During the G20 Osaka summit, world leaders successfully produced a number of substantial outcomes on trade issues due to strong initiatives by the Japanese government. As the foundation of global trade order, the WTO’s multilateral trading system has helped curb protectionism and has worked to contribute to global economic development and the reduction of poverty. However, due to the escalating trade tensions between the US and China, there are concerns about how the conflict may negatively impact the global economy.
The reasons behind the US-China trade friction stem from the increase in market-distorting measures caused by State-Owned Enterprises and industrial subsidies, as well as trade restrictive practices, such as data localization requirements and forced technology transfer. Since the current WTO system is ineffective in resolving these issues, there is a strong need to call for reform to the WTO’s mechanisms.
From these perspectives, I focus on how Japan has worked to resolve these issues during its time as the host country of the 2019 G20 summit. While the Japanese government has put great emphasis on coping with third world countries’ distorting measurements through collaboration with like-minded countries, such as the US and the EU, it has also tried to pursue a rules-based, free and open international economic order by means of mega-FTAs.
Firstly, since 2017, Japan has held a trilateral ministerial meeting between the US and the EU. This meeting was initially created as a result of strong initiatives proposed by the Japanese Minister of Trade and Industries, Mr. Hiroshige Seko. The purpose of this meeting is to discuss non-market-oriented policies and practices of third world countries that lead to severe overcapacity, which creates unfair competitive working conditions for their employees and businesses, hindering the development and utilisation of innovative technologies, and undermining the proper functioning of international trade.
The meeting made progress in certain areas of discussion such as, industrial subsidies and the call to reform the WTO. In terms of the industrial subsidies issue, the ministers strived to increase transparency and aimed at identifying harmful subsidies that strengthen industrial subsidy rules to address market distortions. Furthermore, in terms of reform of the WTO, in April 2019, the three partners submitted a revised transparency and notification proposal to the Council for Trade in Goods, while agreeing to intensify engagement with other trading partners to advance this proposal. The agendas discussed at the trilateral ministerial meeting contributed to the agenda setting of the G20 summit in Japan that same year.
Along with the trilateral ministerial meeting, the Japanese government revised the foreign exchange law that imposes tougher controls on foreign investment in companies operating in strategically sensitive industries. Both the US and the EU have tightened regulations intended to prevent the transfer of sensitive advanced technologies to competitor countries by way of foreign investments.
This move prompted the Japanese government to move quickly to avoid Japan being seen as the only loophole in a comprehensive transfer-regulation regime. As a result, the Japanese government decided that inward direct investment regulations would require foreign investors to submit prior notification in cases where they plan on acquiring 10% or more shares of a company as listed on the stock exchange, when said company is a member of a particular industry.
Last but not least, amid concerns about the expansion of protectionist and trade-restricting measures, Japan has placed great importance on a rules-based, free and open international economic order by pursuing the mega-FTAs, namely the TPP11, the TAG, the RCEP and the Japan-EU EPA, resulting in high levels of liberalisation and progressive rules. In particular, Japan took a strong initiative to advance the TPP.
Though the TPP participating countries were faced with the challenge of the US withdrawal from the original agreement soon after President Trump’s inauguration, 11 countries were able to reach agreement without the US in 2018. Under its new name, the TPP 11 officially opened its doors to new members with the aim of extending the rules of TPP11 to include as many countries and regions as possible. Japan has been particularly keen on positioning itself as a linchpin of free trade since it geared up to host the G-20 summit in Osaka.
While the global trade environment has been facing difficulties with the escalating trade friction between the US and China, Japan has strived to cope with the problems during its term in the G20 presidency. While the Japanese government has tried to cope with the third countries’ distorting measurements for enhancement of the rules on industrial subsidies by collaboration with the like-minded countries such as the US and the EU, the Japanese government has also tried to pursue a rules-based, free and open international economic order by means of mega-FTAs.
Amid the global economy dealing with the consequences of US-China trade friction, the Japanese government has been able to show certain levels of leadership during its time in the G20 presidency. However, there is still a strong necessity to call for a rules-based, free and open international economic order under a multilateral framework.
Hideyuki Miura is Associate Professor of International Relations at the Department of Policy Studies, Kyorin University. This commentary is informed by discussions at the Griffith Asia Institute 9th Annual Australia-Japan Dialogue, themed The G20: Outcomes, Issues and Prospects, held in Brisbane 29 November 2019.