How is Business Responding?
ADBI series on Asian Economic Integration and Cooperation
Edited by Masahiro Kawai and Ganeshan Wignaraja
Daisuke Hiratsuka, Ikumo Isono and Hitoshi Sato 3.1 INTRODUCTION Japanese firms have expanded their operations overseas, contributing to the formation of production networks in East Asia and accelerating de facto economic integration (see Hiratsuka 2006). In addition, in recent years, free trade agreements (FTAs) have proliferated in East Asia. As of February 2010, Japan had ten bilateral FTAs in effect. In addition, Japan has entered into a plurilateral agreement with Association of Southeast Asian Nations (ASEAN); additional negotiations are ongoing with several more countries. The proliferation of FTAs in the region is thought to be behind the perceived overlapping rules of origin (ROOs) problem, or the ‘noodle bowl’ effect. Effective implementation of these FTAs is becoming an increasingly pressing issue. There have been numerous studies on the impacts of bilateral and plurilateral FTAs. These studies, based on computable general equilibrium (CGE) models, assume that any firm can maximize profits by utilizing the preferential tariffs of FTAs without any additional cost. In reality, however, FTAs require certificates of origin, which impose additional administrative costs on firms. The extent to which firms utilize FTAs depends on the firms’ knowledge about the agreements and their capacities to comply with requirements. With this in mind, this chapter investigates how East Asian FTAs have affected the behaviour of Japanese firms, including affiliates operating overseas. Specifically, the chapter aims to understand the impacts, if any, of different tariffs and ROOs on Japanese exporters. Section 3.2 reviews Japan’s FTA strategy and trade performance on products that have...
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