Thank you for your kind introduction. I am Fujio Mitarai, chairman of Nippon Keidanren, and today I have been asked to speak on the political and economic situation in Japan.
I would like to begin with my assessment of the Japanese economy's current circumstances and the challenges that lie ahead. After that, I will give an overview of the business community's positions on the global issues facing Japan.
Let's begin with the immediate economic situation.
Today, the world economy is facing an unprecedented crisis. Throughout the first half of this decade, the world economy was going strong thanks to vigorous growth in the industrialized economies of Japan, the United States, and the EU, emerging markets like China, and resource-producing countries. Since last summer, however, the situation has taken a sharp turn for the worse owing to a succession of problems, including the collapse of the U.S. housing bubble, sharp fluctuations in resource and fuel prices, and growing instability in the financial system. As a result, signs of a global economic slowdown have been growing stronger.
Unlike in the past, it is no longer possible for individual nations to escape the impact of a global downturn and sustain economic growth, as economic globalization has progressed and national economies are closely interconnected today. We believe the time has come for the governments and the business communities of all nations to pool their resources and work in a concerted fashion, as partners, to restore stable growth to the global economy as a whole.
In the midst of all this, the Japanese economy is also facing stormy weather. Japan's economic growth over the past few years has been fueled largely by rising exports, sustained by an expanding global economy. For this reason, the combined impact of the global slowdown and rising fuel prices has hit us hard. The result has been a sharp economic contraction in the second quarter of this year.
We cannot afford to sit by and do nothing. The National Diet is now deliberating a supplementary budget to finance a package of emergency economic measures. The first priority is to enact this without delay to prevent the economic climate from worsening any further. If necessary, moreover, further measures should be adopted to stimulate the economy, including tax cuts for individuals and businesses.
Even while moving to put the economy on the road to recovery through these emergency measures, we must continue to move ahead with necessary medium- and long-term reforms. At the core of these is reform of taxes, government finances, and the social security system. Anxiety over the breakdown of Japan's social security system and its long-term viability are among the top concerns of the Japanese people today. This anxiety, moreover, is sapping consumer confidence, which is one reason domestic spending remains weak.
Last week, Keidanren submitted to the government a policy proposal for a unified reform of the social security system, the tax system, and government finances. We cannot hope to maintain a stable social security system, pensions and healthcare included, and boost the economy's growth potential without carrying out a wholesale reform of the nation's tax structure.
The foregoing overview of the Japanese economy's current situation, as well as its medium- and long-term challenges, makes clear that Japan is grappling with extremely difficult internal and external conditions.
To overcome these difficulties, we will definitely need strong leadership from Prime Minister Taro Aso, who took office last month. We hope that Prime Minister Aso will begin by getting the economy back into shape and tackle head-on the unified reform of taxes, government finances, and social security and chart a route for the nation to follow.
Next, I would like to explain the business community's thinking on how to address the global challenges facing Japan.
The first task is to support and strengthen the multilateral free-trade system by promoting the Doha Round of World Trade Organization (WTO) negotiations.
Ever since the General Agreement on Tariffs and Trade (GATT) era, Japan has enjoyed the benefits of an open trade system, which has helped our economy reach its present level of development. Today, as protectionist sentiment gains force around the world, Japan has a duty to work with the United States, the world's greatest economic superpower, to support and further strengthen this multilateral free-trading system, not only for our own sake but also for the stable development of the global economy.
Under the circumstances, it is truly regrettable that the WTO Ministerial Conference in Geneva in July 2008 was unable to take the last step toward finalizing a general agreement despite a great deal of progress following WTO Director-General Pascal Lamy's proposal.
Given the conditions surrounding the global economy today, with growth slowing and food and resource costs rising, it is essential that we redouble our efforts to break this impasse and reach a final agreement as soon as possible.
My understanding is that talks resumed in mid-September among the senior officials of a small group of countries. We will continue calling on all member nations to work as hard as they can for a swift conclusion to the round, using the agreements reached thus far as steppingstones and pushing forward resolutely with negotiations on unresolved issues and any other work that remains.
The second task is for Japan to move strategically and swiftly to conclude a range of EPAs and FTAs in order to partake in the dynamism of the global economy.
Nippon Keidanren has been lobbying the government and other concerned parties to extend and deepen its economic partnerships, with a focus on the East Asian region.
Our efforts have secured understanding and cooperation from people in every sector, resulting in dramatic progress in Japan's negotiation of EPAs. So far bilateral EPAs have come into force between Japan and seven different countries. This year, an EPA with the Association of Southeast Asian Nations (ASEAN) as a whole; the ASEAN-Japan Comprehensive Economic Partnership Agreement was signed in April, and in September, agreements in principle on major elements of Japan-Vietnam EPA and Japan-Swiss EPA have been reached.
We believe it is important that Japan move forward on pending bilateral agreements with Australia and South Korea while also working to extend the network of economic partnerships throughout East Asia through an ASEAN+6 agreement embracing Japan, China, South Korea, Australia, New Zealand, and India.
Despite all the progress that has been made in this area, the countries with which Japan has either concluded EPAs or reached a basic agreement account for only 15 percent of Japan's total trade volume. In other words, the most significant work lies ahead of us, in what we might call phase two of Japan's EPA initiative. We believe it is particularly important that Japan conclude EPAs with the European Union and the United States, which together account for almost 30 percent of Japan's trade volume.
With respect to strengthening economic ties with United States, it is a truism that Japan's ties with the United States are the cornerstone of our nation's external relations. It is our basic conviction that both countries should seriously study the possibility of a comprehensive Japan-U.S. EPA to serve as a legal framework for sustaining and further building on the positive political and economic relationship that has grown up on the foundation of the Japan-U.S. alliance.
We believe, moreover, that a Japan-U.S. EPA is of great significance not merely to our bilateral relationship but to the East Asian region as a whole. If a comprehensive Japan-U.S. EPA were concluded, it would pave the way for harmonization of our countries' external economic policies and encourage growth and stability in the East Asian region and further trade liberalization, as well as widespread adoption of the best possible rules.
In this sense, a Japan-U.S. EPA would serve not only as a bridge between the United States and East Asia but also as a foundation on which to build a Free Trade Area of the Asia-Pacific (FTAAP), a concept now in the early stages of deliberation at the Asia-Pacific Economic Cooperation (APEC) forum.
In recent years Nippon Keidanren has continued to lobby in support of a Japan-U.S. EPA. In the fall of 2006, we issued a policy proposal titled "Call for the Start of Joint Study for a Japan-U.S. Economic Partnership Agreement," and in January 2007 we issued a joint statement with the Business Roundtable in the United States.
With a new U.S. administration taking the helm next year, we plan to continue lobbying both governments, in concert with the Japan-U.S. Business Conference and various U.S. business organizations, for the establishment of a joint study regarding a Japan-U.S. EPA.
The third challenge facing us is the fight against global warming.
The key to solving the problem of climate change while maintaining economic growth is clearly technological innovation. For this reason, it is important that the world's technological leaders, Japan and the United States, work together for solutions by following the same roadmap for technological innovation.
In considering the post-2012 international framework on climate change, the most important condition is participation by all the major carbon-emitting nations. The international framework for the next phase must ensure fairness and do so in a way that all the major countries can accept.
Japan's current proposal calls for the adoption of a new base year, replacing the Kyoto Protocol's base year of 1990, and the adoption of a sectoral approach.
We are proposing a change in the base year because the current year, as is well known, gives a disproportionate advantage to the EU, which absorbed Eastern Europe very soon after 1990, after the collapse of the communist bloc.
The benefit of a sectoral approach is that by focusing on adoption of the best available technologies for each sector, it can be used to encourage participation by developing countries through technology transfer and to identify, clearly and objectively, the methods suited to reducing greenhouse gases.
We are eager to hear others' honest opinions of our proposal and pool our wisdom for the development of a framework acceptable to all countries to open the way to participation by all.
This wraps up my rather hurried overview of the economic situation in Japan and our approach to today's global challenges.
I hope that the information I have provided will be of some use to all of you gathered here as you discuss the economic challenges and global issues facing both of our countries.
Finally, let me conclude by conveying my hope that our meetings today and tomorrow will prove meaningful and productive.
Thank you.