-Towards the Economic Globalization-

Final Report on the Japan-U.S.-China Trilateral Forum (Japan-related section)

January 27, 2000

Japanese member (DIHS) of theTrilateral Forum

I. Assessment of the Forum

(1) Inputs of new ideas

In this forum, we conducted constructive deliberations on how we should deepen and widen the cooperation between Japan, U.S. and China with the aim of promoting free trade and investment. Through exchange of opinions, and discussions we could acquire full understanding of social backgrounds and economic situations of the affiliated countries and new ideas and concepts, for pushing forward the globalized economy.

(2) Consolidating the foundation of cooperation among Japan, U.S. and China

Combined, Japan, U.S. and China represent 46% of the world's total GDPs and 24% of the world trade. Although the world economy is being increasingly globalized, the need for further international collaboration in economic management is increasing given the recent currency crisis in Asia and the economic turmoil in Russia and the Latin American countries.

Amid this situation, we are sure that propositions made by experts from three important countries for promotive free trade and investment will not only contribute substantially to the stability and growth of the world economy, but also lead to sustaining the security of each country.

II. Prospects and Challenges of the World Economy in the 21st Century

(3) Currency crisis and concerns over globalization

When we started the Forum our understanding was that the promotion of free trade and vitalization of investment would stimulate the globalization and lead to the growth of the world economy.

However, the currency crisis that emerged in 1997 in Asia and the subsequent economic difficulties in Russia and the Latin American countries gave some insecurity to the trends towards globalization, spread wariness against speculative short-term capital transactions and brought discredit upon the international currency system.

Fortunately, the worst phase of the economic crisis in Asia has ended. However, from a long-term perspective, in addition to the problems we experienced recently there are still some causes of anxiety that may throw the world economy into further stagnancy.

For example, in developing countries, the continuous explosive increase of the population, destruction of the environment and shortage of food supplies may restrict the economic growth. In the meantime, in the advanced countries, the aging of society with fewer children may intensify, and the technological reform may stall with decreased savings ratios, financial crunch and increased interest rates, thus to undermine the economic growth in the next century.

(4) Weakened driving force for WTO

At the WTO ministerial conference held between the end of November and early December 1999, the hosting United States failed in coordinating opinions of the participating countries, and lost the way to develop future WTO activities. This will much delay the schedule for the new Round and the timing of China's participation in WTO. The weakened leadership and administrative capability of the major countries including the United States, and the increased discredit among developing countries against the global economy cast a new challenge on Japan, U.S. and China in promoting free trade and investments.

(5) Fulfillment of the conditions for maintaining globalization

In order to maintain the trends towards globalization, it is essential for internationally influential countries - Japan, U.S. and China in particular - to take responsibility for sound administration of the economy. It is also necessary to reasonably institute and properly administer international economic rules so that the market functions can effectively be utilized. In doing so, they need to pay attention and consideration for cultural differences, historical backgrounds and differences in developmental phases between various countries as well as to ensure transparency of the administration.

For the administration of macro economy, the three countries must coordinate their economic policy or stabilizing currency values, and integrate their political efforts in fulfilling conditions necessary to maintain globalization, such as development assistance, environmental preservation, technology transfer, information infrastructure building, and increased transparency of policy administration.

III. Proposals to Freer Trade and Increased Investment Exchanges

(6) Enhancement and expansion of free trade

In order to reinforce free trade, we must encourage as many countries as possible to participate in the WTO.

We highly regard that both of U.S. and Japan reached the agreement with China for the China’s participation in the WTO. We hope that the negotiations with the remaining European countries for China's affiliation will reach agreement as soon as possible so that China can join the WTO early.

(7) Early Launch of the WTO's new Round of Negotiations

The new Round negotiations of the WTO must not only promote freer trade and investments, but play an important role in stipulating fair rules concerning e-commerce, protection of intellectual property rights, transaction of services, and standard and certification. We expect that the three countries will cooperate in making necessary preparations for early implementation of the new Round negotiations.

(8) Collaboration for recovery of the Asian economy

In order to place the recovery of the Asian economy in orbit, the three countries need to encourage the countries concerned to make self-help efforts for structural reforms and proper policy administration while continuing to promote transfer of capital and technologies and provide markets.

The major countries are expected to make efforts such as closer cooperation in conductive policies, monitoring of speculative money and strengthening the IMF's functions as well as to consider establishing a mechanism suitable for stabilizing Asian currencies.

(9) Reinforcing APEC's functions

The three countries must endeavor to strengthen the APEC's collaborative structure and display their leaderships in achieving the targets for liberalization which have already been set. We also expect that the three companies will cooperate with the countries concerned to study the possibility to create free trade zone in the Asia-Pacific area.

(10) Promoting Informationization

The progress of information technologies contributes to the development of economic activity by promoting acceleration of economic globalization, increase in productivity, and creation of new industry and employment. From this point of view, it is an effective way to invite foreign capitals by relaxing restrictions on investment in the field of information and to lower charges for communication through competition in order to foster competitive industries. We sincerely expect to advance informationization on a global scale through further liberalization of electronic- and information-related transactions and overseas direct investments.

In the meantime, it is also necessary to fulfill the conditions for maintaining competition by removing harmful influences of the oligopoly, protecting intellectual property rights and establishing the environment of e-commerce.

(11) Reconciliation of environmental preservation and free trade

International collaborations for solving global environmental problems such as global warming, are firmly advancing. Also, movements to link environmental problems with trade and investment issues are increasing, as seen in the activities of NPOs and NGOs demonstrated at last year's WTO ministerial conference in Seattle.

Concerning the connection between environment and trade, reconciliation of the two factors should be sought through stipulating reasonable environmental regulations and solving problems such as the so-called environmental dumping problem.

The three countries need to provide developing countries with opportunities for new industrial development by expanding collaborations in tackling environmental problems, such as technology transfer and personnel training, as well as Clean Development Mechanisms (CDM) and Activities Implemented Jointly (AIJ).

IV. Proposals to the United States

(12) Strengthening of confidence in the WTO

The United States is positioned to demonstrate its leadership in running the WTO as the leader of the world economy. Instead of just stressing its interests or domestic circumstances, it should lead the countries to make efforts to stipulate free and reasonable international rules, solve disputes over trade through the WTO, and take the lead in giving confidence to the WTO.

(13) Rolling back protectionism

The United States has the most open economic system in the world. However, on the other hand, show sometimes protectionistic activities such as adoption of Section 301 of the Trade Act, bilateral negotiations, and excessive adoption of anti-dumping tariffs have been found. For such a protectionistic pressure inside itself, the country should endeavor to find solutions according to the WTO's rules, and reform its industrial sector to restore the declined competitive edge.

In addition, the country is expected to correct the systems not complying with international customs, called submarine patents including the first invention system of concerning intellectual property rights.

(14) Securing the discipline in economic administration

The U.S. economy has some structural problems such as declining tendency of savings and increased deficit in current accounts, whereas it has continued to achieve a long-term growth for 9 years. We expect the U.S. to secure the good performance in economic administration as the key-currency nation.

V. Proposals to China

(15) Acceleration of negotiation for its affiliation with the WTO

Following the agreement between Japan and China in July 1999, the United States and China reached agreement on China's affiliation with the WTO last November. We understand this is an achievement of China's efforts for domestic reforms and America's and Japan's desire to receive China as a member of the international society. We expect that China will successfully continue the negotiations with EU and other countries and participate in the new Round negotiations from the beginning as an affiliated country of the WTO.

(16) Reform of the economic sysytem and appropriate economic administration

China needs to further reform its economic and social systems so that market forces will function stably and effectively. As part of the reform, China is expected to accelerate the reform and privatization of state-operated corporations to have their corporate management comply with international practices, thoroughly implement protection of intellectual property rights, and enhance service industries such as distribution, information and finance.

We also expect that China will endeavor to stabilize the currency value even after being affiliated with the WTO.

(17) Enhancement of environmental measures

Environmental destruction originating in China, such as global warming and acid rain, will harm not only the environment of its home but that of surrounding countries as well. We expect that China will improve the legal system, enhance the monitoring system, and develop technologies that will help preserve the environment and save energies.

VI. Proposals to Japan

(18) Steady economic recovery

Japan is positioned to play an important role in stabilize recovery of the Asian economy. Accordingly, it should integrate all policy efforts in making the arising economic recovery steady, while stabilizing the revamp of the financial system.

(19) Continuous Reform of the economic system and corporate management

In order to maintain its sustainable growth in the long term, Japan needs to accelerate thorough implementation of the competition principle through deregulation, introduction of meritocracy, compliance of the tax system with international standards, and the establishment of open social environment for foreigners.

Enterprises must contribute to levelling up economic growth potentials by utilizing such an opportunity, reforming their management skills, and venturing on new frontiers. In addition, they need to develop new type of economic administration to prepare for the aging of the society and the decrease in the working population which can be a model case for other countries which will meet with similar difficulties.

(20) Internationalization of the yen

Reform of systems for internationalizing the yen is beginning to be implemented under the so-called financial big-ban. Japan is expected to promote the internationalization of the yen, make use of it as a stable currency in the Asian region, and aim at establishing a tri-currency structure with the dollar and the Euro.

In this sense, the postponement of the lifting the ban on deposit pay-off is regrettable. In order not to delay the financial reform due to the postponement, Japan must proceed with the reform of the financial system in accordance with the intended target.