Fifty years have passed since the General Agreement on Tariffs and Trade (GATT) entered into force in January 1948. Over this time, the GATT-World Trade Organization (WTO) system has contributed greatly to the sound development of the postwar world economy and the building of peace through the construction of an multilateral free trading system. Among its achievements are:
It is regrettable, however, that while three years have passed since the transition from the GATT to the WTO system, some member countries are still employing protectionist trade measures which run counter to the letter and the spirit of the WTO Agreements.
For example, in the course of the international business activities, Japanese companies are encountering problems such as the following:
At the same time, to secure members' observance of agreements and other international commitments, it will be vital to further enhance the WTO's dispute settlement and surveillance mechanisms. Moreover, greater clarification and tighter discipline will be essential in the context of the new Anti-Dumping Agreement and the Agreement on Rules of Origin if members are to be prevented from applying these for protectionist ends. The prompt accession of new member countries should also be encouraged to bring the trade systems of non-member countries into conformity with international rules.
In addition to these efforts, the WTO must respond to the rapid advance of globalization by working actively toward the formation of international consensus on new issues such as the environment, investment and competition policy; it must also accelerate moves toward the further liberalization of trade in goods and services.
Assuring the WTO Consistency of Regional Trade Agreements
Given the status of non-discrimination as a WTO principle, exceptions to WTO rules under regional trade agreements should be strictly limited. However, the 1990s have seen the further rapid proliferation of regional trade agreements, and trends in Europe and North America are if anything toward competition to expand discriminatory preferential treatment zones. We call for the WTO to act as a breakwater to prevent these trends from going too far and leading to the collapse or regression of the multilateral trading system.
Regional trade agreements must in all cases be consistent with and supplementary to the WTO. Regional trade agreements such as the European Union (EU) and North American Free Trade Agreement (NAFTA), on the other hand, are creating new barriers between themselves and the outside world by boosting local procurement rates, applying arbitrary rules of origin and increasing tariffs of new member countries, which in some cases are obstructing the corporate activities of non-member countries. We call for the strict observance of GATT Article 24 (and General Agreement on Trade in Services (GATS) Article 5) in regional trade agreements.
GATT Article 24 (and GATS Article 5) should be further clarified as soon as possible in regard to regional trade agreements, together with the strengthening of surveillance mechanisms. In addition, regional trading agreements should be monitored not only at the time of entry into force but also regularly thereafter. For example, the WTO needs to conduct regular investigations of the major regional trading agreements and, in the event of finding problems, issue recommendations toward improvement of these agreements.
A Tighter Discipline for Anti-Dumping Measures
Although the new Anti-Dumping Agreement tightened disciplines in terms of transparency, predictability and fairness, there are still cases of the protectionist use of anti-dumping measures. Some examples are as follows:
Increasing the Number of Signatories to the Government Procurement Agreement and Reducing Exemptions
Since the new Government Procurement Agreement is a plurilateral trade agreement outside the package of obligatory WTO agreements, signatory parties currently comprise only 11 countries and one region (the European Commission). Encouraging broader participation should be part of review of the Agreement. One possibility would be to formulate measures whereby developing countries could join the Agreement on the basis of relatively relaxed conditions, later revising their offers in stages.
We also expect discussions between participating countries to be pushed forward toward reducing the scope of reciprocal exemptions.
Furthermore, we hope to see the Working Group on Transparency in Government Procurement formulate a new agreement on securing transparency (e.g., detailed notification of procurement systems and procurement conditions).
Strengthening Intellectual Property Protection
The protection of intellectual property is insufficient in much of the developing countries. These countries must move swiftly to develop domestic legislation based on the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and ensure tougher handling of counterfeit goods, as well as increasing awareness and educating the public in regard to intellectual property protection.
In future reviews of TRIPS, the harmonization of patent systems should be approached through, for example, the introduction of the first-to-file principle and realization of an early disclosure system for patent filing.
Advancing Harmonization of Rules of Origin
Principles in regard to the establishment and application of countries' respective rules of origin and regimes which they should observe are incorporated in the Agreement on Rules of Origin. However, since member countries can exercise considerable discretion in establishing and applying domestic systems, rules of origin could well be used as protectionist measures in relation to regional trading agreements and anti-dumping measures.
We strongly hope that the work on harmonization of non-preferential rules of origin being undertaken by the WTO and the World Customs Organization (WCO) will lead to objective and binding rules of origin which are international in scope and leave no room for arbitrary interpretation. Similarly, work on the harmonization of preferential rules of origin should be initiated promptly.
Handling Policies and Measures for the Protection of Developing Countries' Domestic Industries
Some developing countries have sought to protect domestic industry through measures such as the frequent change of tariff policies and a variety of regulations on foreign capital. These measures obstruct companies from conducting their business activities with long term perspectives. The WTO should review these measures in order to determine whether they are consistent with the Uruguay Round agreements.
Facilitating the participation of developing countries in the multilateral free trade system will necessitate technical support for developing domestic legislation and drafting policy. The WTO should cooperate with the World Bank, the United Nations Conference on Trade and Development (UNCTAD) and other international organizations in continuing to actively offer advice to developing countries.
Although the strengthening of the dispute settlement function through the UR negotiations is highly laudable, other problem areas remain, for example, insufficient relief for companies receiving damage. In addition, to ensure member countries' observance of agreements, the WTO's capacity to monitor the policies of its members should be strengthened, with a view to preventing disputes before they arise.
Amid concern over increasing over staffing in international organizations, the WTO Secretariat should certainly be commended for its efficient handling of world trade issues with only 500 staffs. However, we hope that the current secretariat structure will be expanded as necessary toward stronger dispute settlement and surveillance mechanisms.
Further Strengthening Dispute Settlement Procedures
The mechanisms and functions of WTO dispute settlement procedures need to be boosted in the review to be carried out by the end of 1988. The dispute processing period in particular needs to be shortened from the current one to two years, and relief measures should be introduced to cover the damages suffered by companies during the period from establishment of a panel to the execution of recommendations. Furthermore, given that disputes are expected to become more frequent and more complex, the WTO should work to increase the number of appellate Body members, completely overhaul the panel system (by introducing full-time panelists, etc.) and expand the number of legal experts working at the WTO Secretariat.
As stated earlier, standards of review under the new Anti-Dumping Agreement should be eliminated. Needless to say, we strongly oppose the expansion of application of these to other agreements.
We, the Japanese business community, highly commend the prohibition of unilateral measures as a result of the UR negotiations. Regrettably, however, there are still cases where countries introduce sanctions based on their own domestic rules without going through internationally agreed dispute settlement procedures, or call for changes in other countries' trade policies and measures while hinting at the imposition of sanctions. Member countries should reaffirm their commitment to dispute settlement based on international rules. In addition, as stated later, we look forward to more effort being devoted to new issues, leading to early consensus on rules in areas in which international rules have yet to be established.
Strengthening Surveillance Mechanisms
As stated earlier, the WTO's surveillance system should be bolstered in regard to checking the consistency of European and U.S. implementation and operation of anti-dumping legislation with the new Anti-Dumping Agreement, the WTO consistency of tariff policy and intellectual property rights systems in developing countries, and the various regional trading agreements. A mechanism should also be developed which points out problems as needed and calls for improvements to be made.
This will necessitate a radical review of the current WTO Trade Policy Review Mechanism (TPRM)-for example, asking the opinions of a country's major trading partners before undertaking a review of country in question; increasing the number of WTO Secretariat personnel dedicated to trade policy review; increasing the frequency of reviews; and adding a function to TPRM whereby recommendations can be made for improvement of member countries' problematic trade measures.
Furthermore, a committee of ombudsmen could be newly established within the WTO, comprising eminent persons and invested with the necessary authority. This committee would conduct investigations and deliberations focusing on the WTO consistency of governments' policies, issuing recommendations to the countries in question where improvements were necessary.
Proactive Commitments on Trade and Environment Issues
Environmental problems are becoming global issues requiring urgent attention. Responding to the mutually supportive relationship between trade policy and environmental policy, since its inauguration the WTO has considered measures which promote sustainable development through the maintenance and development of the multilateral trading system. However, it is unfortunate that no substantial progress has been made on the issue since the 1996 Singapore Ministerial Conference. This is an area which merits more vigorous effort in days to come.
In particular, given that economic growth through free trade is vital in promoting environmental protection, we call for work to be undertaken toward harmonizing trade measures under multilateral environment agreements (MEAs) with the WTO Agreements. We strongly oppose unilateral protectionist trade measures implemented under the pretext of environmental protection. In addition, countries should not allow their environmental policies to become excessive barriers to trade. The relationship between trade and the environment should also be considered based on progress in discussions at international for a such as the International Standards Organization (ISO).
Enhancing international cooperation mechanisms is important in efforts to advance work in environmental area. The WTO should also contribute to these efforts by, for example, the further liberalization of trade of environment-related equipment.
Initiation of Negotiations toward Investment Liberalization
We hope to see agreements reached in the negotiations of the Multilateral Agreement on Investment (MAI), currently being promoted by the Organisation for Economic Cooperation and Development (OECD), by the time of the meeting of the OECD Council at Ministerial Level in April 1998.
Discussion also needs to be initiated in the WTO toward the formulation of comprehensive investment rules in order to contribute to international investment liberalization. These discussions should lead to the establishment of such principles for investment as national treatment, most-favored-nation treatment, development of an investment dispute settlement system, and further investment liberalization in each country.
Initiatives on Trade and Competition Issues
We call for the Working Group on the Interaction between Trade and Competition Policy to engage in vigorous discussion on trade measures which distort competitive conditions in a market, including the abuse of anti-dumping measures.
We strongly oppose the abuse of competition policy for the purpose of protecting a country's domestic industry or exports when there isn't enough international harmonization between competition and trade policies.
We welcome the push forward with trade liberalization since the founding of the WTO in 1995, including the conclusion of the Information Technology Agreement (ITA) and negotiations for the liberalization of basic telecommunications and financial services. In addition to the expansion of both ITA member countries and the scope of product coverage (for example, DVD (digital video disk) players, car navigation systems and other consumer information appliances) currently being considered, negotiations should also be promptly initiated, for the reasons given earlier, toward the abolition of tariffs on environment-related equipment as a new sector-specific liberalization negotiation.
However, sector-specific liberalization negotiations almost inevitably focus on those areas of concern to some developed countries, making it difficult to link them to global trade liberalization which includes developing countries. To get past this, in addition to the service sector negotiations to be initiated by January 1 of 2000 and the agriculture sector negotiations to be initiated in the beginning of 2000, manufactured products negotiations for comprehensive tariff reductions should also be commenced early in the next century, after lowering tariffs on these by 1999 in line with the Uruguay Round agreements.
Looking to the liberalization of Japan's agricultural sector, Japan needs to develop domestic systems to cope with future tariffication, which, as noted in Keidanren's September 1997 proposals (see Notes), we regard as unavoidable.
As for the service sector, we expect the Working Party on GATS Rules to prepare rules on, for example, government procurement of services and on subsidies, with negotiations toward exhaustive liberalization commitments undertaken in the new round of negotiations.
As WTO coverage expands, the WTO has been having an increasingly significant impact on business activities. We call for ties to be strengthened between the WTO and the Business sector.
To the greatest extent possible, the WTO should proactively disclose the contents of discussions in various negotiations and working groups and provide opportunities to reflect the voice of the business sector in its activities by, for example, engaging as necessary in direct dialogue with business sector.
As we move toward the 21st century, tasks such as the bolstering of WTO functions, further trade liberalization and the formulation of rules in new sectors are of increasing urgency. We call upon the Government of Japan to display vigorous leadership in the upcoming discussions and negotiations.
As a prerequisite to this, the Government will have to undertake bold domestic deregulation and throw itself behind further improvement of access to its markets, ensuring that its standards and conformance systems are consistent with international standards, promoting mutual recognition and improving its inspection and quarantine systems.
Furthermore, Japan must step up its personnel contributions to the WTO Secretariat. The Government of Japan should aim to increase the number of professional Japanese staffs and consider a scheme for actively dispatching human resources at the higher managerial levels. Finally, the Government should work towards revision of the employment system to redress the current preponderance of European and American staff in the WTO Secretariat and ensure a greater diversity in staff nationality.
NOTESExcerpt from Keidanren's September 1997
"Proposals Concerning Review of the Basic Agricultural Law"
- The advance of globalization has disallowed agricultural issues from consideration as purely domestic issues. For example, lower product tariffs and the strong yen have pushed up imports of final processed foods and interim products, exposing the Japanese food industry to unprecedented international competition. At the same time, the industry faces extremely severe management conditions in being compelled to trade for agricultural products made from domestic raw materials at relatively higher prices because of the various price support systems and border measures. From now on, whether the food industry tries to slim operations or moves offshore, the end result will be a decline in demand for domestically-made agricultural products, leading to a scale-down of the domestic agriculture industry.
- Japan's agriculture industry therefore cannot hardly expect to be immune from internationalization. The agricultural sector too needs to establish global standards. It is particularly vital that Japan, as a country enjoying maximum benefit from the multilateral free trading system, do its utmost toward maintaining and strengthening WTO rules. In the Uruguay Round agreements, the GATT basic philosophy of pursuing tariff-only border measures and tariff reduction was applied to the agriculture sector and it was confirmed that this direction would be further developed in years to come. Japan also should accept the WTO's basic philosophy and act quickly to develop its domestic system accordingly. Regarding rice in particular, while tariffs are currently on hold, the introduction of a tariff system from the year 2001 appears unavoidable, and Japan will need to hurry to lay the groundwork for this.
- On the other hand, Japan does export some agricultural products, including "unshu" oranges and other fruits as well as small amounts of rice for Japanese nationals living overseas. We believe that through a focus on differentiation and high quality and clever use of processing, Japan's domestically produced agricultural products could well be made internationally competitive. From now on, the agriculture industry should also include exporting as part of its management strategy.
- Furthermore, in line with the onset of an era of international cooperation, Japan should actively promote food diplomacy. It is particularly important that Japan work to maintain friendly relationships with food-exporting countries and continue to build its own food safety net while working actively to transfer its world-class agricultural technology to other countries, promoting development assistance to developing countries and making other contributions to the international community.