney and a former adviser to Paul Keating on trade issues, says there have been hints of such an approach across the Tasman and that it is logical in the light of other Japanese trade initiatives.

Japan has already concluded a free trade agreement (FTA) with Singapore and is formally studying one with Korea. It has floated the idea with Mexico.

Two months ago in a speech in Singapore , Koizumi included Australia and New Zealand as "core members" of an incipient East Asian trade bloc or "comprehensive economic partnership" with the Asean countries and the three North Asian powers, Japan, China and Korea.

Japan is New Zealand's third largest trading partner, taking $4 billion worth of exports and providing $3.5 billion of imports last year.

It has also long been Australia's largest export market.

So neither country is likely to tell Koizumi it is not interested.

The major difficulty is agriculture - where Japan is famously protectionist.

Its FTA with Singapore excludes agriculture; even cut flowers and goldfish were taken out of the agreement at the insistence of Japan, lest any precedent be set.

But WTO rules call for regional or bilateral trade agreements to cover "substantially all" trade between the parties.

Trade Minister Jim Sutton has consistently said New Zealand is not interested in deals which fall short of that standard and that sensitive areas should be handled through phase-in provisions.

The concern is that an emerging cat's cradle of bilateral agreements around the Asia Pacific region could undermine the main game, which is the multilateral WTO round launched in Doha last year.

Robert Scollay of Auckland University's Apec study centre said: "If you relax the insistence on being comprehensive in these regional trade agreements, countries such as Japan and Korea, which really would like to get out of doing any liberalisation in agriculture, could begin to see these agreements as a soft option, the line of least resistance, and give priority to them over the WTO."

But Edwards said part of the point for Japan in free trade agreements with this part of the world would be to provide models for similar deals with North America.

"So at some point they will have to deal with agriculture."

Hundreds of less-than comprehensive FTAs had been concluded between countries and it was very rare for any of them to be queried by the WTO.

"Typically they include a statement about intending to address at a later stage sectors not included in the initial agreement."

Edwards said it was also permissible under WTO rules to conclude an agreement limited to one sector such as services.