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Competition and bilateralism in trade policy: the case of Japan's free trade agreements

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  • Manger, Mark S.

Abstract

Why do major economic powers seek more and more free trade agreements (FTAs) with smaller partners? Recently, Japan has joined the bandwagon by signing its first bilateral FTA. The decision, highly contested domestically, represents a sea change in Japanese trade policy and a challenging case for theories of regionalism. This paper lays out a theoretical appraisal for why more and more industrialized countries join FTAs with emerging markets and illustrates the argument with an analysis of the Japanese case. The paper argues that foreign direct investment (FDI) changes the incentives for states in favour of preferential trade agreements. Increased FDI and shifts in multina- tional firm strategies increase flows of intermediate goods. As a result, firms lobby their home governments to bolster their competitive position by sign- ing preferential agreements. Yet, FTAs also discriminate against firms from third parties, motivating them to lobby for defensive agreements. The qual- itative case studies show how NAFTA discriminates against Japanese FDI in Mexico. As a result, firms began to lobby the Japanese trade bureaucracy, changing the perception of key policymakers who developed a strategy of pursuing preferential trade agreements in the Asia Pacific region, as shown in a case study of the initiative for an FTA with Thailand.

Suggested Citation

  • Manger, Mark S., 2005. "Competition and bilateralism in trade policy: the case of Japan's free trade agreements," LSE Research Online Documents on Economics 25292, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:25292
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    File URL: http://eprints.lse.ac.uk/25292/
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    Cited by:

    1. Hamanaka, Shintaro, 2018. "Meta-level institutionalization of negotiations : explaining irreconcilable Sino-Japanese rivalry in TPP, RCEP, AIIB, and AMF," IDE Discussion Papers 725, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Kiki Verico & Yeremia Natanael, 2018. "Let’s talk about the Free Trade Agreement (FTA): The five ASEAN members highlighting Indonesia," LPEM FEBUI Working Papers 201823, LPEM, Faculty of Economics and Business, University of Indonesia, revised Jul 2018.
    3. Moon, Wanki & Sakuyama, Takumi, 2021. "The Political Economy of Agricultural Trade Policy in Northeast Asia: Comparisons with the West and between Japan and Korea," 2021 Conference, August 17-31, 2021, Virtual 315192, International Association of Agricultural Economists.
    4. Dent, Christopher M., 2017. "East Asian Integration: Towards an East Asian Economic Community," ADBI Working Papers 665, Asian Development Bank Institute.
    5. Antonio Postigo, 2014. "Liberalisation and Protection under Overlapping Free Trade Agreements: Dynamic Interplay between Free Trade Agreements and Investment," The World Economy, Wiley Blackwell, vol. 37(11), pages 1612-1633, November.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F1 - International Economics - - Trade

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