Final Report of the Japan-US-China Trilateral Forum

(Japanese part)

April 26th, 1999

- Towards the Firm Establishment of Globalization-

Trilateral Forum

Japan side member

(DIHS)

(1) Inputs of new ideas

We conducted frank and constructive discussions about the cooperative scheme among Japan, the US and China at this forum, with the aim of strengthening free trade and investment. We may estimate that we enabled to deepen our understanding about the social background and economic conditions of the respective countries through the exchange of opinions, and to expand inputs of new ideas for improving the management of the international economy.

(2) Consolidating the foundation of cooperation among the three countries

The three countries account for 46% of the world's GDP and 24% of world trade. While the world economy has continued to advance the trend of globalization, it is, on the other hand, shook by current Asian currency crisis and economic disorder in Russia and in Central and South American countries. Under these circumstances, the need for international cooperation for the economic management is growing rapidly.

In such times, the policy proposals to ensure free trade and investment by experts from three countries that wield a significant impact on the economies of the transpacific region, will greatly contribute to the stability and development of the world economy and of the economies of the Asia-Pacific region in particular. We believe that achievement of this forum will consolidate the basis of cooperation among Japan, the US and China, and also lead to maintaining security in this region.

(3) Facilitating the formation of international consensus and agreement

In the case of the World Trade Organization (WTO) and other such multilateral negotiations, it is usual that it requires a considerable amount of time to coordinate opinions and reach agreement. We expect that the discussions and proposals in this forum will have the effect of facilitating consensus building and the formation of agreement in multilateral negotiations.

(4) The influence of the currency crisis and concerns over globalization

When we started this forum in 1996, we understood that invigoration of free trade and investment would stimulate globalization of the economy and lead to sustainable growth.

Nevertheless, the Asian currency crisis emerging in 1997 and the following economic instability in Central and South American countries gave us rising concerns about the trend of globalization. Particularly in Asian countries, people became dissatisfied with speculative short-term capital transactions and concerned about international monetary system.

What is more, since many industrial products are in a state of excessive supply, the protectionism is feared to arise under the pressure of deflation.

Viewed from a long-term perspective, there are several causes for concern that will lead to stagnation of the global economy. Looking at demographic changes in future, population explosion will continue in developing countries, and their growth potentials will be disturbed by environmental destruction and shortage of food supply. In developed countries on the other hand, declining birth rate and aging of the population will advance in the next century, and there is a risk that the economy will stagnate because of a declining saving rate, fiscal deficit and rising interest rates, etc. If these will happen actually, technological innovation, a source of growth, will come to a standstill, intergenerational conflict will rise, and international tensions will heighten.

(5) The responsibility of each country to sustain globalization

In order to sustain the world economy, it is fundamentally important to strengthen the trend of economic globalization based on market functions. However, since the global economy contains some difficulties that make the trend of globalization worrisome both in the short-term and long-term, each country should exercise its economic policy appropriately and cooperate to overcome the difficulties.

Countries with worldwide influence, like Japan, the US and China, assume responsibility for maintaining sound economic management. Then, they have to cooperate to set international rules to give effective scope to market functions, and administrate them appropriately. At the same time, it will be necessary to take cultural disparities, historical background and differences in development stages into account, along with ensuring the transparency of administration.

Each country should give full consideration to the stability of currency values in running macro economies, as well as combine policy efforts in providing conditions necessary for maintaining globalization, by promoting official development assistance, environmental protection, transfer of technologies, and establishment of information infrastructure.

(6) Expanding the free trade system

In order to further consolidate the free trade system, we must make much efforts to enforce as many countries as possible to participate in the World Trade Organization (WTO).

Since China is a big trading country with the share of 3% of world trade, and is in a position of being able to play an active role for the management of the international economy, we wish to stress that the US, Japan and China should accelerate the negotiations so that its early membership in WTO can be realized.

(7) Restructuring the economic system toward the free economic transaction

In order to promote and strengthen free economic transactions, the three countries are expected to cooperate in the commencement of a new round of negotiations covering further reduction of tariffs and liberalization of service trade and investment.

In light of the fact that international standards are quite effective in promoting globalization of the economy, we expect that related parties from the three countries will jointly make efforts in formulating rational standards with appropriate consideration to ensuring the competitive environment, the continuous technological development and other factors.

(8) Cooperation to resolve trade friction

WTO's dispute settlement mechanism is the fundamental tool for solving trade-related conflict.

Recent trade friction has been directed not only rapid increases in exports and obstacles for import but also openness of markets for foreigners, utilization of market functions, discipline of macro economies, intervention in exchange rates, corporate business practices, transparency of government and corporate activities and other related economic system. We expect that the three countries will conduct close cooperation on these matters in order to put free trade system on more sound grounds.

(9) Assisting the recovery of Asia's economies

Japan has already committed to provide US$ 73 billion for troubled Asian countries to overcome the currency crisis. In order to restore the disorder of the Asian economy without delay, the three countries need to extend financial assistance and provide markets while stimulating self-support towards structural reform and administration of appropriate policies in Asian countries. In order to attempt the stabilized international currency system, it is hoped that the major countries will strive to intensify policy cooperation, monitor speculative funding and strengthen IMF functions, as well as investigate the creation of an appropriate mechanism for the stabilization of Asian currencies.

(10) Reinforcing APEC functions

The three countries are expected to take initiative to consolidate the cooperation of APEC and to achieve the goals already set up for free trade and investment.

At the same time, we hope that the three countries will cooperate together with interested countries, in elaborating to establish free trade area in the Asia-Pacific region.

(11) Promoting informationization

Innovation of information and communication technologies certainly stimulates the advancement of economic globalization, the improvement of industrial productivity, and the creation of new industries and employment, which contributes to economic development. In order to advance informationization on a global scale, the three countries need to promote the liberalization of relevant equipment, technology and software, to protect intellectual property rights, to prepare the environment for electronic commerce and to formulate reasonable global standards.

Since in the process of advancement of information and communication technology, highly advanced corporations may easily develop to monopolistic or oligopolistic businesses, it is necessary to prepare competitive conditions to remove their harmful effects.

(12) Compatibility of environmental preservation and free trade

In order to preserve global environment, joint actions among countries are underway as seen in the establishment and the implementation of the convention to protect global warming. We expect the three countries should play an active role in such strategies.

As for the relationship between environment and trade, the three countries must strive to find ways to pursue their compatibility by setting up rational environmental regulations and resolving environmental dumping issues. For the purpose, it is hoped that environmental preservation will be obtained possibly within the market framework.

The three countries need to expand the cooperation for environmental protection measures with developing countries including technology transfer and the training of workers. They are also expected to promote studies on the "Clean Development Mechanism" (CDM), "Action Implemented Jointly" (AIJ) and so forth, in view of exploring new industrial development.

(13) Roll back of protectionism

US is one of the most open country in the economic system. However, protectionistic tendencies are observed recently, evidenced in the application of Article 301 of the Comprehensive Trade Bill, bilateral arrangements and the excessive application of anti-dumping tariffs.

Trade disputes should be settled under the provisions of WTO. The US, as the leader of the world economy, is in a position to give legitimacy and confidence to the WTO as an organ of authoritative power.

(14) Improvement of Socio-economic system

US still maintain systems that do not conform with global standards, such as submarine patents based on the principle of first invention in intellectual property rights. We expect that US will harmonize these systems with international average.

(15) Ensuring the discipline of economic management

The US economy is undergoing continuous growth of nine-year period. However, the US has structural problems such as declining propensity to save, and growing deficit in the current account. As a key currency country, we expect that the US will ensure the discipline of economic management.

(16) Quick settlement of negotiations on the entry to WTO

China has pushed forward domestic reforms including the lowering of tariffs, rationalization of state-owned enterprises, and opening of trading rights, etc. However, since there remains still dissatisfaction among associated countries, we expect that China will reform the market conditions in harmonization with international standards at the earliest possible date, in order to prepare necessary conditions for WTO membership. In particular, we expect China will promote liberalization in financial and service sectors.

(17) Reform of the socio-economic system and appropriate economic operations

We expect that China will proceed the reforms of its domestic systems so that market functions work stably and effectively. For the purpose, China is expected to promote privatization of state-owned enterprises, and to improve business management towards international standards, in parallel with stimulation of service economy by improving protection of intellectual property rights, distribution system, information infrastructure and financing mechanism. At the same time, we expect that China will appropriately manage its macro economy, and maintain its currency value.

(18) Promotion of environmental measures

Global warming, acid rain and other environmental destruction are not confined only to China, but extends to almost all neighboring countries as well. We expect that China will improve its related legislations and monitoring systems, and promote technological development for environmental preservation and energy efficiency.

(19) Economic recovery

Japan is taking a position to play a full role to avoid the deflationary spiral of the world economy and to assist the recovery of the Asian economies. For that reason, Japan ought to push further the process of the financial reconstruction which started by the injection of official funding recently. Also Japan should utilize all possible policy means, paying serious consideration to the proposals made by Economic Strategy Council last January, so that emerging moves toward economic recovery will continue to be more realistic and stable.

(20) Reform of the Socio-economic system

In order to maintain sustainable growth potentials over the long term, Japan should expedite measures to make efficient use of market forces through deregulation, to introduce the merit system to the corporate management, to harmonize taxation system with international average and to prepare an open social environment for foreigners. At the same time, it is urgently needed to investigate the measures to maintain the economic dynamism in preparation for the aged society and decreased working population.

(21) Internationalization of the yen

In the face of the financial "Big Bang", Japan has reviewd the related legislations aiming at internationalization of the yen. We expect that related parties will promote the internationalization of the yen, and yen will be circulated as a stable currency within the Asian region. We also expect the yen will act as a part of three-currency system together with US dollar, and Euro.