2 Promotion of Rule-Making to Bolster Free and Open Global Economic Systems

(1) Promotion of Economic Partnerships

In recent years, despite the advancement of economic globalism, there have been clear developments toward protectionism as COVID-19 infections spread. In such circumstances, Japan has emphasized and steadily promoted Economic Partnership Agreements (EPAs) and Free Trade Agreements (FTAs), which help capture the vitality of the growing market overseas and strengthen the basis of the Japanese economy through measures such as the reduction or elimination of tariffs on goods as well as barriers on trade in services, and through rule-making for trade and investment. The Japan-UK CEPA entered into force on January 1, 2021, followed by the entry into force of the RCEP Agreement on January 1, 2022 for Japan, Brunei, Cambodia, Laos, Singapore, Thailand, Viet Nam, China, Australia, and New Zealand. This brought the EPA/FTA ratio in Japan's trade (the ratio of trade value with countries that have EPAs/FTAs already signed or entered into force with Japan, to Japan's total trade value) to around 80.4% (source: Trade Statistics, Ministry of Finance, 2021).

To advance a free and fair economic order, the basis for its own peace and prosperity, Japan will proactively continue its endeavors, including maintaining the high standards of the CPTPP, ensuring the full implementation of the RCEP Agreement, and negotiating other economic partnership agreements.

A Multilateral Agreements and Other Matters

(A) Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

The CPTPP is an agreement that promotes efforts to establish new economic integration rules for the 21st century in a wide range of areas such as tariffs, services, investments, e-commerce, intellectual property, and state-owned enterprises. It also provides opportunities for Japanese companies to better thrive in overseas markets, giving it important economic significance as a major driving force for the country's economic growth. Furthermore, the CPTPP has great strategic significance in that it facilitates the building of a free and fair economic order together with countries that share fundamental values such as freedom, democracy, fundamental human rights, and the rule of law, contributing to Japan's security and stability in the Indo-Pacific region as well as leading to peace and prosperity in the region and the world at large. The 12 countries of Japan, Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S., and Viet Nam signed the Trans-Pacific Partnership Agreement (TPP12 Agreement) in February 2016. However, due to the U.S.'s announcement of its withdrawal from the TPP12 Agreement in 2017, Japan proactively led discussions among the 11 countries for the early realization of the TPP. Agreement in principle was reached at the TPP Ministerial Meeting in November 2017, and the CPTPP was signed in Chile in March 2018. The six countries (Mexico, Japan, Singapore, New Zealand, Canada, and Australia) completed necessary domestic procedures and the Agreement entered into force on December 30, 2018. Viet Nam became the seventh Party to conclude the Agreement in January 2019, followed by Peru as the eighth in September 2021.

Since the CPTPP entered into force, five TPP Commission meetings have been held mostly at the ministerial level. Japan served as the chair in 2021, holding the Fourth and Fifth Commission meetings online in June and September, respectively. At the Fourth Commission meeting, it was decided to commence the accession process with the UK, which formally submitted its accession request on February 1, 2021, and to establish an Accession Working Group (AWG) for the UK. Amid an increasingly uncertain global economic situation and more pronounced protectionism as the COVID-19 pandemic spreads, the commencement of the accession process with the UK presents a powerful message to the world that the CPTPP will drive forward free trade. It also provides important momentum for expanding free and fair trade and investment rules for the 21st century. To ensure that the UK's accession process proceeds smoothly while maintaining the high level of the CPTPP, Japan will hold substantial discussions in the AWG as its chair.

Formal accession requests were submitted by China on September 16, Taiwan on September 22, and Ecuador on December 17, 2021. While carefully assessing whether the aspirant economies that submitted accession requests are prepared to fully meet the high standards of the CPTPP in terms of its market access and rules, Japan will respond to this matter while taking into account strategic perspectives and public understanding.

(B) Japan-EU Economic Partnership Agreement (Japan-EU EPA)

The Japan-EU EPA entered into force in February 2019. The EU is an important partner for Japan as Japan's third largest export partner (9.2% of total exports) and its second-largest import partner (11.4%) (as of 2020 for both figures). The combined GDP of the EU and Japan is 20.3 trillion US dollars, with total trade of 11.9 trillion US dollars. With the entry into force of the Japan-EU EPA, Japan and the EU compose a free and progressive economic sphere that accounts for one fourth of global GDP and one third of world trade.

After its entry into force, Japan has steadily implemented this agreement through joint committees and specialized committees in 12 areas under the agreement. At the second joint committee meeting, held in February 2021, Japan and the EU discussed how to ensure the proper and effective implementation of the Japan-EU EPA, as well as had an exchange of views on topics such as the ideal situation for Japan-EU collaboration, including COVID-19 countermeasures, the green and digital industries, and WTO reforms.

Through implementation of the EPA, Japan will continue to address a range of issues together with the EU, with which it shares fundamental values.

(C) Japan-UK Comprehensive Economic Partnership Agreement (Japan-UK CEPA)

The Japan-UK CEPA, which entered into force in January 2021, is a key foundation for further strengthening Japan-UK relations.

The Japan-UK CEPA is based on the Japan-EU EPA and comprises 24 chapters in total. It is an agreement within the scope of the Japan-EU EPA that establishes tariff rates on goods Japan exports to the UK, as well as tariffs for agricultural and fishery products from the UK. However, it includes rules that are more advanced and high-level than those of the Japan-EU EPA in such areas as electronic commerce and financial services. Additionally, the Japan-UK CEPA is Japan's first EPA that includes an independent chapter on gender, which was created to ensure that women can fully benefit from the profits of trade.

Japan is now working to seamlessly implement the Japan-UK CEPA through 13 specialized committees and working groups, and will continue to engage in close collaboration toward further strengthening economic relations between Japan and the UK.

(D) Japan-China-ROK FTA

The Japan-China-ROK FTA is the one with Japan's major trading partners: China and the ROK. Negotiations began in March 2013 and a total of 16 rounds of negotiations had been held as of December 2021.

(E) Regional Comprehensive Economic Partnership (RCEP) Agreement

The RCEP Agreement is an economic partnership agreement with a total of 15 member states, namely the ASEAN member states, Japan, Australia, China, the ROK, and New Zealand. RCEP participating countries account for roughly 30% of the world's total GDP, total trade, and population. The entry into force of the Agreement is expected to further strengthen Japan's ties with the regions serving as the world's growth center, thus contributing to the economic growth of Japan. Following a ceremony to launch RCEP negotiations during the ASEAN-related summit meeting held in Phnom Penh, Cambodia in November 2012, there were eight years of negotiations that included four summit meetings, 19 ministerial meetings, and 31 rounds of negotiations. The Agreement was signed on the occasion of the fourth RCEP Summit on November 15, 2020.

Although India had participated from the start of negotiations, at the third Summit in November 2019, India declared that it would not participate in further negotiations and did not sign the RCEP Agreement. However, at the signing, Signatory States issued a “Ministers' Declaration on India's Participation in the RCEP,” which clarified that the Agreement would be open for India, and stipulated a facilitation of India's future accession and allowed it to participate in related meetings as an observer. Due to the significant economic and strategic importance of India's participation in the RCEP, Japan will continue to play a leading role for the future participation of India to the RCEP Agreement.

The RCEP Agreement is stipulated to enter into force for signatory States that have deposited their instrument of ratification, etc., to the depository, the Secretary-General of ASEAN, 60 days after the deposit by at least six signatory States that are Member States of ASEAN and at least three signatory States that are not ASEAN member states. As Brunei, Cambodia, Laos, Singapore, Thailand, Viet Nam, Australia, China, and New Zealand deposited, in addition to Japan, by November 2, 2021, the RCEP Agreement entered into force for these countries. It entered into force on February 1, 2022 for the ROK, which deposited on December 3, 2021. Japan will coordinate closely with countries involved to enforce economic activity that is based on free and fair rules in the region by ensuring the full implementation of the Agreement.

(F) Free Trade Area of the Asia-Pacific (FTAAP) Concept

The Lima Declaration on the FTAAP adopted at the 2016 Asia-Pacific Economic Cooperation (APEC) summit meeting confirmed mainly the following two points: (1) that the FTAAP would be high quality and comprehensive, and address next-generation trade and investment issues, being built in accordance with the TPP Agreement and the RCEP Agreement; (2) efforts would begin on implementing work plans supporting related capacity building. In a progress report presented to leaders in 2020, the need was expressed for further efforts. Since 2017, Japan has been continuously providing capacity building support through workshops and policy dialogues concerning the “competition chapters” in FTAs and EPAs and investment policies. From the viewpoint of achieving a comprehensive and high-quality FTAAP, the entry into force of the CPTPP and RCEP Agreements are highly significant developments.

B Bilateral Agreements

(A) Japan-Turkey EPA

As an important country that serves as a hub among Europe, the Middle East, the Central Asia and Caucasus region, and Africa, Turkey has considerable economic potential and is attracting attention as a production base for exports to surrounding regions. Turkey has signed FTAs with over 20 countries and regions, and the need has been recognized for Japan to develop conditions of competition for Japanese companies through the conclusion of an EPA.

Furthermore, business communities in both countries have high expectations for an early conclusion of an EPA between the two countries. At the Japan-Turkey Summit Meeting in January 2014, the leaders agreed to launch negotiations, and 17 rounds of negotiations had been held as of the end of 2021.

(B) Japan-Colombia EPA

Japan began EPA negotiations in December 2012 with Colombia, a country with rich natural resources and high economic growth. Since Colombia has concluded FTAs with a number of countries (including the U.S., Canada, the EU and the ROK), it has been increasingly necessary for Japan to establish a competitive environment in the country. The strengthening of bilateral relations through an EPA is also expected to lead to improved cooperation in the international arena and promote cooperation among Japan and the Pacific Alliance (Mexico, Colombia, Peru, and Chile). Negotiations are currently ongoing.

C Other Existing EPAs

The existing EPAs contain provisions concerning the joint committee, which is a body that discusses the implementation of the agreements, and a process to review the agreements after a certain period of time following their entry into force. In addition, a variety of consultations are being held in order to smoothly implement EPAs after their entry into force.

In accordance with the EPAs, Japan has been accepting candidates for nurses and certified care workers from Indonesia, the Philippines, and Viet Nam. In total, 3,346 (as of FY2021) candidates have been accepted from Indonesia (since 2008), 3,147 (as of FY2021) from the Philippines (since 2009), and 1,543 (as of FY2021) from Viet Nam (since 2014). The total number of nurses and certified care workers who have passed national exams is 529 and 1,762 individuals, respectively, as of FY2020.

D Investment-related Treaties

Investment-related treaties constitute an important legal basis to improve predictability for investors and promote investment by establishing common rules for the protection of investors and their investment property, enhancement of transparency in regulations, expansion of investment opportunities, procedures for investment dispute settlement, and other matters. Japan has actively engaged in concluding investment treaties, as these treaties are considered to improve the investment environment for Japanese companies overseas and to attract foreign investment to the Japanese market.

The Japan-Cote d'Ivoire Investment Agreement and the Japan-Georgia Investment Agreement entered into force in March and July, respectively. As of the end of January 2022, there are currently 51 investment-related treaties that have entered into force (34 investment treaties and 17 EPAs), and three (two investment treaties and one EPA) that have been signed but not yet entered into force, bringing the total to 54, covering 79 economies. Combining these with investment-related treaties currently under negotiation, treaties cover 94 economies and around 93% of Japan's foreign direct investments.¹

• 1 “Regional balance of Direct Investment (Assets),” Ministry of Finance (All regions) (As of the end of 2020)

E Tax Conventions/Agreements on Social Security

(A) Tax Conventions

Tax conventions are intended to eliminate international double taxation in cross-border economic activities (e.g. to reduce or exempt withholding taxes imposed on investment income such as dividends), or to prevent tax evasion or avoidance, and provide an important legal basis for promoting sound investment and economic exchange between two countries. To support the sound overseas business expansion of Japanese companies, the Government of Japan is working to expand the necessary tax treaty networks, both in terms of quality and quantity.

Entering into force in 2021 were a tax treaty with Peru in January, a new (completely revised) tax treaty with Spain in May, a tax treaty with Uruguay in July, a new (completely revised) tax treaty with Georgia in July, and a tax treaty with Serbia in December. A revised protocol for a tax treaty with Switzerland was also signed in July. In addition, negotiations started for new (completely revised) tax treaties with Ukraine in March and Azerbaijan in May. As of the end of December 2021, Japan has signed 82 tax treaties applied to 148 economies.

(B) Agreements on Social Security

Agreements on social security aim to resolve the issues of the double payment of social security insurance premiums and annuity insurance non-refunds. They are expected to facilitate interpersonal exchange and strengthen further bilateral relations, including economic exchange, by reducing the burden on Japanese companies and citizens working overseas. The total number of countries that have concluded or signed such agreements with Japan now stands at 23 as of the end of December 2021.

(2) Initiatives with International Organizations

A World Trade Organization (WTO)

(A) Appointment of New Director-General Ngozi Okonjo-Iweala

The WTO is currently confronting new issues that include efforts to combat COVID-19, in addition to changes such as the rise of emerging countries and the advancement of the digital economy. Amid these circumstances, Dr. Ngozi Okonjo-Iweala was appointed as the Director-General in February, becoming the first woman and African to serve in the position. As someone who has held a number of important positions inside and outside of Nigeria, Director-General Okonjo-Iweala is expected to address WTO issues by leveraging the extensive knowledge and experience that she has gained throughout her career. Japan also welcomes this appointment, and Foreign Minister Motegi held a telephone call with her in March just after her appointment during which the two sides affirmed their intent to cooperate on advancing WTO reforms.

(B) The WTO's COVID-19 Response

Amid the spread of COVID-19 infections, the WTO Secretariat has prepared and published various reports concerning trade and COVID-19. In its 2021 edition of the World Trade Report, the WTO indicated the need for further international cooperation on boosting economic resilience.

Furthermore, with regard to COVID-19, the WTO is holding discussions on export restrictions and transparency for medical goods that include vaccines and their inputs, as well as discussions surrounding intellectual property rights for products such as vaccines. Of particular interest are discussions on a waiver concerning the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)². These discussions began with an October 2020 proposal from India and South Africa to broadly waive obligations in the TRIPS Agreement with regard to COVID-19 response measures. The U.S. then announced in May 2021 that it would support waiving intellectual property protection on COVID-19 vaccines, which was followed by a proposal from the EU in June relating to an agreement on the use of the provisions in the TRIPS Agreement relating to compulsory licensing. Director-General Okonjo-Iweala is actively involved in building such an agreement and discussions are ongoing, but there is no prospect of the agreement being reached (as of February 1, 2022).

• 2 Entry into force of the protocol to revise the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) | Ministry of Foreign Affairs (mofa.go.jp)

(C) Postponement of the 12th WTO Ministerial Conference (MC12)

WTO Members, including Japan, had engaged in lively discussions toward achieving results at MC12, which was scheduled to be held at the end of November 2021. While fisheries subsidies negotiations have been ongoing for 20 years, they have become particularly active following the inauguration of Director-General Okonjo-Iweala. The Ministerial Meeting on the Fisheries Subsidies Negotiations of the Trade Negotiation Committee was held online in July. State Minister for Foreign Affairs Washio Eiichiro from the Ministry of Foreign Affairs (MOFA) attended the meeting and committed to the early conclusion of the negotiations. On November 24, Foreign Minister Hayashi held an online meeting with Director-General Okonjo-Iweala where the two sides affirmed their intention to work closely together toward MC12. However, the growing COVID-19 (omicron variant) pandemic led to the postponement of MC12, which was originally scheduled for the end of November. This is the third postponement of MC12, which had already been postponed twice. It was later decided that MC12 would be held in June 2022.

(D) Progress with Efforts Among Like-minded Countries

Although MC12 was postponed, some progress has been made in the efforts among like-minded members in December following the decision to postpone MC12. First, 67 WTO Members, including Japan, issued a Declaration announcing the successful conclusion of negotiations on WTO services domestic regulation. The disciplines that were agreed upon provide guidelines for each member's domestic regulations such as the publication of laws and regulations on licensing and qualification requirements. The conclusion of the negotiations on WTO services domestic regulation will enhance convenience for companies which are operating overseas and is an important example of successful plurilateral negotiations. Furthermore, with regard to negotiations related to e-commerce, concerned ministers from Japan, Australia, and Singapore, co-conveners of the WTO Joint Statement Initiative on E-commerce, issued a joint statement that confirms progress made so far and highlights the way forward toward the conclusion of the negotiation. At the WTO, e-commerce negotiations are one of the most important themes, and it is crucial to accumulate results, aiming to further advance negotiations. As a co-convener for e-commerce negotiations, Japan continues to include numerous participating countries and accelerate negotiations with the goal of creating high-level rules that include the free flow of data.

With regard to trade and environment, 70 WTO Members including Japan released the Ministerial Statement on Trade and Environmental Sustainability in December.

(E) Dispute Settlement³

The WTO dispute settlement system is a system that settles disputes among WTO Members under the covered agreements according to the dispute settlement procedures. It serves as a pillar that imparts security and predictability to the WTO system. The Appellate Body serves as the Second Instance (final instance), and although it has ceased to function due to a lack of members needed for deliberation, members are still able to refer disputes to the WTO's Dispute Settlement Body (panel). Nine disputes were referred in 2021.

With respect to a case concerning China's measure imposing anti-dumping duties on stainless steel products originating from Japan, Japan requested bilateral consultations based on the WTO Agreements in June 2021, followed by another request to establish a panel in August (established in September). This brought the number of cases that directly involve Japan and that were referred for WTO's dispute settlement procedures to six (the other five are: India-safeguard measure on iron and steel products; the ROK-anti-dumping duties on stainless steel bars; the ROK-support measures for the ROK's shipbuilding industry; India-measures concerning tariff increases on ICT products; and Japan-update of export control procedures for Korea).

• 3 Related article: “Individual Dispute Settlement Cases,” pg. 187-188, Diplomatic Bluebook 2021

B Organisation for Economic Co-operation and Development (OECD)

(A) Features

The OECD researches and analyzes a broad range of economic and social fields and makes specific policy recommendations to its members. Through discussions held by approximately 30 committees, it has formed international standards and rules. Since its accession to the OECD in 1964, Japan has been actively engaged in OECD initiatives through discussions at various committees as well as financial and human resources contributions.

(B) 2021 OECD Ministerial Council Meeting

The OECD Ministerial Council Meeting in 2021 was held in two parts, and the Secretary-General handover ceremony was held during the first part (May 31 and June 1). Under the leadership of the U.S. as Chair and the ROK and Luxembourg as Vice-Chairs, discussions were held online on the topic of “Shared Values: Building a Green and Inclusive Future.” Minister of State for Economic and Fiscal Policy Nishimura Yasutoshi and State Minister for Foreign Affairs Washio attended from Japan. State Minister for Foreign Affairs Washio communicated Japan's expectations for OECD's role in creating rules and standards and emphasized the importance of strengthening cooperation with the G20 and other institutions, as well as strengthening outreach to Southeast Asia.

The second part was held in person (online format for some participants) on October 5-6 at the OECD Headquarters in Paris, for the first time in two years. Continuing on from the first part, lively discussions were held on the theme of “Shared Values: Building a Green and Inclusive Future” concerning shared economics-related issues facing the international community that included climate change, international taxation, digitalization, and trade. Permanent Representative of Japan to the OECD Okamura Yoshifumi was among those in attendance from Japan. The 60th Anniversary Vision Statement and Ministerial Council Statement were adopted during the second part of the meeting. The Vision Statement commemorates 60 years of the OECD in 2021, at a time when the OECD is facing issues that require global cooperation and action, and describes the OECD's principles for the next 10 years. This includes a new commitment among OECD members to achieve sustainable development for the global economy with a renewed emphasis on having shared values such as the protection of individual freedoms, democracy and the rule of law, and sharing the same intentions. The Ministerial Council Statement was adopted as a result of the discussions at the Ministerial Council Meeting and reflects many of Japan's viewpoints, including a commitment to furthering the digital economy by promoting Data Free Flow with Trust (DFFT, i.e. promoting the formulation of high-level rules concerning governments' access to personal data), support for high quality infrastructure investment according to the G20 Principles for Quality Infrastructure Investment and other guidelines, an emphasis on the importance of WTO reforms and the revision of the G20/OECD Principles of Corporate Governance.

(C) Initiatives in Various Sectors

The OECD is strengthening its cooperation with the G20, G7, APEC, and other international fora, and is undertaking initiatives that include leading discussions on international taxation system reform, disseminating and implementing the G20 Principles for Quality Infrastructure Investment, addressing the issue of excess production capacity involving steel and shipbuilding, and revising principles concerning corporate governance.

(D) Outreach to Southeast Asia

Due to the growing importance of Southeast Asia as a center for global economic growth, the OECD is working to bolster relations with the region through the Southeast Asia Regional Programme (SEARP). In 2021, policy talks and other events were held that included the SEARP Regional Forum in May. Japan will continue to utilize the Tokyo Centre of the OECD to encourage future accession from Southeast Asian countries to the OECD.

(E) Contributions in Terms of Financial and Human Resources

As of 2021, Japan was the second largest financial contributor to the OECD, covering 9.1% of the OECD's mandatory contributions (the U.S. is first, covering 20.2%). Moreover, Japanese nationals have successively served as the Deputy Secretary General (there are four positions in total; currently Deputy Secretary General Takeuchi Yoshiki), and about 90 Japanese staff currently work at the OECD Secretariat.

(3) Intellectual Property Protection

Strengthening intellectual property protections is extremely important for the promotion of technological innovation and eventually for economic development. Japan has actively participated in multilateral consultations such as APEC, the WTO (TRIPS), and the World Intellectual Property Organization (WIPO), and is working to improve an environment for ensuring that Japanese intellectual property is appropriately protected and utilized overseas. During bilateral talks, Japan also calls on other countries to proactively strengthen intellectual property protections. For EPAs as well, Japan strives to establish regulations on intellectual property rights to ensure the adequate and effective protection of intellectual property. Following the CPTPP Agreement and the Japan-EU EPA, both the Japan-UK CEPA and the RCEP Agreement have incorporated contents on further promotion of the protection and use of intellectual property. Moreover, for the purpose of rapidly and efficiently providing assistance for Japanese companies that are facing problems such as counterfeit and pirated goods, MOFA appoints Intellectual Property Officers at almost all of Japan's diplomatic missions overseas so that they can advise Japanese companies and make inquiries with or requests to their counterpart governments. Furthermore, every year, Meetings of Intellectual Property Officers are held to assess the damage in each country and the response status by diplomatic missions overseas, exchange opinions and share best practices on building appropriate systems, and strengthen efforts to combat intellectual property right infringements. In 2021, the meetings were held with a focus on Southeast Asia in March and Latin America in November.