The Hallmarks of Economic Diplomacy for Japan
Speech by Minister for Foreign Affairs Taro Aso at the Japan National Press Club

Foreign Minister Aso The Japan National Press Club

March 8, 2006

Rationale for Today's Speech

At the opening of the current Diet session, I delivered an address on the topic of diplomacy, in which there was a pledge at the conclusion of the speech.

At that time I promised to continue to make every effort to expound the aims of Japan's diplomacy and ensure that these aims are transmitted at home and overseas. In my speech here today I would like to make good on part of that promise.

What I have always stressed since I began my tenure as Minister for Foreign Affairs is that we need to be asking ourselves continually what exactly the goal of diplomacy is, and furthermore what role the Ministry of Foreign Affairs has as a government office.

As one example, we use Official Development Assistance as a key policy tool. Or we make efforts to increase our person-to-person interactions.

However, it is crucial that we not fall into the trap of providing ODA simply for ODA's sake. As we know from the fact that we don't increase personal exchanges just for the sake of saying we have done it, we always need to keep in mind the question of what our ultimate purpose is. Without this firmly in mind, we run the risk of confusing the ends with the means.

In other words, in the end, we may lose sight of the essence of diplomacy, which is promotion of the goals of Japan and increasing the well-being of the Japanese people.

The key mission of the Ministry of Foreign Affairs must therefore be nothing other than the single-minded pursuit of this "essence of diplomacy" of which I just spoke.

So, taking this opportunity, I will continue to repeat that message indefatigably, knowing that it is important to confirm that the people of Japan share that understanding. I have come to this conclusion after listening to the views of the people working at the Ministry. And so, as I will be making a speech about once a month on a variety of topics, it is important that you understand what the background has been to this.

Now, as I take up the issue of economic diplomacy here today, I will be looking at some issues that are really among the most fundamental of the points at hand, namely the questions of what exactly the Ministry of Foreign Affairs does and what it is trying to do as a government office. After that I will address the issue of what purpose economic diplomacy serves.

There are three main points that I will be covering today.

The first of these is that the Ministry of Foreign Affairs develops global rules for the world economy and ensures that Japan's national interests are reflected within them, a role which is clear and which cannot be carried out by any other domestic entity.

Of course, the reason why we even need to make rules in the first place is that there are conflicts of interests. When you go beyond that and start talking about rules to be applied at a global level, the process by which the rules are formulated necessarily clashes with pursuit of interests among nations.

Once you understand that reality and begin to think in terms of promoting not the interests of individual sectors but rather the overall interests of the Japanese nation, it is possible to go about formulating these rules for global application. And that, of course, is the Ministry of Foreign Affairs' quintessential duties in a nutshell.

A second point is that besides the WTO negotiations, we are also undertaking negotiations with various countries on EPAs-that is, economic partnership agreements-which complement and fortify our efforts on the WTO. With that in mind, I want to confirm for you today what exactly an EPA is and what it aims to do.

As a third point, if we are going to be undertaking these EPAs, then we want to make absolute certain that they will be put into effect quickly. I myself am not pleased with the current rate of progress. Unless we take this opportunity to shift gears and raise the tempo of negotiations significantly, the degree to which they are really assisting the people of Japan is somewhat questionable.

I'll be taking my points up today in that order.

Duties Quintessential to the Ministry of Foreign Affairs

When we look at the economic diplomacy that the Ministry of Foreign Affairs is involved in, ultimately it all boils down to the creation throughout the world of a larger environment in which Japanese citizens and Japanese companies can work and enhance their profits with a sense of security.

We work in cooperation with other countries to establish an environment that is forward-looking and which is supported by secure legal frameworks. Once established, we can say that our job focuses on the maintenance of that environment and the continual pursuit of enhancements to that environment.

The role of the WTO is exactly that. When experts talk of things like bringing "legal stability" and "predictability" to play on the global economy by making use of the WTO, that all ultimately boils down to being conducive to the interests of the Japanese people, and of course to the interests of Japan.

So in that regard, we can perhaps equate the role of the Ministry of Foreign Affairs with that of a lawyer, insofar as the Ministry represents the Japanese people and Japanese companies from the most macro viewpoint and works to provide protections for them.

Seeing as it acts to control various factors of instability, I think we can also consider the Ministry as a kind of insurance provider. Of course I bring this up only to remind us of what we already know, that this role is one that the Ministry must carry out.

All this, however, is just a preamble to the larger issue of what role it is that the Ministry of Foreign Affairs, and only the Ministry of Foreign Affairs, can carry out, and I want to move into that topic next.

In the United States, there is a government entity that is known as the Office of the U.S. Trade Representative (USTR). Every now and again there are calls for Japan to create a similar organization. The fact is that such an organization in Japan would be entirely redundant, and I would like you here to understand why it is that for Japan it is most certainly unnecessary.

This all returns to a more fundamental issue of the roles which other government offices or agencies cannot play and thus can only be pursued by the Ministry of Foreign Affairs and whether or not there are any such cases in the area of economic diplomacy. And then the question arises of, if there are, what would the core essence of such cases be?

One of my purposes in addressing you today is to provide some answers to these questions, and I have come up with three things that I consider quite distinctive to the role of the Ministry of Foreign Affairs.

The first of these is that the Ministry of Foreign Affairs does not support any particular sector or industry more than any other. As the Ministry has no vested interests in any particular sector or industry, it is possible for the Ministry to assume a neutral stance, pursuing only that which is best in the interests of the country.

The second is that our Ministry has within it a group of legal specialists serving in what used to be known as the Treaties Bureau, but which we now call the International Legal Affairs Bureau. It is necessary to commit to paper those items in economic negotiations that have been agreed upon either bilaterally or multilaterally, and that Bureau includes specialists who have that task as their exact area of professional expertise.

So if the formulation of rules and thereby the fostering of "legal stability" and "predictability" are the true essence of what constitutes economic diplomacy, then it is the role of the Ministry of Foreign Affairs to have a group of specialists whose area of expertise is that exact field.

The third thing that is distinctive to our Ministry is that, when we are working to attain a particular objective in the area of economic negotiations, it is generally necessary to achieve the goal within a context of political and security considerations despite various competing and intertwined interests among the countries involved, and it is necessary to have a coordinated strategy of pushing on one point while pulling on another to ultimately attain your objective. In other words you want to provide as much frontage as possible to the issue, and the Ministry that can do that is of course the Ministry of Foreign Affairs.

I've broken it down into these three main points, and it enables the Ministry to have capabilities in these areas which make possible the coordination of interests among various ministries and fields within the domestic arena. It also enables the Ministry to show to the outside world during negotiations a face that represents "all Japan," so to speak.

Now when it comes to my particular role, that of course is to rally the various Ministry officials behind the scenes and make every effort together and I suppose that could be rephrased to say that I am the general superintendent in charge of coordination.

Needless to say, the more challenging and issue gets, the more critical it becomes for the Foreign Minister to gather up leverage by enlisting direction from the Prime Minister and confer with the other members in the Cabinet.

It goes without saying that above the Minister for Foreign Affairs and this Ministry there is the leadership of the Prime Minister and the Office of the Prime Minister. The intentions of Japan as a nation are decided at that level, and our Ministry's role is to take on responsibilities "on the ground" using our capacities as professional negotiators and specialists in the area of rules making.

Now when we think about the people on the other side of the negotiating table, we usually find that they are old hands that have been at it so long that they have a mental scorecard of what points they won in the past and what points they had to compromise on. I think it is natural to wonder what kinds of people the Japan side is sending to the table.

What I have discovered is that, for Japan, while the personnel system in place is one with many restrictions, it is clear that great efforts are taken to bring aboard true specialists to the team. This is something that, as the Minister, I want to bring up more into the public view.

We have, for example, one group of negotiators who have been taking care of economic negotiations since the days of GATT, and they are known internally as the "GATT guys," or in Japanese the "GATT-ya-san" group, the sound of which led to another nickname, the "Gattcha men", which is also the name of a group of popular superheroes in Japanese comics. Within this group there is a very good number of people who even today are on the front lines of WTO and EPA negotiations.

The Economic Affairs Bureau also enjoys assistance from persons in the private sector.

For example, our Ministry has seven lawyers that have come specifically to work on promoting EPAs, and we have a surprisingly good number of men and women in their thirties from various trading companies and manufacturers working within the Ministry.

The reason I bring this up at all is that, whether we talk about "Gattcha men" old hands or these young people recently seconded from the private sector, I have to admit that I had not been aware that such people were working at the Ministry until I arrived here myself as the Minister, and so I thought perhaps you too were not aware of this fact.

Japan's EPAs as Broader and Deeper than FTAs

Next I thought I should address issues regarding the WTO, because I don't think it's possible to have a discussion of economic diplomacy without touching on the WTO in some way.

Since the opening of the country in the Meiji era, Japan over a very long period was unable to have full tariff authority. Even after Japan joined GATT in 1955, Japan had to deal with the discriminatory status resulting from GATT Article 35 until 1995.

The WTO negotiations are an attempt to transform the situation to one in which globally-applied non-discriminatory rules exist, so as not to subject anyone to such an unfair system. So we can say that the WTO negotiations are the process of creating a playing field on which we can formulate these global rules.

That said, I would really need another speech to be able to discuss this topic properly, so I will instead jump right to the point that I would like to stress, that Japan must work to successfully conclude the current WTO negotiations.

Should negotiations be allowed to simply drag on, the integrity of the entire WTO process could face the risk of degradation. Of course, there exists a red line for all countries which is non-negotiable. However, the time has come for Japan, the US, the EU, Brazil, India, and other major economic powers to wrap up discussions.

In negotiations, it is impossible for any country to walk away from the negotiating table having won on every point up for discussion. The major economic powers have an obligation to wrap up discussions within the year in keeping with the negotiating deadline.

Leaving WTO issues at that, I am going to instead focus on points of interest with regard to FTAs, which are such a common topic for discussion recently, and also with regard to EPAs, which Japan has been actively advancing. I want to look in particular at the differences between them and also what we are aiming to achieve through them.

"FTA" of course stands for "free trade agreement," while "EPA" is an abbreviation of "economic partnership agreement."

If we look at the differences between them, first of all, FTAs are instruments which take up issues such as the lowering of tariffs during trade in goods and the elimination of restrictions on foreign investment during trade in services. Premised on the existence of national borders, we can say in that sense that it is reminiscent of the 20th-century.

In contrast to this, in EPAs, which Japan is working to advance, the countries involved in the negotiations venture into the next stage together by, for example, devising frameworks through which investment can take place in a secure manner, or developing a mechanism to ensure protection of intellectual property rights. What happens as a result is a development of supply-chain networks in the manufacturing industry and a reinvigoration of the flow of investment in both directions.

In addition, as you can see by the example of facilitating the exchange of licensed workers in specialized fields, such as nurses or caregivers, it becomes clear that EPAs are based on the premise that from the perspective of economics, national borders no longer exist.

So, EPAs are opportunities not for chats across national borders, but rather a dialogue of involved partners to devise or improve upon economic systems, and in many cases the process involves assistance in the fostering of human resources on the other side.

The fact is that when you commence discussions at a deep level with a developing country, it is impossible to avoid or work around the issue of assistance in human resource development. Looking at this from the opposite perspective, it can be said that dialogues which ignore or gloss over this issue are likely to end by only scratching the surface of the issues at hand.

As one example, even when Mr. Saif El-Islam Qadhafi, the son of Libyan Colonel Qadhafi, visited Japan, he raised the issues of insufficient development of local authorities in Libya. I explained to him our local regulatory frameworks and measures to collect of local taxes, among other things. This is something that took place when I was serving as Minister of Public Management, Home Affairs, Posts and Telecommunications.

Additionally, in Tachikawa you can find the Local Autonomy College, which conducts training in local-level governance for public servants from developing countries. For example, the College received from Viet Nam eight government officials with responsibility for local government, including the Interior Minister, in fiscal year 2003, and six more in fiscal 2004. Also in 2005, two officials arrived at the College from Palestine, where the design of a new governing system is such an important issue.

I just now gave you a flesh-and-blood example of people-to-people exchange, but the EPAs that Japan is now entering into are aimed at using these connections between people and working together to bring about a more prosperous world by deepening cooperative relationships which fortify each side. In other words, EPAs are characterized by breadth of coverage and also by depth of quality, an aspect that FTAs can't even hold a candle to.

The odd thing is that I often hear criticisms that Japan is merely making multiple "small potatoes agreements" by entering into these EPAs. Nothing could be further from the truth. If you look at the EPA we just concluded with Malaysia, tariffs which affect some 97% of the total trade volume are going to be eliminated. In addition, services, investment, intellectual property, the controlling of anti-competitive activities, and the enhancement of business environments are all addressed in this Agreement, and it also addresses cooperation in human resources development. So this Agreement is not "small potatoes" by a long stretch. On the contrary, this is a very heavy-hitting Agreement we have concluded.

Let me add one more here. We hear many people from the world of business and other circles calling for the conclusion of an EPA with the United States.

Obviously if we could just reply, "Okay, sure, we'll do it first thing Monday," things would be easy, but to be quite frank, we do not have a definite answer in the government as a whole, including the Ministry of Foreign Affairs, or even within myself, I have to say. Currently I am not able to say with any confidence whether the proper response to this request should be yes or no.

I think that it is a little bit unusual for a Minister to come right out and say that he is lacking confidence about something, but that is the true situation in which I find myself.

If we were to decide to pursue it, what we do know is that it would have to be an EPA entirely different from others we have concluded to date. Japan and the United States already have a depth to our economic relationship that is simply in a league by itself, and with our combined economies accounting for some 40% of the entire global economy, our EPA with the United States would have an enormous impact.

At a minimum, we should not hesitate or stop thinking about the issue. I can promise to you tonight that I will encourage the people at the Ministry to continue to fret over this matter and that I myself will continue to consider this issue carefully.

EPAs as Strategic Partnership Building

Within Asia, Japan currently has an EPA entered into force with Singapore and one signed with Malaysia, and negotiations have come to a close in substance in the case of Thailand. Besides these, we are already in discussions with Indonesia and with ASEAN as a whole, and we are poised to launch negotiations with both Vietnam and Brunei in the near future. In the Americas, we have already seen the entry into force of our EPA with Mexico, and last month we launched negotiations with Chile.

The formulation of rules also necessarily implies the holding of equivalent values, so if I were to give you my estimation of what Japan is doing right now, I would have to say that it is getting countries with common values to spread definitively out beyond Asia, with the idea of national interests firmly in mind.

In looking at the question of which countries we will be launching EPA negotiations with, I would like to call your attention to the Basic Policy (the Basic Policy towards further promotion of Economic Partnership Agreements) which was developed by the Government of Japan as a whole in December of 2004.

Criteria on identifying countries and regions to negotiate with on the EPAs are specified in a separate attachment to the main text, and within those criteria there are five points enumerated as the basis for decision-making, in order to ensure the attainment of economic interests of Japan as a whole.

The first of these is whether or not it will expand trade and investment and improve the business environment for Japanese companies operating in the partner country. The second is whether or not it is indispensable to eliminate economic disadvantages caused by the absence of an EPA.

Point three considers whether or not it will contribute to stable imports of resources and food. The fourth point is whether or not it will promote Japan's structural reforms, and the fifth and final point is whether or not it will further promote acceptance of professional or technical workers.

In addition to these five points there are other issues which enter into the consideration process, such as whether it promotes a beneficial international environment, or whether the partner country is one whose domestic conditions make the conclusion of an EPA appropriate, among other key issues.

As I am certain you realize from this explanation, we can say that EPAs concluded in this way result in the creation of true partners, forged one by one, with strong ties resulting between Japan and those countries, forged one by one. The forging of partnerships is the true essence of an EPA.

The fact is, of course, that an EPA is not such an easy thing to conclude. The agreement in its final stages is a document dozens of centimeters thick, and when I explained that to Prime Minister Koizumi in advance, his immediate response was, "Unbelievable!"

Large jobs should be undertaken together with others, and this leads to the friendship being forged. This is a truth that has come down from ages past in any and every corner of the globe, and now we see it depicted in EPA negotiations, which require the efforts of a tremendous number of people over a long period of time.

But of course it goes beyond this fact. As I mentioned earlier, EPA negotiations are taking place repeatedly, and Japan, being a developed country, is able to undertake the transfer of significant kinds of technology and knowledge related to the system being established.

So, in short, only when our partner countries are glad they entered into an EPA with Japan and realize that it benefits them in a variety of ways, can we say that we have forged a "win-win" partnership in which each side is assisting and being assisted by the other.

The fact that the partner countries that have come to make use of these benefits are concentrated in the countries of ASEAN is, in my mind, hardly a coincidence. I have here with me the figures for the amount of direct investment undertaken by Japan, China, and Korea towards the countries of ASEAN between 1995 and 2003, and according to these, the amount of ASEAN-directed investment conducted by Japan was 44 times the amount undertaken by China and 11 times the amount invested by Korea.

Even leaving aside examples such as one-tenth of Thai electrical power coming about through Japanese ODA, Japan has been a major player in infrastructure provision in the countries of ASEAN. Japan and ASEAN share a relationship of deep mutual dependency and trust.

An EPA is something that puts these things into concrete form-that is, into that agreement dozens of centimeters think. It's not too much to say that there is no more effective way to forge partnerships.

As I mentioned earlier, the actual process of negotiations with the partner country is the realm of the Ministry's "Gattcha men" types, but I want to state that they are not simply pursuing the monetary interests of the Japanese people or of Japanese companies. Instead, by creating these partnerships with Asia and the rest of the world one country at a time, forging ties of deep mutual dependency, they are doing a job that is truly the quintessential work of diplomats.

Speeding Up the Process Even Further Is an Urgent Task

Before I close my remarks today, I would like to mention as my final point that although it would be counterproductive to rush through the EPA process, it is critical that we speed the process up.

As I mentioned at the beginning of my speech, I am not necessarily satisfied with the pace at which the EPAs to date have been concluded. At the same time, when we think about how enormous the task of preparing an EPA is, it is also clear that hastening the process by doubling or tripling the pace is entirely out of the question.

With that in mind, I would like to propose three means of accelerating the process.

The first is that, because we have a stock of experience in various negotiations until now, we have become able to show partner countries right at the beginning an example of what the end product will ultimately look like, and we can then start to formulate the new EPA with that as a model. We have taken this approach in working with Vietnam, Brunei, and India, for example.

The second is that, depending on the country, we may choose not to conduct negotiations on the full range of EPA components, choosing instead to focus on just the FTA-related areas, or to conclude an investment agreement as a forerunner, or to take other means that suit our goals. That is, we can take on engagement in a variety of patterns.

Third, we may head straight into negotiations instead of taking time for the full range of advance preparations. Until now, we have been entering into negotiations with partner countries only after completing a study with private sector academics and the like. However, in the case of negotiations with the Gulf Cooperation Council, or the GCC, which we are just about to launch, we will intentionally pass over that preliminary step.

I think it should go without saying that the six Persian Gulf states of the Arabian peninsula which comprise the GCC make that Council an extremely valuable partner for Japan in the area of energy security policy, insofar as Japan depends on its member nations for 75% of her petroleum needs and over 23% of her natural gas needs. Having been approached by the GCC with a very enthusiastic desire to conclude an FTA with Japan, we have decided to move directly into negotiations, hoping to conclude the agreement at as early a date as possible.

Regardless of which particular case we look at, though, we cannot afford to move in a leisurely manner. As you will recall I mentioned at the opening of this speech a definition of what constitutes economic diplomacy, stating that EPAs are undertaken in order to promote the interests of Japan. Through establishing international rules, Japan is trying to cope with the reality of the rapidly developing global economy. I would like to close my remarks here tonight with a promise, namely that as the Minister for Foreign Affairs I will be working even harder to further accelerate the process of EPAs.

Thank you for your kind attention this evening.

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