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Japan is one of the leading export markets for ASEAN nations and could gain in importance as a result of a pending trade accord. ASEAN exports to Japan rose by 38.1 percent from US$37 billion in 1999 to US$52 billion in 2000 while imports grew by 19.7 percent from US$51 billion to US$62 billion during the same period. Even though trade slackened during 2001, the pending accord could fuel a recovery in 2002.

The eighth annual conference involving ASEAN economic ministers and their Japanese counterpart, held in Vietnam during September, resulted in a commitment to promptly establish an expanded free trade bloc including Japan.

The conference was co-chaired by Vu Khoan, Minister of Trade of Vietnam, and Takeo Hiranuma, Minister of Economy, Trade and Industry of Japan. According to the ASEAN conference report, "The ministers exchanged views on recent developments in the ASEAN bloc and Japan. Ministers of ASEAN and Japan recognized the importance of further promoting bilateral trade and investment between both parties."

The ministers agreed that export gains achieved by the ASEAN bloc during 2000 would be offset by several downside risks in 2001 and into 2002. The greatest of those risks is a prolonged global economic slowdown. Slack North American demand for ASEAN exports during the third quarter of 2001 underscored the importance of expanding sales to other Asian nations.

In preparation for establishing trade links with Japan, ASEAN is taking several steps to counter the global slowdown. These include expanding the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA), the e-ASEAN initiative, as well as the Initiative for ASEAN Integration (IAI). Japan is also striving to expand its market potential through revitalization of the nation's industrial base and stimulating domestic consumption.

Intra-bloc tariffs will decline in 2002, leading to increased trade among Southeast Asian nations. As a consequence, the average Common Effective Preferential Tariff Agreement (CEPT) tariff rate will drop to 3.96 percent by the end of 2001 and descend to 3.57 by the close of 2002. Assuming that Japan can be linked to ASEAN, most tariff barriers that now limit trade with members of that bloc would disappear.

Japan is a leading export market for intermediate goods produced in ASEAN nations. At the conference, ASEAN ministers defined steps that will be taken to improve the competitiveness of their industrial sector. These steps include strengthening Centers of Excellence (COEs) as well as dispatching experts and equipment to COEs in new ASEAN member nations (Cambodia, Laos, Myanmar, and Vietnam).

In order to remain competitive, ASEAN ministers set the goal of operating as a unified production and consumption base. According to the participating ministers, ASEAN countries must adopt a holistic approach that views the region as a single economy. They stressed the importance of pushing ahead with the region's major initiatives, such as the ASEAN Free Trade Area and the ASEAN Investment Area.

In order to boost intra-bloc trade, ASEAN nations continue to work under the accelerated schedule of duty reduction agreed to at the Sixth ASEAN Summit. By the end of 2000, each of the first six nations to sign the CEPT Agreement had assigned tariff rates of 0 to 5 percent to at least 85 percent of the items on the inclusion list (IL). The proportion of products in the 0-5 percent range will rise to 90 percent by the end of 2001, and the entire inclusion list should drop into that tariff range by the end of 2002.

Newer members of ASEAN will need more time to bring their tariff levels in line with the rest of the group. According to the ASEAN report: "The new members will maximize their tariff lines between 0 to 5 percent by 2003 in the case of Vietnam and 2005 for Laos and Myanmar. Vietnam was scheduled to have 70 percent of its IL with tariffs of 0-5 percent in 2001. Year 2001 legal enactments of Lao Peoples Democratic Republic and Myanmar show that they will have 86.54 percent and 78.18 percent respectively of their IL in the tariff range of 0-5 percent in the year 2005. Cambodia, which had not yet joined ASEAN at the time the acceleration was announced, would nevertheless reduce the tariffs on 91.94 percent of its current included items to 0-5 percent range in the year 2007."

Under the accelerated tariff reduction agreement of 1999, the six original ASEAN leaders agreed to eliminate all import duties by 2010, which is ahead of the original schedule. The leaders also agreed in principle to advance the schedule for eliminating all import duties from 2018 to 2015 for ASEAN's newer members, while allowing some sensitive products to be phased out on the original date of 2018.

Assuming that ASEAN members and Japan succeed in breaking down their respective trade barriers, both stand to benefit greatly through increased trade. Japan is an important market for intermediate goods that ASEAN nations now sell mainly to the United States. Japan also stands to benefit by increasing its exports of finished goods to a bloc that includes several of Asia's most dynamic consumer markets.
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Publication:Market Asia Pacific
Geographic Code:9JAPA
Date:Nov 1, 2001

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