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Challenges for the Upcoming WTO Negotiations and
Agendas for Future Japanese Trade Policy

May 18, 1999

(Japan Federation of Economic Organizations)

1. Introduction

In this era of globalization, development of an appropriate environment for cross-border expansion of corporate business activities will be vital to the sound development of the world economy. Trade and investment rules in particular are taking on a growing importance in terms of increasing the predictability of companies' foreign business activities.

The Japanese Government must focus its energies on the formation of international rules consistent with industrial interests, removing the trade and investment impediments with which companies are faced. In particular, the Government will need to play a far more active role in the upcoming World Trade Organization (WTO) negotiations, while at the same time, provide concrete support to the development of various types of bilateral agreements. Another urgent task will be to establish an effective domestic regime for trade negotiations.

The Asian currency and financial crisis which was sparked by the crash of the Thai baht in the summer of 1997 led almost instantaneously to a global crisis, leaving many developing countries reeling. It will thus be essential to build into Japan's trade policy an increased sensitivity to the situation in such countries.

2. Expectations of the Upcoming WTO Negotiations

One of the top priorities of Japan's trade policy is strengthening the WTO system, which has played such a central role in maintaining and developing a free, non-discriminatory multilateral international trading order.

The upcoming WTO negotiations must realize a greater degree of liberalization and transparency in member countries' trade and investment systems, as well as constraining protectionist trade measures being taken by some member countries which run contrary to the spirit of the WTO.

We strongly hopes to see the next negotiations produce a conclusion of this nature at the earliest possible point. We also believe that in terms of negotiation areas, in addition to services and agriculture, already part of the built-in agenda, (i) tariff reduction on goods in mining and manufacturing, (ii) stronger rules for anti-dumping measures, (iii) clarification of the treatment of electronic commerce, (iv) enhanced protection of intellectual property rights, (v) the development of international investment rules and (vi) stronger dispute settlement procedures should be addressed as priority issues.

(1) Promotion of Liberalization Negotiations

(a) Importance of Tariff Reduction Negotiations on Goods in Mining and Manufacturing (See, Appendix 1)

We strongly hope to see the next round enter into negotiations on comprehensive tariff reductions for goods in mining and manufacturing. Japan's tariff rates on such goods are among the lowest in the world, and we would urge that other developed countries too cut their tariff levels down to at least the same point.
In addition, many developing countries still have high tariff rates and inadequate binding ratios, and improvement should be sought in these areas.
An effective means of advancing tariff reduction negotiations would be to combine formula cuts, whereby member countries reduce their tariffs on the basis of a set formula, with other approaches such as peak tariff cuts.
However, in the case of tariff reduction for developing countries, consideration should be given to the economic situation and level of development of each, allowing, for example, sufficient timeframes for implementation.

(b) Trade in Services Liberalization Negotiation Issues (See, Appendix 2)

In terms of trade in services, we want to see the next negotiations eliminate limitations on the business activities of foreign companies and institute greater transparency in service-related laws and regulations. Of particular importance will be the relaxation of foreign capital limitations, the elimination of citizenship and residence requirements for company executives and staff, the relaxation of regulations on foreign remittance, the elimination of requirements on technology transfer and domestic procurement requirements, and greater transparency in legal systems and the implementation thereof, with these measures to be taken in the areas of telecommunications, distribution, finance, construction and transportation.

(2) Development of Trade and Investment Rules

(a) Prevention of Protectionist Application of Anti-Dumping Measures (See, Appendix 3)

The application by some member countries of protectionist anti-dumping measures is impeding the stable trade activities of us, Japanese companies. Moreover, even where the decision goes against the complainant, anti-dumping investigations in themselves impose a heavy burden on the companies concerned. At the next negotiations, to strengthen disciplines in regard to dumping margin calculations, the sunset clause, investigation procedures and other aspects of anti-dumping measures employed by member countries, we strongly urge a review of the Anti-Dumping Agreement, particularly in regard to the following points, or the introduction of supplementary regulations in the form of an "Anti-Dumping Understanding", as well as strengthening of the functions of the Anti-Dumping Committee.

  1. Fair price comparisons: Clarification of the unit of price comparison for export prices and domestic prices; enforcement of weighted-average comparisons; enforced inclusion of all negative margins; clarification of deducted items in price comparisons; enforced adjustment for start-up costs, etc.
  2. Sunset clause: Ensuring implementation of the Anti-Dumping Agreement principle whereby anti-dumping duties are to be terminated no later than five years from their imposition.
  3. Like products: Early clarification of "like products" falling within the scope of anti-dumping investigations; restraint of unlimited expansion of coverage to include next-generation products and so forth.
  4. Investigation procedures: Clarification and limitation of the definition of the period subject to investigation, prohibition of arbitrary shortening of investigation duration.

(b) Clarification of Treatment of Electronic Commerce (See, Appendix 4)

In regard to electronic commerce, it will be important to maintain the current practice of not imposing customs duties on Internet transactions of information goods. The classification issue also needs to be clarified and progress made on the development of a framework to support the sound development of electronic commerce, including elements such as privacy protection.

(c) Strengthening Intellectual Property Rights Protection (See, Appendix 5)

The overseas business activities of us, Japanese companies, are being obstructed by rampant counterfeiting in developing countries and patent systems in some member countries which are outside international norms. Important elements in this area will include harmonization of patent systems, especially institution of the first-to-file principle and the early publication system as international rules, as well as development of intellectual property rights protection systems in developing countries.

(d) Development of International Investment Rules (See, Appendix 6)

We strongly urge that international rules on investment be developed within the WTO. It is important that such rules be used to eliminate to the greatest extent possible foreign capital limitations, performance requirements (technology transfer requirements, foreign remittance limitations, export obligations and local employment obligations, etc.), and citizenship restrictions in regard to company executives, etc., also ensuring the transparency of investment-related systems.

(e) Strengthening Dispute Settlement Procedures (See, Appendix 7)

Strengthening dispute settlement procedures will be crucial in ensuring the effectiveness of the WTO Agreement and deterring members from casually resorting to protectionist trade measures.
Important issues will include the introduction of measures whereby companies can seek remedy for unjust injury sustained during the investigation period, elimination of "standard of review" in relation to anti-dumping measures, prevention of expansion of the application of the standard of review to other agreements, and the strengthening of WTO internal structure related to dispute settlement.

(f) Other Issues (Appendix 8)

We also look forward to: (i) improvement of government procurement systems; (ii) harmonization of non-preferential rules of origin; (iii) strengthened examination of regional trade agreements; (iv) improvement of trade facilitation; and to deepening discussions on: (v) trade and competition policy; and (vi) trade and environment.

(3) Promotion of WTO Accession for Non-Members

The WTO should be expanded into a truly worldwide organization through the early accession of countries such as China, Taiwan, Russia, Vietnam, Saudi Arabia and etc.

We are experiencing a number of difficulties in these countries in relation to issues such as high tariffs, inadequate intellectual property rights protection and restrictive foreign investment policies. As these countries accede to the WTO, appropriate negotiations need to be undertaken to resolve such problems and increase the transparency of domestic legal and administrative procedures.

3. Agendas of Japanese Trade Policy

As noted already, playing an active role in maintaining and strengthening the multilateral trading system is an extremely important aspect of Japan's trade policy.

Another central policy issue will be to strengthen Government efforts to develop various bilateral agreements, and continue to promote the expansion of exports to Japan from foreign trading partners. Furthermore, with the next WTO negotiations just around the corner, Japan needs to urgently develop a regime to strengthen its negotiation approach.

(1) Strengthening Bilateral Agreement Efforts

Bilateral investment treaties, tax treaties, pension aggregation agreements, mutual recognition agreements and other such bilateral agreements are extremely important in terms of the foreign business activities of Japanese companies. Japan needs to promote more actively the conclusion of such agreements, and must also review, as appropriate, existing agreements which no longer suit to the reality of business activities.

Bilateral free trade agreements are also important, because: (i) they allow progress with liberalization and rule making on a bilateral level which would be difficult to achieve in multilateral trade negotiations, (ii) they have the potential to strengthen Japan's negotiating power in, for example, the upcoming WTO negotiations. Japan needs to give concrete consideration to pursuing the development of free trade agreements in a WTO-consistent way.

(2) Further Promotion of Imports into Japan

To promote imports into Japan, the Japanese Government must push forward with domestic regulatory reforms and also move actively on issues such as ensuring the international consistency of standards and conformance systems and improving inspection and quarantine systems.

In regard to developing countries in particular, Japan will need to promote technical support for export industries, and particularly product development and development of quarantine systems in line with the Japanese market. Consideration should also be given to improvement of the preferential tariff system.

Continued efforts to further promote imports into Japan will be essential also in terms of Japan playing an active role in the upcoming negotiations.

(3) Development of the Regime toward Trade Negotiations in the Future

Concerning the trade negotiation approach of the Japanese Government, limited inter-ministerial liaison and information exchange, as well as inadequacies in terms of timely and sufficient information disclosure to the private sector have long been pointed out.

Other problems include the lack of two-way information exchange between the Government and the private sector, while, unlike the United States and Europe, Japan has no regime allowing companies to file for trade remedies where they run into trade-related problems abroad.

To resolve these issues and take a more positive stance in regard to the upcoming WTO negotiations, the Government first has to build a cooperative regime which cuts across ministry fences, developing a comprehensive negotiating strategy.

At the same time, closer liaison will be needed between the Government and industry, to which end we propose the following new framework:

(a) Establishment of a new body for Government-Industry Dialogue

In external economic negotiations with foreign governments up until now, exchanges of views and information between the Government and the private sector have been ad-hoc, only limited and generally inadequate. We therefore propose establishing a standing body to exchange views and information between the Japanese Government and industry toward the next WTO negotiations. This new body would be convened as necessary, in line with the state of play in the WTO negotiations.

The following merits would be provided through exchanges of views and information in such a forum: (i) industry would have a continuous and accurate grasp of the latest developments in the negotiations, allowing it to put forward valid proposals at appropriate points in time; and (ii) wide-ranging exchanges of views not just with the competent ministries but also the government officials involved in the negotiations would provide industry with an overall picture of the negotiations, leading to more constructive recommendations. Moreover, giving industry the opportunity to hear government explanations of how proposals from industry were utilized in the negotiations and what kind of discussion took place on these, or the reasons why these proposals were not in fact presented, would certainly increase industry interest in the negotiations.

(b) Establishment of a Complaint Procedure for Foreign Trade Measures

Even where the private sector is injured through trade limitations or actions by foreign governments, we have no clear procedures available whereby the Government can be requested to take up these issues. The United States and Europe have already built such procedures into law-U.S. Trade Act Section 301 in the case of the United States and EC Trade Barrier Regulation in the case of the EU.

The following kind of concrete procedures could be established.

  1. Japanese companies which have been injured by trade impediments created by foreign governments (limited to those which infringe established international rules) would submit written claims to the Japanese Government.
  2. Based on evidence submitted by these companies, the Government would make a decision to launch investigative procedures within a certain timeframe.
  3. Investigations would be conducted by a panel of government officials and academic experts, providing a judgment within a certain period of time as to whether or not company claims are appropriate, and simultaneously making recommendations as to what measures the Government should take.
  4. Based on panel recommendations, the Government would take appropriate trade measures consistent with international rules, appealing, for example, to the WTO agreements.

4. Conclusion

On the verge of the 21st century, Japanese trade policy stands at a major turning point, faced with a number of challenges. Japan must promote strong trade policies, enhancing its response to the WTO and working actively for the development of bilateral agreements, while also providing back-up to the international business expansion of Japanese companies. This will have the effect of contributing to the structural reform of the Japanese economy. Keidanren will actively support the Government's trade negotiations, and further deepen its relationship with industrial groups in Europe, the United States, and other countries.

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