The Declining Importance of Japan in East Asia: Are Free Trade Agreements the Answer?
The economic power relationship in East Asia has been changing rapidly, with the 1990s witnessing the Japanese economy falling into a long recession and the Chinese economy continuously enjoying high growth. As a consequence of these developments, the newly industrializing economies (NIEs) of Asia and members of the Association of Southeast Asian Nations (ASEAN) are reducing their dependence upon Japan, while increasingly becoming tied economically to China. To revitalize its competitiveness, Japan has to implement structural reforms that will encourage the free movement of people, goods, and capital which are indispensable to economic activities, and must formulate and implement highly transparent rules for competition. If it manages to accelerate structural reform and liberalization processes, Japan will be able to seize an opportunity to recover its competitiveness, and might soon be able to enter into free trade agreements (FTAs) with other East Asian countries.