Journal of Economic Info Vol 6 No 1; 34- 42

Journal of Economic Info (JEI)

ISSN:2313-3376
www.readersinsight.net/jei

Saving Potential of Regional Comprehensive Economic Partnership (RCEP):

Implication for China and Japan
Ranti Yulia Wardani*1, Nawalage S. Cooray2
1
Ph.D. Candidate at the International University of Japan's Graduate School of International Relations Niigata, Japan.
2
Professor at the International University of Japan, Graduate School of International Relations, Niigata, Japan.

* Corresponding author: rantiyul@iuj.ac.jp

Abstract ARTICLE INFORMATION

ASEAN community and six ASEAN FTA partners' leaders have engaged in strengthening economic development Received: 10 Dec 2018
within the region by establishing RCEP. ASEAN had signed trade agreements with all the other six FTA partners. The Revised: 10 Jan 2019
other six ASEAN trading partners within RCEP have no free trade agreements yet among them. Therefore, the RCEP is Accepted: 31 Jan 2019
involved in tough negotiation among the six non-ASEAN member countries. RCEP commitment is established through
ASEAN as a catalyst. This study will examine the total saving potential of free trade agreement by using ex-ante FTA DOI: 10.31580/jei.v6i1.122
analysis and the political implication of RCEP for non-ASEAN member countries, especially Japan and China. The
impact of RCEP will be insignificant without China and Japan existence. These two countries are essential to be
maintained in the RCEP initiatives. The six non-ASEAN members in RCEP are finding ways to exploit the balance
benefit among them. China-Japan relations will be embedded in the RCEP association if RCEP is concluded. From the
economic perspective Japan and China seems to have strong economic interdependence. From the political perspective
both countries have long history relations, distrust and mistrust. Therefore, economic interdependence could be the
way forward for both countries to have a harmonious relationship. Japan and China need ASEAN and other RCEP
members to tighten the economic and political relations among them.

Keywords: Japan; China; ASEAN; RCEP; Political; Economy; Regionalism © Readers Insight Publication

INTRODUCTION
The Association of Southeast Asian Nations (ASEAN)
community is building a relationship with some other countries under
free trade agreements (FTAs). The ASEAN community consists of
ten countries: Brunei Darussalam, Cambodia, Indonesia, Lao PDR,
Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam.
ASEAN leaders and six ASEAN FTA partners' leaders are engaging
in strengthening economic development within the region by
establishing a Regional Comprehensive Economic Partnership
(RCEP). RCEP member countries are ASEAN member countries,
plus the People's Republic of China (PRC), Japan, Republic of Korea
(ROK), India, Australia, and New Zealand. RCEP has been proposed
based on the ASEAN community during the 21st ASEAN Summit in
November 2012 (ASEAN.org, 2016). The RCEP objective is
achieving a modern, high-quality economic partnership and
comprehensively contributing towards mutual benefit among
members (ASEAN.org, 2016). In addition to trade and economic
developments, politics are among the main factors affecting the
regional relationship of the RCEP members. Political factor as a
driving force is one of the essential factors in the free trade agreement
and relationship building among countries. ASEAN centrality is the
critical role in strengthening economic collaboration and magnifying
economic integration within RCEP. Furthermore, RCEP will
negotiate on trade in goods, investment, trade in service, intellectual
property, competition, economic and technical cooperation, dispute
settlement and other issues (ASEAN Secretariat, 2016b).
ASEAN Plus Three (APT) is cooperation between PRC, Japan,
and ROK. This APT cooperation was institutionalized in 1999 by
issuing a joint statement on East Asia Cooperation and adopting the
comprehensive partnership in 2007 (ASEAN Secretariat, 2017).
ASEAN and China signed FTA in November 2002; ASEAN,
Australia, and New Zealand had signed FTA in February 2009;
ASEAN and India signed trade in good agreement in August 2009;
ASEAN and Japan signed a comprehensive economic partnership
agreement in April 2008; ASEAN and ROK have signed FTA in
December 2005 (ASEAN Secretariat, 2016a). Some of the other six
ASEAN trading partners within RCEP have no free trade agreements
yet among them. Therefore, the RCEP is having tough negotiation
among the six non-ASEAN member countries.
China and Japan are the big countries that contribute a significant
percentage of GDP compared to other participant countries. China
and Japan have been viewed as rivalry states with greater political and
economic power than other countries within the RCEP (Yoshimatsu,
2017). India feels pressure to reduce tariff more than 90% to all RCEP
members, including China (Sen, 2018). These non-ASEAN member
countries are negotiating to find the balance of optimal benefit among
them. These non-ASEAN member countries are bargaining in terms
of political and economic perspectives. The bargaining political and
economic powers among non-ASEAN members are essential to be
analyzed for the sustainability of RCEP. This paper will analyze the
following questions: How has the relationship between China and
Japan developed within ASEAN centrality? How much is the
potential saving tariffs reduction of FTA between these China and
Japan?
Many studies have been conducted in order to explore the
economic implication of the free trade agreement between ASEAN
and six trading partners within RCEP. Itakura (2014) has evaluated
the potential liberalization impact on economic among ASEAN
member states (AMSs) by using a computable general equilibrium
(CGE) model. He has conducted a simulation to get the picture of
building FTAs in which AMSs participate. Ahmed & Singh (2016)
have investigated the financial integration of RCEP. Fukunaga &
Isono (2013) have identified the opportunity, benefit and challenges
of the RCEP formation and delineating FTA impact between RCEP
and ASEAN+1 using dynamic GTAP analysis. Cheong & Tongzon

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Journal of Economic Info Vol 6 No 1; 34- 42
(2013) have investigated the implications of TPP and RCEP
initiatives economic integration by using the CGE model. Therefore,
there is a gap to study the impact of the free trade agreement with a
different measurement.
This study will examine the impact of free trade agreement by
using ex-ante FTA analysis and analyze the dynamic relations
between China and Japan within RCEP. The potential saving of free
trade agreement among six non-ASEAN members has not been
measured yet. This study will calculate the total potential saving of
trade agreements between six non-ASEAN member countries,
especially China and Japan, by using ex-ante FTA analysis. A clear
and accurate analysis is necessary to be considered before its
negotiation (Plummer, et al., 2010, p.2). The ex-ante analysis is a
critical analysis to figure out the overall cost-benefit analysis, overall
country negotiation position, and to identify what the country can and
cannot provide to its negotiation's partners (Plummer, et al., 2010,
p.2). The ex-ante analysis is increasingly utilized by researchers to be
used as a free trade agreement assessment (Ziltener, 2017).
This paper will combine qualitative and quantitative methods. An
in-depth literature review will be used as a qualitative method. The
quantitative method will be used to calculate the potential savings of
China and Japan countries if the RCEP negotiation will be concluded
in the future. Both qualitative and quantitative analyses will give a
useful contribution to gain knowlegde from a different perspective.
The literature review approach will be used to explore the
development of political, economic ASEAN and RCEP negotiation
progress. This study mainly focuses on China and Japan within RCEP
in the regional free trade implications context.
This study will be organized in the following order: the literature
review will be described in section 2. Section 3 will describe the data
and measurement result. Section 4 will be an analysis of the
maximum saving potential for China's exporters and Japan's exporters
by the year or cumulative results. Section 5 will explain the
conclusion of the study, limitation, and recommendation for further
study.
LITERATURE REVIEW
RCEP Economic Perspectives
ASEAN has signed ASEAN +1 FTA agreements. The agreements
with ASEAN +1 do not distribute broader market access for ASEAN
countries comparef to RCEP. Moreover, RCEP gives an opportunity
for ASEAN to broaden market access by maintaining commitments
in trade of goods and services, and rules of origin (ROO) (Fukunaga,
2015). Table 1 below shows that the world percentage ASEAN GDP
was small at 3,37% in 2016. The other six ASEAN FTAs partners of
RCEP GPD is 27,96% in 2016. It shows that ASEAN's GDP is only a
small number percentage of GDP without the other six FTAs partners
sign-up in the RCEP. In this regard, Fukunaga (2015) suggests that
ASEAN centrality plays a role as the "facilitator of process" and as
"the driver of substance." ASEAN has become the driver of substance
by considering the political aspect and economical aspect. Fukunaga
(2015) explains that ASEAN +1 FTAs is creating the "noodle-bowl"
situation. Therefore, RCEP facilitates the "noodle-bowl" problem
with different rules and commitments.
Table 1. ASEAN GDP VS RCEP GDP
2011 2012 2013 2014 2015 2016
ASEAN GDP 3,13% 3,24% 3,26% 3,20% 3,27% 3,37%
6 ASEAN FTAs
24,99% 26,08% 25,57% 25,86% 27,34% 27,96%
Partners
RCEP 28,13% 29,32% 28,82% 29,05% 30,61% 31,32%
Data source: The World Bank, authors’ calculation
Figure 1 below shows the proportion of the total RCEP
GDP. It shows that China's GDP dominated among the other
countries within RCEP. ASEAN contributes 11% of the total
RCEP GDP.
Figure 1. Pie Chart ASEAN GPD within RCEP GDP in 2016
Percentage of ASEAN GDP within RCEP GDP 2016
1%
5% 11%
6%
ASEAN
21%
China
India
47% Japan
9%
Korea, Rep.
Australia
New Zealand
Data source: The World Bank, authors’ calculation
The formation of Regional Trade Agreements (RTA) is triggering
some arguments whether RTAs become “building blocks” or
“stumbling blocks” in achieving its goal of opening a regional trading
system (Scollay & Gilbert, 2001, p.10). It could not be generalizing in
all trade regionalism processes. The outcome will be different based
on the nature and characteristics of the countries involved in the RTA
formulation. The RTA has a different objective based on the countries
involved in the formulation of RTA. It is assisting the developing
countries to improve their economic performance through trade and
policies.
In the globalization era, the production system turns out to be
more fragmented because of outsourcing and vertical specialization
(Balaam & Dillman, 2014, p.127). For instance, China produces
iPhone 3G's. The significant components of this product are coming
from Japan, Korea, and other countries (Xing & Detert, 2010, p.4).
The ‘World Is flat’ book by Friedman has explained that the
production processes was spreading fast through the world especially
for India and China (Balaam & Dillman, 2014, p.127). Both are two
powerful countries to collaborate and compete at global level.
RCEP commitment is established through ASEAN as a catalyst.
From the economic perspective, ASEAN deliberately attempts to
maintain the ASEAN center within external economic relations of
RCEP with FTAs network. The formulation of regional economics
group can be used as a tool for controlling the agenda and
membership within the regional block (Hamanaka, 2014). The
potential saving of FTA will contribute to non-ASEAN member
countries if RCEP is concluded in the future. Ravenhill (2010) argues
that East Asian regionalism is being driven by “political domino”
rather than “economic domino.” The table 2 below shows the trade
agreements between sixteen countries that formulated RCEP. The
table shows that the other six countries, particularly Australia-India,
Japan-Korea, China-Japan, China-India, Japan-New Zealand, and
India-New Zealand, have no free trade agreement yet.
RCEP Political Perspectives
Protection in international trade shows that economist insufficient
to give political influence on trade policy. Baldwin, (1989, p.131)
believes that economic self-interest and people welfare need to be
considered as a driving force for political action. It has become a vital
part of developing a better national trade policy formulation
influenced by international trade agreements. Robert Kuttner has
explained that "trade is always political" (Balaam & Dillman, 2014,
p.128). Cai (2010, p.40) explains that the evolving of global economic
since 1945 is demonstrating a different pattern of global politics and
economics setting. It leads to different national interests and decision
makers concern for their national economic development. These
arguments show that economics, trade, and politics are interrelated
to each other.
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Journal of Economic Info Vol 6 No 1; 34- 42
Some countries are eager to have some bilateral and multilateral
trade agreement. Limão (2007) has argued that preferential trade
agreement (PTA) motivation is not only trading. PTAs have some
other non-trade objectives or motives. Non-trade motives of PTAs
describe each of the motive consequences on the multilateral trading
system. Political strategy is needed to realize the trade objectives
between countries. Internal politics, social, environmental and
international securities are essential to be negotiated in the bilateral or
multilateral trade negotiations (Egger & Olarrega, 2014, p.136).
International trade policy and trade negotiations between some
countries are influencing domestic trade policy as well.
Table 2. RCEP Trade Policy (TP) Matrix
Country BRN CAM IDN LAOS MYS MYA PHIL SGP THAI VNM AUS CHINA INDIA JAPAN NZL ROK
BRN
CAM
IDN
LAOS
MYS
MYA
PHIL
SGP
THAI
VNM
AUS
CHINA
INDIA
JAPAN
NZL
ROK
Yellow: The ASEAN Free Trade Area (AFTA) will be fully implemented
ASEAN member states, including the CLMV states which were given more time, will conclude this year
the process of internal tariff elimination that started in 1993
ASEAN Free Trade Area (AFTA) - Common Effective Preferential Tariff (CEPT): for goods originating
within ASEAN, ASEAN members are to apply a tariff rate of 0-5 % (the more recent
members of Cambodia, Laos, Myanmar, and Vietnam, CMLV, were given additional time to
implement the reduced tariff rates)
ASEAN Trade in Goods Agreement (ATIGA) since 2010:
Pink: Framework Agreement on China-ASEAN Comprehensive Economic Cooperation
Blue: WTO MFN relation, green: FTA relation, dark green: FTA under negotiations
240 TP relations, of which 6 WTO-MFN (AUS-INDIA, JAPAN-KOREA, CHINA-JAPAN, CHINA-
INDIA, NZL-JAPAN, NZL-INDIA), RCEP turns this into 1 TP framework
Dai, (2015, pp.5-6) differentiates between regionalization and
regionalism. He explains that regionalization is economic flows
within region that merge and regionalism is intergovernmental
economic cooperation which is mainly politics. Ravenhill's (2010)
article shows little support for the argument that the new East Asian
economic regionalism objective is to expand its market to other
countries under the free trade agreements. He argues that in
regionalism political domino effect plays the major part compared to
an economic domino effect.
RCEP will be part of the regional partnership that
intergovernmental economic cooperation is dominated by political
objective than economic objective. The ten AMSs had the central
trade negotiations within RCEP. RCEP negotiations recognize the
unique setting of ASEAN. Therefore, ASEAN as a catalyst is playing
an essential role in the RCEP mega trading negotiation and ASEAN is
balancing its position with non-ASEAN members (Fukunaga, 2015).
Yoshimatsu (2017) explains that ASEAN is trying to maintain the
central position by creating a social constitution and norms system.
ASEAN has maintained the centrality between China-Japan relations
by placing them in the social constitution construction and keeping
away exclusive links with each of the two countries.
China and Japan Relations: Competition and Cooperation
There are two perspectives of China’s rise: liberal and realist
perspectives. The liberal perspective believed that economic
interrelation between countries such as foreign direct investment and
trade would lead to peace and harmony (Takeuchi, 2014, p.8). Neo-
liberal is viewing China integration will be peaceful utilizing
economic engagement, strategic agreement and the network of
normative obligation (Xie and Page, 2010, p.481). The realist
perspective believed that China’s economic growth, China’s ambition
of its territory, China’s power confident escalation, Japan’s economic
stagnation, Japan’s nationalism, and Japanese people’ fear of China
are increasing the rivalry tensions between both countries (Takeuchi,
2014, p.8). John Mearsheimer, as a realist theorist, believed that great
powers are feared and compete with each other to reach dominant
power to maintain their sustainability (Xie and Page, 2010, p.481).
Sino-Japanese bilateral relations complexities have affected not
both countries but also the East Asian regional level and global level
(Honghua, 2010, p.75). The complexity of Sino-Japanese has
accompanied by long history relations, distrust, and mistrust
(Honghua, 2010, p.75). Mistrust and fear play a pivotal part in several
expositions of international conflict (Kydd 2000, p.325). Sino-
Japanese tensions are complex and durable, but the South East Asians
elites look forward to eliminating the conflict escalation and to
increase the engagement level with ASEAN and South East Asian
countries as an opportunity (Singh, et al. 2017, p.112).
China and Japan have improved the economic interdependence
within the last twenty years and Sino-Japanese relations have notably
developed from 2006 to 2012 (Takeuchi, 2014, p.29). Takeuchi
(2014, p.29) has explained that the economic interrelations become a
fundamental bilateral relationship development on the assumption that
authoritarian leader was having an environment to deliver a strong
signal to alter public opinion. Sino-Japanese relations are
deteriorating since 2012 because China clearly shows the ambition for
Senkaku/Diaoyu Island territory (Takeuchi, 2014, p.29).
Table 3. Japan’s Biggest Trading Partners (2016)
Japan’s Export Import Import Export
Trading (US$ (US$ Partner Partner
Partners thousand) thousand) Share (%) Share (%)
United States 130,585,866 69,221,593 11,41% 20,25%
China 113,830,234 156,552,583 25,79% 17,65%
Data source: WITS 2018
Table 3 shows that China is one of the biggest markets for Japan.
Japan has depended on the United States for security and economy
because China is one of the biggest markets for Japan (Singh, 2002,
p.280). It turns Japan will build economic links with Southeast Asian
countries to get natural resources and to expand the markets (Singh,
2002, p.280). Japan began dialogue partner with ASEAN since 1977
and China began dialogue partner with ASEAN since 1996 (Singh, et
al. 2017, p.107). China has started negotiation with ASEAN
countries for a free trade agreement in 2002, and it came into effect
in 2010 (Singh, et al. 2017, p.108). The Chinese’ passionate
engagement with ASEAN becomes part of the major trend for
China’s strategic, economic, and political movement; then later this
movement required Japan to respond (Singh, et al. 2017, p.109).
Japan is responding to China's initiative on the FTA with ASEAN
countries by offering Comprehensive Economic Partnership with
ASEAN in January 2002 and concluded in 2007 (Chung, 2011,
p.415). Japanese Prime Minister Koizumi Junichiro has proposed to
include Australia and New Zealand to balance China’s influence
(Chung, 2011, p.415). China and Japan have encouraged economic
regionalism by means of larger FTAs across Asia-Pacific (Webster,
2008, p.318). China and Japan have a different style of adopting FTA.
Japan is adopting a comprehensive and orthodox style, and China is
adopting gradualism and flexibility of FTA approaches (Webster,
2008).
China becomes the largest market for Japan, and Japan becomes a
source of capital and technology for China (Taylor, 1996, p.58). The
strategy of Chinese leaders to search for Japanese investment shows
that both countries are planning for industrial development and the
subsequent expanding role in the economic growth of East Asian
(Taylor, 1996, p.56). The Chinese leaders believed that Japanese
investment is vital for the economic leverage and Japan is the most
desired partner based on the advanced technology, geographic
closeness, and cultural similarity (Taylor, 1996, p.58). Japanese
industrialist's investment in China is encouraged by the high cost of
production as an appreciation of yen and production based abroad is
increasing to gain a competitive advantage (Taylor, 1996, p.57).
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Journal of Economic Info Vol 6 No 1; 34- 42
The spreading effect of regional integrations, China's economic
growth, Japan's political effort of expansion in regional and global
areas, ASEAN's normative influence, and United States' strategic
alignment are the dominant dynamics pattern in East Asian
subsequent development (Honghua, 2010, pp.81-82). The main
concern is that the major power dynamics among Sino-Japanese
competition is viewed as the manifestation of Sino-US power
dynamics (Singh, et al. 2017, p.115). China and Japan relationship is
the main factor of peaceful rise because China could not build a
peaceful Asian international society that is peaceful at regional and
global arenas without Japan (Buzan, 2010, p.35). China should lead
the initiative for a peaceful rise strategy because Japan has an
alliance with the United States (Buzan, 2010, p.35). Japan’s relations
with Southeast Asia is a way for the United States to strengthen
Southeast Asian against China communism, to maintain Japan’s
access for security, to get raw materials and markets and to minimize
trade between Japan and China (Schaller, 1982, p.393). China should
lead first because China will gain the most from the change and will
lose from the status quo (Buzan, 2010, p.35).
The Sino-Japanese connection has both competition and
cooperative components. Japan demonstrates the efforts to equal to
China's influence on Asian-Western Pacific regional arrangements
built within the last 14 years (Chung, 2011, p.423). Based on
Honghua (2010, p.74) China and Japan have consensus on the new
strategic relationship: maintaining partner’s harmonious development
to develop bilateral political trust, intensifying mutual cooperation to
attain mutual progress, reinforcing dialogue and communication to
protect and to encourage regional stability, increasing Chinese and
Japanese people exchanges to enrich the common understanding
between both countries, and reinforcing cooperation and coordination
to reach regional and global challenges. In 2006, the Japanese Prime
Minister Abe Shinzo broke the tradition by choosing China as the first
foreign country visit instead of the United States (Takeuchi, 2014,
p.16). The Chinese government respected the Japanese government’s
signal and followed Chinese President Hu Jintao’s visit to Japan in
2008 (Takeuchi, 2014, p.16). Chinese and Japanese leaders are
defining the mutual benefit relation associated with fundamental
strategic interest (Takeuchi, 2014, p.16). The connection of economic
interdependence is supporting to prevent the escalation of serious
conflict (Honghua, 2010, p.74). China and Japan have mistrust and
distrust, but mutual interdependence is growing (Honghua, 2010,
p.74). It shows that the two of the most important Asian powers are
collaborating to preserve security and generate prosperity for both
countries and the neighborhood (Chung, 2011, p.423). In 2017, Prime
Minister Shinzo Abe and Chinese President Xi Jinping met on the
sidelines of Asia Pacific Economic Cooperation (APEC) Vietnam
summit. Both leaders are maintaining to improve relation ties, to cope
and control the dispute between the two countries, and to keep in
good condition the stability of relationship (Takenaka, 2017).
The saving potential method will be used to calculate the saving
potential for both countries. The potential saving is the export duties
that should be paid by any World Trade Organization (WTO) member
countries to another country based on the composition of its export
duties that have not been reduced at FTA based (Ziltener, 2016b). The
model will use country A and country B as a trading partners. The
trading values of country A in a certain year will be multiplied with
the tariff of country B and the other way around. The tariff calculation
is based on the Most Favor Nation (MFN) tariff rate at the six-digit
level Harmonized System Code (HS code). World Customs
Organization (WCO) has developed the HS code. HS code is used as
a multi-function for the international product nomenclature (World
Customs Organization, 2017). The cross-section data will be used in
this study. The most current year trade data will be accessed through
the UN Comtrade website. The applied tariff rate data will be
collected through WTO statistics trade and tariff. The other data will
be collected from the World Integrated Trade Solution (WITS) and
the World Bank.
This maximum saving potential will be described in detail at the
statistical analysis of the saving potential duties between China and
Japan. The explanation is based on the tariff reduction for the
exporters in China and Japan. The scenario of the tariff reduction in
this paper assumes that both sides will reduce the tariff into the
maximum zero. This assumption is close to real calculation of FTA
but some conditions might be applied in the realistic application of the
free trade agreement. The conditions that might be applied in reality
will not eliminate all the tariffs reduction into zero. In this paper, the
calculation scenario of saving potential is reducing all tariffs into
zero.
The statistical analysis of saving potential trade includes the
Information Technology Agreement (ITA). ITA is concluded with29
participants in Singapore, December 1996 (WTO, 2018). The ITA is
an agreement that leads to eliminate 201 information and technology
(IT) products tariffs. The statistical analysis shows the result of both
by excluding ITA and including the ITA. The statistical analysis in
this paper excludes four commodities: 1) HS code 71 is natural,
cultured pearls, precious, imitation jewelry, semi-precious stones,
precious metals, metal clad with precious metal, articles thereof, and
coin, 2) HS code 93 is arms and ammunition, 3) HS code 97 is works
of art, collectors’ pieces and antiques, 4) HS 99 commodities not
specified according to kind.
Japan’s Exports to China
The saving potential value results for Japan’s export to China shows
that Japan would gain big amount of saving potential if China
eliminate most of their tariffs rate for Japan. The following table
shows the saving potential for Japan’s export in each commodity
cluster and total saving potential.

DATA ANALYSIS OF SAVING POTENTIAL DUTIES

Table 5. Saving potential for Japan’s exports to China excluding ITA (2016)
China’s export and Japan’s export will be described in this Potential
section. The following table shows the Japan and China exports in the HS Trade Values Duties
Commodities
ten years data between 2006-2015. Code (US$ million) (US$
Table 4. China and Japan exports million)
Transportation 86-89 14,277 2,520
Year China’s Export to Japan Japan’s Export to China
Machinery / Electrical 84-85 67,658 2,271
(US$ thousand) (US$ thousand)
Miscellaneous 90-96 16,631 1,213
2006 118,525,736 115,672,581
Chemicals & Allied Industries 28-38 14,434 832
2007 127,922,366 133,950,504
Plastics / Rubbers 39-40 10,215 750
2008 143,229,984 150,600,041
Metals 72-83 12,695 710
2009 122,574,081 130,937,525
Stone / Glass 68-70 2,140 290
2010 153,203,234 176,736,084
Textiles 50-63 2,577 236
2011 183,882,190 194,567,856
Mineral Products 25-27 1,469 91
2012 188,500,370 177,832,336
Foodstuffs 16-24 301 58
2013 180,977,514 162,245,573
Animal, Animal Products
2014 181,294,159 162,920,512 01-15 418 46
&Vegetable Products
2015 160,559,699 142,902,573
Wood & Wood Products 44-49 1,451 43
Data source: WITS 2018 Footwear / Headgear 64-67 49 9
Methodology Raw Hides, Skins, Leather, &
41-43 55 5
Furs

37
Journal of Economic Info Vol 6 No 1; 34- 42
Total 144,370 9,074 Furs
Data source: UN Comtrade 2018, authors’ calculations Total 144,370 8,073
Data source: UN Comtrade 2018, authors’ calculations
The total maximum saving potential duties for Japan is 9,074 US$
million. This total maximum saving potential is excluding the ITA. Figure 3 shows that the average tariff for machinery/electrical is
Table 5 above shows that the potential duty of transportation decreasing from 8,4% to 7,5%. The average tariff for the
commodity is 2,520 US$ million, the highest potential duties among miscellaneous is decreasing from 11,2% to 9,9%. The average tariff
other commodities. The trade value of transportation commodities is for chemicals and allied industries is decreasing from 6,9% to 6,8%.
less than the machinery/electrical commodities. It represents that
China is high tariffs on transportation. In Figure 2 the transportation Figure 3. Tariff range of China imports from Japan including ITA
commodities show that the maximum tariff is 45%, the average tariff
Tariff Range
is 12,5%, the minimum tariff is 0%, and the mode tariff is 10%.
Average Max Min Mode
Figure 2. Tariff Range of China imports from Japan excluding ITA

Tariff Range
10%
Average Max Min Mode
0% 10%
0%

24%
10% 10%
10% 0% 6%
0% 10% 0%
4% 65%
0% 10% 20%
8% 65%
0% 0%
24% 0% 7% 8%
10% 45% 0% 0% 5%
6% 10% 50% 40%
0% 0% 8% 25%
4% 28% 0%
65% 35%30% 21%
10% 10% 20% 25% 25%
0% 0% 8% 65%
0% 20%
7% 8% 3%
0%
45% 5%
50% 0% 0% 40% 13.4% 8%18.6%
13.0%
18.2%
13.0%
28% 8% 25% 12.5%
7.5%9.9%6.8%9.5%7.7% 11.3%
5.2%
35%30% 0% 4.3%
25% 25% 21%
3% 20%

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Figure 3 above shows that maximum tariffs for foodstuffs

Data source: WTO 2018, authors’ calculations commodity and animal, animal products, and vegetable products at
65% are higher than other commodities. The saving potential of duties
Table 6 below shows the Japan potential export saving duties to shows that transportation commodities are the highest values among
China, including ITA. The total potential duties value is decreasing by other commodities. The ten highest transportation commodities are
11% from 9,074 US$ million to 8,073 US$ million. Table 6 shows described in the following table:
that the potential duties values for machinery/electrical,
miscellaneous, chemicals, and allied industries commodities are Table 7. Ten highest saving potential for Japan’s transportation commodities
exports to China (HS 6 digits level) 2016
decreasing after including the ITA
Potential
HS Trade Value
Duties Duties Values Descriptions
Table 6. Saving potential for Japan’s exports to China including ITA 2016 Code (US$ million)
(US$ million)
Potential Vehicles; spark-ignition
HS Trade Values
Commodities Duties internal combustion
Code (US$ million)
(US$ million) reciprocating piston engine,
Transportation 86-89 14,277 2,520 870323 25% 4,940 1,235
cylinder capacity exceeding
Machinery / Electrical 84-85 67,658 1,803 1500cc but not exceeding
Miscellaneous 90-96 16,631 788 3000cc
Chemicals & Allied Industries 28-38 14,434 724 Vehicles; spark-ignition
Plastics / Rubbers 39-40 10,215 750 internal combustion
Metals 72-83 12,695 710 870324 25% 2,545 636 reciprocating piston engine,
Stone / Glass 68-70 2,140 290 cylinder capacity exceeding
Textiles 50-63 2,577 236 3000cc
Mineral Products 25-27 1,469 91 Vehicle parts; gear boxes
870840 9% 4,114 370
Foodstuffs 16-24 301 58 and parts thereof
Animal, Animal Products Vehicle parts and
01-15 418 46
&Vegetable Products 870899 14% 481 68 accessories; n.e.c. in heading
Wood & Wood Products 44-49 1,451 43 no. 8708
Footwear / Headgear 64-67 49 9 Vehicles; parts and
870829 10% 399 40
Raw Hides, Skins, Leather, & 41-43 55 5 accessories, of bodies, other

38
Journal of Economic Info Vol 6 No 1; 34- 42
than safety seat belts above shows that the tariff barrier is relatively lower than the tariff
Vehicle parts; steering barrier of China’s duties.
wheels, steering columns
870894 9% 236 21
and steering boxes; parts
thereof Table 9. Ten highest saving potential for China’s textile commodities exports
Vehicle parts; suspension to Japan. (HS 6 digits level) 2016
870880 10% 179 18 systems and parts thereof HS Potential
Trade Value
(including shock-absorbers)Code Duties Duties (US$ Descriptions
(US$ million)
Vehicle parts; brakes, servo- million)
870830 9% 163 14 Jerseys, pullovers,
brakes, and parts thereof
Vehicle parts; drive-axles cardigans, waistcoats
with differential, whether or611030 11% 1,914 206 and similar articles; of
not provided with other human-made fibers,
870850 9% 155 14 knitted or crocheted
transmission components,
and non-driving axles; parts Jerseys, pullovers,
thereof cardigans, waistcoats,
Vehicle parts; safety airbags611020 10% 721 75 and similar articles; of
870895 10% 135 14 with inflater system; parts cotton, knitted or
thereof crocheted
Data source: UN Comtrade 2018, authors’ calculations T-shirts, singlets and
610910 10% 614 60 other vests; of cotton,
knitted or crocheted
China’s Exports to Japan T-shirts, singlets and
other vests; of textile
Japan's import tariff is relatively lower than China's import tariff. 610990 10% 553 54 materials (other than
The Japan import tariff statistical analysis shows that there is no cotton), knitted or
significant difference between excluding ITA and including ITA. crocheted
Japan's import tariffs for 201 IT products (based on ITA) are already Trousers, bib and brace
overalls, breeches and
zero. Table 8 below shows that the total saving potential duty for 620462 10% 524 50 shorts; women's or
China's export to Japan is 3,710 US$ million. The highest total duty is girls', of cotton (not
the textiles commodity. The total duty for the textile commodity is knitted or crocheted)
1,810 US$ million. Textiles; made up
articles (including dress
Table 8. Saving potential for China’s exports to Japan 630790 5% 901 48 patterns), n.e.c. in
HS Trade Values Potential Duties chapter 63, n.e.c. in
Commodities heading no. 6307
Code (US$ million) (US$ million)
Textiles 50-63 21,555 1,810 Anoraks (including ski-
Foodstuffs 16-24 4,758 474 jackets), wind-cheaters,
Footwear / Headgear 64-67 3,726 383 wind-jackets, and
Raw Hides, Skins, Leather, similar articles; men's or
& Furs 41-43 2,704 253 620193 11% 410 45 boys', of human-made
Animal, Animal Products fibers, other than those
&Vegetable Products 01-15 3,964 237 of heading no. 6203
Plastics / Rubbers 39-40 5,575 161 (not knitted or
Chemicals & Allied crocheted)
Industries 28-38 7,515 127 Blouses, shirts, and
Miscellaneous 90-96 14,730 103 shirt-blouses; women's
Metals 72-83 8,129 71 610620 10% 428 42 or girls', of human-
Wood & Wood Products 44-49 3,096 62 made fibers, knitted or
Stone / Glass 68-70 2,091 18 crocheted
Mineral Products 25-27 1,339 9 Trousers, bib and brace
Machinery / Electrical 84-85 71,167 2 overalls, breeches and
Transportation 86-89 4,180 - shorts; women's or
620463 10% 427 41
Total 154,530 3,710 girls', of synthetic fibers
(not knitted or
Data Source: UN Comtrade 2018, authors’ calculations
crocheted)
Coats; women's or
The total trade value of textile 21,555 US$ million is less than the girls', overcoats,
total value of machinery/electrical 71,167 US$ million. The tariff raincoats, car-coats,
range of textile is higher than the tariff of machinery/electrical. The capes, cloaks, and
all Japan's transportation tariffs are zero. Figure 4 below shows that 620213 11% 355 39 similar articles, of
the maximum tariff is footwear/headgear at 28,5%; animal, animal human-made fibers,
other than those of
products, and vegetable products at 28,5%; and raw hides, skins,
heading no. 6204 (not
leather, and furs at 25%. The foodstuff is the second highest duties knitted or crocheted)
value with the total potential duties at 474 US$ million. The average Data Source: UN Comtrade 2018, authors’ calculations
duty of foodstuff is 10,3%.
The saving potential tariff analysis is a useful analysis to figure
Figure 4. Tariff range of Japan’s imports from China excluding ITA out the saving potential that could be utilized from the free trade
(See Appendix –A for Figure 4) tariff reduction agreement. Table 9 above shows the ten highest duties
of the textile commodity. The detail calculation of the duties shows
China’s trade value of textile exports is 21,554 US$ million. The that each of the commodities has a different tariff. Therefore, the free
maximum tariff for textile is 13,4%, and the average tariff is 6,5%. trade agreement could utilize the results of saving potential analysis
The tariff ranges shows the tariff barrier from each commodity for of tariff reduction into more detail by using ex-ante analysis to find
China’s export to Japan. The tariff range figure of Japan’s duties out the tariff reduction value.

39
Journal of Economic Info Vol 6 No 1; 34- 42
Table 10. Comparison of GDP to maximum saving potential
No. Japan China (US$ million)
(US$ million)
1. GDP (current US$) 2016 4,939,380 11,199,145 Figure 5. Maximum saving potential ten years projection at 100% utilization
2. Max saving potential 8,073 3,710 rate based
3. Ratio (2/3) 0.2% 0.03%
Maximum Saving Potential in 10 Years (US$ million)
Data Source: WITS 2018, authors’ calculations.

The comparison of the GDP to maximum saving potential 14,000

between Japan and China shows that the ratio for maximum saving 12,000
potential to GDP for Japan 0.2% and for China 0.03%. Therefore,
10,000
Japan has bigger ratio of saving potential than China.
8,000
DATA ANALYSIS OF MAXIMUM SAVING 6,000
POTENTIAL BY YEAR FOR ALL THE TOTAL 4,000
PRODUCTS
2,000

The maximum saving potential for Japan's exports and China's -

exports have been calculated. In this paper, the scenario for the 1 2 3 4 5 6 7 8 9 10
maximum free trade calculation of saving potential starts at the year
of enforcement basis. The data of this paper is retrieved from the China's Saving Potential Japan's Saving Potential
latest year available in 2016 from the UN Comtrade. The maximum
Data Source: UNCOMTRADE 2018, authors’ calculation
saving is calculated based on the estimation that all these products are
according to the rules of origin and utilization rate is 100%. It means
that the free trade agreement will be effectively applied for all The baseline data is China's export and Japan's export in 2016,
products. In the real application of FTA shows that utilization rate has excluding the HS 71, 93, 97, and 99. Figure 5 shows the projection of
not utilized up to 100%. For example, the utilization rate of Swiss maximum saving potential statistical analysis result using 100% of
export to Germany is 50% and another 40% exports on the duty-free utilization rate. If China's exporters utilize the free trade agreement
basis (Ziltener and Blind, 2015). The ex-ante analysis is using the free 100% of their exports (value) and export grow at 5,6% annually, then
trade utilization rate in order to analyze the saving potential close to they will make maximum saving potential at 2,328 US$ million in
reality (Ziltener, 2016a). The ideal utilization rate obtains from the year 5 and 6,114 US$ million in year 10. If Japan's exporters utilize
ex-post analysis. The free trade agreement utilization rate calculates the free trade agreement 100% of their exports and export grow at
the free trade agreement successfully implemented to attain duty-free 5,4% annually, then they will make maximum saving potential at
export (Ziltener, 2016a). If the utilization rate utilized is 66%, it 4,982 US$ million in year 5 and 12,960 US$ million in year 10.
means 66% of all exports (value based) in that year have been free
from customs duties (Ziltener, 2016a). Therefore, the utilization rate Figure 6. Maximum saving potential ten years projection at 66% utilization
rate based
is used to assume as a scenario for free trade between Japan and
China. There are three scenarios in this paper. The first scenario is Maximum Saving Potential in 10 Years (US$ million)
using the maximum utilization rate of 100%, the second scenario is
using a medium utilization rate at 66%, and the third scenario is using
the low utilization rate at 33%. 9,000
The assumption will calculate closer to the realistic projection by 8,000
including export growth. The assumption of export growth: Japan's 7,000
export to China growth annually is 5,4%, and China's export to Japan 6,000
growth annually is 5,6%. These average export growths are calculated
based on the average of country growth (%) data available in WITS. 5,000
The China country growth of export is averaging from 1992 to 2015. 4,000
The Japan country growth of export is averaging from 1993 to 2015. 3,000
The free trade negotiation between Japan and China has not been 2,000
concluded yet. The maximum saving potential estimation could not be
based on the specific agreement. The assumption can be made by 1,000
assuming that it will cover substantially all trade as the GATT article -
(Ziltener, 2016a). The tariff will take part over ten years in 10 equal 1 2 3 4 5 6 7 8 9 10
steps. The assumption is that the tariff will be eliminated on the first
day of enforcement. Thus, the realization of the maximum saving China's Saving Potential Japan's Saving Potential
potential in year one will be projected up to year 10.
Data Source: UNCOMTRADE 2018, authors’ calculation

Figure 6 shows the projection of the maximum potential statistical

analysis result using 66% of utilization rate. If China's exporters
utilize the free trade agreement at 66% of their export (value) and
export grow at 5,6% annually, then they will make maximum saving
potential at 1,536 US$ million in year 5 and 4,035 US$ million in
year 10. If Japan's exporters utilize the free trade agreement at 66% of
their export (value) and export grow at 5,4% annually, then they will
make maximum saving potential at 3,288 US$ million in year 5 and
8,554 US$ million in year 10.

40
Journal of Economic Info Vol 6 No 1; 34- 42
Figure 7. Maximum saving potential ten years projection at 33% utilization
rate based
Maximum Saving Potential in 10 Years (US$ million)
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
- China and Japan's definite commitment to regional cooperation
1 2 3 4 5 6 7 8 9 10
China's Saving Potential Japan's Saving Potential
Data Source: UNCOMTRADE 2018, authors’ calculation
Figure 7 shows the projection of maximum saving potential
statistical analysis result using 33% of utilization rate. If China's
exporters utilize the free trade agreement 33% of their exports (value)
and export grow at 5,6% annually, then they will make maximum
saving potential at 768 US$ million in year 5 and 2,018 US$ million
in year 10. If Japan's exporters utilize free trade agreement 33% of
their exports and export grow at 5,4% annually, then they will make
maximum saving potential at 1,644 US$ million in year 5 and 4,277
US$ million in year 10.
The different scenarios range from low, medium, and maximum
utilization. The three scenarios have been used to estimate an
approximation of the maximum saving potential in different
conditions. This analysis helps to figure out the maximum saving
potential benefit of tariff reduction from a free trade agreement
perspective.
CONCLUSION
The maximum saving potential analysis for a free trade agreement
between China and Japan has shown that there is a potential gain for
China's exporters and Japan's exporters as the expansion of big free
trade regional partnership scheme within the RCEP.
China and Japan are holding the two biggest GDP countries
among RCEP members. If Japan and China conclude the free trade
agreement, it will lead to another smooth way of concluding the
RCEP agreement. The result shows that each country has different
commodities to be protected. Japan tariff range (figure 4) shows that
footwear/headgear; animal, animal products, and vegetable products;
and raw hides, skins, leather, and furs have a high tariff compared to
other commodities. China tariff range (figure 3) shows that foodstuffs
commodity and animal, animal products, and vegetable products,
transportation, chemicals, and allied industries are higher than other
commodities.
The economy perspective of Japan and China countries seems to
have tight economic interdependent. The political perspective of both
countries has long historical relations, distrust and mistrust. Japan
and China mutually need each other economically. Therefore, the
economic interdependent could be a way for both countries to have a
harmonious relationship in the future and the addition of part of the
RCEP. Japan and China need ASEAN and other RCEP members to
tighten the economic and political relations among them.
China and Japan GPD all together (figure 1) is holding 68% of
RCEP GDPs. China and Japan have a significant contribution from
economic and political perspectives. RCEP will be getting smaller
impact without China and Japan. It is essential to maintain China
and Japan in the RCEP initiatives. The six non-ASEAN members in
RCEP are finding ways to exploit the balance benefit among them.
China and Japan relation will be embedded in the RCEP association if
RCEP is concluded.
RCEP is opening for other countries to join. However, RCEP is
emerging as ASEAN plays a central role in the free trade agreement
with other six non-ASEAN members. It means if there is other
countries want to joint with the RCEP they have to follow the
agreement that will be made. The difficult part to conclude RCEP is
that six other non-ASEAN members should adjust their interests
according to the interests of countries who are involve within RCEP.
The other countries who have not joined in the RCEP initiatives are
possible to join RCEP, but it will find it difficult to adapt its position
to other RCEP members unless newcomer agree to follow the
conclusion of the agreement.
China and Japan admitted the structure and searched for getting
closer with the RCEP association and network. ASEAN has made an
effort to keep in good condition the social constitution by getting
(Yoshimatsu, 2017, p.22). Regional cooperation is the essential
element of a regional social network to avoid special linkage of the
two great powers and to develop the institutional system to enable
RCEP initiative (Yoshimatsu, 2017, p.22). China and Japan are
holding great powers. The regional stability of RCEP is essential to be
maintained by ASEAN. The free trade agreement will give a great
contribution to China and Japan. It will maintain a better harmony
relation, especially between both China and Japan and RCEP in
general.
Some limitations of this paper could generate future research
suggestions: 1) the calculation of the maximum saving potential based
on maximum reduction into zero in the calculation, which is
unrealistic in some cases for the free trade agreement because most of
countries have maintained its protectionism for some of their
products/commodities, 2) the utilization rate could figure out after the
free trade agreement has been concluded, therefore in this paper based
on three scenarios by using low, medium, and high utilization rate
scenarios, 3) there must be some other factors that should be
considered, such as detail regulation in each country tariff
specification for different countries, different tariff in different period,
and in different level of HS code digit tariff.
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APPENDIX – A

Figure 4. Tariff range of Japan’s imports from China excluding ITA

42
Journal of Economic Info Vol 6 No 1; 34- 42

Tariff Range

Average Duties Max Min Mod

7% 13%
0% 0%
0%

6% 28.5% 25.0%
0% 28.5% 0%
13.4% 0%
3.9% 17.0% 0% 0% 0% 0%
11.8% 0%
10.3% 10.0% 5.2% 9.0% 7.5% 7.9% 8.0% 0% 0%
6.5% 5.3% 3.9% 4.8%
2.2% 2.1% 0.7%
…
1.0% 1.1% 1.1% 0.3% 0.0% 0.0%
0%

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rs

ss
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be
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la
et
dg
xt

st

st

ta
ne

/G

ct
od

od
et

ub

M
&
Te

od

du

or
ea

le
eg

lla

Pr

Pr
R
r,

sp
/E
e
Fo

In
H

ce
he

&V

on
/

al

an
s

d
r/

oo
is

ry
at

er
St
ic

lie
ts

Tr
M
ea

ne
Le

st

in
W
Al
uc

a
w

hi
&
s,

Pl
od

&
ot

ac
in

d
Fo

s
Pr

oo

M
Sk

al
ic
al

W
,

m
m
es

he
ni
id

,A

C
H

al
aw

im
R

An

Data Source: WTO 2018, authors’ calculations

43