The Complex Path Ahead

Although many countries in the region continue to adhere to the principle of free trade and open markets, they now feel somewhat uneasy with all-out liberalization, particularly regarding the liberalization of capital account transactions. Many things can be said about the cause of the Asian economic crisis, but it is quite clear, as APEC has pointed out, that hasty liberalization and underdeveloped financial infrastructure proved to be risky and ultimately very costly. Both the “globalizers” and “globalized” miscalculated the situation. This is a point that we need to remember when we discuss future trading regimes.

Structural Changes Widen the Agenda
We also have to keep in mind the new reality created by the evolution of information and communication technology (ICT) that somewhat blurs the borders of nation-states. This evolution has changed how we conceive of trade and how we perceive the movement of commodities and people across national boundaries. Another element we have to consider is the importance of the tertiary sector. When industrial countries undergo structural changes, the tertiary sector’s share of GDP grows far larger than that of the secondary sector. This is why we now have GATS—General Agreement on Trade in Services—alongside GATT. Surely, trade in goods is still important, but we now have trade in services, as well.

Foreign direct investment and e-commerce are replacing traditional modes of commodity trade. The size of corporations’ internal trade is reducing the validity of traditional trade statistics. In fact, the EU is no longer strongly affected by external trade and currency fluctuations. The movement of production sites across borders has replaced some portions of trade while the tertiary sector acts as a stabilizing element in times of economic fluctuations. In this sense, the imbalance of outward and inward investment in Japan has to be regarded as a very important trade-related issue and understood as an inevitable challenge.

The Qatar Ministerial Must Succeed
With the failure in Seattle, we have to emphasize that the coming negotiations in Qatar cannot fail. Failure would be a serious blow to the future of the WTO. Its integrity is at risk. Developed countries should make their best efforts to meet the demands that were made by Brazil, India, Egypt, and other developing countries in Seattle. I understand that many of these demands have by and large been attended to already. There is a dilemma between democracy and efficiency. While we have to address the concerns of all 140 member-countries, at the same time there is a time constraint and we have to be efficient. These two things must be balanced and that is really a very difficult job for the Director-General. Like the European Union, Japan wants a comprehensive approach to negotiations covering not just the built-in agenda of agriculture and services, but also issues such as anti-dumping, general tariff reduction, GATT and GATS harmonization—that is, harmonization of rules and procedures—and investment, especially foreign direct investment. Government procurement transparency and movement of persons across national boundaries are other subjects Japan would like to see covered.

There are other issues I am sure. The question is whether we can make any satisfactory progress on any of these items in Qatar. Have we got enough time to smooth the way? We must endeavor to meet the timetable, but if we cannot really fulfill that, then we had better tone down expectations to realizable levels. I am concerned about the United States and Japan. The new administration in the United States has to work hard to meet this timetable and Japan has Upper House elections in late July that might produce uncertainty in the preparations for Qatar.

The other subject that may concern the future of the WTO is the growing criticism of globalization. I won’t get into the details, but there are issues like global fairness that we have to consider very seriously.

Japanese Bilateral Arrangements Can Support Multilateral Objectives
The WTO is not perfect. There is room for other forms of negotiations. For instance, there are regional arrangements, bilateral arrangements, and unilateral action. Quite recently we have so-called “plurilateral”, or “opt-in” and “opt-out,” arrangements. These open-ended forms should not be rejected altogether. The question is whether they are WTO-consistent or not. They should be building blocks for achieving WTO objectives and not stumbling blocks.

Japan has recently changed its trade policy, although it still adheres to the priority of multilateral negotiations such as the WTO. Japan feels that additional approaches might also be useful. This change of policy has stirred some suspicion among some of our friends because Japan has in the past criticized others who deviated from the WTO framework and concluded bilateral or regional FTAs.

The proposed pact between Japan and Singapore is to be called a “New Age Economic Partnership,” rather than an FTA. Is this term just rhetoric or is there something more to it? I think there are some ambitions to introduce a new type of trading pact. The commodity portions in the proposed Japan-Singapore New Age Economic Partnership are relatively small. The focus is more on regulatory liberalization, service sectors, science and technology, and human resource development. Preliminary studies are also being made for such FTAs with Korea, Mexico, Canada, and even with New Zealand.

For Japan, FTAs are essentially domestic political matters. A lot of work has to be done at home to implement an FTA—regulatory adjustment, changes of market practices, and above all, reform of the agricultural sector. Japan knows about Article 24 of the WTO. It knows about APEC’s Bogor Declaration with a time limit of 2010 for industrialized members. Japan knows what it has committed itself to. We endorse the spirit of the WTO. That is why I have to ask our politicians what will be done in connection with these commitments, particularly in the agricultural sector. Agriculture is a delicate issue not only in Japan, but also in many other countries. It is always connected to important political constituencies. It has a special character, history, and associated lifestyle. The Japanese people still remember past starvation and want to be assured of an adequate food supply. It is, therefore, primarily a matter for political leaders, who should demonstrate their political will and exercise their leadership to sort out this problem. Some countries, fortunately, have very strong political leaders; others, unfortunately, do not.

Future of Regional Arrangements
NAFTA and the EU are the most representative regional arrangements. There is some further movement to expand NAFTA to a Free-Trade Area of the Americas. The EU always has widening and deepening challenges. The interesting thing about regionalism in these two areas is that it also involves some sort of key currency issues. There is the issue of “dollarization” in Latin America, of some countries unilaterally taking actions to adopt the U.S. dollar as their own currency. Similarly, there is a movement in Central Europe to adopt the Euro as their own currency, regardless of the Maastricht criteria. If that happens, then the concept of regionalism may change quite a lot. What should be done in this situation? In Asia we have started the Ten-Plus-Three group—ASEAN plus China, Korea, and Japan—to try to prevent future financial crises. But I feel that any Ten-Plus-Three arrangements might be quite a time-consuming process. Furthermore, it will need to somehow include Australia and New Zealand. Otherwise, it will be difficult forming the sort of regional support we need.

There is one last issue that I want to mention. As a member of the APEC Business Advisory Council, I was deeply involved in the affairs of APEC. There has been some criticism that APEC is not functioning well. This criticism is based mostly on APEC’s limited contribution to the resolution of the Asian financial crisis. This observation is partly right, but also partly wrong. It is a bit too harsh because APEC is composed of only foreign ministries and trade ministries, with finance ministries quite separate. The resolution of the Asian financial crisis was sought by the region’s finance ministers, and therefore was outside the main APEC process. As such, I do not think APEC should really be criticized for its inability to cope with the situation. In the future, the APEC finance ministers should be integrated further into the broader APEC process, to make APEC’s function as a regional cooperative organization more comprehensive.