Japan-Mexico Economic Partnership Agreement - Coursework Example

Japan-Mexico Economic Partnership Agreement Outline of the FTA Policies There is a complementary relationship between Japan and Mexico which in turnpromotes the economic development within the countries with the help of their economic strength, as well as influence of the bilateral trade and investment activities (Brown, Deardorff and Stern, 2003). Mexico has a relatively skilled labor-force and the country is rich in its natural resources within the economy. Mexico reflects as the most promising economies for Japan and acts as the strategic gateway for Europe, North America as well as Latin America (Solis and Katada, 2007). Japan is an important country where the foreign direct investment takes place and also facilitates the Mexican exports. The investment that flows out of Japan to Mexico and the technology transfer that takes place within the economy is very important for the growth of the economy. It brings in competitiveness within the economy and also creates employment opportunities (Kawai, 2005). The trade relations within the two nations lead to a diversification of the export market. Strengthening of the economic relations within the nations will enhance the positions of Japan and Mexico in the international markets (Ravenhill, 2003). However, the potential economic relations between the nations have not been realized completely. The main purpose of the free trade partnership agreement was to promote liberalization of the trade as well as investments within the economy and also facilitate the movement of individuals between Japan and Mexico for trade purposes (Ravenhill, 2003). The agreement aims to set up a comprehensive economic partnership involving a competition policy, development of the business environment and bilateral cooperation in the field of vocational education and training and also provides support to the small and the medium enterprises within the economy (Yoshimatsu, 2005). It is expected that through this agreement, Japan will gain access to Mexican market which is growing at a fast pace. The agreement will also enable the entry of firms into the north South American markets through Mexico and the Japanese companies will gain equal treatment along with the companies of Canada, US and European Union in the fields of Customs duties, investment and Government procurement (Manger, 2005). According to the agreement, the custom duties will be eliminated or reduced on agricultural as well industrial products. Further, both the countries signing the agreement should cooperate in the field of anticompetitive activities. However, the agreement has left the Japanese company into disadvantage due to the difference in tariff rates within the economy and elimination of the Japanese company from the public-works project carried out in Mexico. Impact of the free trade agreement on the Mexico The free trade agreement was signed between Mexico and Japan in September 2004 (Solis, 2003). The economic partnership agreement was Japan’s second free trade agreement and it is considered to be the most comprehensive bilateral agreement of the economy. In addition to the elimination of the tariff barriers it includes regulation of labor mobility as well as the investment. One of the important objectives of the free trade agreement was that to restore the competition within the countries. Japanese companies were at a disadvantageous state due to the differences in tariff rates but there were also advantages for Mexico (Capling, 2008). Mexico entered the agreement in order to increase the Japanese investment in Mexico as well as create new job opportunities and lead to competitiveness of the industries in Mexico (Menon, 2007). On being a part of the free trade agreement, Mexico was committed to the trade integration and liberalization and it has an open trade policy (Capling, 2008). Further, Mexico’s participation in the free trade agreement provides economic benefits as well as reduces its economic dependence on other countries. The country also wished to expand its market access and thus it can facilitate trade and development within the economy. Mexican trade officials imposed a very high priority to the trade agreements of Japan in order to achieve the goals of developing the country as well as to deal with the challenges that are faced by the economy (Plummer, 2007). The trade Agreement between Japan and Mexico involves trading of the goods and services and movement of the individuals within nations. The trade within the nations would further lead to the economic development of the countries as well as it facilitates the import and the export of goods from between the countries (Mulgan, 2008). However, the most likely case is that Japanese goods are exported to Mexico and the Mexican economy carries out its business by importing Japanese goods at low prices. The country even eliminates the tariff imposed on the import of goods from Japan and it can smoothly run its business using Japanese goods (Ravenhill, 2009). There was a zero tariff import of the Japanese goods by Mexican countries. The researcher has also pointed out that the Japan’s imports from Mexico have risen since 2005 (Menon, 2009). Further, it was studied by the researcher that the Pork meat available in Mexico has increased its market share in Japan due to the rise in share of goods produced by the Mexican economy into Japan imports. This relative increase in the import of Pork seems to be realised due to the reduction in tariff on the imports. Strategies taken by the firms experiencing loses through FTA The firms within the economy that signed the free trade agreement are expected to experience booms as well as the recessionary phase (Menon, 2009). There are possibilities that the Japanese firms are unable to restore the competitiveness within the economy and they are facing a healthy competition from the rivals who are on the path of capturing the market by producing and selling at cheaper rates (Menon, 2009). Japan had to undergo political compromises in order to maintain the competitive atmosphere as well as cooperation with Mexico. The main motive of taking part in the free trade agreement was to bring in development within the economy through the import and export of goods and services (Dent, 2005). However, there are some limitations to participation in the free trade agreement as some of the firms loses market share within the economy as the other firms try to enjoy the monopoly power on the goods produced by them They try to produce their goods at cheap rates and thus sell them at lower prices in order to grab the larger market share and the firms producing costly goods loses its share (Dent, 2010). Due to the fee trade agreement between the countries, the domestic firms are likely to lose the market due to the entry of the international firms within the market. The international firms have the tendency to capture the market and the local firms would fall in a disadvantageous position. However, by participating in the free trade agreement, Japan had an objective to take advantage of the agreement and spread its brands to the international market. For example, the cars manufactured by the companies of Japan are exported to Mexico as well as the other nations within the economy. The Japanese companies were very much interested in investing in Mexico in order to enjoy a monopoly power and dominate over the Mexican market as well. The regulatory environment in Mexico restricts the capital flow from the foreign investors in some sectors and the internal environment within Mexico maintained the state control over a particular industry and the physical structure of that particular industry remained weak and inefficient (Solis and Urata, 2007). Mexican firms faced the challenges of incurring losses due to the extra burden imposed on them and the Japanese firms had to spend high costs in carrying out their business in Mexico (Schreurs, 2008). However, the Mexican firms have adopted technological innovation as well as the firms aim at producing their goods at low costs in order to sell them at low prices in the international market and gain huge revenue. Mexico adopted reforms to its financial sectors including opening of the industry for the outside investors (Schreurs, 2008). However, there was an inefficient banking sector. The domestic industries within Mexico have been successful in the expansion of their markets due to the competition that the firms faced with their rivals. Importance of FTA based on Trade Theories In order to participate in the free trade agreement, the countries must ensure certain factors that are necessary for carrying out the free trade within countries. The trading partners must make sure regarding the geographical features and the availability of the natural resources within the economy (Abbott, 2007). The other factors that are necessary to be ensured are the historical development as well as political stability of the nations. The quality and size of the work force within the trading nations is very important for carrying out the trade smoothly (Aminian, Fung and Ng, 2009). The combination of the land, labour, capital and the enterprise of the trading partners plays a key role in facilitating the trade relations within the nations. The theory of Absolute Advantage has been proposed by Adam Smith in order to describe the measure of carrying out the free trade agreement within nations. The trade agreement must be between those countries which have the absolute advantage on one particular good and thus export of goods is possible within the nations (Urata, 2007). The country that comprises of the workers who are efficient in production of a particular commodity can export the goods at cheaper rates to other countries. For example, Japan is known for producing cars that are mainly exported to Mexico and this helps the market in Mexico to develop and compete with the rivals. Hence, the researcher has pointed that Japan has an absolute advantage in manufacturing cars that are exported to Mexico as well as other nations. The theory of comparative advantage proposed by Ricardo depends on the relative efficiency of the workers within the economy in producing a particular good. The countries produce that commodity in which they have to incur a lower opportunity cost compared to the other trading partner. Opportunity costs involve the cost that the country bears in giving up the production of a particular commodity. The researcher has pointed that Mexico is known for producing wine as well as crude oil and Japan is known for its car production (Pang, 2007). Hence, the countries can carry out the trade between them by importing as well as exporting these commodities and this in turn facilitates growth within the economy. The comparative advantage of the trading partners depends on the efficiency of the workers within the economy who play a key role in producing the goods. Impact of the free trade agreement of Japan and Mexico The trade officials of Mexico assigned a high priority to the participation in the trade agreement with Japan in order to achieve its long term goals relating to the development of Mexico (Mulgan, 2005). The free trade agreement had a beneficial impact on the countries as Japan had a comparative advantage in manufacturing cars that are exported to Mexico and other countries. Further, Mexico has a comparative advantage in producing Wine and Crude oil that are exported to Japan. Hence, both Japan and Mexico has comparative advantage in producing either of the goods (Lee and Park, 2005). Thus, signing a free trade agreement between these two countries would further enhance the trade relations within Japan and Mexico through the import and export of the specialised goods. Further, the Japan-Mexico economic partnership agreement covers the trade in goods and services, government procurement and foreign direct investment (Fink and Molinuevo, 2008). Figure 1: Bilateral Trade of Japan with Mexico (Source: Lee and Park, 2005) The figure shows that there is a rise in the imports as well as export of goods due to the bilateral trade agreement between Japan and Mexico over the years from 1994 to 2014. Two years after the enactment, the Japan-Mexico EPA had some positive impacts on trade and investment that reflects the zero-tariff import quota for import of Japanese cars by Mexico (Wang, 2004). However, the satisfactory impact of the tariff reduction was very limited and it covered a small number of the agricultural products at a time. Further, by exporting the Japanese goods to Mexico, the Japanese firms try to grab a larger market share as compared to the Mexican firms that undergoes losses due to its inefficiency in raising production levels (Wang, 2004). 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