Call to Rebuild the
WTO Multilateral Free Trade and Investment
System(Provisional translation)

May 19, 2015
Keidanren

Contents
I. A Trade Strategy for Japan .................................................................................... 2
II. The Multilateral Free Trade and Investment System: Issues and Direction for
Reform......................................................................................................................... 3
1. WTO Achievements ............................................................................................ 3(1) Effectiveness of Implementations and Monitoring and Dispute Settlement
Functions ............................................................................................................. 4(2) Issues with the Doha Development Agenda (Doha Round): Declining
Interest in the WTO and the Acceleration of Mega-FTAs negotiations ........... 5(a) WTO Systemic Issues ................................................................................... 6(b) Negotiations Unsuited to Global Value Chains ......................................... 6
2. WTO Reform ...................................................................................................... 7(1) The Significance of the WTO ........................................................................ 7(2) Approaches to Reform .................................................................................. 8(a) Post-Doha ...................................................................................................... 9(b)

Rethinking

Negotiation

Methods:

Strengthening

Rule-Making

Functions by Utilizing the Critical Mass Method .......................................... 9(c) Utilizing the Results of the TPP and Other Trade Negotiations into the
WTO Agreements ............................................................................................. 10(d) Formulating a Work Plan ..........................................................................11(e) Convening Regular Discussions .................................................................11
III. Efforts to Rebuild a Multilateral Free Trade System ..................................... 11
1. Establishing a Comprehensive and Unified Trade Negotiation Structure in theJapanese Government .......................................................................................... 11
2. Keidanren Initiatives ........................................................................................ 121

I. A Trade Strategy for Japan
In a policy proposal entitled “Toward the Creation of a More Affluent and Vibrant
Japan—Innovation & Globalization” released in January 2015, Keidanren set out a roadmap for the trade strategy that Japan should strive to achieve by 2030.
WTO Doha Development Agenda (DDA) that started in 2001 has stalled, and the focusof trade strategy for major countries including Japan has shifted to negotiations formega-FTAs, such as the Trans-Pacific Partnership (TPP), Regional Comprehensive
Economic Partnership (RCEP), EU-Japan Economic Partnership Agreement (EU-Japan
EPA), and Transatlantic Trade and Investment Partnership (TTIP). Considering thesecircumstances, in the short term Keidanren’s vision concentrates on realizing suchmega-FTAs as well as field-specific plurilateral agreements, including Information
Technology Agreement (ITA) and Trade in Services Agreement (TiSA), and achieving
Free Trade Area of the Asia-Pacific (FTAAP) by 2020. And also we advocate
converging various agreements into the WTO agreements through a new round 1, andestablishing a new high-level, multilateral free trade and investment system by 2030.
Recognizing that the WTO and its forerunner the General Agreement on Tariffs andTrade (GATT) have been the institutional foundation supporting the economic
development of Japan which heavily depends upon trade and investment. Keidanren has
consistently asserted that the WTO should be the axis of Japan’s trade strategy. Thisconviction remains unaltered, and we are extremely concerned about the declining
presence of the WTO as the cornerstone of the international economic order, with thestalemate of the DDA negotiations and the rise of mega-FTAs'.
This year commemorates the 20th anniversary of the establishment of the WTO and 60
years since Japan joined the GATT. At this important milestone, Keidanren proposesmeasures toward WTO reform with a view to rebuilding a multilateral free trade andinvestment system that will enable the WTO to once again demonstrate its value as a
crucial element in the global free trade and investment infrastructure under soundgovernance.

1

We envisage that such talks would provide a forum for various negotiations and would notnecessarily entail multilateral negotiations.

2Trade Strategy Process Leading to WTO Reconstruction by 2030
2013

2014

2015

2030

2020

Japan joined negotiations in July 2013

TPP

Under negotiation
Negotiations began May 2013RCEP

（ASEAN＋6）

Japan-EU
EPA

Achieve FTAAP
by 2020

Under negotiation

Negotiations began April 2013

Launch of new
WTO round

Under negotiation

Negotiations began June 2013

TTIP
Plurilateralagreements(ITAs,
environmental
goods, TiSAs,
etc.）

Transform
into WTO
agreementby 2030

Under negotiation

Under negotiation

Notes:
・TPP: 12 participating countries: Japan, US, Australia, Canada, Singapore, New Zealand, Chile, Brunei, Peru, Vietnam, Malaysia, and Mexico.
・RCEP: 16 participating countries: Japan, China, South Korea, India, Australia, New Zealand, and the 10 ASEAN member states.
・TTIP: FTA between US and EU.
・FTAAP: Comprehensive FTA for the entire Asia-Pacific region.
・Plurilateral agreements: Negotiations between several countries, with participation only by countries wishing to be involved. ITA expansion negotiations: negotiations to expand categories
of IT products on which tariffs are eliminated. Environmental goods negotiations: negotiations on eliminating tariffs on goods that contribute to environmental protection or climate change
measures. TiSAs: negotiations on creation of rules for further liberalization of trade in services.

Source:Keidanren policy proposal: “Toward the Creation of a More Affluent and Vibrant Japan—
Innovation & Globalization,” p. 54.

II. The Multilateral Free Trade and Investment System: Issues and Direction for
ReformKeidanren advocates the multilateral trading system covering the entire world isessential for global economic growth and the WTO lies at the heart of such regime, eventhough governments and business communities are turning their attention to FTAs andfield-specific plurilateral agreements. Below summarizes the WTO’s contribution to
expand international trade and investment, issues faced, and points requiring reform.
1. WTO Achievements
The primary purpose of the WTO is to curb protectionism and promote open trade forthe benefit of all. In order to apply trade liberalization and rules uniformly to all WTO
members under Most-Favored-Nation-Treatment (MFN) and National Treatment (NT),the WTO has three main functions: (1) Trade negotiations (liberalization and rulemaking), (2) Implementations and Monitoring 2 (rule facilitating), and (3) Dispute

2

The WTO encourages member countries to comply with trade agreements through (i) the Trade
Policy Review Mechanism (TPRM), (ii) reports to the General Council and committees (SPS
Committee, TBT Committee, etc.), and (iii) WTO reports on trade measures by G20 members.

3

Settlement 3 (rule enforcement), together with excellent institutions supporting thesefunctions.
(1) Effectiveness of Implementations and Monitoring and Dispute Settlement
Functions
Keidanren recognizes that the WTO’s monitoring of the implementations of theagreements and dispute settlement system have contributed to function to curb
protectionism in the world to some extent.
For example, many countries tightened inspections of imports from Japan following theGreat East Japan Earthquake, citing fears of radioactive leakage from the Fukushima
Daiichi nuclear power station. However, because the monitoring of the implementationsof the agreements function to encourage these countries to comply with the WTO
Agreement on the Application of Sanitary and Phytosanitary Measures (SPS
Agreement) and the Agreement on Technical Barriers to Trade (TBT Agreement), these
agreements served as a bulwark against countries taking measures that were not basedon scientific evidence. 4
The SPS and TBT Agreements require signatories to notify the SPS and TBTCommittees prior to introducing new measures or amending existing systems relating tofood safety, animal and plant health, or certification standards for industrial products,
and any country doubting the compatibility of such measures with these agreements andbelieving that the measures would have an adverse impact on the export of goods it
produces may raise a specific trade concern (STC) seeking rectification before therelevant measures are put in place. The rise in the number of STCs submitted to the SPS
and TBT Committees can be seen as the evidence that the system is functioning
effectively.
Recent examples of dispute settlement include the decision that China’s rare earth export
controls and Argentina’s import restrictions on a variety of products were inconsistent
3

Quasi-judicial system for resolving trade disputes between members in accordance with WTO
agreements.
4 Referring to recent natural disasters in the Asia-Pacific region including the Great East Japan
Earthquake, the Statement of the Chair issued by the 2011 Meeting of APEC Ministers Responsible
for Trade (May 2011) declared that “We agree to refrain from taking WTO-inconsistent measures.”4

with WTO agreements. 5 In an effort to reach quick and fair settlements, procedures
have been greatly enhanced since the GATT era through the establishment of newprocesses including automatic procedures and two-stage hearings, 6 the adoption of a“negative consensus” approach, 7 prohibition of unilateral measures, and the right toimpose cross-sectoral sanctions. 8 Compared to a total of 314 disputes settled under
GATT between 1948 and 1994 (an average of 6.7 per year), 495 disputes were settled
under WTO between 1995 and February 2015 (an average of 24 per year), showing thatthe system is functioning effectively.
(2) Issues with the Doha Development Agenda (Doha Round): Declining Interest in
the WTO and the Acceleration of Mega-FTAs negotiations
The WTO’s functions of monitoring implementations of the agreements and disputesettlement are operating effectively, but it must be acknowledged that its tradeliberalization and rule-making function is virtually not functioning fully. The Doha
Development Agenda (Doha Round) was billed as the “development round” in an
attempt to promote liberalization that would continue supporting economic growth indeveloping countries, yet sluggish negotiations have made little progress. Conflict hasarisen between developing and developed countries over whether rules giving
consideration to the needs of developing countries should be enhanced. And the Trade
Facilitation Agreement adopted in November 2014 is the only agreement achieved by
all WTO member during this round. Even the outlook for future negotiations is uncertain,
let alone any prospect of concluding the round. Under these circumstances, Japan andother major countries are setting their sights on negotiations for mega-FTAs and fieldspecific plurilateral agreements rather than WTO.

5

In 2012 the US, joined by others including Japan and the EU, requested consultations on China’srare earth export controls and these measures were decided to be in contravention of WTO rules in
2014. In 2012 consultations were also requested on Argentina’s import measures, and the measures
were decided to be in contravention of WTO rules in February 2015.
6 The process from panel establishment (equivalent to a stage one hearing) to report issuance must
be completed within nine months, and the process from Dispute Settlement Body (DSB) report
adoption to DSB authorization (equivalent to a stage two hearing) must be completed within 90
days.
7 The DSB must approve decisions to establish panels, reports, and retaliatory measures unlessthere is a consensus against it.
8 A system enabling sanctions or retaliatory measures to be imposed on sectors other than the
sector under dispute.

5(a) WTO Systemic Issues
Systemic issues inherent to the WTO are the root cause underlying the stalemate of the
Doha Round. The first of these is the “single undertaking”, which is predicated onreaching an agreement among 161 countries and regions in all fields of negotiation andhaving member countries, with certain exceptions, uniformly accept the rights andobligations of all WTO agreements. This approach has now reached its limits. The
second issue is the consensus approach, which makes it difficult to reach decisions innegotiations. Agreement becomes almost impossible to achieve, since in reality theconsensus approach substantially amounts to a right of veto for each of the 161 WTO
members, enabling a single country to block the adoption of any measure it opposes.
The third issue is the absence of any definition of developing countries and special anddifferential treatment provisions 9 that favor developing countries with technicalassistance and exemption from or easing of agreement obligations. Since selfdeclaration is the basis for determining whether or not a nation is a developing country, 10
there have been cases where nations that can scarcely be regarded as developing
countries have enjoyed preferential treatment even though this is clearly unreasonable.
Finally, the multilateral negotiation approach, whereby 161 countries and regions
negotiate en masse, impedes the progress of discussion.
(b) Negotiations Unsuited to Global Value Chains
The slow pace of negotiations mentioned above, combined with the narrow scope oftalks, has led to reduced interest in the WTO among member countries, especially intheir business communities.
The Doha Round negotiations have focused on eliminating tariffs levied in the courseof trade in goods, 11 but as foreign direct investment and demand for global ICT services

9

Special and Differential Treatment: (1) easing of trade liberalization obligations under WTO
agreements in consideration of socioeconomic circumstances in developing countries, and (2)preferential tariff treatment when developed countries import goods produced by developing
countries (exceptions to most-favored-nation rules).
10 The term “developing country” is not defined in WTO agreements. Since determination ofdeveloping countries is based on self-declaration, nations such as the Republic of Korea have beentreated as developing countries.
11 Investment, competition, and transparency in procurement were deleted from the agenda at the2003 WTO Ministerial Conference in Cancún.

6

(e-commerce and telecommunications) have increased with the expansion of global
value chains, 12 the priority for rules has shifted from “on the border” to “behind theborder” measures.
In the ICT sector, for example, some countries—especially emerging economies—haveadopted forced localization measures (FLM), such as requirements to store data locallyand mandatory use of local intellectual property rights, acting under the guise of security
measures but with the real objective of strengthening their technical, R&D, andproduction capabilities. Legal challenges to such conduct are difficult under existing
WTO agreements, 13 and this situation hampers global information flows and byextension is bound to have adverse impacts on all industries. Many countries are seeking
to achieve smooth cross-border flows of data and content through FTAs 14 and TiSA,
but we believe that in principle WTO agreements provide the best avenue to contributeto the construction of seamless global value chains. To respond to business needs andthe requirement for speed, WTO negotiations should be broader and deeper in scope.
The WTO and other relevant organizations also need to take appropriate steps to achieve
compatibility of national-level cyber-security measures with international rules.
2. WTO Reform(1) The Significance of the WTO
It is difficult to imagine any FTA or similar agreement being reached in the near futurethat covers as many members as the WTO or functions as effectively in applying
identical rules to its members. While the WTO faces some issues, its significanceremains undiminished.
As corporate global value chains continue to expand, there are concerns that companies’
12

Cross-border chains of activity encompassing not only the production phase, but also upstream
activities including product planning, R&D, and design, and downstream activities such as
logistics management, sales, and customer service.
13 National treatment rules under GATT Article III, TRIM Article 2, and GATS Articles VI, XVI,
and XVII are thought to provide insufficient grounds.
14 Rules for creating a favorable e-commerce environment, including equal treatment for digitalproducts, are under discussion in the e-commerce segment of the TPP negotiations. (Source:
Document on the TPP negotiations prepared in March 2015 by the Government Headquarters for
the TPP, Cabinet Secretariat: http://www.cas.go.jp/jp/tpp/pdf/siryou/150312ver_siryou.pdf [inJapanese])7

worldwide business activities may be impeded by mega-FTAs and field-specificplurilateral agreements confined to the Asia-Pacific region and Europe, since suchagreements restrict the countries and regions to which the same trade and investment
rules are applied. At the same time, the different rules applying under various megaFTAs force companies to alter their approach from one country to the next, detractingfrom the positive effects of FTAs and preventing achievement of the anticipatedproductivity improvements. Harmonization of rules is required in order to avoid suchadverse effects, and the WTO is the only forum for achieving such coordination ofdifferent policies.
And also, utilization of WTO dispute settlement procedures is the only solution when atrade dispute arises between countries that are not parties to an FTA, or when
protectionist measures have been taken unilaterally. For example, trade disputes
frequently arise among the US, the EU, and China, 15 but since there is no prospect ofbilateral FTAs or a mega-FTA including these parties being concluded in the near future,they have no option but to rely on WTO dispute settlement procedures.
Moreover, the WTO offers the only framework for effectively dealing with issues suchas trade remedies and subsidies for developing countries that have been left out of the
FTA competition or have fallen into the cracks between mega-FTAs. Thus, there arefears that the WTO’s loss of momentum and reduced functionality could leave suchcountries shut out of the globalization process.
(2) Approaches to Reform
Bearing in mind the importance of the WTO as stated above, there is a need to address
the challenges it faces, namely, the sluggish pace and narrow scope of its negotiations,and to implement reforms to revive and strengthen its rule-making functions, inparticular, so that it can rapidly produce effective results in proactively updating existing
rules and formulating new rules to contribute to business development.

15

Of the 32 complaints lodged against China since it joined the WTO, 22 were submitted by the
US and the EU. All 12 complaints submitted by China were against the US and the EU.

8(a) Post-Doha
Given that there is no prospect of concluding the Doha Round, merely prolonging
negotiations will only make governments, business communities, and the generalpublic less inclined to trust the WTO and take an interest in its activities. Keidanren
proposes the WTO member should resolve remaining issues swiftly including"NAMA" 16 "Service" and "Antidumping" in post-Bali work program due to be drawn
up by the end of July this year 17 and also the Doha Round should be brought to aclose. There will then be a need to start examining ways of using the WTO framework
to converge various agreements, including mega-FTAs and field-specific plurilateralagreements, into multilateral agreements.
(b) Rethinking Negotiation Methods: Strengthening Rule-Making Functions by
Utilizing the Critical Mass Method
For post-Doha negotiations, it will be essential to rethink the consensus approach andthe single undertaking, which are the bottlenecks in negotiations. In order to facilitate
negotiations, there is a need to utilize plurilateral 18 frameworks and establish rules infields not covered by existing WTO agreements or Doha Round talks (such as ICT,
investment, competition policies, and environment).
Since plurilateral talks take place among willing countries and address specific fields,
the countries are not bound by single undertaking constraints and can avoid current
barriers to decision-making, and there is no requirement to obtain the agreement of all
WTO members. Furthermore, use of WTO implementations and monitoring and disputesettlement functions can be expected to enhance the effectiveness of such agreements.
There are several styles of plurilateral negotiation, 19 but considering that trade talks
16

Non-Agricultural Market AccessAs determined by the WTO General Council in November 2014.
18 “Plurilateral” is used here in the sense of negotiations among several countries, including
concepts such as regional trade agreements and sector-specific plurilateral agreements.
19 The three main styles of plurilateral negotiation are:(1) Critical mass method: when the volume of goods or services subject to negotiations byparticipating countries reaches a certain proportion of world trade (90% is the target in the case oftariffs), tariffs and/or rules applying to the relevant field are eliminated or harmonized and theresults of the agreement are shared among all WTO member countries, including countries not179demand speed, depth, and broad scope of application, Keidanren believes that "thecritical mass method 20" should be adopted, because it offers the greatest potential inthese areas. Since this method applies liberalization commitments agreed by a group ofparticipating countries to non-participating countries as well, such non-participating
countries are permitted a “free ride” 21 but are also bound by the rules of the agreement.
Considering the growing influence of emerging countries on international trade andinvestment, however, unlimited tolerance of free riders carries the risk of fueling a senseof unfairness among participating countries and obstructing the supply of products andservices to emerging markets. Thus, there is a need to carefully examine the best
methods of encouraging liberalization.
There is also a need to clearly define the term “developing country” and conditions for
special and differential treatment, in other words, to set up systems for establishing time
limits and taking exceptional measures to the extent that participating countries cantolerate the damage caused by such measures.
(c) Utilizing the Results of the TPP and Other Trade Negotiations into the WTO
Agreements
Once negotiation forums and methods are established, reaching agreement would be atime-consuming process if discussions were to start from zero-base. For this reason, theoutcomes of trade negotiations for the TPP and other treaties that have a wider range ofruling compared to the existing WTO Agreements should be utilized to set up new
systems. The aim should be to build a more comprehensive multilateral free trade andinvestment system by harmonizing these various agreements and enabling their
participating in the negotiations (example: ITA). Legal basis: Article XXVIII, GATT 1994, andArticle XXI, GATS.
(2) Plurilateral agreement: several countries negotiate within a limited field, and any agreements
reached are restricted to the negotiating countries (example: Government Procurement Agreement).
Legal basis: Article X, Paragraph 9, The agreement establishing the WTO.
(3) Regional trade agreement: bilateral or regional agreement that sets certain conditions
effectively eliminating barriers to all trade within a region, committing not to raise barriers outside
the region, etc. Effectively the same as (2) above (examples: FTAs, EU). Legal basis: Article
XXIV, GATT 1994, Article V, GATS.
20 The critical mass approach used in multilateral forums needs to be examined flexibly.
21 For example, a country not participating in the ITA can export a given IT product to aparticipating country free from tariffs, yet is not obliged to eliminate its own tariffs on the relevant
product.

10

application to all WTO member countries in critical mass method.
In tandem with such efforts, it will be essential to provide further support to developing
countries through measures such as capacity-building and aid for trade, in order to makehigh-level agreements more acceptable to such countries.
(d) Formulating a Work Plan
To facilitate future negotiations, a work plan should be drawn up that places the issues
in the public eye, promotes transparency, sets timeframes, and incorporates operating
mechanisms for evaluating progress and making improvements in multiyear cycles.
(e) Convening Regular Discussions
Worldwide political support for the WTO is weak: whereas the IMF and World Bank
convene annual meetings of finance ministers and central bank governors, the WTO
only holds biennial Ministerial Conferences. Moreover, it convenes no meetings of highlevel officials. Regular annual WTO ministerial and high-level officials’ conferences
should be held to display greater political commitment, rather than leaving negotiations
up to working level government officials.
III. Efforts to Rebuild a Multilateral Free Trade System
1. Establishing a Comprehensive and Unified Trade Negotiation Structure in theJapanese Government
To enable Japan to lead world trade negotiations, it will be essential for the Japanese
government to establish a unified structure and determine and implement strategic trade
policy, so that Japan can take a consistent and strategically coordinated approach to all
trade negotiations, including WTO, mega-FTAs, and plurilateral talks. Moreover inorder to strengthen negotiating and dispute resolution capabilities, there is a need tobroaden the range of negotiators and enhance their specialized skills, and to secure abudget for such initiatives. The Government Headquarters for the TPP, launched for the
purpose of overseeing TPP negotiations, is functioning very effectively. It should be11

worth serious consideration of expanding the TPP headquarters as well as establishinga powerful new organization with unified government trade negotiating authority. In
addition, private-sector legal and academic expertise should be utilized.
2. Keidanren Initiatives
As well as presenting policy proposals to government that appropriately reflect the fastchanging corporate business environment and raise pertinent issues, Keidanren will
redouble its efforts to gather information from the Japanese government and exchange
opinions with it. To ensure that the wishes of the business community are reflected whenrules are made and implemented, Keidanren will also join hands with business
communities in other countries to consider establishing a consultative business bodythat could meet back-to-back with the WTO (similar to the APEC Business Advisory
Council that shadows APEC and the Business and Industry Advisory Committee to theOECD).
##

12#