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Policy Proposals  Middle East and Affrica Promoting Economic Cooperation with Arab States

November 19, 2013

Promoting Economic Cooperation with Arab States (Outline)

From the start of his current administration, Prime Minister Shinzo Abe's foreign policy has placed a high priority on the Arab region. Seeking to build strategic relationships with the countries in this region, the prime minister—accompanied by Keidanren leaders—has made two visits to the Arab countries this year, traveling to Saudi Arabia and the United Arab Emirates in May and to Kuwait, Djibouti, Bahrain, and Qatar in August.

The prime minister spoke then on concrete measures to strengthen ties between Japan and Arab countries, such as contribution for stability in the Arab region, expansion and deepening of economic relations, and strengthening cultural and human exchanges. The cooperation proposed encompassed a broad range of fields, not just in the area of energy and resources. The speech received the full endorsement and support of the relevant countries.

The Japanese business community has long been engaged in strengthening ties in the energy and resources sector, and also in actively promoting cooperation in such fields as improving infrastructure; advancing negotiations on free trade agreements; developing human resources; providing technical cooperation; cooperating in the environmental, recycling, and renewable energy sectors; and supporting industrial diversification through nurturing new industries. From this standpoint, the business sector strongly endorses the prime minister's recent strategic and effective diplomatic initiatives.

Prerequisites to stronger economic ties, though, include the return of regional stability following the Arab Spring, the elimination of the threat of terrorism, and the restoration of political stability in conflict-torn areas. In fact, these conditions are indispensable for the peace and prosperity not just among the Arab countries but also countries around the world. In this context, it was of immense importance that Prime Minister Abe expressed his readiness, both domestically and abroad, to contribute to the security of the region.

Working with the government to further promote new areas of economic cooperation with Arab states, the Japanese business community will give priority to seeking closer ties as an extension of its growth strategy and its efforts at business diplomacy. In addition to advancing its own efforts, Keidanren calls upon concerned parties to undertake the following measures.

1. Reinforcing Cooperation for Energy and Resources

Japan's structure of energy supply and demand has undergone a major shift since the March 2011 Great East Japan Earthquake, with oil and natural gas meeting increasing shares of the country's energy needs. At the same time, the stabilization of the international energy market is essential not only for Japan but for the energy-supplying Arab states and for the global economy as a whole. With respect to securing stable imports of energy and resources, therefore, bilateral cooperation with Arab countries and multilateral dialogue among producer and consumer states will become increasingly important. Keidanren therefore calls upon the Japanese government to steadily advance and maintain cooperation and dialogue with each country, based on the agreements reached during the prime minister's recent visit.

It is also of great importance that the public and private sectors work together to promote resource development and strengthen ties with oil-producing states through the training of human resources for energy and resources development; the transfer of advanced technologies, particularly for energy and environmental conservation; and the nurturing of downstream industries. Under the public-private coordination, it is especially important in boosting Japan's presence in the UAE, where most of our independently developed oil resources are located, and Qatar, which has a high concentration of natural gas fields developed by Japan.

Saudi Arabia, the UAE, Kuwait, and other oil-producing countries are now promoting energy conservation, nuclear power generation, and renewable energy. Given that Japan is a major purchaser of Arab-produced energy resources, it should actively seek to participate in these projects and related infrastructure-improvement efforts by offering its wealth of knowledge and leading-edge technologies in these fields.

2. Contributing to Infrastructure Improvement

The development of infrastructure for desalination, water supply and sewerage, electric power, telecommunications, and public transport has not kept pace with the population explosion in many Arab countries. They are thus steadily building infrastructure based on national development plans, such as Kuwait's Second National Development Plan and Qatar's National Vision 2030 as well as its hosting of the 2022 FIFA World Cup. Japanese companies possess highly advanced technologies for desalination, water supply, electric power generation, mass-transit systems, waste treatment, and telecommunications, and are able to offer their cooperation in many different ways.

This can be greatly facilitated through the active use of the Private Sector Investment Finance provided by the Japan International Cooperation Agency (JICA); the export loans, overseas investment loans, and equity participation provided by the Japan Bank for International Cooperation (JBIC); and the insurance products and services provided by Nippon Export and Investment Insurance (NEXI).

3. Building Frameworks to Facilitate Trade and Investment

Closer trade and investment ties with Arab countries require an improvement in the business environment on the Arab side, such as the lowering of the excessive performance or local employment requirements, the easing of visa regulations for Japanese and third-country nationals, and the lowering of high tariff rates. In light of this, Keidanren seeks the early resumption of negotiations on a free trade agreement between Japan and the Gulf Cooperation Council (GCC), which has been stalled since 2009.

To expand Japan's investment, which will play an important role in contributing to the diversification of Arab country economies, investment agreements and tax treaties must be quickly signed with those countries with which such accords have yet to be concluded. We call for prompt action by both the Japanese and relevant-country governments.

Countries with which Japan has investment agreements:
Egypt, Kuwait, Iraq, and Saudi Arabia
(Under negotiation: GCC, Algeria, Oman, Morocco, Libya, Qatar, and the UAE)
Countries with which Japan has tax treaties:
Egypt, Kuwait, and Saudi Arabia
(the treaty with the UAE is signed but not yet in effect)

4. Cooperating in Economic Diversification

Many Arab states are seeking to restructure their dependence on the energy and resources sector by developing other economic sectors that provide younger workers with more employment opportunities. This is an area where Japan should actively make a contribution through public-private coordination. Particularly promising sectors include the environmental business and recycling, finance, disaster prevention, tourism, healthcare, and agriculture. Cooperation can be promoted by easing or eliminating regulations, such as those on designated agents for Japanese products and on female tourists. Measures should be taken quickly by both the Japanese government and the governments of countries involved.

Inasmuch as Japanese fruits and beef are very popular in many Arab states, increasing effort should be made to meet local demand by exporting these items by formulating a full-fledged agricultural export strategy, including the larger-scale production of halal food products.

5. Expanding Technical Cooperation and Human Resources Development

Nation-building is a process of building human resources, and Arab states are looking to Japanese companies to help boost employment opportunities for younger workers through human-resource development and technology transfers. To meet such expectations, the public and private sectors must coordinate their efforts and respond promptly. In concrete terms, various available schemes and initiatives should be expanded, such as JICA's cost-sharing technical cooperation, the acceptance of trainees and dispatch of experts by the Overseas Human Resources and Industry Development Association (HIDA), the acceptance of foreign students, and cooperation with local educational institutions.

The transfer of advanced technologies and orders for large-scale infrastructure projects (such as for logistics, environmental conservation, power generation, desalination, disaster prevention, satellites, and telecommunications) and for next-generation vehicles would also contribute to the diffusion of Japanese industrial standards.

6. Promoting Safety and Security

The January 2013 terrorist attack on an Algerian gas plant has had a serious impact on Japanese investments in Arab countries.

Public safety is the highest priority for any company seeking to invest abroad. Arab governments are therefore asked to do their best to maintain and improve safety and to ascertain security risks, as well as to communicate safety-related information in a timely manner to both Japanese public-and private-sector representatives. The Japanese government, for its part, needs to establish effective measures to protect Japanese nationals in foreign countries. To properly ascertain the threat of a terrorist attack and evaluate the political situation in conflict-torn areas, budgetary allocations are required to strengthen crisis management in the Cabinet Secretariat, the Ministry of Foreign Affairs, the National Police Agency, the Ministry of Defense, and other government bodies, to develop a system for information sharing and closer coordination between Japanese diplomatic missions and overseas branches of Japanese companies, and to reinforce security measures through information gathering and analysis.

Closer coordination is also required with relevant governments to secure the safety of sea lanes crucial for maritime transport, extending from the Red Sea and the Strait of Hormuz to the Indian Ocean, the Strait of Malacca, the South China Sea, and the East China Sea.

And to assist the reconstruction of war-torn states like Iraq and the development of non-oil-producing countries, it will be important to selectively provide international cooperation to reduce poverty and correct income gaps in those countries so as to prevent conflicts from occurring.

Regional Affairs