Strategic Annual Report 2019
Building a Sustainable Socioeconomic System and Restructuring Economic Global Governance

Building a Sustainable Socioeconomic System
and Restructuring Economic Global Governance

The T20 summit meeting, May 2019, Tokyo. (Photo T20 Japan 2019)

Globalization has brought enormous

Today, due in part to the negative

wealth to the world as a whole, andaspects of globalization, we witness

the economic gap between developed

unprecedented distrust in politics andand emerging countries has narrowed

increasingly eroding social cohesion,

rapidly. On the other hand, the shift

leading to the rise of populism,of the center of economic gravity toprotectionism and unilateralism asemerging economies has become moreglobal trends. In particular, the United

apparent since the global financial crisis,

States is changing its long-establishedand dissatisfaction over intensifying

role in supporting the post-World War

competition with emerging economies,

II liberal international order, and thisincluding the relocation of production

has disrupted global governance andbases

Inmultilateralism. Furthermore, the riseaddition, the income gap has beenof China and other emerging countries

widening in many countries due to theas well as the development of the digitalshock caused by the financial crisis in

economy require reforms to existing

2008 and the disparity of wage levels

frameworks

between skilled and unskilled workers

governance such as the WTO to address

driven by technological progress.

new issues.

overseas,hasincreased.

for

economic

global52

Strategic Annual Report 2019
Building a Sustainable Socioeconomic System and Restructuring Economic Global Governance

Despiteslowing

globaleconomic

growth, globalization and technologicalinnovation

areexpectedto

as well as strengthening institutional
capacity.

makeirreversible progress, and the structural

There is mounting awareness aroundrisks posed by anti-globalism will

the world that balancing growth with

continue to exist globally to a certain

economicextent.

isandsocialdevelopment

necessary.

The“SustainableDevelopment Goals (SDGs)” adopted

53

Widening disparities are inextricably

by the United Nations emphasize anlinkedby

approach that addresses issues in an

immigration, race, and culture, to nameintegrated manner, bearing in mind

but a few factors. Growing demands

the relevance of social, economic, andfor protection by the state from thoseenvironmental issues. In recent years,

alarmed at their loss of social status andsustainable and inclusive growth has

for the right to self-determination by thosebeen an important issue for the G20,

left out of the rapid economic and social

and there has been active discussion

changes caused by globalization offer

on the virtuous cycle of growth andfertile ground for anti-global populism.

distribution,

There are at least two important

responses to climate change, andconditions to be met at the domestic

pursuit of the SDGs. At the Osaka G20

level in supporting globalization. TheSummit, leaders confirmed efforts tofirst is to mitigate the negative economic

address the problem of ocean plastic

and social impacts of globalization by

waste and promote universal healthcare

strengthening redistribution functions

coverage (UHC). In recent years,and expanding investment in humanenvironment, society and governanceresources for education. Second, in(ESG) investment and SDGs haveorder for domestic politics to function in

been attracting increasing attention

a sound manner, it is necessary to ensurein the private sector. ESG investment

sound policy planning and execution

is based on the practical reasoning

through the participation of diversethatstakeholders in policy formation, public

responsibility initiatives involving thediplomacy and other means of forming

environment

a consensus among the general public,

have positive effects on corporate andtodivisions

causedhumancorporations
andinvestment,

upholdingemployment

socialcanshareholder value over the medium toNations system, economic fora suchlong term. While there are reservations

as the G7/G20, international financial

about the accuracy and correlation ofinstitutions,data, high ESG scores tend to lead toand voluntary groups of countries),

high stock prices.

(2) a transnational network of privateorganizations,private

experts

corporations,

and

local

How to maintain multilateralism andgovernments, and (3) the framing ofpromote international cooperation issecuritization (recognition as a security

another important issue. As mentioned

issue leads to domestic political support)

above, without the resolution of issues

are important factors to enhance thesuch as widening income disparities

resilience of multilateralism.

and immigration, domestic politics
tends to lean toward populism andThe US-China trade war between

protectionism, making it difficult to

the world’s two largest economies

support multilateralism. It is essential

is intensifying. The United States

thatadministrativeis increasing its pressure on China

institutions function soundly to addressby raising tariffs and by negotiating

domestic challenges. Multilateralism

over China’s unfair trade practices

works to empower domestic institutions

and industrial subsidies for high-tech(e.g., capacity building for developing

industries under “Made in China 2025”.

countries), and thus it is important

Addressing the US-China trade war,to strengthen core capacity throughwhich overshadows the global economy,

international

Even

is an urgent task. It is a matter of great

under the prevailing unilateralism,

concern for the multilateral trade

there are areas where multilateralsystem, which has the WTO at its core,

cooperation is essential, among themthat the United States disregards WTO

such urgent global issues as climate

procedures by unilaterally imposingchange and global health. In the areas

tariffs or trade sanctions under Sectionof climate change and global health,232 of the Trade Expansion Act of

there is a degree of resilience despite

1962 (security clause) and Section 301

the influence of unilateralism. Inof the US Trade Act of 1974 (sanctionsummary,withclause for unfair trade) and refusing tomultiple layers (support from the United

reappoint a member of the Appellate

political(1)andcooperation.

multilateralism54

Strategic Annual Report 2019
Building a Sustainable Socioeconomic System and Restructuring Economic Global Governance

Body for dispute settlement procedures.

growing friction with recipient countriesAt the same time, China’s economic

over geopolitical and military concerns,

activity cannot be fully addressed by

the behavior of Chinese companies on

existing WTO rules, and WTO reform

environmental, safety, and employment

is desperately needed. Therefore, it

issues, and debt sustainability. In hisis essential that China undertake its

speech at the 2nd BRI Summit Forum inown domestic structural reforms toApril 2019, President Xi Jinping statedbreak through this phase, especiallythat BRI projects need to be operated

by reviewing state-directed industrialin line with international standards andsubsidies and high-tech managementwith respect for the laws and regulations

policies and by further liberalizing tradeof each country, and he also stressed

and investment, creating a level playing

the need to ensure debt sustainability.

field for foreign companies to expand

While

their business in China, in order toapproach is noteworthy and welcome,hastenstate

implementation should be verified.

economy.

China should enhance transparency byHowever, due to the need to maintain its

disclosing data on debt by joining thecurrent domestic system, it is unrealistic

Paris Club and also by making sure theto expect China to voluntarily implement

projects are carried out in accordancesuch reforms. It is important for Japan

with international standards, such as

to work closely with the United States,

those set by the Development Assistance

Europe, and other interested countries

Committee (DAC) of the Organization

to encourage WTO reform and rule-for

making that will effectively convince

Development (OECD). To maintain

China to implement market reforms.

positive relations with Japan, China

thecapitalism

transitiontoafrommarket

theEconomic

BRI’s

recalibrated

Cooperation

andneeds to undertake BRI initiatives based

55

From a constructive perspective, China’s

on the values and principles set forth

Belt and Road initiative (BRI) supports

in the “Free and Open Indo-Pacificthe development of infrastructure and(FOIP)” initiative. Such efforts would

the strengthening of connectivity ininclude the promotion of “high-quality

emerging economies, and accelerates theinfrastructure”. “The G20 Principles

growth of the regional economy throughfor

trade and investment. However, there isInvestment” was adopted at a meeting

High-Quality

Infrastructure

of the G20 finance ministers and central

environmental policies that contributebank governors, and efforts to expand theto sustainable and inclusive growth at

high-quality infrastructure standards

international economic fora such as

are being pursued in such contexts as

the G7/G20. Japan should also support

the partnership between Japan and theefforts to enhance corporate social

European Union (EU). In addition,

roles by promoting discussions andcooperation

multilateralpolicies on global corporate governance.

financial institutions such as the Asian

Second, with a view to strengthen

Development Bank (ADB) and the Asian

rules-based, free and open economic

Infrastructure Investment Bank (AIIB),and global governance, Japan should

and private-sector cooperation between

step up its participation in the Trans-

Japan and China in third countries,

Pacific

should also be promoted. It is essential

conclude negotiations for the Regionalthat these joint projects with China be

Comprehensive Partnership Agreement

guided by principles such as openness,(RCEP) at an early date, maintain thetransparency, economic viability, andWTO dispute settlement function andfiscal sustainability.

advance WTO reform, and promote rule-amongPartnership(CPTPP)

andmaking such as digital trade governanceand artificial intelligence principles
through the G7/G20. Furthermore,
Japan should advocate the setting ofinternational standards by expandingpartnerships

indeveloping“high-quality infrastructure” and cooperatingwith China’s BRI within the framework
The headquarters building of the Asian Infrastructure
Investment Bank (AIIB), Beijing. (Photo Imaginechina/AFLO)

Based on the above discussions, thefollowing policy recommendations arepresented. First, Japan should continueof international standards. If China
supports FOIP in this process, FOIP
and BRI can be compatible to someextent, and a mutually beneficial JapanChina relationship will move forward.■

to endorse discussions on redistribution,
humancapitalinvestment,

and56