Challenges facing Japan in the process of economic integration and liberalization

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1 Section 3 Challenges facing Japan in the process of economic integration and liberalization <Key points> 1. International comparisons of Japan s export competitiveness from the standpoint of added value and intellectual assets In comparison with the United States (US), both Japan s high value-added exports and products with competitive advantage (adjusted by skill intensity and intellectual intensity) tend to be concentrated in specific areas. Japan s ability to produce and export a wide variety of goods has been decreasing in recent years. In the future, should economic integration in East Asia progress further through the conclusion of economic partnership agreements (EPAs) etc., Japan s challenge will be to form the foundations for participating in vigorous trade in a variety of industries based on attributes and quality differentiation. Not only will Japan have to promote the differentiation and innovation of export products, it must create an environment in which the innovation functions in the international division of functions described in Section 2 remain in Japan. These issues are inextricably linked to the challenge of increasing the roles of intellectual assets in companies and in regions discussed in Chapter Progress of economic liberalization and intellectual assets In analysis of the relation between intellectual asset evaluation scales and the degree of economic liberalization, the higher the evaluation scale, the higher the degree of economic liberalization (and the lower the proportion of import tariff income in total import figures) for all countries, including developing countries. This result is not inconsistent with the following hypothesis: Progress of economic liberalization through regional integration is accelerating competition so that efforts will be made toward the enhancement of domestic intellectual assets, and conversely, these efforts will lay the groundwork for economic liberalization. That is, this suggests that the transition to a new value creation economy through the enhancement of intellectual assets will lay the groundwork for East Asian economic integration while economic integration will work synergistically to promote the transition to a new value creation economy. A significant issue for Japanese industries in achieving value creation through the utilization of intellectual assets is the epidemic in counterfeit and pirated products. To correct this situation, the Japanese government has been calling on other countries not only to develop domestic legislation but also to operate that legislation appropriately and effectively and to strengthen administrative and judicial crackdowns. The government is providing cooperation to that end. As described in the previous sections, in East Asia, an increase in components trade and progress in the division of production processes, mainly in the machinery sector, were observed. It was also -248-

2 confirmed that in the progress of the international division of functions, Japanese companies are trying to maintain innovation functions and production functions for high value-added parts within the country. Furthermore, when looking at Japan s trade pattern with coefficients adjusted by human capital and intellectual assets, which are key elements of aforementioned functions, its competitive advantage turned out to be greater than when it was measured by traditional coefficients. However, the previous analyses also revealed that Japan s competitive advantage and the production network in East Asia were considerably concentrated in the machinery sector. In the future, if trade is more liberalized regionally and globally through the conclusion of EPAs, it is highly expected for Japan to enhance its value creation capacity by utilizing intellectual assets in all sectors besides in the machinery sector. The following sections, in order to make clear the challenges for Japan, look at improvements in its competitive advantage from the standpoint of added value of exports, skill intensity, and intellectual intensity, compared with the US. 1. International comparison of Japan s export competitiveness from the standpoint of added value and intellectual assets (1) Comparison of the export profiles by added value Here, we look at the similarity of the export profile of each country based on ranking of its export items (HS six-digit classification: about 5, items) by a method of added value index. The added value index for each item was calculated using the method by Kwan (2). 1 This method is based on the concept that the added value index of each item reflects the per-capita GDP of an exporting country, so that it is calculated by the weighted average of per-capita GDP taking account of exporting countries shares for each item. Figure plots the distribution of the export profiles for Japan, the US, China and East Asia 2 based on the added value index thus calculated. In 1992, the distribution for Japan showed a slightly wider range in the high value-added area than that for the US, but in 2, both distributions almost overlapped. The distribution for East Asia somewhat increased the share on the higher value-added side (the right side) of its peak, while those for China and East Asia became similar as a whole. As Figure only represents the comparison of the distributions, the next step is to examine changes in the proportion of overlap (the degree of competition) taking the exports value into consideration. Figure shows the degree of competition with the US and East Asian countries for Japan. In trade as a whole, the changes in the past decade indicate the increase in degree of competition with both the US and East Asia. In particular, the degree of competition with East Asia has reached the level similar to that with the US. Also, the degree of competition with China expanded three times over the period. Next, the proportion of overlap is examined only for high value-added items. The degree of competition in export items whose added value is over, dollars and those 1 While Kwan (2) examined the competition in the US import market, the focus here is on the competition in the world export market. For basic data, see Footnote 1 of Chapter 3, Section 1. 2 East Asia here excludes Japan but includes China. This definition applies to all analyses in the section (1) Comparison of the export profiles by added value

3 over, dollars show almost the same trend as that in all items. That is, competition is accelerated with both the US and East Asia, and the degree of competition with East Asia is rising closer to that with the US. As for export items whose added value is over 3, dollars, the degree of competition with the US remarkably increased from to 44.7 percent over the period from 1992 to 2. This confirms the increased overlap of the distribution in the high value-added area between the US and Japan, as visually indicated in Figure Moreover, the degree of competition with East Asia more than doubled as well. Figure Degree of competition in the world export market for each country East Asia (excluding Japan) Japan China US (1) 1992 (2) Share Share ,, Added value index of export items ($) Notes: 1. Calculations were based on Kwan (2). 2. East Asia excludes Japan but includes China. Sources: UN Comtrade (UN); WDI 2 (World Bank). 5, 1,, Added value index of export items ($) Figure Degree of competition with each country and region in the world export market (Japan) 5, Degree of competition with each country and region Degree of competition with each country and region (Added value index over $,) US US East Asia East Asia China China Singapore Singapore Korea Korea Hong Kong Hong Kong Thailand Thailand Malaysia Malaysia Philippines Philippines Indonesia Indonesia Degree of competition with each country and region Degree of competition with each country and region (Added value index over $,) (Added value index over $3,) US US East Asia East Asia China China Singapore Singapore Korea Korea Hong Kong Hong Kong Thailand Thailand Malaysia Malaysia Philippines Philippines Indonesia Indonesia Note: Proportions were calculated by (each country and region's export value) / (Japan's export value) for each field of added value index in Figure Sources: UN Comtrade (UN); WDI 2 (World Bank). Next, Japan s high value-added exports are examined from the standpoint of world market shares and their diversity. Using the above concept of added value index, export items whose added value indices are over, dollars were categorized into industry sectors and the world market share of Japan was compared with that of the US for each sector. The results are shown in Figure In the field of export items whose added value indices are over, dollars, the world market shares of the US are generally higher than those of Japan, and the US has high market shares in a wider range of sectors while Japan has high market shares largely in machinery sectors (Fig ). -25-

4 Figure Shares of export items whose added value index is over $, (2) Japan 2. US Others Chemical industrial products General machinery Electrical machinery Iron and steel Machinery Precision machinery Transport machinery Iron and steel Others Chemical industrial products Electrical machinery Transport machinery Machinery General machinery Precision machinery Sources: UN Comtrade (UN); WDI 2 (World Bank). As described above, when looking at the changes in the degree of competition for certain added value over the past decade, the degree of competition with the US and that with East Asia are increasing, particularly in competition with East Asia and in high value-added exports. Furthermore, when Japan was compared with the US in terms of the distribution of high value-added exports, Japan s exports turned out to be concentrated in specific sectors. (2) Japan-US comparison of trade patterns considering intellectual assets In the previous section, using the trade specialization coefficient, changes in the trade pattern were examined taking skill intensity and intellectual intensity into account. What can be found out when comparing the US trade pattern with Japan s by using the same adjusted coefficient? Figure shows the ratios of the number of US export items whose competitive advantage was improved when the trade specialization coefficient was adjusted by skill intensity and intellectual intensity. Compared with Japan, in exports to the world, the number of US export items with improved competitive advantage is slightly higher than that of Japan s when the trade specialization coefficient was adjusted by skill intensity. In case of trade between Japan and the US, however, the number of Japan s export items showing improvement is higher than that of the US. Figure Proportions of number of export items improved by adjustment of trade specialization coefficient (US) Chemical industrial products Iron and steel General machinery Electrical machinery Transport machinery Precision machinery Others (1) Adjusted by skill intensity (2) Adjusted by intellectual intensity World East Asia China EU Japan World East Asia EU Japan Notes: 1. See the note in Figure for skill intensity, and the note in Figure for intellectual intensity (provisional intellectual asset evaluation indices B by country and region). 2. East Asia excludes Japan but includes China. Sources: Computations based on World Trade Atlas (Global Trade Information Services); GTAP Version 5 Data Base (GTAP); Intellectual Assets Study Group

5 Next, looking at changes in the distribution of the US trade specialization coefficient adjusted by skill intensity and intellectual intensity with the same method previously applied to Japan (Figs , 3.3.6). Before the adjustments, the share of US export items in the two highest levels (coefficient range from.2 to 1) amounts to percent, somewhat less than Japan s percent (previously, only the highest level was accounted for). Compared after adjustment by skill intensity, the US shows greater improvements in its share, exceeding Japan in the two highest levels. Meanwhile, after adjustment by intellectual intensity, the US share in the two highest levels is smaller, but the range of improvements is greater than that of Japan. Figure Composition of comparative advantages and disadvantages in US trade commodities (3) Chemical industrial products Iron and steel industry General machinery Electrical machinery Transport machinery Precision machinery Others All types 3 (1) Trade specialization coefficient (2) Trade specialization coefficient adjusted by skill intensity (3) Trade specialization coefficient adjusted by intellectual intensity 3 3 disadvantageous Neutral advantageous disadvantageous Neutral advantageous disadvantageous Notes: 1. The trade specialization coefficient was calculated at the HS 4-digit level. The coefficient was classified into the following ranges (most disadvantageous: under -.6, disadvantageous: -.6 to under -.2, neutral: -.2 to under.2, advantageous:.2 to under.6, most advantageous:.6 or above) and the relative composition of the number of included items was calculated. 2. Refer to the note in Figure for skill intensity, and the note in Figure for intellectual intensity (provisional intellectual asset evaluation indices B by country and region). 3. The trade specialization coefficients were calculated as follows: (1) Trade specialization coefficient = (value of exports - value of imports) / (value of exports + value of imports). (2) Trade specialization coefficient adjusted by skill intensity = (skill intensity value of exports of the exporting country - skill intensity value of imports of the importing country) / (skill intensity value of exports of the exporting country + skill intensity value of imports of the importing country). (3) Trade specialization coefficient adjusted by intellectual intensity = (intellectual intensity value of exports of the exporting country - intellectual intensity value of the imports of the importing country) / (intellectual intensity value of exports of the exporting country + intellectual intensity value of imports of the importing country). Sources: World Trade Atlas (Global Trade Information Services); GTAP Version 5 Data Base (GTAP); Intellectual Assets Study Group. Neutral advantageous Figure Comparison of the degree of improvement of the trade specialization coefficients in Japan and the US Trade specialization coefficient range Trade specialization coefficient Adjustment by skill intensity Adjustment by intellectual intensity.2-1. Share Improvement range Improvement range Difference Japan US Japan US Japan US Difference All goods Chemical industrial products Iron and steel General machinery Electrical machinery Transport machinery Precision machinery Others Note: Computations based on Figure 3.2. and Figure Sources: Trade Statistics (Ministry of Finance), World Trade Atlas (Global Trade Information Services), GTAP Version 5 Data Base (GTAP), Intellectual Assets Study Group

6 (3) Variety of export goods and Japan The ability to newly produce and export a greater variety of goods can be considered as a scale to measure a country s value creation capacity. Broda and Weinstein (4) ranked exporting countries to the US by the variety of goods as US imports are diversified 3 (Fig ). According to this ranking, in 1972 and 1988, Japan ranked 1 st in the variety of exports to the US, but slipped to 3 rd in 199, and further declined to 7 th in 1. Meanwhile, China, Taiwan, Korea and Mexico rapidly diversified their exports to the US market, with China in particular moving up sharply from 28 th to 4 th position from 1972 to 1 (Fig ). On the other hand, developed countries such as the UK and Germany keep a high rank, indicating that exports from developed countries are not losing variety while those from developing countries are increasing variety. Thus, taking a look at US import data, one of the challenges for Japan seems to be how to increase variety of exports to the US. Figure Ranking of exporters in terms of variety of goods imported by the US Japan UK Germany Canada France Italy Taiwan Mexico Korea China Note: The ranking is based on the number of tariff code lines for imported goods by the US. Source: Broda and Weinstein (4). As seen above, it is becoming obvious that competition with both the US and East Asia is accelerating in the high value-added exports. It can also be observed that the number of Japan s competitive exports increases when skill intensity and intellectual intensity are considered. However, compared with the US, Japan s high value-added exports and competitive exports tend to be concentrated in specific sectors when skill intensity and intellectual intensity are taken into account. Moreover, the ability to produce and export a wide variety of goods appears to be declining in recent years. As described in Section 2, in the EU, where economic integration is further in progress, trade based on attributes and quality differentiation is more active in various industries compared with East Asia. While economic integration in East Asia and that in Europe can not simply be taken as identical, should economic integration in East Asia progress further through the conclusion of EPAs in the future, Japan s challenge will be to form the foundations for participating in vigorous trade in a variety of 3 The number of items was counted by tariff codes for imports and used as an index of variety. In a precise sense, the digits of tariff codes (eight digits for 1972, digits for 1) and the number of tariff codes (74,667 items for 1972, 259,125 items for 1) are different for each year; however, it is still possible to make comparisons among countries for the same year

7 industries based on attributes and quality differentiation. Furthermore, given that companies are expanding their overseas production bases with the progress of economic globalization, it is assumed that acceleration of competition in high value-added sectors is inevitable even though appropriate measures are taken for protecting intellectual property rights. Bearing these matters in mind, not only will Japan have to promote the differentiation and innovation of export products, it must create an environment in which the innovation functions in the international division of functions described in Section 2 remain in Japan. These issues are inextricably linked to the challenge of increasing the roles of intellectual assets in companies and in regions discussed in Chapter 2. In other words, internal and external challenges for Japan are to develop an economy with value creation capacity through the utilization of intellectual assets. 2. Progress of economic liberalization and intellectual assets (1) Progress of economic liberalization and intellectual assets It was pointed out that the importance of value creation capacity through the utilization of intellectual assets increases as economic integration progresses in the East Asian region. But at the outset, is there any relation between the progress in economic liberalization through regional integration and each country s level of intellectual assets? As described repeatedly, the quantitative evaluation of intellectual assets itself remains a future issue so that the evaluation at the moment is nothing more than provisional. Here, we look at the relation between formerly employed intellectual asset evaluation scales (skill intensity, provisional intellectual asset evaluation indices A and B by country and region) and the degree of economic liberalization. In this analysis, the ratio of tax income from imports to the total imports based on IMF data is used as the degree of economic liberalization. The results are shown in Figures 3.3.8, and In all cases, coefficients are negative, and their t-values have significance level at 5 percent. However, it should be noted that there are some cases where the years of data are not the same due to limitations of data and where the number of samples are small. Taking a view of developed countries alone, there seems to be no clear relation between the degree of economic liberalization and the intellectual asset evaluation scales, whereas looking at all samples, including developing countries, the higher the degree of economic liberalization (and the lower the proportion of import tariff income in total import figures), the higher the respective intellectual asset evaluation scales. This result is not inconsistent with the following hypothesis: Progress of economic liberalization through regional integration is accelerating competition so that efforts will be made toward the enhancement of domestic intellectual assets, and conversely, these efforts will lay the groundwork for economic liberalization

8 skill intensity Netherlands Norway Greece Singapore Canada Sweden Denmark UK Italy France Spain Austria Figure Tariff rate and skill intensity by country and region US Japan China Malaysia Mexico Indonesia Thailand Korea t value: -5.9, R 2 : tariff rate Notes: 1. The tariff rate was calculated as a ratio of government tax income from imports to the total value of imports. For EU countries and China, due to the limitations of data, government tax income from trade was used for calculations. 2. For the most part the latest tariff rate was used, but due to the limitations of data, the year used for the following countries and regions were: 2: Japan 1: US, Canada, Germany, Netherlands, Singapore, Philippines, Thailand, and Indonesia : UK, France, Italy, Sweden, Finland, Denmark, Austria, Greece, Luxembourg, Spain, and Mexico 1999: Norway and Portugal 1998: China 1997: Korea and Malaysia 3. Refer to the notes in Figure for skill intensity. 4. The t-value is the t-value of the linear regression coefficient. The R 2 value is the coefficient of determination adjusted for degrees of freedom. Sources: IFS, Government Financial Statistics (IMF), Ministry of Finance website, GTAP Version 5 Data Base (GTAP). Philippi Figure Tariff rate and provisional intellectual asset evaluation indices A by country and region Provisional intellectual asset evaluation indices A France Norway Netherlands Canada Finland Italy, Germany UK Sweden Denmark Singapore US Japan Indonesia Thailand Malaysia t-value: -2.9, R 2 : (tariff rate: %) 6 Korea Notes: 1. The tariff rate was calculated as a ratio of government tax income from imports to the total value of imports. For EU countries and China, due to the limitations of data, government tax income from trade was used for calculations. 2. For the most part the latest tariff rate was used, but due to the limitations of data, the year used for the following countries and regions were: 2: Japan 1: US, Canada, Germany, Netherlands, Singapore, Philippines, Thailand, and Indonesia : UK, France, Italy, Sweden, Finland, Denmark, Austria, Greece, Luxembourg, Spain, and Mexico 1999: Norway and Portugal 1998: China 1997: Korea and Malaysia 3. Refer to Chapter 2, Section 1 for the methodology of the indices. 4. The t-value and R 2 value in the figure are the t-value of the linear regression coefficient and the coefficient of determination adjusted for degrees of freedom. Sources: IFS, Government Financial Statistics (IMF), Ministry of Finance website, Intellectual Asset Study Group. China Philippines Figure 3.3. Tariff rate and provisional intellectual asset evaluation indices B by country and region Provisional intellectual asset evaluation indices B 55 France Norway Japan 5 Netherlands US 45 Spain Singapore Germany Italy Sweden UK Denmark Austria Finland Mexico Malaysia Thailand t-value: -3.8, R 2 : tariff rate 6 Notes: 1. The tariff rate was calculated as a ratio of government tax income from imports to the total value of imports. For EU countries and China, due to the limitations of data, government tax income from trade was used for calculations. 2. For the most part the latest tariff rate was used, but due to the limitations of data, the year used for the following countries and regions were: 2: Japan 1: US, Canada, Germany, Netherlands, Singapore, Philippines, Thailand, and Indonesia : UK, France, Italy, Sweden, Finland, Denmark, Austria, Greece, Luxembourg, Spain, and Mexico 1999: Norway and Portugal 1998: China 1997: Korea and Malaysia 3. Refer to Chapter 3, Section 2 for the methodology of the indices. 4. The t-value and R 2 value in the figure are the t-value of the linear regression coefficient and the coefficient of determination adjusted for degrees of freedom. Sources: IFS, Government Financial Statistics (IMF), Ministry of Finance website, Intellectual Asset Study Group. Thus, it is assumed that the East Asian economic integration will promote efforts toward the enhancement of intellectual assets. In order to progress economic integration, it will be necessary for Japan to increase its competitiveness by the enhancement of intellectual assets. Citing the expression in Chapter 2, this suggests that the transition to a new value creation economy through the enhancement of intellectual assets will lay the groundwork for East Asian economic integration while economic integration will work synergistically to promote the transition to a new value creation economy. (2) Progress of economic liberalization and the protection of intellectual property rights With the progress of economic liberalization, including economic integration, in East Asia, sufficient protection of intellectual property rights becomes an ever more important issue to maintain and strengthen the Japanese companies competitiveness. This issue was already discussed in the 4 Report on the WTO Consistency of Trade Policies by Major Trading Partners, so it is not explained here further, but the pervasion of counterfeits and pirated products becomes a significant issue for Japanese industries. To correct this situation, the Japanese government has been calling on other countries not only to develop domestic legislation but also to operate that legislation appropriately and effectively and to strengthen administrative and judicial crackdowns. In particular, the situation in China needs to be corrected, since Japanese companies are suffering serious damage caused by counterfeits which are made in China. To support efforts in other countries, the government is providing cooperation in accepting foreign trainees and sending experts. Intellectual assets are the concept which includes a variety of assets, such as intellectual property, -255-

9 human resources and organizational processes. In order to realize a new value creation economy, it is essential not only to protect current intellectual property rights but also to evolve constant innovations which connect seeds on the supply side to specific demand. [Column] Development of multi-tiered trade policy Progress in the globalization of the world economy has opened the door to an era where all kinds of resources such as goods, people, capital and information move across borders to seek more efficient modes of business. Amid this trend, Japan is beginning to take a multi-tiered approach to external economic policy: in addition to the traditional emphasis on (i) efforts to maintain and strengthen the multilateral trade system with the WTO at its core, Japan will actively engage in (ii) economic partnership agreements (EPAs), which cover a wider area than free trade agreements (FTAs) and allow more flexibility, and (iii) regional efforts such as APEC. 1. Efforts at the WTO In the area of global trade rules, the GATT system was formed in 1948, tariff levels have been gradually reduced and trade-related rules developed through several rounds of negotiations. These developments have led to the establishment of the WTO in January 1995 which is now the primary driving force for the multilateral trading system. In November 1, the Doha Development Agenda (commonly known as the New Round or the Doha Round 4 ) was launched at the WTO Ministerial Meeting in Doha, Qatar, which is the first round of trade negotiations since the establishment of the WTO (Fig ). The WTO failed to reach agreement at the Cancun Ministerial Meeting in September 3, which was held to conduct a midterm review preceding the final deadline of the round at the end of 4, but all of the DDA bodies have resumed their work as of March 4, and there is a consensus to seek agreement on a package which includes a framework agreement on agriculture and non-agricultural market access by the end of July 4. Japan is focusing its immediate efforts towards reaching agreement on a package which includes a framework on agriculture and non-agricultural market access in order to move the Doha Round forward. Japan will actively participate in the negotiations in order to achieve a comprehensive package which strikes a balance between market access and rules. The WTO is at the core of the world trade system as the only organization for setting multilateral trade rules, including rules on domestic support, and as the organization for ensuring the implementation of rules through the dispute settlement mechanism under which an independent, third party passes a judgment. Even if Japan is to institutionalize economic relations which have deepened on a de facto basis in the form of EPAs, it is important to maintain and strengthen the WTO as a global and common arena. 4 This round is officially called the Doha Development Agenda (DDA)

10 2. Efforts toward economic partnerships While negotiations are continuing for the making of global trade rules, active efforts are also under way to strengthen regional or bilateral economic partnerships between Japan and largely East Asian and other countries as well. Japan is striving toward the early conclusion of EPAs with Mexico and East Asian countries as priority issues for the moment. The current state of these negotiations is outlined below: Figure Flow of liberalization negotiations in the WTO <Market access sector> <Rules sector> Jan Inauguration of GATT Tariff on industrial products Tokyo Round Various rules such as Anti-Dumping Agreement, etc. Agriculture, Services Tariff on industrial products Uruguay Round Various rules such as Anti-Dumping Agreement, etc. Agreement on Textiles and Clothing, TRIPS Agreement, TRIM Agreement, Dispute Settlement Understanding, etc. Jan Inauguration of WTO Agriculture, Services (built-in agenda) Market access for non-agricultural products 1 - New Round "Doha Development Agenda" Anti-Dumping Agreement, etc. (Implementation-related issues of developing countries, TRIPS & Health, etc.) Singapore issues (investment, competition, trade facilitation, transparency in government procurement), environment Note: TRIPS Agreement stands for "Agreement on Trade-Related Aspects of Intellectual Property Rights," TRIM Agreement stands for "Agreement on Trade-Related Investment Measures." Source: METI. (1) Mexico In the negotiations with Mexico that continued since November 2, relevant ministers from both countries agreed in substance in March 4. The conclusion of the Japan-Mexico EPA would allow both countries to take advantage of their mutual complementarities to expand bilateral trade and investment, bringing enormous benefits to the Japanese economy. In trade, the abolition of the average 16-percent rate of tariffs should eliminate the disadvantages in export competition with Western companies, with expectations of increased exports to the Mexican market and a recovery of opportunity gains that had been lost in the absence of the agreement. The EPA will also allow Japanese companies to invest and operate businesses in Mexico freely and smoothly through the development of investment rules and improvements in the business environment. Going forward, both countries intend to work out technical and legal matters at the working level promptly and seek the signing and effectuation of the EPA as early as possible. (2) East Asia Japan and East Asian countries, in reality, have already established the relation of deep economic -257-

11 interdependence. Japan is actively pursuing efforts to institutionalize this actual partnership by promoting EPAs with East Asian countries because these efforts will help secure and solidify the interests of Japanese companies and also contribute to the revitalization of the Japanese economy as well as to the development of an environment for economic growth of East Asia as a whole. To this end, Japan believes the future strategic challenge is to create a seamless economic sphere covering all of East Asia, where goods, services, people and capital can move more freely. To begin with, Japan is undertaking these efforts with ASEAN and Korea. (a) ASEAN Concerning Japan and ASEAN, efforts toward economic partnerships are being pursued between Japan and ASEAN as a whole, along with bilateral efforts between Japan and Thailand, the Philippines and Malaysia. (Bilateral) Following discussions at the Industry-Government-Academia Joint Study Group, an agreement was reached to launch negotiations at summit talks in December 3, and the negotiations started in 4 (in January with Malaysia, and in February with Thailand and the Philippines). (Japan-ASEAN) Efforts are under way on the basis of the Framework for Comprehensive Economic Partnership between Japan and the Association of South East Asian Nations, decided and signed at the summit meeting in October 3. As for the proceeding of negotiations, the Framework calls for: (i) the start of consultations in 4; (ii) maximum efforts toward the launch of negotiations in early 5, paying due heed to the results of bilateral negotiations; (iii) the conclusion of negotiations as early as possible, securing enough time for implementation; and (iv) completion of the implementation of measures for the realization of the Japan-ASEAN CEP in 12 (in 17, for the new ASEAN members). In February 4, the Japan-ASEAN CEP Committee was convened to start consultations on country of origin rules and other issues. (b) Korea Following discussions at the Industry-Government-Academia Joint Study Group, an agreement was reached to launch negotiations at summit talks in October 3, and the first round of negotiations was held in December 3. Both countries are aiming for substantial agreement by the end of