Thank you very much for the kind introduction.
Good morning ladies and gentlemen. I would like to express my sincere gratitude to all of you for joining us today.
As the head of JETRO, I am pleased to be able to host this seminar on trade policy, which is one of the most politically sensitive and exciting issues in Washington these days.
Can you guess when this photo was taken?
It might surprise you to learn that it was actually very recent. Just a few weeks ago, in fact, on the occasion of the UN General Assembly in New York. President Trump and Prime Minister Abe still seem to have good chemistry.
The two leaders released a joint statement on September 26. It affirmed the importance of a strong, stable and mutually beneficial trade and economic relationship between the US and Japan.
They also agreed to begin negotiations toward a US–Japan Trade Agreement on goods, or TAG. This may be an unfamiliar abbreviation, but in ASEAN or Asia it is used quite often.
Through this agreement, both countries aim to secure market access for trade in goods, including agricultural products and automobiles.
It is intended to be mutually beneficial and respect the positions of both parties. The phrase, "respect the positions of both parties" is quite politically important for both parties. I do not have to explain why. Someone in the panel after my speech will do so.
I believe this communiqué will provide a good basis for negotiations.
We should follow up on it at next year's seminar. I must thank President Trump and Prime Minister Abe for contributing to my job security in Washington!
It also seems that President Trump's "tarrified" trade policy maybe and terrified trade policy would be a substantial business stimulus for Washington D.C.
We see so many trade policy experts here and there. In newspapers, social media and on TV.
In the meantime, what will become of the relationship between the US and Asia, the theme of today's seminar?
I would like to begin by speaking on four topics:
1. One, what has been happening in Asia?
2. Two, what problems exist?
3. Three, how would we like the US to be involved?
4. And four, how should we respond? What should we do?
1. What's happening in Asia
The first topic is what is happening in Asia.
Today in Asia, the digital economy is expanding.
This can be seen in the rapid growth of the e-commerce market.
Driven by "innovation," numerous startups are beginning operations.
Start-ups, innovation and the digital economy are the three major engines for economic growth in this century.
How many unicorns are there currently in the world?
The US has 124 "unicorns" by far the most in the world. But they have emerged in Asia as well. There are 76 unicorns in China, 11 in India and three each in Indonesia and South Korea. They could become GAFA in the US or BATJ in China in the future.
One example is Go-jek in Indonesia. Established in 2010, Go-jek started out providing bike taxi and courier services using online applications.
Since then, it has expanded into a multi-platform technology group engaged in fin-tech. This year, it has also begun investing overseas, with the launch of ride-hailing services in Vietnam.
This is an example of a new phenomenon in Asia, referred to as "leapfrogging." New technologies are being introduced by skipping the conventional developmental steps.
However, two conditions are required for these unicorns to do business:
1. One, securing a free and fair business environment, and,
2. Two, forming new rules to create this business environment.
2. Towards new rulemaking
The second topic is regarding new rules. How should we develop new rules?
Big data is a source of competitiveness for companies in the digital field. Companies are vigorously developing technologies to cultivate and utilize big data.
However, this requires securing free data flows and the appropriate protection of information. And this means the formation of new rules.
This has already been attempted in the TPP's chapter on "Electronic Commerce."
It consists of three rules:
a) Freedom of cross-border transfer of information,
b) Prohibition of mandatory installation of servers, and
c) Prohibition of demand for source code disclosure.
These three rules are also included in the new version of NAFTA, agreed upon last month. I should not say NAFTA. I should say USMCA.
However, even Vietnam, a TPP-11 member has had difficulty implementing these rules. We must take quick action to form new rules to secure the free flow of data.
How should we undertake this rulemaking?
I can think of three methods:
1. One, through mega-FTAs, like the TPP, RCEP and Japan-EU EPA, and maybe USMCA
2. Two, through the WTO, and,
3. Three, through bilateral FTAs.
Decision-making through the WTO requires much time as there are many members.
Someone told me that there are conflicts of interest, fragmentations of interest and seemingly no shared interest within the WTO. But I do not think so. I would rather disagree with this observation completely. We should discuss this later.
Decision-making through bilateral agreements can happen more quickly. But, the cost is high as many have to be made.
Do you know how many bilateral FTAs are needed to play the same role as the WTO? There are 164 members in the WTO. Between them, we would need an enormous number of bilateral agreements:
Meanwhile, countries in Asia are attempting to form new rules within the framework of mega-FTAs. The TPP-11 has been signed and is expected to expand.
Thailand, Korea, Indonesia, Colombia, and even the UK are interested in joining the agreement. Negotiations for RCEP underway, working toward a substantial conclusion by the end of 2018. In addition, a Japan-EU Economic Partnership Agreement was signed this July.
All these mega FTAs are intended to be high-level agreements. Even in the case of RCEP, its members are seeking significantly high-level agreement.
This is different from what it used to be before the TPP. Although the TPP is dead in the US at this moment, it has gained influence in the other countries.
E-commerce and, data flows are certainly a big issue in those mega FTAs.
3. Expectations of the US
The third topic is expectations of the US in rule making within Asia.
And here, there are two issues or concerns.
The first is that the US is not involved in rulemaking for the Asia-Pacific. If things continue as they are, rules will be formed in the absence of the US.
The second is that the trade war and various trade disputes have impaired predictability and legal stability for companies.According to the IMF, the trade war between the US and China could drive down the 2019 real GDP growth rate of the US by 0.9%, and China by 1.6%. These are big numbers in terms of economic growth rate.
I would like to mention another survey by AmCham China and AmCham Shanghai. This was related to the impact US and Chinese tariffs have had on US companies in China. About 70% of US companies in China answered that these tariffs have adversely affected business. They are "tarrified" and also terrified.
And the shockwaves of this trade war will spread beyond the shores of the US and China. Products made in China are often supplied by parts made in various other countries. Many of the suppliers are overseas affiliates of US companies.
The conflict will hinder trade with these countries and have an adverse impact on their economies through complex and intertwined supply chains crossing borders.
The same is true for products made in the US. Automobiles are a prime example. Many supplier countries will be affected here too.
We hope that the US will de-escalate the current conflict and play a leading role in forming new rules for a global era.
At the same time, I understand the concern shown by the US administration over trade-distorting policies of third countries.
They have seriously harmed Japanese and US companies.
1. One, technology transfer,
2. Two, intellectual property protection,
3. Three, subsidies to key industries, and
4. Four, low-interest loans through state-owned banks.
As a country sharing common values with the US on free, fair, and open markets, Japan is prepared to work with the US in solving these tough issues.
4. How should we respond?
With that, will forming rules alone solve our problems?
The answer is of course "No."
There remains another problem: Protectionist sentiment! This is an issue that I also raised last year. This protectionist sentiment has been fueled by two factors in particular:
1. One, the impact of globalization on domestic jobs, and,
2. Two, the widening income gap.
I fear that protectionism will not disappear until measures are enacted to help those left behind.
Increasing the number of people who can enjoy the benefits of globalization may be one solution. I would like to call this measure "inclusive trade-related policy." I believe that such a measure is necessary. Support for SMEs and entrepreneurs. Cultivation and re-education of human resources.
This is what I mean when I say "inclusive trade-related policy."
This is done through various forms of collaboration between local governments, educational institutes and companies.
I understand that the US also has safeguards, such as Trade Adjustment Assistance, or TAA. This helps workers who have lost jobs due to the impact of free trade agreements. Local educational institutes also work with companies to re-educate workers. It is my hope that "inclusive trade-related policy" will spread.
Based on the topics I have just introduced, I would now like to raise the following questions to our panelists.
One, what will become of the US-China trade war, which has no end in sight?
Two, what problem lies at its root? Huge amount of trade deficit or deeper rooted structural issues?
Three, how can we solve this trade war?
Four, can this be solved between the US and China alone?
The US and others feel that state capitalism is distorting the market mechanism. This is a deeper rooted problem that they face.
If so, domestic structural reforms toward a free, fair and open market are needed in the third countries including China. Even if socially or politically very sensitive, it must be pursued.
The domestic reforms seem to be necessary and indispensable. This is actually what we learned in Japan through the economic dialogue between the US and Japan in 1990s, and as a result, we leveled the playing field so that foreign companies can do business with predictability and stability.
Then, how can we solve this trade war?
Would imposing additional tariffs each other help solve the problem? Continuous retaliatory measures or "tarrifying" alone could lead to a solution? We all understand that the Trump administration likes imposing additional tariffs as a leverage for negotiations.
However, I doubt that a tit-for-tat retaliation will lead to a solution.
So, the next question is whether this can be solved between the US and China alone? Of course they have to try to find a solution by themselves.
However, at some stage a third country may have to intervene and play a bridging role between them. Maybe Japan can play this role in this game? I say this because Japan shares common values, common responsibilities and common interests with the US and the EU. Also we have a long history of relations with our neighbor. And we share common interests and common responsibilities in Asia. I think Japan can play an important role in solving this trade war.
In this context, the Japan, US and EU Trade Ministers' Meeting will be useful forum. I think that those three trade ministers should welcome China to one of their meetings at an appropriate time. It could be called a new Quad Trade Minister's Meeting.
And from there, new rules may be created. And the new rules should eventually become a multilateral agreement, namely the WTO.
Needless to say, at this moment we face the most difficult challenge that we have ever experienced since the establishment of the WTO. We cannot stand here. Standing still means falling back. We have no choice but to develop solutions.
In this globalized world we are destined to be in the same boat. We must row together. We cannot remain bystanders.
Following this session, a panel discussion will be held with panelists from China, Thailand, the US and Japan.
I look forward to hearing what forecasts they have on the trade war between the US and China. What is key to solving this trade war? What kind of framework should we build to engage in rulemaking?.
In addition to these international framework issues, I also look forward to discussions about supporting those who are left behind or what I mentioned as the Inclusive Trade-Related Policy.
Overcoming prevailing protectionist sentiments is a very important issue not only in US but also in the countries all over the world. How can we do that? Without solving this issue, we cannot prevent trade wars from happening over and over again.
Thank you !