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Policy Proposals  Trade, Investiment, EPA/FTA Enhancing cooperation for the reestablishment of a free and open international economic order

(Tentative translation)
March 16, 2021
Keidanren (Japan Business Federation)

The COVID-19 pandemic has made a severe impact on the global economy, and shaken the international order. For now, every country and region, including Japan, must devote all their energies to bringing the pandemic to an end. In addition, we face a mountain of issues that requires an immediate establishment of global governance. However, many countries are increasingly turning inward. If the current situation continues, disparities will widen and the prospects for reestablishing an international economic order will become more distant, let alone the achievement of the Sustainable Development Goals, with their slogan "No one will be left behind".

Against this backdrop, the new Biden administration in the United States prioritizes international cooperation based on multilateralism. The new administration announced its intention to rejoin the Paris Agreement on its first day in office and has since formally rejoined the Agreement. The EU puts the Green deal and the digital transformation as the core of its recovery from the pandemic, and has made clear that it intends to promote greater cooperation with the United States in various fields#1. In Japan, last autumn, Prime Minister Suga declared that Japan will aim to realize become carbon neutrality by 2050, signaling a shift toward a green growth strategy. At the same time, it is starting to catch up on digital transformation. Now, momentum for international cooperation is with a view toward the post-COVID era. At the G7 teleconference last month, leaders issued a joint statement in which they declared that 2021 would be a turning point for multilateralism.

Almost exactly a year since the novel coronavirus began to spread around the world, vaccinations have begun in countries around the world, which will be a key to end the pandemic. Next month, a Leaders' Climate Summit will be held at the suggestion of the United States' new administration. Various international meetings will follow: the G7 Summit in June, the G20 Summit in October, COP26 in November, and the WTO Ministerial Conference, which had been postponed, at the last week of November. We hope that these meetings will carry out real and concrete results.

Today, it is more important than ever for countries and regions to cooperate closely, not only on macroeconomic policy, but on the global issues we list below, in order to reestablish a free and open international economic order. Japan, the United States and Europe should lead the way to build multilateral agreement and consensus.

Keidanren will support the governments' initiatives by widening the circle of cooperation around the world through the B7 Summit (May) and B20 Summit (October), and by deepening our ongoing dialogues with economic and business groups in Europe, the Americas, and Asia.

Priorities for Closer International Cooperation

1. Countermeasures to pandemic

Eradicating vaccine nationalism and other inward-looking tendencies is essential to stop the spread of the pandemic throughout the world. Without this, any country cannot escape fully from the crisis. In addition, the origins of this novel coronavirus should be ascertained. Furthermore, countries should prepare for further outbreaks of infectious disease that might shake the world in the future, and work to guarantee the movement of people necessary to secure the supplies and services essential for maintaining economic and social activities.

(1) Supply and distribution of vaccines to developing countries

  • Promotion of development and expansion of the production ability of vaccines (bolstering of the CEPI#2 initiative, etc.)
  • Securing access to vaccines (using the COVAX facility#3)

(2) Ensuring movement of people

  • Enhancement testing structure required at immigration
  • International harmonization of conditions required at immigration
  • Standardization and digitalization of methods for sharing test results and vaccination records
  • International collaboration on vaccine development data sharing
  • Formulation of rules regarding scope of essential workers whose continued movement needs to be ensured during lockdown

2. Green Growth

It is essential to promote a high level international cooperation based on the Paris Agreement, which all major emitting countries participate, in order to achieve carbon neutrality by 2050. Regarding development and dissemination of innovative technology, and construction of financial frameworks which support this, the union of green growth nations including Asian countries should be developed, to realize a virtuous cycle of economy and environment (i.e., green growth).

(1) Development of innovative technology and social implementation

  • Creation of innovation through international joint research and development (including cost reductions to implement such technologies in society)
  • Industrial cooperation in important fields such as hydrogen and nuclear energy

(2) Promotion of sustainable finance

  • Promotion of global mobilization of funds across all areas of "Innovation" "Transition" "Green"#4
  • Establishment of a proper framework for information disclosure and evaluation

(3) International promotion of technology with high environmental performance

  • Conclusion of the Environmental Goods Agreement#5 and promotion of international standardization
  • Promotion of infrastructure with high environmental performance, support for decarbonization in developing countries and emerging economies
  • Dialogue on carbon border adjustment mechanisms

(4) Securing supplies necessary for achieving carbon neutrality

  • Consideration of coordinated measures on procurement of carbon-free energy including hydrogen and ammonia, and on legal and appropriate excavation, refining, and development of alternative materials concerning the rare metals necessary for storage batteries#6 #7

3. Digital Governance

To ensure that all countries and regions will achieve economic growth and find solutions to social problems through digital transformation, which is promoted with local characteristics in countries and regions, appropriate governance for the use and regulation and other issues regarding digital technology should be discussed. As for data governance, which is of particular importance, Data Free Flow with Trust (DFFT) should be put into practice urgently.

(1) Realization of DFFT

  • Ensuring global dataflow through WTO, Economic Partnership Agreements (EPAs) / Free Trade Agreements (FTAs)#8
  • Development of international rules regarding trusted government access to personal data held by the private sector#9
  • Establishment of rules to promote personal data flow among Japan, U.S. and Europe#10

(2) Achieving cyber security

  • Joint training
  • Sharing of best practices for human resources training and education
  • Development of a system for prompt information sharing of threats and vulnerabilities

(3) Revision of international rules on tax and digitalization

  • Reaching a consensus-based solution in the Inclusive Framework on BEPS#11 by mid-2021
  • Narrowing down the scope of application, reducing the administrative burden, and preventing/resolving disputes
  • Abolition or withdrawal of unilateral digital services taxes in each country once the consensus is reached

(4) Securing trust in infrastructure

  • Opening 5G and other infrastructure to promote innovation and building trust
  • Development and implementation of Beyond 5G and other next-generation infrastructure

4. Trade and investment

It is essential to swiftly promote the reforms of the WTO, which is the core of the multilateral free trade system, as well as to work to develop rules and disciplines to ensure conditions for fair competition among member states. At the same time, bilateral and multilateral agreements should be promoted to reduce the risks posed by rapid changes in the business environment, and international rules should be established based on the results of these agreements. There is also a need to work together to address the vulnerabilities in supply chains that were exposed during the COVID pandemic.

(1) Promotion of WTO reforms

  • Immediate restoration of the dispute settlement function through reforms of the Appellate Body
  • Improvement of the rulemaking function and strengthening of the monitoring function

(2) Establishment of level playing field

  • Tackling excessive capacities, development of rules for market-distorting industrial subsidies#12 and state-owned enterprises
  • Strengthening rules to discipline forced technology transfer#13

(3) Promotion of digital trade

  • Promotion of WTO e-commerce negotiations
  • Expansion of Information Technology Agreement (ITA) (participating countries and the list of goods)

(4) Coordinated efforts on the environment

  • Resumption of negotiations on Environmental Goods Agreement (EGA) (Previously proposed)
  • Dialogue on Carbon Border Adjustment Mechanism (Previously proposed)

(5) Promotion of bilateral and multilateral initiatives

  • Promotion of EPAs / FTAs, and investment treaties
  • Formulation of multilateral rules, based on the results of the agreements concluded by Japan, the United States, and Europe
  • Expansion of the Agreement on Government Procurement (GPA) (parties and coverage)
  • Digitalization of trade procedures

(6) Diversification of supply chains for greater resilience

  • Establishment of a scheme to share medical supplies and other essentials during times of emergency

5. Infrastructure development

It is necessary to contribute to developing high-quality infrastructure in a way that takes into account the environment and social conditions of the recipient country or region and contributes to sustainable growth. This will enable countries to respond to new growth sectors such as digital and economy, and to make progress toward finding solutions to the social and economic challenges faced by the world, including those exposed by the coronavirus crisis in the fields of health, medicine, and hygiene. There is particular scope for cooperation in the Indo-Pacific, where development is especially promising.

  • Promotion of infrastructure development that meets the G20 Principles for Quality Infrastructure Investment (economic efficiency in view of life-cycle cost through provision of total infrastructure services including O&M, debt sustainability,)
  • Realization and expansion of the Blue Dot Network (BDN) #14
  • Strengthening connectivity through development of hard and soft infrastructure (through consideration of joint projects in third countries, etc.)
  • Strategic use of international cooperation funding with Multilateral Development Banks (MDBs)

6. Advanced technology

It is necessary to cooperate to strengthen the foundation for the development and implementation of advanced technologies that can have a decisive impact on a country's competitiveness, as well as concerted measures to prevent the leakage of critical technologies.

(1) Strengthening the foundation for development and implementation of advanced technologies

  • Coordination and cooperation on investment and R&D on advanced technologies
  • Coordination and cooperation on supply chains for advanced technologies
  • Formulation and implementation of common standards and criteria

(2) Thorough prevention of leakage of critical technology through multilateral coordination

  • Definition of scope of critical technology
  • Harmonization of management legislation of critical technology and through implementation

  1. In December 2020, the European Commission published the "Joint Communication: A new EU-US agenda for global change."
  2. Coalition for Epidemic Preparedness Innovation. A public-private partnership to promote vaccine development through global collaboration. Funded by Japan, Norway, the Bill & Melinda Gates Foundation and others, the coalition works to develop vaccines against infectious diseases for which there is limited demand under normal circumstances but that pose a risk of causing a global epidemic, and aims to make vaccines accessible at a price that is affordable in low- and middle-income countries.
  3. COVID-19 Vaccine Global Access Facility. An international framework headed by the WHO, Gavi, the Vaccine Alliance, and CEPI, for the joint purchase of COVID-19 vaccines by countries around the world and their distribution to developing countries. Japan and Europe have been involved since the scheme was launched last year. On January 21, 2021, new US President Joe Biden signed an Executive Order indicating that the United States will participate in the framework.
  4. Policy proposal by Working Group on Global Environment Strategy, Committee on Environment and Safety, Keidanren, "Basic Approach to Sustainable Finance on Climate Change and Concrete Actions." (October 2020)
  5. Negotiations on the EGA started in July 2014 among the interested Members under the WTO scheme, with the aim of promoting goods that contribute to protecting the environment and addressing climate change. Currently suspended.
  6. In the case of electric vehicles, for example, lithium, cobalt, nickel, and graphite are needed for lithium batteries, while rare-earth metals (didymium and dysprosium) are indispensable for drive motors.
  7. As for rare metals, utilization of policy dialogue frameworks such as the Trilateral EU-US-Japan Conference on Critical Materials might also be effective.
  8. As for the WTO e-commerce agreement, the draft text was issued in December 2020. The discussion on the future agreement intends to realize commercially meaningful provisions with the participation of as many Members as possible (86 members are currently participating). In case of Japan, digital trade rules are incorporated in TPP11 (2018), Japan-US digital trade agreement (2019), Japan-UK EPA (2020) and RCEP (2020). In addition, exploratory discussions have been initiated concerning the reassessment of the need for free flow of data provisions in the Japan-EU EPA.
  9. In 2019, the Japanese government proposed to discuss government access in the review process of the OECD Privacy Guidelines. Discussions are ongoing with members' law enforcement agencies.
  10. The Personal Information Protection Commission in Japan promotes the following three initiatives; (1) maintaining a framework for data flow between Japan and the EU based on adequacy decision; (2) promoting the dissemination of the APEC CBPR (Cross Border Privacy Rules) system; and (3) further promoting the personal data flow across borders in which Japan, the United States, and Europe play a central role. Towards (3), Keidanren requests that the United States and the EU to consider alternative measures to The EU-US Privacy Shield.
  11. A framework within the OECD and G20 for multilateral negotiations on international tax rules involving 139 countries and regions, including developing countries and emerging economies.
  12. At the Trilateral Meeting of Trade Ministers from Japan, the United States, and the EU (held in Washington, D.C. on January 14, 2020), it was proposed to amend the WTO Agreement on Subsidies and Countervailing Measures, by revising the current list of prohibited subsidies to include unlimited guarantees, and by reversing the burden of proof so that the subsidizing Member must demonstrate that there are no serious negative effects.
  13. At the Trilateral Meeting of Trade Ministers (held in Washington, D.C. on January 14, 2020), there was discussion of the possible elements of core disciplines that aim to prevent forced technology transfer practices of third countries and the necessity of reaching out to and building consensus with other WTO Members on the need to address forced technology transfer issues. Ministers also discussed their commitment to effective means to stop harmful forced technology transfer policies and practices, including through export controls, investment review for national security purposes, their respective enforcement tools, and the development of new rules.
  14. A framework formed by Japan, the United States, and Australia to provide certification of high-quality infrastructure development projects

Trade, Investiment, EPA/FTA