JETRO 2007 White Paper on International Trade and Foreign Direct Investment (Summary)

JETRO releases a summary of its 2007 White Paper on International Trade and Foreign Direct Investment (8th August 2007).

2006 Fourth Consecutive Year for Double-Digit Growth in World Trade
The global economy grew at an annual pace of about 5% for the third straight year in 2006. Global merchandise exports were up 15.4%, to US$11.87 trillion, registering double-digit growth for the fourth straight year, according to JETRO estimates. This strong growth was led by continued price hikes for primary products such as oil and metals and a buoyant global economy driven by the US and EU and also China and other East Asian countries; strong growth among resource and raw material exporters in the Middle East and also Australia, Brazil and Russia was another contributing factor.
Global FDI (inflow) topped US$1 trillion for the second straight year in 2006, expanding 25.8% (year-on-year) to reach US$1.42 trillion. Low interest rates and higher profits for firms helped fuel this strong growth, which was also marked by increased M&A activity and investment in developing countries.

Japan's 2006 Outward Foreign Direct Investment Largest Ever
Japan's exports grew 8.2% year-on-year in 2006 to reach US$647.3 billion, while imports rose 11.7% to US$579.3 billion. Japan's net outward FDI grew 10.3% year-on-year (balance of payments basis) to US$50.2 billion in 2006, topping the previous record set in 1990. This surge was attributed to: 1) firms expanding operations in emerging countries, 2) increased investment by firms to secure energy resource stakes and 3) an upsurge in large M&A deals, as firms sought to broaden market share. Japanese firms continue to expand their business overseas, while increasing the profitability of such operations: major firms, JETRO research revealed, get one-third of their profits overseas, of which Asia accounts for a third.
In 2006, Japan's inward FDI (balance of payments basis) resulted in a net capital outflow of $6.8 billion, the first negative result since 1996. Both inflow and outflow were, however, at historic peaks.

FTA Trends in Asia: Japan's EPA Strategy Aimed at Building Asia-wide Economic Partnerships
Asia-Pacific region free trade agreements (FTAs) and economic partnership agreements (EPAs) are being increasingly utilized as firms look to boost trade within partner countries. Japan has three EPAs already in effect, with Singapore, Mexico, and Malaysia, and has signed agreements with the Philippines, Chile, Thailand and Brunei. In addition, major issues have been reached on an agreement with Indonesia and negotiations are underway on an EPA with ASEAN as a whole. Concluding EPAs with ASEAN and also India, Vietnam and Australia, for which negotiations began in 2007, will further Japan's goal of building strong economic partnerships in East Asia.

A JETRO analysis of the region's trade agreements, using Global Trade Analysis Project (or GTAP) models—which are frequently used to analyze the economic effects of FTAs—revealed that agreements extending beyond tariff reductions, to include non-tariff barrier measures that lower transportation and service-related costs, are preferred.

Asia-Pacific region FTAs apply five criteria types for rules of origin: (1) value added, (2) change in tariff classification, (3) a choice of criteria, (4) dual criteria, and (5) manufacturing process. JETRO research revealed that firms would benefit most from a choice of criteria type that provides for flexibility.

Long-Term Growth Strategies Target Growing Middle Class in Developing Countries
In recent years, emerging economies, in particular China and India, have had a growing impact on the global economy. A growing middle-class in these countries and the increasing popularity of low-cost products, especially for digital consumer electronics in the US and elsewhere, has fueled the demand for mid to low-end products. Japanese firms are expected to create new business models that keep pace with this trend for their long-term growth strategies

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For more information, please contact:
International Economic Research Division
Overseas Research Department
Phone: +81-3-3582-5177

JETRO 2007 White Paper presentation notes