Economic Diplomacy Speech by Seiji Maehara,
Minister for Foreign Affairs of Japan,
at CLSA Japan Forum 2011

February 28, 2011
Grand Hyatt Tokyo


(photo) Foreign Minister Maehara delivering a speech at CLSA Japan Forum 2011

I'm very glad to have been invited to CLSA Japan Forum 2011 and to have the opportunity to present my views on Japan's economic diplomacy to institutional investors from around the world.

1. Achieving Economic Growth

The world economy has been undergoing a dramatic shift --- from the tripolar era centered on Japan, the United States, and Europe through the 1990s to a more multipolar age that also encompasses the emerging economies. Competition has intensified, especially in the East Asian region where Japan is located, as China, the Republic of Korea and others have achieved remarkable growth in recent years.

Against this background, Japan regards investment by both domestic and foreign companies as the engine of national growth. Challenges are being addressed in various sectors, including industry and labor, to encourage such investment. As part of the New Growth Strategy, the Government of Japan is advancing institutional and regulatory reforms to boost Japan's international competitiveness and revitalize local communities. We are also making efforts to promote investments in Japan that will lead to greater corporate competitiveness and encourage foreign companies to establish operations here.

One such measure is the establishment of comprehensive special zones. Support measures, such as preferential regulatory treatment, will be adopted in a comprehensive and focused way. These measures encourage leading-edge initiatives such as international hub formation, distribution, the environment, and biotechnology.

The Government outline for tax revisions in fiscal year 2011 includes provisions for a combined 5 percent cut in the effective rate of local and national corporate taxes.

We're also advancing the liberalization of air transport. In November 2010, we concluded an open skies agreement with the United States, and we have also come to agreements with the Republic of Korea and Singapore.

I'm sure a number of you here have already used Haneda Airport since regular international flights were relaunched there last year. And you must no doubt have felt how close the airport is to downtown Tokyo. As for Narita Airport, discussions are going on the idea of creating a facility to accommodate private business jets. In these ways, the attractiveness of Tokyo as a center for international business is increasing.

I hope to be able to convince all of you here today that Japan is emerging as a truly attractive investment destination.

Japan is also noted for its strengths in technological innovation. Although competition is getting harder, including with emerging economies, Japan still boasts many technologies that can't be found anywhere else. In June last year, many of you may recall, the Hayabusa spacecraft returned to Earth after a very challenging seven-year, 6-billion-kilometer mission to bring back samples from an asteroid. This was achieved for the first time in human history. Space exploration involves a very broad range of industries requiring comprehensive technologies, and there were many small and medium-sized enterprises among the companies participating in the Hayabusa mission. I wish to impress upon you that Japan has many top-notch technologies, yet to be introduced to the world.

2. Economic Diplomacy

Since being appointed Minister for Foreign Affairs, I have put forward the following four pillars of economic diplomacy. The first is the free trade system. The second is the securing of long-term and stable supplies of resources, energy, and food. The third is the international promotion of infrastructure systems. And the fourth is the promotion of Japan as a tourism-oriented nation.

Today, I'm going to start with the fourth pillar-Japan as a tourism-oriented nation- since this is also closely associated with direct investment, which I mentioned earlier. I'll then talk about the other three pillars in order.

2.1. Promotion of Japan as a Tourism-Oriented Nation

The most effective way of conveying Japan's appeal is to actually have people see this country for themselves. Those of you who have already visited various regions in Japan are aware, I'm sure, that Japan is treasure-trove of cultural richness and natural diversity. While I was Minister of Land, Infrastructure, Transport, and Tourism, we strengthened our initiatives to attract more foreign tourists, launching the "Japan, Endless Discovery" campaign. As Foreign Minister, too, I'm focusing actively on inbound tourism promotion as one of the four pillars of economic diplomacy.

The number of foreign visitors to Japan in 2010 was the highest ever, but it was still far shy of our target of 30 million visitors annually. We'll be further strengthening our efforts to attract foreign tourists, working closely with the Japan Tourism Agency, through more active promotion of Japan's appeal by our diplomatic missions overseas. . I hope that all of you, too, will visit various locations in Japan and talk to your friends and families about what you have found appealing.

2.1.1. Promoting International Exchange Through Human Resources

Besides attracting tourists, another approach to re-energize Japan is to accept human resources from other countries in a variety of ways. It is necessary to actively accept knowledge workers and other highly skilled laborers, as well as students from other Asian countries and elsewhere.

As a symbol of a nation built on technology, moreover, the Japanese Government is also actively striving to disseminate Japan's industrial technology education abroad. In response to a request from Malaysia, for example, preparations are now underway to establish the Malaysia-Japan International Institute of Technology. In cooperation with Japanese universities, this institute will offer Japan's industrial technology education in English. Japan is also considering the possibility to accept students from other ASEAN countries in the future.

At the same time, the number of Japanese students abroad has been declining in recent years. Working closely with the relevant ministries and private companies, we will promote the development of human resources capable of playing an active role in the global arena.

2.2. Establishing a Free Trade System and Building a Strong Trading Nation

The next pillar of Japan's economic diplomacy is to establish a multilateral free trading system. To achieve this, an early conclusion to the World Trade Organization's Doha Round negotiations is vital.
In parallel with the Doha Round negotiations, it is also important that we work to conclude free trade agreements and economic partnership agreements with more countries and regions. It is a strategic approach that takes the whole Asia Pacific region into view. In November last year, the Government has adopted a decision "Basic Policy on Comprehensive Economic Partnerships". According to this policy, Japan will pursue high-level economic partnerships comparable to prevailing international trends. At the same time, we will advance the fundamental reforms necessary at home, such as enhancing competitiveness. According to this basic strategy, we will actively promote bilateral EPAs and broader regional economic partnerships. With respect to the Trans-Pacific Partnership Agreement, or TPP Agreement, it was decided that we were planning to work swiftly to prepare the ground within Japan and to begin consultations with the other countries involved.

With regard to the TPP Agreement, the Government is keeping a close watch on the status of consultations and aims to reach a decision on whether or not to participate in negotiations by around June this year. We will also continue to work on promoting the Joint Research on a Free Trade Agreement among Japan, China, and the Republic of Korea, and will participate actively in discussions on the East Asia Free Trade Area, or EAFTA, and the Comprehensive Economic Partnership in East Asia, or CEPEA.

I hope that Japan can provide leadership in establishing a better free trade system, while making full use of these bilateral and multilateral frameworks.

Pursuing high-level FTAs and EPAs on the one hand, and encouraging a flourishing agricultural sector and prosperous rural districts at home on the other, are not mutually exclusive. These are compatible aims. The European Union and the Republic of Korea are carrying out fundamental agricultural reforms, anticipating the impact that regional market integration and liberalization will have on the agricultural sector. The EU has introduced ambitious reforms, including a system of direct payments to farmers. This measure has succeeded in achieving two goals at once: bringing benefits to the consumer by reducing high tariffs, and making producers more competitive. The individual (household) income support system for agriculture proposed by the Democratic Party of Japan is based on precisely the same kind of thinking as the EU system.

2.3. International Promotion of Infrastructure

The third policy pillar I want to introduce to you today is the international promotion of advanced Japanese infrastructure technology. In emerging and developing countries, rapid economic development and increasing populations mean that demand for infrastructure in these countries is increasing rapidly. In Asia in particular, it has been estimated that the demand for infrastructure will be worth a total of eight trillion dollars over the decade from 2010 to 2020. Promoting Japanese infrastructure overseas will not only contribute to Japan's growth. It will also provide the infrastructure essential for growth in emerging and developing countries. By actively promoting Japan's advanced environmental and energy-saving technology, I hope that we can help not only to create a safe and secure international society, but also to provide support for each country's development, building a win-win relationship with these countries in which we all grow together.

2.4. Securing Stable Supplies of Food, Energy, and Mineral Resources

The fourth policy pillar involves securing reliable and stable supplies of food, energy, and mineral resources. When a young man in Tunisia set fire to himself in protest recently, people's dissatisfaction with the authorities spread rapidly using new communications tools and social networking services like Facebook and Twitter. This led to massive demonstrations that eventually brought down the government. A similar series of events led to the resignation of President Hosni Mubarak in Egypt. The economic impact of this kind of political and social instability in the Middle East can spread to other countries instantly, leading to instability in the world's energy prices. Food prices are also on an upward curve. Given an increasing global population, some estimate that the world will face a food-supply crunch in the medium to long term.

2.4.1. Ensuring a Stable Supply of Food Resources

In order to secure a reliable and stable supply of food, it will be important to increase total world food production and distribute our risks more widely, as well as to develop a strong agricultural sector within Japan. Japan can look to increase both public and private-sector investment in agriculture overseas. The introduction of safe, dependable, and high-quality food production technology would help to increase production in these countries. At the same time, a part of the resulting harvest could be exported to Japan, leading to a win-win situation in the true sense of the term. In Middle Eastern and African countries with scarce water resources, Japan could extend support by using official development assistance to introduce irrigation technology, as well as to help develop and propagate seeds that can tolerate a dry climate and grains that can be grown with limited water. Also by exporting solar-powered vegetable factory technology to these regions, for example, it should be possible for us to contribute not only to solving water and food shortages but to solving environmental problems as well.

2.4.2. Ensuring a Stable Supply of Energy and Mineral Resources

A stable supply of energy and mineral resources is essential to the growth of Japanese industry, to maintain our international competitiveness and to achieve our aim of lower carbon society. Building stronger relationships with producing countries and diversifying our supply of these resources is a pressing issue for Japan. It is especially so, given the rapidly increasing demand for energy and mineral resources in recent years, particularly in emerging economies, and the uneven distribution of rare earths and many other minerals around the world,

The whole Japanese Government-including not only Prime Minister Naoto Kan and myself, but also other Cabinet members and vice ministers-has been working proactively on agreements to build strong collaborative relationships with a number of countries in the area of mineral resources. These include Kazakhstan, Mongolia, Viet Nam, India, the United States, and Australia.

We will continue to draw strategically on "All-Japan" efforts as we work to build stronger relationships with resource-rich countries in the years to come.

3. Building Multilayered Networks Through Economic Diplomacy

When developing economic diplomacy, it is important to effectively utilize a variety of networks, including bilateral FTAs and EPAs as well as international frameworks such as the WTO and APEC, while at the same time always being alert to the possibilities of constructing new networks. With bottom-up democracy spreading throughout the Asia Pacific and the world, I think it is important to build multilayered networks and strengthen partnerships.

In the Asia Pacific region, we need to strengthen collaborative ties by utilizing regional cooperation frameworks such as APEC, the East Asia Summit, ASEAN Plus Three, and the ASEAN Regional Forum.

With regard to Japan-US relations, we believe that a robust economy sustains the development of the bilateral alliance. Based on this view, we will conduct consultations regarding the TPP Agreement, as I touched on earlier, and also forging even closer economic ties in such areas as clean energy, high-speed railways and superconducting maglev, and strategic resources like rare earths.
I believe that Japan's relationship of interdependence with China will be strengthened. We will press forward with concrete cooperation with China in a wide range of areas, including economy, thereby materializing "the Mutually Beneficial Relationship Based on Common Strategic Interests" that connects the world's second and third economic powers.
Japan has also entered a period in which it will seek to build firm economic relations with its two other key partners in the Asia Pacific region, the Republic of Korea and Australia, by concluding EPAs with them. Our aim is to reach a consensus on regulations and verifications with each partner country entering an economic agreement with Japan, so as to establish a win-win system of free trade with the added benefit of strategically bolstering bilateral relationships.

4. Conclusion

We are entering a period of dynamic change in international affairs. Meanwhile, domestically speaking, Japan's enormous fiscal deficit is becoming an increasingly acute problem, together with our shrinking and graying population. In seeking to envisage Japan ten or twenty years from now, a top priority for the country is to formulate-and then implement-a foreign policy that contributes to economic growth. I believe that by promoting such foreign policy, we will be able to strengthen our bilateral relations and multilateral ties in the region. Formulating the concrete policies to make up our strategy depends, I believe, on mobilizing an "All Japan" effort that brings together the views of industry, government, and academia. I would like to conclude my remarks today by expressing my determination to turn the "challenges" we face into "chances", aiming to revitalizing an attractive Japan.

Thank you very much for your kind attention.

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