Japan and the Association of Southeast Asian Nations have reached an agreement in principle on the modalities of free-trade negotiations that they hope to wrap up by the end of August. If the Comprehensive Economic Partnership Agreement is signed in November as hoped, it will be Japan's first free-trade agreement with a regional bloc.

Japan's progress has been slow compared with that of China and South Korea in their FTAs with ASEAN. Japan must carefully watch other economic powers' approach to ASEAN. On the day that Japan and ASEAN reached agreement, the European Union and ASEAN agreed to launch free-trade negotiations.

Under the agreement, which came on the sidelines of the ASEAN economic ministers' meeting, Japan would abolish tariffs on 92 percent, and ASEAN on 90 percent, of some 5,200 items of goods within 10 years. Vietnam will abolish the tariffs within 10 to 15 years, and Cambodia, Laos and Myanmar within 15 years. The remaining items would receive exceptional treatment. Japan would have 7 percent of goods categorized as sensitive or highly sensitive to give them some degree of protection. It would have 1 percent of goods completely excluded from liberalization. The negotiations may become difficult because Japan and ASEAN member-countries must agree on the kind of treatment that items receive.

The agreement would give a boost to Japanese firms that are operating factories in ASEAN countries. Abolition of tariffs on their products exported to other ASEAN countries would make them competitive with Chinese and South Korean products. But Japan's expected move to give exceptional treatment to agricultural products such as rice, sugar and dairy products will likely disappoint ASEAN. If Japan wishes to keep the momentum going for trade liberalization with ASEAN, the government must carefully consider its policy on agricultural imports.