Impacts of Japan's FTAs on Trade: The cases of FTAs with Malaysia, Thailand, and Indonesia

This paper examines if Japan's free trade agreements (FTAs) with Malaysia, Thailand, and Indonesia contributed to an expansion of bilateral trade between Japan and its FTA partners, which is the expectation. The results of our analysis do not show significantly positive impacts when the analysis is conducted using aggregate/sectoral trade data. However, expected positive impacts are found for some products, whose tariffs are reduced under FTAs, when the analysis is conducted by using disaggregated trade data at the Harmonized System (HS) 4-digit level. There are also some cases, where expected positive impacts are not found, even where tariff reduction under FTAs was substantial. The authors argue that several factors such as a lack of knowledge of FTAs by traders, high cost of using FTAs, i.e., high cost of obtaining the certificate of origin, and existence of preferential tariff treatment as part of development policies such as investment incentive schemes may be responsible for the lack of positive response of FTAs on trade.