COVER STORY • 2

Roundtable with Prof. Tsuyoshi Kawase, Prof. Mie Oba, Dr. Satoshi Inomata & Masakazu Toyoda(Aug. 7, 2024)Roundtable on METI’s White Paper 2024 –Challenges for Japan’s Trade Policy: Rebuildinga Rules-Based International Order & Resilient
Supply Chains with the Global SouthBy Japan SPOTLIGHT
Participants: Prof. Tsuyoshi Kawase of the Faculty of Law at Sophia University
Prof. Mie Oba of the Faculty of Law at Kanagawa University
Dr. Satoshi Inomata, Chief Senior Researcher of the Institute of Developing Economies,
JETRO
Moderator: Masakazu Toyoda, Chairman & CEO, JEF
ParticipantsProf. Tsuyoshi Kawase

Prof. Mie Oba

Outline of METI’s White Paper 2024
Toyoda: The Ministry of Economy, Trade and Industry (METI)
released the 2024 version of its annual “White Paper on International
Economy and Trade” in July. It contains various interesting analyses
and proposes three pillars as the “ideal trade policy” for Japan.
The first is to “contribute to the maintenance of a rules-based
international economic order”. The dispute settlement function of the
WTO is based on a second trial system, but the panel isdysfunctional because no member has been appointed to theAppellate Body, the higher-level tribunal, and even if the first panel’sdecision is finalized, there will be no second-instance panel decision,
resulting in “appeals into the void” without any final decision. In
addition, while there are more and more cases in which economic
dependence is used as a weapon, trade restrictions based on
security are also increasingly used, and it seems that we are in astate of lawlessness, even if only partially. Japan has always insistedon the importance of the “rule of law”, and it is a plausible argumentthat Japan, as a country, should contribute to it.
18 Japan SPOTLIGHT • September / October 2024

Dr. Satoshi Inomata

Masakazu Toyoda

The second is “building resilient supply chains”. Japan has been
analyzed as a prominent country in terms of import dependence on
specific countries. As was made clear during the Covid-19 pandemic,
dependence on specific countries naturally poses many risks interms of stable supply. If the US-China relationship becomes evenmore strained in the future, the risks will become even greater, and I
think it is essential to build well-balanced supply chains.
The third is “building win-win relationships with other countries,
including those in the Global South”. If the world is divided into threegroups – the G7 group of advanced nations, the China-Russia
centered group, and the Global South, which includes ASEAN and
India as well as Latin America and Africa – how should Japan build
relationships of trust with each country? In particular, theimportance of relations with the Global South, which has been
growing remarkably in recent years, goes without saying.
Today, we have gathered three experts to discuss these three
proposals in this year’s White Paper: Prof. Tsuyoshi Kawase of theFaculty of Law at Sophia University, who specializes in internationalrules, including the WTO, Prof. Mie Oba of the Faculty of Law at
https://www.jef.or.jp/journal/

Kanagawa University, who is an international political scientist
specializing in Asia and the Global South, and Dr. Satoshi Inomata,chief senior researcher at IDE-JETRO, who has been studying supply
chain vulnerabilities.
Let me begin with the proposal to “contribute to the maintenanceof a rules-based international economic order”. I would like to ask
Prof. Kawase, what is your assessment of the current state of theinternational order? We cannot deny the malfunctioning of the WTO.
Do you think the Multi-Party Interim Appeal Arbitration Arrangement(MPIA) or plurilateral agreements or Regional Trade Agreements(RTAs) are successful in supplementing the WTO? There are various
ways to secure members of the WTO Appellate Body, but what do
you think is the most realistic way? If it will take time to restore thefunctions of the WTO Appellate Body, what do you think should beprioritized in terms of Japan’s contribution to a rules-based
international order? You have said that we should focus on reviewing
the CPTPP, but what exactly do you mean by that? Why should wegive it priority?

Maintaining a Rules-Based International
Economic Order
Kawase: As you say, it is true that the rules-based multilateral trade
regime is in decline. There are three key terms that explain thecurrent situation: securitization of the multilateral trade regime,
fragmentation, and de-legalization. The word “de-legalized” is hard tounderstand, but it really means “less legalized”.
Securitization has been brought about primarily by a series of US
measures since the Donald Trump administration, namely theadditional tariffs on steel and aluminum products under the Trade
Expansion Act of 1962 and the subsequent introduction of export
controls on semiconductors and various security-based trade andinvestment restrictions. Japan and the EU have also followed someof these developments, although not to the same extent as theUnited States, by promoting economic security strategies anddecoupling from China.
Fragmentation means that while the WTO is functioning less well,the establishment of mega-regional agreements such as the CPTPP
and RCEP, economic partnership agreements between major
economies, such as the EU-Japan and the US-Japan FTAs, or largescale partnership frameworks for friendshoring as represented by
the IPEF, are flourishing.
Finally, there is de-legalization. The WTO dispute settlement
procedures used to provide for judicial resolution of trade disputes,
but since the suspension of the Appellate Body, the rule of law has
been declining. In addition, as a result of the recent US reluctance toconclude legally binding trade agreements with market accesscommitments, cooperation-based trade frameworks with no or weakbinding force, such as the IPEF and the US-EU Trade and Technology

Council (TTC), are being actively established.
To answer your individual questions, first of all, it is obvious that
the MPIA, plurilateral agreements, and RTAs are not sufficientcomplements to the WTO in terms of the number of participating
countries. There is no FTA that covers Japan, the US, the EU, andother major countries such as India and Brazil, and looking at theUS, for example, there are no trade agreements with these countries
except for Japan. Looking at plurilateral agreements, in the ongoing
Joint Statement Initiative (JSI), even the most popular Investment
Facilitation Agreement does not cover even two-thirds of all WTO
members. On the MPIA, even though it is to be taken for granted that
the US is not joining, the other major trade players like the United
Kingdom, India, South Korea and ASEAN nations are not members
yet.
Nevertheless, since the US is not taking the leadership and the
WTO is limited in what it can do on a consensus and singleundertaking basis, there is no other option but these arrangements.
They can take advantage of their members being fewer and all likeminded and thus they can be more mobile and active.
On RTAs, in areas like digital trade, investment and state-owned
enterprises or issues like trade and the environment, or trade andlabor, the CPTPP and USMCA or the other advanced FTAs havestarted rulemaking prior to the WTO. In the wake of the suspensionof the WTO Appellate Body, the dispute settlement procedures of the
USMCA and CPTPP are also beginning to be utilized.
In plurilateral agreements as well, in the WTO’s JSI, they reached
an agreement on a final draft, called the Stabilization Text, for digitaltrade in July 2023, following last year’s Investment Facilitation
Agreement. Since India and South Africa are strongly opposed to the
JSI framework of creating minority country agreements within the
WTO framework itself, it is likely to be difficult to incorporate these
agreements into the WTO Agreement by consensus in the future, but
I see this as an indication that rule formation will continue toprogress in the WTO on a voluntary basis.
As for the MPIA, the only decision so far is the anti-dumping caseof frozen French fries in Colombia, but in many ongoing disputes theparties have agreed in advance to refer the dispute to MPIA
arbitration in the event of an appeal by the parties, and we see the
MPIA potentially contributing to dispute resolution. For example, inthe case concerning China’s anti-dumping duties on stainless steel
products, Japan’s membership of the MPIA prevented China fromfiling an appeal into the void and forced China to accept the loss ofthe case at the panel stage.
Australia has also referred a dispute over China’s economic
coercion measures over the origin of Covid-19 to the WTO, but oneof the factors that led to the settlement of the dispute over the antidumping duties on wine and barley was that both countries joined
the MPIA and thus China had no option for an appeal into the void, I
think.
Japan SPOTLIGHT • September / October 202419

I think finding a practical solution to the Appellate Body’s reform isdifficult. Looking at the current state of discussions in Geneva, theUS is skeptical about the two-tier system of the panel and Appellate
Body itself, and it is also difficult to find a consensus or compromiseon the role required of the members of the Appellate Body. So thedispute on this issue seems to have become a fundamental
philosophical debate. Sadly, I can’t think of any realistic
compromise.
Finally, regarding Japan’s contribution, I have previously statedthat a general review and expansion of the CPTPP should be apriority. It is for the following reasons: (1) the CPTPP is a regional,
near-global, broad-based partnership, (2) the US and China are notparticipating and confrontation will not be introduced, (3) manymembers of the WTO’s so-called Ottawa Group – a group of wise
and influential middle powers keen to reform the WTO, including the
UK, Canada, Australia, New Zealand, Chile, Mexico and Singapore –have joined the CPTPP, (4) unlike with the RCEP, ASEAN members
such as Laos, Cambodia, and Myanmar, which are pro-China andunderdeveloped countries, are not included in the CPTPP, making it
relatively easy to get a consensus among members on the level oftrade liberalization, and (5) although slightly outdated, it still
comprehensively maintains a relatively high level of rules that areahead of the WTO.
Of course, I did not mean to suggest that WTO reform should bedisregarded, but rather that it should be pursued as a Plan B.
Specifically, for example, since the USMCA already stipulates digitaltrade, which is ahead of the CPTPP, then we will adjust to that level.
Although there may be opposition from Malaysia and Vietnam, if westill aspire to the return of the US to the CPTPP, we should align ourlabor and environmental rules with those of the USMCA. If we havein our mind negotiations with China on its membership of the
CPTPP, we will strengthen the rules for state-owned enterprises.
Also, if we are anxious about strengthening supply chains, we canmake greater efforts on the regulatory integrity rules, which currently
have little substance.
Toyoda: I would like to ask Prof. Oba the same question: how do you
evaluate the current state of the international economic order? You
have said that the RCEP agreement is a sign of risk hedging by eachcountry and an expression of East Asian countries’ commitment tomaintain and further develop a free and open international economicorder. Do you think that East Asian countries are seeking the “rule ofrules”? China, too, has spoken of the RCEP as a symbol of the “ruleof rules”, so is it correct to assume that the same is true of China? It
is unfortunate that India did not join the RCEP at the last stage. Why
do you think this happened? Does it mean that India does not value
the rule of rules? How do you evaluate the RCEP and CPTPP when
you compare them?

20 Japan SPOTLIGHT • September / October 2024

Oba: I also believe, as does Prof. Kawase, that the current state of
the rules-based international economic order is very shaky and in
retreat. After the end of the Cold War, when the severe confrontation
between the major powers had eased, an international order basedon the principle of cooperation continued and the relatively stableinternational circumstances encouraged globalization and brought
growth to the world. Asia has particularly benefited from this, but theinternational order itself, which provided such an environment, isnow under threat. Here are some specific phenomena.
First, the nexus of political security and the economy has
increased as strategic competition among the major powers has
intensified. Under these circumstances, the belief that a free andopen economy is not necessarily desirable becomes widespread.
Indeed, globalization is being reversed by the impact of export
control competition among major powers. And the dysfunction of the
WTO’s dispute settlement mechanism is actually hindering a free andopen international order based on rules.
Furthermore, the possibility of the occurrence of armed conflicts isincreasing. In fact, there is a now war involving one of the “P5” of
the United Nations in Ukraine, the Middle East is at war again, and in
Asia there is talk of a possible crisis over the Taiwan Strait. A world
where there is a heightened possibility of armed conflict does notprovide a desirable basis for cross-border business. A free and open
economic order should be based on a stable international order.
However, the foundations of that order are shaking.
In parallel with this, the content of the rules governing crossborder economic activities is changing. In other words, norms suchas environmental protection and human rights should be consideredmore than before. Moreover, when setting rules, it has become
impossible to ignore the demands of emerging and developing
countries. In past cases, such as the Uruguay Round of the GATT,
only developed countries discussed and reached some kind ofcompromise, and then forced emerging and developing countries to
accept the content of that compromise. But now, the intentions anddemands of emerging and developing countries tend to be more
directly reflected in the process.
In this context, it is certainly important to establish high-level rules
regarding trade and other cross-border business, and from thatperspective the CPTPP is a significant framework. On the other hand,
the RCEP would be more suitable for the realities in Asia. Northeast
Asian and Southeast Asian countries are looking for an order that is
conducive to economic development, along with the maintenance ofpeace and stability. And they are well aware that free economic
activity across borders has supported their development, andcommon rules to accommodate the environment for this areimportant to them.
Indeed, with WTO rulemaking stalled, alternatives are beingsought. At such a time, the RCEP, although at a lower level than the
CPTPP, is a framework that underpins and facilitates the global valuechains that extend to East Asia. The RCEP member countries are sodiverse regarding their level of economic development and industrial
structure, they cannot easily reach agreements on the various topics
regarding setting common rules on cross-border business. So it will
be difficult for them to land on a high-level agreement like the CPTPP
in the process of revising the contents of the RCEP in ministerial
meetings, joint committee meetings, and other meetings hereafter.
But a future trade order will not be viable without including
emerging and developing countries and it should address theirdemands, and the significance of the RCEP framework, which
includes not only developed countries but emerging and developing
countries, should be emphasized.
China, too, has taken the basic stance of respecting the rule ofrules. However, it may be more assertive and seems to think that thecontent of the rules can and should be transformed in ways thatfavor it. In particular, it may think that the RCEP is more likely toreflect its intentions. So we should watch China’s behavior regarding
revising rules in the RCEP. It should be noted, however, that the
RCEP is a multilateral framework, and members have to reach an
agreement to change rules through multilateral negotiations andtherefore China cannot always modify its rules to its own preference.
India has withdrawn from the RCEP negotiations. Naturally, India isalso very interested in its own economic development like other
Asian countries and seeks an order that is conducive to thedevelopment of its manufacturing sector in particular. From thisperspective, India’s excessive dependence on China and fear of awidening trade deficit with China were probably the reasons for its
withdrawal from the RCEP. While India may not be a rule-abiding
country, it is one of the largest emerging economies, and while it isself-righteous, it does not have an economy as large as China’s.
Moreover, India is trying to develop its domestic manufacturingindustry through its “Make in India” and other programs, but many
issues remain to be addressed. The agricultural sector also accounts
for a high percentage of the domestic economy.
Under these circumstances, rather than being a rule maker who
create the rules, it must have felt concerned about how great the
impact of joining the RCEP would be on its own manufacturingindustry, and if there would be a negative impact, it would have toprotect its industries against it. So, though we can assume that India
understands that international rules have supported and developed
the international order to some extent, it is questionable to what
extent it understands its own role in rulemaking in order to support
the international order.
As to how to evaluate the RCEP compared to the CPTPP, I believethat each has its own role to play. Due to the diversity of its
members, it may not be possible to formulate very sophisticatedrules, but the RCEP is very influential because it is the first FTA that
includes China, Japan, and South Korea, and because of its size,
covering about 30% of the world’s GDP. It will be a framework thatwould enable the maintenance of economic linkages among
countries with a view to the distant future.
The development of rules of origin is an important point in the
RCEP, and we have also introduced an advanced display system forcustoms procedures and trade facilitation. Only two of the threeprinciples of the CPTPP are included in the area of e-commerce, but
it is very meaningful that the members have reached an agreementon e-commerce in the first place. In the field of intellectual property
protection, the rules are set to exceed those of the WTO’s TRIPS
agreement.
The CPTPP is very small in GDP size, at 13% of global GDP, due
to the non-participation of the US. However, it can serve as a modelfor high-level rule-building that supports a free and open rules-based
international order, as it brings together countries that have agreed
to formulate advanced and comprehensive rules and are capable ofdoing so to some extent. In this sense, it has a vital role to play.
Also, chapters on state-owned enterprises, labor, and theenvironment are not in the RCEP but are included in the CPTPP. In
this sense, it is crucial as a model, but it is difficult to evaluate thefact that the US is not included, and that has reduced its centripetal
force.
Toyoda: Dr. Inomata, I would first like to ask you also about yourown assessment of the current state of the international economicorder. In the context of geopolitical risks, you have said that while
the protection of supply chains is important, we should be actively
aware of the need to acquire a dominant position in the global
production networks. You have also said that we should be involved
in international standardization and rule formation, and lead supply
chain configuration from the institutional side. How would you
evaluate Japan’s current position from this perspective? Inparticular, what do you think of the fact that there are few Japaneseworking in international organizations? Furthermore, you haveadvocated for the establishment of an international framework tokeep the US-China decoupling processes under control, and you
have made a very interesting proposal to make this a part of the
APEC policy agenda. I would like to know what kind of framework
you have in mind in concrete terms, and I would also like to knowhow you evaluate ERIA.
Inomata: In May 2024, the security clearance system was introduced
in Japan, and hereby the government has completed the first-rounddevelopment cycle of laws and regulations related to economic
security. By contrast, the EU formulated its economic security
strategy last year, yet the member countries are still in the process ofaligning domestic laws with the strategy. The US has not even comeup with a grand vision of economic security.
Perhaps Japan has already moved from the stage ofinstitutionalizing economic security to the next phase ofJapan SPOTLIGHT • September / October 202421

disseminating the systems to the private sector. For example,
ECONOSEC JAPAN, a conference and exhibition event related toeconomic security, has been organized since last year. Meanwhile, it
seems that the main focus of debate among academic circles has
now shifted to the issue of industrial policies, especially subsidy
competition. Of course, the root of the problem lies in China’s
production over-capacity, but even the US, which is the biggest criticof China’s practices, has introduced a series of domestic laws thatare questionable in terms of their consistency with the WTO, such as
the Infrastructure Investment and Employment Act of 2021, theInflation Reduction Act of 2010, and the CHIPS and Science Act. Thisis precisely the reason why it is imperative to rebuild a trading
system based on international rules and norms.
As for Japan’s involvement in the effort for international
standardization, this year’s White Paper on International Tradeseems to suggest that the Japanese government is doing goodpractice. In the publication, there is a section titled “The Role ofStandardization in Creating International Markets: Toward theRealization of a Japanese-Style Accelerated Standards Model”. Here,I also want to refer to the work of Prof. Saori Katada of the Universityof Southern California who has analyzed in detail the development of
the Japanese government’s regional policy. According to Prof.
Katada, it has progressively undergone a major transformation fromits former bilateral and informal approach to a more region-wide,
rule-prone strategy, as exemplified by Japan’s contribution to theformation of the CPTPP.
About the small number of Japanese staff in internationalorganizations, it has been an issue for ages, and also I often hearthat young workers or university students these days are losing theirinterest in overseas postings or studying abroad. I do not think thatthe issue can be solved easily. Rather than trying to increase the total
number of Japanese staff, it is more practical to aim to enhance
Japan’s presence by acquiring key positions in internationalorganizations; it is a question of the diplomatic capability of theJapanese government.
Regarding the “international framework” to keep the US-China
decoupling process under control, I am now more attentive to the
ASEAN Regional Forum (ARF) than APEC. There are four reasons.
First, I am expecting ASEAN to be a key player in the regional
security, and the ARF is indeed the organization with ASEAN in its
core. Second, the ARF has explicit missions on security issues,
including trust-building and preventive diplomacy. Third, the ARF
has multi-track systems, such as the Experts and Wise Leaders
Meeting and the Asia-Pacific Security Cooperation Council. And
fourth, India, a regional power, is a member.
Regarding ERIA, it should be able to make policy
recommendations on regional economic security as inputs to, say,the aforementioned multi-track process of the ARF.

22 Japan SPOTLIGHT • September / October 2024

Building Resilient Supply Chains
Toyoda: I would like to move on to the second recommendation,“building resilient supply chains”. The White Paper warns that“excessive dependence on imports from specific countries is a
supply-chain risk that needs to be diversified.” Among thesecountries, Japan’s dependence on China is particularly high, with ashare four times the G7 average, three times that of the US, andseven times that of Germany. Although this is not surprising since
they are neighboring countries, Japan has recently been facing
economic coercion from China in many cases.
Prof. Oba, how do you view Japan’s high level of dependence on
China? Do you think it is natural because it is a neighboring country,
or do you think that excessive dependence is dangerous? You once
stated that “building a supply chain to break away from dependence
on China goes hand in hand with the shift to a bloc economy.” The
idea of resilient supply chains is intended to reduce over-dependence
on specific countries, and it seems that Japanese companies are now
trying to reduce their investment in China and increase theirinvestment in ASEAN and India. How do you perceive this trend?
Oba: I probably made that statement when the term “de-risking” was
not yet widespread. From my point of view, to use the keyword
de-risking is more politically appropriate rather than to clearly say“decoupling”. So I am not rejecting the concept of de-risking itself.
As for the Japanese economy’s dependence on the Chinese
economy, I do not think Japan is dependent on China just because ofgeographical proximity. In addition, the changes in the degree of
economic interdependence between the two should also be taken
into account. As noted in the White Paper, the relationship between
the Chinese and Japanese economies rapidly grew closer in the
2000s from the perspective of business activities, but since the2010s there has been a slight swing back, and similar phenomena
can also be seen between the economies of other countries and theChinese economy. During this period, there may have been somenew Japanese companies entering the Chinese market, but somecompanies also decided to withdraw from it. The degree of
dependence on China still depends on the activities of thecompanies.
Of course, it is possible to control companies’ economic activities
to some extent by setting certain rules and requiring them to comply
with those rules. However, as long as companies’ decisions still
support their business deployment in China, it would be tough to
restrain them excessively.
Related to this, there should be a practical limit to how much East
Asia can reduce its dependence on China from a long-term
perspective. I am wondering whether any country, not just Japan,
can easily reduce the dependence of its own economy on the
Chinese economy. We must be realistic and consider that China willcontinue to be dominant in the East Asian and global economicorder.
In particular, compared to the relationship between China and theUS, Europe, and other countries, the first major difference between
Japan and China is that the physical distance between the twocountries is very close. As mentioned before, the fact of mere
geographical proximity does not determine the relationship between
countries. However, proximity’s impact on security and economics
cannot be ignored. We must construct an order with China’s
presence as a given and recognize that a two-step approach isnecessary. China’s weaponization of exports of strategic materials
such as rare earths and gallium is very annoying, and it is absolutely
necessary for our country to respond to such moves by stockpilingor securing new sources of supply to diversify the so-called risks.
And I think it is true in the current short-to-medium term that weshould keep our distance from China, especially in the area ofadvanced technology.
On the other hand, China will not disappear in the long run, andthere is a limit to how much we can reduce our dependence. So wemust have a long-term strategy for how to involve China in thecreation of an international rules-based order. The idea of resilient
supply chains encompasses the intention to reduce excessive
dependence on specific countries. And, as I mentioned, I understandthis trend and the idea itself, but I am not sure that stronger relations
with ASEAN countries and India can be a sufficient substitute for
economic ties with China.
I am also quite skeptical about whether India could really provide
an appropriate environment in many ways to develop businesscentering on manufacturing in light of its domestic politics or an
India-centered foreign policy, although this may be different from thecurrent direction of the Japanese government. I think we should not
hold too high an expectation of India as an alternative to China.
Toyoda: Dr. Inomata, you have pointed out that “the efficientorganization of production activities has resulted in the extreme
concentration of production bases in certain countries and regions,”
and that “partial decoupling focused on security domains should be
implemented as a temporary measure to avoid unintended escalationof security risks.” By “partial decoupling” do you mean de-risking?
Also, I would like to know what your thoughts are on the IPEF and
the Quad. How can we ensure a balance between “efficiency” and“safety and stability”?
Inomata: The term de-risking in the context of economic security
was first delivered by Ursula von der Leyen, the European
Commission president. Since then, its conceptual difference from“decoupling” has been discussed here and there, but I do not think
there have been any visible policy changes in the US, the EU, orJapan that match the slogan of “de-risking, not decoupling”. I myself

believe that de-risking is merely political rhetoric. Rather, theconcept of “partial decoupling” is akin to the idea of “small yard,
high fence”, as put by Jake Sullivan, the US national security advisor
to the president. The question of “how small the yard should be”,
however, is difficult to define, especially due to the presence of dualuse technologies. If such a gray zone of economic security is abusedfor protectionist motives, the escalation risk of economic decouplingarises.
So, fidelity to the principle of “small yard, high fence” is important.
We have to detect and eliminate in advance any factors that may
deviate from the principle. We may have to devise WTO-likefunctions that specialize in the US-China decoupling issue, say,monitoring and evaluating the trade and industrial policies of bothcountries, as well as setting an agenda and arena for policy dialogue.
This is what I envisage in the multi-track mechanism of the ASEAN
Regional Forum, as an aforementioned “international framework” tokeep the decoupling process under control.
As for the IPEF, I have repeatedly pointed out the possibility that
the US may use it as a decoupling instrument, so I will not reiterate it
here. Note that this is only a possibility; the participating countries
should keep up checks and balances to ensure that the IPEF is not
used for narrow purposes. Indeed, we may recall that US President
Barack Obama once characterized the TPP as a part of the US
regional strategy vis-à-vis China when the negotiations started. But
now, perhaps partly because of the US withdrawal, I don’t think
many would see the CPTPP as a tool to contain China.
Regarding “efficiency” and “security”, there can be trade-off
between them, as implied by contrasting terms “just-in-time” and“just-in-case”. However, they do not necessarily contradict eachother. The solution may lie in digital technology. Digitaltransformation (DX) does not only make production systems more
efficient, but also increases supply chain security by means ofencryption formulae, distributed processing, or smart contracts
based on blockchain technology. So the establishment ofinternational rules for data security as well as the free flow of data isimportant. There are a lot of areas that Japan can contribute to,following the spirit of Data Free Flow with Trust (DFFT).
Toyoda: Now, Prof. Kawase, how do you position economic security
in the international economic order? Do you reject frameworks suchas de-risking, the IPEF or the Quad? One of the reasons for the
WTO’s dysfunction seems to be its handling of security clauses. If
the concept of economic security is added to the WTO, I have afeeling that it will become even more difficult to restore its disputesettlement function.
Kawase: It depends on what you mean by economic security andde-risking, but they are not inconsistent with free trade in the senseof diversifying sourcing and export markets, for example, as part ofJapan SPOTLIGHT • September / October 202423

supply chain resilience. As noted in the WTO’s World Trade Report
2023 published last year, when trade is disrupted by exogenous
shocks such as the pandemic or economic coercion, it would be thefree trade regime that ensures that alternative markets and sources
can be easily found to respond to these shocks.
On the other hand, friendshoring frameworks such as the IPEF and
the Quad may degenerate into discriminatory mini-lateralism,
depending on the institutional design. That said, I believe that
attempts to reduce supply chain risks among trustworthy countries
are welcome in themselves. The IPEF’s Supply Chain Agreement falls
within such attempts, which clearly states that it should operateconsistent with the WTO Agreement.
However, if derisking or economic security extends to sanctioned
trade restrictions as geopolitical economic statecraft or even hostiletrade relations, it will be difficult to ensure consistency with the WTO
Agreement. In addition, WTO panel precedents tend to interpret“essential security interests” in the security exception clauses inforce including GATT Article 21, quite narrowly, limiting them
primarily to interests related to defense and military affairs and themaintenance of national order. Therefore, it is also debatable whether
or not it can cover measures that have medium-to-long termindustrial policy aspects for dual-use goods, such as the US
semiconductor export controls to China.
As for that security exception, the US requires that the exceptional
conformity of its measures be left entirely to the self-determinationof member countries. That would eventually lead the WTO regime
back to the “rules of the jungle” again, as the Trump administration’s
steel and aluminum case clearly shows. However, if, on the other
hand, conformity with the security exception continues to be left tothe judgment of the panel and the Appellate Body, they will continue
to be forced to decide what is each member’s essential security
interests. I am seriously concerned that this will impose an excessive
political burden on the dispute settlement process and jeopardize thesustainability and legitimacy of the system.
In that case, we would need a more political and less legalized
approach. For example, one idea under discussion is that if a WTO
member takes a trade-restrictive measure on security grounds, thatmember would be allowed self-judgement of its own compatibility
with the security exception, but if another member’s trade interests
are impaired by it, the latter member would automatically be allowed
to take countermeasures. Another idea is to strengthen multilateralmonitoring of trade measures for security purposes by establishingspecialized committees. At any rate, we believe that these nonjudicial solutions will have to be introduced.
Toyota: What do you think about the IPEF and the Quad, Prof. Oba?
Oba: Indeed, the IPEF has not been entirely without achievements. It
functions as a framework for establishing rules in its own way as
24 Japan SPOTLIGHT • September / October 2024

Supply Chain Agreements have been concluded within thisframework. However, the IPEF’s significance is more symbolic, suchas a framework for maintaining relations with the US or ensuring that
the US remains engaged in Asia. The IPEF framework itself has aweak centripetal force. The biggest reason is the lack of market
access. In addition, the outcome of the US presidential election will
determine the IPEF’s future. It is highly doubtful that the IPEF willsurvive if Trump wins the election and comes to power.
As for the Quad, they are already pursuing cooperation in various
areas, such as critical technologies and supply chains, which are
related to security but are differentiated from traditional security
cooperation. However, there are advantages and disadvantages tothe inclusion of India. Of course, India is a significant player in worldpolitics now, and the Quad is useful for Japan to have regular
discussions with India. However, as I mentioned before, the US andJapan seem to overestimate India because they see it as an essential
partner to counter China. A dispassionate evaluation of India is
necessary. “The spirit of the Quad”, agreed by the four leaders of
Quad member countries, supports a free, open, and rules-basedorder. It is questionable whether we really share with India the values
that are essential for such an order.

Win-Win Relationships with OtherCountries, Including in the Global South
Toyoda: Let me move on to the third item, “building win-win
relationships with other countries, including those in the Global
South”. First, I would like to start with Dr. Inomata, who has been
studying ASEAN and India from the perspective of global value
chains (GVCs). These countries are achieving high growth and are
not part of the G7 group of developed countries nor the China-Russia
group. From the perspective of stable GVCs, is this a desirable
situation? If they were to ally with one side or the other, might they
face some security dilemmas? How do you see the Global South,and how do you think Japan should try to build a win-win
relationship with it? China and Russia are trying to make the Global
South their friends, so what should Japan do in response?
Inomata: Frankly, I am not a great fan of the term “Global South”.
There was once the term “Third World” during the Cold War, butdeveloping countries nowadays are much more diverse than before.
If we bundle them together under one label such as the Global South,
we may face a risk of misjudging our delicate relations with them.
Also, both China and India are claiming to be the “leader” of the
Global South, and hence it is not a practical concept either.
So rather than relying on such vague terminology, it is better tolook at existing establishments. For example, the Gulf countries have
the Gulf Cooperation Council (GCC) and West Africa has the
Economic Community of West African States (ECOWAS). Of course,the biggest counterpart for Japan is ASEAN, whose economic andsecurity contribution to East Asia region goes without saying. If
Japan provides substantial back-ups for maintaining andstrengthening ASEAN centrality and inclusiveness, this will weave aregional, or even global, win-win relationship.
Toyoda: I would like to ask Prof. Kawase how the Global South ispositioned in terms of the WTO and RTAs. Conversely, how do thesecountries view the WTO and RTAs? Can we assume that they respect
the rule of rules, as Prof. Oba says? I would like to know more about
the Global South from the perspective of the WTO.
Kawase: This is a difficult question. The Global South is too broad,since it includes large countries like China and India on the one hand,and failed states in Africa on the other. It is often annotated instudies of international politics and development economics as aconcept that changes depending upon a person’s position andcontext, so what it means cannot be simply defined. These nations
are by no means monolithic, and it is more natural for individual
stances to differ from issue to issue. For example, on the crisis of the
WTO’s Appellate Body, a significant number of developing countries
have endorsed a resolution calling for a prompt initiation of theprocess of nominating its senior members. Also, China and Brazil
have joined the MPIA and interestingly, for some reason, Benin has
also joined. On the other hand, India and Indonesia have not joined
the MPIA and have not hesitated to file an appeal into the void. As fortheir response to the JSI as well, it is divided into two: while India
and South Africa strongly oppose such rule making by like-mindedmembers, a large number of developing members are actively
joining the initiative.
However, ASEAN and Latin American countries have traditionallytended to actively conclude and utilize RTAs, and many of thesecountries are also major players in the WTO in terms of negotiations
and use of the dispute settlements procedure. Africa also has a
tradition of regional integration, including the ECOWAS and Southern
African Development Community (SADC), and in addition the African
Continental Free Trade Area (AfCFTA) is in effect, and negotiations on
issues remaining to be fixed are underway for its full-scale operation.
Developing countries were also keen to continue the Doha Round. In
this sense, I agree with Prof. Oba’s assessment that the Global South
respects the rule of rules.
However, the attitude of developing countries toward the rule ofrules over the past quarter century or so has been a revisionist
approach from a development perspective. For example, thesecountries got all WTO members to rename the Doha Round the“Doha Development Agenda” and successfully persuaded them toinclude in the negotiating agenda the reduction of commitments fordeveloping countries in the current agreements, the so-called
implementation issues. In addition, the underdeveloped cotton-

producing African nations like Burkina Faso have won the eliminationof subsidies on cotton exports by developed countries and tariff-free
imports of cotton products from the least developed countries. The
revision of the TRIPS agreement regarding the compulsory
enforcement of patents on HIV virus drugs is also in response to thedemands of developing countries.
As the Global South strengthens its presence, this kind ofinclusiveness-based revisionist demand for a liberal economic order
is likely to continue to grow. This past January, it was reported thatat the Group of 77 summit in Uganda, China proposed revisions to
the Western-centered Bretton Woods order, including the WTO, andreceived a broad range of support from the participating countries.
As for RTAs, when it comes to Africa, FTAs with developed
countries other than European ones with former colonial andsuzerainty relations are still limited. The US has concluded trade andinvestment cooperation frameworks with African countries, but no
FTAs yet. In view of the potential growth of the African market, I am
interested to see if there will be more RTAs between developed
countries and African countries in the future.
Toyoda: Prof. Oba, you have said that you do not agree with the ideaof incorporating ASEAN into our side in the US-China confrontation. I
would be grateful if you could elaborate on what you mean by that.
In addition, is there really a position of not standing on the side of
China and Russia and also not standing with the G7, which includes
the US and Europe? Are you saying that it is important for Japan to
be a proactive partner in creating a “desirable order in the world”
rather than a “framework that leans toward the US”? If so, thenJapan should be very vocal with the US. Is that correct?
Oba: Before I answer this question, let me say a few words about the
Global South. I do not consider it to be a cohesive group in reality.
But I am interested in why the term Global South has just emerged
and in what context it has been used. I conclude that there are threemain types of usage of the “Global South”.
The first type of the Global South is the countries and/or peoples
which are subject to deprivation in the context of globalization, This
usage of the Global South began to be used in part in the 1990s. It is
partly the remnant of the dependency theory. And the Global South,in this meaning, not only refers to developing countries but also
refers to the middle class and the urban poor who have fallen in the
wave of globalization in developed countries.
The second type of Global South refers to the emerging powers,
against backdrops such as the growing presence of emerging
powers like China and India after the global economic crisis.
And now the third type of Global South is used to compile
developing and emerging countries as a third-party group that areholding the casting board in a world that is becoming more andmore divided following the Russia-Ukraine war. This type of usage
Japan SPOTLIGHT • September / October 202425

activates the debate as to which camp, the Western “liberal” camp or
the Russo-China “authoritarian” camp, will attract the Global South.
However, as both Prof. Kawase and Dr. Inomata mentioned, theattitudes of emerging and developing countries are diverse and nevermonolithic. Some countries, as developing countries or as small andmedium-sized ones, value rules and try to maintain their position andnational interests by complying with them. Some other countries
choose not to accept such rules or to try to change them. We need tonote the diversity among emerging and developing countries in thisway. Using the term Global South often makes the differentiatedindividual responses invisible.
For emerging and developing countries, it would be possible tohave a position that is not on the side either of the Sino-Russian
camp or of the Western camp, and actually, they take such attitudes.
Let me give you an example. Most countries, even emerging anddeveloping countries, do not support Russian aggression against
Ukraine. Yet many countries have not made a decision to severrelations or confront Russia completely. Maintaining ties with Russia
is a risk hedge for them, as they are not major powers. Therefore,
they do not join the economic sanctions led by the Westerncountries.
As far as Southeast Asia is concerned, economic ties with Russia
are not that strong, apart from Vietnam and Laos. However, except
for Singapore, they see no need to be hostile toward Russia byengaging in economic sanctions. Furthermore, China’s economic ties
with Southeast Asian countries are becoming closer, both in terms oftrade and investment, and the so-called China-ASEAN Economic
Zone is already a given. Therefore, they do not want to see any
extreme deterioration of relations with China, either at the national
level or, of course, at the level of business activities.
On the other hand, at least among policy elites in Southeast Asian
countries, there are concerns about China’s expansion of its
influence, even in Cambodia and Laos. The need to hedge against
this is being considered by policy elites in all countries. The US andEuropean markets are important to them, as is the attraction ofWestern investment. Moreover, from a security perspective, there isa pragmatic recognition that US engagement in East Asia underpins
order in the region.
Moreover, they are not allergic to the increasing engagement of
the UK and other European countries in Asian affairs and thedevelopment of their own Indo-Pacific strategies, despite the factthat they ruled Southeast Asia as colonial empires. Instead, theywould like to have more countries interested in them as partners, if
not deterrents, in balancing their power with that of China.
More to the point, Thailand and Indonesia are moving toward
membership in the OECD, and meanwhile aiming to join the BRIC
nations. While ASEAN is important, each member country is also
trying to become more involved in frameworks beyond it. It is very
important to note that they are not necessarily biased toward China
26 Japan SPOTLIGHT • September / October 2024

alone or the US alone. They are actually taking their own actions, notstanding on the side of China and Russia and not standing on theside of the Western countries.
What Japan should do is to become a proactive partner in creating
a “desirable global order” rather than supporting a “framework of the
US side”. It is crucial for Japan to cooperate with the US in dealing
with various issues, but Japan should be proactive and autonomous
to determine its own interests. Furthermore, it should be consideredthat not only China or some developing countries are upsetting thefree and open rules-based economic order. US protectionism andunilateralist actions are also clearly undermining the current
economic order. It would be unwise not to speak out against the US
at such a time.
At the very least, Japan should proactively consider what its
preferred situation and order is, and then consider the US as apartner, in that order. It is not appropriate to think in terms of aframework that is pro-US or anti-US from the outset, but rather toconsider what kind of world order is desirable for the world andJapan. I repeat, protectionist moves by the US are shaking up thecurrent international order. As Dr. Inomata mentioned, so-called
de-risking or partial decoupling at an appropriate level is necessary,
but when it exceeds a certain level, decoupling runs out of control,
and this is associated with protectionism, and I agree with him. In
the case of the US, there is some ambiguity as to whether it isprotectionism or de-risking. It is Japan’s role to stop the US fromrunning into protectionism rather than de-risking.
And, with the objective observation that unfortunately the level andextent of US engagement in East Asia may not last forever at thecurrent level, it will be vital for Japan to try to prevent the US frombeing less engaged in East Asia as much as possible, while preparing
for what to do when that time comes.
Japan is the only Asian country in the G7 and an ally of the US. It
is in a position where it must speak out to curb the selfrighteousness and unilateralism of the US, while deepening
cooperation with the ASEAN countries, which have particularly close
relations with Japan. We also have a role to provide our observations
on Asia to European countries, which have their own Indo-Pacificstrategies and are taking an increasing interest in the region, with
sufficient information sharing. Asian countries can and do try to havetheir own direct communication channels to the US and European
countries, of course. Japan is in a position to support them.
ASEAN is a significant framework enabling Southeast Asian
countries to continue to speak in one voice. Japan should not only
talk about ASEAN strengthening intra-regional cooperation, but also
encourage it to leverage its unity and enhance its voice in the global
arena.
In fact, Japan has played a role in linking the OECD and ASEAN,
for example, through the OECD Southeast Asia Regional Program.
Japan has a role to play in paving the way for both developedcountries and developing or emerging countries to work together tocreate rules that support a free and open economic order in various
ways.
Indeed, as Prof. Kawase said, some of their revisionist demands
must be met to some extent, which may be a setback from thetraditional free and open economic order. But I do not think that theworld in the future can be managed adequately only in the way
developed countries think. We are now entering a phase in which weneed to consider inclusively the position of those who challenge theexisting order.

Conclusion
Toyoda: Lastly, I would like to conclude today’s roundtablediscussion by asking you all to choose one point in therecommendations of METI’s White Paper that you think is mostimportant for Japan, and at the same time give your reasons.
Kawase: As a legal scholar, I would recommend “contributing to themaintenance of a rules-based international economic order”. For
Japan, the realization of trade benefits through force, as in the caseof the US and China, is definitely not an option, given the scale of its
economy, its interdependence with each of the US and China, and its
diplomatic stance to date. Japan is also one of the countries that has
benefited the most from the WTO and other rules-based international
economic orders, so there is no reason to deny this. More to thepoint, there is no alternative model for a new international system toreplace the WTO, and Japan has no choice but to continue to support
this path.
If the US-China confrontation remains unchanged for the time
being, I believe that Japan’s mission will be to take the middle-power
leadership in WTO reform, the CPTPP, and the RCEP revision andexpansion, in cooperation with the EU, the UK, Canada, Australia,
South Korea, and ASEAN countries that support a rules-based
international economic order.
Oba: I would choose both “contributing to the maintenance of arules-based international economic order” and “win-win
relationships with other countries, including those in the Global
South”. Rather than simply maintaining the existing order, I would
focus on the latter pillar and on how to build an inclusive
international order.
As Prof. Kawase mentioned, I do not believe either that it ispossible to construct an order that can completely replace thecurrent international economic order. The existing international
economic order will be the foundation, but change is required inmany ways. As I mentioned earlier, along with revisionist demands
from some emerging and developing countries, a new order isneeded to consider norms such as environmental protection andhuman rights. It is not only developed nations with which Japan
should work.
In any case, Japan is the only non-Western G7 country in Asia, as
has long been said. Although the meaning is nuanced from that ofbridging East and West as in the past, Japan needs to make the mostof this unique position to build win-win relationships, including withemerging and developing countries, and to link them to appropriatechanges in the international economic order.
Inomata: I also recommend the third pillar, “building win-win
relationships with other countries, including those in competitive
positions against us, or even those of our “security concerns”. Trustbuilding will reduce geopolitical risks, and hence positively affect thesecond pillar, “building strong international supply chains”. Likewise,
the development of international cooperation on climate change
reduces risk of natural disasters, which will also contribute toguarding supply chains.
Furthermore, building win-win relationships will facilitate
international rulemaking at the global level. What will come out of thecurrent tense rivalry between superpowers may be rulefragmentation rather than rule integration. We should first build up
win-win relationships with as many countries as possible in order tomake most comprehensive and inclusive rules. In other words, winwin relationships are the pre-requisite of good rulemaking andsupply chain security.
Toyoda: We’ve had a very insightful discussion. Thank you verymuch.

Written and translated by Naoyuki Haraoka, editor-in-chief of Japan SPOTLIGHT,
with the cooperation of Tape Rewrite Co.

Japan SPOTLIGHT • September / October 202427