Chapter 3
Japan's Economic Diplomacy to Promote National and Global Interests
3 Initiatives with International Organizations
(1) World Trade Organization (WTO)
A Issues Facing the WTO
The remarkable economic growth that Japan achieved with scarce natural resources after World War II is owed to the free trade system. The WTO has facilitated free trade through various efforts such as rule-making for trade liberalization, dispute settlement between WTO Members, and conducting monitoring to ensure the implementation of the WTO Agreements. However, the WTO today is not adequately addressing certain changes such as the rise of emerging countries and digitalization of the economy, and new problems are arising with the free trade system due to COVID-19.
The WTO's dysfunction can be seen clearly in the weakening of its rule-making mechanisms such as the stall of the Doha Round,5 and in the stagnation of its dispute settlement system, exemplified by the paralysis of the Appellate Body. Furthermore, although the organization is attempting to improve the transparency and predictability of Members' trade policies by monitoring implementation of the obligations under the Agreements such as notifications, such obligations are not being fully implemented.
According to the WTO's statistics, the world merchandise trade volume in 2020 is expected to drop by 9.2% year-on-year due to the COVID-19 pandemic, and many countries have introduced export restrictions on food and medical products such as masks. It is difficult to address these export restrictions under the current WTO Agreements, and members are discussing the necessity of creating new rules in order to tackle the current COVID-19 crisis and also to prepare for future pandemics.
5 “Rounds” are trade liberalization negotiations in which all WTO Members participate. There were eight rounds of negotiations held during the GATT (General Agreement on Tariffs and Trade) years, from the first negotiations held in Geneva in 1947 to the last round held in Uruguay in 1994, and with each round held in response to the global economic demands of the time. The Uruguay Round saw decisions made to implement rules for new fields at the time, including trade in services and intellectual property, and strengthen mechanisms that included establishing the international organization that is the WTO. Later, the Doha Round became the first round to be held under the WTO system.
B Increasing Momentum for WTO Reform
Confronted by these challenges, the international community has recognized that the WTO needs to promote its reform (see Special Feature on page 186) with the new Director-General Ngozi Okonjo-Iweala, and now the momentum for WTO reforms has been increasing.
With regard to the digital economy, the Joint Statement Initiative was released by like-minded members at the 11th WTO Ministerial Conference (MC11) in 2017, and 86 members are currently actively engaged in WTO e-commerce negotiations. Japan is leading the WTO e-commerce negotiations as co-convenor with Australia and Singapore under the “Osaka Track6” toward achieving “Data Free Flow with Trust (DFFT).7” Two-thirds of WTO Members have self-declared as “developing countries” and are being exempted from the WTO Agreements obligations (special and differential treatment, also known as S&DT8). Developed countries maintain the stance that every country should assume their fair share of responsibility in the rise of emerging countries, and recent years have seen Taiwan, Brazil, Singapore and the ROK renounce S&DT in current and future negotiations. Of the view that S&DT should be allowed to countries that truly need it to the extent that it is really needed, Japan has been engaging in discussions with countries on this issue in a constructive manner.
Regarding the dispute settlement system, in response to the Appellate Body's ceasing to function, some members launched a mechanism known as the Multi-party Interim Appeal Arrangement (MPIA)9 as a provisional alternative mechanism. Meanwhile, Japan considers that the Appellate Body has not been fulfilling its original role to settle disputes in a clear and prompt way and that it is important that the DS reform should be made in a way that addresses this problem. Based on this idea, Japan has been taking the initiative on the DS reform.
6 Data Free Flow with Trust (DFFT). A concept proposed by Prime Minister Abe during his speech at the Davos conference in January 2019 for promoting international rule-making for a digital economy. DFFT aims to prevent certain countries from monopolizing data and to instead ensure, in principle, the free flow of data both inside and outside of a country, while ensuring privacy, security and the safety of intellectual property and other forms of data.
7 Launched during the Leaders' Special Event on the Digital Economy hosted by Prime Minister Abe at the G20 Osaka Summit in 2019, this process promotes international rule-making concerning the digital economy, particularly the data flow and e-commerce.
8 Special and Differential Treatment (S&DT): In the wording of the WTO Agreements, this refers to the acknowledgment of “special” or “differentiated” (from developed countries) treatment for developing countries and least developed countries (LDC). Specifically, the WTO Agreements contain S&DT clauses that entitle developing countries to receive exemptions or relaxations of obligations, as well as technical cooperation.
9 Multi-party Interim Appeal Arbitration (MPIA). Proposed by the EU as an alternative interim measure until Appellate Body functions are restored, and uses arbitration proceedings similar to those of the Appellate Body. Like-minded countries and regions officially notified to the WTO Secretariat of the establishment of the MPIA in April 2020.
“Free trade should not stop...” This was a remark made by Prime Minister Suga at the UN General Assembly in relation to World Trade Organization (WTO) reform, a goal that was also shared by the international community later at the G20 Summit and APEC Ministerial Meeting. This Special Feature introduces a part of the international cooperation on WTO reform that Japan is taking the lead on.
Since its founding in 1995, the WTO has consistently supported free trade around the world. However, it is now becoming increasingly difficult for this 25-year-old international organization to respond to the trends of the times. For example, the rise of emerging economies and advancement of digitalization have transformed the face of international trade and business in recent years, and the rules for governing such activities can no longer keep pace. The functions of WTO's dispute settlement procedures have also been suspended for more than a year. On top of that, the whole world is shrinking and becoming more inward-looking as a result of factors such as retaliative responses to unilateral tariff measures and the increase in export restrictions brought about by the novel coronavirus disease (COVID-19) pandemic. 2020, more than ever before, brought home painfully the systemic fatigue of the WTO and the need for bold reforms.
The 164 members of the WTO may be right in the midst of systemic reorganization. Japan has benefited from the postwar GATT* and WTO systems and enjoyed peace and prosperity. With protectionism on the rise in recent times, Japan has worked hard to bring life back to free trade in the world, such as through the signing of the TPP11, the Japan-EU EPA, the Trade Agreement Between Japan and the U.S. and the Agreement between Japan and the U.S. Concerning Digital Trade, the Japan-UK Comprehensive Economic Partnership Agreement, and the Regional Comprehensive Economic Partnership (RCEP) Agreement. In light of Japan's track record in this area as the standard-bearer for free trade, there have been high expectations for Japan to fulfill its role as a leader in WTO reform.
Japan has joined forces with other countries and is working hard on reforms with a focus on the following four areas, among the many challenges faced by the WTO.
Foreign Minister Motegi attending the WTO Informal Ministerial Meeting hosted by Australia, and engaging in a discussion on WTO reform and other matters (October 27, Tokyo)
The first is the establishment of new rules based on the principles of “Data Free Flow with Trust (DFFT),” amidst the growing digitalization in the world under the conditions of the COVID-19 pandemic. During the G20 Osaka Summit held in 2019, Japan launched the “Osaka Track,” aiming at promoting international rule-making for digital economies. Under the umbrella of this initiative, Japan is serving as the co-convenor, alongside Australia and Singapore, for e-commerce negotiations in the WTO that close to 90 members are participating in. It is an extremely difficult task to coordinate the interests of countries with different circumstances in the promotion and use of digital technology.
The second is the creation of an environment in which each country fulfills its responsibilities to an extent corresponding to its capabilities. In this respect, for example, Japan, the U.S., and other countries have presented “market-oriented conditions” for preventing excessive intervention by non-market economies in corporate activities.
The third is the attaching of conditions to measures that could limit free trade, even though such limitations may be temporarily unavoidable under the circumstances of the COVID-19 pandemic. Discussions are under way on the proposal drawn up by more than 10 like-minded countries, with a view to establishing rules for the whole of the WTO.
The final point is reform to the permanent dispute settlement system. Along with Australia and Chile, Japan has proposed remedies for the various issues that have built up on the WTO Appellate Body over many years.
The WTO reform is a pressing issue. To fulfill its responsibilities in the international community, Japan shall support Dr Ngozi Okonjo-Iweala, appointed as WTO Director-General in February 2021, and work in cooperation with the other members of the WTO, to continue contributing to maintaining and strengthening the multilateral free trading system.
Read more about the WTO reform and Japan's initiatives in the serial publication by MOFA, “WTO Reform─Why now?” (https://www.mofa.go.jp/mofaj/ecm/it/page25_002061.html)
(Only in the Japanese language)
*General Agreement on Tariffs and Trade (GATT)
C Developments in the WTO and Broader International Arena concerning COVID-19
The COVID-19 pandemic exposed limitations and vulnerabilities of the free trade system in 2020. In light of these challenges, actions to be taken with a sense of urgency were agreed in various fora. Extraordinary G20 Trade and Investment Ministerial Virtual Meetings were held in March and May, and the “G20 Actions to Support World Trade and Investment in Response to COVID-19” was released in pertaining to trade facilitation, ensuring transparency, and more resilient global supply chains. With the regular WTO meetings being postponed, the WTO Secretariat conducted the monitoring of trade related measures taken by members in connection with COVID-19 and the analysis of the impact of the pandemic on trade. And the “Statement on COVID-19 and the multilateral trading system by Ministers responsible for the WTO,” was released, which was jointly proposed by Japan and emphasized the importance of WTO notifications and WTO reforms that include a permanent resolution for the WTO's dispute settlement system. In June, the “Statement of the Ottawa Group: Focusing Action on COVID-19” was released at the Ministerial meeting of the Ottawa Group, a small group of like-minded nations promoting WTO reforms, of which Japan is also a member. In the statement, the principle that trade related measures in connection with COVID-19 should be “targeted, proportionate, transparent, temporary, and consistent with WTO rules” was reaffirmed and agreements were also reached in such areas as medical supplies and e-commerce. The Ottawa Group Ministerial meeting was also held in November, and Japan actively engaged in and contributed to discussions.
D Discussions Toward the 12th Ministerial Conference (MC12)
Discussions continue to be held in preparation for MC12, which was postponed from June 2020 due to the COVID-19 pandemic, with the following points given a particular focus.
The WTO Members are taking part in fisheries subsidies negotiations based on the Ministerial Decision adopted at MC11 to achieve one of the United Nations' Sustainable Development Goals (SDGs), to “prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, and eliminate subsidies that contribute to illegal, unreported, and unregulated (IUU) fishing.” Japan is actively engaged in these negotiations with the view that subsidies that truly result in overfishing and expanding overfishing capacity be regulated, aiming at the early conclusion of the negotiations.
With regard to rule-making in the digital domain, the global COVID-19 pandemic has given greater importance to negotiations as the role of online trade and the digital economy grows further. Although there has been a temporary suspension of the aforementioned WTO e-commerce negotiations due to the pandemic, discussions have been ongoing thereafter via virtual meetings. As a co-convenor leading the negotiations, Japan released a Co-convenors' Update in December that calls for speeding the pace of negotiations with the aim of achieving a high-standard in rule-making. In the lead up to MC12, Japan will continue in a leadership capacity toward achieving substantial progress on such issues as the cross-border transfer of data and the protection of personal information.
Parliamentary Vice-Minister for Foreign Affairs Suzuki Hayato attending the WTO's virtual Ottawa Group Ministerial Meeting chaired by Canada (November 23, Tokyo)
E Individual Dispute Settlement Cases
The WTO dispute settlement system is a system for resolving disputes among its members under the WTO Agreement according to procedures. This system is positioned as a pillar that imparts stability and predictability to the WTO system. The following is a list of recent cases that have involved Japan (as of December 2020).
- The ROK ─ Anti-Dumping Duties on Pneumatic Valves from Japan (DS504)10: A panel was established in June 2016, and the panel ruled that the ROK's measures were in violation of the WTO Agreements in April 2018. In September 2019, the Appellate Body issued the same ruling as the panel, and made the decision to recommend that the ROK take corrective measures. The ROK eliminated the anti-dumping duties in August 2020.
- India ─ Safeguard Measure on Imports of Iron and Steel Products (DS518): A panel was established in April 2017, and the panel recognized that India's safeguard measure was in violation of the WTO Agreements in November 2018. The case was referred to the Appellate Body in December 2018, but proceedings have halted with the cessation of Appellate Body functions.
- The ROK ─ Measure Imposing Anti-dumping Duties on Stainless Steel Bars Originating from Japan (DS553): Following the establishment of a panel in October 2018, the ROK's measure was recognized as being in violation of the WTO Agreements and the country was issued the recommendation to take corrective measures in November 2020.
- The ROK ─ Measures Affecting Trade in Commercial Vessels (DS571/DS594): Japan sent a request for bilateral consultations to the ROK in November 2018, and consultations were held in December 2018. In January 2020, Japan requested another consultation covering new support measures in the ROK, which was held in March.
- India ─ Measures Concerning Tariff Increases on ICT Products (DS584): In May 2019, Japan requested bilateral consultations concerning whether the tariff increase measures by India for information and communications technology products were consistent with the WTO Agreements. A panel was established in July 2020.
- Japan ─ Update of licensing policies and procedures on exports of controlled items to the ROK (DS590): In July 2019, Japan announced on the application of its export control measures on three semiconductor materials (fluorinated polyimides, resists, and hydrogen fluoride) to the ROK and implemented individual export licensing requirements for such materials. In September 2019, claiming that Japan's measures violated the WTO Agreements, the ROK requested bilateral consultations and the two countries conducted two rounds of such consultations. In November, the ROK announced that it would suspend the WTO dispute settlement procedures while the Export Control Policy Dialogues were pursued on a normal course of action between the relevant authorities. The dialogues were conducted on two occasions, and in June 2020 the ROK resumed WTO dispute settlement procedures. A panel was established in July.
10 DS numbers have been used since the launch of the WTO's dispute settlement system in 1995 and are assigned to every dispute case by the WTO Secretariat at the time when a request for discussions is received.
(2) Organisation for Economic Co-operation and Development (OECD)
A Features
The OECD is the “world's largest think tank,” covering a wide range of economic and social fields such as macro economy, trade and investment, agriculture, industry, the environment, and science and technology. It makes policy recommendations and forms international norms, including through discussions at relevant committees. Japan acceded to the OECD in 1964 as the first country to do so outside of the U.S. and Europe. Since then, Japan has been actively engaged in OECD initiatives through discussions at relevant committees as well as through contributions in terms of financial and human resources.
B 2020 OECD Ministerial Council Meeting
The OECD Ministerial Council Meeting, which was originally scheduled in May, was postponed due to the COVID-19 pandemic. Between June and September, three Ministerial Council Meeting Roundtables were held that saw ministers from each country share their experiences on policies aimed at combating and recovering from the pandemic. At the October Ministerial Council Meeting with the theme “The Path to Recovery,” Prime Minister Suga issued a video message where he emphasized the importance of international cooperation and expressed his hope for the OECD to play its role as a vital place for international policy coordination toward maintaining measures to prevent the spread of infection while revitalizing socio-economic activities. He also spoke on efforts being made by Japan concerning digitalization and resuming cross-border travel. In addition, State Minister for Foreign Affairs Washio Eiichiro emphasized the government-wide undertakings on digitalization, the importance of the OECD's initiatives to support international rule-making based on the idea of “Data Free Flow with Trust (DFFT),” and Japan's international cooperation efforts, including strengthening medical and health systems over the medium to long term. He also affirmed Japan's intention to lead OECD's outreach activities (relationship strengthening and policy dialogue) to the Asian region.
State Minister for Foreign Affairs Washio Eiichiro attending the OECD Ministerial Meeting (virtual meeting) (October 29, Tokyo)
C Commemoration of the 60th Anniversary of the signing of the OECD Convention
At a ceremony commemorating the 60th anniversary of the signing of the OECD Convention in December, Prime Minister Suga made an appearance via a video message where he appreciated the OECD's efforts, including its evidence-based analysis and quality standard-setting, and emphasized the importance of the OECD's role in handling globalization and the COVID-19 crisis. He also spoke on Japan's works toward promoting digital transformation and realizing a green society, and expressed Japan's intention to support the endeavors to strengthen relations between the OECD and Asia, including Southeast Asia.
D Initiatives in Various Sectors
For the issue of steel excess capacity, the Global Forum on Steel Excess Capacity (GFSEC) was established following the G20 Hangzhou Summit, China in 2016. At a Ministerial Council Meeting in October 2020, which was attended by 30 major steel manufacturing countries and regions as well as the OECD Secretariat, discussions were conducted concerning multi-lateral cooperation toward mitigating the impact of COVID-19 on steel demand and solving the problem of structural excess production capacity. Japan will continue to demonstrate strong leadership toward and play an active role in solving these problems.
Meanwhile, the OECD is strengthening its cooperation with the G20 in areas that include reviewing international taxation principles in response to the digitalization of the economy , as well as the formulation of principles concerning quality infrastructure investment and corporate governance.
E Strengthening Relations with Asia
In light of the growing importance of Southeast Asia as a center for global economic growth, the OECD places importance on strengthening relations with the region. In 2020, a range of policy dialogues and other events were held online between Southeast Asian nations and OECD member countries. Participants to these events discussed areas where the OECD should give priority in Southeast Asia in response to COVID-19 and affirmed the importance of cooperation. Going forward, it is important to effectively utilize the Southeast Asia Regional Programme (SEARP) in order to continue to support economic integration and domestic reform in the region with a view to the future accession to the OECD by ASEAN countries.
F Contributions in Terms of Financial and Human Resources
Japan was the second largest financial contributor to the OECD after the U.S. in 2020, covering 9.4% of the OECD's mandatory contributions (Part I Budget). Moreover, Japanese nationals have successively served as the Deputy Secretary General (currently Deputy Secretary General Kono Masamichi), the second-highest position at the OECD Secretariat. Japan was the largest contributor to the OECD Development Centre in 2020, and a Japanese national serves as a Deputy Director of the Centre (Ms. Yuasa Ayumi, assumed this position in September 2020). Thus, Japan supports the OECD through contributions in terms of financial and human resources.