STUDY ON THE OPTIMAL SEQUENCING OF THE PARTNERS, TIMING AND FORMS OF THE FREE TRADE AGREEMENTS OF JAPAN

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This study uses a computable general equilibrium (CGE) model to simulate various cases of Free Trade Agreements (FTAs) of Japan with East Asian economies. The optimal sequencing of the partners, timing and forms are the main areas to be examined.Based on the various attempts of simulation by testing dynamic model specifications, the following three points have been identified, as well as the common understanding that trade liberalization by lowering countries' tariffs will bring about benefits to themselves :i) Japan's excluding agriculture from the FTA will reduce the FTA's potential benefits of the trade partners of Japan, but Japan's loss would be limited ;ii) Larger negative trade diversion effects take place, if Japan, China and Korea forms an FTA, because of their common weakness of agriculture ; This will be overcome by expanding the FTA membership to ASEAN countries.iii) Japan's exempted items from the FTAs should be limited. Otherwise, the East Asian-wide FTA will bring about only a small benefit.The simulations implies, as policy implications, that Japan should expand the coverage of FTAs, including agriculture, that Japan should sign FTAs as rapidly as possible ; and that Japan should limit the exempted items of FTAs from the first place.The identified areas for the future study include : i) to develop dynamic specifications of the CGE models, and make possible the recursive dynamic simulation ; ii) to make possible to simulate the effects of the Rules of Origin as a major policy concerned area.