News & Updates

JETRO Global Trade and Investment Report 2016 -Broad economic zones and growth strategies for Japanese companies

Aug 09, 2016

Key points:

  1. World trade declines 12.7%, marking first negative growth in six years.
  2. Slow trade becomes apparent in emerging and developing economies.
  3. Japan’s trade balance is improving, marking surplus of $17.0 billion in first half of 2016.
  4. Japan’s outward FDI has exceeded $100 billion for five consecutive years.
  5. Asia boosts its presence in Japan’s inward FDI.
  6. FTAs in force around the world reach 282. FTA networks in Asia expand in 2015.
  7. ITA expansion is expected to increase trade. World ITA trade amounts to $3 trillion.
  8. TPP is expected to be widely utilized.
  9. Inbound market produces ripple effects.
  10. Export of agricultural, forestry, fishery and food products marks a record high at 745.1 billion yen.

1. World trade declines 12.7%, marking first negative growth in six years

  • In 2015, world trade (merchandise trade, nominal export basis) decreased by 12.7% from the previous year to $16.4 trillion (JETRO estimate), marking the first decline in six years. Real exports excluding the impact of price fluctuations slightly increased by 1.3%, although the gain shrank from 3.5% a year earlier.
  • US import declined by 4.6% from the previous year. Multiple products such as electrical equipment and transportation machinery, however, experienced an increase due to the recovery in demand. Meanwhile, China’s import significantly dropped by 18.4%, with a negative 1.9% contribution ratio to a decrease in world import. While the import of certain consumer goods such as medical and cosmetic products was brisk, that of general machinery decreased by 12.5%. Among major countries, only Vietnam reported a gain in both export (7.9%) and import (11.9%) from the previous year.
  • By product category, the trade value of mineral fuel dropped sharply by 40.3%, with a negative 5.9% contribution ratio to a decrease in world trade. Reflecting sluggish capital investment, general machinery also decreased by 9.7%. Some products saw an increase including communication equipment (3.9%) and electronic components such as semiconductors (1.3%), while others showed different results depending on the country and region, such as a gain in transportation machinery toward North America and medical products toward China.

2. Slow trade becomes apparent in emerging and developing economies

  • Slow trade is an economic phenomenon where the growth rate of trade is smaller than the world economic growth rate. Since 2012, the trade growth rate has remained below the GDP growth rate, with the percentage of the former to the latter being as low as 0.5%. By region, slow trade is particularly remarkable in emerging and developing economies.
  • Sluggish investment is cited as one of the cyclical factors of slow trade due to its impact on trade. The world trade of capital goods and intermediate goods, which are the main drivers of capital investment, has been decelerating since 2012, during which trade growth in these two categories has been generally lower than that of consumer goods.
  • The slowdown of expanding global value chains, which have driven world trade, is pointed out as a possible structural factor. This is considered to be caused by China’s development in domestic production capacity shifting its previous role as the world factory, the peak reached in intra-regional trade ratios in major economic areas in Asia, and reduction of the cost gap among regions.

3. Japan’s trade balance is improving, marking surplus of $17.0 billion in first half of 2016

  • In 2015, Japan’s export amounted to $625.1 billion (a 10% decline from the previous year) and its import was $648.3 billion (a 20.7% decline), bring its trade balance to a deficit of $23.3 billion. Although Japan has recorded a trade deficit for five consecutive years, the amount of deficit shrank approximately $100 billion from $122.8 billion marked in 2014. On a yen basis, its export increased by 3.4% to 75.6 trillion yen and import decreased by 8.7% to 78.4 trillion yen. The trade deficit has continued to decline, and the first half of 2016 marked a $17.0 billion surplus.
  • In export, the US remained the largest partner country for three consecutive years with $125.9 billion, a 2.8% decline. On the other hand, the export to China decreased by 14.0% to $109.3 billion, experiencing declines in a wide range of product categories such as general machinery, electrical equipment, and transportation machinery, partly due to its slow economic growth.
  • Compared to major exporting countries, the composition of Japan’s export is unique for its high ratios of intermediate and capital goods, the combination of which reaches about 80%. Looking at the Japan’s contribution ratio to total export by product category in 2015, intermediate goods had the largest impact with a decrease in total export with a negative 7.1% contribution ratio, of which export to China marked the largest at negative 1.8% among major trade partners.

4. Japan’s outward FDI has exceeded $100 billion for five consecutive years

  • Japan’s outward FDI in 2015 declined by 4.1% from the previous year to $130.8 billion (on a balance of payment basis, net, flow). Although the figure did not reach that of 2014, it has surpassed $100 billion for five consecutive years since 2011. By major country and region, the US has been the largest investment destination for six years in a row since 2010, with $44.9 billion in 2015 (a 7.1% decrease from the previous year).
  • In Asia, Japan’s FDI toward ASEAN has been in the $20 billion for three consecutive years. Meanwhile, its FDI toward China ending at $8.9 billion, which makes the disparity in FDI value between ASEAN and China roughly two-fold for the past three years. By industry, the amount of investment toward China has been declining in both manufacturing and non-manufacturing industries since its peak in 2012, while the proportion of the non-manufacturing industry has been expanding since 2005.
  • In FY2015, the percentage of overseas sales of Japanese firms rose to 58.3%. By region, the Americas have continued their upward trend from 18.6% in FY2012 to 25.9% in FY2015, bolstered by their growing demand reflecting the recovery of the US economy.

5. Asia boosts its presence in Japan’s inward FDI

  • In 2015, the value of Japan’s inward FDI (on a balance of payment basis, flow) was $145.6 billion in gross and negative $42 million in net. From January to May in 2016, however, the net value turned into an increase with $11.6 billion. By region, investment from Asia exceeded that from North America and Europe, which has further boosted the presence of Asia. At the end of 2015, the inward stock of FDI in Japan increased to 24.4 trillion yen from the end of the previous year, with Asia’s composition ratio to the foregoing stock also rising to 17.6% from the 15.5% of the end of 2014.
  • There have been increasing numbers of cases in which conglomerates in Asia and global companies collaborate with Japanese companies with the aim to expand their markets. The fields those foreign companies are tapping into are becoming more diversified in the service market.
  • Looking at trends in world outward FDI, the share of Asia excluding Japan has surged in recent years, a rise from 6.5% in 2000 to 20.3% in 2015.

6. FTAs in force around the world reach 282. FTA networks in Asia expand in 2015

  • The number of free trade agreements (FTAs) in force has reached 282, including 14 agreements which have come into effect since the beginning of 2015 (as of the end of June 2016). Of the 14 FTAs, six entered into force within the Asia and Oceania region, with three in four cross-regional FTAs concluded by Asian countries.
  • As of 2015, Japan’s FTA coverage ratio—the share of trade with partners in which the subject country has established FTAs out of its total trade value— is 22.7%. The enforcement of the Trans-Pacific Partnership (TPP), signed in February 2016, will raise the ratio to 39.5%.
  • As the China-Korea FTA took effect in December 2015, South Korea’s FTA coverage ratio increased to 67.3% from 41.1% in 2014.  

7. ITA expansion is expected to increase trade. World ITA trade amounts to $3 trillion

  • At the 10th WTO Ministerial Conference in Nairobi, Kenya in December 2015, the member states came to an agreement in certain trade sectors of the Doha Round. The conference, which drew attention to the future direction of the Doha Round as it approaches its 15th anniversary, saw a division between developing countries, which insisted on maintaining the conventional framework, and developed countries, which aimed at taking a new approach.
  • While negotiations on trade liberalization among all 164 member states have faced increasing difficulties, agreements on tariff elimination for environmental goods and service liberalization among like-minded member countries are moving forward on a plurilateral basis. Other notable issues under multilateral trade negotiations include China-related matters such as its status as a “non-market economy”, as 2016 marks the 15th year of the country’s WTO membership. Meanwhile, the United Kingdom, which voted to leave the European Union in a referendum, will have to re-negotiate a number of treaties, including those regarding tariff rate levels at the WTO.
  • In December 2015, 53 WTO members agreed to expand the product coverage of the Information Technology Agreement (ITA) to a further 201 products. World trade of ITA expansion products (on export basis) is projected to be $1.8 trillion, or 11.0% of total world trade. The total trade value of the current and expanded ITA is estimated to reach $3.3 trillion.

8. TPP is expected to be widely utilized (1)

  • Enforcement of the TPP, a trade accord covering 37.4% of the world GDP and 11.1% of world population (as of 2015), will create a wide regional economic zone.
  • Trade among TPP member states consists of two kinds of commerce: that between countries which already have bilateral/regional FTAs in force, and that between countries which are expected to enter into an FTA for the first time through the TPP. Japan is expected to enter into an FTA for the first time through the TPP with the US, Canada and New Zealand. Vietnam and Malaysia, in which multiple Japanese companies are operating, are expected to come into an FTA for the first time with the US, Canada, Mexico and Peru.
  • The TPP utilization on the tariff front is expected to have a great impact on tariff reduction in the US, due to the fact that the country boasts the largest economic scale within the TPP region and that the TPP will be the first FTA with many countries. According to the United States International Trade Commission (ITC), it is estimated that duties paid by TPP member countries would be $6 billion.

8. TPP is expected to be widely utilized (2)

  • The TPP is expected to be utilized in various industries. In the automobile and auto components sector, the pact is likely to be utilized in exports from Japan to TPP member states due to the strong competitiveness of Japan in the field. In particular, the agreement will enable Japan to reduce its tariff costs in these sectors in trade with the US and Canada, with which the TPP will be the first FTA, as the trade value with the two countries is large and they currently impose tariffs on a wide rage of products.
  • There are some member countries with high “simple average applied tariff rates” in textiles and sewn products, which are expected to reduce or eliminate their tariff rates after the TPP enters into force. In 2015, the import value of 10 TPP member states (excluding Brunei and Vietnam) amounted to $197 billion, composed of $161.5 billion for sewn products and $35.5 billion for textiles. Of the member countries, the US has an overwhelmingly large market in these two products with its import value of $115.1 billion, of which sewn products account for $100.3 billion.
  • In addition to reduction and elimination of tariffs, TPP has established highly developed rules in various sectors such as investment, services, intellectual property, government procurement, state-owned enterprises and electronic commerce. In the service sector, some members raised the threshold of investment value requiring government approval while others relaxed restrictions on foreign ownership. Electronic commerce is expected to be effective for SMEs to expand their business overseas, since it enables them to directly deal with foreign partners without a large investment. As the electronic commerce market has been expanding, it is significant that related provisions in the TPP developed advanced and comprehensive rules.

9. Inbound market produces ripple effects

  • Japan’s travel balance for 2015 reached 1.1 trillion yen ($9 billion), the country’s first surplus since 1962. However, there is still a great disparity between Japan and other major developed countries with respect to the number of inbound travelers and amount of revenue from this field, while the portion of Japan’s GDP corresponding to income from international tourism was at the comparatively low level of 0.4%.
  • Demand from tourists coming to Japan from abroad often differs from that of domestic tourists, and corresponding to this new demand results in the creation of new business models. For example, in the field of travel-related infrastructure, we continue to see an increasing number of international airlines and hotels starting operations in hopes of targeting visitors to Japan as their primary customers. Regarding inbound demand, there are examples of demand for “made-in-Japan” souvenirs sought after by visitors from overseas leading to expansion of domestic production sites by manufacturers.
  • When looking at the project numbers of foreign and foreign-affiliated firms in tourism sector JETRO has supported, both cases in which support has been given and cases in which successful startups have been found have dramatically increased since 2014. By industry, there have been significant inroads made by transportation providers, such as airlines and ferry operators, as well as travel agencies engaged in designing itineraries within Japan.

10. Export of agricultural, forestry, fishery and food products marks a record high at 745.1 billion yen

  • Export of Japanese agricultural, forestry, fishery and food products has been increasing for three consecutive years, marking a record high at 745.1 billion yen in 2015, up 21.8% from the previous year. An interim target under an export strategy set by the Japanese government—over 700 billion yen by 2016—has been achieved a year early. Of major agricultural products, exports of each category of apples, beef, whiskey and green tea exceeded 10 billion yen for the first time.
  • Since July 2013, JETRO has undertaken the One Prefecture, One Product Initiative (a program which supports the export of a single type of produce from each of Japan’s prefectures), developing a total of 53 projects with the aim of them being as models for future export projects. The three-year accumulated value of the export projects concluded through the program has reached approximately 2.25 billion yen. In FY2016, JETRO changed items in 15 projects and continues to seek out new export products.
  • As a result of the TPP negotiations, Japan has succeeded in reaching an agreement on tariffs elimination with other TPP member countries on all of Japan’s priority export products in agricultural, forestry, fishery and food products. In exports to the US and Vietnam, which posts a high trade value within the TPP region, tariffs on priority export products, such as rice, Japanese sake, beef and fishery products are expected to be removed immediately or gradually, which will facilitate greater market access.
  • In response to a new strategy to strengthen exports of agricultural, forestry and fishery products formulated by the Japanese government in May 2016, JETRO established the Taskforce for Agriculture, Forestry, Fishery and Food Export Strategy in the following month to further enhance its export support system.

International Economic Research Division
Mr.Shiino, Mr. Yoneyama, Mr. Yasuda
Tel: 03-3582-5177