Since late 1998, Japan reversed its exclusive support for the multilateral trade regime and endorsed for the first time bilateral and preferential trade pacts, signing one with Singapore, negotiating another with Mexico, and announcing free trade talks with South Korea. The newfound Japanese interest in pursuing free trade agreements (FTAs) therefore represents one of the most significant departures in Japanese trade diplomacy of the past half-century. This article seeks to explain the birth of a preferential trading policy in a country that until recently had been a staunch multilateralist, and to analyze the reasons for the launch of FTA negotiations between Japan and Mexico. Indeed, one of the most remarkable aspects of Japan's new trade bilateralism is its cross-regional orientation, seeking preferential trade with a Latin American nation. Trade negotiations with Mexico are of great consequence to the development of Japan's FTA strategy for one more reason. Japan has embarked on this new regionalism to offset the negative effects of competing FTAs, but at the same time it has tried to minimize agricultural concessions to bilateral trade partners. Mexico is the first large agricultural exporter that Japan has approached for trade negotiations and is therefore an important test for the success of the Japanese FTA strategy.

Mexico is an attractive FTA partner to Japan because the modest volume of bilateral trade reduces the chances of major domestic adjustment (which at this initial stage could derail the consolidation of the FTA policy shift); because Mexico's extensive network of FTAs could offer access to Japanese products and firms in other markets; and more fundamentally, because Japan is seeking to correct the perceived trade diversion effects of the North American Free Trade Agreement (NAFTA). Whether Japan can pull off this FTA with Mexico, however, largely hinges on the ability of Japanese trade bureaucrats and industrial interests to neutralize the opposition of the agricultural lobby; or conversely, on the willingness of the Mexican government to accept important exceptions to agricultural liberalization.

The first section of this article traces the birth of Japan's FTA policy and critically discusses the most common explanations offered to explain this important policy shift. The second section analyzes FTA negotiations between Mexico and Japan. It discusses the motives of each country for pursuing a bilateral free trade agreement, as well as the outstanding differences that need to be hammered out for a successful conclusion of the preferential trade talks. The article concludes with a reflection on the major dilemmas Japan confronts as it articulates its approach to preferential trading and carries on negotiations with Mexico.

The Birth of Japan's FTA Strategy

The Long Road to Preferential Trading

Champions of multilateralism who worried about the deleterious effects of regional blocs on the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO) system could take comfort in the fact that one of the fastest growing regions of the world remained immune to the spread of preferential trading. (1) East Asia, prior to the 1997 crisis, was commonly praised as a highly performing region where webs of trade and investment had been established not through formal intergovernmental agreements but rather through the private sector, and more specifically through Japanese multinational corporations or by business networks of overseas Chinese. (2) Even the region's most ambitious project of trade liberalization--the Asia-Pacific Economic Cooperation (APEC) forum--seemed to confirm this regional distaste for formal and discriminatory integration. Japan in particular consistently resisted U.S. attempts to turn APEC into a binding trade liberalization organization. Instead, APEC promised to deliver trade and investment liberalization by the year 2020 based on voluntarism, nonbinding commitments, and, most important, nondiscrimination. …