TOKYO (AP) -- With much of the world banding together into trade blocs, Japan should consider forming a free trade zone in Northeast Asia, a government study concluded Friday. The annual white paper by the powerful Ministry of Industry and International Trade said the area was one of the few places in the world where major economies were not moving toward regional integration. The report noted that 90 percent of the 134 members of the World Trade Organization were in some sort of regional bloc, while Japan, South Korea and Hong Kong were on their own. ``Japan should seek to deepen intra-regional exchange and understanding in Northeast Asia, the only area in the world which has shown little interest in regional cohesion or integration,'' said MITI deputy director Kenji Totoki, who helped draft the report. He pointed to increasing trade and investment between countries under the North American Free Trade Agreement and a planned South American common market known as Mercosur. Free trade zones also force companies to compete in a truly international environment, important as the world moves toward a borderless economy, Totoki told reporters. Another benefit is members form a unified front in global trade negotiations, strengthening their bargaining power, the report said. Still, the report noted Japan has not faired poorly in global trade. It said Japan's surplus in trade and services last year was $78 billion, the highest in half a decade. The politically sensitive surplus with the United States was also higher. Totoki said Japan's recession is scaring consumers into buying fewer imports. ``If the Japanese and U.S. economies were growing at the same rate, the trade surplus should have decreased,'' Totoki said. The report proposed restoring growth by fixing what it called the main problem in Japanese finance: the ``overly dominant'' role of banks in corporate financing, which has led to underdeveloped capital markets. At the same time, MITI called for reforming the global financial system to avoid a repeat of the recent Asian crisis. Taxes on investment money entering or leaving a country could prevent the sudden flights of capital such as those that it said ruined smaller Asian economies. ``Considerable credence has ... been given to the argument that the real problem was massive international inflows and outflows of short-term capital,'' Totoki said. -=-=- 