Articles

As the two major countries in the region, China and Japan are currently starting to strengthen and deepen their economies with ASEAN and build solid relations between among them, the final objective of which is to develop the regional integration and realize an economic community in East Asia. At the most basic levels, there are the three main factors relating to this emerging regionalism. The first factor is increasing uncertainty about the future of a multilateral framework under the World Trade Organization (WTO). The Doha Development Agenda held in Doha, Qatar in November 2001, still fails to reach an agreement for concluding negotiations among the 149 members of WTO. The second factor is the strengthening and expansion of the European Union (EU) in Europe, and the creation of the North America Free Trade Agreement (NAFTA) in North America and the enlargement of Pan-Americanism. The deepening and widening of trade blocs in Europe and North America caused the East Asia nations huge concern that their exports would face fierce competition due to the large markets of EU and NAFTA. The third factor, which is a catalyst in considering issues of the new regional integration in East Asia, is East Asian Financial Crisis of 1997-98. The financial crisis fostered a new belief that the East Asian nations need to band together so that the contagious spread of crises could be minimized by creating a regional financial framework.
In order to make the development of their economic community more crucial and advanced, the East Asian nations are now undertaking its development of the regional integration that would bring the huge prosperity to the region. At the center of a whole series of preferential trade arrangements in the region, the Association of South-East Asian Nations (ASEAN) has a significant role in developing a regional framework for the creation of a common market in the region. ASEAN is currently negotiating bilateral and regional free trade agreements with countries in and outside the region. In the arrangement, the ASEAN Free Trade Area (AFTA) has been the most advanced and proactive effort to lead to the creation of a common market in East Asia. However, actual effectiveness of the tariff reduction and trade liberalization scheme in AFTA still remains at a low level because ASEAN, compared to other region such as EU or NAFTA, has obviously lower levels of intra-regional trade, and thus could not take advantage of its tariff reduction and trade liberalization. In 2004, in fact, ASEAN’s intra-exports accounted for 23.1 percent of its total exports and its intra-imports accounted for 23.1 percent of its total imports whereas EU and NAFTA intra-exports accounted for 67.6 and 55.9 percent and its intra-imports for 66.2 and 35.3 percent, respectively of its total exports and imports.
The empirical evidence supports the claim that AFTA could be a more effective trading arrangement by linking Northeast Asian nations – China, South Korea and Japan –, and representing the entire East Asian region. As the two major countries with strong interests in the regional integration, more importantly, China and Japan have central roles in influencing an agenda for promoting economic cooperation. This paper thus assesses that the key to successfully developing regional economies lies in the assessment of implications China and Japan to bring for the economic integration in East Asia by exploring issues of the initiative in the regional development.

The Economic Growth of China
Growing at a GDP rate of 7-9 percent between 1998 and 2004, China has achieved remarkable economic growth even in the new decade and sustained record rapid expansion in both trade and inward investments. China also has increased its political and economic presence due to this outstanding performance and thus posed a sentiment of “China is threat” to the region. When it comes to China’s growing international trade, China has experienced tremendous export expansion. China’s export grew nearly tenfold from US$62.1 billion in 1990 to US$593.3 billion in 2004, making China the third largest exporter in the world. Furthermore, China has increased the importance as a trading partner for the U.S. and EU. For example, the market share of U.S. imports from China has risen from 5.6-13.8 percent during 1993-2004 whereas Japan has declined from 18.3 to 8.7 percent. The market share of EU imports from China has also risen from 2.6 to 4.1 percent while Japan has decreased those figures from 3.3 to 2.4 percent during 2000-2004. In addition, China has encouraged foreign investment into the Chinese market, and opened and expanded the scope for the investment by carrying out a series of reforms of its investment regimes. FDI inflows into China had grown more than tenfold from US$3.5 billion in 1990 to US$53 billion in 2002, which is now overtaking the U.S. as the biggest FDI recipient in the world. The economic growth of China represented by growing its exports and imports, and expanding inward investments underscores the need for an examination in details as to whether China would be capable of taking the initiative in developing economic integration in the region while dealing with the formidable tasks of reforms in the wake of China’s WTO accession and China’s internal problems, both of which have concerned the process on which China develops its economy consistent with the global trading system.

China’s Relations with ASEAN
A major reason for the dynamism of the economies of ASEAN and China has been the rapid growth of ASEAN-China trade because foreign trade could be defined as an important driving force behind the economic development of both regions. During the period from 1990-2000, China’s export grew by an average of 14.5 percent, and ASEAN’s regional export was growing at an annual average rate of 17.0 percent before the occurrence of the financial crisis of 1997-98. Both China and ASEAN also achieved high growth rates in foreign trade between two regions, in fact, ASEAN-China trade grew from US$8.8 billion in 1993 to US$81.9 billion in 2004. In contrast to Japan whose exports and imports share in ASEAN’s market decreasing by 13.1-12.3 percent and 16.9-15.8 percent, moreover, the share of ASEAN’s exports and imports accounted for by China has risen over during 2000-2004, 3.9-7.4 percent and 5.4-9.3 percent. The evidence thus suggests that it is clear that China’s role in East Asia become increasingly significant. As a result of China’s emergence proven to be a major positive impact on a preparation for further economic development, more importantly, it is encouraging that there would be a need in an effort to foster strong economic relations between ASEAN and China.
At the ASEAN-China Summit held in November 2002, they signed the Framework Agreement on ASEAN-China Comprehensive Economic Cooperation that includes an establishment of ASEAN-China Free Trade Area (ACFTA) under which the deadline for implementation of tariff eliminations is 2010 for ASEAN 6 and China, and 2015 for the new ASEAN members. The agreement also stipulates an implementation of an “Early Harvest” program that promotes progressive liberalization of certain agricultural items in line with the schedule set out in the agreement. It is expected that there would be significant effects on the economies of both ASEAN and China by deepening economic linkages, and establishing open and competitive invest regimes, however, the framework of cooperation must recognize the difference in levels of development among the members who are the least developed countries in order to adjust their economic structures with China and facilitate the increasing participation of the members in the framework. In addition, the removal of trade barriers between ASEAN and China, which leads to increasing intra-regional trade and economic efficiency, would adversely affect each region’s domestic market due to intensifying competition. Going beyond the obstacles and difficulties, however, the adoption of this framework of economic cooperation between ASEAN and China would be successful in bridging the development gap among the participating nations, and moving ASEAN-China relations forward.
It is also important to note that China’s WTO accession has major implications for China and the ASEAN members, and presents both opportunities and challenges for the region as a whole. In the negotiation of the entry into the WTO, China has agreed to undertake a series of important commitments and market liberalization measures that have been crucial in promoting China’s integration with the global trading system and offering a more predictable environment for trade and inward investments in accordance with the WTO rules. Accession to the WTO is also expected to produce significant benefits to China in terms of additional economic growth generated by trade and investment reforms that are part of the accession agreement. In addition, China’s recent commitments on trade in services represent the most significant part of China’s accession package, and would generate enormous productivity gains. Reforms of China’s manufacturing encompass the removal of quotas on China’s textiles and clothing exports to EU and NAFTA. As a consequence of its WTO accession, China has formally been included in the Uruguay Round Agreement on Textiles and Clothing (ATC) would eventually obtain unrestricted access to textiles and clothing export markets. After the removal of quotas, textiles and clothing industry would still face formidable barriers to market access in both developed and developing countries’ markets in the form of high tariffs and perhaps safeguard measures, however, there is no doubt that China would substantially increase its world market share in the textile and clothing industry following the elimination of quotas agreed under the ATC. In addition to the market liberalization measures, one more factor contributing to this outstanding performance is the high level of FDI inflows driven by the relocation of labor-intensive manufacturing sectors from advanced economies into China. Investment liberalization in China would make it possible for multinational corporations (MNCs) to further rationalize their production process within East Asia. Given the development, WTO membership would have significant implications for promoting China’s economic growth by enhancing its economic efficiency and promoting its industrial progress.
The potential impacts of China’s WTO Accession on the ASEAN members would be identified on the following three important aspects. First, ASEAN would increase its access to China’s domestic market as a consequence of China’s accession commitments. Second, it would thus cause fierce competition in both regions. Third, the possible impact on FDI inflows into ASEAN in light of China’s admission to the WTO would be witnessed. These three aspects provide the basis for understanding the blueprint for future economic relations between ASEAN and China. An important consideration for the ASEAN’s benefits in favor of China’s WTO accession commitments is that the ASEAN members would gain market access to China and thus expanding its exports to China rapidly. However, it is an identical argument that there would be increased competition from Chinese exporters in the world market, which is leading to great concern about forthcoming disruptive effects on domestic producers. The sectors where the greatest challenges are anticipated are textiles and clothing, labor-intensive manufactures and electronic industries in which it becomes apparent that China would show its increasing competitiveness in the global export markets, and thus pose a more direct competitive threat to the ASEAN’s economies. In order to minimize the negative impacts on the ASEAN’s economies in the wake of China’s WTO accession, some ASEAN members are supposed to undergo significant adjustment aimed at competing with China in the export of labor-intensive products. The ASEAN’s economies might also have to adjust to a greater share of FDI in the region going to China, and need to take steps to facilitate their own liberalization measures and technological innovations in order to improve resource allocation and enable them to pursue their own comparative advantage. For these reasons, it is widely expected that China’s accession to the WTO would make it more attractive to a large amount of FDI and it might consequently further divert investment away from other developing countries, in particular, the ASEAN members. There is thus a need to take some measures enhancing the economic relations between ASEAN and China otherwise it is likely to cause considerable concerns among the ASEAN members.

China’s Economic Challenges
The analysis so far has highlighted the China’s presence, the main source of which is arising from the fact that its economy has been expanded rapidly, and economic relations between ASEAN and China have been enhanced strongly through a broad range of economic perspectives, is open to a primary interpretation that China would take the initiative in the regional development. However, it would be suspect to the likely outcome with respect to the initiative unless China overcomes a large number of economic challenges and difficulties currently facing China. The main concern is whether China is capable of undertaking trade reforms and commitments made as a part of the WTO accession agreements that have been critical in promoting China’s integration with the global trading system.
Regardless of whether it would be great expense on its economic development in the future, as a WTO member, China must strictly adhere to all WTO rules and ensure conformity of its domestic laws and regulations with the WTO rules so as to fully perform its international obligations. The essential change with regard to China’s legal system exists at the center of the assessment of its compliance with its WTO accession commitments. In fact, China’s policies and regulations needs to be corrected so that it would become more transparent and accountable, and be conducive to creating a favorable and fair environment for foreign traders and investors. As the essential component of reforms, in addition, China must strengthen the legislative framework of the enforcement of intellectual property rights consistent with the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Significant critics have also proposed a wide range of reforms, in particular, the liberalization of its currency, renminbi (RMB). On July 2005, in order to meet strong demand for the promotion of its currency liberalization, China that made the RMB pegged to the US dollar in a managed floating rate system since 1994 undertakes to revalue the RMB upward 2 percent and moved to a currency basket system. Nevertheless, it is still encouraging that China need to further liberalize its exchange rate regime based on market supply and demand to promote trade and investment liberalization. Associated with these changes in its legal and currency system, China would also face the formidable economic challenges because there would be import surges forcing a number of inefficient small and medium-sized enterprises to go to bankrupt by experiencing the fierce competition due to the substantial increase in the entry of foreign goods, firms and investment into the country in the wake of its acceleration of market liberalization measures consistent with the WTO requirements. Of more importance is to promote reforms of state-owned enterprises (SOEs) so as to be consistent with the market economy. The deterioration in management of SOEs has resulted in the emergence of large non-performing loans by financial institutions. In order to enhance the competitiveness of SOEs, thus, China must stop the continuing governmental influence on the management of SOEs and no longer directly administer operational activities so as to be determined by the market forces otherwise the deterioration of non-performing loans would pose huge burdens on China.
China is also facing increased regional disparity and growing gaps in the income level, which is one of the most serious social problems arising from the development process. The acceleration of liberalization and competition arising from China’s implementation of its WTO commitments might make those problems worse, and it thus remains intractable unless China facilitates the implementation of adequate reforms. Income disparity is now rapidly widening between those people living mainly in urban areas by enjoying the benefits of the economic development and those people living in rural areas. In 2002, for example, the income disparity between urban and rural areas was 3.1 times, and the income disparity between the two areas is currently further increasing. In order to correct such economic disparities, thus, the government should make a transition from the previous policy of prioritizing development on coastal regions to a policy that focuses on the development of the central and western regions, and undertake a policy designed to promote balanced regional economic development.

Japan’s FTA and EPA Strategies
With regard to Japan’s trade policy, although its main framework is through the multilateral trading system centered on the WTO, Japan began to place high emphasis on a multi-layered external economic policy that utilizes various approaches, including regional and bilateral measures. Being free trade agreements (FTAs) and economic partnership agreements (EPAs) important tools for invigorating its economy, in this regard, Japan has been intensifying its pursuit of reaching economic partnership with its trading partners in East Asia where it is rapidly gaining bigger economic presence in the world. In addition, it is a vital importance for Japan to further commit to preferential trade arrangements in the region when considering the observation suggesting that the East Asian nations become an increasingly important trading partner for Japan. Ensuring that all East Asian nations could benefit from tariff reduction, trade liberalization, and further inflows of investments and services, there are some possible ways of promoting economic cooperation in East Asia. As a means to foster such a regionalism and develop the economic integration in East Asia, the most notable and significant means is to create a common market in the region. In the formation of a common market, Japan should place high priority on strengthening the ASEAN-Japan relations as well as the individual ASEAN members. The ASEAN-Japan Comprehensive Economic Partnership (AJCEP) proposed by Prime Minister Junichiro Koizumi in January 2002 emphasized its relations with ASEAN. Japan’s first free trade agreement, the Japan-Singapore Economic Partnership Agreement (JSEPA) concluded in January 2002, could be seen as a prompt response to the regionalism, which reflects Japan’s willingness to take the initiative in the regional development. In order to pursue the AJCEP in line with a partnership with ASEAN as a whole, Japan also continues to pursue bilateral measures for the individual ASEAN members. From this standpoint, Japan is thus now negotiating with Thailand, the Philippines, Malaysia and Indonesia to conclude economic partnership agreements as bilateral measures. Japan is also engaged in advanced efforts to conclude an FTA with South Korea, in addition to these nations, which would be a significant step toward concluding a FTA under ASEAN+3.
It would be highly effective to coordinate efforts on regional and bilateral measures in parallel towards the realization of a common market in the region in order to take into consideration the diversities and heterogeneity, both of which have prevented the East Asian nations from reaching coordinated policies for the promotion of economic cooperation and combining efforts on integrating their economies with each other. In this regard, Japan should exercise its leadership in promoting regional economic cooperation through economic partnership agreements that cover a broad range of areas, including elements of free trade agreements, while assuring that regional and bilateral measures would become building blocks toward the overall FTAs networks in the entire region. In the formation of a common market, furthermore, those efforts must include principles that its regional and bilateral measures would be fully consistent with the principle of the multilateral trading system centered on the WTO so that trade liberalization could be achieved at the multilateral level. In the efforts to be consistent with the rules of the WTO, especially Article XXIV of the General Agreement on Tariffs and Trade (GATT), Japan thus should open its agricultural markets, which would be also subject to the benefits for other East Asian nations that likely to have large agricultural sectors.

Japan’s Relations with ASEAN as a Whole
In its relations with ASEAN, Japan has been engaged in advanced efforts on both regional and bilateral levels. As a basis for the promotion of regional integration, in the engagement, the high priority should be given to a conclusion of both a regional agreement with ASEAN and several preceding bilateral agreements with the individual ASEAN members so as to establish a free trade between all ASEAN members and Japan. ASEAN and Japan have complemented each other and could reap the benefits of mutually reinforcing the economic development through strong relations in private sectors by promoting partnership and cooperation in a broad range of areas, including trade and investments. Japan was ASEAN’s primary trading partner in both imports and exports through 1980s and before the occurrence of the financial crisis of 1997-98. However, the importance of the relations had declined significantly with the share of ASEAN’ exports to Japan dropping to 12.3 percent between in 2004, which made Japan drop its position of exports’ share below that of the U.S. (14.2 percent) and EU (13.2 percent). Despite changing the structure and pattern of trade between ASEAN and Japan over the last decade, the process of closer cooperation and deeper integration underscores the importance of ASEAN and Japan relations, which have been mutually beneficial for both sides. As a means of developing economic integration among the East Asia nations, given this background, Japan’s regional and bilateral measures in parallel would serve a coordinating function between Japan and ASEAN, and the individual ASEAN members, while contributing to efforts of narrowing the development gap in the region. In order to enhance Japan’s cooperation at regional and bilateral levels, in this regard, there is a need to examine the recent Japan’s relations with ASEAN in details, represented by the AJCEP and JSEPA that provide the basis for Japan’s willingness to develop the creation of a common market in the region.
The Joint Declaration was announced at the Japan-ASEAN Summit Meeting in November 2002 with the objective of translating into concrete measures the initiative for the AJCEP. It is stated that the implementation of measures for the realization of the comprehensive economic partnership, including elements of a possible FTA between ASEAN and Japan, would be complemented as early as possible within ten years. As a result of the realization of the AJCEP covering a wide range of areas for economic cooperation, it is expected that there would be significant economic effects on the economies of both ASEAN and Japan. In order to further deepen the complementarity of ASEAN and Japan, however, there are several challenges and obstacles to be overcome. First, due consideration should be given to the different levels of economic development and to sectors in the ASEAN members, particularly the new ASEAN members. In order to avoid increased competition pressure in the non-competitive sectors, structural adjustment should be implemented in line with the WTO rules that allow the members of FTA to take ten years to complete FTA. Second, the establishment of an FTA should be consistent with the WTO Agreements, especially Article XXIV of the General Agreement on Tariffs and Trade (GATT) and Article V of the General Agreement on Trade in Services (GATS). It is very important to promote the AJCEP in conformity with the WTO rules because the AJCEP should be regarded as a step toward achieving the multilateral trade liberalization under the WTO. In the connection to these suggestions, third, Japan should open its agricultural markets in which ASEAN is trying to expand its exports to Japan. In order to ensure whether Japan’s approaches at regional and bilateral levels would be conducive to promoting economic cooperation, thus, there is a need to examine the JSEPA that might provide a useful model case for assessing Japan’s principles of economic integration in the region.
As an illustration of Japan’ willingness to take the initiative in the formation of a common market in the region, the JSEPA provides a valuable case for understanding of how Japan should address the FTA negotiations with the individual ASEAN members. In 2001, Japan negotiated with Singapore the conclusion of an economic partnership agreement, and the JSEPA came into effect on November 2002. Covering customs duties on goods representing 98.5 percent of trade between two countries, the JSEPA is Japan’s first free trade agreement consistent with Article XXIV of GATT and also provides for free trade and investment in services in accordance with Article V of GATS. However, whether Japan could utilize the JSEPA as a valuable model case for becoming proactive in regional and bilateral agreements hinges on its ability to address the major restriction of the JSEPA. Those efforts, needless to say, must include the principles that regional and bilateral agreements cover trade liberalization in Japan’s agricultural sectors. The major restriction of the JSEPA is to avoid the agricultural issue partly because Singapore has basically no agricultural sector while agriculture is a particularly sensitive area for Japan. The JSEPA thus could safely cover “substantially all the trade” that is one of the requirements of GATT Article XXIV for the WTO members entering in regional trade agreements. Furthermore, the Japan’s argument that the JSEPA fulfills the requirements of GATT Article XXIV, and tariff elimination in agricultural products would not lead to significant trade expansion should not be interpreted as a rationale for excluding its agricultural sectors in the agreement. In response to the exclusion of Japan’s agricultural sectors, in fact, the U.S. points out that “Japan’s schedule contained significant tariff-line carve outs and omissions concerned agricultural products.” For these reasons, it appears reasonable to conclude that the JSEPA might be limited as a valuable model case for Japan to become proactive in regional and bilateral agreements with other East Asia nations where agriculture is very important issue.
Opening Japan’s Agricultural Markets to the Region
The analysis so far has suggested that it is less likely that Japan’s approaches in regional and bilateral measures, such as the AJCEP and JSEPA, would serve as a coordinating function in the formation of a common market in the region on the grounds that the approaches have failed to address the major critical issue for the further development of the East Asia nations. The issue is, needless to say, trade liberalization in Japan’s agricultural sectors and tariff elimination of its agricultural products. The question of whether Japan is capable of exercising its leadership in developing the regional integration, in this regard, requires a more concrete assessment of Japan’s agricultural policy that is a vital element of economic cooperation in the region where a number of nations have large agricultural sectors. The argument with Japan’s agricultural policy is exposed to the two suggestions stemming from its reluctance to lower tariffs and eliminate other trade barriers in its agricultural markets; first, Japan should promote regional economic cooperation consistent with the WTO rules so that it could become building blocks toward trade liberalization at not only bilateral and regional levels but also multilateral level; second, Japan should seek to prepare for the tariff reduction and trade liberalization in its agricultural sectors, thereby it would be conducive to not only narrowing the gap of the development but also the poverty reduction in the region.
In order to complement Japan’s approaches in regional and bilateral measures with the WTO rules, it would be a vital importance for Japan to ensure that the preferential trade arrangements in the region remain consistent with Article XXIV of GATT that demands that the WTO members enter into regional trade agreements (RTAs) to cover a “substantially all the trade” between the entities. For this reason, Japan must substantially reduce tariffs and other trade barriers in its agricultural markets. However, the interpretation of “substantially all the trade” highlights an ambiguity that has caused ongoing debates on examinations of RTAs, and thus this issue has remained enormously contentious. The Committee Regional Trade Agreements (CRTA) has currently indicated that two interpretations of “substantially all the trade” requirement have emerged. One is a quantitative approach that favors defining “substantially all the trade” as a statistical benchmark to indicate whether s RTAs trade coverage fulfills the “substantially all the trade” requirement. The problem with the quantitative approach is that nations can use this provision to exclude the liberalization of sensitive sectors, such as agriculture, as long as the trade volume of the RTAs is quantitatively liberalized. The other is a qualitative approach that means that RTAs cannot exclude any sectors from the intra-RTA trade liberalization. Under the qualitative approach, “substantially all the trade” is viewed as preventing the exclusion of any sectors where the amount of trade was small. As identified in these arguments, a lack of consensus on the concise interpretation of “substantially all the trade” has resulted in an intractability of the compatibility of RTAs with the WTO rules. In defining “substantially all the trade” in the context of a customs union, the Report Panel and Appellate Body in Turkey-Textile Case held that ordinary meaning of the term “substantially” in the context of Article:8(a) appears to contain both qualitative and quantitative elements for customs unions. Australia also argues that “substantially all the trade should be defined in terms of coverage by a free trade agreement or an agreement establishing a customs union of a defined percentage of all six-digit tariff lines listed in the Harmonized System.” Australia further elaborates that “such a percentage criterion should be established at a sufficiently high level to prevent the carving out of any major sector.” Regardless of the suggestions that the WTO members provides so as to resolve the issue in the context of Article XXIV:8, it is still controversial whether the concise interpretation of the “substantially all the trade” represents a qualitative or a quantitative approach, or a combination of both approaches. In addition, the EU case in which exclusion of the agricultural sectors is permitted in the preferential trade arrangements seems to reflect a difficulty of the implementation of trade liberalization in sensitive sectors, which would lead to further expand trade barriers and thus still create substantial trade diversion and distortion for the developing countries in which it is likely to have a comparative advantage in their agricultural sectors. As the only country that promotes the preferential trade arrangements in multilateral, regional and bilateral measures, however, Japan should substantially reduce tariffs on items in sensitive sectors for the sake of the developing countries in the region in which opening Japan’s agricultural market is expected for their economic growth and the development of trade, by ensuring the consistency of its regional trade agreements with the principle of the multilateral trading system centered on the WTO, in particular, the requirements of GATT Article XXIV stipulating that RTAs cover “substantially all the trade,” otherwise Japan would fail to reach the agreements in the FTA negotiations of both regional and bilateral measures. Furthermore, results in trade diversion and distortion caused by an ambiguity of the interpretation of “substantially all the trade” would undermine the goals of the multilateral trading system in the WTO.
Based on the food security, Japan’s argument that the flexibility be left to the nation that secures the agricultural markets to maintain the certain level of domestic agricultural production could been recognized as an excuse for Japan’s unwillingness to open its agricultural markets in favor of the developing countries in the region because the issue of the food security could be resolved in more integrated economy and, in this sense, Japan should undertake its agricultural policy reforms that would be not only essential for the WTO and FTA negotiations but also conducive to the poverty reduction in the region where agriculture is the main industry for the poor countries. As an alternative method to replace tariffs to farmers who have enjoyed high percent tariff, such as the rice sectors protected by 760 percent tariff, it would be inevitable that Japan open its agricultural markets by ceasing price supports backed by tariffs on products and introducing direct income payments to compensate for income losses of farming households that are likely to be affected by reduced prices, similar to those in EU, otherwise it remains incapable of overcoming the obstacles in the WTO and FTA negotiations and thus Japan would fail to exercise its leadership in developing regional integration. EU maintained regional market prices higher than international level through tariffs and other measures, and then managed surplus with export subsides. Due to the agricultural policy reform carried out in 1992, however, regional support prices have been decreased and direct payments to farmers have been introduced in order to compensate them for income losses. EU is thus able to supply food to consumers at a low price and guarantee international competitiveness while maintaining farmers’ income. The evidence suggests that Japan facilitate the implementation of direct income payments to get away with the trade diversion and distortion existed in its agricultural sectors for the sake of the regional development. Additional support for the trade liberalization in Japan’s agricultural sectors also comes from the observation that reduction of trade barriers is also particularly important for the poverty reduction in East Asia where agriculture is the main livelihood for poor households in both low and middle-income countries in the region. With nearly three quarters of the world’s poor concentrated in rural areas of developing countries and depending heavily on agriculture for their livelihoods, trade liberalization in agriculture is crucial to the poverty reduction. In Cambodia and Viet Nam, for example, most of the poor households earn a living by growing rice, and the rice culture spreads over the entire region. The trade liberalization in Japan’s agricultural sectors and substantial decline in tariffs of its agricultural products, especially rice, are thus indispensable in allowing the developing countries in the region to improve food security, access a stable food supply, and gain the opportunity to raise income levels through their economic growth.
Thus far I have discussed the most plausible explanation for Japan’s willingness in developing regional integration. In support of Japan’s approaches in regional and bilateral measures, such as the AJCEP and JSEPA, which would become a highly effective method of addressing the major critical issue of the East Asia economies, the development gap, abundant evidence supports the conclusion that Japan with its strong interest in the importance of a leadership in economic cooperation must open its agricultural markets. In order to create a common market that would bring the economic prosperity to the region, Japan should be willing to take the initiative in the regional development by addressing the major critical challenge, the agricultural issue.

.As a significant step toward well-coordinate economic cooperation, there are various discussions and debates on forthcoming regional integration. In the arrangement, the most serious challenges reflect the fact that there are enormous diversities among the nations in terms of country size, ethnicity, religion, language, social and political structures, and the economic development in the region. Such diversities and heterogeneity create obvious difficulties and obstacles for reaching coordinated policies for the promotion of regional cooperation and combining efforts on integrating their economies with each other. In East Asia, in addition, it is often said that there is no leading country that is essential to develop regional integration. No doubt, Japan-China relations would be the key to developing regional integration. Despite the observation that there are direct competition and fierce political confrontation between China and Japan, the two economies are currently playing complementary roles so as to reap the mutual benefits. If the two countries are successful in overcoming their differences and obstacles in an effort to cooperate in leading to developing regional integration, they would be relations between Germany and France that had leading roles in promoting European Integration. Regardless of a wide range of difficulties and challenges emerged in the entire region, the East Asian nations are now undertaking its development of the future regional integration that would bring the huge prosperity to the region so that they could benefit from such a regional collaboration by creating a viable framework for closer cooperation and deeper integration.
It was the eighth ASEAN+3 Summit in Vientiane, Laos on November 2004 that Leaders of ASEAN Member Countries, China, South Korea and Japan agreed to convene the first East Asian Summit (EAS) in Malaysia in 2005, and the EAS would continue to contribute to creating a common understanding in East Asia by addressing the issues of regional integration from various angles. This is the moment when the East Asian nations come together to participate in regional integration with a common conviction, and make valuable contributions on the regional development while tackling with so many challenges. It is because it would lay the foundation for the East Asian prosperity.