08-ORI
70F-208BA
7

2008 JETRO WHITE PAPERON“INTERNATIONAL TRADE AND
FOREIGN DIRECT INVESTMENT”

Japanese Economy Headed for Further Globalization both Domestically and Abroad

Japan External Trade Organization（JETRO）
Overseas Research Department

Preface
In 2007, the world economy posted a high growth rate by rising 4.9%. However, thesubprime mortgage problem that occurred in 2007 had a significant impact on
developed economies, such as European countries and the United States, and in 2008,
there has been a growing downward risk on the economy. Furthermore, since thebeginning of 2008, surging food and resource prices have caused inflationary pressure,causing deeper concerns over an economic recession.
As a result, the world export volume in 2007 rose 5.6% yoy (year-on-year), with thegrowth rate almost halved, and in 2008, there has been additional pressure to slow theeconomy even further. In 2007, the global cross-border M&A value amounted to
US$1.5559 trillion, posting the highest-ever record, but in the first half of 2008, it fellsignificantly from the previous year and is considered to unavoidably post a substantial
decline on the full-year basis.
On the other hand, the amount of Japan’s outward M&A value fell in the second halfof 2007 from the first half, but returned to an increase in the first half of 2008. Japanesecompanies are facing a favorable phase for outward M&A, due in part to theimprovement of balance sheet, such as less dependence on interest-bearing debts. As
well, investments in Japan are expected to increase, which will contribute to creating
employment and enhancing productivity of the domestic economy and lead to an
economic revitalization.
The FTAs in effect in the Asia-Pacific region (ASEAN+6) reached 17 cases. Whatdeserves special mention is the fact that the so-called “ASEAN+1,” i.e., the FTAs
between ASEAN and Japan, China, South Korea, India, and Australia and New Zealand,
respectively, are near completion. The ASEAN+China FTA and ASEAN+South Korea
FTA have already come into force. The roadmap has also been in sight for the FTAs
between ASEAN and Japan, or between ASEAN and India, and Australia and New
Zealand, respectively. In 2010, tariffs on most of items will be eliminated in 2010 under
several ASEAN+1 FTAs, mainly those that have already come into force, and FTAs are
therefore expected to be highly utilized.
Many Japanese companies, including those catering to domestic demand, are aiming
to expand their sales in overseas markets. The focus in this White Paper is placed on1emerging resource rich countries as new potential overseas markets for Japanesecompanies. Not limited only to Asia, such emerging countries cover many regions suchas Central and South America, the Middle East, Central and Eastern Europe, and Africa.
The White Paper also points out the necessity of a sales strategy that focuses on young
generations in emerging countries and takes account of their consumption behavior andinfluence.
In this “General Overview” of the White Paper, Chapter I deals with “The World
Economy, Trade and Direct Investment,” Chapter II with “Global FTA Trends and Use
of FTAs for Gaining Momentum in the Business Arena,” and Chapter III with“Consumer Markets Expanding World.”
As the trade and direct investment statistics of the world and Japan are updated asneeded on the JETRO website (www.jetro.go.jp), it is also highly recommended to visit
the site.
Japan External Trade Organization (JETRO)

2

Contents

General Overview
I

The World Economy, Trade and Direct Investment

1. Current State of the World Economy and Issues to Be Solved ········································ 8(1) Development accompanied by mounting downside risks(2) Surging commodity prices and changes in balance of payments(3) Risks and issues faced by the world economy

2. World Trade ········································································································ 22(1) World trade increased by 15% in 2007, but showed a slowing trend in the real terms(2) Cereal trade rapidly increased due to surging prices[Column I-1] World rare metal and rare earth trade(3) World service trade rose 17.8% in 2007

[Column I-2]

North Korea’s trade dependent on specific countries and products

3. Global Direct Investment and Cross-border M&As···················································· 44(1) Global direct investment exceeds US$2 trillion in 2007
(2) Global M&As expanding significantly[Column I-3]

Rise of SWFs and inward investment regulation

4. Japan’s Trade and Direct Investment ······································································ 64(1) Trade in Japan(2) Japan’s outward FDI sets new record[Column I-4]

Japanese companies diversifying their base of revenue derived overseas(3) Smoothly expanding inward direct investment

5. WTO ·················································································································· 93(1) Chance to reach an agreement for the new round by the end of 2008 diminishing(2) Status of China’s conformity to the WTO rule and increasing importance of its service
liberalization

3

II Global FTA Trends and Use of FTAs for Gaining Momentum inthe Business Arena
1. Continuously Expanding Global FTA Network ························································· 106(1) The expanding global FTA network pushed by the lagging WTO talks(2) FTA strategies of Europe and the US targeting the emerging economies becoming clearer

2. Deepening of the FTAs in Japan and the Asia-Pacific nations ···································· 117(1) Japan’s FTAs and status of their utilization(2) FTAs in the Asia-Pacific region: those in effect and the status of FTA utilization[Column II-1]

Level of MFN Tariff in Major ASEAN Countries (on an Item Basis)(3) Major FTAs outside the Asia-Pacific region and status of their utilization(4) Issues surrounding FTAs

[Column II-2]

Trade relationships in the Asian region getting closer

3. Increasing importance of comprehensive FTAs: current status and utilization
status of the liberalization of investments, services and government procurement·························································································································· 151(1) Continuing importance of lowing tariffs(2) Investments and services through FTAs and status of their utilization(3) Liberalization of government procurement(4) Eliminating NTM and business barriers through comprehensive FTAs

4. Toward the active utilization of global FTAs ···························································· 182(1) Expanding Asia-Pacific FTAs and increasing utilization by companies(2) Further expansion of FTAs, and various efforts by each country

III Consumer Markets Expanding Worldwide
1. Consumption Trends in Japan and Worldwide ························································· 187(1) Japan's consumer market both maturing and facing an aging population(2) Overseas consumer markets have much room for development

2. Consumption Structure of the World and Responses by Japanese Companies ··············· 202(1) Biggest consumers of Japanese products are Asia, the US and the EU(2) Biggest sales area for US products is Europe4(3) Japanese companies showing more interest in newly emerging markets in 16 countries(4) Shift to upper income levels in newly emerging countries, mainly in the BRICs countries,
Russia, and Eastern Europe(5) Big 3 consumption items are food and non-alcoholic beverages, housing, andtransportation(6) Younger shoppers more influential in newly emerging consumer markets(7) Penetration rates for durable consumer goods in newly emerging countries expected torise further

3. Characteristics and Trends of Consumer Markets in Countries throughout theWorld ················································································································· 222(1) Consumer markets maturing in developed countries(2) Newly emerging countries hold untapped potential for consumer markets(3) US and European retailers accelerating their global expansions[Column Ⅲ-1] Example of a new car sales strategy in the Polish market(4) Japanese brands garnering high reputation for quality and after-sales service(5) Examples of Japanese companies expanding[Column Ⅲ-2] Case of a market entry attuned to changing needs in Europe(6) Intellectual property issues

4. Future Global Market Strategies for Japanese Companies ········································· 252(1) 90% of responding companies plan to either begin selling overseas or boost ongoingoverseas sales(2) Countries and markets targeted for sales growth(3) Problems faced in selling overseas(4) Progress in developing products and services for the local market, and in human resource
development

IV

Japanese Economy Headed for Further Globalization both
Domestically and Abroad (Conclusion)

Appendix

261

267

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Explanatory Notes
1. Abbreviations of publications and publishing organizations(1) IFS: International Financial Statistics (IMF)(2) DOTS: Direction of Trade Statistics (IMF)(3) WEO (D): World Economic Outlook (Database) (IMF)(4) BOP: Balance of Payments Statistics (IMF)
2. Figures (As follows, unless otherwise indicated.)(1) In text, figures and tables, “year” indicates the period January-December, and “fiscalyear” indicates the period April-March.
(2) In tables, figures for “foreign currency reserves” and “outstanding outward debt” areyear-end figures.
(3) Figures for “rate of growth” are year-on-year figures. In figures and tables,“-“ indicates lack of results, “0” indicates figures of less than a unit, and “n.a.”
indicates that figures are unclear or unavailable.
(4) Because figures are rounded, there may be discrepancies in total.
3. Country and region classifications (As follows, unless otherwise indicated.)(1) ASEAN (Association of Southeast Asian Nations): Indonesia, Singapore, Thailand,
Philippines, Malaysia, Brunei, Vietnam, Laos, Myanmar, Cambodia(2) ASEAN 4: Indonesia, Thailand, Philippines, Malaysia(3) Hong Kong and Taiwan are treated as independent economies(4) EU27: The EU15 (Austria, Belgium, Denmark, Germany, Greece, Finland, France,
Ireland, Italy, Luxembourg, Portugal, Spain, Sweden, Netherlands, UK), plus 12
new member countries (10 countries which acceded in 2004 (Cyprus, Czechoslovakia,
Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia) and 2
countries which acceded in 2007 (Romania, Bulgaria))(5) EU member candidates: Croatia, Macedonia, Turkey(6) EFTA (European Free Trade Association): Liechtenstein, Norway, Switzerland,
Iceland(7) NAFTA (North American Free Trade Agreement): US, Canada, Mexico(8) BRICs: Brazil, Russia, India, China
4. Base point in time
As a rule, the base point in time is at the end of July 2008 for the General Overview.
65. Trade statistics
World trade figures in the General Overview are as a rule based on the World Trade
Atlas, while figures in the studies by country and region, also originally a part of thisWhite paper published by JETRO, are in general based on locally published trade
statistics. Variations in the methods used by some countries and regions to convert
figures to dollars, etc., may result in discrepancies between figures in the General
Overview and figures in the studies by country and region.

7

I. The World Economy, Trade and Direct Investment
1. Current State of the World Economy and Issues to Be Solved(1) Development accompanied by mounting downside risks
In 2007, the world’s real GDP growth rate (IMF, Purchasing Power Parity [PPP]basis) stood at 4.9%, continuing its high growth from 2006. The developing economies
are what led the world’s economic growth, with the growth rate standing at 7.9%,
exceeding 7% for the fourth consecutive year and posting the highest growth rate since1980. Contribution to the overall world GDP growth rate by these economies amounted
to 67.8%. Major emerging countries such as Brazil, Russia, India, China and South
Africa all posted growth rates comparable to or higher than the previous year’s, andthese five countries made increasing contributions to world economic growth, pushing
up approximately 40% of the world economic growth rate.
On the other hand, the growth rate of developed economies was 2.7%, slowing downfrom 3% in the previous year. The economy of the United States, which accounted forapproximately 20% of the world economy on the PPP basis, grew only 2.2%, a low
growth level for the first time in five years; its contribution to the world economic
growth stood at 9.7%, falling below 10% for the first time since 2002 (Table I-1).
The subprime mortgage (housing loans for individuals with low credit scores in the
United States) problem, which triggered the decline in housing prices in the UnitedStates, came to the surface first in the form of falling stock prices and turmoil infinancial markets, but it also brought about an adverse impact on the real economy of
the United State such as through the booking of huge losses by the major financial
institutions, job losses in the related industries and the negative wealth effectaccompanying the prolonged sluggish stock market. The location and magnitude ofrisks were unclear as subprime loans had spread to financial markets through theprocess of securitization and re-securitization, which led to a further growing sense of
insecurity in financial markets. This problem turned out to be a prolonged issue as it
started to affect the credibility of insurance companies (monoline insurers) andgovernment-affiliated housing loan financial institutions, which provide credit insurance
for securitized commodities. Regarding the loss related to this problem, FRB (TheFederal Reserve Board) Chairman Bernanke showed a forecast loss of approximately
US$50-100 billion in the congressional testimony in July 2007 but the figure wasrevised upward to approximately US$100-500 billion in his testimony in January 2008,
and after that, international institutions and private institutions showed a forecast loss of8

US$800 billion – 1 trillion. The seriousness of the problem thus came to be recognizedwith time.
In the meantime, the growth rate of the economy of the United States has continued
to move at an annualized rate of 2% or lower since the fourth quarter of 2007. Housing
prices fell approximately 20% from their peak and the unemployment rate rose from
4.4% in March 2007 to 5.7% in July 2008, its highest level in four years and fourmonths. With the combination of such factors as deteriorating employment and income
and contracting consumer sentiment, a dark sign began to also be seen in personal
consumption, which accounts for approximately 70% of the GDP.
Developed economies other than the United States grew relatively solidly; the EU’s
growth rate stood at 3.1% in 2007 (IMF’s estimate in April, and 2.9% according to local
statistics), and the United Kingdom also posted a growth rate of 3.1%, higher than thatof the United States. However, the subprime mortgage problem also inflicted damage on
the real estate market, due to the declining credit worthiness of European financial
institutions, which held a large number of related financial products, and the tighteningof the investment and financing stance. As a result, housing and real estate prices fellsignificantly in countries such as the United Kingdom, Spain and Ireland.
In order to deal with the worldwide impact of the subprime mortgage problem, theU.S. government took measures such as freezing interest rates for part of the loanborrowers and the measure to expand the mortgage guarantee system by thegovernment-sponsored housing financial institutions. In addition to lowering the policy
interest rate for the seventh time since September 2007, the FRB also took measures
such as providing funds amounting to a maximum of US$30 billion in March 2008,
when the major commercial bank JP Morgan Chase & Co. bailed out Bear Stearns,
which had fund-raising difficulties. The central banks of European countries and the EUzone also took measures accordingly: In December 2007, the Bank of England switchedover to monetary easing for the first time in two years and four months, and in the samemonth, the five central banks of the United States, Canada, the United Kingdom, the EU
and Switzerland set out to cope with the situation by taking measures to ensure liquidity
in short-term financial markets.
As for developing countries, there was only a limited impact partly due to the limited
amount of the subprime mortgage-related financial products held by financial
institutions. However, in some of the emerging countries, financing became difficult
because of the reduction of investment and loans along with a declining risk tolerance offinancial institutions in the major countries, and increased fund-raising costs ininternational financial markets. In countries like Kazakhstan and Latvia, amid domestic
9credit contraction, the impact of falling stock and real estate prices became evident.
However, as of the second quarter of 2008, the situation was not so serious as to lead toany currency and economic crisis triggered by the withdrawal of short-term funds.
(2) Surging commodity prices and changes in balance of payments
 Expanding disparities among countries and regions brought about by surging
commodity prices
The turmoil in financial markets triggered by the subprime mortgage problem not
only incurred the dollar depreciation but also contributed to surging prices of resourcesand energy such as crude oil and commodities such as cereals.
In the European foreign exchange market on March 13, the value of the yen briefly
rose to 99.77 yen/dollar, marking the first time in twelve years and five months (since
October 1995) that the dollar has fallen below 100 yen. Dollars were sold heavily
against the euro, too, and in late April, the euro-dollar rate reached 1.602 dollars/euro,
posting a record high since the introduction of the currency in 1999. The dollar’snominal effective exchange rate released by the FRB significantly devaluated against
the currencies of major trading partner countries and also depreciated against othercurrencies on the whole.
Along with the dollar depreciation, investment funds, which averted dollar-dominatedassets, flowed into commodity markets such as crude oil, precious metals and cereals,
thereby causing commodity prices to surge along with expectations of expanding
demand in emerging countries. Crude oil prices were on a consistently rising trend fromearly 2007 and rose above 100 dollars per barrel for the first time at the New York
Mercantile Exchange in February 2008 and continued to move at high ranges thereafter
as well. This movement spilled over to precious metals such as platinum and basemetals such as aluminum, nickel and tin, and from 2007 onward, prices of cereals suchas wheat, soybeans, corn and rice also rose significantly. In July 2008, theReuters/Jefferies CRB Index, which indicates the overall movement of internationalcommodities, rose more than 50% from the level of early 2007 (Fig. I-1).
Rising commodity markets have led to mounting inflationary pressure, and the degreeof the impact varies by country or region. In terms of the impact on people’s livelihood,the increase in food prices causes particular concern. In addition to the temporary factorof poor harvest in the major food-producing countries, the inflow of investment funds,
increasing transport costs due to surging crude oil prices, and the structural factor of
growing demand for cereals as a result of the popularization of biofuels were raised as
the reasons behind this, and the impact has become serious in developing countries. In
10cases where the floating exchange rate regime is adopted as the currency system, theimpact of increasing commodity prices on domestic prices is partially offset through thedollar depreciation (or the appreciation of the currency of respective country or region),but more than a few developing countries have fixed the exchange rate of their own
currency against dollars in a certain range based on the fixed exchange rate system orintermediary exchange rate system. (1) In such countries, food price hikes under the
dollar depreciation have a larger impact on domestic prices than under the floatingexchange rate regime. On top of that, as the ratio of food (Engel’s coefficient) isrelatively high among consumption expenditure in developing countries, the damage toconsumer prices, and consequently people’s living, is of major proportions (Fig. I-2). In
particular, such impact is very serious in low and middle income countries and has evendeveloped into social problems, as was seen in countries like Haiti, Yemen and Egypt
where protest movements and civil commotions actually happened due to rising foodprices.
--------------------------------------------------------------------------------------------------------1. According to the survey conducted by the IMF in July 2006, 36 countries adopted the fixed exchange
rate system (such as currency board and dollarization) and 63 countries adopted the intermediaryexchange rate system (such as soft peg, band, and crawling peg).

---------------------------------------------------------------------------------------------------------

Surging food prices have also had an impact on individual countries’ trade policy, andpart of the cereal-exporting countries, such as India, Vietnam, China, Cambodia,
Indonesia, Argentina, Egypt, Russia, Ukraine and Kazakhstan, decided to introduce
export regulations like controlling the export volume and raising export taxes regarding
commodities such as wheat, rice and corn, for the purpose of putting top priority on
domestic supply. On the other hand, among the importing countries, in addition to
Mexico, which abolished import duties on commodities such as wheat, rice andfertilizers, Saudi Arabia is moving to ensure food supply by taking measures like
reducing the import duty on wheat from 25% to 0%. Regarding biofuels, there are also
conflicts of interests among individual countries. While the impact on surging foodprices is limited in cereal-producing countries, such as the United States and Brazil,
which are promoting the popularization of biofuels as a measure to cope with global
warming, the EU, Japan and other developing countries have moved to request that aninternational guideline be introduced for the utilization of cereals for biofuels, whichcauses the tightening of market supplies.
In the declaration of the “High-Level Conference on World Food Security” (FoodSummit) held under the auspice of the Food and Agriculture Organization of the United
11Nations (FAO) in June 2008, regarding export regulations, the conference merely
reaffirmed the need to minimize the use of restrictive measures that could increase
volatility of international prices. In the same way, regarding biofuels, the conclusion
was postponed, with no specific measures, such as the introduction of a guideline, being
mentioned in the declaration.
The Leaders Declaration of the G8 Hokkaido Toyako Summit held in early Julycontains the common policy to address the issues, such as releasing individual
countries’ stockpiles for assistance, expanding long-term producing capacity of farm
crops and expanding the stockpiling system. In addition to that, regarding biofuels, thedeclaration also made way toward developing and popularizing new fuels that will nothave an adverse impact on food supply. The declaration also clearly pointed out thatexport regulations should be abolished, marking a step forward from the declaration of
the Food Summit.
Impact of deteriorating terms of trade varying by country or region
Rising commodity prices not only incur inflation but also impact the economies ofindividual countries and regions along with the change in the terms of trade (thequantity of imported products that can be exchanged for one unit of exported product).
For countries importing resources and energy, the terms of trade deteriorate due to rising
import prices, with part of the real national income flowing out to foreign countries(trading losses). At the same time, for exporting countries, the improvement in the termsof trade boosts their income (trading gains) (Fig. I-3). While trading gains are sharply
increasing for countries that export primary commodities such as oil and cereals, trading
losses are expanding for developed countries and developing countries in Asia. As aresult, in consuming countries, personal consumption and capital investments areadversely influenced due to declining national income on the real basis, while inexporting countries, investments and consumption become very active. In other words,
disparities in economic growth come into being due to transfers of income from primary
product-consuming countries to exporting countries.
Regarding the major countries and regions for which the terms of trade havedeteriorated, especially European and Asian industrial countries and regions, judged by
the conditions of income from abroad (employees’ compensation accompanying thetransfer of labor and investment income accompanying the transfer of capital), countries
such as South Korea and Thailand have covered their trading losses mainly by
expanding net export, while advanced industrial countries, such as Japan and Germany,
and Taiwan have made up for the income outflow to foreign countries by expanding
12

both net export and income from abroad. In this way, the structure to cover thedeteriorating terms of trade varies by country or region (Table I-2). Japan has seen
steady increases in both net export and net income from abroad since the 1990s. As aresult, with the income outflow caused by the deteriorating terms of trade being madeup for by both trade and income generated from investments (interest revenue anddividends), Japan still has a surplus, and compared to other countries, it has a balanced
structure.
In contrast, for countries such as South Korea and Thailand, which depend solely on
net export, the impact when exports are apparently hurt due to the dollar depreciation(the appreciation of the local currency) in the future also causes concern, in addition to
the deteriorating terms of trade.
Surging commodity prices resulting in changes in structure of balance of
payments
Surging commodity prices not only brought about changes in the structure of thebalance of payments but also significantly changed the capital and financial balance, i.e.,
the fund flow, in individual countries or regions. According to the IMF, developing
countries’ current account in 2007 resulted in a surplus amounting to US$630.9 billion,rising by 8.2 times over the past five years from the level in 2002, when crude oil prices
started to rise. Not only did the magnitude of the surplus significantly expand for Asiandeveloping countries headed by China, as well as oil-exporting countries, but thecurrent account of countries exporting primary products other than oil turned to asurplus, with the magnitude of the surplus sharply expanding from US$44 million in2004 to US$9.2 billion in 2007. In particular, oil-exporting countries’ current surplus(US$423.5 billion) reached a scale nearly comparable to developed countries’ overall
current deficit (US$463.3 billion). In contrast to this, the current deficit of developing
countries other than those in Asia, which do not export oil or primary products, has been
rising, and among them, Central and Eastern European countries showed an expanding
magnitude of deficit (Fig. I-4).
In terms of the balance of payments, the current account corresponds to the capitaland financial balance (investment balance and other capital balance) and the changes inforeign exchange reserves. Foreign exchanges obtained by oil-exporting countries have
not only been accumulated as a cash equivalent (other investments in the investment
balance, in countries such as Nigeria, Kuwait and Venezuela) or foreign exchange
reserves (in countries such as Angola, Nigeria and Russia), but have also been invested
overseas as funds for securities investment (in countries such as Bahrain, Ecuador,
13

Kuwait, Saudi Arabia and Venezuela). Some of these countries have also allotted suchfunds to purchase developed countries’ stocks and other financial assets via thegovernment-affiliated funds (Sovereign Wealth Fund, hereinafter referred to as SWF)
that they hold (SWF will be explained in detail in Column I-3). Regarding direct
investment, the oil-exporting countries as a whole showed a net inflow in general, partly
due to active plant construction by foreign capital (Fig. I-5 and Table I-3).
Active outward investments by developing countries, mainly by oil-exporting
countries, have had an impact on the worldwide movement of funds as well. Much of
the funds from oil-producing countries seem to flow into international financial markets
via financial centers such as London and tax havens represented by the Caribbean
Islands, and their presence is steadily growing. In fact, in terms of the investment trends
in long-term US securities from 2002 to 2007, the total value of transactions by foreign
investors (the sum of the purchase and sale values) increased to approximately 2.3 times,
from US$25.5 trillion to US$58.5 trillion. Among this increase, 44.4% of it weretransactions with the United Kingdom and 33.0% with the Caribbean Islands,
accounting for 36.9% and 34.2%, respectively, in 2007, with the total of the two
accounting for more than 70% (Fig. I-6). These funds are considered to be flowing not
only into financial markets but also into commodity markets, being one of thecontributing factors of surging markets.
(3) Risks and issues faced by the world economy
 Worrying impact of the economic slowdown in the United States and China
According to the forecast made by the IMF in July 2008, the world economy in 2008
was expected to grow 4.1%, which would be the lowest growth rate since 2004. All of
the major developed economies would grow at a rate lower than in 2007, such as at
1.3% in the United States; on the other hand, in developing countries, though it is lower
than in the previous year, a growth rate of 6.9% is expected to continue to serve as anengine to lead the world’s economic growth.
The pattern of growth led by developing countries is expected to lead to stable
growth of the world economy through the multi-polarization of growth centers.
However, if the U.S. economy slides into a prolonged stagnation, damage will be
unavoidable for developing economies as well, which have so far played the role of anengine for the world economy over the past few years. In particular, if the dollar
depreciation, which has been one of the factors in surging commodity prices, isprolonged, it will possibly incur a slowdown or decline in exports to the United States
after a time lag, thereby leading to mounting downward pressure on the economy of14

trading partner countries or regions. What calls for attention from this point of view is
the trend of the Chinese economy. Since the beginning of 2000, the Chinese economy
had maintained a high growth rate of around 10% with the total fixed capital formationand net export as its core. However, as the ratio of exports to the United States (value ofexports to United States/net export value) rose from the 5-9% range in the 1980s to
19.5% (on the DOTS basis) in 2007, China has become easily affected by the economyof the United States. Mounting inflationary pressure may also become a restraining
factor for the fixed capital formation and personal consumption, and the Chinese
economy is facing uncertainties regarding both domestic and foreign demands. If theChinese economy shifts from slowdown to stagnation, that may hurt other Asian
countries which have raised their degree of dependence on exports to China (Fig. I-7).
Regarding developed countries, there has been growing concern about stagflation, i.e.,heightening cost-push inflationary pressure under growing uncertainties over the
economic prospects, and it is assumed that individual countries and regions may cometo have more difficulties in enacting any fiscal and monetary policy. Furthermore, fromthe viewpoint of inflation-checking, the governments and central banks of individual
countries have deepened their concern about the depreciation of their own currencies,
and the conflict of interests surrounding the exchange policy is gradually deepening. At
the G8 meeting (meeting of financial ministers of the eight major countries) held inJune, some member countries expressed their concern about the trend in the foreignexchange market, but no well-defined agreement was reached.
Developing countries might be expected to continue to serve as the engine in thegrowth of the world economy, but they are facing the issue of overcoming inflation,
which is more serious than in developed countries. In countries that export primary
products, high growth has been brought about largely not by the autonomous factors
resulting from active personal consumption and capital investments but by the surging
commodity prices. The fact that they have not completely overcome the fragility of thebasis for growth can also become a risk factor.


Movements of speculative funds becoming a destabilizing factor
Moreover, one cause for concern is that financial markets, which are originally
expected to better facilitate the resource allocation of the economy, on the contrary may
become a destabilizing factor for the real economy. In particular, it continues to be amajor cause of concern that the inflow of a large amount of speculative money into thecommodity market prevents the formation of reasonable commodity prices, and this ishurting the real economy. In fact, at the point of the third and fourth quarters of 2007,15

reasonable crude oil prices were considered to be approximately US$50-60/barrel ifviewed from the supply–and-demand factor, and actual prices are pointed out to havesubstantially deviated from that level. (2) Because of the difficulties in grasping the
movement of funds flowing from financial markets to the commodity market, the jointstatement of the G8 meeting required the IMF to analyze and report the factors of theprice increase for crude oil and primary products in terms of both actual demand andfinancial factors. The statement of the emergency meeting between oil-producing andoil-consuming countries held in late June also stated that it is necessary to analyze theimpact of financial markets on crude oil prices. These approaches won support at the G8
Hokkaido Toyako Summit and are expected to eventually enhance market efficiency
and transparency and to stabilize prices.
--------------------------------------------------------------------------------------------------------2. “FY2007 Annual Energy Report” by Agency for Natural Resources and Energy (May 27, 2008)---------------------------------------------------------------------------------------------------------



Issues for the revitalization of the Japanese economy
Under the circumstances where the world economy has faced issues such as turmoil
in financial markets and surging commodity prices, the Japanese economy in 2007
continued to be solid despite destabilizing factors. However, since the beginning of
2008, concern about an economic recession has surfaced, and in fact, the GDP growthrate for the April-June quarter posted minus growth by falling 2.4% yoy.
From a long-term point of view, Japan has entered a society with a dwindling
population ahead of other developed countries, and how to revitalize the economy andrealize sustainable growth amid ongoing maturation has become an issue. Judged fromthe balance of payments, the current Japanese economy is trying to form a structure
under which it can withstand the sharply deteriorating terms of trade with efforts todiversify not only exports but also income from abroad. However, how to absorb
emerging countries’ vitality both in trade and investment might become increasingly
important to the overall economy as well.
On the other hand, there is concern as well that overseas expansion by companies
amid the ongoing population decrease and market maturation may possibly lead to thehollowing out of Japan’s industry. From this point of view, in order to revitalize theeconomy, enhancing productivity while ensuring and expanding employment
opportunities by accelerating foreign companies’ investment in Japan will also be aneffective approach in addition to outward investment. That is, revitalizing both theinternal and external flows is considered to be an important issue for establishing themid- and long-term basis for growth.
16

Table I-1

GDP growth and contribution by country and region
(%)
2004

2005

2006

2007

Growth rate

Contribution

Growth rate

Contribution

Growth rate

Contribution

Growth rate

Contribution

3.6
2.7
2.7
8.3
10.1
4.7
6.3
7.8
7.9
6.2
5.7
6.9
7.2
5.9
6.5
4.9

16.9
13.5
4.0
26.2
17.7
1.8
4.7
0.5
6.3
10.1
3.3
5.4
4.3
4.3
3.8
100.0

3.1
2.1
1.9
8.1
10.4
4.2
5.6
8.4
9.1
4.6
3.2
6.1
6.4
5.7
5.7
4.4

15.7
11.3
3.1
29.5
21.3
1.8
4.8
0.6
8.4
8.5
2.1
5.3
4.3
4.8
3.8
100.0

2.9
3.3
2.4
8.8
11.1
5.1
6.0
8.2
9.7
5.5
3.8
6.6
7.4
5.8
5.9
5.0

12.8
15.3
3.4
29.3
21.2
1.9
4.5
0.5
8.2
8.9
2.1
5.2
4.5
4.3
3.5
100.0

2.2
3.1
2.1
9.1
11.4
5.0
6.4
8.5
9.2
5.6
5.4
5.8
8.1
5.8
6.3
4.9

9.7
14.4
2.9
32.0
23.4
1.9
5.0
0.6
8.3
9.4
3.1
4.7
5.1
4.4
3.8
100.0

3.2
7.5
8.3
8.5

39.3
60.0
32.3
31.6

2.6
7.1
8.3
8.4

34.7
64.5
36.8
36.0

3.0
7.8
9.0
9.2

35.0
64.2
36.8
36.1

2.7
7.9
9.5
9.6

31.1
67.8
40.6
39.9

U.S.
EU27
Japan
East Asia
China
South Korea
ASEAN10Vietnam
India
Central and South America
BrazilCentral and Eastern Europe
RussiaMiddle East
AfricaWorld
Reference
Developed countries
Developing countries
BRICS（incl. South Africa)
BRICｓ（excl. South Africa）(Notes)(1) The world GDP growth rate is calculated with IMF’s weighted purchasing power parity (PPP).
(2) Contribution by each country and each region is calculated with weighted PPP for 2007.
(3) East Asia includes 10 ASEAN countries, China, South Korea, Hong Kong and Taiwan.
(4) The figures may differ from other parts due to the revision of and difference in the original statistics.
(5) The definition of the developing country follows WEO (IMF).
(Sources) Prepared based on WEO (IMF)

Fig. I-1

Dollardep reciation

Commodity price indictor and nominal effective yen-dollar exchange rate
Risingcommodity
350 p rices

60
Reut ers/Jefferies CRB Index (right scale)

65

Dollars' nominal effect ive rat e (vs. ot her currencies)
300

Dollar's nominal effect ive rat e (vs. currencies of major count ries and regions)70

Dollars' nominal effect ive rat e (broad)

75
250

80
85

200

90
150

95
100
100

105

17

/0
5

/0
1

(Source) Prepared based on data of Thomson Reuters, and FRB.

08

/0
9
07

08

/0
1

/0
9

/0
5

/0
1

/0
5
07

07

06

06

/0
5

/0
9

06

05

05

/0
9

/0
5

/0
1

/0
9

/0
1
05

04

04

04

03

/0
1

/0
9

/0
5

/0
5
03

03

02

/0
1

02

50

02

110
Dollarap p reciation

Falling
Fallingcommodity
commodit
yp ricesp ricesFig. I-2
pricesCorrelation between Engel’s coefficient and inflation rate of consumer

Inflation rate of CPI (average of annual rate for 2000-2007)

25
20
15
10
5
0
Developed countries (food-exporting countries and regions)
Developed countries (food-importing countries and regions)
Developing countries (food-exporting countries and regions)
Developing countries (food-importing countries and regions)

-5
-10
0

10

20

30

40

50

60

Engel’s coefficient(rate of food spending to total consumption expenditure, average for 2000-2007)(Notes)(1) The classification of developed and developing countries is based on WEO.
(2) The classification of food-exporting countries and regions, and food-importing
countries and regions are based on the annual net export and import of foodfrom 2000 to 2005 in the statistics of FAO and individual countries.
(sources) Prepared based on WEO (IMF), Euromonitor International and individual countries

Fig. I-3

Terms of trade by major country and region(Benchmark 2000 = 100)

140.0

180.0

Developed countries
U.S.
Japan
EU
Developing countries
Asian developing countries
Non-oil exporting developing countries
Middle East (right axle)

140.0

100.0

100.0

60.0

60.0

20.0
2000

2001

2002

2003

2004

2005

(Note)(1) Terms of trade (simplified)= Exports divided by Imports
18(2) Courtries /regions are based on IFS.
(Source) prepared based on IFS (IMF)

2006

2007

Table I-2 Trade gain and structure of income from abroad for major countries(2000 as a benchmark, ratio to GDP)
（%）
U.S.

UK

Trading Net income
Trading
Net income
gains/losses from abroad Net exportSum
gains/losses from abroad Net export
Sum
1980s
-0.5
0.8
-1.3
-1.0
-1.1
-0.9
2.6
0.6
1990s
-0.2
0.4
-1.1
-0.9
-0.5
-0.4
0.9
0.0
2000s
0.2
0.5
-4.9
-4.2
0.3
1.6
-4.1
-2.1
(Recent year)
-0.2
0.5
-5.5
-5.3
0.2
2.3
-5.7
-3.3
Germany
Japan
1980s
-1.3
0.6
-0.1
-0.8
-0.6
0.3
2.3
1.9
1990s
1.1
-0.2
-0.3
0.5
0.7
1.0
0.8
2.5
2000s
0.1
-0.1
4.0
4.1
-1.1
2.1
2.4
3.4
(Recent year)
-0.3
0.9
7.3
8.0
-3.4
3.2
4.7
4.6
South Korea
Malaysia
1980s
3.2
-1.8
-2.8
-1.3
-0.1
-5.4
8.2
2.7
1990s
6.0
-0.5
-5.2
0.3
5.0
-6.6
-0.7
-2.4
2000s
-4.3
0.0
6.7
2.4
2.8
-6.6
19.3
15.4
(Recent year)
-9.8
0.1
10.8
1.2
8.9
-4.5
16.9
21.2
(Reference) Thailand [1988 basis](Reference) Taiwan [2001 basis]
1980s
-0.5
-1.4
-1.5
-3.5
-0.7
1.2
6.8
7.3
1990s
-1.9
-1.8
0.4
-3.3
1.7
1.7
0.3
3.7
2000s
-9.2
-1.2
13.9
3.5
-3.3
2.4
8.5
7.7
(Recent year)
-11.1
-1.3
14.5
2.1
-8.5
2.5
15.6
9.6
(Notes)(1) The profit gain (loss) shows the relative change in income from abroad accompanying thechange in terms of trade from the benchmark year, and it is therefore necessary to notethat it is improper to make simple comparisons between different points of time or between
countries or regions with a different benchmark year.
(2) The figures for the 1980s, 1990s and 2000s are the average figures for the period covered.
(3) 2006 was the latest year for the United States, Thailand and Malaysia, 2005 for the UK and2007 for the others.
(4) For Thailand and Malaysia, the 1980s covers the period from 1988 to1989.
(Sources) Prepared based on data from the OECD, Asia Development Bank and statistics of individual countries
and regions

Fig. I-4

Current account of major countries(US$ billion)

1000
800
600
400

Develop ed countries (31 countries)
Central and Eastern Europ e (13 countries)
Others (63 countries)
Primary p roduct (non-fuel)-exp orting countries (20 countries)
Asia (21 countries)
Oil-exp orting countries (24 countries)
Develop ing countries in total (141 countries)

200
0
-200
-400
-600
-800
2000

2001

2002

2003

2004

2005

2006

2007

(Note) Countries and Regions are based on the definition of the WEO (IMF), with an exception that Papua New Guinea and Solomon Islands are excluded.
(Source) Prepared based on WEO (IMF)

19

Fig. I-5

Oil-Exporting Countries' Structure of Balance of Payments（US$ billion)

350
OthersChange in foreign exchange reserves
Cash deposit
Lending & borrowing
Trade credit
Securities investment
Direct investment
Current account

300
250
200
150
100
50
0
△ 50
△ 100
95

96

97

98

99

2000

2001

2002

2003

2004

2005

2006

(Notes)(1) 16 out of the 20 oil-exporting countries defined by the IMF (countries with fuel exports accounting for more than
50% of the total exports) from which data is available: Angola, Azerbaijan, Bahrain, Republic of Congo, Ecuador
Kuwait, Libya, Nigeria, Oman, Russia, Saudi Arabia, Sudan, Syria, Trinidad and Tobago, and Venezuela.
(2) For 2006, 13 countries, with Republic of Congo, Nigeria, and Trinidad and Tobago excluded.
(Sources) Prepared based on BOP (IMF)

Table I-3

Major Oil-Exporting Countries' Structure of Balance of Payments(Unit: US$ billion)
RussiaSaudi Arabia
1980s
Current account
Capital and financial accountFinancial accountDirect investment
Portfolio investment
Other investment
Capital account
Change in foreign exchange reserves
Error and omission
Current account
Capital and financial accountFinancial accountDirect investment
Portfolio investment
Other investment
Capital account
Change in foreign exchange reserves
Error and omission

1990s

2000s

2.1 △ 94.1
304.6
94.2 △ 294.6△ 4.6
94.2 △ 294.6
△ 4.6
23.5
7.2
△ 2.3
9.0 △ 196.0△ 26.1△ 2.1
78.0 △ 96.3
2.5 △ 0.1 △ 10.0
△ 0.0 △ 0.0△ 0.0
Kuwait
74.4
10.0
140.1
31.5 △ 122.0△ 61.031.7 △ 132.4△ 61.0
2.2
△ 3.3
△ 8.1
△ 2.1 △ 18.4 △ 87.9
47.8 △ 36.4
△ 55.7
0.0 △ 0.1
10.4
△ 2.4 △ 1.8△ 7.2△ 11.0 △ 39.7 △ 10.9

(2006）

99.1△ 98.2△ 98.20.7△ 78.6△ 20.3
△ 0.9
△ 0.0

1980s

1990s
-

51.0
9.6
△ 47.1 △ 13.2
△ 48.0 △ 13.2
0.2
△ 7.8
2.6
△ 25.4△ 14.8 △ 16.1
0.9
8.2
△ 3.6
△ 0.3 △ 4.6

2000s(2006）

50.4
383.5
94.3
5.8
△ 1.5 △ 64.1
5.6
△ 1.6 △ 38.2
7.8
8.9
9.2
55.4 △ 8.1
15.4△ 64.9 △ 39.2 △ 18.9
0.1 △ 26.0
0.2
△ 4.0 △ 276.1 △ 107.5
7.4△ 44.9 △ 43.2
Venezuela
19.2
101.0
27.1
△ 1.0 △ 65.3 △ 19.2
△ 1.0 △ 65.3 △ 19.2
16.4
7.8
△ 2.7
20.3 △ 15.8
△ 9.4
△ 37.7 △ 57.2
△ 7.2
△ 8.6 △ 17.1
△ 5.1
△ 9.5 △ 18.6
△ 2.8

(Notes)(1) The value is the sum obtained by adding up each year's value for a decade.
(2) A positive number stands for the fund inflow and a negative number for the fund outflow, and the change
in foreign exchange reserves indicates an increase in assets of foreign exchange reserves if it is negative.
(Sources) Prepared based on BOP (IMF)20

Fig. I-6 Transaction Value of Long-Term Securities of United States by Major
Country and Region
80

72.1

Others70

Euro zone

60

Japan

58.5

Caribbean States

50

United Kingdom

41.0

40
30

25.5

26.3

2002

2003

33.3

29.4

20.0
20
10
0
2001

2004

2005

2006

2007

2008

(Note) For 2008, the sum for the January-March quarter was converted to the annual rate.
(Sources) Prepared based on "Treasury International Capital System" (Department of the Treasuryof the United States)

Fig. I-7
to U.S.

Ratios of Major Regions' Exports to China and Ratio of China's Exports

25

14
Ratio of exports to China (developed countries)
Ratio of exports to China (developing countries)
Ratio of exports to China (Asian developing countries)
Ratio of China's exports to U.S. (right scale)

12

20

10
15

8

6

10

4
5
2

0

0
80

83

86

89

92

95

98

2001

2004

2007

(Note) The classifications of developed country, developing country and Asian develocountry are based on DOTS (IMF).
(Sources) Prepared based on DOTS (IMF)21

2. World trade(1) World trade increased by 15% in 2007 but showed a slowing trend in real
termsWorld trade in 2007 (merchandise trade, nominal export basis) rose 15.0% yoy toreach US$13.76 trillion, posting a double-digit increase for the fifth consecutive year
(Table I-4).
However, the real export growth rate, excluding price changes and the impact offoreign exchanges, slowed to 5.6% from 10.5% in 2006, posting the lowest growthsince 2003.
The growth rate of world trade is broken down into two parts, the price factor (export
price index) and the volume factor (export volume index, real exports), and in 2007, theexport price growth rate rose 9.4% (dollar-based, IMF), with the price factor
significantly outpacing the volume factor. Primary product prices also rose 14.0% in
2007, continuing to post an increase following 2006 (up 23.2%). In particular, metal andfood prices (headed by cereals) surged and boosted the nominal export value. Crude oil
prices posted a double-digit increase (up 10.7% in 2007), following the previous year.
Industrial products also showed an increase of 9.7%, up from 3.8% in 2006.
The exchange fluctuations also had an impact on the trade expansion in 2007. As
major currencies other than the yen and Hong Kong dollars rose against the US dollars,
the dollar based world trade boosted.


China’s exports ranked second in the world
World trade (nominal export basis) in 2007 expanded in almost all countries andregions partly due to the impact of the dollar depreciation. Exports by industrial
countries increased by 13.7% to US$7.6 trillion, while those by developing countries
rose 16.8% to US$6.159 trillion (Table I-6). The underpinning of world trade by
developing countries has been a feature in the recent years and, also in 2007, developing
countries’ growth rates of both exports and imports were higher than those of developed
countries. The developing countries’ share in world exports reached 44.8%. By region,
exports by EU27 (hereinafter referred to as EU) and East Asia were strong, and they
contributed to 40.8% and 24.7%, respectively, of the world trade expansion.
Exports from the EU, which accounted for 38.7% of world trade, rose 16.0% to
US$5.32 trillion. As for exports to countries outside EU, exports to Russia rose 34.5%
to US$121.3 billion thanks to an increase in passenger car exports. However, theincrease in the dollar-based trade value was largely attributed to a value-boosting effectof the euro appreciation, and on a euro basis, EU’s export value rose merely 5.8%,
22

slowing from 12.8% in the previous year. Among EU member countries, exports fromthe three Central and Eastern European countries were strong, rising 26.7% to
US$356.6 billion, thanks to expanding exports of precision machinery and chemicals.
On the other hand, exports from the UK fell 0.8% to US$443.7 billion, turning to a
decline for the first time in six years. In particular, exports to EU member countries fell.
The trade value in 2006 was significantly overstated for some products due to theimpact of the VAT frauds (3) mainly in the UK, and in 2007, the trade value is considered
to have fallen in reaction to that.
---------------------------------------------------------------------------------------------------------3. In the EU, there are rampant frauds abusing the mechanism of Value Added Tax (VAT). The swindlers
buy in tax-free commodities from other EU member countries, while evading taxes when selling them.,and that has become a problem. In the UK in particular, as trade statistics are retrospectively revised bytaking the fraud-related amount into account, statistical figures may change substantially in some cases.

----------------------------------------------------------------------------------------------------------

Exports from the US, which accounted for 8.4% of total world exports, rose 12.1% to
US$1.16 trillion, expanding at a rate comparable to 2006 (up 14.4%). Exports to theMiddle East and Africa were very active. On the other hand, imports rose 5.6% to
US$1.96 trillion, which was a growth rate notably lower than for other major countries.
The economic slowdown in the US contributed to slowing imports from Japan and other
Asian countries. As a result, US trade deficit contracted for the first time in six years,
falling 2.8% to US$794.5 billion.
Australian exports rose 14.5% to US$141.3 billion. As a result of surging primary
product prices, exports expanded for products such as iron ore (up 26.3% to US$13.7
billion) and gold (up 35.4% to US$9.5 billion). Exports to China posted a significant
increase by rising 30.3% to US$20 billion.
Exports from Russia rose 23.5% to US$279.7 billion due to surging resource prices.
Exports of oil and oil products, the major export items, expanded by 17.2% to reach
US$161.4 billion, which accounted for 57.7% of the overall exports. Imports also
expanded by rising 48.0% to US$189.6 billion due to brisk domestic demand. Importsof transport equipment, machinery/equipment, electric machinery and plastics all posted
an increase of more than 30%. In particular, passenger cars showed a sharp increase of
67.6% to US$21.3 billion, of which those imported from Japan accounted for 37.3%.
Exports from Brazil recorded an increase of 16.9% to reach US$160.6 billion. Crudeoil (up 29.2% to US$8.9 billion) and corn (quadruple to US$1.9 billion) exports rosedue to the surging prices. Imports also significantly expanded by 32.0% to US$120.6
billion due to the Real appreciation. Imports from China showed a striking increase, and23

products such as electric machinery (up 36.8% to US$4.3 billion) and generalmachinery (up 70.1% to US$2.4 billion) took the lead, with the overall imports
expanding 57.9% to US$12.6 billion.
Exports from the Middle East had expanded at a rate of more than 20% each year
since 2003 but the growth slowed to 12.5% in 2007. This was attributed to the slowing
growth rate of crude oil prices. The Middle East’s share in world exports contracted forthe first time in five years, falling 0.1 points yoy to 4.7%. Exports by Turkey rose 25.3%
to US$107.2 billion, growing at a rate higher than 16.6% in 2006. Imports were alsostrong, rising 21.8%, and imports from China and Russia in particular rose 36.9% and32.0%, respectively. Imports from the US also posted a sharp increase of 30.4% due tothe dollar depreciation.
Exports from East Asia rose 17.2% to US$3.03 trillion. In particular, exports from
China expanded noticeably by 25.7% to reach US$1.22 trillion. The country’s export
value posted an increase of more than 20% for the sixth consecutive year, exceeding the
US$1 trillion mark for the first time. As a result, China’s share in world exports rosefrom 8.1% in 2006 to 8.9% in 2007, and China, overtaking the US, became the second
largest exporter after Germany. While the US accounted for a significant proportion(19.1%) of the export destination, expanding exports to Russia (up 79.9%), India (up64.8%) and Vietnam (up 59.4%) in particular draw attention. By products, electricmachinery rose 32.0% to US$300.3 billion and transport equipment rose 43.1% to
US$55 billion. These two accounted for approximately 30% of the total export value.
Exports from the ASEAN (Singapore, Thailand, Malaysia, Indonesia, the Philippines
and Vietnam), led by Thailand (up 25.2% to US$163.5 billion), rose 13.5% to US$852.2
billion. Exports from Thailand to member countries such as Indonesia (up 53.5%) and
Vietnam (up 32.1%), and to China (up 35.1%) increased. Exports of general machinery(up 28.8% to US$30.9 billion) and transport equipment (up 35.9% to US$15.7 billion)
were very active. Cereals rose sharply 45.1% to US$3.9 billion due to surging rice
prices, though accounting for a small percentage of 2.4%. Exports from Vietnam rose
21.9% to US$48.6 billion, achieving high growth exceeding 20% for the fifth
consecutive year. Imports were also strong, rising 39.6% to US$62.7 billion.
India’s exports rose 21.7% to US$147.6 billion while imports rose 25.8% to
US$217.5 billion, both expanding at approximately the same rate as in the previous year.
Exports of oil and oil products rose 35.6% to US$23.9 billion, and imports of products
such as chemicals (up 30.4% to US$23.4 billion) and electric machinery (up 32.9% to
US$18.6 billion) were strong.

24Machinery/equipment and base metals played the leading role in world trade
but mineral fuels slowed down
The majority of products posted a double-digit increase in 2007 (Table I-7).
Exports of machinery equipment, which accounted for 40.7% of world trade, rose
13.0% to US$5.6 trillion, contributing to 35.9% of the world trade expansion. China(11.1% of total exports) overtook the US (10.8% of the total) for the first time tobecome the second largest exporter after Germany. In terms of electric machinery,
China had become the largest exporting country in the world in 2004 (16.6% of thetotal).
Transport equipment rose 16.9% to US$1.55 trillion. Automobiles rose 17.0% to
US$753.8 billion, and exports from the US (up 26.2% to US$60.7 billion) wereparticularly strong. Along with the shift of production bases to overseas by major
automobile manufacturers, exports from developing countries, such as Thailand (up32.4%), China (to 2.1 times), Russia (up 54.1%), Turkey (up 29.8%) and Eastern
European countries expanded as well. The share of automobile exports accounted for bydeveloping countries rose from 19.9% in 2006 to 20.9%, and the growth rate posted ayoy increase for the second consecutive year (up 23.1% in 2007).
Chemicals rose 17.3% to US$1.77 trillion, contributing to 14.5% of the world trade
expansion. Exports of pharmaceuticals, which accounted for approximately 20% of thechemicals, expanded by rising 19.3% to US$345 billion, and among them, exports by
EU member countries such as Germany (up 29.3% to US$56.2 billion) and theNetherlands (up 31.7% to US$17.3 billion) contributed to 72.0% of the world
pharmaceutical export expansion.
Mineral fuel exports had expanded at a rate of more than 20% from 2003 onward, but
the growth diminished in 2007 to 11.4%. Exports of oil and oil products, which
accounted for 84.6% of the mineral fuels, slowed down from an increase of 25.3% in2006 to 12.0% (US$1.45 trillion). The growth rate in crude oil prices slowed down from
20.5% in 2006 to 10.7%, which led to a declining growth of the export value. The
growth rate of exports fell for the Middle East, which accounted for 27.7% of totalexports, from an increase of 30.6% in 2006 to an increase of 9.3%, and also for Africa,
which accounted for 14.3% of total exports, from an increase of 31.4% to an increase of
14.5%. However, during the period between January and May 2008, crude oil pricesrose 71.7% over the corresponding period of 2007, and the trade value (import basis) of
the major countries (20 countries from which data was available) increased by 69.0% in
the first quarter. If this trend continues, the export value on the full-year basis may beboosted once again.
25

Liquefied natural gas (LNG) exports rose 12.4% to US$57.7 billion, with growthsignificantly slowing down from an increase of 33.3% in the previous year. Exports of
LNG from Indonesia, which used to have the largest export value, turned to a decline
for the first time in five years, down 2.2% to US$9.8 billion. As a result, the shareaccounted for by Indonesia fell from 19.5% in 2006 to 16.9%, and Qatar rose to the top
in terms of export value (17.6% of total exports). In Indonesia, exports are on adeclining trend due to factors such as production losses resulting from the deteriorationin the existing gas fields.
Textile exports rose 9.9% yoy to US$609.4 billion. Exports by China, which
accounted for 27.2% of the total, rose 20.1% to US$165.8 billion, but the growth rate
slowed for the first time in three years. However, exports from Vietnam were strong,rising 21.4% to US$7.9 billion, albeit a small share of 1.3%. Vietnam’s exports to the
US seem to have risen due to the abolishment of regulations on textile exports to thecountry along with Vietnam’s accession to the WTO in 2007. The US’ textile imports
from Vietnam rose 35.7% to US$4.4 billion.
Base metals and base metal products rose 22.5% to US$1.19 trillion, contributing to
12.2% of world trade expansion. In particular, steel rose 26.0% to US$672.4 billion, andChina (with a share of 11.4%), became the largest exporting country, overtaking
Germany (with a share of 10.6%). In terms of primary products of steel, China rosefrom the third to the first by surpassing Germany and Japan (in terms of steel products,
China also rose from the second to the first, Fig. I-8). Steel exports from China rose atan annual growth rate of more than 30% from 2003 onward, and its share of world
exports ballooned to approximately three times the 2000 level. In terms of the export
destination, there were noticeable increases in exports to South Korea (up 57.1%),
Vietnam (up 73.1%) and India (up 99.5%).
Regarding other base metals, nickel rose 57.3% to US$24 billion due to the impact ofprice surges. Exports by Russia (with a share of 36.0%), the largest exporting country,
and Canada (with a share of 19.1%), the second largest, were strong, rising 47.0% and73.8%, respectively.
Exports of IT products (finished IT products, such as computers and video equipment,
and IT parts such as semiconductors) amounted to US$1.98 trillion, accounting for14.4% of world trade (Table I-8). From 2004, China had consistently been the largest
exporting country (US$378.8 billion in 2007), with its share of world IT exports risingfrom 16.5% in 2006 to 19.2%. On the other hand, the share of the US (US$189.9
billion), the second largest exporting country, gradually fell from 2000 (16.0%) onward,
to 9.6% in 2007, with the gap widening from China.
26

(2) Cereal trade rapidly increased due to surging prices
The expansion of food trade, especially cereal trade, was one of the features in 2007’s
world merchandise trade. The cereal exports continued to grow at a one-digit rate from2001 onward, but from 2004 onward, they were practically on a consistently rising trend
along with rising international commodity prices and sharply rose 44.4% to US$68.6
billion in 2007. The trade value rose 45.1% to US$29 billion for wheat, 54.8% to
US$20.2 billion for corn, and 24.0% to US$11.1 billion for rice.

Column I-1◎ World rare metal and rare earth trade
Rare metals generally mean nonmetal resources with limited reserves or metals thatare difficult to extract for economic and technological reasons, and they are widely usedmainly as raw materials for high-tech products. In many cases, their reserves andproduction are unevenly distributed in specific countries or regions. Typical rare metals
are lithium, cobalt and manganese which are used in products such as small batteries,
tungsten which is used in super-hard tools and filament, molybdenum which is used in
special steel, and indium which is used in products such as LCD. Also, rare earth is a
generic term of 17 elements, such as scandium and yttrium, and is used for various
purposes such as fluorescent material and lenses.
Rare metals and rare earth * exports expanded significantly by rising 42.4% in 2004,
and after that it rose at a rate of around 20% each year. It rose 19.6% to US$29.7 billion
in 2007. Nickel, though not included in the definition of rare metal and rare earth
referred to in this column, also rose 62.0% to reach US$41 billion thanks to expanding
exports by countries such as Canada and Russia. The export value of rare earth was
relatively small at US$0.4 billion but expanded at a growth rate of more than 30% from2004 onward and posted an increase of 73.8% in 2007.
In recent years, along with expanding production and consumption of products withhigh added value and high functions, such as digital consumer goods, there has been an
increasing demand for rare metals and rare earth, which are the raw materials for these* The rare metals and rare earth referred to in this column were classified and defined independently by

JETRO based on data from the Japan Oil, Gas and Metals National Corporation, Special Metal Stockpile
Association, U.S. Department of the Interior and “Rare Metal Dictionary.”27

products; on the other hand, prices have surged due to the limited source of supply. For
instance, prices surged from US$38.07/MTU in 2002 to US$165.00/MTU in 2007 fortungsten, and from US$8.32/kg to US$66.65/kg for molybdenum.
Of the imports of rare metals and rare earth in 2007, Japan accounted for the largest
share of 15.2%, followed by the US (14.9%) and Germany (10.2%). Meanwhile, China
was the largest exporting country (17.5%) and its share of world exports rose toapproximately two times the share five years ago. The US (13.3%) had the second
largest export value but its share was diminishing. In particular, China accounted for
81.2% of world exports of rare earth, significantly way ahead of the US (5.5%), thesecond largest exporting country. China’s export value ballooned by six times over these
five years, thereby establishing an overwhelming presence on the supply side.
Under these circumstances, in order to cope with growing domestic demand, China
has recently designated rare metals as strategic material and started to regulate theiroutflow to foreign countries. From around 2004, in addition to the abolishment ofvalue-added tax refund for non-ferrous metals, the government also took measures suchas export tax increase, quantitative restriction, expansion of the scope of items for which
export license is needed, and ban of processing trade. Furthermore, according to therevised “Guidance Catalogue for Foreign Investment Industry” released in November
2007,exploration and mining of rare metals are banned and rare metal-refining
industries or manufacturing industries using rare metals are approved only on certain
conditions.
As a result of China’s movements to protect resources and putting top priority on
domestic demand, prices surged with even stronger momentum and approximately 60%of the Japanese companies were concerned about the supply of rare metals (“White
Paper on Monozukuri 2007” by the Ministry of Economy, Trade and Industry).
According to the WTO trade policy review on China, there was increasing criticism by
the international community, but China showed no intention of changing its policy. Rare
metal-consuming countries like Japan face the issue of how to take countermeasures,such as diversification of the source of supply, development of substitute materials,
stockpiling, and enhancement of the domestic recycling. The Japanese government isdeveloping resource diplomacy to cope with this situation, and in November 2007,
promised to cooperate on the mine development with South Africa and the Republic ofBotswana. Also, in order to promote the resource procurement in producing countries,
the government expanded the scope of minerals to which government finance isapplicable and also raised the upper limit of financing. In the private sector, movements28

to develop substitute materials are also spreading, such as the development of electrodematerials in which no rare metals are used to replace lithium-ion batteries.
Fig.

China enhancing its presence in rare earth exports（US$1,000）
400,000
378,527

350,000
300,000

China
OthersExport value

250,000

217,844

200,000
146,730
150,000

111,470
68,416

79,826

100,000
50,000

2002

2003

2004

2005

2006

0
2007 （Year）(Sources)National Trade Statistics.
Table

Definition of rare metals and rare earth
Ite m na m e

H S c la ssific a t io n c o d e
7 1 1 0 .1 1 、 7 1 1 0 .1 9

P la tinu m

7501～ 7506

N ic k e l
R a re m e ta ls a nd ra re e a rth

R a re m e ta ls, e tc . + ra re e a rth

R a re m e ta ls, e tc . (inc lu sive o f c he m ic a l c o m p o u n d s)

R a re m e t a ls (lim ite d to b a se m e ta ls)

2 8 0 4 .5 0 、 2 8 1 0 、 2 8 1 2 .1 0 、
2 8 1 6 、 2 8 1 9 、 2 8 2 0 .1 0 、
2 8 2 5 .2 0 、 2 8 2 5 .3 0 、 2 8 2 7 .3 1 、
2 8 3 3 .2 1 、 2 8 3 3 .2 7 、 2 8 3 3 .3 0 、
2 8 3 3 .4 0 、 2 8 3 4 .1 0 、 2 8 3 6 .5 0 、
2 8 3 6 .6 0 、 2 8 3 6 .9 1 、 2 8 3 6 .9 2 、
2 8 4 0 、 2 8 4 1 .6 1 、 2 8 4 1 .7 0 、
2 8 4 1 .8 0 、 2 8 4 4 .4 0 、 2 8 4 6 、
7 1 1 0 .2 1 、 7 1 1 0 .2 9 、 7 2 0 2 .9 2 、
8 1 0 1 -8 1 1 2

8 1 0 1 -8 1 1 2

R a re e a rth

2 8 0 5 .3 0

In terms of cereal as a whole, exports by the US and Europe account for 30%,
respectively, of total exports. In addition, exports from Central and South America and29

Russia are on a rising trend. Their share of total exports rose 8.6% and 0.3% in 2006 to
11.0% and 6.0% in 2007, respectively. In terms of imports, the EU and Africa areenhancing their presence. Although with a share on the declining trend, Japan(accounting for 13.6% of total imports in 2007) has consistently been the largest
importer in the world, and its import value in 2007 rose 40.4% to US$6.6 billion.
Regarding the suppliers, the US accounted for 76.3%, Australia for 7.4% and Canada
for 7.2%, and these three countries accounted for most of Japan’s imports. On a global
basis, out of the major cereal exporting countries, the top five accounted forapproximately 80% of total exports, which means that the cereal supplies areconcentrated in specific countries/regions (Table I-9). Consequently, factors such as
poor harvest and unfavorable weather on the side of producing countries have asignificant impact on the output. In 2007, the torrential rainfalls and drought in places
such as Europe, Canada and Australia caused the inventory ratio to fall. The term-end
cereal inventory ratio (= term-end inventory÷annual amount of consumption×100) for
FY2007/2008 is expected to stand at 16.3%, lower than the level of safety stock(17-18%) stipulated by the Food and Agriculture Organization of the United Nations(FAO).
In addition, expectations of demand expansion along with high economic growth inemerging countries and surging prices of mineral fuels are considered to have given
impetus to a tight food supply. As substitute fuel for crude oil, whose prices are surging,
demands for biofuels such as ethanol has been rising rapidly. In particular, the import
growth rate of corn, a raw material thereof, rose at an accelerating pace from 17.0% in2006 to 55.4%. According to the forecast by OECD and FAO, the annual production of
bio-ethanol is expected to reach 126.9 billion liters by 2017, i.e., double the present
level.
Reflecting such a situation, prices of major cereals showed a considerable growth rate,with their prices all sharply rising in 2007 (Fig. I-9). Prices rose 34.5% yoy for corn and32.1% yoy for wheat. In particular, rice prices are recently rising sharply, surging by
more than 100% within half a year since the beginning of 2008.
Compared to the food crisis in the 1970s, which was caused mainly by the climaticchanges and rising crude oil prices, current supply and demand conditions in the world
have become more complicated. For fear of food shortages, an increasing number of
cereal-exporting countries introduced or reinforced export regulations by putting
priority on domestic supply. On the other hand, importing countries have also taken
countermeasures of import deregulation such as the temporary abolishment of importduties (Table I-10). (4)30---------------------------------------------------------------------------------------------------------4. In April 2008, Japan and Switzerland made a joint proposal to the WTO regarding a mechanism
whereby the rules at the time of implementing export restrictions on agricultural products should beclearly defined and negotiations be conducted with importing countries in advance.

----------------------------------------------------------------------------------------------------------

According to the United Nations, the world population is expected to increase by 110
million people or more on average each year in the approximately 20 years to come, anddemand for food is presumed to continue the rising trend in the future as well. Evenviewed from a short-term point of view, cereal trade is continuing to expand due tosoaring prices.
According to the quarterly export statistics (import basis for some of the products) of
the 20 major countries/regions (Table I-11), cereals and mineral fuels posted noticeable
growth due to the impact of surging prices, and since the beginning of 2008, they had
expanded by rising 63.9% and 62.8%, respectively. In addition, machinery/equipment,
mainly precision machinery, which played the leading role in world trade in 2007,
continued to expand by rising 14.3%.
(3) World service trade rose 17.8% in 2007
World service trade in 2007 (cross-border service exports, excluding government
services) accelerated by rising 17.8% yoy to reach US$3.26 trillion (Table I-12).
By category, “transportation” expanded by significantly rising 18.3% yoy to
US$742.1 billion, “travel” rose 14.4% to US$862.3 billion, and “other services” (suchas finance, insurance, communications and royalty fees) rose 19.4% to US$1.65 trillion.
“Other services” maintained the stable trend of expansion from 2002 onward and“transportation” and “travel,” which slowed down from 2005 to 2006, rebounded aswell, with all three categories posting double-digit growth.
According to the United Nations World Tourism Organization (UNWTO), the tourist
arrivals in 2007 increased by 6.6% yoy to 903 million, with the growth rate acceleratingfrom 2006. In spite of increasing fares due to surging aviation fuels and the slowdown
in the world economy in the second half of 2007, passenger demand was strong on the
full-year basis.
By country and region, in 2007, service trade growth accelerated from 2006 on thewhole. The dollar-based trade value was significantly boosted by such factors as surging
transport fuel prices and, as in the case of goods trade, the dollar depreciation.
In terms of service exports and imports, the US ranked first; its exports rose 14.2%
yoy to US$454.4 billion and imports rose 8.8% to US$335.6 billion (Table I-13).
31

According to the US Department of Commerce, travelers from Europe increased due tothe euro and sterling appreciations and exports of “travel” rose. The number of travelers
to US from Europe turned from a decline of 2% in 2006 to an increase of 12% in 2007.
The strong “travel” also led to an increase in “transportation” to the US by US airline
companies. In “other services,” exports of financial services such as M&A commissions
were strong. On the other hand, affected by the dollar depreciation, the growth rate ofimports was sluggish when compared to other major countries.
The EU’s exports (up 18.6% to US$1.51 trillion) and imports (up 17.3% to US$1.34
trillion) expanded at a rate higher than that for the world as a whole. In the euro zone inparticular, the trade value reflected a significant boosting effect of the dollar
depreciation. The growth rate in the EU in terms of the euro rose 8.2% for exports and7.1% for imports, respectively, slowing slightly from 10.3% and 9.3%, respectively, in2006.
Regarding service trade in Asia, exports rose 19.1% to US$745 billion and importsrose 17.1% to US$777.6 billion. China’s exports and imports both posted a growth rateof more than 20%. According to the WTO, China overtook Italy and became the seventh
largest exporting country, while overtaking France to become the fifth largest importing
country. India’s exports had expanded at a rate of more than 20% each year from 2003
onward due to the active expansion of IT services, but in 2007, the growth rate slowed
down to 15.1%, which fell below the world’s growth rate as a whole for the first timesince 1996.

Column I-2◎ North Korea’s trade dependent on specific countries and products
The Democratic People’s Republic of Korea (hereinafter referred to as North Korea)
has not released any statistics on its own trade. According to its trading partnercountries’ statistics, its exports is highly dependent on primary products such as mineral
resources and agricultural/marine products, and imports consist mainly of energy andfood.
Trade with China, the largest trading partner, is continuing to expand. In 2007, theexport value rose 16.1% to US$1,974 million posting a record high. Exports to North
Korea were mainly foodstuffs such as pork and cereals, in addition to mineral fuels suchas crude oil (a share of 20.3%) and oil preparations (6.9%). Imports from North Korea
were mainly mineral resources such as coal (28.0%) and iron ore (13.7%), and among32

them, coals sharply rose 68.0% to US$163 million. Mineral resource trade is done in theform of compensation trade, i.e., China supplies mining equipment and North Korea
repays with resources.
According to Korea Unification Ministry, trade with North Korea (trade between
North and South Koreas) was on a rising trend from the time the Kaesong Industrial
District began operations, and the trade value exceeded US$1 billion in 2005, rising33.2% to reach US$1,798million in 2007. Exports to North Korea mainly consist of
textiles (a share of 20.7%), chemical industry products (19.7%), agricultural and marine
products (13.3%), and machinery (13.2%). Textiles and chemical industry products are
considered to be used as the raw materials for contract manufacturing,
agricultural/marine products as food aid, and machinery as production equipment
needed for the Kaesong Industrial District. The main import products from North Korea
were textiles (24.9%), agricultural/marine products (24.1%), and steel and metal
products (21.7%).
Trade with Japan steadily decreased after Japan imposed economic sanctions against
North Korea in 2006. Before the sanction, transport equipment such as trucks were themain products exported to North Korea, while anthracite coals, fish and seafood, andTricholoma matsutake were the main import products from. In 2001, exports rose
sharply due to food aid, but in 2007, exports decreased to US$9.09 million and imports
fell to zero.
Table

Trade with North Korea by major trading partners

2001
2002
2003
China
Exports571
467
628
Imports
167
271
396
South Korea Exports
227
370
435
Imports
176
272
289
RussiaExports
56
47
112
Imports
15
10
3
Japan
Exports
1,065
133
91
Imports
226
236
174(Sources) National trade statistics, Korea Unification Ministry.

2004
795
582
439
258
205
5
89
164

2005
1,085
497
715
340
224
7
63
132

(US$ million)
2006
2007
1,232
1,392
468
582
830
1,033
520
765
191
126
20
34
44
9
78
0

It is difficult to grasp the total trade value of North Korea, but according to the Korea
Trade-Investment Promotion Agency (KOTRA), North Korea’s foreign exports
amounted to US$919 million and imports to US$2,022 million in 2007. These figures
do not include the trade value between North and South Koreas, and if that value is33

added to these figures, exports would amount to US$1,684 million and imports to
US$3,055 million.

34

Table I-4

World trade indices
Unit

2003

2004

2005

2006

2007

World merchandise trade (based on exports)

US$ billion

7,486

9,092

10,38812,006

13,760Nominal growth rate

%

16.3

21.4

14.3

15.6

15.0

Real growth rate

%

6.2

12.6

9.2

10.5

5.6

%

10.1

8.9

5.0

5.1

9.4

US$ billion

1,833

2,210

2,469

2,766

3,257

%

14.7

20.6

11.7

12.0

17.8

World real GDP growth rate

%

3.6

4.9

4.4

5.0

4.9

Growth in industrial production index (23 industrialized econ

%

1.3

3.0

1.8

3.7

2.5

US$/barrel

28.9

37.8

53.4

64.3

71.1

Million barrels/day

79.3

82.1

83.3

84.2

85.2

-12.3

-8.2

-1.5

-0.9

-5.4

Export price growth rate
World trade in services
Growth rate

Crude oil Price (average)
DemandChange in nominal effective exchange rate of U.S. dollar%(Notes)(1) 2007 trade value and growth rate based on JETRO estimates.
(2) Real growth rate = nominal growth rate – export price growth rate(3) Real GDP growth rates based on purchasing power parity.
(4) A negative change in the nominal effective exchange rate of the U.S. dollar indicates depreciation.
(Sources) IMF, IFS and WEO; WTO; BP; and national trade statistics.

Table I-5

Trends in trade price indices by commodity

Industrial products
Crude oilPrimary product (non-fuel)Food
Cereals
Beverage
Agricultural raw materials
Metals(Source) IMF, IFS .

2003
14.4
15.8
5.9
6.3
1.2
4.8
0.6
11.8

2004
9.5
30.7
15.2
14.0
8.0
-0.9
4.1
34.6

35

2005
3.6
41.3
6.1
-0.9
-2.9
18.1
0.5
22.4

2006
3.8
20.5
23.2
10.5
21.3
8.4
8.8
56.2

（%）
2007
9.7
10.7
14.0
15.2
30.9
13.8
4.9
17.4

Table I-6

World trade by country and region (2007)（US$ million, %)
Value

NAFTA
US
CanadaMexicoEU27
EU15Germany
FranceNetherlands
Italy
UK
Belgium
Spain
Sweden3 Central and Eastern European countries

Japan
East Asia
China
South Korea
Hong Kong
TaiwanASEAN
Singapore
Thailand
Malaysia
Indonesia
Philippines
Vietnam
India
Switzerland
Australia
BrazilArgentina
RussiaTurkeySouth Africa
World
Industrial countries
Developing countries
BRICs

1,854,808
1,162,479
420,284
272,044
5,322,715
4,786,136
1,327,670
553,710552,296492,241
443,675
430,979
241,225
169,288356,596
712,735
3,025,892
1,218,015
371,327
349,663234,710852,177
299,404
163,529
176,311
114,101
50,27048,561
147,564
171,916
141,338
160,649
55,780279,724
107,215
69,86813,759,746
7,600,719
6,159,027
1,805,951

Exports
GrowthShare Contribution
rate

10.7
12.1
8.3
8.8
16.0
14.9
19.7
11.7
19.0
18.0
-0.8
17.4
12.8
14.5
26.7
10.1
17.2
25.7
14.1
8.4
10.2
13.5
10.1
25.2
9.6
13.2
6.9
21.9
21.7
16.3
14.5
16.9
19.8
23.5
25.3
20.7
15.0
13.7
16.8
24.2

13.5
8.4
3.1
2.0
38.7
34.8
9.6
4.0
4.0
3.6
3.2
3.1
1.8
1.2
2.6
5.2
22.0
8.9
2.7
2.5
1.7
6.2
2.2
1.2
1.3
0.8
0.4
0.4
1.1
1.2
1.0
1.2
0.4
2.0
0.8
0.5
100.0
55.2
44.8
13.1

10.0
7.0
1.8
1.2
40.8
34.5
12.1
3.2
4.9
4.2
-0.2
3.6
1.5
1.2
4.2
3.6
24.7
13.8
2.5
1.5
1.2
5.6
1.5
1.8
0.9
0.7
0.2
0.5
1.5
1.3
1.0
1.3
0.5
3.0
1.2
0.7
100.0
50.8
49.2
19.5

Value

2,620,223
1,956,962
380,027
283,234
5,403,545
4,854,614
1,059,704
615,927
492,434
504,960
635,501
413,728
373,100
151,501
376,471
621,084
2,656,196
955,818
356,453
370,733
218,648754,544
263,247
151,759
147,065
74,47355,317
62,682
217,543
161,110
157,887
120,62144,707
189,619
170,057
79,924
14,236,939
8,299,848
5,937,091
1,483,601

Imports
GrowthShare Contribution
rate

6.5
5.6
8.6
10.6
16.3
15.4
16.7
13.6
18.0
14.1
12.3
17.5
13.4
18.6
25.9
7.2
15.7
20.7
15.2
10.4
8.2
15.0
10.2
18.0
12.1
22.0
7.3
39.6
25.8
13.9
18.9
32.0
30.9
48.0
21.8
17.3
15.4
12.1
20.3
25.3

(Notes)(1) Trade value of world, EU27, Industrial countries and developing countries are based on JETRO estimates.
(2) The 3 Central and Eastern European countries are Poland, the Czech Republic and Hungary.
(3) ASEAN consists of 6 countries: Singapore, Thailand, Malaysia, Indonesia, the Philippines and Vietnam.
(4) East Asia consists of 10 countries: China, Korea, Hong Kong, Taiwan and ASEAN.
(5) Definitions of industrial countries and developing countries follow IFS (IMF).
(Sources) National trade statistics.

36

18.4
13.7
2.7
2.0
38.0
34.1
7.4
4.3
3.5
3.5
4.5
2.9
2.6
1.1
2.6
4.4
18.7
6.7
2.5
2.6
1.5
5.3
1.8
1.1
1.0
0.5
0.4
0.4
1.5
1.1
1.1
0.8
0.3
1.3
1.2
0.6
100.0
58.3
41.7
10.4

8.4
5.4
1.6
1.4
39.9
34.1
8.0
3.9
4.0
3.3
3.7
3.2
2.3
1.3
4.1
2.2
19.0
8.6
2.5
1.8
0.9
5.2
1.3
1.2
0.8
0.7
0.2
0.9
2.4
1.0
1.3
1.5
0.6
3.2
1.6
0.6
100.0
47.3
52.7
15.8

Table I-7

World trade <export basis> (2007)(US$ million, %)Value

Total value
Machinery and equipment
General machinery
Air-conditioners
Electric equipment
Transport equipment
Automobiles
Passenger vehicles
Motorcycles
Automotive parts
Precision instruments
ChemicalsIndustrial chemicals
Pharmaceutical and medical supplies
Plastics and rubber
Foodstuffs
Seafood
Cereals
Wheat
Corn
Rice
Processed food products
ethanol (ethylene alcohol)
Oils, fats and other animal and vegetable products

Soybeans
Animal and plant fats
Miscellaneous manufactured goods
Iron ore
Mineral fuels, etc.
Mineral fuels
Coal
LNG
Petroleum and petroleum products
Crude oil
Textiles and textile products
Synthetic fibers and textiles
Clothing
Base metals and base metal products
Steel
Primary steel products
Steel products
CopperNickelAluminum
Lead(Sources) National Trade Statistics.

13,759,746
5,598,140
1,816,339
31,642
1,804,765
1,545,411
753,808
616,165
20,433
323,138
431,624
1,770,803
1,190,494
345,013580,310
819,553
68,03368,55728,986
20,161
11,080364,710
3,905
107,290
22,91459,856403,667
42,112
1,799,402
1,716,608
53,86057,724
1,452,237
955,658
609,438
72,731
342,344
1,191,227
672,429
418,864
253,565
55,96523,96756,2735,549

37Growth rate

15.0
13.0
14.3
26.3
10.0
16.9
17.0
15.5
11.3
13.8
7.6
17.3
18.2
19.3
15.7
18.4
6.2
44.4
45.1
54.8
24.0
17.2
11.4
35.9
42.5
38.5
17.4
23.7
11.2
11.4
6.4
12.4
12.0
10.6
9.9
8.1
11.6
22.5
26.0
28.0
22.9
11.5
57.3
7.9
67.3

Share

100.0
40.7
13.2
0.2
13.1
11.2
5.5
4.5
0.1
2.3
3.1
12.9
8.7
2.5
4.2
6.0
0.5
0.5
0.2
0.1
0.1
2.7
0.0
0.8
0.2
0.4
2.9
0.3
13.1
12.5
0.4
0.4
10.6
6.9
4.4
0.5
2.5
8.7
4.9
3.0
1.8
0.4
0.2
0.4
0.0

Contribution

100.0
35.9
12.6
0.4
9.1
12.4
6.1
4.6
0.1
2.2
1.7
14.5
10.2
3.1
4.4
7.1
0.2
1.2
0.5
0.4
0.1
3.0
0.0
1.6
0.4
0.9
3.3
0.4
10.1
9.7
0.2
0.4
8.6
5.1
3.1
0.3
2.0
12.2
7.7
5.1
2.6
0.3
0.5
0.2
0.1

Fig. I-8

Major Steel-Exporting Countries

（％）
12.0

10.7

Primary steel products
10.4

10.1

10.6
9.7

10.0
10.0

9.6

8.6

10.0
9.4

8.6
7.9

9.1

8.0

9.5

8.9

9.0

8.4

8.4

7.7

5.3

6.0

7.2

4.6
4.0

2.9
1.9

2.0

1.9

2001

2002

2.1

2.0

0.0

1999

16.0
14.0

2000

（％）

2003

2004

2005

2006

Steel products
14.5

12.6

11.9

12.4

12.9

13.1

13.1

13.0

12.0

13.1

11.1

8.0

4.0

13.0
13.0

10.0

6.0

2007 (Year)

6.2

9.6

6.7

8.5
7.6

6.4
5.2

6.1

1999

2000

6.3

6.1

5.6

5.4

5.5

5.3

2003

2004

2005

2006

4.8

2.0
0.0
2001

2002

China

Japan

(Sources) National Trade Statistics.

38

Germany

2007 (Year)Table I-8

World IT Trade <export basis> (2007)(US$ million, %)Share of Share of
Value
total
total IT
exportexportIT products
1,977,008
14.4
100.0
IT parts
988,3547.2
50.0
Final goods
988,6547.2
50.0
Computer and peripherals
445,452
3.2
22.5
Complex digital equipment
16,7920.1
0.8
Computer and peripherals
277,753
2.0
14.0
Parts of computer peripherals
150,907
1.1
7.6
Office equipment
5,006
0.0
0.3
Telecommunication equipment
306,954
2.2
15.5
Semiconductors and electronic components
443,735
3.2
22.4
Electronic tube, semiconductor, etc.
77,8460.6
3.9
Integrated circuits
365,890
2.7
18.5
Other electronic components
387,879
2.8
19.6
Flat panel display
61,3380.4
3.1
Video equipment
186,447
1.4
9.4
Digital cameras
39,3560.3
2.0
TV receivers (incl. liquid crystal and plasma)
60,1380.4
3.0
Audio equipment
9,330
0.1
0.5
Portable players
7,262
0.1
0.4
Measuring and testing equipment
159,402
1.2
8.1
Semiconductor manufacturing equipment
32,8020.2
1.7(Sources) National trade statistics.
(Note) Time series comparison with the past data is difdue to the significant revision of the
HS code in 2007. Therefore in this White Paper, the current value and the share of
the total exports are listed.

39

Table I-9

Major countries in cereal-exports (2007)

（%）
Wheat
Corn
Country
ShareCountryUS
28.8 US
Canada15.3 Argentina
Russia12.5 Brazil
France12.2 France
Argentina
7.0 Hungary
Australia
5.6 China
Others18.7 Others

Rice
Share
Country
50.1 Thailand
11.2 India
9.5 US
7.5 Vietnam
5.3 Italy
4.3 China
12.0 Others

Share
33.7
21.3
12.5
7.8
4.9
4.3
15.4

(Sources) National trade statistics. The share of Vietnam rice exports is based on
estimated figures.

Fig. I-9

Prices and export growth rate of major cereals

（％）
60.0

（US$/ton）
400

米（価格）
Rice (price)
とうもろこし（価格）Corn (price)
小麦（価格）
Wheat (price)
米（伸び率）
Rice (growth rate)
Corn (growth rate)
とうもろこし（伸び率）
Wheat (growth rate)
小麦（伸び率）

50.0
40.0
30.0

350
300
250

20.0

200

10.0

150

0.0

100

-10.0

50

-20.0
-30.0

0
2000

2001

2002

2003

2004

2005

2006

2007

(Note) Prices are the annual average price of White Rice, Thai 100% B second grade for
rice, US No.2, Yellow for corn and US No.2, Hard Red Winter ord. Prot for wheat.
(Sources) National trade statistics and FAO.

40

Table I-10 Reactions to the surging food prices(as of July 2008)
Country/region
EU

Time ofannouncement/
initiation

SerbiaMay 2008
ditto
August 2007

China

December 2007
January 2008

Indonesia
India

April 2008
September 2007
April 2008

Nepal
Pakistan

July 2008
April 2008
January 2008

Bangladesh
Vietnam

May 2008
March 2008

Cambodia
Australia
MexicoMarch 2008
November 2007
May 2008

BrazilArgentina
RussiaApril 2008
November 2007
November 2007

Ukraine

October 2007

Kazakhstan
Egypt

April 2008
May 2008

Saudi Arabia
April 2008
(Sources)News reports

MeasureExtended zero duty on imported cereals until 2009
Completely abolished acreage reduction
Banned exports of cereals such as wheat, soy bean
and cornCancelled refund of export VAT for 84 items,
such as rice, wheat and corn
Imposed 5-25% export tax on cereals such as rice,wheat and corn until the end of 2008
Banned rice imports and exports
Banned wheat exports
Banned exports of non-basmati rice, beans andcooking oil
Temporarily banned corn exports
Banned rice and wheat exports
Banned wheat exports other than those withgovernment contracts
Banned rice export for 6 months
Suspended new contracts on rice exports(resumed in July)
Banned rice exports for 2 months
Imported feed grains for the first time in 4 years
Abolished general duties on wheat, edible whitecorn and rice
Stopped exports of government rice
Raised export tax for soy bean, wheat and corn
Imposed export tax of 10% and 30% on wheat
and barley, respectively (raised tax rate for wheat
to 40% from January 2008, and then in July)
Set export quotas for wheat, barley, corn and ryefrom November 2007 (lifted in May 2008)
Banned wheat exports until September 1, 2008
Extended rice exports ban until April 2009, which
was scheduled to end in October 2008
Reduced import duty on wheat41

Table I-11
products

Quarterly trade by major countries/regions in exports of major(US$ million, growth rate:%)Major 20countries/
regions'
share ofworld
total in
2007

Total

62.7

Machinery/equipment

76.1

General machinery

72.6

Electric machinery

80.5

Transport equipment

73.8

Precision machinery

81.1

Chemical

63.6

Foodstuffs

50.2

Cereals

73.8

Textiles and textile products

60.9

Iron and steel

59.1

Iron ore (imports)

78.3

Mineral fuels (imports)

67.4

Crude oil (imports)

68.3

2007

2008

Ⅰ

Ⅱ

Ⅲ

Ⅳ

Ⅰ

1,953,749(13.0)
980,696(9.5)
310,215(14.1)
324,476(3.6)
267,429(13.4)
78,577(5.5)
264,648(17.7)
90,775(17.3)
10,488(28.6)
78,540(7.2)
93,174(37.7)
10,510(27.8)
243,168(-4.3)
141,427(-5.0)

2,113,899(12.4)
1,034,127(8.0)
320,035(10.4)
341,490(0.7)
288,161(15.3)
84,440(7.7)
279,732(16.4)
96,909(17.4)
10,203(26.6)
91,600(9.8)
104,968(35.6)
11,158(36.3)
279,583(1.3)
163,562(-2.1)

2,197,034(14.1)
1,071,657(13.0)
332,534(11.5)
377,277(12.0)
273,004(17.5)
88,843(10.2)
285,452(15.6)
104,139(17.9)
13,313(57.9)
106,042(13.0)
97,899(17.5)
12,926(35.8)
300,946(2.7)
185,101(0.9)

2,360,616(17.1)
1,174,787(14.4)
356,007(11.0)
409,008(15.2)
311,793(18.1)
97,979(13.1)
296,963(16.8)
119,466(23.2)
16,586(72.5)
94,772(9.6)
101,079(11.8)
15,453(66.6)
352,191(43.3)
214,822(44.9)

2,333,133(19.4)
1,121,094(14.3)
353,433(13.9)
364,081(12.2)
308,833(15.5)
94,747(20.6)
315,719(19.3)
113,820(25.4)
17,194(63.9)
87,562(11.5)
107,767(15.7)
18,219(73.3)
395,784(62.8)
239,038(69.0)(Notes)(1) The 20 major countries/regions stand for Japan, China, Hong Kong, South Korea,
Taiwan, Indonesia, Malaysia, the Philippines, Singapore, Thailand, US, Canada, Mexi
Brazil, France, Germany, UK, Switzerland, Russia and Australia.
(2) Iron ore, mineral fuels and crude oil are on an import basis. Others on an export basis.
(3) The growth rate is a yoy change.
(Sources)National trade statistics.

Table I-12 Growth Rate of World Service Trade (Export)(%, US$ million)
2001
World service export value
Transportation
TravelOther services(Source) WTO.

0.2
-0.9
-2.1
2.5

2002
7.5
4.4
4.7
11.1

2003

2004

14.7
13.4
10.1
18.3

42

20.6
24.6
19.2
19.5

2005
11.7
13.0
7.4
13.7

2006
12.0
8.9
9.3
15.0

2007

Value Contribution
17.8 3,257,300
100.0
18.3 742,100
23.4
14.4 862,300
22.1
19.4 1,652,800
54.5

Table I-13 Service Trade by Country/Region (2007)

World
NAFTA
US
CanadaMexicoEuropeEU27
UK
Germany
France
Spain
Italy
Asia
Japan
China
India
ASEAN10Central and South America
BrazilCIS
RussiaMiddle East
AfricaSouth Africa

Exports
GrowthValue
rate
3,257,300
17.8
532,97112.9
454,378
14.2
61,1695.917,423
6.4
1,662,000
18.6
1,512,100
18.6
263,357
16.6
197,27818.2
130,369
10.9
127,47820.9
108,85912.1
745,000
19.1
135,587
10.6
126,68838.6
86,366
15.1
147,200
17.3
90,60016.3
22,50425.4
64,20025.1
38,291
24.8
78,600
15.4
83,90021.4
12,651
8.0(Source) WTO.

43

share
100.0
16.4
13.9
1.9
0.5
51.0
46.4
8.1
6.1
4.0
3.9
3.3
22.9
4.2
3.9
2.7
4.5
2.8
0.7
2.0
1.2
2.4
2.6
0.4

(US$ million, %)Imports
Growth
Value
share
rate
3,059,100
16.4
100.0
439,872
9.3
14.4
335,578
8.8
11.0
79,97811.5
2.6
24,3158.9
0.8
1,433,800
17.4
46.9
1,337,300
17.3
43.7
193,349
13.1
6.3
245,37615.0
8.0
120,087
12.3
3.9
96,831
24.3
3.2
116,66219.0
3.8
777,600
17.1
25.4
157,405
9.3
5.1
128,91428.5
4.2
78,08023.8
2.6
184,000
15.9
6.0
96,50018.4
3.2
33,63423.9
1.1
89,60028.9
2.9
56,91530.2
1.9
124,500
16.8
4.1
97,20019.3
3.2
15,95214.4
0.5

3. Global direct investment & cross-border M&As
(1) Global direct investment exceeds US$2 trillion in 2007
Global inward foreign direct investment (FDI, JETRO estimates, net flows based onbalance of payments) in 2007 rose 37.0% yoy to US$2.1074 trillion, reaching the newhighest value, which significantly exceeded the previous peak of approximately US$1.6
trillion reached in 2000 (Fig. I-10). In the same way, outward FDI exceeded US$2
trillion for the first time by rising 36.3% yoy to US$2.1522 trillion. (5) Active

cross-border M&A (cross-border mergers and acquisitions of companies) activities andstrong earnings of companies operating overseas as a whole had an impact. The
underlying trend of dollar depreciation that continued in 2007 relatively boosted thetotal dollar-based amount (refer to Table I-14 and Reference Materials/Supplement
Statistics: Table 6).
---------------------------------------------------------------------------------------------------------5. The figures of global inward FDI and outward FDI should be conceptually consistent, but there aremany cases where figures differ in actual statistics. This is because the definition and the evaluation
method of direct investment vary with countries, such as the lower limit value to be reported,
reinvestment earnings, treatment of sub-subsidiaries, profit transfer, and treatment of transactions with
offshore companies, and also the timing to include such investment.

----------------------------------------------------------------------------------------------------------As a result of the worldwide credit contraction arising from the sub-prime mortgage
problem, from the second half of 2007 onward, M&As, which is a significant
constituent factor of FDI, slowed down in terms of the executed contract value.
However, as it takes approximately several months from the announcement of M&Atransactions to their completion in many cases, the total M&A completion in 2007
maintained a high level and contributed to the growth of the global FDI value.
Both inward and outward FDI rising in the EU but inward FDI falls slightly in
the United States
By country and region, the sum of inward FDI in the EU27 (hereinafter referred to asEU), which accounted for more than 50% of the global FDI value, rose 43.2% yoy to
US$1.0929 trillion, and outward FDI rose 46.9% yoy to US$1.3494 trillion, bothexceeding the US$1 trillion mark for the first time. The EU contributed 58.0% and75.1%, respectively, to the overall growth of global inward FDI and outward FDI in theworld in 2007. The euro appreciation against the dollar (up 9.1% yoy on annual
average) also boosted the dollar-based growth rate.

44

There was active investment in the EU made by countries other than the EU Member
States. According to the Eurostat (Statistical Office of European Communities), direct
investment from countries other than EU Member States posted significant growth byrising 107.1% yoy (direct investment among EU Member States rose 14.8%). Its value
reached US$197.5 billion, posting significant yoy growth of nearly 100% owing to a
growing number of M&A cases with direct investment coming from the United States
via the special-purpose companies located in the Netherlands and Luxemburg. In termsof the growth rate, direct investment from India was noticeable, with M&A towards theUnited Kingdom posting a sharp yoy increase of more than 20 times to US$13 billion.
Inward FDI among major EU Member States such as the Netherlands, France, Spainand the United Kingdom posted noticeable growth. In the Netherlands, which had thelargest inflow of direct investment in 2007, large-scale M&A transactions in the
category of finance had an impact, but there was also active investment via thespecial-purpose companies located there. In France, inter-company loans between
parent companies and their subsidiaries expanded, posting a significant increase byrising 102.1% yoy. In Spain, large-scale M&A transactions in such sectors as electric
power seem to have contributed to the increase. With respect to direct investment
towards the United Kingdom, there occurred a succession of acquisitions of well-known
companies, such as Gallaher Group (cigarettes), Alliance Boots (drugstore) and Corus
Group (steel). By item of direct investment, “Equity capital” (acquisition of shares, etc.)
rose 36.4% yoy in the United Kingdom, reflecting an increase in M&A transactions.
Also, as a reflection of strong earnings generated from operations in the United
Kingdom by foreign-affiliated companies, “Reinvestment earnings” (undistributed
profits internally reserved by foreign-affiliated subsidiaries within the region) rose
44.7% yoy (Table I-15).
Inward direct investment towards new EU member countries posted a high growthrate from the previous year, up 152.2% yoy in Hungary, up 120.9% in Slovenia, and up
52.8% in the Czech Republic. Direct investment from other member countries (thevalue of direct investment from the EU (25 Member States’ basis) towards the twelve
new Member States, Eurostat) accounted for 59.3% of the total, but the degree of
dependence on other member countries fell when compared to 2006, which was 76.1%.
Regarding direct investment from non-members, green field investment from Japan,
which made investments in electric machinery-related industries, and other Asian
countries such as China and India seems to have increased.
Outward FDI from EU companies increased significantly in almost all majorcountries, except the Netherlands, where movements of funds via special-purpose
45

companies occur frequently and change substantially each year. In particular, countries
such as the United Kingdom, Italy and France, where there were large-scale M&Atransactions, contributed to the increase.
The United States’ inward FDI amounted to US$237.5 billion, and despite a highlevel of inflow continuing from 2006, it posted a minor yoy decline of 1.8%. The
contraction of finance-related transactions is considered to have had an impact, and theinward direct investment value in the fourth quarter fell 34.9% from the same quarter ofthe previous year. By item of inward FDI, inter-company loans between
foreign-affiliated parent companies and their subsidiaries (“Other capital”) fell (down
61.0%), which became a contributing factor of the decline on the full-year basis. On theother hand, “Equity capital” rose 25.2% yoy to US$147.4 billion, which reflected
increasing M&A transactions in 2007.
The United States’ outward FDI rose 38.1% to US$333.3 billion. As in the case of
inward direct investment, along with increasing M&A transactions, “Equity capital”
rose 172.3% yoy to US$88 billion. “Reinvestment earnings” also rose 13.7% to
US$263.3 billion, accounting for 79.0% of the net outflow. According to the
Department of Commerce of the United States, reinvestment earnings through holding
companies and manufacturing industries mainly in Europe, Asia (excluding Japan), andCentral and South America posted an increase. On the other hand, sale of overseas
subsidiaries (withdrawal of outward investment) reached a high level of US$61 billion(figure based on the preliminary report). The sale to Middle East countries such as
Saudi Arabia and United Arab Emirates (hereafter referred to as UAE) was noticeable.


In China, investment in non-manufacturing industries increased
In East Asia, inward FDI rose steadily, up 42.3% yoy to US$258.7 billion, thanks
mainly to increasing investment towards China and Hong Kong.
Inward FDI towards China rose 77.2% yoy to US$138.4 billion. Foreign-affiliatedcompanies that have already been operating in China showed strong earnings, withsignificant increase in reinvestment earnings. It is also a widely acceptable viewpointthat speculative money expecting the Yuan appreciation flowed in as direct investment.
By country and region, direct investment from Hong Kong amounted to US$79 billion,
accounting for more than 50% of the total. According to the State Administration of
Foreign Exchange, direct investment posted significant growth in non-manufacturingindustries, such as “Real estate industry” (up 98% yoy), “Social service industry” (up104% yoy) and “Wholesale and retail trade and restaurant business” (up 52% yoy).
Direct investment in manufacturing industries rose 27% yoy (on balance of payments
46

basis). Under the circumstances where, in addition to rising labor costs and land prices,
costs are expected to further rise due to factors such as the abolishment of preferential
treatment for foreign investment based on the law of corporate income tax within five
years in principle and the responses to the Law on Employment Contracts (both went
into effect in January 2008), new investment towards China’s manufacturing industries
is expected to slow down gradually.
On the other hand, as laws for promoting inward M&As have been improved, M&As,
which has so far been limited as a form of investment towards China, is expected to
become more active in the future. However, along with the improvement of
M&A-related legislation, the strengthening of the inward investment regulations in
China is now gaining attention. According to the “Regulations for Merger with andAcquisition of Domestic Enterprises by Foreign Investors” enforced in 2006, theMinistry of Commerce needs to be notified of any investment towards the domestic
priority industries, but it has been pointed out that the ministry has a high degree of
discretion and the screening criterion for approval is not transparent. In the Antitrust
Law enforced in August 2008, it is stipulated that the government should have thepower to determine when an M&A transaction by foreign capital affects “the nation’s
economic security”, which is another example of an ambiguous criterion.
In Hong Kong, as in 2006, investment from China accounted for the largest share,approximately 30%, of the region’s overall inward FDI. As the preferential taxation forforeign investment is to be abolished in stages in the future, investment funds that areconsidered to have flowed into Hong Kong and then flowed back again to China for the
purpose of benefiting from preferential taxation may gradually decrease.
Among the major ASEAN countries, inward direct investment posted high growth in
Malaysia, rising 39.9% yoy, as manufacturing, finance and mining industries performed
well. Investment towards Thailand, mainly for the expansion of manufacturingindustries, continued to be robust but has been on a slowing trend over the last two
years, partly due to rising labor costs and the unstable political situation.


Developing countries’ inward FDI increase mainly in emerging countries
In 2007, due to high growth in emerging countries and growing demand for resources,developing countries’ total inward direct investment value rose 39.4% yoy to US$665.3
billion (estimated by the JETRO), posting a growth rate higher than that of developed
countries.
In particular, investment was active towards Central and South America in 2007, andthe growth rate was particularly high in Brazil (up 83.7% yoy) and Chile (up 96.5%),47

both of which have rich mineral resources. According to the Economic Commission for
Latin America and the Caribbean (ECLAC), investment for the purpose of resource
mining increased even in Mexico and Central and South American countries, towards
which there had been few resource-related investment. In Brazil, Argentina and Mexico,investment also increased not only in the resource-related category but also in
manufacturing industries (such as automobiles, construction and foodstuffs) andnon-manufacturing industries (such as retail trade, finance and electric power) with anaim for market cultivation.
Direct investment towards Russia grew 62.0% yoy. There were noticeable increases
in M&A transactions by resource and energy-related companies in Europe. The
countries from which a large scale of new equity capital flowed in were, in a descendingorder, Cyprus, the Bermuda Islands (United Kingdom) and the Netherlands. However,as to countries such as Cyprus and the Bermuda Islands, in many cases, Russian capitalis considered to have flowed back to Russia via these “tax heavens” for the purpose of
tax avoidance and asset conservation.
India’s inward FDI also continued to grow, rising 15.2% yoy. Not only did large-scale
M&A transactions related to IT and information & communication contribute to thegrowth, but investment in the categories of real estate and construction increased,backed by strong economic performance. There was also active investment for newly
establishing or expanding manufacturing bases in the categories related to electricmachinery, software and automobiles. Green field investment accounted for 76.7% of
the total direct investment (on the executed contract value basis). Investment in the
categories of oil and natural gas also posted a sharp increase by rising approximately
five times yoy. There was also active investment in the category of resource, such asSingapore’s large-scale capital contribution (US$400 million) in the mining industry.
On the other hand, however, the country’s high inflation rate has been a risk factor for
economic growth. The increase in India’s WPI was close to a double-digit rate each year,
thereby causing concern over the influence on new direct investment.
In Vietnam, high inflation also caused concern about the economy, but the direct
investment value on the new approval basis rose to US$17.9 billion, up by almost 100%
yoy, following 2006. Vietnam has thus continued to have a growing presence as acountry receiving new investments. In finance, the HSBC of the United Kingdom,which invested US$250 million in the state-owned insurance company (equivalent to
10% of the issued shares), followed by the Sumitomo Mitsui Banking Corporation’s
US$225 million investment the Vietnam Commercial Bank of Export and Import (aratio of capital contribution at 15%). In this way, investment in non-manufacturing48

industries such as wholesales, finance and insurance, which are on the process ofliberalization after Vietnam’s accession to the WTO are expected to increase in the
future.
According to the United Nations Conference on Trade and Development (UNCTAD),
FDI towards Africa amounted to US$35.6 billion, remaining nearly flat from theprevious year. Resource mining-related M&A transactions were active, thereby
investment maintaining a high level.
Developing countries’ outward FDI in 2007 rose 16.7% yoy to US$283.2 billion(estimated by JETRO) and continued to grow robustly mainly in emerging countries. In
addition to active outward M&A activities by countries such as India and Russia, capital
contribution to developed countries by the sovereign wealth funds (SWFs) in the
Middle East and Asia increased as well (refer to (2) of this Section). There were also
noticeable cases where emerging countries such as China and Russia made capital
contribution to Africa and Central and South America for the purpose of acquiring
resources. On the other hand, the outward FDI fell significantly from the previous year
in countries such as Brazil (down 74.9%), where there were large-scale cases in 2006,
and South Africa (down 51.7% yoy), where some businesses have withdrawn or beensold.
Global inward direct investment expected to decrease in 2008

There are many risk factors for the world economy that will have an adverse impact
on the total FDI value in 2008, such as sluggish economic growth in the United Statesfrom the second half of 2007 onward, deteriorating corporate earnings due to surging
resource prices, and a contraction of M&A activities accompanying the worldwide
credit crunch. The OECD forecast that the 30 member countries’ inward FDI value in2008 would fall approximately 24% yoy and the outward FDI value would fall
approximately 37% yoy.
On the other hand, investments directed at emerging markets and large-scale resource
development projects are expected to continue being brisk. In countries with increasing
revenue generated from resources such as crude oil, it seems likely that the tendency for
SWFs and state-owned enterprises to actively make outward FDI will continue.
(2) Global M&As expanding significantly
According to data from Thomson Reuters, global cross-border M&A (completed
mergers and acquisitions) transactions in 2007 rose 53.6% yoy to US$1.5559 trillion,
exceeding the US$1.2347 trillion record in 2000, or the peak of M&A boom. (refer to49

Reference Materials/Supplement Statistics: Table 7). The number of cases also rose to
9,878 in 2007, exceeding the 9,677 record in 2006. (6)---------------------------------------------------------------------------------------------------------6. The M&A data is the value (gross) obtained by adding up the value of each M&A transaction upon thecompletion of acquisition, while each country’s FDI statistics based on the balance of payments show thedifference between the outflow and the inflow (net). The M&A data defines cross-border transactions astransactions in which the nationality of the ultimate parent company of the acquirer differs from that of
the target company. According to this definition, however, an M&A among residents or non-residents,
which is not included in the direct investment statistics is also included in cross-border M&A.
Furthermore, the direct investment statistics differ from the M&A data in definition and classification, inthat only transactions with a capital relation of 10% or more are included in the direct investment
statistics. Also, M&A transactions are not included in the direct investment statistics if funds are raised in
the country where the deal is done. However, M&A accounts for a large percentage of direct investment,
and the two are close to each other in their trends. The “M&A” referred to in this section, with noexceptions, means cross-border M&A.

----------------------------------------------------------------------------------------------------------In the M&A boom in 2000, which was called the IT bubble, M&As were seen mainlyin the communication-related industries, and stock swaps were actively utilized as theapproach to acquisition owing to rising stock prices. However, the expansion of M&As
from 2004 onward was characterized by the active business reorganization in a wide
range of industries, and cash or loans were used as main funds for acquisition due to
inflating liquidity worldwide.
Gradually influenced by the credit crunch triggered by the subprime mortgage
problem from the second half of 2007 onward, global M&A transactions have shown atendency to contract since the beginning of 2008 (Fig. I-11). In particular, increasing
M&As for non-business purposes by investment companies sharply deceased because
financial institutions started to tighten criteria for lending and therefore fund raising
became difficult. The ratio accounted for by M&As for the non-business purpose in the
total M&A value was on a decline, falling from 25.2% in the first half of 2007 to 16.1%
in the second half of 2007 and to 13.3% in the first half of 2008. On the other hand,
SWFs in emerging countries successively injected capital to financial institutions in
Europe and the United States, which suffered losses due to the subprime mortgage
problem, enhancing their presence in the M&A market.


M&A towards the United States grow significantly50Viewed from the target country, by country and region, M&A towards companies in
the United States posted a significant increase by rising 69.6% yoy to US$319.3 billion,
with both the amount and the number of deals (1,569 deals) being the largest for asingle country. Large-scale acquisition of companies in the same trade aiming for thehorizontal expansion of business took place in a wide range of industries, as seen indeals where the large British pharmaceutical company AstraZeneca acquired
MedImmune, a US manufacturer of pharmaceuticals such as vaccine (US$14.7 billion),
and where National Grid, another large British supplier of electric power and gas,acquired Keyspan, a US company in the same trade (US$11.9 billion).
M&As also expanded in the EU, rising 50.2% yoy to US$763.2 billion, and inparticular, it rose approximately five times yoy to US$186.7 billion in the Netherlands,
contributing to the total growth in the EU. This was largely due to the hostile acquisitionof the Dutch financial institution ABN AMRO by such financial groups as Royal Bankof Scotland group of the UK (US$98.2 billion). This transaction was the second largest
cross-border M&A case, following the acquisition of Mannesmann by the British
company Vodafone (US$202.8 billion) in 2000.
In the United Kingdom, M&As remained nearly flat from the previous year, but with
an amount of US$219.9 billion, it continued to be the largest target country for M&A in
the EU. There were several large-scale deals in the United Kingdom, such as theacquisition of the major British electric power company Scottish Power by the major
Spanish energy company Iberdrola (US$26.6 billion), and the acquisition of the major
British drugstore Alliance Boots by investment funds in the United States (US$19.4
billion).
The total value of M&As towards the six ASEAN countries rose 63.7% yoy to
US$28.4 billion owing to growth in countries such as the Philippines, Indonesia, andVietnam, but there were relatively little movements in China and South Korea, andM&As towards East Asia as a whole remained flat from the previous year.
On the acquirer’s side, acquisitions by British companies rose 229.2% yoy to
US$304.6 billion and posted highest for a single country by overtaking the UnitedStates (US$285 billion). There were five large-scale acquisitions exceeding US$10
billion by British companies, such as the acquisition of ABN AMRO and that of the
major Canadian aluminum manufacturer Alcan by the major British resource company
Rio Tinto (US$43.9 billion).


Noticeable M&As by companies in emerging economies and Sovereign WealthFunds (SWFs)
51

Acquisitions of companies in developed countries by those in emerging economies
continued to increase rapidly in 2007. Companies in emerging countries, which areinferior to the multinational companies in developed countries in terms of brandcapabilities, distribution networks and R&D capabilities, may have come to widelyadopt the business strategy of strengthening their management resources by making
effective use of M&As with companies in developed countries. In particular, large-scale
M&A transactions were observed in India and Russia (Fig. I-12).
In India, acquisitions of companies in developed countries were noticeable inmanufacturing industries, such as the acquisition of the major British steel company
Corus Group by Tata Steel, the largest steel company in India (US$12.7 billion), andTata Motors’ acquisition of the British brands, Jaguar and Land Rover, from Ford
Motors of the United States (US$2.3 billion) in 2008. M&As by Indian companies
towards developed countries in 2007 accounted for 88.4% of the total value of M&A
deals in India and for 70.8% in terms of the number of deals.
In Russia, resource and metal-related M&As were actively conducted by major
resource and mining companies such as Gazprom, with a view to securing mining rights
and expanding supply to developed countries. In 2007, Norilsk Nickel acquired the
major Canadian mining company Lion Ore Mining, which deals with minerals such asgold and nickel (US$6.4 billion). Regarding other emerging countries, Brazil witnessed
many acquisitions of steel and food companies in developed countries for the purpose of
expanding production and sales and many cases of finance-related investment indeveloped countries, as well as active resource-related M&A transactions. Also in China,
manufacturers of electric machinery, etc. have conducted M&A transactions withcompanies in developed countries or have made active expansions towards markets indeveloped countries. The Chinese government has been making efforts to globalize its
domestic companies and has strategically utilized M&As, led by the establishment ofChina Investment Corp. (CIC), a wholly government-financed SWF, in 2007. In 2008,
Aluminum Corporation of China Ltd. acquired approximately 10% of the issued sharesof Rio Tinto (US$14.3 billion), as part of China’s resource strategy to forestall the
movement of Australia’s BHP Billiton to acquire Rio Tinto.
M&A has also been conducted actively by SWFs and state-owned enterprises, using
income from resources and government reserves like foreign exchange reserves as funds.
In 2007 for example, a subsidiary of Singapore’s Temasek Holdings acquired Australiannatural gas supplier Alinta Energy (US$11.5 billion), and China’s CIC injected capitalof US$3 billion to Blackstone, a US investment company in the United States that fell
short of funds due to losses arising from the subprime mortgage problem (portfolio
52

investment with a ratio of capital contribution at 9.9%). Also in 2008, there were active
acquisitions in the categories of energy and finance. Abu Dhabi National Energy
Company (TAQA), a state-owned enterprise in Abu Dhabi, the UAE, acquired theCanadian oil and natural gas company Prime West (US$4.6 billion), and Borse Dubai, astate-owned holding company which owns companies such as Dubai Financial Market(DFM), acquired OMX, a company operating businesses such as the Stockholm Stock
Exchange (US$4.6 billion in total).


M&As grew in the categories of finance, and resource and energy
Viewing the M&A trend in 2007 by industry (cases of target companies), M&As in“Finance & Insurance” rose 115.5% yoy to US$354.5 billion, which significantly
boosted the total growth. The trend of reorganization continued in the financial sector,
as seen in the acquisition of ABN AMRO, the acquisition of the Irish DEPFA Bank by
the Hypo Real Estate Holding AG, a major German real estate company (US$7.8
billion) and the acquisition of Finland’s Sampo Bank by Denmark’s Danske Bank
(US$5.2 billion). In “Electric Power, Gas & Water” (US$150.3 billion, up 185.5% yoy),in addition to the acquisition of the British company Scottish Power by Spain’s
Iberdrola, there was also the acquisition of Spain’s Endesa, S.A. by the major Italianenergy company Enel SpA and other companies (US$26.4 billion). Acquisitions in thesame trade were very active, particularly in Europe, as competition was becoming more
and more fierce in the category of energy, such as electric power.
In “Metal and metal products” (US$112.9 billion, up approximately 6.3 times yoy), in
addition to the acquisition of the British company Corus by India’s Tata Steel, there wasthe acquisition of IPSCO, a steel manufacturer in the United States, by the SSAB, a
Swedish steel manufacturer of products such as cold-rolled steel plates (US$8.2 billion).
M&As in “Oil and natural gas” (US$80.2 billion, up 104.1% yoy) also showed
noticeable growth. As the importance to ensure oil and metal resources came to draw
attention worldwide, noticeable large-scale acquisitions and business reorganization
were observed in 2007, as in the previous year, in the categories of energy, andresources and raw materials, as represented by Rio Tinto’s acquisition of Alcan.
Regarding the category of resources, in the oil and natural gas (oil refinery) industry,
the Royal Dutch Shell Group was integrated in 2005, and in the mineral resource
industry, the major Canadian nickel company Inco Limited was acquired by the major
Brazilian company Vale and the major Canadian nickel company Falconbridge was
acquired by the major Swiss non-ferrous metal company Xstrata in 2006. Triggered bysuch large-scale M&A transactions, full-scale reorganization got underway in each of53

these industries (Fig. I-13). In November 2007, Australia’s BHP Billiton, the largest
mining company in the world, offered to buyout Rio Tinto, the second largest(US$188.2 billion). If this deal is realized, the sellers’ dominant position on metal
resource markets will be further strengthened, and the steel and non-ferrous metalindustries, which are the users, will hold destabilizing factors in supply. In particular,
Japan’s steel industry has growing concern about this matter and in March 2008, theJapan Iron and Steel Federation requested that the Japan Fair Trade Commission
suspend this offer. The oligopoly on the supply side will enhance incentive for buyers tostrengthen their purchasing power and price negotiating capabilities, and consequently,
reorganization may become active on the users’ side as well.


Global M&A transactions contracts in the first half of 2008
As a result of the credit crunch triggered by the subprime mortgage problem, global
M&A transactions have shown a downward trend since the beginning of 2008. The total
cross-border M&A value in the first half of 2008 fell 14.5% yoy to US$597.3 billion.
The number of M&A deals also fell 15.7% yoy to no more than 4,198. For instance,
reflecting the sluggish real estate market in the United States, real estate-related M&As
posted a significant yoy decline in both the value (down 39.4%) and the number ofcases (down 34.7%). According to the M&A data based on the dates announced, which
is a leading indicator, the value of the announced M&A deals in the first half of 2008
fell 47.2% yoy to no more than US$697.3 billion. Therefore, the full-year value in 2008is also expected to fall.
M&A transactions using LBO (Leveraged Buyouts, the approach to raise funds byusing the assets of the target company as a guarantee) declined sharply as a typicalphenomenon of the contracting M&A market. Like subprime mortgages, how to disposeof the appraised losses of LBO loans is an issue for financial institutions in Europe andthe United States, and they have become more cautious about new applications for LBO
loans (Fig. I-14). As a result, for investment funds, which have depended on loans as
funds for acquisition, it has become difficult to raise the necessary funds.
In the period of the M&A boom in 2000, the stock swap scheme (including cases
where cash was used simultaneously) was often used in M&A transactions, and suchtransactions accounted for 47.2% of the total M&A value. Such M&A transactions, in
2007, despite showing an increase from 6.7% in 2006 partly due to the impact of thelarge-scale acquisition of ABN AMRO, in which a stock swap was partially utilized,
accounted for only 15.6% of the total. As a distinctive trend in the resource industry
where oligopoly is getting underway, however, there were some cases where major
54

mining companies acquired companies in the same trade by using stock swap, with theirstock prices rising along with resource prices.
While M&A transactions contracted, global business reorganization continued. In thefirst half of 2008, there were large-scale deals such as the acquisition by the major
British tobacco company Imperial Tobacco of the major Spanish company Altadis in thesame trade (US$21.5 billion) and the acquisition by the major Dutch beer manufacturer
Heineken of the major British company Scottish & Newcastle in the same trade(US$18.6 billion). From the mid-term point of view, reorganization through active
utilization of M&As mainly by large Transnational Corporations with fund power is
expected to continue in each industry.

Column I-3◎ Rise of SWFs and inward investment regulation
According to the IMF, SWFs are the funds established or owned by governments andheld for the purpose of long-term investment in overseas assets, with income generated
from transactions of resources such as crude oil and minerals, and tax and foreignexchange reserves as funds for investment. The total assets are said to have reachedUS$2–3 trillion in 2007 and to reach US$12 trillion in 2012.

Despite their large scale, the actual state of investment has not been made known by
many SWFs. In view of the fact that information on the investment-receiving company
is also conveyed to the government, which is the investor, there is a growing sense of
caution, particularly in developed countries, towards SWFs and investment bystate-owned enterprises in categories such as national security, resources and energy,
and some countries started to re-examine the inward investment regulations.
In the United States, triggered by the China National Offshore Oil Corporation’s offer
to buy out the US oil company Unocal in 2005 and the Dubai-owned firms’ offer to buy
out the US port management company in 2006 (both were withdrawn later), the Foreign
Investment and National Security Act (FINSA) was passed to amend Section 721 of the
Defense Production Act (Exon-Florio provision). Under the said provision, if a US
company is controlled by a foreign company through acquisition, the Committee on
Foreign Investment may examine the case. If the case is identified to pose a “threat tonational security” as a result of the examination, then the President can prevent theacquisition. According to the FINSA, in addition to the requirements with respect
mainly to national defense thus far, more new items will be added to the identification55

of “threat to national security,” such as the concept of security for the important
domestic infrastructure and the impact on energy assets and important technologies, andit has become possible to apply the regulations to a wider range of categories ofindustry.
Japan also expanded the scope of the regulations by enforcing a Cabinet Order toreexamine the inward investment regulations in September 2007, and Germany is
discussing an amendment bill on the investment act with a wider scope of regulation
applicability, targeting SWFs. Also in Russia, a federal law regulating foreign
investment in the strategic categories was enforced in May 2008.
The movements to reexamine inward investment regulations are not solely targeting
SWFs, and the stance varies by country under different circumstances, such as with theneed to protect domestic industries intensifying or resource nationalism growing
domestically. However, impact of foreign investments by SWFs and state-owned
enterprises has come to draw attention from the viewpoint of national security andsecret information management.
On the other hand, most activities by SWFs are considered to be conducted as stable
investment in the long and medium terms. Almost all cases of subprime
mortgage-related capital injection were securities investments with a ratio of capital
contribution lower than 10%, such as the capital contribution to Switzerland’s USB by
the Government of Singapore Investment Corporation (GIC) (US$9.8 billion, with aratio of capital contribution at approximately 9.0%) and that to the Citigroup by the Abu
Dhabi Investment Authority (US$7.5 billion, with a ratio of capital contribution at4.9%). It is widely recognized that such activities had been conducted for a purely
economic objective.
For fear of the adverse impact arising from excessive investment regulations,adjustment is now underway among international organizations. In the Declaration of
the G8 Hiligendamm Summit held in June 2007, the leaders confirmed to work together
to strengthen open and transparent investment regimes and to fight against tendencies torestrict investments. At the OECD Ministerial Council Meeting in June 2008, ministers
recognized that SWFs’ investment activities have contributed to the stability of world
financial markets and issued a statement pointing out that recipient countries should notdiscriminate among investors. At the same time, regarding regulations based on grounds
such as national security, the statement also suggested that certain regulations should berecognized necessary on the condition that they are transparent and predictable and are
not excessive. The IMF also set up an SWF-related working group jointly withorganizations such as the OECD and is scheduled to work out a proposal for the best56

practice (action plan) by the fall of 2008. The G8 Hokkaido Toyako Summit held in July
pointed out that “SWFs are participants with an increasing importance in the world
economy” and encouraged the efforts by the IMF and the OECD in its Summit
Documents.
Individual countries also began preparing the guideline. In March 2008, along withthe governments of Singapore and Abu Dhabi (UAE), the United States announced theguideline for receiving investment from SWFs without discriminating among investors,
while promoting information disclosure regarding SWFs.
Table 1

List of Major SWFs by country

Name of country/Name ofmajor fund

Asset

Funds forinvestment

Year ofestablishment

UAE/Abu Dhabi Investment
Authority (ADIA)

875

Crude oil

1976

Norway/Government Pension
Fund (GPF)

395

Crude oil

1990

Singapore/ Government ofSingapore Investment
Corporation (GIC)
Temasek Holdings

Government
reserves
330
100

1981
1974

Saudi Arabia/Saudi Arabian
Money Agency (SAMA)

250

Crude oil

1952

Kuwait/Kuwaiti Investment
Authority (KIA)

160250

Crude oil

1953

China/ China Investment
Corp. (CIC)

200

Government
reserves

2007

Russia/Petroleum
Stabilization Fund

160

Crude oil

2004

Australia/Australia Future
Fund

42

Government
reserves

2006

United States/Alaska
Permanent Fund

35

Crude oil andminerals

1976

OutlineThere are many long-term investments in large
companies but the content of investments are notmade open. The Abu Dhabi Investment Council
was established in 2006.
Supervised by the Ministry of Finance andoperated by the central bank’s “Norway Bank
Investment Management.” Transparency is high.
GIC was originally a subsidiary of Temasek, agovernment-affiliated holding company.
Nowadays, Temasek is a private company in form.
The government shows understanding of a certain
extent of information disclosure.
The Money Agency invests with reserves of thenational oil company’s income. A new fund isscheduled to be established in 2008.
Future Generation Fund (FGF), an asset fundmanaged by KIA, makes investments with overseas
assets.
A company under the direct control of the StateCouncil and is financed by the Ministry of Finance.
It makes investments with the largest foreignexchange reserves in the world.
Divided into “reserves” and “people’s welfare
fund” in February 2008. It holds mainly foreign
government bonds and international institutionalbonds.
Established for the purpose of paying pensions to
old people. The Future Fund Management Agency
financed by the government operates this fund.
Owned by Alaska and operated by the state-owned
Alaska permanent fund management organ. There
are funds for respective states in the United States.

South Korea/Korea
20
Government
2005
US$17 billion financed by the central bank andInvestment Corporation
reserves
US$3 billion by the government.
(Notes)(1) The asset is an estimated figure (unit: US$1 billion).
(2) Government reserves are mainly foreign exchange reserves, and in the case of Australia, they are income from theselling of privatized companies’ stocks.
(Sources) Prepared based on IMF data and various other materials.

57

Table 2

Outline of major countries’ inward investment regulations

Name ofcountry

Regulated industry

Examination criterion and outline

Method ofregulation

United States

All industries

Activities by foreign persons (company, government Ex post facto
and person) that have an impact on national security interventionof the United StatesJapan

Weapon, ordinance, aircraft,space development, nuclear
power, related general-purpose
goods, etc.
All industries

Examinations conducted based on national security, Notification in
public order and public safety, and “inherent
advancecircumstances (agriculture, forestry and fisheries
industry, etc.)”
Public interests (including national security). The
Ex post facto
business law was enacted in 2002. Defense
intervention
Secretary may intervene.
Interests in terms of national defense. Amendment Notification in
was triggered by the US PepsiCo's offer to buy out advance
Danon in 2005.

UnitedKingdom
FranceWeapon, military industry,
information and security, andcountermeasures against bioterror, etc.

Germany

War weaponry, cryptographysystem, and tank engine

China“Priority industries”: a wide range Regulate investments that “have an important
Notification in
of industries are regulated
impact on the safety of the national economy.” The advance
regulation aims to “secure safety for industries.”

South Korea

All industries

RussiaInterests in terms of national security under theNotification incurrent law. The Government put forward the “Risk advanceRestriction Law” with a wider scope in 2007.

The government will intervene when clear evidence Ex post facto
is found that “the indispensable public interests” are intervention
harmed.
Military, aviation, nuclear power, Inward investment regulations are scheduled to be Notification in
etc.
introduced to 42 “strategic fields” in 2008.
advance(Sources) Prepared based on data from the OECD and Ministry of Economy, Trade and Industry, and othermaterials

58

Fig. I-14

FDI of major economies (net flows based on balance of payments)

US
CanadaEU27
EU15FranceGermany
Italy
Netherlands
Spain
UK
12 new EU members
Switzerland
Australia
Japan
East Asia
China
Hong Kong
ASEAN5Singapore
India
BrazilRussia2,006
241,961
62,765
763,316
693,129
78,15455,16839,239105,446
26,889148,189
70,187
26,27525,736-6,789
181,801
78,09545,06047,63524,742
19,352
18,82232,387
1,061,613
477,188
1,538,801

Inward FDI
Growth rate
2,007
237,542-1.8
108,655
73.1
1,092,864
43.2
1,001,850
44.5
157,970
102.1
51,812-6.1
40,2022.5
251,564
138.6
53,38598.5
185,941
25.5
91,01429.7
40,391
53.7
22,266-13.5
22,181n.a.
258,701
42.3
138,41377.2
59,87732.9
50,673
6.4
24,137-2.4
22,30015.2
34,585
83.7
52,47562.0
1,442,179
35.8
665,260
39.4
2,107,439
37.0(US$ million, %)Outward FDI
Growth rate
2,006
2,007
241,244333,271
38.1
39,11753,81837.6
918,702 1,349,387
46.9
886,226 1,305,846
47.3
121,370
224,650
85.1
94,700169,886
79.4
42,06890,780115.8
208,391
110,539-47.0
100,250
119,605
19.3
86,764
229,839164.9
32,47743,541
34.1
69,85450,968-27.0
22,63824,2096.950,16573,483
46.5
100,455
129,460
28.9
17,83016,995-4.7
44,97953,16018.2
22,12032,92348.8
12,241
12,3000.5
10,38911,861
14.2
28,202
7,067-74.9
23,15145,652
97.2
1,336,115 1,869,022
39.9
242,614283,155
16.7
1,578,729 2,152,177
36.3

Developed Countries
Developing countries
World(Notes)(1) JETRO estimates for "World" and "Developing Countries" figures. (refer to Reference Materials/Supplement
Statistics: Annotation 3)(2) ASEAN5 consists of Thailand, Malaysia, Phillipines, Indonesia and Singapore.
(3) “East Asia” stands for the sum of China, South Korea, Taiwan, Hong Kong and five ASEAN countries.
(Sources) National and regional balance of payments statistics, BOPS (IMF) and UN Economic Commission of
Latin America Countries (ECLAC).

59

Fig. I-10

Global FDI and cross-border M&As

(US$ billion)
2,500
2,000
1,500
1,000
500
0
95

96

97

98

99

2000

01

02

Developed countries' inward FDI

03

04

05

06

07
（Year）Developing countries' inward FDI

Global cross-border M&A(Sources) BOPS (IMF), national and regional balance of payments statistics and Thomson Reuters.

Table I-15 Top ten countries/regions in FDI worldwide(US$ million)
Inward FDI

2006

Outward FDI
2007
2006
2007
241,961 Netherlands
251,564 US
241,244 US
333,271
148,189 US
237,542 Netherlands
208,391 UK
229,839
124,903 UK
185,941 France
121,370 France
224,650
105,446 France
157,970 Luxemburg
110,614 Luxemburg
181,848
78,154 China
138,413 Spain
100,250 Germany
169,886
78,095 Luxemburg
118,798 Germany
94,700 Spain
119,605
63,912 Canada
108,655 UK
86,764 Netherlands
110,539
62,765 Hong Kong
59,877 Switzerland
69,854 Italy
90,78055,168 Spain
53,385 Belgium
56,171 Japan
73,483
RussiaJapan
Canada45,06052,47550,16553,818

1 US
2 UK
3 Luxemburg
4 Netherlands
5 France
6 China
7 Belgium
8 Canada
9 Germany
10 Hong Kong
(Sources) National balance of payments statistics and BOPS (IMF).

60

Fig. I-11

Quarterly M&A value and US stock price index

600,000（US$ million）（S&P Index）

M&A value
S&P 500 Composite - Price Index

500,000

1800
1600
1400

400,000

1200
1000

300,000
800
200,000

600
400

100,000

200
00
I II III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ III Ⅳ Ｉ ＩＩ
2000
2001
2002
2003
2004
2005
2006
2007
2008 （Year）(Note) Stock prices are the quarter-end closing prices.
(Sources) Thoms on Reuters data and Datas tream.

Fig. I-12

35,000

M&A value towards developed countries by major emerging economies（US $million）
M&A value towards developing countries

30,000

M&A value towards developed countries

25,00020,00015,00010,0005,000
0BR I CBR I CBR I CBR I CBR I CBR I CBR I CBR I CBR I CBR I CBR I CBR I C

96

97

98

99

2000

2001

2002

2003

2004

2005

2006

2007

（Year）(Note) B stands for Brazil, R for Russia, I for India and C for China.
(Sources) Thomson Reuters.

61

Table I-16 Cross-Border M&As: 10 largest in 2007 and the first half of 2008
2007
Acquirer Company
Nationality
Nov. RFS Holdings BV
Nov. Rio Tinto PLC
Apr. Iberdrola SA
Oct. Enel Energy Europe Srl, others
Jun. AB Acquisitions Ltd
Apr. Japan Tobacco Inc
Jul. Unibail Holding SA
Aug. Spohn Cement GmbH

UK
UK
Spain
Italy
US
Japan
FranceGermany

Nov. Groupe Danone SA

FranceJul. Cemex SAB de CV

MexicoTarget Company
Industry

Nationality

Finance (investment)
ABN-AMRO Holding NV
MiningAlcan Inc
Electric services
Scottish Power PLC
Electric services
Endesa SA
Finance (investment)
Alliance Boots PLC
Cigarettes
Gallaher Group PLC
Real estate investment trusts
Rodamco Europe NV
Kiln, ceramics and stone
Hanson PLC
Dry, condensed, and evaporated dairy
Koninklijke Numico NV
products
Kiln, ceramics and stone
Rinker Group Ltd

AmountIndustryBank
Metal (aluminum)
Electric services
Electric services
Drug stores and proprietary stores
Cigarettes
Real estate investment and trust
Kiln, ceramics and stone
Dry, condensed, and evaporated
Netherlands
dairy products
Australia Kiln, ceramics and stone
Netherlands
Canada
UK
Spain
UK
UK
Netherlands
UK(US$ million）

Equity after
acquisition(%)

98,18943,923
26,63526,43819,40818,80018,504
18,360

98.8
100.0
100.0
92.1
100.0
100.0
95.7
100.0

16,825100.0

15,434

100.0

AmountEquity after
acquisition(%)

Jan.-Jun. 2008
Acquirer Company
Nationality

Target Company
Industry

Nationality

Industry

UK
Spain
Feb. Imperial Tobacco Group PLC
Cigarettes
Altadis SA
Cigarettes
Netherlands Beverage (beer)
UK
Apr. Heineken NV, Carlsberg A/S
Scottish & Newcastle PLC
Beverage (beer)
Netherlands Chemical
UK
Jan. Akzo Nobel NV
ICI PLC
ChemicalCanadaUK
Apr. Thomson Corp
Information services
Reuters Group PLC
Information services
US
Bermuda Information and communications
Feb. Serafina Holdings Ltd
Finance (investment)
Intelsat Ltd
FranceEgypt
Jan. Lafarge SA
Kiln, ceramics and stone
OCI Cement GroupKiln, ceramics and stone
Germany Electric services
Italy
Jun. E ON AG
Endesa Italia
Electric services
China
UK
Mar. Chinalco, Alcoa Inc
MiningRio Tinto PLC
MiningSingapore Finance (investment)
Switzerland Bank
Mar. GICUBS AG
CanadaUS
May Toronto-Dominion Bank
Bank
Commerce Bancorp
Bank(Notes)(1) The date is the completion date of the transaction. (2) The nationality of the acquirer is that of its ultimate parent company.
(3) The definition of M&A follows Thomson Reuters’. (4) The ranking is based on the value of a single transaction.
(5) If the acquirer is a holding company with manufacturing industries as its major business category, the manufacturer's name is listed.
(Sources) Thomson Reuters.

Fig. I-13
120,000

Resource-Related M&As
(Number of deals)（US$ million ）100,000

500

Acquisition value (mining)450

Acquisition value (oil and gas ）400

Number of cases (mining)350

Number of cases (oil and gas)80,000300
250

60,000200
40,000

150
100

20,000

50
0

0
93

94

95

96

97

98

99 2000 01(Sources) Prepared bas ed on data of Thomson Reuters

62

02

03

04

05

06

07 （Year）(US$ million）

21,48918,631
18,305
18,266
16,00015,01814,342
14,284
9,760
8,638

100.0
100.0
100.0
100.0
76.0
100.0
80.0
12.0
9.0
100.0

Fig. I-14

Monthly Movement of LBO-Utilizing M&As
(Number of deals )(US$ million)

45,00040,00035,00030,00025,00020,00015,00010,000
5,000
0
2004

45
40
35
30
25
20
15
10
5
0

Acquisit ion value
Number of cases

2005

2006

2007

(Sources) Prep ared based on data from Thomson Reuters

63

2008 (Year)4. Japan’s Trade and Direct Investment(1) Trade in Japan The export and import values both posted a record high in 2007
In 2007, Japan’s exports (customs-clearance basis) grew 10.1% yoy to US$712.7
billion, while imports grew 7.2% to US$621.1 billion. Exports increased for the sixth
consecutive year, while imports increased for the fifth （Table I-17）. Japan’s export

value exceeded the US$700 billion mark for the first time, with the degree of
dependence on exports (exports (customs clearance basis)/nominal GDP) reaching
16.3%, the highest in history. Boosted by surging crude oil prices during the fourth
quarter, the import value also marked a record high at the US$600 billion range for the
first time. As a result, Japan’s total trade value (total value of the export and import)rose 8.7% yoy to US$1.3338 trillion. The trade surplus increased by US$23.7 billion to
US$91.7 billion, posting a yoy increase for the first time in three years. In terms ofvolume, exports and imports showed contrasting results: while the export volume index
rose 5.8% yoy, showing an increase for the sixth consecutive year, the import volume
index fell 2.8% yoy, posting a decline for the first time in six years. In the first quarterof 2008, exports rose 18.5% to US$197.2 billion and imports rose 22.7% to US$178
billion, both maintaining rising momentum, but the trade surplus fell 10.1% to US$19.2
billion, turning minus for the first time in seven quarters.
In terms of the balance of payments, the current account surplus rose by US$40
billion yoy to US$210.5 billion, exceeding the US$200 billion mark for the first time inhistory. The ratio of the current account surplus to GDP rose 0.8% points to reach 4.5%
(Table I-18). To a large extent, the current account surplus in 2007 was led by anincreasing income account surplus. The income account surplus increased for the fifth
consecutive year to US$138.6 billion, which was also the highest figure in history. From2005 onward, there was a clear tendency for the income account surplus to outpace thetrade surplus. As the breakdown shows, income generating from securities investment
accounted for 74.1%, a main part, of the income account surplus, and this condition
remained unchanged. As a reflection of strong earnings of Japanese companies’
overseas subsidiaries, income from direct investment showed significant growth, which
also contributed to an increasing surplus.
The services account deficit expanded for the first time in three years, rising by US$3
billion to US$21.2 billion. Despite a contracting travel account deficit that came aboutfrom the increasing number of foreigners visiting Japan and a continuing surplus of theother services account resulting from increasing royalty income, the deficit expanded.
This was attributed to the fact that the magnitude of transport account deficit widened64due to rising crude oil and fuel prices. (The deficit rose by US$1.8 billion yoy to US$7
billion.)

China became the largest trading partner
In terms of exports and imports (on a customs-clearance basis) by country and region（Table I-18）, the total value of exports and imports with China (up 12.0% yoy to
US$236.7 billion) outpaced that with the United States (up 0.2% yoy to US$214.2
billion), and it was the first time that China became Japan’s largest trading partner on
the calendar basis.
The export value towards China rose 17.5% yoy to US$109.1 billion, and on thevolume basis, exports maintain strong momentum by rising 9.0% yoy. Judged from thebreakdown, in addition to car exports, which showed a significant increase (up 77.5% to
US$2.8 billion), chemical products and electric machinery both resulted in noticeable
contributions to boosting the export value (up 25.7% to US$15.3 billion and up 18.6%
to US$30 billion, respectively) following 2006. Incidentally, of the 10.1% yoy growthrate of the total export value towards the whole world, the total export value towards theEast Asian region including China accounted for 5.0% points.
The export value towards the United States, reflecting the slowdown in the US
economy triggered by the subprime mortgage problem, fell 1.6% yoy to US$143.4
billion, and posted a decline for the first time in four years. By products, such as generalmachinery, electric machinery and transport equipment, which account for a large share,
all posted a yoy decline. As a result, the contribution by exports to the United States,
which stood at 1.8% points in 2006, turned to minus 0.4% points in 2007.
With respect to exports to other regions, the export value towards the EU27 rose
11.8% yoy to US$105.3 billion, that to Russia and CIS rose 50.1% yoy to US$12.5
billion, and that to the Middle East rose 36.4% yoy to US$26.2 billion, with exports toregions other than the United States all being strong and bolstering export growth in2007.
Imports from China remained flat by rising 0.0% yoy in terms of the volume basis butrose 7.7% yoy in terms of the value (to US$127.6 billion), and China remained Japan’s
biggest import partner for the sixth consecutive year. By items, import growth wasbolstered by communications equipment including cell phones (up 143% to US$4.1
billion), chemical products (up 27.3% to US$6.8 billion), and electric machinery (up13.1% to US$26.1 billion). On the other hand, the import value was pushed down by
foodstuffs such as fish and seafood (down 14.5% yoy to US$2.7 billion) and vegetables(down 6.8% yoy to US$1.8 billion) due to concerns about the safety of Chinese65

products.
Imports from the United States rose 4.1% yoy to US$70.8 billion in terms of thevalue and rose 5.5% yoy in terms of the volume. By item, foodstuffs (up 8.5% yoy to
US$14 billion), raw materials (up 20.7% yoy to US$4.8 billion), chemical products (up8.7% yoy to US$9.5 billion) and transport equipment (up 11.8% yoy to US$6.5 billion)
contributed to import growth. On the other hand, electric machinery (down 3.5% yoy to
US$11.7 billion) and general machinery (down 2.2% yoy to US$10.9 billion) pushed
down the import value.
With respect to imports from regions other than China and the United States, as was
expected, the import value from resource-rich countries and regions posted significant
growth. The total import value from the Middle East posted a yoy decline from the firstto third quarters of 2007, but as a result of surging crude oil prices in the fourth quarter,
the value on the full-year basis increased, up 4.2% yoy to US$114 billion. The total
import value of Australia, a major resource-rich country that is drawing attention, rose
11.5% yoy to US$31.2 billion, becoming the largest share for a single country (5.0% in2007) after China, the United States, Saudi Arabia and the UAE.


Automobile exports overcame the economic slowdown in the United States
In terms of exports by commodity in 2007 (refer to Reference Materials/Supplement
Statistics: Table 10), transport equipment exports led by automobiles (up 12.8% yoy to
US$177 billion) made significant contribution to growth of the total export value, as
was in the previous year.
Automobile exports showed a sharp contrast among different regions. Japan’s
passenger car exports to the world in 2006 posted a yoy increase of 17.9% in 2006, of
which exports to the United States accounted for 11.0% points. However, that share fellto almost zero in 2007. Instead of that, passenger car exports to the regions such as theEast Asia, Middle East and Russia enhanced their presence. As a result, passenger car
exports to the world rose 14.2%, securing a growth not inferior to that in 2006 (Fig.
I-15). According to the data released by the Japan Automobile Manufacturers
Association, Inc., among domestically manufactured cars in 2007, the percentage
accounted for by exports reached a record high of 57.4%, and in particular, the numberof cars exported to the Middle East, Central and South America and Oceania posted arecord high. For items other than cars, the growth of general machinery (up 10.9% yoy
to US$141.2 billion) and manufactured goods, which continued to be strong due torising resource prices (up 12.3% to US$84 billion), bolstered the export value. Despite
the sluggish housing market in the United States, exports of general machinery66

maintained a rising trend thanks to the recent resource development boom and demandfor infrastructure improvement in emerging countries (construction /mining machineryrose 17.0% yoy to US$11.4 billion).
In terms of imports by commodity in 2007(refer to Reference Materials/Supplement
Statistics: Table 11), as a reflection of surging resource prices, imports of mineral fuels
including oil and natural gas boosted the import value, and this pattern remained
unchanged from 2006 (imports of mineral fuels rose 7.2% to US$172 billion). In
particular, in terms of the volume basis, imports of crude oil and unrefined crude oil fell
2.9% yoy to 239.61 million liters; but as an increase in the unit price boosted the value,such imports rose 5.4% yoy to US$104.6 billion. Incidentally, throughout 2007, importprices of crude oil rose 8.6% to US$69.40/barrel, substantially contracting from themagnitude of increase on the full-year basis in 2006 (an increase of 25.1%), but wereboosted just by surging prices in the fourth quarter (up 37.0% to US$83.30/barrel). In
the first quarter of 2008, price growth further expanded with strong momentum byrising 61.9% (the aforementioned Table I-17). In the same way, items that were
impacted by rising international commodity prices, such as raw materials (up 18.0%
yoy to US$48.1 billion) and manufactured goods (up 11.4% yoy to US$63 billion),drove up the total import value.


The total value in IT trade continued to account for a large percentage
In IT trade in 2007, exports amounted to US$143 billion and imports to US$87.6
billion, with the trade surplus reaching US$55.4 billion. The IT export value accounted
for a percentage exceeding 20% of the total export value and also accounted for 17.3%of the total trade value (exports + imports), which is close to 20% (Table I-20).
By type of goods, exports and imports of electronic components such as
semiconductors both accounted for a large share (31.1% and 27.5% of their respective
total value), but characteristically, exports of “Other electric and electronic components”
including flat panel displays (24.5%) and imports of “Computers and peripheral
equipment” represented by PCs (22.2%) accounted for a large percentage.
In terms of IT exports by country and region, exports to East Asia (US$87.9 billion in2007) took up a large portion, accounting for 60% or more of the total IT export value.
In the same way, IT imports from East Asia reached US$64.2 billion, accounting for
more than 70% of the total IT import value. And IT exports and imports to and from
East Asia accounted for 65.9% of the total IT trade value. Trade with East Asia
accounted for a high percentage of 43.6% of Japan’s total trade value, but IT trade with
East Asia has gained an even more important position.
67Japan’s exports maintained momentum through two types of “diversification”
Over the past decade, the ratio of trade surplus to nominal GDP remained at
approximately 2.3% on average. On the other hand, the income account surplus also
continued to expand and posted a record high in 2007. According to the stage theory of
economic development for the balance of payments (7), Japan is expected to shift to a“matured creditor country” which earns profits through investment rather than trade, but
the actual state is that at least over the recent decade, Japan has earned profits from bothtrade and investment. To some extent, this was attributed to the international economic
environment of the long-term trend of yen depreciation and the underlying trend of
economic expansion, but the changes in Japan’s trade over the recent decade can becharacterized by the word “diversification.” Specifically, Japan has diversified its“export destinations” and “export items.”---------------------------------------------------------------------------------------------------------7. This is the concept that the trend of the balance of payments changes in stages according to the stage of
economic development. Based on this concept, Japan is now positioned between “immature creditor
country” and “matured creditor country.”----------------------------------------------------------------------------------------------------------

With respect to Japan’s total export value towards the world, in terms of thepercentage by region, while exports to the United States slid back, exports to emerging
regions steadily expanded in presence (Fig. I-16). Compared to a decade ago, thepercentage accounted for by exports to the United States in the total exports fell (downfrom 30.5% in 1998 to 20.1% in 2007), while that accounted for by exports to East Asia
including China rose significantly (up from 33.2% in 1998 to 46.0% in 2007). Exports
to “Other regions,” including such major resource-rich countries as the Middle East andRussia, sharply expanded in the past three years, and in 2007, in terms of the percentage,
they approached exports to the United States with only a difference of one percentage
point. Exports to the United States still have a large influence, accounting for 20% ofJapan’s total exports to the world, but doubtlessly, the structure of Japan’s foreign
demand is diversifying and continuing to break away from the U.S.-dependent pattern.
The aforementioned case of car exports is an obvious reflection of this trend (above
carried Fig. I-15). Exports to East Asia, Russia, the Middle East, Central and SouthAmerica, and other regions in 2007 contributed 11.5% points, a percentage larger thanthe decline in exports to the United States (11.0% points), and they post double-digit
yoy growth even when the United States and the EU27 are excluded.
This trend is not limited to passenger cars, and the export destinations are68diversifying for various other items. Compared to a decade ago, the percentage
accounted for by exports to individual countries and regions showed a shift from thedeveloped countries and regions (the United States and the EU) to the emerging regions(such as East Asia, the Middle East and Russia) for almost all major items (Table I-21)．
For almost all items, a shift from the United States and the EU to East Asia was obvious,
but for passenger cars, it is a characteristic phenomenon that exports to Russia grew
sharply, with those to the Middle East following suit. The shift to non-developed
countries and regions for products not limited to specific ones might be understood in apositive way as Japan’s movement to further diversify its export structure.
In addition, in terms of the contribution by each item to the export value towards theworld (yoy growth rate), when compared to a decade ago, automobiles showed a
noticeable presence (Fig. I-17). A review of the past decade shows that exports to theworld from 1998 to 2001 were determined by the trend of electric machinery andgeneral machinery. But from 2002 onward, contributions by basic metals and theirproducts as well as cars started to rise. Basic metals and their products mainly include
iron and steel products, and their rise is considered to have been a response to a strong
demand for intermediary goods in emerging countries and regions, headed by East Asia.
Also, the item groups classified as “Others,” which include mineral fuels, foodstuffs,
and precious metals (such as gold, silver and platinum), made increasing contributions.
Regarding mineral fuels, attention is prone to focus on imports, but stagnant demand inJapan has promoted sales expansion in overseas markets (8), and the export value during
the recent decade rose by 7.5 times (reaching US$9.2 billion in 2007), with thepercentage accounted for in the total export value almost quadrupled (up from 0.3%
points to 1.3% points).
It cannot be ignored that behind the stable expansion of Japan’s trade surplus, there is
the fact that exports of these diversified items have continued to be strong.
---------------------------------------------------------------------------------------------------------8. According to “Petroleum Industry in Japan 2008 (Petroleum Association of Japan),” Japan’s demand
for fuel oil in FY2006 fell 8.0% from FY2000 (down from 243,218,000 kilo-liters to 223,843,000
kilo-liters).

----------------------------------------------------------------------------------------------------------(2) Japan’s outward FDI sets new record
In 2007, Japan’s outward FDI (net flows based on balance of payments) totaled
US$73.5 billion (up 46.5% yoy), significantly higher than the record of US$50.2 billion
achieved in 2006, and marked a record high for the second consecutive year. This was
69attributed to: (i) a remarkable 93.7% increase in outward M&A value by Japanesecompanies, which amounted to US$41.0 billion (data of Thomson Reuters); (ii)increased investments mainly by trading companies to secure interests in natural
resources overseas, against the backdrop of surging crude oil and mineral resource
prices; and (iii) an increase in reinvestment earnings of Japanese overseas owing to theircontinued strong performances mainly in manufacturing industries. In addition,
investment towards emerging countries such as India grew steadily (refer to Reference
Materials/Supplement Statistics: Table 12).
The breakdown of the FDI shows that, owing to increasing M&A transactions,“Equity capital” rose 80.2% yoy to US$51.8 billion and contributed to boosting the total
FDI value. “Reinvestment earnings” also increased, up 19.6% yoy to US$19.6 billion,
reflecting increasing earnings of Japanese companies’ subsidiaries especially in Asia
(Fig. I-18).


Japan’s outward FDI expands in major regions of the world
By country and region, Japan’s outward FDI registered double-digit growth (yoy) inmost regions in the world, with FDI in North America, growing 70.6% to US$17.4
billion.

In North America, there was active investment in machinery industries, such as
investment in “Electric machinery,” which rose 175.5% yoy to US$900 million, andalso in “Transportation machinery” such as automobiles, which rose 9.6% yoy to
US$3.7 billion. The increase in investment in “Electric machinery” is attributed tofactors such as the establishment of a new joint venture company by Ricoh and IBM for
printing business (US$725 million). In 2008, there were movements to proceed withcapital investments in the United States, an important market, as was seen in Canon’s
announcement to invest a total amount of JPY60 billion or more to establish a new tonercartridge factory in the United States. Investments to hold share in business projects
were also active in North America. Nippon Oil Company and Mitsubishi Corporation
jointly contributed capital to Anadarko Petroleum Corporation, an oil company in the
United States (US$1.2 billion), and took over part of the rights for the oilfield in the
Gulf of Mexico. There were also active acquisitions in the financial sector. M&A cases
by Japanese companies with companies in the United States numbered 82, which was
the largest by country.
With respect to growth in Western Europe, the acquisition of the major British
cigarette company Gallaher Group by Japan Tobacco (JT) (US$18.8 billion), a case withthe largest ever amount in Japan’s outward M&A transactions, had significant influence.
70After the acquisition, Gallaher’s stocks were transferred from the United Kingdom to aholding subsidiary in the Netherlands, and consequently the capital contribution
accompanying this case was booked in the Netherlands. On the other hand, in the
Netherlands, there was a withdrawal of investment from the joint venture business ofresource development in the oil sector. There were also many cases of withdrawal in
Ireland and Norway throughout the year; and in 2007, the growth rate in Western
Europe stood at 13.5%.
In East Asia, investment towards countries and regions such as Singapore, thePhilippines and Taiwan increased. In Singapore, there were active investments in thefinancial sector, and the increase is seen to have attributed to cases such as the capital
contribution by Tokio Marine & Nichido Fire Insurance to an investment company. In
the Philippines, direct investment in the telecommunications sector increased. In Taiwan,
in addition to the establishment of a DRAM production factory by Elpida Memory
through a joint venture with a local company (with a total amount of approximately
JPY160 billion), there were also noticeable finance-related transactions.
In Oceania, direct investment increased significantly by rising 481.2% yoy to US$4.2
billion, and in addition to active investment in resource development such as coals andiron ores in Australia, which rose more than 100% yoy to US$1.7 billion, the acquisitionof National Foods, a beverage company producing dairy products, by Kirin Holdings(US$2.6 billion) is considered to have contributed to the increase.
Investment towards the Middle East rose sharply, up approximately four times yoy to
US$958 million. Increasing cases of investment to secure oil resources in Saudi Arabia
had a large impact. For example, Sumitomo Chemical is proceeding with theconstruction of a petrochemical plant jointly with the state-owned Saudi Aramco(US$1.2 billion). Japanese companies are continuing to acquire capital and strengthenbusiness in energy and resource-related sectors in the Middle East region, where a
succession of large-scale plants are under construction amid rising demand for energy inthat region.
In Central and South America, Japanese companies successively acquired preferential
equity certificates issued by special purpose entities, and investment towards the tax
heavens in this region increased. In South America, direct investment in the resource
sector increased as well. Nippon Mining & Metals Co., Ltd. and Mitsui Mining &Smelting Co., Ltd. announced the acquisition of rights for developing copper-bearingore deposits in Peru (US$500 million). In 2008, Marubeni Corporation announced its
capital contribution to a large-scale project of copper mine development in Chile(US$1.9 billion).
71



India shows rapid increase among emerging countries
Among direct investment towards emerging countries, investment towards India grewrobustly, up approximately three times yoy to US$1.5 billion. M&A cases increased inIndia, such as Matsushita Electric Works’ acquisition of Anchor Electricals Private(US$450 million). The automobile industry also accelerated their moves. In addition to
the capital increase by Yamaha Motor Co., Ltd. for its local motorcycle-manufacturingsubsidiary, and the establishment of a diesel engine-manufacturing factory by Suzuki
Motor Corporation, major Japanese automobile manufacturers plan to make additional
investments to expand their production bases as well from 2008 onward for the purposeof opening up the Indian car market, the presence of which is notably growing.
With respect to direct investment towards Vietnam, investment in production
facilities by major manufacturing industries came to a pause and rose only slightly fromthe previous year. In Vietnam, along with deregulation of service sectors as a result of
WTO accession, direct investment in non-manufacturing industries expanded.
Sumitomo Corporation set up a locally incorporated company as a Japanese trading
company in Hanoi, the first one for a Japanese company after WTO accession. In
addition, in the financial sector, the Sumitomo Mitsui Banking Corporation invested
US$225 million in the Vietnam Commercial Bank of Export and Import (with a ratio of
capital contribution at 15%).
Investment towards China remained flat (up 0.8%), amounting to US$6.2 billion, but
direct investment in manufacturing industries turned to a decline by falling 13.8% yoy
to US$4.2 billion. In the survey conducted by JETRO, regarding the future of businessdevelopment in China, out of the companies replying “Planning to expand the existing
business or start a new business,” no more than 33.1% replied “Will newly establish or
expand a production base” (down 1.8 points yoy), thereby showing a declining trend
from 2004 onward (9).
---------------------------------------------------------------------------------------------------------9. “Survey on International Operations of Japanese Firms for FY 2007” released by JETRO in March
2008 (valid replies received from 773 companies, with a ratio of respondents at 27.9%).

----------------------------------------------------------------------------------------------------------

Direct investment towards emerging countries in Central and Eastern Europe alsorose, up 38.7% yoy to US$500 million. Increasing production facility investments
related to automotive parts in the Czech Republic can be raised as the reason for theincrease. In Poland, investments were made in LCD-related companies, accompanying
the operation of Sharp’s local factory. On the other hand, because of rising labor costs in72

the region, for Japanese companies conducting production in Central and Eastern
Europe, readjustment and reorganization of production bases will be an issue in the
future.


FDI in food industry and mining grow significantly
In terms of Japan’s FDI by type of industry in 2007, “Food industry”, showed
noticeable growth (US$12.8 billion). To a large extent, this is considered to have been
attributed to the large-scale M&A cases, such as JT’s acquisition of the British company
Gallaher and Kirin’s acquisition of the Australian company National Foods.
The percentage accounted for by investment in “Transportation equipment” in the
total direct investment fell, but thanks to automobile-related capital investments inemerging markets such as India, as well as in the largest market, North America,
investment continued to be robust, amounting to US$8.7 billion, which was almost thesame as in 2005 and 2006. In North America, Toyota Motor Corporation is scheduled toinvest approximately US$1.3 billion to build a new plant in the state of Mississippi tostrengthen production. The automobile industry plans to make successive investments
mainly in emerging markets such as India, Russia and Thailand as well.
Direct investment in the category of “Steel, non-ferrous and metals” also grew byrising 22.7% yoy to US$2.2 billion. In order to improve the steel delivery system
towards Japanese affiliated car manufacturers in North America, Mitsui Corporation
spent US$500 million to acquire Steel Technologies, a steel processing company in the
United States. Sumitomo Metals set up a seamless steel pipe manufacturing company inBrazil through a joint venture with a French steel maker. A total of JPY200 billion isscheduled to be invested by 2010, when the plant goes into operation. In March 2008,
Nippon Steel Corporation also announced its plan to build a steel mill in Brazil, with anannual capacity of 3 million tons, and it will become the company’s first blast furnace
overseas.
FDI in non-manufacturing industries doubled, rising 117.0% yoy to US$34 billion.
Investment in “Mining” grew 156.9% yoy to US$ 4.1 billion due to sharply increasing
resource demand. In particular, FDI towards Australia rose 121.1% yoy, with capital
contributions concentrated for the purpose of procuring raw materials for the steel
industry and securing energy, such as the agreement reached by Mitsubishi Corporation
with Murchison Metals Ltd. regarding a project of iron ore resource development with a
total operating expense of approximately JPY300 billion in around four years from2007.
In other sectors, the direct investment value in “Finance and Insurance” rose by73

approximately 3.5 times yoy to US$19.5 billion, and there were brisk M&A transactions
and capital contributions towards Europe and the United States by the major financial
institutions and insurance companies.


Active outward M&A transactions by Japanese companies
There were active movements by Japanese companies to make effective use ofcross-border M&As abroad (Fig Ⅰ-19). Affected by the subprime mortgage problem,
Japan’s overseas M&A deals fell in the second half of 2007 (US$7.9 billion, 119 deals),
compared to the first half of 2007 (US$33.1 billion, 143 deals). From the beginning of2008 onward, deals numbered no more than 112, but the value returned to an increase
and rose to US$22.2 billion due to the contribution by large M&A cases. Compared tofinancial institutions in Europe and the United States, the subprime mortgage problem
had a smaller impact on Japanese financial institutions. On top of that, thanks to their
good performance in the recent years, large Japanese companies held ample cash flows
and their dependence on interest-bearing debts declined as well. For these reasons, awide range of alternatives for raising necessary funds for conducting M&A transactions
also served as tailwind for Japanese companies. With M&A as part of the growthstrategy, more Japanese companies are expected to conduct cross-border M&As to aim
for the expansion of overseas markets and to strengthen their technological capabilities.
Below is a brief overview of Japanese companies’ aims with respect to the cases ofacquisition in the tobacco, food and pharmaceutical industries, which have madeeffective use of large-scale M&A transactions.
The tobacco industry, where regulations are being strengthened in developed markets,
has been undergoing reorganization, with companies putting their survival on the line.
JT, which had acquired the British company Gallaher, aims to secure its share in theworld market and enhance the corporate financial strength along with the expansion ofbrand capabilities through this large-scale acquisition following the acquisition of RJR
International in the United States in 1999.
Kirin’s acquisition of the Australian company National Foods is a part of its growthstrategy to aim for the expansion of the market share in Asia and Oceania. The company
is going to push forward active business investment with an aim to achieve dramatic
growth through the effective use of M&As in the future.
The pharmaceutical industry, with major companies taking a hard look at the businessafter the patent right expiration for their key products in the near future, has been
undergoing reorganization, involving overseas companies. Eisai Co., Ltd., aiming tofurther strengthen the category of cancer treatment, which is its core business, acquired74Morphotek, a bio-venture company in the United States (US$325 million), and also inearly 2008, acquired MGI Pharma, a pharmaceutical company in the United States(US$3.7 billion). In the MGI case, LBO finance, which had been used less frequently
since the second half of 2007, was used, also showing Japanese companies’ high levelof fundraising capabilities. In May 2008, Takeda Pharmaceutical Company Limited
made the Pharmaceutical Products Inc. (TAP), a joint venture with Abbott Laboratories,
its wholly owned subsidiary. Furthermore, it completed the large-scale acquisition ofMillennium Pharmaceuticals, Inc., a company competitive in the development ofcancer-treatment medicines (US$8.1 billion), and made efforts to open up further themarket in the United States, while the domestic pharmaceutical market was instagnation. Daiichi-Sankyo Company, which announced in June 2008 its acquisition ofRanbaxy Laboratories, the largest pharmaceutical company in India, is going to expand
its sales market from the existing 21 countries to 56 countries through acquisitions tostrengthen its cost competitiveness while increasing its overseas sales.


Rate of return on FDI continued the rising trend
FDI outward stock (assets) as of the end of 2007 rose 21.6% yoy to US$546.8 billion.
The rate of return on FDI of Japanese companies obtained from earnings received from
FDI (such as reinvestment earnings and dividends) and FDI stock stood at 9.1%, posting
an increase for the fourth consecutive year. Overseas subsidiaries thus enhanced theirimportance as Japanese companies’ profit-making source. (Fig. I-20)
Increasing reinvestment earnings, one of the major factors of increasing earnings
from FDI, have promoted the expansion of overseas businesses. On the other hand, it
can be said that internal reserves of Japanese subsidiaries have piled up as reinvestment
earnings as a result of lack of the incentive to remit overseas subsidiaries’ income to
Japan. According to the “Survey of Overseas Business Activities” conducted by the
Ministry of Economy, Trade and Industry (May 2008), the stock of overseas
subsidiaries’ internal reserves in FY2006 amounted to JPY17.2168 trillion, up 36.6%
yoy. The Ministry pointed out: “From a viewpoint of strengthening international
competitiveness, revitalizing the economy, appropriately overcoming double taxation,and simplifying the system, it is necessary to make a comprehensive study of the stateof the issue while closely following the trends in countries such as the United States andthe UK.” The Ministry is studying how to switch over from the worldwide system-credit
method, under which corporate taxes are imposed on income earned worldwide, to theterritorial system-exemption method, whereby remittance of income from abroad is
exempted from taxation.
75

Incidentally, the United States, which levies tax on income earned worldwide like
Japan, reduced the outstanding balance of internal reserves by adopting a temporary
measure to briefly make dividends from overseas subsidiaries taxed less based on theAmerican Jobs Creation Act of 2004. The changeover to the territorial
system-exemption method is also under discussion in the United States. Some point out
that benefits from the changeover are uncertain, as it may mean a de facto tax increase
for some companies, and under the current circumstances, no consensus has beenreached.

Column I-4◎ Japanese companies diversifying their base of revenue derived overseas
Operating profits derived from Asia outpaced those from the Americas
According to financial results of listed companies aggregated by JETRO based on
their consolidated financial statements for the accounting year ending between
December 2007 and March 2008, the sales share (not including exports, etc. fromJapan) and the ratio of operating profit from overseas divisions stood at 36.9% and32.9%, respectively, both being the highest since FY1997 (Table). As a result of thechange in the accounting rule1 within FY2007, operating profits derived from domestic

operations decreased if compared to those under the former accounting rule, but
overseas divisions have been steadily gaining high importance as a profit source.
By region, overseas sales in the Americas continued to rank first, but operating profitsthat derived from Asia (including Oceania) outpaced those from the Americas for the
first time. Europe is also steadily boosting its presence due to the appreciation of theeuro, with sales and the ratio of operating profit to the total both reaching the highest
ever level. The decline seen in the divisions operating in the Americas is considered tohave been attributed to sluggish economic conditions in the United States, but Japanesecompanies’ base of revenue derived overseas is being steadily reinforced because
revenue from both Asia and Europe has been secured.


Non-manufacturing industries expected to expand their businesses overseas

1This includes the change in the criterion for evaluating inventory assets, the change in the depreciation
method of tangible fixed assets, readjustment of the useful life and residual value, etc. Overseas
subsidiaries had been allowed to conduct accounting processing by following the local accounting
standard, but from April 2008 onward, they were obliged to use the same accounting standard as theirparent companies, except in some exceptional cases.
76However, there also remain some issues for overseas businesses operated by Japanesecompanies. One of them is that compared to manufacturing industries,
non-manufacturing industries are left behind in overseas expansion. In FY2007, theratio of overseas sales remained at a low level of 20.5% for non-manufacturingindustries, while that for manufacturing industries was 40.5%, and the ratio of overseas
assets to total assets was no more than 18.6% for non-manufacturing industries against
36.5% for manufacturing industries. The ratio of overseas operating profits stood at
33.8% for non-manufacturing industries as a whole, outpacing that for manufacturingindustries (32.8%), but that was attributed, to a large extent, to the profits of the mining
sector, which were significantly boosted by surging resource prices in 2007. If this is
excluded, the percentage was 17.4%, still lower than in FY1997 (Fig.). In addition, of
the outstanding balance of FDI (2006), non-manufacturing industries accounted for apercentage of 73.2%, larger than half, in the United States, but that percentage was only
41.6% in Japan, and even based on an international comparison, Japan’s
non-manufacturing industries are somewhat inferior in the overseas expansion.
Table

Earnings derived overseas by Japan’s listed companies（％）

No. ofDomestic Overseas
companies
Americas Europe

1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007

(582)
(593)
(643)
(668)
(715)
(728)
(738)
(774)
(804)
(832)
(866)

（％）

Sales shares by region

Fiscal year

71.4
71.1
72.5
71.9
69.7
68.0
67.9
67.3
66.1
66.2
63.1

28.6
28.9
27.5
28.1
30.3
32.0
32.1
32.7
33.9
33.8
36.9

11.3
13.4
12.4
12.6
13.7
13.7
12.9
12.2
12.5
12.6
13.0

5.4
6.0
5.4
5.2
5.5
6.0
6.1
6.4
6.3
6.9
8.5

Operating profits share by region

Asia and
Oceania

Others

5.8
4.9
5.5
6.4
6.7
7.8
8.2
8.8
10.1
10.3
12.0

6.1
4.6
4.2
3.9
4.4
4.6
4.9
5.3
5.0
4.1
3.5

Domestic Overseas

76.6
73.4
75.0
79.9
76.0
72.9
73.3
71.8
70.8
73.5
67.1

23.4
26.6
25.0
20.1
24.0
27.1
26.7
28.2
29.2
26.5
32.9

Americas Europe

9.8
13.8
14.1
10.4
12.4
13.0
11.1
10.9
10.8
9.1
8.7

3.4
4.8
2.1
0.7
0.6
2.8
4.3
4.7
4.7
4.1
6.8

Asia and
Oceania

Others

4.8
4.4
5.0
6.0
6.7
7.2
7.5
8.6
10.0
8.3
12.2

5.3
3.6
3.7
3.0
4.2
4.1
3.7
4.0
3.7
5.1
5.2

(Notes)(1) The data covers listed companies with their accounting year ending between December and March (excludingbanks and insurance companies) and with segment information by region included in their consolidated financial
statements.
(2) Results are aggregated for companies that had released their consolidated earnings briefing for the accounting
year of 2007 by May 31, 2008.
(3) The total sales also includes the inter-segment sales.
(4) There may be overlapping parts, as listed subsidiaries are also included for aggregation.
(5) “Others” includes summation items covering multiple regions, such as “Europe and the America” or “Overseas.”(Sources) Aggregated from CD-ROM of Corporate Financial Records (until FY2005) by Toyo Keizai Inc., earnings
summaries of individual companies and financial statements (FY2006 and FY2007)

This is attributed to the fact that Japan’s service industries are mostly operated on asmall scale, and consequently they have no energy to spare for the overseas expansion.
77

On top of that, compared to the United States and the United Kingdom, they are not
only insufficiently franchised and modularized but are also inferior in such aspects as
management localization.
Regionally, Japanese companies are constructing a more diversified base of revenue
by breaking away from single-pole dependence on the United States. On the contrary, interms of the type of industry, dependence on manufacturing industries has not been
overcome. It is expected that, in the future, if more industries of various types expand
their businesses to the world market while the problems faced by non-manufacturingindustries are being cleared away, a stronger base of revenue can be constructed forJapanese companies as a whole.
Fig.
Ratios of Overseas
Non-Manufacturing Industries
35
25

23.4

20

5.6

15

3.5

5
0

Profitfor

Manufacturing

and

32.8
4.0

30

10

Operating

7.1
9.5

9.3

24.5
Others

3.5
3.2

17.4

EuropeAmericas

13.2

3.9
3.0
4.2

4.5

6.4

FY1997（110）

FY2007
（188）

12.2
4.9
FY1997 (469)

FY2007（675）

Manufacturing industries

Asia

Non-manufacturingindustries (excluding mining)(Note) Figures in parentheses represent the number of companies whose data were compiled.
(Source) Compiled based on Toyo Keizai CD-ROM database (up to FY2005) and consolidated financial statementsof each company (for FY2006 and FY2007(3) Smoothly expanding inward direct investment
 Large-scale M&A cases led inward direct investment
In 2007, inward FDI towards Japan (balance of payments basis, net) amounted to
US$22.2 billion, outpacing the highest ever record of US$12.3 billion in 1999 andposting a new record high. The value of capital inflow rose 48.3% yoy to US$67.7
billion. On the other hand, the value of capital outflow fell 13.2% yoy to US$45.5
billion, thereby leading to a significant increase in the value of net inflow (Fig. I-21).
Active large-scale M&A cases towards Japan had a significant impact on the increase of78

the value of capital inflow. According to Thomson Reuters (completion basis), M&A
cases towards Japan amounted to US$22.6 billion in 2007, higher than the previous
peak reached in 2001 (US$19.0billion) and posting a record high (Fig I-22 and TableI-23). In 2007, including the case of an acquisition of minority interest, there occurred
five large-scale M&A cases over US$ 1 billion, which had not been seen since 2005,
and they seemed to substantially boost the value. The number of M&A cases reached
151 cases, second only to the 158 cases recorded in 2000. Among them, Citigroup
invested US$8.8 billion in 2007 alone and US$13.4 billion in total for the large-scale
stock acquisition to make the Nikko Cordial group its wholly owned subsidiary. Thiscase, larger than Vodafone’s acquisition of Nippon Telecom (in 1999 and 2001,
amounting to US$3.095 billion), became the largest ever M&A case toward Japan. The
value of capital inflow with this case excluded (US$58.8 billion) was also of a level
higher than the previous year’s (US$45.5 billion), and foreign companies’ investment
towards Japan has been solid on the whole. In addition, the value of capital outflow fell
below the previous year’s level, as there was no case of a large-scale sale as was seen in
Vodafone’s sale of its Japanese arm (US$17.5 billion) and the dissolution of the capitaltie-up between General Motors Corporation and Suzuki Motor Corporation (US$ 2.0
billion) in 2006.
Judged from net capital inflow and outflow by region, capital inflow was observed
from all major regions, such as North America, Asia and Western Europe, for which
capital outflow from Japan was reported in 2006 (Fig. I-23). With respect to North
America, the capital movement turned from capital outflow of US$2.7 billion toexcessive capital inflow of US$12.7 billion. However, as a result of Citigroup’s case,
capital inflow to non-manufacturing industries, in particular the finance and insurance
industries, seems to have boosted the value of inflow. Further, there were also casessuch as TDK Corporation’s transfer of its brand recording media-selling business andsubsidiary to Imation Corporation of the United States, and the capital movement also
turned from the previous year’s excessive capital outflow to excessive capital inflow inmanufacturing industries.
With respect to Western Europe, an excessive outflow of US$3.6 billion was recorded
in 2006, due mainly to the British company Vodafone’s sale of its Japanese arm to
Softbank’s group company, but in 2007, there were also large-scale cases such as theacquisition of Nissan Diesel by Sweden’s Volvo and that of Japan Air Gases by France’s
Air Liquide Group. There was active investment towards Japan’s finance and insurance
industries as well from countries such as Germany, the United Kingdom andLuxemburg. In addition, cases such as the additional capital contribution to Seiyu by79Wal-Mart of the United States through its investment subsidiary in Switzerland(US$815.34 million) also boosted the value of inflow. On the other hand, German
chemical and pharmaceutical companies recorded capital outflow of approximately
US$1.5 billion, but that is considered to be the impact of Bayer’s sale of its factory andresearch facilities, and as a whole, excessive outflow of US$800 million to Germany
was recorded. However, the capital movement turned to excessive capital inflow of
US$4.8 billion from Western Europe as a whole.
With respect to Asia, a capital outflow of US$900 million was recorded due toforeign affiliated securities companies’ movement to recover capital, but there wasactive investment toward Japan’s real estate properties, such as investment in Hawks
Town (US$862.2 million) and the hotel of Westin Tokyo (US$721.8 million) by
Singapore’s government fund GIC, resulting in a net capital inflow of US$1.6 billion.
Incidentally, the value of inflow from Singapore rose by more than ten times over the
past five years and accounted for 80% of the net capital inflow from Asia in 2007, of
which approximately 60% was investment towards the real estate industry. With respect
to capital inflow from other major Asian countries, an amount of US$200 million
flowed in from South Korea, doubling the previous year’s level. That value isconsidered to have been boosted by M&A cases, such as the acquisition of Myodo
Metal Co., Ltd. by Samsung C&T Corporation (US$37 million) and the acquisition of
GameOn Co., Ltd. by NeoWiz Games Corporation and other companies (US$95.5
million).
By type of industry, in manufacturing industries, capital flowed into the raw material
industries such as “Petroleum,” “Glass, clay and stone” and “Steel, non-ferrous metals
and metals,” but capital outflow of approximately US$1 billion was recorded in“Chemicals and pharmaceuticals.” This is due to the movement by American andEuropean pharmaceutical companies, as well as in the aforementioned Bayer case, toscale down or close down their research facilities in Japan for the purpose of improving
efficiency for the new medicine development system and reducing costs. In machineryindustries, as a result of the Volvo case, the capital movement in “Transportation
machinery and apparatuses” turned from the previous year’s excessive outflow of
US$1.4 billion to an excessive inflow of US$300 million. On the other hand, there wasan excessive outflow of nearly US$400 million in “Electric machinery andapparatuses.” In non-manufacturing industries, capital inflow to “Finance andinsurance” rose to the scale of US$17.7 billion as a result of the aforementioned
Citigroup case, and in addition, there was also excessive inflow of US$1.4 billion to“Real estate industry,” where there were cases of large-scale investment in hotels by
80

GIC and other investors of the United States (refer to Reference Materials/ Supplement
Statistics: Table 13).
As a result, the outstanding balance of direct investment towards Japan as of the endof 2007 amounted to JPY15.1 trillion, with its ratio to the GDP rising to 2.9% from
2.5% in the previous year (Fig. I-24).
Changing trends of M&A cases towards Japan
Comparing the characteristics of the active M&A activities from 2007 onward to
those during the previous M&A boom, investment was active from 1999 to 2001
towards the deregulated industries, such as telecommunications, with a formulated flowof business where investment funds acquire ailing companies, complete theirrehabilitation and then sell them to other companies or list their stocks to gain profits. In
addition, amid a relatively low level of interest rates, active real estate-related
investment also boosted the value and number of M&A cases. Since 2007 onward, amid
increasing moves aiming to take the initiative by expanding the company size andacquiring the market share, global industry reorganization has been underway inindustries such as finance, cars and pharmaceuticals, and these moves also have had an
impact on the trends of M&A towards Japan.
From the viewpoint of foreign affiliated companies, Japan continues to be construed
as an important market for them. In fact, in the JETRO’s “Japan Attractiveness survey”(March 2008), among the major Asian countries and regions, Japan was evaluated as“the most attractive country” along with China. Japan obtained a high level ofsatisfaction especially for its transportation and telecommunication infrastructure, as
well as its stable political situation and the capability of human resources and labor
force. The “Survey of Foreign-affiliated Firms in Japan” also shows steady
improvement in the evaluation of Japan in regard to the investment environment, suchas high business costs, exclusivity and peculiarity, and administrative procedures thatwere once regarded as problems (Fig. I-25 and Fig. I-26).
Discussions on inward investment regulations became active
At the same time, in 2007, there occurred several cases that attracted attention in the
aspect of regulations on investment towards Japan. With respect to the hostileacquisition of listed companies, the Supreme Court rendered a decision in August 2007
concerning the defensive measure against the acquisition that Bull-Dog Sauce Co., Ltd.
had taken, based on a special resolution of the shareholders meeting, and handed down
the opinion that, on the grounds that nearly all of the shareholders other than the81acquirer recognized the necessity of the defensive measure, such act did not constitute a
violation of the law. Furthermore, the Children’s Investment Master Fund (TCI), a
British fund, showed its intention to raise its ratio of capital contribution to J-Powerfrom 9.9% to 20% in January 2008, but in April, the Ministry of Finance and theMinistry of Economy, Trade and Industry pointed out that it was a case of inward direct
investment where national security was at stake and advised TCI to discontinue the said
inward direct investment, based on the Foreign Exchange and Foreign Trade Control
Act. The TCI issued a notification and a written explanation to the effect that it would
not accept the advice, but in May, the two ministries issued a discontinuance order. In
another case, Macquarie Group, an Australian investment bank, contributed
approximately 20% of capital to Japan Airport Terminal Co., Ltd. (the company
operating Haneda Airport), which triggered the move to incorporate the restriction on
foreign capital in the amendment to the Airport Development Act, i.e., the ownership
percentage by foreign capital in airport-related companies should be less than one-third.
However, the introduction of the restriction was postponed because, from the Council
for Regulatory Reform and within the government, there was a succession of opinions
holding that such restriction would go against the policy of expanding investment
towards Japan.
Under these circumstances, a proposal titled “Five Recommendations Toward theDrastic Expansion of Foreign Direct Investment in Japan” was put forward by thegovernment’s Expert Committee on FDI Promotion on May 19, 2008. Included in this
proposal were the following five recommendations: (i) enhancement of system towards
the facilitation of M&A, (ii) comprehensive studies on FDI regulations, (iii)establishment of priority strategies by sector, (iv) reduction of business costs andimprovement of system transparency, and (v) regional revitalization by foreign capital,and strengthening of appeal to welcome foreign capital, etc. In response to this proposal,
the “Basic Policy for Economic and Fiscal Reforms 2008,” which as decided by the
Cabinet on June 27, showed its policy to study clarification of the M&A rules and themodality of foreign capital regulations and effective corporate tax rates, tackle issues
such as the reduction of business costs, and revise the “Program for Accelerating Direct
Investment in Japan” formulated in June 2006, within 2008.
Japan’s regulations on inward investment have improved considerably in terms oftransparency, objectivity and predictability, and have reached a level that is in no way
inferior to that of other developed countries. On the other hand, this has not yet
necessarily been recognized adequately in the world. In the future, Japan will be
required to make efforts to enhance recognition in the international community.
82

Table I-17 Japan’s trade trends (2007)
2007(US$ million, %)2008
ⅣⅠ
195,908 197,171
14.1
18.5
172,633 177,986
15.6
22.7
23,275
19,184933 △ 2,287
139.5
133.9
11.2
9.8
124.0
115.6
△ 2.2
△ 1.6
83.3
93.1
37.0
61.9
19.6
21.3
54.0
51.8
113.1
105.2
4.1
13.5
0.6
0.8

2006
2007
Ⅱ
Ⅲ
Ⅰ
Total export value
647,290 712,735
166,395 170,855 179,577(Growth rate)
8.2
10.1
10.1
8.0
8.0
Total import value579,294 621,084
144,924 149,753 153,775(Growth rate)
11.7
7.2
4.5
5.0
3.5
Trade balance
67,99791,651
21,471
21,10225,803(Difference from previous year (quarter))△ 11,581
23,654
9,021
5,548
8,152
Export volume index
123.2
130.4
122.0
127.6
132.7
(Growth rate)
7.7
5.8
2.4
4.2
5.6
Import volume index
122.3
118.8
117.4
117.2
116.6
△ 2.8
△ 0.3
△ 3.9
△ 4.9
(Growth rate)
3.7
Crude oil import price (US$/barrel)
63.9
69.4
57.5
64.7
71.0
△ 3.4
△ 0.4
(Growth rate)
25.1
8.6
0.4
17.1
16.8
15.3
15.0
17.1
Ratio of crude oil imports
56.8
56.3
58.1
57.5
56.0
Ratio of manufactured imports
116.3
117.8
119.4
120.7
117.8
Quarterly average exchange rate (yen/dollar)(Rate of increase)
△ 5.3
△ 1.2
△ 2.1
△ 5.3
△ 1.3
△ 0.6
2.4
2.1
1.1
0.3
Real GDP growth rate
(Notes)(1) The base year for volume indices is 2000.
(2) The exchange rate is the quarterly average of the center value of the interbank rate.
(3) Quarterly growth rates are yoy comparisons.
(4) Seasonally adjusted figures (on the qoq basis) are used for the quarterly real GDP growth rate.
(Sources) Prepared based on “Trade Statistics” (Ministry of Finance), “National Accounts” (Cabinet Office) and “Foreign
Exchange Quotations” (Bank of Japan)

Table I-18 Trend in Japan's Current Account(Unit: US$1 million, %)Change2006
2007
Current account170.507210.479
39.972
Goods and services account63.03983.49920.460Trade balance
81.296104.747
23.451
Exports
615.778678.04662.268
Imports
534.482573.299
38.817
Services account△ 18.257 △ 21.248△ 2.991
Income account118.153
138.492
20.339Current transfers△ 10.685 △ 11.512△ 0.827
Current account/GDP
3.7%
4.5%
(Note) The figures released on the yen-basis were converted to dollars by using
the average quarterly Bank of Japan interbank rate.
(Sources Prepared based on "Balance of Payments Conditions" (Ministry of Finance) and Bank of Japan), "Foreign Exchange Rates" (Bank of Japan) and"National Economic Accounting" (Cabinet Office)83

Table I-19 Japan’s trade trends with major countries and regions

Value
Exports
Growth rate
Value
Imports
World
Growth rate
Export volume growth rate
Import volume growth rate
Value
Exports
Growth rate
Value
the United States
Imports
Growth rate
Export volume growth rate
Import volume growth rate
Value
Exports
Growth rate
Value
EU27
Imports
Growth rate
Export volume growth rate
Import volume growth rate
Value
Exports
Growth rate
East Asia
Value
Imports
Growth rate
Value
Exports
Growth rate
Value
Imports
China
Growth rate
Export volume growth rate
Import volume growth rate
Value
Exports
Growth rate
Value
Imports
ASEAN 10Growth rate
Export volume growth rate
Import volume growth rate
Value
Exports
Growth rate
South Korea
Value
Imports
Growth rate
Value
Exports
Growth rate
Taiwan
Value
Imports
Growth rate
Value
Exports
Growth rate
Hong Kong
Value
Imports
Growth rate
Value
Exports
Growth rate
Middle East
Value
Imports
Growth rate
Value
Exports
Central and South
Growth rate
Value
America
Imports
Growth rate

2006

2007

647,2908.2
579,294
11.7
7.7
3.7
145,651
8.0
68,071
5.5
8.8
0.4
94,1396.7
60,0641.4
3.9
0.9
295,694
5.8
239,708
9.3
92,852
15.6
118,516
8.6
14.4
7.8
76,3490.4
79,990
9.5
△ 0.2
3.5
50,321
7.3
27,345
11.4
44,152
0.6
20,345
11.9
36,469
0.9
1,521
△ 3.7
19,19415.8
109,190
24.6
30,57421.8
20,411
26.7

712,735
10.1
621,084
7.2
5.8
△ 2.8
143,383△ 1.6
70,836
4.1
△ 7.6
5.5
105,270
11.8
65,0098.2
4.9
3.4
327,72610.8
253,976
6.0
109,060
17.5
127,6447.7
9.0
0.0
86,99013.9
86,898
8.6
10.3
△ 1.3
54,1997.7
27,252△ 0.3
44,7801.4
19,809△ 2.6
38,818
6.4
1,448
△ 4.8
26,18436.4
113,824
4.2
35,063
14.7
24,11718.2

2007
Ⅰ
166,395
10.1
144,924
4.5
2.4
△ 0.3
35,274
2.5
17,110
4.3
△ 0.6
9.3
25,46911.8
15,709
5.2
△ 2.9
1.9
74,87910.4
60,274
5.9
24,244
19.3
29,8317.8
13.8
2.8
19,43810.0
20,4847.2
5.8
1.4
13,156
9.3
6,492
△ 3.4
10,171
△ 4.1
5,111
3.7
9,020
10.7
382
△ 1.0
5,986
30.6
25,067
△ 5.6
8,431
13.9
5,395
6.4

Ⅱ
170,855
8.0
149,753
5.0
4.2
△ 3.9
34,133
△ 3.9
18011
5.9
△ 11.6
9.4
25,445
9.4
15,711
7.4
7.7
4.5
79,735
9.6
62,303
6.6
26,08515.7
31,4279.4
10.9
2.4
20,97012.8
20,991
7.1
9.5
△ 4.0
13,284
6.1
6,795
1.0
11,235
0.1
4,726
△ 4.8
9,528
5.7
313
△ 13.3
5,777
35.4
25,352
△ 5.3
8,219
24.5
5,823
16.4

Ⅲ
179,577
8.0
153,775
3.5
5.6
△ 4.9
35,730
△ 4.1
16882
△ 2.7
△ 9.4
△ 4.4
25,69310.8
16,3849.9
5.3
5.0
83,4299.0
62,594
3.6
28,14317.2
31,581
5.7
13.0
△ 1.2
22,561
12.2
21,818
6.6
8.5
△ 4.4
13,011
3.0
6,363
△ 4.4
11,569
3.6
4,826
△ 5.2
9,779
△ 0.2
337
△ 14.5
6,367
27.6
28,114
△ 6.3
8,899
6.1
6,315
21.2

(US$ million, %)2008
ⅣⅠ
195,908
197,171
14.1
18.5
172,633
177,986
15.6
22.7
11.2
9.8
△ 2.2
△ 1.6
38,24736,679
4.0
△ 0.5
18834
18863
8.8
10.2
△ 7.8
△ 10
7.9
△ 1.0
28,66330,43815.0
19.5
17,20417,751
10.3
13.0
10.4
15.6
2.4
0.8
89,682
88,95914.2
18.8
68,804
68070
7.6
12.9
30,58929,03917.7
19.8
34,80632,7298.0
9.7
0.4△ 18.3△ 3.3△ 3.8
24,022
24,71820.2
27.2
23,60325,729
13.4
25.6
17.4
10.8
2.1
1.6
14,74815,162
12.3
15.2
7,602
7,350
5.1
13.2
11,805
12,069
5.9
18.7
5,145
5,237
2.5
△ 4.1
10,491
10,013
10.3
11.0
417
421
10.0
10.2
8,054
7,886
50.5
31.7
35,292
39,941
36.4
59.3
9,514
10,361
16.2
22.9
6,584
6,261
28.4
16.1

(Notes)(1) The ASEAN 10 are Singapore, Thailand, Malaysia, the Philippines, Indonesia, Brunei, Myanmar, Cambodia, Laos and Vietnam.
(2) East Asia means the sum for China, NIEs (South Korea, Taiwan, Hong Kong and Singapore), and ASEAN4 (Thailand, Malaysia, thePhilippines and Indonesia).
(Sources) Prepared based on "Trade Statistics" (Ministry of Finance)84Fig. I-15
World

Breakdown of Contribution by Region by Passenger Car Exports to

20.0%

Others15.0%

Middle East
Central and SouthAmerica

10.0%

Russia5.0%
East Asia

0.0%

EU25＆27-5.0%

United States-10.0%

World

2000 2001 2002 2003 2004 2005 2006 2007

(Note)(1) East Asia stands for Asian NIES, ASEAN4 and China. Asian NIES stands forSouth Korea, Hong Kong, Taiwan and Singapore. ASEAN4 stands for Thailand,
Malaysia, the Philippines and Indonesia.
(2)The statistics from 2007 onward were calculated based on the EU27.

(Sources) Trade Statistics (Ministry of Finance)

Table I-20 Import and Export Values and Actual State of Japan's IT-Related
Products (2007)
ExportPercentage of
total IT export
value

2007
Import Percentage of Percentage of
total IT
total trade value
export value accounted for by
total IT tradevalue in 2007
Value
％
％
19,438
22.2%
2.1%
1,355
1.5%
0.2%
12,825
14.6%
1.3%
5,258
6.0%
0.7%
250
0.3%
0.0%
9,295
10.6%
1.3%
24,107
27.5%
5.1%
2,779
3.2%
1.0%
21,327
24.3%
4.1%
16,560
18.9%
3.9%
4,303
4.9%
1.0%
5,205
5.9%
1.6%
1,596
1.8%
1.0%
909
1.0%
0.1%
667
0.8%
0.1%
533
0.6%
0.0%
9,159
10.5%
2.0%
2,916
3.3%
1.2%
46,45453.0%
9.8%
41,14347.0%
7.4%
87,597100.0%
17.3%

Value
％
9,057
6.3%
① Computers and peripheral equipment (sum)
1,166
0.8%
Complex digital equipment
4,191
2.9%
Computer and peripheral equipment
3,700
2.6%
Computer components
114
0.1%②Business equipment
8,298
5.8%
③Communication equipment
44,50831.1%④Electronic components such as semiconductors
11,159
7.8%
Electronic tubes, semiconductors, etc.
33,34923.3%
Integrated circuits
34,99424.5%⑤ Other electric and electronic components
9,052
6.3%
Flat panel displays
15,753
11.0%⑥ Video equipment
11,7798.2%
Digital cameras
995
0.7%
TV receivers (incl. Liquid crystal and plasma)155
0.1%⑦ Audio equipment121
0.1%
Portable players
17,19612.0%⑧ Measuring equipment and instruments
12,9099.0%⑨ Semiconductor manufacturing equipment
85,132
59.5%
Components
57,852
40.5%
Final goods
142,984
100.0%
IT-related equipment (sum)(Note)(1) For the definition of the commodity classification, refer to Reference Materials/Supplement Statistics: Annotation 2.
(2) For the 2007 data, time series comparison to the past data is difficult due to the significant revision of the HS code. T
in this White Paper, the recent levels and ratios among the total trade value (exports or imports) are shown.
(Sources) Prepared based on "Trade Statistics" (Ministry of Finance)85

Fig. I-16 Share by region of Japan’s value of exports
50.0%
45.0%
40.0%

East Asia
the United States
EU27
Other emerging countries

35.0%
30.0%
25.0%
20.0%
15.0%
10.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

(Sources) "Trade Statistics" (Ministry of Finance)

Table I-21 Magnitude of change in share by item and region (1998-2007)
Automotive Precision
GeneralChemicals
parts
machinerymachinery
the United States
EU27
East Asia
Central and South America
RussiaMiddle East
Other regions-20.7%
1.6%
15.8%
1.7%
0.2%
0.2%
1.2%

-14.5%
-6.6%
20.3%
0.3%
0.2%
0.0%
0.4%

-9.5%
-6.4%
18.8%
-0.7%
0.2%
0.0%
-2.3%

-13.4%
-2.3%
13.3%
0.0%
0.7%
1.4%
0.3%

Basic metals
Electric
As a
and basic
Automobiles
machinery
whole
metal
-14.4%-10.7%-4.8% -10.4%
-2.2%
-3.0%
-5.3% -4.1%
18.6%
14.1%
2.1% 12.8%
-0.9%
-0.6%
-2.2% -0.7%
0.2%
0.0%
6.2%
1.3%
0.3%
-0.3%
2.0%
0.5%
-1.7%
0.6%
2.0%
0.7%

(Note) The colored parts mean the combination of a country and item which decreased its share.
(Sources) Fig. I-21 and Table I-17 both prepared based on "Trade Statistics" (Ministry of Finance)

Fig. I-17

Contribution by export item（1998-2007）

25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%-15.0%-20.0%
1998

1999 2000 2001

2002 2003

Electric m achinery
Autom obiles
P recision m achinery
Basic m etals and basic m etal products
Exports to world

2004 2005 2006

General m achinery
Autom otive parts
Chem icals
Others86

2007Fig. I-18

Breakdown of Japan's outward FDI（US$ million）
150,000

Other cap ital (outflow)
Other cap ital (inflow)
Reinvestment earnings (outflow)
Equity cap ital (outflow)
Equity cap ital (inflow)
Total value (net)

100,000

50,0000-50,000-100,000（Year）
96

97

98

99

2000

2001

2002

2003

2004

2005

2006

2007

(Note) The figures released on the yen-bas is were converted to dollars by using the average quarterlyBank of Japan interbank rate and then the annual sum was calculated.
(Sources) "Balance of Payments " by Ministry of Finance and Bank of Japan

Fig. I-19

80,000Japan’s outward FDI and outward M&As
（ Number of deals ）(US$ million)400

O utward FDI (net)70,000O utward M&A value (gross)

60,000450

350

N umber of M&A deals

300

50,000250
40,000200
30,000150

20,000100

10,000

50

0

0
85

87

89

91

93

95

97

99

01

03

05

07 08

( Year)Jan.-Jun .
(Not e) Strict ly speaking, t here is no continuit y in t he data on t he value of FDI flow, due t o fact ors such as t hedifference in the dollar-converting met hod and t he change in the definit ion of FDI. For the period from1984 t o 1994, t he dollar-based published figures are used. For 1995, the yen-based published value isconvert ed to dollars for each six-mont h period by using the average Bank of Japan int erbank rat e forthe period, and for t he years t hereafter, such conversion is done for each quarter by using t he averagequarterly Bank of Japan int erbank rat e. T he amount of out ward FDI in 2008 is for January t o May, andM&A value in 2008 is for January to June.
(Sources) “ Balance of P ayment s” (Ministry of Finance), Bank of Japan and T homson Reuters.

87

Table I-22

Japan's 10 largest outward M&A (from 2007 to June 2008)
Acquirer company

Year
April 2007

Japan Tobacco Inc
Takeda PharmaceuticalMay 2008
Company Limited
January 2008 Eisai Co., Ltd.
Marubeni and Tokyo
June 2007
Electric Power Company
December 2007 Kirin Holdings
February 2008 Olympus Corp

Target Company

Industry
Cigarettes

Gallaher Group PLC

Pharmaceuticals

Millennium Pharmaceuticals Inc US

Pharmaceuticals

8,128

100.0

Pharmaceuticals

MGI Pharma

US

Pharmaceuticals

3,655

100.0

-

Mirant Asia Pacific Ltd.

Philippines

Electric services

3,420

100.0

Beverages (beer)

National Foods Ltd.

Australia

2,595

100.0

Precision machinery

Gyrus Group PLC

UK

Dairy products
Medicalequipment

2,161

100.0

TAP Pharmaceutical Products

US

Pharmaceuticals

1,500

100.0

Petroleum andnatural gas
Information
services
Electric power
services

1,200

23.2

1,200

100.0

1,082

80.0

Takeda PharmaceuticalPharmaceuticals
Company Limited
Nippon Oil Company and
Mitsubishi Corporation

May 2008
May 2007

Nationality

Anadarko Petroleum Corporation US

February 2007 Nomura Holdings

Finance (investment) Instinet Group Inc

August 2008

Trading company

Marubeni CorpUK

US

Jamaica Public Service Co. Ltd. Jamaica

Industry
Cigarettes

Deal Value Equity after(US$
acquisition
million)(%)
18,800100.0(Notes)(1) The date is the completion date of the transaction.
(2) The definition of M&A follows Thomson Reuters’.
(3) The ranking is based on the value of a single transaction.
(Sources) Thomson Reuters.

Fig. I-20

18,000Rate of Return on Japan's outward FDI（％）（US$ million）

10.0
Dividend income and allocated earnings frombranches (balance)
Reinvestment earnings (balance)

16,00014,000

9.0
8.0

Rate of return on direct investment

12,000

7.0

10,000

6.0

8,000

5.0

6,000

4.0

4,000

3.0

2,000

2.0

0

1.0

-2,000

0.0
96

97

98

99 2000

01

02

03

04

05

06

（Year）
07(Notes) (1) For reinvestment earnings, there is discontinuity for the period from 2004 onward
and that prior to 2003, due to the change in the way figures were included.
(2) The rate of return on FDI: "FDI earnings of this term/average of FDI balance forthis term end and previous term end"
(Sources) "Balance of Payments" by Ministry of Finance and Bank of Japan88

Fig. I-21 Japan's inward FDI
100

25(US$ billion)
Amount of net inflow (right axle)

80

20

Amount of capital inflow
Amount of capital outflow

60

15

40

10

20

5

0

0

-20

-5

-40

-10

-60
96

98

2000

2002

2004

2006

-15
2008 (Jan.-May）（Year)(Note) The y en-based value is converted to dollars each quarter by using the average quarterly Bank of Jap aninterbank rate and then the annual sum is calculated.
(Sources) Both this figure and Fig. I-35 were p rep ared based on Bank of Jap an and M inistry of Finance.

Fig. I-22 M&A towards Japan

25,000(Number of deals)(US$ million)
M&A amount
Number of deals(right axle)

20,000

180
160
140
120

15,000100
80

10,000

60
40

5,000

20
0

0
96

98

2000

2002

2004

(Note) Data as of July 7, 2008. Transaction completion basis.
(Sources) Both this figure and Fig. I-29 were prepared based on Thomson Reuters data.

89

2006 2008 （Jan.Jun.)Table I-23 Major M&A cases by overseas companies in Japan (from 2007 to June
2008)
CompanyacquiredYear

Acquiring company
Industry

Country
Industry/region
Apr. 2007- Nikko
Securities
U.S. Holding
Citigroup Japan
Jan. 2008 Cordial
company
Holdings (subsidiaryGroup(financial
wholly owned byholding
Citigroup Inc.)
company)
U.S. FinanceJun. 2007 Hotel under Air transport Shiroyama
Properties (a private
directlimited company set
management
up by the real estateof ANA
fund operated by theGroupcompany affiliatedwith U.S. Morgan
Stanley in the U.S.)
Mar. 2007 Nissan
Truck andNA Co., Ltd. (set up Sweden AutomobilesDieselbus body
by Volvo for the
manufacturin purpose ofgacquisition)
Mar. 2008 Arysta
Chemistry
Industrial Equity
UK
Finance
LifeScience
InvestCorporation
Mar. 2007 Hawks Town Department
Corp.
storesFig. I-23

25

GIC

Singapor InvestmenteadviceAmountEquity(US$after
million) acquisitio
13,351
98.7

2,361

100.0

2,294

94.6

2,185

100.0

860

100.0

Japan’s inward direct investment by region (net)(US$ billion)
OthersWestern Europ e
Central and South America
North America
Asia
World

20
15
10

5
0
-5
-10
96

98

2000

2002

2004

2006

2008 (Jan.-May)(Year)

90

Fig. I-24

Balance of Japan's Inward Direct Investment(JP Y1 t rillion)

（％）
3.5

18
Ot hers
W est ern Europe
Cent ral and Sout h America
Nort h America
Asia
Out st anding balance of inward direct invest ment /GDP (right axis)
2.0
2.0
1.9

16
14
12
10
8

2.9
3.0
2.5
2.4

2.5

2.0

1.3

1.5

1.1
0.9

6
0.7

0.7

4

1.0
0.6
0.5

2
0
1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

0.0
(Year)(Source) Bank of Japan and Ministry of Finance statistics.

Fig. I-25 The most attractive country and region in Asia for foreign affiliatedcompanies

30

（％）
27

（Ｎ＝209）
27

25
20
15
11

10

10

10
5
5

4
1

1

1

0
Japan

China

India

Hong Singapore Sout h Viet nam Malaysia T hailand T aiwan
Kong
Korea

(Note) Average of the evaluation for the investment environment, which is classified into 19 items(Sources) Survey of European, U.S. and Asian Foreign Affiliated Companies’ Interest in Investment
Towards Japan by JETRO (March 2008)91

Fig. I-26

Factors making it difficult to do business in Japan (Multiple replies)
(％)
40.4

Difficulties in securing human resources

66.2
51.8

Height of the level required for products
Business cost

59.6
70.3

60.2
56.7
50.6

Exclusivity and peculiarity
27.1
20.9

Administrative procedures
Inadequacy of information and services

18
14.2

Inadequate preferential treatment

14.5

Fund raising

15.9

8.7

Residential environment for foreigners

8.3
10.9

Infrastructure

12.5
9.4
0

10

20

1995 （Ｎ＝616）

22.2

2007 （Ｎ＝864）

30

40

50

60

(Sources) “Survey of Foreign Affiliated Companies’ Awareness Concerning Direct Investment
Towards Japan” by JETRO (March 2008)

92

70

80

5. WTO(1) Chance to reach an agreement for the new round by the end of 2008
diminishing
Six years have passed since the launch of the Doha Round (new round) at the Fourth
WTO Ministerial Conference (Doha Conference) held in November 2001 (Table I-27).
Negotiations collapsed at the Fifth WTO Ministerial Conference (Cancun Conference)in September 2003, the Framework Agreement was reached at the WTO General
Council in September 2004, and negotiations were again deadlocked in July 2006 andresumed in January 2007. While facing many twists and turns, member countries havemade efforts in negotiations towards establishing the formula to reduce tariffs andsubsidies, called “Modalities.”
However, depending on the topics, a complicated pattern of oppositions emerged due
to different positions between developed and developing countries and between
exporting and importing countries of agricultural products, and no breakthrough for this
impasse has been found.
Why has the new round been intractable? One of the reasons is that the new roundconstitutes multilateral trade negotiations. As of August 2008, 153 countries participatedin the new round, while there were 123 countries participating in the nine-year Uruguay
Round. It is not easy for so many countries to reach a consensus on a great number of
topics. In addition, compared to the previous Uruguay Round, participation by anincreasing number of developing countries can also be construed as the reason for thissluggishness. Developing countries, which already account for nearly 80% of the total
member countries, will not listen to developed countries’ demands unless they canperceive sufficient benefits from the new trade rule. Furthermore, the recent sharp
increases in FTA can also have adverse wind effects for the new round. FTAs, whoserole should be limited to be only complementary to the multilateral trade system, havenow become the most important trade policy for many countries.


New round of negotiations may collapse once again
Individual countries have spared no efforts for negotiations with an aim to reach a
final agreement by the end of 2008. Why is it so important to reach an agreement by theend of 2008? If they miss it, then it is considered that there will be growing politicaluncertainties such as the birth of a new administration in the United States, andnegotiations may become much more difficult. In the United States, which is the largest
player, the Democratic Party has controlled both the Lower House and the Senate as aresult of their election wins in 2006. Democrats tend to place emphasis on the problems93

of domestic employment and the environment instead of free trade, and depending on
the case, they may take a negative stance towards free trade. The current Democraticpresidential candidate has made assertions that would forestall free trade, advocating thenecessity to add labor issue to the new round and renegotiate NAFTA. If the Democratic
Party wins the presidential election in the fall of 2008, there is a high possibility that theprotectionism sentiment will grow in the country, which will have a large impact on the
new round.
The revival of the US Trade Promotion Authority (TPA), which expired in June 2007,
might also become a key to the new round in the future (10). If there is no TPA, then all
the draft agreements reached with foreign countries should be subject to thecongressional review, and this will make it difficult to conduct negotiations in an
efficient manner. As for reviving TPA, it is necessary to show the United States
Congress the progress made in the new round.
---------------------------------------------------------------------------------------------------------10. According to the Federal Constitution of the United States, the category of trade falls undercongressional authority, and if the TPA is adopted, the authority that the Congress originally possesses
will be referred to the President on a temporary basis. Draft agreements reached with other countries
based on the TPA should undergo the procedures of blanket deliberation by the Congress, and therefore,
without being subject to the congressional revision, the Congress should either fully support the bills or
reject them.

----------------------------------------------------------------------------------------------------------

Under these circumstances, an unofficial ministerial meeting was held in Geneva inJuly 2007. Individual countries defined this meeting as the final chance to establish the“modalities” so as to reach a final agreement targeted by the end of 2008, and among
the discussions based on the chairpersons’ papers on agriculture and the non-agricultural
market access (NAMA) announced prior to the meeting, they negotiated energeticallythe important agenda items for which a political will would be needed (Table I-24).
During the conference, in response to the progress in negotiations, WTO
Director-General Lamy circulated a draft version of framework agreements, and theceiling of agricultural subsidies for the United States, upon the strong requests fromdeveloping countries, was lowered to US$14.5 billion from US$17 billion, an amountthat the United States had unofficially proposed so far. Also in the discussions on
coefficients for the Swiss Formula for NAMA (11), a consensus was gradually formed.
---------------------------------------------------------------------------------------------------------11. The reduction of tariffs on industrial products is calculated by using the mathematical formulareferred to as “Swiss Formula.” The lower the coefficient in the formula is, the more tariffs are reduced.

94Regarding this coefficient for which this mathematical formula is used, negotiations are underway amongindividual countries. In the draft of the framework agreement, it was proposed that developed countries berequired to choose the coefficient “8” and developing countries to choose from the coefficients “20,” “22”or “25.” In the case of developing countries, according to the sliding scale, for instance, if the coefficient“20” is chosen, the items on the exclusion list is expanded, but if “25” is chosen, no exceptional item isrecognized.

----------------------------------------------------------------------------------------------------------

However, at the G7 meeting (the United States, the EU, Japan, Brazil, India, China
and Australia) thereafter, while discussing the special safeguard mechanism (SSM) (12),of which the use by developing countries had been approved, a confrontation became
apparent between the United States, which sought tighter conditions needed for taking
such measures, and India and China, which sought less discipline. In the end, having
seen no way of narrowing the gap in the opinions of the both sides, Director-General
Lamy decided that it was impossible to reconcile the dispute and announced that thenegotiations had broken down.
It has not been decided when and in what form negotiations will resume in the future,but some major countries as well as Director-General Lamy, clearly expressed theircommitment to continue the new round, and various exchanges of opinions are expected
to be held towards the restart of the negotiations.
---------------------------------------------------------------------------------------------------------12. SSM means the emergency safeguard measure on imports, which can be applied temporarily for the
purpose of protecting domestic industries when imported agricultural products sharply increase indeveloping countries. Unlike the general safeguard for which the proof of the damage on industry isneeded for making the decision to finally apply the measure, SSM can be automatically applied if surge
on imports of agricultural products has reached a certain level and domestic prices are confirmed to havefallen.

----------------------------------------------------------------------------------------------------------(2) Status of China’s conformity to the WTO rule and increasing importance of its
service liberalization
Six years have lapsed since China’s WTO accession (December 2001). According to
its commitments, China has proceeded with the improvement of legal systems and its
economy has sufficiently benefited from the liberal trade policy. The liberalization
measures in the aspect of trade, such as prohibition of the discriminatory treatment offoreign affiliated companies, reduction of tariffs and non-tariff barriers, grant of trading
rights, and improvement in trade-related investment measures, have bolstered the95formation of special economic zones in the coastal regions and production bases inother places promoted under the ongoing reform and liberalization policy and thrust
China up to the “Factory of the World.” The export value reached US$1.218 trillion in2007 and China became the largest exporting country, second only to Germany. Also,with the import value amounting to US$955.8 billion, China ranked third after theUnited States and Germany (Fig. I-28).
Major countries have recognized China’s efforts to improve its legal systems in the
aspect of trade, but on the other hand, they also point out that barriers still exist and they
have recently demanded that China deregulate the sectors not even covered in the WTO
Protocol as well.
The “2008 Report on the WTO Consistency of Trade Policies by Major Trading
Partners ” (Ministry of Economy, Trade and Industry of Japan) outlines the status of
China’s WTO conformity and points out the following as the issues of particularimportance: the ”Rules on Imports of Auto Parts with Features of Assembling Whole
Vehicles (de facto local content requirements),” infringement on intellectual property
such as counterfeit and pirated products, arbitrary use of anti-dumping measures, andsubsidy measures incompatible with the WTO. In its “2008 National Trade Estimate
Report on Foreign Trade Barriers (NTE),” the United States Trade Representative(USTR) no longer defined China as a newly acceding country but as a core member ofthe WTO. On top of that, it pointed out that the focus had been shifted from theimplementation of the commitments made upon accession to a series of problems withthe government’s industrial policies, which have made the implemented systems lesseffective. The European Commission issued its China strategy titled “EU-China: Closer
Partners and Growing Responsibilities” in October 2006, pointing out that in addition to
the implementation of the commitments, it will seek for China’s liberalization beyond
the commitments made upon accession.
In order to rectify China’s unfair trade and improve the business environment, thegovernments of Japan and the United States and the Europe Commission have raised theissues through bilateral and regional negotiations, such as Japan-China High-Level
Economic Dialogue, the U.S.-Sino Joint Commission on Commerce and Trade (JCCT),
the Strategic Economic Dialog (SED), and the EU-Sino High-Level Economic andTrade Dialogue, and also through the transitional review mechanism (TRM) of theWTO. Regarding issues that are difficult to solve, they have tried to rectify and improve
the situation by taking measures such as filing a complaint to the WTO.


Changing business environment and new policy placing emphasis on domestic
96

sale and services
Side effects brought about by rapid industrialization have come to the fore in China inrecent years. The negative aspects arising from rapid industrialization have become
pronounced, such as massive resource consumption and environment contamination
resulting from the concentration of energy-consuming and highly contaminating
enterprises. In addition, as a result of the concentrated resource input to labor-intensive
industries in the processing trade, low priced export products swept the world market,
thereby leading to serious trade frictions with other countries, especially in Europe andthe United States.
In order to improve this condition, the Chinese government issued its future policy,
such as the shift from attracting foreign capital through expanding exports to investing
in industries catering to domestic markets, the shift from labor-intensive industries tohigh-tech and environment-friendly businesses, and the promotion of service industries.
The situation surrounding business is also changing. For companies engaging in
low-cost operations, there have been increasing factors to weaken cost competitiveness,such as the yuan appreciation and rising labor costs. These circumstances have bolstered
the transition from production for exports to production for domestic sale.
There are also favorable winds for service industries promoted by the Chinese
government. Prior to accession, China had stringent restrictions on service industries inplace. However, upon accession, China made commitments to somewhat liberalize 93
service sectors, out of the 155 defined by the General Agreement on Trade in Services(GATS), outpacing Thailand (75 sectors), Brazil (43 sectors) and India (37 sectors). By
the end of 2007, the improvement of legal systems with respect to the service sectors
was nearly completed based on committed matters. Also, according to the new corporate
income tax law enforced in January 2008, the tax rate for service industries was loweredfrom 33% to 25%, while it was raised from 15% to 20% for export-type manufacturing
companies, which had thus far received preferential treatment. In 2007, Japan’s direct
investment towards China posted a decline of 43% in manufacturing industries, with thevalue falling from the previous year’s US$4.88 billion to US$2.8 billion. On the other
hand, it recorded a steady increase of 71% in non-manufacturing industries, particularly
in service industries, with the value rising from US$1.14 billion to US$1.95 billion (Fig.
I-29).
Business barriers still remain in service industries
The improvement of legal systems in the service sectors based on the commitments
made upon WTO accession seems to have been completed overall, though delays are97

observed in some sectors. On the other hand, Japan, the United States and the European
Commission have pointed out that there still remain various barriers for foreign
affiliated service companies operating in China.
The problems pointed out by the governments of individual countries and thebusiness can generally be divided into three types: (i) delay in the introduction andrevision of the laws and regulations based on liberalization schedule promised upon
WTO accession, (ii) existence of laws and regulations that become barriers to business
operations even if the improvement of legal systems has been completed based on thecommitments made upon WTO accession, and (iii) problems found in the operation oflaws and regulations by the government (Table I-25).
The introduction and revision of the laws and regulations based on the commitments
made upon accession were nearly completed at the end of 2007 as the remaining parts inthe telecommunications and travel sectors were finally liberalized, but some delays in
implementation was found in part of them. Most of the distribution sector has become
open to foreign capital according to the “Measures for the Administration of Foreign
Investment in Commercial Fields” enforced in 2004, but some products such as books,
newspapers, magazines and audio-video products (DVD) have not been made open as
was promised. In the telecommunications sector, there are also some parts that have notbeen made open, such as online data-processing services. These delays are being
attributed to the fact that the Chinese government has failed to work out the appropriate
laws and regulations under unique social conditions with information control and amid
whirling changes in the technological development.
Although the legal system has been improved based on the commitments made upon
accession, there are still some sectors where the legal system restricts business or many
barriers remain for business. In the construction sector, the “Regulations on
Administration of Foreign-Invested Construction Enterprises (Decree No.113)” waspromulgated to enable complete financing through foreign capital. On the other hand,
however, it prohibits direct contracting from overseas. In fact, most foreign affiliatedcompanies had adopted direct contracting in China before its accession. Moreover, inthe case of complete financing through foreign capital, business is limited to the four
categories such as projects with 100% foreign capital or grant-aid projects andinternationally financed projects through international tenders. Foreign affiliatedcompanies have thus slid into a vicious cycle: due to restrictions on orders they canreceive, their work experience, which is a prerequisite for receiving orders, also
decreases.
No matter how the legal system improves, business is hindered if there are problems
98with the operation by the government. Many Japanese companies recognize thesignificant improvement in the operation. At the same time, there still remain comments
such as on uncertainty over the business approving process and time-consuming
responses. For instance, broker business of A-shares (shares which only Chinese
residents can trade) is not approved for foreign affiliated companies. But UBS andGoldman Sachs are allowed to do business based on the full license, and this isconsidered a violation of the most-favored-nation treatment (MFN). In the life insurance
service sector, it is said that several Japanese affiliated companies had submitted
applications for establishing a joint venture company around 2004 but some of them
have not yet been approved. Also, the problems with the system operation are frequently
seen in many other sectors such as transportation, telecommunications, travel andnon-life insurance services.


In order to smoothly operate business in China
As was explained above, China imposed stringent restrictions on foreign companies’
entry into its service sectors over a long period. China has substantially opened up its
service sectors according to its commitments made upon WTO accession and also
promotes service sectors in its new policy in recent years. These moves are considered
to be based on China’s intention to nurture local industries, which are inferior intechnological capabilities, through the transfer of sophisticated technology from foreign
affiliated companies.
Nevertheless, despite the ongoing improvement of legal systems based on thecommitments made upon WTO accession, if they do not suit actual business practices orthere are problems with the operation and implementation by the government, it isdifficult for foreign affiliated companies to fully exhibit their capabilities.
If China’s laws and regulations go against the WTO rules, interested countries need topersistently demand that China conform to the rules through bilateral negotiations aswell as the WTO. If negotiations do not make progress, it is also an option for thecountries to file a complaint to the WTO’s dispute settlement body. The United States
has already filed six complaints since China’s accession.
Regarding hindrance to business and problems with the operation by the government
beyond the framework of the commitments upon WTO accession, individual
governments have also pointed out the importance of improvement and they might beable to ask China to make improvements through ways such as bilateral negotiations. In
addition to the government’s efforts toward improvement, private companies can also
open the way to smooth business operation in China through their own efforts, if
99situation allows. For instance, while other Japanese affiliated non-life insurancecompanies were having a tough time for reasons such as the delay in the approval
process for a business license, which is one of the above raised problems with thesystem operation and implementation by the government, Sompo Japan raised the statusof its liaison office in Dalian to make it a local legal person in July 2005, and further set
up a branch in Shanghai, the first one for Japanese affiliated companies, in October
2007. Sompo Japan had actively conducted business activities in alliance with local
companies, e.g., the establishment of a broker company through joint capital
contribution with the People’s Insurance Company of China (PICC) and the joint
development of car insurance goods with Ping An Insurance of China. Sompo Japan
construes that the company has won high commendation from the Chinese authorities
because “Sompo Japan’s business structure is consistent with the Chinese government’s
policy” (article from “China Business,” January 2008).
This year marks the 30th anniversary of China’s reform and opening-up. Moves toestablish market economy structures continue. At the same time, for the Chinese
government, there are also many phenomena that cannot be explained by the laws andregulations in the statutory to manage such a huge country as China, and in such cases,
solutions sometimes sought in a form apart from the laws. Companies may be forced tohave a tough time if they bring in business practices inconsistent with the government’s
policy and intentions. As shown in the aforementioned case, the trustworthy relationshipwith local companies and the government through technology transfer and cooperation
towards China and the formation of business alliance will sometimes bring about
success. This case may serve as one of the hints for Japanese companies intending to
expand business in China.

100

Fig. I-27 Flow of New Round since the 6th Ministerial Meeting (Hong Kong)(December 2005-December 2008)
6th M inisterial M etting (HongKong) December 2005
Adoption of Hong Kong
M inisterial Declaration

Target for negotiation
concluding
End of December 2006

Target for agreement on
modalities
End of July 2007

(postponed)(failed to reach agreement)

Target for negotiation
concluding
End of December 2008

Deadline for agreement on modalities
End of July 2007
(failed to reach agreement)

2005

2007

2006

New round broke down
End of July
Director-General Lamy calledon each negotiation group for
preparatory work November

2008

resumption ofworking-level
negotiations
Convening of unofficial
ministerial meeting at DavosM eeting
January
Collapse of G4 unofficial ministerial
meeting (Potsdam) June

Release of report by
Chairperson Valles on Rule
Negotiations November
Release of report by Chairpersons
Falconer and Stefanson July 2007,
February, M ay and July 2008

Release of reports by Chairperson Valles on
Rule Negotiations and Chairperson de M ateo
on Service Negotiations M ay
Collapse of unofficial ministerial
meeting (Geneva) July

Expiration of Trade Promotion
Authority (TPA) in U.S.
End of June

(Sources) Prepared based on materials of Ministry of Foreign Affairs of Japan and WTO Reporter (BNA)

Fig. I-28

Trends of China's Trade（Unit: US$100 million)

25000
WTO Accession（November 2001）
20000
Average growth rate
28.5%

15000

10000
Average growth rate
12.0%
5000

0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Export
輸出額

Import
輸入額(Sources) Prepared based on "China Customs Statistics"

101

Birth of new
administration in U.S.

Table I-24 Categories and Points at Issue for Negotiations at Unofficial
Ministerial Meeting (July 2008, Geneva)

Non-agricultural market access

Category

Coefficients for the Swiss Formula

Anti-concentration clause (ACC)
Elimination and lowering of tariffs by sector

Agriculture

Overall tariff cuts: Tariff cuts for theitems placed in highest tier*4Marketaccess (tariff Sensitive productcuts)
Special product (SP)Special safeguard mechanism (SSM)

Overall trade distorting subsidies(OTDS)*6
Domestic
support(subsidy
cuts)*1

Points at issue for negotiations
The coefficient for developed countries is “8.” No product will be exempted from tariff cut for developed
countries. Tariff cut should be implemented over five years in equal installments, commencing fromJanuary of the year following the effective date of DDA. The coefficient for developing countries is chosenfrom “20,” “22” and “25.” If the coefficient “20” is chosen, 14% of tariff line for industrial products may be
exempted from overall tariff cuts determined by coefficient. The reduction rate forthe exempted products
should be at least half of the cuts determined by coefficient. However, the condition is that these tariff items
do not exceed 16% of the total trade quantity of industrial products.
Or 6.5% of tariff line for industrial products may be exempted from overall tariff cuts. However, thecondition is that these products do not exceed 7.5% of the total trade quantity of industrial products. If thecoefficient “22” is chosen, 10% of tariff line for industrial products may be exempted from overall tariff
cuts determined by coefficient. The reduction rate for the exempted products should be at least half of thecuts determined by coefficient. Or, 5% of tariff line for industrial products may be exempted from overalltariff reductions. If the coefficient “25” is chosen, there will be no product exempted from overall tariff cut.
Tariff reductions should be implemented over ten years in equal installments, commencing from January of
the year following the effective date of DDA. For the least developed countries (LDCs) and most recently
acceded members*2, there is no obligation for tariff reductions. For recently acceded members*3, tariffs
reductions should be implemented over ten years plus three to four years.
For developing countries, at least 20% of tariff line for industrial products classified based on HSclassification or 9% of import value for each classification should be classified as products subject tooverall tariff cuts based on the Swiss Formula.
The participation is voluntary. However, for developing countries participating in sectoral negotiations, it ispossible to add some more to the coefficient.
For products with a bound rate of 75% or more, developed countries should reduce by 70%. For tariffs witha bound tariff rate of 130% or more, developing countries should reduce by 2/3 of what developed countries
should. With respect to recently acceded members, for the top two tiers, the rate of reduction should be 10%
lower than that for developing countries, and for the lower two tiers, the rate of reduction should be 5%
lower. For general products overlapping the products committed upon accession, tariffs should be reduced
one year after the commitments are fulfilled. An additional period of reduction is granted, with a duration of
two years longer than that for developing countries as the upper limit. For LDCs and most recently acceded
members, there is no obligation for tariff reductions.
Developed countries may classify 4-6% of the agricultural products as sensitive products. Developing
countries may add 1/3 to the above-mentioned 4-6% and classify that portion as sensitive products.
In addition to sensitive products, developing countries may classify 12% of the total products as SP. For
SPs, tariffs should be reduced by 11% on average. And up to 5% of them may be exempted from tariff cuts.
For small vulnerable economies (SVEs)*5, 24% of the total products may be classified as SP.
Developing countries may designate SSM products equivalent to 2.5% of the total agricultural products.
The condition is that if the import quantity increases 40% on average for the last three years, SSM may be
applied by adding 15 points to the current bound tariff rate as the limit. However, SSM cannot be applied if
not being accompanied by declines in domestic prices.
From the average OTDS value during the period from 1995 to 2000, the EU should reduce 80%, the UnitedStates and Japan 70%, and other developed countries 50% or 60%. If converted to a monetary value, thatmeans an upper limit of approximately US$34.6 billion for the EU and US$14.46 billion for the UnitedStates. Developing countries should reduce by 2/3 of what developed countries should. Tariff cuts shouldbe implemented by developed countries over five years and by developing countries over eight years inequal installments. Most recently acceded members and low-income countries among recently acceded
members have no obligation to reduce tariffs. Other recently acceded countries should reduce 2/3 of whatdeveloping countries should.

(Notes)*1 The underlined parts were the new proposals put forward by individual countries at the unofficial ministerial meeting in July 2008 or the draft of the frameworkagreements put forward by Director-General Lamy.
*2 Nine countries that most recently acceded to the WTO among recently acceded members, such as Vietnam, Uruguay and Albania.
*3 Nine recently acceded members such as China, Taiwan and Ecuador.
*4 The highest tier means the top one of the bound tariff rate (general tariff line) which is divided into four tiers according to tariff rate
*5 Countries with the trade value of industrial products accounting for less than 0.1% of the global total.
*6 Including “Amber” policy (subsidies having a trade-distorting effect), “Blue” policy (subsidies having a slighter trade-distorting effect than in the case of “Amber”
policy), and de minimis (petty “Amber” policy).
(Sources) Prepared based on data of WTO Secretariat, WTO Reporter (BNA), World Trade Online (Inside Washington Publishers) and various newspapers

102Fig. I-29

Breakdown of Japanese Companies' Investment towards China（Unit: US$1 million）

7000
6000
5000
4000
3000
2000
1000
0
2006

2007

2006年

Manufac製造業
turingConst-

建設
ructionDistri-物流
butionTelecommu-

電気通信
nication

2007年

Wholesale &卸売・小売
retailFinance &金融・保険
insuranceReal不動産
estateOther services
その他サービス(Note) Excluding agriculture, forestry and fisheries, mining, etc.
(Sources) Prepared based on Ministry of Finance and BOJ's "Balance of Payments Statistics"

Table I-25
Comments by Japan, United States and Europe on Problems in
China’s Service Sectors ((1) delay in the improvement of laws, (2) laws andregulations restrictive to business, and (3) problems with system operation andimplementation)
SectorWholesale and retail trade

Construction

Actual state and problems(1) Distribution of books, newspapers, magazines and audio-video products (such as DVDs) is allowed only for joint
venture companies in which Chinese companies are the majority shareholder (United States).
(2) (3) Distribution of pharmaceuticals is based on the ambiguous stipulation in the “Measures for the Administration of
Foreign Investment in Commercial Fields”: “With respect to pharmaceuticals, the Ministry of Commerce shall
implement regulations separately,” and in some cases, an approval is not granted by local governments (United States).
(2) In the new law related to petroleum, there are still strict qualification requirements (e.g., stockpiling quantity,pipeline, railway, wharf, level of supply contract) (United States).
(2) (3) In areas for which the urban network plan has not been elaborated, the distribution license is not issued toforeign affiliated retailers. This restriction does not apply to domestic companies (United States).
(2) (3) Foreign affiliated companies alone undergo a long approval process by the province or the Ministry ofCommerce of the central government before the State Administration of Industry & Commerce issues the license. Someof the local companies do not need to undergo the process of the Ministry of Commerce (United States).
(1) The gasoline-retailing sector has not yet been opened up (United States).
(2) It is prohibited to make use of special subcontracting construction companies for ordinary skeleton work (Japan).
(2) Direct contracts that were previously allowed has become no longer possible since July 2005, and it is difficult forforeign affiliated companies to provide construction services (Japan).
(2) There are restrictions on contracting business. Foreign affiliated companies are in a vicious cycle: due to restrictions
on orders they can receive, their work experience, which is a prerequisite for receiving orders, also decreases.
(2) (3) A branch should be established in order to contract construction works in provincial regions. The administrationof industry and commerce in each province requires the submission of an unthinkable number of documents (Japan).
(2) If a company wholly invested by foreign capital is to acquire the qualification certificate, they are imposed withstrict requirements such as capital and engineers for each qualification grade. In addition, there are restrictions on thescale and type of the work that can be implemented for each grade (Japan and the United States).

103

Transport

Telecommunications

Banking

Securities(2) In order for forwarders to provide aviation services, the CAAC license (approval for air transport selling agency)
should be acquired, but according to the internal circular notice, applications by companies in which foreign capital
accounts for a majority are not accepted. In addition, regarding marine services provided by forwarders, it is obliged toacquire NVOOC (Non Vessel Owning Ocean Carriers ), but the Ministry of Commerce and the Ministry ofCommunications have different opinions. For instance, the Ministry of Commerce pointed out that in order to undertakeinternational door-to-door multi-modal transport, B/L may be issued if based on “Regulations on Administration of
Foreign-Invested International Freight Forwarding Enterprises,” but in the opinion of the Ministry of Communications,only the “Marine Transportation Regulations of the People’s Republic of China” is applicable and “the procedures(2) Documents such as the forwarder license and NVOOC are needed for customs clearance. Also, in the case ofcustoms clearance through an agent, five registered customs specialists are needed but it is difficult to acquire suchlicense (Japan).
(2) It is stipulated that five trucks should be possessed in order to acquire a license for trucking business in the city
(Japan).
(2) Changes in flight are not aproved and when time for export clearance is over, the procedures for export clearance
have to be completed again after completing the procedures for import clearance first (Japan).
(2) (3) There have occurred overlapped jurisdiction, many requirements and rules for approval as a result of a large
number of competent departments and bureaus (United States).
(3) The Ministry of Communications has had delays in its approval of foreign affiliated companies, and further, it does
not issue a license for trucking business that covers the whole country. In addition, there are many cities of which city
traffic is made inaccessible to foreign affiliated companies in the daytime (United States).
(2) The license for air freight forwarding agency is not issued to companies wholly invested by foreign capital. Cargoes
needed to be loaded onto Chinese international and domestic airlines via China’s local agencies (United States).
(2) In the “Classification Index of Telegraphic Services” enforced in April 2003, there are restrictions on services that
foreign capital can provide (Japan).
(2) (3) There has been delay in the introduction of the “Telecommunications Law” (Japan).
(2) (3) With respect to cryptography-related R&D and manufacture, the scope of the cryptographic technology andmanufacture monopolized by the government has not been made clear and there has been no actual case where a foreign(1) VOIP services have not yet been made open (Japan).
(3) With respect to the introduction of the Chinese 3G specifications, there is uncertainty over the introduction of “WCDMA” and “CDMA2000” which have been adopted by Japan, the United States and Europe, and the business license
has not yet been issued (Japan).
(2) Foreign affiliated companies providing international services are required to use the gateway of state-owned
companies (United States).
(3) The Ministry of Telecommunications’ license approval process is time-consuming (United States).
(3) China made the commitment to open wireless services but has not yet announced a detailed plan (United States).
(2) IP-VPN services are classified as basic telecommunications if they are international services, and as value added
telecommunications if they are domestic services (there is also the impact of the restriction on the ratio of capital
contribution) (United States).
(1) Online database processing services have not been made open (Japan).
(2) It was determined that except existing measures for maintaining orderly credit conditions, all the others imposing
restrictions on the ratio of capital contribution by foreign companies, business and the corporate form should be
abolished within five years after accession, but there still exist related regulations (Japan).
(2) (3) The total loan amount is regulated based on the “counter regulation.” The said regulation affects companies’
fund raising (Japan).
(2) The registered capital of a foreign affiliated bank or a Sino-foreign joint venture bank should be at least CNY1
billion. If a branch is to be set up, the head office is required to contribute working capital of at least JPY100 million. In
addition, the condition for a foreign affiliated bank to run a joint venture is that the head office has operated business in
China for at least two years (United States).
(2) Foreign affiliated banks are allowed to handle yuan deposits for individual Chinese, but the yuan business forindividuals is limited to the term deposit with a minimum amount of CNY1 million for each account. In other words, inorder for foreign affiliated banks to operate the full-scale yuan business for individual Chinese, they should satisfy thecondition that a locally incorporated company be established (having operated business for at least three years andearned profits for two or more years thereof) (United States).
(2) Capital needed for a branch is CNY100-600 million, which is a large amount (Europe).
(2) In direct finance, broker’s business of A shares is the most profitable but that is not open to foreign affiliatedcompanies (Japan).
(3) UBS and Goldman Sachs are allowed to do business based on the full license and that is possibly a violation of
MFN (Japan).
(2) The ratio of capital contribution is limited to 33% at maximum (49% at maximum in the case of asset management)(Japan).
(2) There has been the movement to set up a requirement of sponsor qualification for the M&A business license. For
each M&A case, two qualified sponsors will be needed. In China, there are a little over 800 qualified sponsors in total(none of them are foreigners) in the underwriting business into which the system has already been introduced, and there
has been competition for talented personnel, and in the M&A business, such competition is also expected to become
fierce (Japan).

104

(2) Insurance companies in China are obliged to first offer to at least two domestic special reinsurance companies in
China with at least 50% of reinsurance premium (Japan).
(2) So long as an approval is not acquired from the Insurance Supervision and Administration Committee, a foreign
affiliated insurance company is prohibited to do reinsurance transactions with its affiliated companies (Japan).
(2) According to the administration regulation, the head office is required to have business experience of at least thirty
years and business experience of at least three years in China is needed. In the first place, in the case of life insurancecompanies, normally it takes seven to eight years to turn a profit (Japan).
(2) When foreign affiliated companies run a joint venture with a local company, in some cases they are reminded or
regulated by the authorities, e.g., that the application will not be approved if that local company has foreign capital in it(3) There are many unclear points, e.g., in which process of the China Insurance Supervision and Administration
Life and non-life insurance Committee the documents of license application is (Japan and United States).
(2) The private sector is prohibited to handle political risk insurance (United States).
(2) While existing Chinese insurance companies are allowed to set up two or more branches at one time, foreign
affiliated insurance companies are allowed to set up only one branch each time (United States).
(2) When a locally incorporated company is established, in addition to a registered capital of at least US$200 million,
capital will be required when a branch is established (United States).
(2) The ratio of capital contribution by foreign companies is set at 50% or lower, and there are also restrictions on thescope of the broker’s business (United States).
(2) It is difficult to acquire a business license for corporate pensions (United States).
(2) (3) There is information that the China Post has acquired the insurance business license by using its existing post
facilities (United States).
(Sources) Prepared based on “2006 Report on the WTO Inconsistancy of Trade Policies by Major Trading Partners” by Ministryof Economy, Trade and Industry of Japan, “Chinese Economy after WTO Accession” by Japanese Chamber ofCommerce in Beijing, various materials of United States Trade Representative (USTR), Trade Council of WTO
Secretariat, materials of European Commission, and interviews with individuals directly related to a company andspecialists

105II. Global FTA Trends and Use of FTAs for Gaining Momentum in theBusiness Arena
1. Continuously Expanding Global FTA Network(1) The expanding global FTA network pushed by the lagging WTO talks
As of August 2008, 148 free trade agreements (FTAs) (1) were in effect worldwide
FTAs (including customs unions, and based on notification to WTO. For a listing of theFTAs, refer to the Appendix, the table of “Worldwide FTA” at the end of the White
Paper.), which only numbered 18 at the end of 1989, increased by 46 in the following
decade from 1990 to 1999, and in the approximately eight and a half years from 2000 to
August 2008, 84 new agreements have been formed (Fig.II-1).
--------------------------------------------------------------------------------------------------------1. WTO agreements allow the FTA signatory countries to remove tariffs and other trade regulations(Article 24, GATT) and to liberalize services (Article 5, GATS) between them. NAFTA and other FTAs
formed by advanced countries, however, include chapters on government procurement, intellectual
property rights, competition and other subjects. In the case of Japan, FTAs generally refer to agreementson the trade in goods and services while the agreements covering wider areas such as investments andgovernment procurement are called Economic Partnership Agreements (EPAs). In this chapter, the term of
FTA is used to collectively refer to FTA and EPA.

---------------------------------------------------------------------------------------------------------

One of the factors behind this sudden increase in the number of FTAs is the
protraction of the previous Uruguay Round and the current Doha Round (New Rounds).
At present, as many as 153 countries have joined the WTO, making the formation ofconsensus in the New Rounds more difficult. When the multilateral trade negotiations
fail to show progress, FTAs are sometimes found more reasonable to the countries
seeking an access to overseas markets as they can be negotiated with more selected
counterparts and can be concluded within a relatively short period of time. Further,creation of the situation where many countries rush to join FTA negotiations following
the major trading countries shifting to FTAs, or “an FTA spurts the creation of yet more
FTAs” in a manner, is considered to be another factor concerning the sharp increase in
the number of FTAs.
(2) FTA strategies of Europe and the US targeting the emerging economies
becoming clearer
Until recently, the majority of FTAs were formed between neighboring countries andregions. Originally, it was in the natural course of events that the neighboring countries
106with strong political and economic relationships form FTAs looking for stronger or
improved ties (Table II-1). The EU, with the philosophy of keeping a “peace in theregion” based on the reflection of the European countries that experienced the two
World Wars, can be regarded as a highly political regional unification.
On the other hand, as economy further globalizes, many FTAs now cut acrossregional boundaries in recent years. In other words, FTAs are formed between countries
belonging to different regions in an increased number of cases. According to Table II-1,
the cross-regional FTAs, of which there were only five at the end of the 1990s, now
number 24.
In the past, we saw that advanced countries, in most cases, entered into FTAs onlywith other advanced countries and developing countries only with other developing
countries because of economic disparities between advanced and developing countries.
Typical examples of FTAs among advanced countries include the US-Canada FTA andthe EU, and that of FTAs among developing countries is the Mercosur, formed by Brazil,
Argentina and several other South American countries. The recent trend shows, however,that an increasing number of FTAs have been formed between the advanced anddeveloping countries. Such FTAs, which had a share of only about 30% of the entire
FTAs prior to 2004, have claimed the majority of the total FTAs worldwide since 2005.
It can be considered from this fact that advanced countries, including Japan, the US andEurope, are actively seeking to enhance economic relationships with emerging market
economies by expanding their FTA networks.


US attempts to extend its NAFTA-type FTAs in the Americas
The US is promoting FTAs throughout the Americas using the North American Free
Trade Agreement (NAFTA) model, formed in 1994. The NAFTA-type FTAs have acharacteristics of, besides complete elimination of tariffs, high-level and comprehensive
liberalizations, sometimes going into the domestic regulations of the partner countries,
including investments in general, financial and telecommunication service sectors,
government procurement, intellectual property rights, etc. Using its huge market as abait, the US takes a tough stand in negotiating FTAs, eventually forcing, in many cases,
the Central and South American countries seeking an access to the American market toaccept the US demands. In this way, the NAFTA-type FTAs promoted by the US are
expanded to all areas of the Americas.
The negotiations at the first Summit of the Americas, held in Miami in December
1994, which aimed to establish the Free Trade Areas of the Americas (FTAA) involving
34 countries in the Americas, ended in failure owing to strong conflicts between the US107trying to expand the NAFTA-type FTAs and Brazil opposing thereto. Since then, the US
has been forming FTAs with Central and South American countries one after another by
negotiating with them individually in the manner of “single-hook fishing” (Table II-2).


Movement by the EU trying to expand its regional integration model toneighboring countries
Based on the philosophy of keeping a “peace in the region”, the EU is expanding its
regional integration model to neighboring countries. Conclusion of the European
Agreements with the Central and Eastern European countries in the 1990s and theStabilization and Association Agreements with West Balkan countries (Croatia,
Macedonia, etc.) after the year 2000 were all aimed at the possible accession of thesecountries to the EU. Bulgaria and Romania joined the EU in January 2007, increasing
the number of membership countries to 27. Currently, Turkey, Macedonia, and Croatia
are listed as of the candidate countries that will possibly accede to the EU in the future(Table II-3).
Further, by concluding Association Agreements with Morocco and other countries in
the Mediterranean coast, the EU is enhancing the stability in these regions andstrengthening its economic relationship with the countries located there. By introducing
the common “Pan-Euro-Mediterranean Cumulation of Origin System” to the countries
in these regions and EFTA countries, and by regarding the different regions associatedwith each other through multiple FTAs in the Diagonal Cumulation System, as if they
were a “single country”, the EU is trying to promote regional specialization among theenterprises within the area. The EU is also setting forward negotiations on FTAs with
African countries to which preferential tariffs were extended in the past.
The FTAs of the EU are different from those of the US in that their coverage andlevels of liberalization differ in accordance with the economic levels of the partnercountries and the purpose of integration. For instance, for the EU member and candidate
countries, liberalization in a large number of fields and harmonization of laws to deepen
integration of markets, including: free flow of services; capital and labor; introductionof common outward tariffs; and common agricultural and fishery policies—let alone thecomplete elimination of tariffs in the region—are among the fundamental requirements.
On the other hand, in the European Economic Area (EEA), formed with the EFTA
countries, excluding Switzerland, free movement of services, and capital and labor, as
well as common competition policies, are introduced within the EU region while a partof agricultural and fishery trade is exempted from the liberalization requirements. In
FTAs with countries in the Mediterranean coast and developing countries, including the108Republic of South Africa, liberalization is sometimes set forward step by step startingfrom the trading of goods, depending upon the partner countries concerned. As seenfrom the above, the EU determines the field of integration in accordance with theconditions of the partner countries and the purpose of FTAs and determines a flexible
approach taking into consideration time constraints and the gradual expansion of thetarget fields.


Change in the investment environment in Central and Eastern European
countries and the possibility of additional FTAs
The EU is expanding its membership to include countries in the region’s eastern areas.
Ten Central and Eastern European countries, such as Poland and Romania, joined the
EU in 2004 and 2007, respectively, with some countries spending more than ten years toeliminate tariffs and introduce the EU legal system.
Integration of these countries into the EU has enhanced the corporations’ willingness
to invest in Central and Eastern Europe and made the factor to invite continued
investments in the region by foreign-affiliated companies, mostly Western European
ones. Due to the fact that many of these countries were formerly socialistic,
privatization projects claimed the majority share of the direct investments in theprevious years, but green-field investments increased their share as accession to the EU
got closer. Major Japanese enterprises established themselves in this region following
their European and American competitors (Figure II-2).
What are the advantages of the investment environment of the Central and Eastern
European countries when compared with those of Western Europe? The biggest
advantage is low labor cost. The wages of the ordinary workers in the region areapproximately one third or one quarter of those in Western Europe. Another advantage
is that Central and Eastern European workers are highly educated as a whole and have
English and mathematic skills. The existence of various investment incentives promotedby the respective governments also encouraged investments by foreign enterprises.
Further, business-related laws compatible with the EU system were developed alongwith the accession to the EU to enhance harmonization with the markets in Western
Europe and to establish the “free movement” of goods, services and labor, etc.
While equipped with conditions favorable to the manufacturing industry, the Central
and Eastern European countries have started to show changes in their investment
environments. In the “Survey on Japanese Manufacturing Affiliates in Europe/Turkey –Year 2006” (made with 590 enterprises with 320 thereof making valid responses),“securing of labor” is listed as the biggest management problem (70.5% of responses)
109

of the Japanese manufacturing industry in Central and Eastern Europe. In Poland inparticular, 67% of the manufacturers point out this problem while only 33% of them did
so in the previous survey. Talented personnel from the Central and Eastern European
countries tend to move to Western Europe looking for higher wages. A Japaneseelectronics manufacturer, who has invested in Poland counting on its reportedly ample
supply of talented workers, complains that the firm now need to compare the wages
with those in England to retain good personnel in the management class. In Central andEastern Europe, the average wage is also on the rise (Figure II-3).
It is believed that the industries in Central and Eastern European countries will be
increasingly sophisticated in the future along with the developments of technologicalcooperation by the European Commission and technology transfer by foreign-affiliatedcompanies. The majority of the Japanese industries that made new investments in
Poland in 2006 turned out to be in the producers of electric and electronic components,
and precision machines and machine parts, very different from the 1990s wheninvestments are concentrated in sectors such as furniture, rubber and tire.
It seems that along with the increase in wages, labor-intensive industries will look formore attractive investment destinations to obtain an abundant and less expensive labor
force. The EU, for instance, has expressed its intention to start negotiating an FTA with
Ukraine, which joined WTO in May 2008. The average monthly wage in Ukraine in2007 is USD 268.00 and remains at a level only a quarter of that in Czech Republic. In
the survey mentioned earlier, as many as 13.5% of the Japanese companies developed inCentral and Eastern Europe see Ukraine as a promising production base, and thisexceeds the number of Japanese firms (9.6%) putting emphasis in Bulgaria, a memberof the EU. With a population of 46 million, Ukraine has a large supply of workers
relatively highly skilled for their low wages. However, the country does have aconsiderable number of problems, including its political relationship with Russia and anunder-developed infrastructure, but by promoting FTAs with these promising countries
in the adjacent area, the enterprises will be able to further expand the structure of theinternational division of labor.
 Influence of the US and European FTA strategies toward Asia and Pacific
Currently, the US and Europe are actively engaging in FTA negotiations with thenations of Asia—the growth center of the world (Figure II-4). Immediately before the
APEC Summit held in November 2006, the US announced the “Free Trade Area of the
Asia-Pacific (FTAAP)” project. As economic integration has been accelerated in the
Asia-Pacific region in recent years, the US, with fears of being painted out of the picture,110

is apparently trying to deter an economic integration without its presence by showing its
intention to involve itself actively in said region.
The FTAAP, however, is only a long-range outlook for the US, who promotes
bilateral FTAs as the practical means to get market access in the rapidly growing Asian
countries. Following the announcement of the “Enterprise for ASEAN Initiative (EAI)”
with ASEAN in 2002, the US started negotiating FTAs with Singapore, Malaysia andThailand, and put an FTA with Singapore into effect in January 2004. Besides these
agreements, the FTA with Australia went into effect in January 2005 followed byanother FTA concluded with the Republic of Korea (South Korea, hereafter referred to
as ROK) in June 2007. In recent years, the US has shown its intention to approach an
FTA with the P4 (New Zealand, hereinafter “NZ”, Chile, Singapore and Brunei.)
In October 2006, the European Commission established a new axis within its trade
policies. Named “Global Europe”, this new strategy is aimed at concluding FTAs withthe emerging-market countries with high market potential but sticking to tariff andnon-tariff trade barriers in many aspects. Out of the Asian countries and territories,
ASEAN, India and ROK have been selected as potential candidates for its FTA partners.
With regard to FTAs with ASEAN and India, the objectives are to eliminate their heavy
trade barriers and improve an access to their markets, highly appreciating the huge size
thereof. For ROK, it is intended to level off the unfavorable competitive businessenvironment for EU enterprises resulting from the US-ROK FTA.
By the approaches made from Europe and the US, ROK and ASEAN have been
accorded with the possibility to grow into a hub of the FTA network. Triggered by the
US-ROK FTA, the EU started negotiating an FTA with ROK in May 2007, forcing
ROK to liberalize its market using the high-level and comprehensive US-ROK FTA as abenchmark. While declaring an elimination of its own tariffs on the entire imported
items at an early stage of the negotiation, the EU strongly asked ROK to relax its
domestic regulations on manufacturing and service industries together with anelimination of its tariffs on agricultural and fishery products. Application of EU safety
and environmental standards in lieu of the Korean counterparts to EU-madeautomobiles sold in ROK is an example of such requests.
The FTA between the EU and ROK could have an immense effect on some Japanesecompanies. The EU currently imposes a maximum 14% tariff on imported electricalappliances. When the FTA is concluded, it is highly likely that Samsung and other
Korean brands will be imported free of duties. Additionally, the EU is beset with the
problem of tariff classification of IT products, including the inconsistencies in tariffclassification of the like products among the member countries. Thus, if the FTA goes111

into effect, ROK will be the only country in Asia with a solution to these problems,
driving some Japanese companies into an uphill battle.
On the other hand, it can be considered that the FTAs of the EU with ASEAN and
India will partly relieve the damages on Japanese companies caused by the EU-ROK
FTA. Japanese companies currently maintain huge production bases in Asian countries,
including ASEAN, from where they are provided at this moment with reduced oreliminated tariff rates on some of their products in the Generalized Scheme ofPreferences (GSP) of the EU. Yet, some other products are still subject to import duties,
and Japanese companies could enjoy merits from the EU-ASEAN FTA. Such an
agreement would provide a tailwind for Japanese automobile manufacturers currently
producing automobiles in India and looking to reinforce their export strategies toEurope.
The race between the US and Europe for FTAs with Asian and the Pacific nations
seems to be intensified further and further. The US and European FTAs resulted in new
additional FTAs in a chain reaction and could seriously impact the economic integration
currently in progress among the Asian and the Pacific nations, including Japan.

112

Fig. II-1

Trends of FTAs Worldwide(Year)

1

1955–19592

1960–1964

148 Agreements Total (As of Aug. 1, 2008）0

1965–19691970–19744

1975–19794

1980–19844

18 agreements3

1985–198918

1990–1994

46 agreements

28

1995–199945

2000–2004

39

2005-

0

10

20

30

40

84
agreements

50(Number of agreements)(Notes)(1). Of the 211 regional trade agreements (RTAs) listed on the WTO website ("listing" signifies that GATT or
WTO has been notified of the agreement and it is currently in effect), we have excluded 66 as duplicates due to 1) new
participants in existing FTAs, 2) notification to both GATT and GATS, etc. Thailand-India FTA, the ROK-ASEANFTA and the Japan-Brunei FTA are added to the total number above.
（2）.The year is based on the date of the agreement becoming effective. If that is unclear, the date of
notification to GATT or the WTO is used.
(Source) WTO website (www.wto.org/english/tratop_e/region_e/region_e.htm) as of July 18, 2008

Table II-1

FTAs by Year and Region(Unit: Number of agreements)
Europe, Russia andthe CIS, Middle East,
AfricaAmericas

1955–19591

1960–1964

1

1

1970–1974

1

1

1975–19792

1980–1984

1

Asia-Pacific

Cross-regional

Total
1
2

1965–1969

1985–1989

2

1

2

4

2

4

1

1990–1994132

1995–1999

23

4

2000–2004

20

8

2005–

13

Total

75

4

2
3

3
18

1

28

8

9

45

2

14

10

39

20

29

24

148

(Notes)1. Of the 211 regional trade agreements (RTAs) listed on the WTO website ("listing" signifies that GATT or WTO has been
notified of the agreement and it is currently in effect), we have excluded 66 as duplicates due to 1) new participants in existing
FTAs, 2) notification to both GATT and GATS, etc. Thailand-India FTA, the ROK (South Korea)-ASEAN FTA and theJapan-Brunei FTA are added to the total number above.
2. The year is based on the date of the agreement becoming effective. If that is unclear, the date of notification to GATT or
the WTO is used.
(Source) WTO website (www.wto.org/english/tratop_e/region_e/region_e.htm) as of July 18, 2008113

Table II-2 Development of the FTAs of the US

Free Trade Area of the Americas (FTAA)
NAFTAConcluded

The Americas

AgreedApril 1998

Suspended Feb. 2004

June 1991

Provisionally agreed
Oct.1992

Dec.2000

Dec.2002

Jan. 2003
Jan. 2004
April 2004

Jan. 2004
March 2004
Dec. 2006

June 2007

Timing of ratification unknown

May 2004
May 2004

Dec. 2005
Feb. 2006

April 2006
Nov. 2006

Ratified by US and Peru

Middle East & Africa
Asia & Oceania

Chile
CAFTA-DR
Five countries in Central America
Dominican Republic
PanamaAndean countries
Peru
Columbia
US-Middle East Free Trade Area
(MEFTA) initiative
IsraelJordanMoroccoBahrain
Oman
United Arab Emirates

Jan. 1984
June 2000
Jan. 2003
Jan. 2004
March 2005
March 2005

March 2004
May 2004
Oct. 2005
Suspended May 2006

South African Customs Union (SACU)

June 2003

Terminated April 2006

US-ASEAN Enterprise for ASEAN
Initiative (EAI)SingaporeNov. 2000

Jan. 2003

June 2004

Suspended Jan. 2006

May 2006
June 2006
March 2003

April 2007
Feb. 2004

Thailand
Malaysia
South Korea (ROK)
Australia(As of August 2008)
Remarks

Negotiation Started

Effective

Timing of agreement unknown (negotiations by 34 countries
in the Americas, except Cuba)

Dec. 1992

Jan. 1994

June 2003
Aug. 2004

Jan. 2004

Member: US, Canada and Mexico

In effect with Effective: March 2006: El Salvador, April 2006: Honduras,
Nicaragua, July 2006: Guatemala, March 2007: Dominican
5 countries Republic; Not Effective yet: Costa Rica

Timing of ratification unknown
Initiative announced in May 2003; FTA to be concluded by
2013

Feb. 1985

April 1985
Oct. 2000
June 2004
Sept. 2004
Jan. 2006

Referred back to joint work program in the stage prior to
FTA
Initiative announced in October 2002 with no deadline
specificed; Trade Investment Framework Agreement (TIFA)
concluded in August 2006

May 2003

114

Jan. 2004
Negotiations frozen by coup d'état until civil government
restoredJune 2007
May 2004(Source) Compiled from "FTA Guidebook 2007" (JETRO) and USTR materials.

Sept. 1985
Dec. 2001
Jan. 2006
Aug. 2006

Timing of ratification unknown

Jan. 2005

Fig. II-2 Major Japanese Companies with Production Bases in Central and Eastern
Europe (Automobile, Electric and Electronic [LCD/Plasma])(As of the end of 2007)
Sharp
April 2006
Suburbs of TorunLCD TV, LCD Module

Funai Electric
October 2006
Nowa SolLCD TV

Orion Electric
October 2006
Suburbs of TorunLCD TV, Plasma TV

Poland69

Hitachi Ltd.
July 2006
Usti
LCD, Plasma TV,
Plasma Module

Toshiba
September 2006
Kobierzyce
LCD TV

Toyota Motor
March 2002
Kolin
AYGO

Czech
Republic
77

Sony
September 2006
Nitra
LCD TV

Slovakia
15

IPS Alfa Technology
June 2006
Usti
LCD Module

Hungary45
Romania17

Suzuki
April 1991
Esztergom
Swift, SX4

Panasonic
1996
Plzen
LCD, Plasma TV

Bulgaria
2

Note 1: The number of Japanese manufacturers are shown below the name of the country.
Note 2: Items are listed in the order of time of foundation, location and products/models

Fig. II-3 Changes in Average Wages (Monthly) in Central and Eastern European
Countries
(USD)

1200

1,079

1,010

971

1000
800
600

485

475

514

578

400

528
290

161

200

268

124

139

Bulgaria

Russia71

0
Czech
Republic

Hungary

Poland2002

Romania

Ukraine2007(Note) Currencies of the countries converted at average annual rate against USD.
(Source) Compiled from the materials of The Vienna Institute for International
Economic Studies.

115

Table II-3 Development of FTAs of the EU
Name

European Union （EU）

EuropeAgreement on European
Economic Area (EEA)
Europe Agreement
Stabilization and Association
Agreement
Customs Union
Free Trade Agreement

Middle East & Africa(As of August 2008)
Participating countries and regions
Remarks
Belgium, Czech Republic, Denmark, Germany,
European Economic Community (EEC) established in 1958, and Customs Union in 1968;
Estonia, Greece, Spain, France, Ireland, Italy, Cyprus, transformed into European Union in 1993 when Maastricht Agreement went into effect;
Latvia, Lithuania, Luxemburg, Hungary, Malta,joined by Austria, Sweden and Finland in 1995 and by Czech, Estonia, Cyprus, Latvia,
1993
Netherlands, Austria, Poland, Portugal, Slovenia,
Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia in May 2004; Bulgaria andSlovakia, Finland, Sweden, United Kingdom,
Romania joined in January 2007
Bulgaria, Romania
EU, European Free Trade Association (EFTA)
Switzerland voted down participation in referendum; Liechtenstein joined in 1995
1994
(except Switzerland)
Concluded respectively by 10 Central and Eastern
Aimed at ultimate objective of acceding to EU; no more countries left to the Agreement
1994-1999
European countries, except Cyprus and Malta
when Bulgaria and Romania joined EU in 2007
EU and former Yugoslav Republic of Macedonia
2004
Aimed at ultimate objective of acceding to EU; trade-related part, including FTA of the
EU and Croatia
2005
Agreement, provisionally went into effect with Macedonia from 2001, with Croatia fromEU and Albania
2006
2002, and with Albania in 2006; signed with Montenegro (in October 2007), Serbia (inFormer Yugoslav countries as future participants
April 2008) and Bosnia-Herzegovina (in June 2008)
EU and Andorra
1991
Including industrial products only
EU and Turkey
1996
Including industrial products and agricultural processed goods only
EU and Switzerland
1973
EU and Danish Faroe Islands
1997
EU and Palestinian Self Government Authority
1997
Provisional association agreement, including FTA, with Palestinian Self Government
EU and Tunisia
1998
Authority; only trade-related part, including FTA, provisionally effective with Lebanon;
EU and Morocco, Israel
2000
yet to be signed with Syria with trade-related part, including FTA, scheduled to take
EU and Jordan
2002
provisional effect after the signature; former generation FTA already in effect with Syria
EU and Lebanon
2003
since 1977
EU and Egypt
2004
EU and Algeria
2005
Negotiations started in 1990 and resumed in March 2002 after an interruption;
EU and Gulf Cooperation Council
negotiations still in progress
Only trade-related part, including FTA, provisionally went into effect from 2000
2004
EU and Republic of South Africa
Effective

Association Agreement

Free Trade Agreement
Agreement on Trade,
Development and Cooperation

Latin America

Association Agreement

Asia

Free Trade Agreement

Other

2000
2003

Association Agreement

1971

EU and Mexico
EU and Chile
EU and the Southern Common Market of SouthAmerica (Mercosur)
EU and Central American countries
EU and the Andean Community
EU and India
EU and the Republic of Korea (ROK)
EU and the ASEAN countries
EU and the overseas departments and territories ofEU members

Negotiations started in April 2000 and still in progress
A part of the new trade strategy announced in October 2006
Negotiations started with ROK and ASEAN in May 2007, and with India in June thesame year(Source) Compiled from "FTA Guidebook 2007" (JETRO) and European Commission materials.

Fig. II-4

Trends in FTAs between the US/Europe and the Asia-Pacific Region(As of July 2008)

APEC

EU
ROK

US

ASEAN
ThailandIndia

Malaysia
Singapore

Australia

In effect

SignedBeing
negotiated(Note) The negotiations for the US-Thailand FTA have been suspended.
(Source) US Trade Representative, European Commission and “FTA Guidebook 2007” (JETRO).

116

2. Deepening of the FTAs in Japan and the Asia-Pacific nations(1) Japan’s FTAs and status of their utilization
 Japan’s FTAs in effect, signed and under negotiation
Japan has FTAs in effect with Singapore, Mexico, Malaysia, Chile, Thailand,
Indonesia and Brunei. While exports to FTA signatories in effect account for 11.7% of
total Japanese exports, imports from FTA signatories in effect account for 13.3%, andthe two-way trade covered by the FTAs in effect account for 12.4% (Table II-4).
There are two, signed FTAs (one with the Philippines and one with the ASEAN
countries). With ASEAN as a whole, an agreement was reached in April 2008 withround-robin signatures of the cabinet members, following the agreement reached at thesummit meeting held in November 2007. This FTA is expected to take effect before theend of 2008 when ratification procedures by the respective countries are completed.
(Japan completed the Diet ratification last June.) On the other hand, it is not foreseeable
when the FTA with the Philippines will go into effect as the ratification procedures in
the country are being delayed.
Further, FTAs are being negotiated with the GCC (Gulf Cooperation Council, formedby Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates), Vietnam,
India, Australia and Switzerland. The value of exports covered by all FTAs in effect,
signed and under negotiation (including the FTA negotiations with the ROK, which are
currently suspended) account for 27.7% of the total, 42.6% of imports and 34.6% of
two-way trade, indicating the growing importance to keep the FTA in mind when firms
run their business.
Status of FTA utilization by Japanese affiliates
According to the questionnaire survey by JETRO (conducted in the period from
November 27, 2007 through January 4, 2008 with valid answers received from 733
companies and a response rate of 27.9%), a preferential tariff system is utilized by thelargest number of companies (31) in the Japan-Thailand and Japan-Malaysia FTAs,
respectively, followed by the second largest number of companies (25) in AFTA(ASEAN Free Trade Area) and the Japan-Mexico FTA, respectively (Table II-5).
Utilization by Japanese affiliates of the major FTAs in effect in Japan and theAsia-Pacific region is characterized by the facts that: utilization is outstanding in the
FTAs concluded by Japan; AFTA, in which area Japanese companies have built up
comprehensive production networks, is well utilized; and utilization is outstanding in
FTAs concluded by Thailand, where Japanese companies have accumulated themselves,
with India and Australia.
117

Among FTAs where utilization is contemplated, the Japan-Thailand FTA numbers
most (66), suggesting high expectations thereof, followed by AFTA (31) and the
China-ASEAN FTA (27) (Table II-6). A conspicuous number of companies (21)consider utilizing the Thailand-India FTA.
In terms of type of business, it is characteristic that an outstanding number ofcompanies in the categories of “Automobile, Automotive Parts & Other Transport
Equipment,” “Oil & Coal Products, Plastics and Rubber Products,” “Electric
Machinery,” “Chemicals,” and “Food and Beverages” (Table II-7) utilize FTAs. On theother hand, only a small percentage of companies in “Information and Communication
Machinery & Equipment, Electronic Components & Devices” utilize FTAs, but thisseems to be due to the background fact that before the FTAs went into effect, the tariff
rates on IT products had already been eliminated in Japan, Asia and neighboring
countries under the ITA (Information technology Agreement) of the WTO.
Japan-Mexico FTA
The Japan-Mexico FTA went into effect in April 2005, and more than three years
have passed since then. Major Japanese export items to Mexico comprise IT products
and transport equipment including automobile and steel products, and the value of trade
between these two countries has been on a steady incline at the average annual growthof 19.3% in two-way trade in the period from 2005 (before the FTA came into effect) to2007 (in the statistics on the Japan side). Although imports from Mexico have largely
remained steady, with the share of Mexican imports to total Japanese imports only
increasing from 0.48% in 2004 to 0.51% in 2007, the share has grown from 0.9% to1.4% in terms of exports. In the import statistics prepared by Mexico, Japan’s share in
the same period has grown from 5.4% to 5.8%.
Among the items exported from Japan to Mexico, the effects of the FTA have been
most marked in automobiles. In Mexico, a 50% MFN (most-favored nation) tariff isimposed on automobiles. However, under the FTA, Mexico allows Japanese
automobiles a tariff-free import quota, which is equivalent to 5% of the total number of
automobiles sold in Mexico’s domestic automobile market during the previous year. In
addition, the tariff rates applicable to automobiles imported from Japan exceeding theallowed tariff quota are scheduled to be reduced gradually, and the tariff quota itself will
be eliminated after an elapse of seven years from effectuation of the FTA. Even before
the FTA went into effect, the passenger car manufacturers manufacturing in Mexico
were allowed to import their products free of tariff in the quantity equivalent to 10% of
the number of units manufactured in Mexico, but this quota was not provided to the118companies not manufacturing in Mexico. Accordingly, market access has been
improved by the FTA for Mazda, Suzuki, Isuzu, Fuji Heavy Industries, Hino Motors andother Japanese companies without local production in Mexico.
Mazda, selling the “Mazda 3” and “CX7” etc., in Mexico, for instance, imports somemodels of automobiles to be placed in the market utilizing the tariff-free quota under the
FTA. The sales volume of the company has grown more than 21 times from 771 units in2005 to 16,604 units in 2007 (Table II-8). Suzuki, who sells “GRAND VITARA”,“SWIFT”, “XL7” and “SX4” in Mexico, utilizes the FTA in importing a majority ofthese models. The sales volume of this company has largely increased from 762 units in2005 to 5,700 units in 2007. Isuzu, Fuji Heavy Industries and Hino Motors have also
increased their respective sales volumes, and the total sales volume of the Japanese
automobile manufacturers without local production in Mexico has grown to 25,322
units in 2007, while it was nil before the FTA came into effect. The total number of
automobiles sold by Japanese companies in Mexico has increased from 299,043 units in2004 (before the FTA came into effect) to 378,119 units in 2007, increasing Japan’sshare in the Mexican passenger car market from 27.3% to 34.4%. The share ofpassenger car imports from Japan to the total passenger cars imported to Mexico alsorose from 10.9% in 2004 to 16.0% in 2007.
Utilization of the FTA is also seen in areas such as the steel industry. Japanese steel
products are exported to Mexico mainly for use as steel plates for automobiles. The
value of their imports into Mexico was 891 million dollars in 2006, over 90% of which
seems to be imported under the Programa de Promocion Sectorial (PROSEC) (2) at low
tariff rates of zero, or 3% in the majority of the cases. Out of the commodities
designated in PROSEC, the advantage of tariff reduction under the FTA is seen in theimportation of dutiable items. This is due to the fact that, in Mexico’s tariff reduction
schedule for steel products stipulated in the FTA, many items of such steel products areincluded in those which tariff reduction is to be started in the sixth year after the FTA
goes into effect (2010), while the same items may be free of tariffs when imported by
the firms PROSEC is applicable to. Accordingly, Nippon Steel and other companies
exporting steel products to Mexico are allowed to export almost all of their products
tariff free.
--------------------------------------------------------------------------------------------------------2. PROSEC is a system applicable to manufacturers in Mexico where import duties imposed on materials,
parts, machine and equipment necessary for the production of finished products are lowered to between
0%

to

5%

in

the

23

designatedareas.

(For

http://www.jetro.go.jp/biz/world/cs_america/mx/invest_03/.)119

details,

refer

to

JETRO’s

website:---------------------------------------------------------------------------------------------------------IT products are also one of Japan’s top export items, with a share of approximately
40% in its exports to Mexico. Although Mexico is not a signatory to the Information
Technology Agreement of the WTO, the country has lowered its MFN tariff rates on IT
products under the scheme named “ITA Plus”. Tariff-free import or low tariff rates of
3% to 5% are established and made applicable to the majority of the IT products under
the PROSEC system. FTAs are also utilized for some of these IT products. A certain
Japanese manufacturer has a record of utilizing the Japan-Mexico FTA in connection
with some office equipment, including LCD TVs and data projectors. The MFN tariffon these items—15 to 20%—was eliminated immediately when the FTA came into
effect. Also, other Japanese companies are utilizing the FTA in connection with handsets of the private branch exchanges (PBX). The MFN tariff of 20% on this item was
immediately eliminated in the Japan-Mexico FTA.
Japan-Malaysia FTA
It has been two years since the Japan-Malaysia FTA came into effect in July 2006,
and the Ministry of International Trade and Industry of Malaysia has published thevalue of its exports that utilize FTAs. Included in the items imported from Japanutilizing the FTA are boilers, electric machinery, steel products, plastic products, toys,
automotive parts, rubber and rubber products, and apparel and clothing. The areas
where exports from Japan are expected to grow in the future are automobiles and steel
products, etc. Concerning automobiles, although the tariff on CKD parts was eliminatedimmediately when the FTA went into effect, the tariff on passenger cars exceeding 2000
cc is scheduled to be eliminated in 2010 and that on other passenger cars in 2015. The
tariff on steel products is scheduled to be eliminated gradually over a period of 10 years
after the FTA goes into effect. Utilization of the FTA is expected to be enhanced in the
future.
In Malaysia’s exports to Japan, on the other hand, the value of exports utilizing the
FTA in 2007 amounts to 1.9 billion dollars.
The import tariff in Japan is at the lowest level in world. Dutiable items imported into
Japan (excluding the tariff free items in accordance with the WTO) account for nearly
60% (on a value basis) of the total value of imports into Japan. Out of the value ofJapan’s total imports from Malaysia, 4.8 billion dollars (27.6% of Japan’s total imports
from Malaysia, 2007) belong to dutiable trade. The composition ratio derived using thisfigure as the denominator and the value of Malaysian exports to Japan utilizing the FTA
on a CIF basis (converted with the insurance premium and freight assumed to be120

equivalent to 10% of the FOB value) as the numerator comes to 44.8% (Table II-9). In
terms of Japan’s imports, it can be pointed out that while 70% of the total imports werealready tariff-free when the FTA went into effect, the FTA still contributes to further
elimination of tariffs imposed on the remaining 30% of the dutiable items and is widely
utilized.
In terms of actual items, the FTA is believed to be used for palm oil and plastic
products, as well as for certain textile products. The GSP, which was applicable to thepalm oil and some of plastic products imported from Malaysia until the FTA went into
effect, has already been replaced by the FTA. Although the GSP has been madeapplicable to textile products, many of the textile items still remain dutiable, and they
are one of the products that have seen lowered or eliminated tariffs due to the FTA.
Among the textile and textile articles (HS50-63), share of the Malaysian products
imported into Japan, in terms of items, has grown in wool (HS51) and cordage, andropes and cables (HS56). Of these items, the share expanded from 5.2% in 2005 (before
the FTA came into effect) to 7.2% in 2007 and in the latter items from 2.0% to 4.5%.
Concerning clothing (HS62 and 63), on the other hand, the share of imports from
Malaysia remains at 0.5% (2007), indicating no change so far from the time before the
FTA came into effect.
Japan-Thailand FTA
The Japan-Thailand FTA came into effect in November 2007, and Japanesecompanies show growing interest in the FTA as they maintain a close relationship withThailand in trade and investment.
The Ministry of Commerce of Thailand, as well as its Malaysian counterpart, has
released the value of exports utilizing the FTA. In Thailand’s exports to Japan inNovember and December 2007, the value of the exports utilizing the FTA amounts to
600 million dollars. This accounts for 63.5% of the total value of Japan’s dutiable
imports from Thailand, indicating the wide use of the FTA. In terms of actual items, theFTA is used for cooked poultry, shrimps and starches.
As for the exports from Japan to Thailand, utilization of the FTA is expected to beenhanced in the future for steel products, which are included in the items where thetariff is scheduled to be eliminated immediately or gradually over a period of 10 years
after effectuation of the FTA.
Fruits from Japan have become popular among the affluent segment in Thailand andare sold in the local Japanese department stores. The tariff imposed on fruits in Thailand
has been lowered by the FTA. For instance, the tariff rate on strawberries in Thailand,12140% on a basis of MFN, has been reduced to 26.67% under the Japan-Thailand FTA. It
is scheduled to be eliminated in six years after the FTA goes into effect. In addition, thetariff on other kinds of fruits, including apples and pears, is subject to immediate
elimination or phased reduction, and exports of Japanese agricultural and fisheryproducts are expected to be expanded. The value of fruits (HS0810) imported into
Thailand from Japan in the period from November 2007 to March 2008 has been greatly
increased to 540,000 dollars from 290,000 dollars during the corresponding period of
the preceding years.
(2) FTAs in the Asia-Pacific region: those in effect and the status of FTA utilization
Mentioned below are the status of the FTAs in effect and their utilization in an
expanded region of the Asia-Pacific region (ASEAN+6) (3), where Japanese companies

have built up a wide production network.
--------------------------------------------------------------------------------------------------------3. ASEAN+6 comprise ASEAN10 and Japan, China, the ROK, India, Australia and New Zealand.

---------------------------------------------------------------------------------------------------------

Currently, the FTAs in effect in the Asia-Pacific region are as shown in the Table
II-10. In 2007, the new ASEAN-ROK and Japan-Thailand FTAs went into effect, whilein 2008, the Japan-Indonesia and Japan-Brunei FTAs went into effect. Thailand andSingapore, which have been actively involved in the promotion of FTAs, have put thebilateral FTAs with India, Australia and New Zealand into effect, in addition to thoseconcluded within the East Asian region, forming the hub of the FTA network in the
Asia-Pacific region. Further, China and New Zealand reached an agreement for an FTA
in April 2008, showing a steady expansion of the FTA network in the Asia-Pacificregion.
Trade between FTA signatories in effect reached 674.4 billion dollars, or 49.5% of thetotal value of intra-regional trade (around 1,363.6 billion dollars on an export basis)
inside the Asia-Pacific (ASEAN+6) region (Table II-11). Trade between FTA signatories
that are expected to go into effect in the near future account for 2.9% of the total valueof the intra-regional trade in the region, which will raise the share of the trade among
the countries signatory to these two categories of FTAs to 52.4% when combined withthe share of 49.5% mentioned above. The share of the trade between countries with
FTAs being negotiated comes to 16.1%. Including the value of trade between countries
with FTAs in effect, signed or being negotiated, the value comes to 68.5% of the total
value of intra-regional trade in the area. FTAs in the Asia-Pacific region cover a broad
range of countries through bilateral and regional agreements.
122



ASEAN Free Trade Area (AFTA)
Thailand and Malaysia have released the values of their trades utilizing FTAs, andthese values provide fundamental materials that can be used in evaluating the status of
FTA utilization in Asia. The status of utilization of the major FTAs will be examined inthis section, based mainly on the statistics on their utilization released by Thailand andMalaysia.
AFTA (ASEAN Free Trade Area) is a leading FTA in the Asia-Pacific region and iscurrently acting as the region’s core FTA. ASEAN countries are engaged in gradualtariff eliminations in the region under AFTA. In AFTA, between the six original ASEAN
member countries (Thailand, Malaysia, Indonesia, the Philippines, Singapore andBrunei) are to eliminate the intra-regional tariffs in 2010 and the four newer member
countries (Vietnam, Laos, Cambodia and Myanmar) are to eliminate them in 2015 (4).

--------------------------------------------------------------------------------------------------------4. In the beginning, AFTA was scheduled to reduce tariffs on the items covered by CEPT to below 20%
within five to eight years from 1993 and also to reduce the intra-regional tariff on such items alreadylowered to below 20% further down to 0% to 5% over a period of seven years from 2001 (by 2008).
However, resolutions to accelerate such tariff reductions were made in the AFTA Council (organized byeconomic ministers of ASEAN countries) and the summit meeting held in 1998. Actually, it was decided
that the original ASEAN member countries would reduce the intra-regional tariff rates, with the exceptionof those of certain items, to below 5% by 2002. It was further decided that Vietnam by 2003 andMyanmar and Laos by 2005 would respectively make the number of commodities subject to tariff rates of
below 5% more than the number of those subject to any higher tariff rates and would make the number oftariff-free items more than that of dutiable items in three years thereafter. In addition, it was decided at thesummit meeting held in 1999 that the deadline of tariff elimination, 2015 in principle for both of theoriginal and newer member countries, were moved up to 2010 for the original member countries and to2015 for the newer member countries. In November 2004, the “ASEAN Framework Agreement on
Priority Integration Sectors” was signed to require the original member countries to move up theirdeadline of tariff elimination from 2010 to 2007 and the newer member countries to 2012, with respect toa total of 4,514 items in nine sectors of wood-based products, automotives, rubber-based products,
textiles and apparel, agro-based products, fisheries, electronics, information technologies (IT) and healthcare. (However, 15% of these items were allowed to be eliminated in the ordinary schedule as Negative
Products.)---------------------------------------------------------------------------------------------------------The six original member countries are engaged in developing the abolition of
intra-regional tariffs, setting an interim target elimination date of 2007 for tariffs on
12380% of the items covered by the Common Effective Preferential Tariff (CEPT) – a
scheme for lowering and eliminating tariffs inside the AFTA. However, in Singapore,
where tariffs on all of the items have already been eliminated, percentage of the items
made free of intra-regional tariffs exceeded 80% in 2007 in Malaysia, Indonesia,
Thailand and the Philippines. Among the newer member countries, Vietnam has alreadyeliminated tariffs on more than half of the items imported into the country.
The value of exports utilizing CEPT was increased in 2007 in Thailand by 42.8% overthe previous year to 7,864.71 million dollars and in Malaysia by 27.8% to 3,924.49
million dollars, and the total of these two countries increased by 37.4% to 11,789.20
million dollars, respectively. The total value of exports taking advantage of CEPT
accounted for 25.7% of total value of exports (including the items for which tariffs havebeen eliminated on a MFN basis by the export destination countries) from two countries
to ASEAN, making the highest share on record since 1998, when the statistics became
available (Table II-12). By countries, the ratio in Thailand comes to 30.9% and in
Malaysia to 19.1%, respectively (excluding Singapore, which does not impose tariffs onanything except some alcoholic items).
Examination of CEPT utilization by countries shows that Thailand and Malaysia
both have the highest rates of utilization at 43.2% with Vietnam, followed by thePhilippines (34.1%) and Indonesia (34.3%). In terms of actual items utilizing CEPT,
transport equipment, including passenger cars below 3,000 cc, commercial vehicles andautomotive parts, take the major share in exports from Thailand to other ASEAN
countries (according to the Ministry of Commerce of Thailand). In Malaysia, CEPT isutilized in the exportation of palm oil, air conditioners, non-alloy steel and resins(according to the Ministry of International Trade and Industry of Malaysia).
Concerning ASEAN, attention should be drawn to the fact that the “ASEAN
Economic Community (AEC) Blueprint”, positioned as the implementation schedule forthe realization of the ASEAN Economic Community (AEC) and the “Charter of the
Association of Southeast Asian Nations”, positioned as the highest standards of ASEAN,
were adopted at the ASEAN Summit held in November 2007.
The AEC Blueprint is the implementation schedule for the foundation of the ASEAN
Economic Community. Listed in the AEC Blueprint as fundamental elements of theASEAN Economic Community are: (1) single market and production base; (2)competitive economic region; (3) equitable economic development; and (4) integration
into the global economy, together with the detailed processes to be followed in the
period up to 2015 in accordance with the respective elements. Among the elements,“single market and production base” is defined in the greatest detail, positioning goods,
124

services, investment, skilled labor and capital as core areas for its realization andshowing the policies to realize a free flow in these areas. In actuality, the goods include,in addition to the tariff reduction schedule, improvement of the rules of origin,establishment of an ASEAN Single Window (unification of procedures related to export
and import) and harmonization of various standards. The services include measures forliberalization in service areas, and the investment includes the approach to be made forprotection of and liberalization in investments. The “competitive economic region”
includes competition policies, consumer protection, intellectual property rights,
development of infrastructure, the taxation system and e-commerce, while the“equitable economic development” includes development of small- and medium-sizedenterprises, and the “integration into the global economy” includes participation in
global supply chains.
The Charter of ASEAN constitutes the highest standards of the association anddefines its purposes, fundamental principles, legal personality, admission of new
members, organs, methods of decision-making and settlement disputes. The Charter of
ASEAN is currently under the ratification procedures of the respective member
countries for effectuation within 2008.
Despite these comprehensive efforts made to realize an ASEAN Economic
Community, the current policy movements reveal that some of the member countries
are unable to implement the ASEAN decisions as scheduled and are delayed in putting
the policies in practice. For instance, although the “elimination of tariff on designateditems in the priority integration sectors” and “elimination of tariff on 80% of theapplicable items” were scheduled to be implemented by January 1, 2007, they wereactually put into practice as scheduled only by Singapore, which had already eliminated
all of its import tariffs.
Malaysia was behind the agreed schedule by approximately three months in
implementing the policies, and Indonesia enforced them in September 2007, while
Thailand did so only in February 2008. These three countries made the elimination ofthese tariffs effective retroactively from January 1, 2007, and the firms which imported
the applicable items in these periods of delay are allowed to claim a refund of the importduties. On the other hand, the Philippines, which eliminated its tariffs in June 2008, isreported not to make the tariff elimination retroactively effective. These delays inputting policies into practice have become a factor to lower the predictability of thecompanies operating in the ASEAN region.
FTAs between ASEAN and China
125

The ASEAN-China FTA has put the Early Harvest (5) into practice for agricultural
products since January 2004 and for non-agriculture and fishery sectors since July 2005.
The total value of exports from Thailand and Malaysia to China utilizing the FTA
between ASEAN and China was 3.4 billion dollars, accounting for 10.8% of the total
value of exports to China from the two countries and generally remained steady from2006 (Table II-13). (The total of exports used as the denominator includes the items forwhich tariffs have been eliminated on a MFN basis by the export destination countries.)
In terms of items, cassava, fruits, rubber products, kerosene, polycarbonates, etc. are
included in those exported from Thailand to China utilizing the FTAs (according to the
Ministry of Commerce of Thailand). In exports from Malaysia to China, the FTAs are
utilized for rubber, vegetable oil, glycerin and acetic acid. In Malaysia’s imports from
China, FTAs are utilized for steel products, fruits, automotive parts, electric machinery,
cocoa products, chemicals and textiles (according to the Ministry of International Tradeand Industry of Malaysia).
--------------------------------------------------------------------------------------------------------5. The Early Harvest refers to the measures taken to reduce tariff rates on certain commodities in advance.

---------------------------------------------------------------------------------------------------------

FTAs between ASEAN and China are utilized mostly for agricultural and fisheryproducts. The share of agricultural and fisheries products imported into Thailand,
Malaysia and China from the signatory countries of the ASEAN-China FTA to the totalof the same products generally shows a sharp increase in 2007, as compared with theshare in 2003, before the FTA were not in effect yet (Table II-14).
With regard to the FTA between ASEAN and China, any noticeable utilization has
not been made in the areas of industrial products so far when compared with agriculturaland fishery products. Behind the trends are, as it can be pointed out, the facts that: (1)trade between ASEAN and China consists mainly of intermediate goods for export
products (6), to which tariff reduction and elimination systems other than FTA (tariff
reduction and elimination system for export processing zone and in-bond system for the
production of export commodities) are extensively applied; (2) the range of tariff
reductions still remains small under the schedule of gradual reductions; and (3) for
certain items, the MFN tariff was reduced after the FTAs went into effect, resulting in
an inversion phenomenon where MFN tariff rates get lower than FTA tariff rates.
--------------------------------------------------------------------------------------------------------6. The (2006) share of intermediate goods imported into China (excluding food and fuel, and based on the
UN Comtrade classification,) to the total imports into China comes to 63.1% in terms of imports from theASEAN region, while it comes to only 55.5% in terms of imports from the whole world.

126

---------------------------------------------------------------------------------------------------------

Column II-1
◎ Level of MFN Tariff in Major ASEAN Countries (on an Item Basis)
In ASEAN countries, tariffs are generally reduced under FTAs, as well as on a basisof MFN, for the purpose of enhancing their industrial competitiveness and further tariffs
on an increasing number of items is eliminated.
The simple MFN tariff rate average and the ratio of tariff-eliminated items to theentire items in 2004 and 2007 reveal that tariffs are generally reduced and thetariff-eliminated items are expanding their share in major ASEAN countries.
Table 1 Average MFN Tariff Rate & Share of Tariff-free Items in Major ASEANCountries (2004)

Country

Total
Number of
Items

Simple MFN Tariff-free Items (MFN）
Tariff Rate
Average Number of Items Share （％）

Thailand

9,211

20.6

323

3.5

Indonesia

11,165

9.8

2,333

20.9

Malaysia

10,395

10.0

5,930

57.0

Philippines

11,059

7.5

393

3.6

Singapore

10,7050.0

10,705100.0

Vietnam

10,689

18.5

3,078

28.8

(Note) Average MFN tariff rate is calculated excluding items subject to specific duty. For items
subject to either specific or ad valorem duties; ad valorem duty is selected.
(Source) "Consolidated CEPT Package 2004" (ASEAN); for Thailand and Malaysia,"Consolidated CEPT Package 2003"

127

Table 2 Average MFN Tariff Rate & Share of Tariff-free Items in Major ASEANCountries (2007)
Total
Simple MFN Tariff-free Items (MFN）
Numberof
Tariff Rate
Country
Items
Average Number of Items Share （%）

Thailand

5,931

11.7

313

5.3

Indonesia

8,745

7.8

2,088

23.9

Malaysia

12,593

9.7

6,158

48.9

Philippines

11,490

7.8

483

4.2

Singapore

10,7050.0

10,69999.9

Vietnam

10,689

18.5

3,078

28.8

（Note） Average MFN tariff rate is calculated excluding items subject to specific duty. For items
subject to either specific or ad valorem duties; ad valorem duty is selected.
（Source） "Consolidated CEPT Package 2007" (ASEAN)

In Singapore, the simple MFN tariff rate average comes to 0% while tariff-eliminateditems account for 99.9% of the total items, evidencing that tariffs on almost all items
has been eliminated in that country. (Only some alcoholic products are subject to tariff.)
Malaysia shows a tariff-elimination ratio of 50% while the rate comes to 20% inIndonesia. Vietnam has the tariff-elimination ratio of 30% but its simple MFN tariff rate
average still remains at a high level. The tariff-elimination ratio remains at 4.2% in thePhilippines and at 5.3% in Thailand. The simple MFN tariff rate average in Thailand
comes to 11.7%, which is higher than the rate in Malaysia, Indonesia and thePhilippines, but it shows a sharp decrease in recent years.

Under the FTA between ASEAN and China, however, tariffs for items classified as
Normal Track will be lowered to 5% or lower in January 2009, and by 2010, tariffs on
Normal Track items will be eliminated with the exception of a few items (maximum of
150 items, until 2012). As there is an accumulation of Japanese firms in China and theASEAN countries, further utilization of FTA between ASEAN and China is expected in
the future.
According to the aforementioned questionnaire survey conducted by JETRO, only alimited number of Japanese firms currently utilize the FTA between ASEAN and China
128

even though they maintain production sites widely spread in both of the two regions.
However the FTA between ASEAN and China ranked high as a FTA they are planningto utilize, which suggests that the Japanese firms put their expectations on the gradualtariff reductions to be made in the future.
In East Asia, development of logistics infrastructure is in progress, which includes
the East-West Economic Corridor (linking Myanmar, Thailand, Laos and Vietnam),Southern Economic Corridor (linking Thailand, Cambodia and Vietnam) andSouth-North Economic Corridor (linking Thailand and China.) (7) Among China and theASEAN countries, service link costs (8) in both of the tariff and logistics areas havestarted to get lower, which is expected to lead to further activation of trade.
--------------------------------------------------------------------------------------------------------7. In the East-West Economic Corridor, the second international bridge over the Mekong River wascompleted at the end of 2006, contributing to improved efficiency in road transportation.
8. Service link cost refers to necessary costs to link remote production sites.

---------------------------------------------------------------------------------------------------------



FTAs utilized in imports into Thailand
According to the statistics released by the Thai government, the value of imports into
Thailand from AFTA utilizing FTAs in 2007 is 3.1 billion dollars or 10.4% of the total
imports from signatory countries. Its ratio to the dutiable imports, which is calculated by
reducing the value of tariff-free imports from the total imports, comes to 20.5% (Table
II-15). The value of imports utilizing the FTA between ASEAN and China is at thelevel of 400 million dollars with the ratios of 2.2% to the total imports and 3.7% to thedutiable imports, respectively.
In terms of actual items, FTAs are used mainly for coal, automotive parts and textiles
in imports from AFTA and fruit and other foods in imports from China.
Concerning imports into Thailand from other ASEAN countries and China, tariff
reduction and elimination systems other than FTAs seem to be widely used. Suchsystems include export processing zones, in-bond systems, etc. which allow, as part ofpreferential treatments accorded to foreign investments, reduction or elimination oftariffs on raw materials and components to be used in export commodities.


Thailand-Australia, Thailand-New Zealand, and Thailand-India FTAs
Together with Singapore, Thailand has bilateral FTAs with Australia, New Zealandand India in effect, in addition to the intra-regional FTAs in East Asia.
FTAs are still widely used in Thailand’s exports to Australia and India. Japanese129affiliates accumulated in Thailand seem to be among the most active users of the FTAs.
In 2007, exports utilizing the FTA between Thailand and Australia amounted to 4.1
billion dollars and accounted for 66.2% of total exports from Thailand to Australia.
Over the period from 2005 when the FTA went into effect to 2007, the exports utilizing
the Thailand-Australia FTA have recorded an average annual growth rate of 38.4%.
According to the Ministry of Commerce of Thailand, the FTA is being used for items
such as automobiles (including pick-up trucks), air conditioners and components,
seafood and jewelry. With automotive industries accumulated in Thailand, the surge inautomotive exports from Thailand to Australia is particularly noteworthy. Thailand’s
share of passenger car imports to Australia rose by 7.4 points from 1.1% in 2004 (before
the FTA went into effect) to 8.5% in 2007, and similarly, Thailand’s share ofcommercial car imports to Australia rose by 10.9 points from 25.3% to 36.3%.
On the other hand, Japan’s share of automotive imports to Australia during the same
period substantially decreased by 13.6 points in passenger cars and by 16.2 points incommercial cars, suggesting the imports from Japan were replaced by those fromThailand (Table II-16). Thanks to expanded automotive exports to Australia, Thailand’s
share of total imports to Australia rose from 2.7% in 2004 to 4.2% in 2007. In imports
to Thailand, imports from Australia utilizing the FTA amounts to 400 million dollars,accounting for 10.6% in total imports and 31.4% in dutiable imports to Thailand from
Australia, respectively (Table II-15). In terms of actual items, the FTA is being usedmainly for primary products including zinc ore, malt, aluminum plate and wool. In
imports to Thailand, imports from New Zealand utilizing the FTA amount to 200
million dollars, accounting for 34.8% in total imports and 44.4% in dutiable imports toThailand from New Zealand respectively. New Zealand’s share of total imports toThailand remains unchanged at 0.3% in 2004 (before the FTA went into effect) and2007. The FTA is being used in importing primary products or food, including
milk/cream, malt extract, wood, meat/fish, fruits and cheese.
Since the Thailand-India FTA went into effect in September 2004 covering only theelimination of the tariff for the 82 Early Harvest items, it has been widely used by
Japanese affiliates. Thailand’s exports to India utilizing the FTA only amounts to 400
million dollars and is relatively small compared to exports utilizing FTAs to the
ASEAN countries, China and Australia. However, this value accounted for 14.0% of all
Thai exports to India, and among exports in the 82 items, it accounted for 98.1% ofexports, meaning that the majority of Thai exports utilized the FTA (Table II-13). In
terms of actual items, most notably, the FTA is used in Thai exports to India of CRTs
for TVs, electrical appliances such as air conditioners and petrochemical products such130

as polycarbonates and epoxy resins (Table II-17).
In Thai imports from India, on the other hand, imports utilizing the FTA amount to34.76 million dollars, accounting for 1.6% of total imports and 3.3% of dutiable imports
to Thailand (Table II-15). In terms of actual items, the FTA is used mainly for
automotive parts, including gear boxes.
Thailand and India are currently negotiating the tariff for items other than the Early
Harvest items, and the scope of items covered by the FTA is expected to be expanded in
the future. In addition, an FTA is being negotiated between ASEAN and India, andtrade between the two countries will be activated when such agreements are realized.
Japanese affiliates enjoy broad merits of the Thailand-Australia and Thailand-India
FTAs. In the Asia-Pacific region, discussions are being made on the scheme to form an
FTA covering expanded regions of the ASEAN+6. The expanded-regional FTA,
including India, Australia and New Zealand, is anticipated by Japanese affiliates for its
possible comprehensive effects.


ASEAN-ROK FTA
The FTA between ASEAN and the ROK came into effect in June 2007. However, theagreement has not gone into effect yet between Thailand and the ROK as problems overa part of the items to be covered still remains unsolved. Utilization of the FTA can be
confirmed only through the statistics released by Malaysia, according to which
Malaysia’s exports to the ROK utilizing the FTA amounts to 400 million dollars andaccount for 11.1% of the total exports to the ROK. In Malaysia’s imports from the ROK,
the FTA is used for rubber, textile products, boilers and electric machinery (according
to the Ministry of International Trade and Industry of Malaysia).
The ASEAN-ROK FTA comprises the items for gradual tariff elimination, Sensitive
Track and the items for immediate tariff elimination. Among the ROK and the original
ASEAN member countries, the tariffs on the Normal Track items will be reduced to
between 0% and 5% in 2009 and will be eliminated in 2010, as in the case of theASEAN-China FTA. Accordingly, the FTA is expected to be increasingly utilized in the
future.


Major FTAs in the Asia-Pacific region advancing toward the elimination oftariffs by 2010
The course seems to be set for “ASEAN+1” as the ASEAN-centered FTA network
covering the Asia-Pacific region. The ASEAN-China FTA went into effect in July 2003,
and the ASEAN-ROK FTA went into effect in June 2007, while the ASEAN-Japan
131

FTA is expected to go into effect in 2008. Furthermore, agreements are expected in2008 for the negotiations for the ASEAN-Australia-New Zealand and the ASEAN-India
FTAs, which have entered their final stages (Table II-18). However, the ASEAN-India
FTA does not allow for optimism, as the target date for agreement has been postponedseveral times in the past due to slow progress in negotiations over certain items to be
included in the Sensitive List.
Tariffs on almost all items under AFTA will be eliminated among the original
members by 2010, and the ASEAN-China and the ASEAN-ROK FTAs are planning toeliminate tariffs on a majority of products between China, the ROK and the original
ASEAN members by 2010. In the Asia-Pacific region, FTA networks are increasing
rapidly, while their utilization is also expanding at a gradual pace. In the Asia-Pacificregions, where Japanese affiliates have set up extensive production networks, thebarriers posed by tariffs are being eliminated in further expanded areas. In the areas
covered by the ASEAN-China FTA, where direct investments by Japanese companies
have been accumulated, the scheduled elimination of tariffs may possibly cause major
impact to business activities, and the firms will have the growing need to keep the FTA
in mind when they run their business.
It is imaginable that expanding domestic demand in East Asia, where an increasingly
attractive consumer market is being created, will lead to expanded utilization of FTAs in
the future. Up to now, Japanese companies have considered the ASEAN countries andChina as export bases, but East Asia is forming an attractive consumer market alongwith the rise of its middle-class population. As the domestic demand grows, Japaneseaffiliates are the need to have “production bases for domestic demand”, in addition to“production bases for exports” they have already have. According to the “2007 Surveyof Japanese Affiliated firms in ASEAN and India”, the percentage of export-oriented
companies with export/sales ratio of 70% or more to total Japanese affiliates in 2007
has decreased in comparison to the percentage in 2002 in the majority of the ASEAN
countries (Figure II-5). Out of the six ASEAN member countries, the ratio ofexport-oriented enterprises decreased from 58.7% in 2002 to 49.8% in 2007. Whiletariff reduction or elimination system other than FTAs, including export processing
zones and in-bond systems, are applicable to parts and intermediate goods for export
products, and such systems will not be available for sales to satisfy domestic demand.
Accordingly, the growing domestic demand in the ASEAN countries and China is
expected to lead to expanded utilization of FTAs in the future.

(3) Major FTAs outside the Asia-Pacific region and status of their utilization132

Mentioned below is status of FTA utilization under the major FTAs outside theAsia-Pacific region.
ROK-Chile FTA
The ROK-Chile FTA came into effect in April 2004 as the first FTA for the ROK.
According to the Korean government, 96% of the tariffs in the two countries are
expected to be eliminated eventually under the FTA. The ROK’s share of the total
imports to Chile rose from 3.0% in 2003 (before the FTA went into effect) to 7.2% in2007 and the ratio of imports from Chile to total imports to the ROK rose from 0.6% to1.2% respectively.
In exports from the ROK to Chile, the FTA seems to be utilized for automobiles. The
ROK’s share of the passenger car imports to Chile rose from 16.1% to 29.3%, making
the ROK the top import trading partner for Chile ahead of Japan in 2007. (Total value ofimported passenger cars increased from 700 million dollars to 1.7 billion dollars.) The
ROK’s share of the commercial car imports to Chile also rose from 6.3% to 9.1%.
(Total value of imported commercial cars increased from 400 million dollars to 1.4
billion dollars.) While passenger and commercial cars imported to Chile from othercountries are subject to the MFN tariff of 6%, tariff on the cars imported from the ROK
has been reduced or eliminated. Although cars imported from the ROK enjoyed tariffadvantages in competition with cars imported from Japan, the Japan-Chile FTA went
into effect in September 2007 to eliminate the tariff on Japanese passenger andcommercial car imports to Chile and the competitive conditions between the twocountries have been made even. Chile has eliminated tariffs on passenger andcommercial cars imported from the EU and the U.S. under the FTA concluded withthose countries.
In the ROK’s imports from Chile, noteworthy increase has been made in food, which
includes wine (subject to MFN tariff of 15% while tariff on imports from Chile is set at2.5% as of 2008), kiwi fruits (MNF tariff 45%, tariff on imports from Chile at 24.5%)
and grapes (MFN tariff 45%, tariff on imports from Chile at 24.5%).

US-Australia FTA
Since the US-Australia FTA went into effect in January 2005, no remarkable change
has been made in trade between the two countries. Although the U.S. eliminated thetariffs on commercial cars (25% or 4% on a basis of MFN), Australian commercial cars
imported to the U.S. have not made any remarkable expansion in their share.
Remarkable increase has been made in lamb imported to the U.S. from Australia.
133

Since the tariffs (MFN tariff set at $0.007 or $0.028 per kg) were eliminated under the
US-Australia FTA, Australia’s share of the US lamb imports rose from 61.7% in 2004
to 72.5% in 2007.

(4) Issues surrounding FTAs
 Rule of origin
In order to utilize FTAs for trade in goods, a certificate of origin proving that the
goods are the products of countries signatory to FTAs is required. Currently,
discussions are being made on: (1) criteria to determine origin; (2) intermediary trade;and (3) operational certification procedures.
The criteria for certifying origin are divided into two general types: wholly obtained
criterion (fruits and other products obtained within the country concerned) andsubstantial transformation criterion (criterion applicable to products in which production
in more than two different countries are involved). In the substantial transformation
criteria, one of the following criteria is generally applied: change in tariff classification
criterion alone, value-added content criterion alone, manufacturing process criterion
alone, a choice of criteria type allowing the choice to be of either value added or change
in tariff classification, and a dual criteria type requiring both to be of value added andchange in tariff classification. It is also common that in a single FTA, different criteria
are used depending upon the items. In recent years, a remarkable number of FTAs
concluded in the Asia-Pacific region have adopted either the criterion allowing a choiceof criteria or the change in tariff classification criterion alone. In the ASEAN-ROK,
Japan-Malaysia and Japan-Thailand FTAs, the criterion allowing a choice has been
adopted for majority of products. The AFTA, which has utilized the criterion ofvalue-added content criterion alone (40%), is now under the policy of shifting to thecriterion allowing a choice of criteria. (9) In the Australia-New Zealand FTA, change intariff classification criterion was introduced in 2007, while the previously adopted
value-added content criterion remains applicable up to 2012.
--------------------------------------------------------------------------------------------------------9. In the 20th AFTA Council held in 2007, it was agreed on to shift the rules of origin adopted in the AFTA
to the “criterion allowing a choice”, and new rules are expected to be introduced in the future.

---------------------------------------------------------------------------------------------------------In FTAs concluded by India, a dual criteria type requiring both to be of value added
and change in tariff classification has been generally adopted, and some of thecompanies utilizing FTAs complain of difficulties in usage, including increasing
134

business administration costs. They generally prefer the choice of criteria, which is themost flexible of all.
Issues involved in intermediary trade include re-invoicing in any FTAs and the
back-to-back in the FTAs involving three or more signatories, which is sometimes
accepted and sometimes not accepted depending on FTAs. Re-invoicing is acommercial flow in which invoices are issued from a home office or regional
headquarters in a third country other than the origin while certificates of origin areissued in the country of origin and goods are shipped direct from the country of origin
to the country of destination. The back-to-back certificate is a system where goods andthe certificate of origin, in addition to re-invoicing, are shipped through a third country,
and the signatory in the third country issues back-to-back certificates of origin based on
the certificates of origin issued by the country of production (signatory). In the
ASEAN-ROK FTA and FTAs entered into by Japan, the Operational Certification
Procedures (OCP) attached thereto generally stipulates that re-invoicing andback-to-back certificates are both acceptable. In the ASEAN-China FTA, on the other
hand, such a stipulation is not made in the agreement and re-invoicing and back-to-backcertificates are accepted by some countries and not accepted by others, depending upon
the different interpretations made by the customs authorities of the respective signatory
countries. Strong demands are being expressed that these two systems, which havealready become a common form of business transaction, should be accepted in FTAs.


Procedures of origin certification
Active discussions are being made recently in Japan on procedures of origin
certification. The procedures globally adopted are of three general types: (1) third party
certification; (2) certification by approved exporters; and (3) self-certification byexporters. Besides these, there exists a system that may be called “approved products”,
in use even though only in a limited number of cases (Table II-19).
A third party certification is a system in which an exporter provides a third-party
organization (government or designated agency) with information to prove that its
export products satisfy rules of origin and the third-party organization, upon judgmentof the origin of such products, issues a certificate of origin. The certificate of origin isissued by a third-party organization for each export. The FTAs concluded by Japan up
to the present all adopt third party certification, and Chamber of Commerce andIndustries has been nominated the issuing organization. third party certification is
widely adopted in the FTAs concluded in the East Asian region.
Self-certification by exporters is a system introduced in the FTAs entered into by the135

U.S. and others, where all exporters certify the origin of their products on their own
responsibility. The documents certifying that the rules of origin requirements have beensatisfied are issued by the exporters themselves. This self-certification system istypically applied to in NAFTA and the US-Australia FTA, as well as in the US-ROK
FTA, which is signed but not in effect yet. Among the FTAs in the Asia-Pacific region,
the New Zealand-Thailand and the New-Zealand-Singapore FTAs have adopted theself-certification system.
The approved exporter is a system in which the self-certification system or more
simplified methods of application are made available to exporters authorized by thegovernment or designated authorities. Exporters other than those approved by thegovernment or designated authorities are required to apply for judgment of origin
through a third-party organization. This system is commonly adopted in the FTAs
concluded by the EU and EFTA.
In the Australia-Singapore FTA, only the first export of a product requires
certification by a third-party organization while the subsequent exports of the same
product in the following two years only are exempted from the certificate of origin
issued by a third-party organization, which can be replaced by self-certification byexporters. Since the fulfillment of rules of origin requirements is judged for each item,
not for an exporter, and the certificate of origin for each export is not required for adesignated period thereafter, this may be called a system of certified products.
By rough classification, it may be said that the system of third party certification ismainly used in East Asia, the system of self-certification in the Americas and the systemof approved exporter in Europe, respectively.
Although the system of self-certification seems more flexible than the other two
systems in view of an application for certification from a third-party organization madeunnecessary, it may be pointed out that the system does not decrease the work load ofconfirmation of origin performed by exporters and that it leaves the related costs
unchanged. Cost reduction is possible only in the clerical works related to application
procedures with third-party organizations. In the self-certification system, companies
are commonly required to retain their origin certification documents for a fixed period(three to five years.) The system also requires the companies to develop internal
structures to ensure compliance, connoting the possibility that they will face unexpectedrisks if their structures are not properly operated. In the U.S. where self-certification is
introduced, a huge fine may be imposed on companies when they are found responsible
for false declarations.
On the other hand, companies utilizing FTAs express their expectation that the136self-certification system will lead to a decrease in lead time, on top of a reduction ofclerical costs related to application procedures. Along with a speed up in logistics,
time-sensitive items, including IT components, are often shipped by airfreight. Under
the third-party certification system in which original certificates of origin are requiredby customs authorities for clearance of the products, it sometimes happens that thecertificate of origin arrives at the airport of destination later than the products andadditional costs such as storage for bonded warehouse space and clerical expenses
related to refunds of customs duty will be incurred. This kind of situation may be
avoided under the self-certification system, which can contribute to reduced lead time
for the products with only a minimal transit time allowed for transportation.
The certification by approved exporters, a combination of the aforementioned twosystems, may be found well-balanced for the companies utilizing FTAs as it makes theself-certification available to certain certified companies including those that make alarge number of export shipments.
Criteria for certified exporters differ from country to country. In Mexico, for instance,
criterion for a certified exporter in the EU-Mexico FTA requires: (1) to export morethan 200,000 dollars of products in a year; (2) to export fresh foods; or (3) to export
handiwork.
The situation that MFN tariffs lower than FTA tariffs
When an FTA is utilized, a situation where MFN tariff rates get lower than FTA tariff
rates sometimes happens when the signatories reduce the MFN tariff rates after the FTA
goes into effect. The situation has happened in some of the FTAs entered into by Japan,
as well as in the ASEAN-China FTA. This can be caused in any FTA adopting the“base rate method” in which tariff rates are reduced gradually from the tariff rates in
effect in a particular year set as base rates. The situation is more likely to happen in
FTAs with developing countries where the MFN tariff rates between the signatories
remain at a high level and leave a large room for tariff reduction.
The “margin of preference method” has been adopted in some other FTAs, including
the Singapore-India FTA, Mercosur and the Mercosur-Chile FTA, where tariff
reduction is defined in percentages instead of rates in the agreement documents and thepercentages of reduction are applied to the MFN rates effective on the day ofimportation. Accordingly, the situation where MFN tariff rates get lower than FTA
tariff rates cannot happen in this method. However, the margin of preference method
connotes a risk that tariffs applicable on the day of importation and accordingly thetariff agreed in an FTA will be raised when a signatory raises the MFN rates to the137extent permitted by GATT. (In and after the year when the percentage of reduction hasreached 100% and the tariff has been eliminated, the tariff will be free even if the MFN
rates are raised.) Consequently, the margin of preference method is preferable in termsof avoiding the situation while the base rate method predominates in terms ofpredictability.
In the FTAs covering substantially all the commodities under Article 24 of GATT,
eventually the situation will gradually disappear for the majority of the items as thetariff on those items will be eliminated in a fixed period of time.

Column II-2
◎ Trade relationships in the Asian region getting closer
The ratio of intra-regional trade (two-way trade) to total trade in the Asia-Pacificregion (ASEAN+6) reached 43.8% in 2007, rising by 3.5 points from 40.3% in 1999
(Table 1). The ratio generally rose in the regions of AFTA, ASEAN+Japan,
ASEAN+China and ASEAN+India, showing that the trade relationships within theseregions are getting even closer. On the other hand, the intra-regional trade ratio in
NAFTA is 41% on a downward trend these few years. The ratio of 65.8% in the EU27 ishigher than those in NAFTA and the Asia-Pacific region and remains on a steady trend
in recent years.
In terms of industry, the Asia-Pacific region is characterized by the fact that the
intra-regional trade ratio remains high in IT products showing not much change between
2000 and 2006, while the ratio is on an upward trend in transport equipment, as well as
in chemicals (Table 2). As for IT products, tariffs on many items have been eliminatedunder the ITA (Information Technology Agreement), while cross-border production
networks were being built up in Asia over a long period of time. To the rising
intra-regional trade ratio in transport equipment, on the other hand, contributions areapparently made by the fact that, among the high tariff barriers imposed by all countries,
tariff rates have been reduced through AFTA and other frameworks in recent years andthat construction of the cross-border production network has been rapidly moved
forward in the Asian region as typically demonstrated by the IMVNote (Note) project ofToyota Motors. (Note) The intra-regional trade ratio in transport equipment in the Asian
region seems to leave plenty of room for continued improvement in the future as it
Note IMV is an abbreviation of Innovative International Multi-purpose Vehicle. This project of Toyota Motors isaiming at building the optimum production and supply system on a global scale for pick-up trucks and multi-purpose
vehicles.

138remains at a considerably low level compared to the rate in NAFTA and the EU15,
while the areas other than AFTA still maintain high tariff barriers, which are scheduled
to be reduced gradually in many of the FTAs already in effect.
On the other hand, the intra-regional trade ratio in the EU15 remains high in every
category of industry, but the ratio shows a steady or slightly downward trend comparedto the level in 2000. The ratio in NAFTA also remains high, but it shows a downward
trend in general and, particularly, in IT products and transport equipment.

139

Table 1

Intra-regional trade within major regions of the world (two-way trade)(Unit: %)Two way
tradesExportImport

1999

2000

2005

2006

2007

-

40.3

42.0

44.2

43.4

43.8

33.0

40.4

39.0

40.6

43.1

42.6

43.1

29.2

28.6

37.0

35.4

37.4

39.2

38.4

38.8

15.9

17.9

17.0

21.1

21.8

22.7

24.9

25.6

25.6

ASEAN + China

14.9

15.9

15.8

19.2

19.2

20.1

20.8

21.2

21.5

ASEAN + India

15.1

16.8

16.5

20.8

21.4

22.3

23.9

24.6

24.4

ASEAN + Japan

23.4

19.9

21.7

27.5

24.8

26.4

26.0

25.9

26.2

North America NAFTA

33.2

38.3

37.2

42.0

46.8

46.8

42.9

42.0

41.0

Europe

EU27

57.5

58.4

65.4

65.4

66.8

65.1

65.0

65.5

65.8

Asia

ASEAN+6

33.2

31.3

31.0

38.3

34.8

36.9

39.4

38.5

39.1

ASEAN+3

28.9

26.4

26.8

34.9

31.0

33.7

35.1

34.0

34.4

ASEAN

17.3

18.6

18.9

24.5

21.7

23.0

25.3

25.0

24.9

ASEAN + China

15.9

17.3

16.5

20.9

18.4

19.5

19.3

19.0

19.3

ASEAN + India

17.0

18.2

18.4

24.1

21.8

22.9

25.3

24.8

24.9

ASEAN + Japan

23.3

17.4

20.4

26.6

22.7

24.7

25.2

24.8

24.8

North America NAFTA

33.6

43.9

41.4

46.2

54.6

55.7

55.4

53.8

50.6

Europe

EU27

61.3

59.2

66.9

66.4

68.7

67.7

67.4

67.7

67.7

Asia

ASEAN+6

33.3

36.9

35.2

42.6

44.0

44.8

47.1

47.1

47.4

ASEAN+3

29.0

32.3

30.6

39.3

40.9

41.8

43.7

43.5

43.8

ASEAN

14.4

17.2

15.2

18.1

21.8

22.5

24.3

26.4

26.3

ASEAN + China

13.9

14.6

15.1

17.5

20.2

20.8

22.4

23.8

24.1

ASEAN + India

13.2

15.4

14.9

17.9

20.9

21.6

22.4

24.4

24.0

ASEAN + Japan

23.5

23.1

23.2

28.6

27.4

28.4

26.9

27.2

27.8

North America NAFTA

32.8

34.4

33.9

38.4

41.1

40.5

34.9

34.3

34.5

Europe

54.2

57.6

64.0

64.4

65.0

62.5

62.6

63.3

64.0

Asia

1980

1985

1990

1995

ASEAN+6 (adjusted for re-exports)

-

-

-

ASEAN+6

33.3

34.0

ASEAN+3

29.0

ASEAN

EU27

(Note) (1) ASEAN+6 is comprised of the ASEAN countries plus Japan, China, ROK, Australia, New Zealand and India.
(2) ASEAN+3 is comprised of the ASEAN countries plus Japan, China and ROK.
(3) The share of intra-regional trade was calculated by (Value of intra-regional exports + Value of intra-regional imports) / (Value of exports to the world +Value of imports from the world) x 100.
(4) In terms of ASEAN +6 (adjusted for re-exports), adjustments to the estimations of intra-regional exports were made by excluding re-exports as duplicate
postings, using the estimation method below:<Adjustments to Singapore, one of the ASEAN+6 countries)(1) Exports of Singapore origin to the World = Total value of exports to the world – Value of re-exports to the world(2) Exports of Singapore origin to ASEAN+6 = Total value of exports to ASEAN+6 – Value of re-exports to ASEAN+6(3) Imports of Singapore from the World = Total value of imports from the World – Value of re-imports from the World(4) Imports of Singapore from ASEAN+6 (estimate) = Value of imports from ASEAN+6 ×((Value of imports from the world - Value of re-exports to theWorld) / Value of imports from the world)<Adjustments to Hong Kong, one of the non-ASEAN+6 countries>
In addition to the amount of intra-regional exports of the ASEAN +6, calculated using the above procedures, the following adjustments were made:(1) Value of re-exports from ASEAN+6 to ASEAN+6 via Hong Kong is added.
(2) Of the above re-exports, those that have been re-exported from China to China via Hong Kong have been excluded (since they are considered to be
domestic Chinese trade).
(Source) “Direction of Trade Statistics” May 2008 (IMF)140

Table 2

Ratio of intra-regional trade by industry(Unit: %)Asia-Pacific
ASEAN52000

NAFTA

ASEAN5+6

2006

2000

2006

2000

EU15

2006

2000

2006

Information
technology

28.1

27.9

42.2

42.3

41.4

37.2

57.9

55.8

Transport equipment

13.9

22.6

20.4

24.2

62.3

55.0

66.9

64.6

General machinery

24.6

26.2

38.5

39.8

41.3

39.9

59.6

55.8

Chemicals

24.8

25.0

40.3

44.8

44.4

40.5

67.3

66.5

Steel

21.1

24.8

51.1

51.8

55.5

47.8

72.2

67.8

Textiles

10.6

10.7

40.3

35.1

38.5

26.9

57.2

53.5

(Note) (1) ASEAN5 includes Thailand, Malaysia, Indonesia, the Philippines and Singapore. ASEAN5+6 includes
Japan, China, ROK, India, Australia and New Zealand.
(2) Due to statistical constraints, the EU covers EU15, not EU27.
(Source) Trade statistics of the respective countries.

141

Table II-4

Japan’s FTAs: In effect, signed, being negotiated(Unit: %)Share of tariff-free items(trade amount basis)

Share of Japanese trade (2007)
FTA

Date/Status
ExportIn effect

SignedImportTwo-way

Trading partnercountry / region

Japan

November 2002, revised March 2007

3.1

1.1

2.2

100

94.7

MexicoApril 2005

1.4

0.5

1.0

98.4

86.8

Malaysia

July 2006

2.1

2.8

2.4

99.3

94.1

Chile

September 2007

0.2

1.3

0.7

99.8

90.5

ThailandNovember 2007

3.6

2.9

3.3

97.4

91.6

Indonesia

July 2008

1.3

4.2

2.6

89.7

93.2

BruneiJuly 2008

0.02

0.4

0.2

99.9

99.99

Subtotal

11.7

13.3

12.4

-

-

96.6

91.6

Singapore

Philippines

ASEAN
GCC (Gulf Cooperation
Being
negotiated Council)
Vietnam
India
Australia
Switzerland
South Korea (ROK)

Signed September 2006

1.3

1.4

1.4

Signed April 2008
Governments in negotiation since
September 2006
Governments in negotiation since
January 2007
Governments in negotiation since
January 2007
Governments in negotiation sinceApril 2007
Governments in negotiation since May
2007
Negotiation suspended sinceNovember 2004

12.2

13.9

13.0 Approx. 90 Approx. 93

3.0

16.0

9.0

-

-

0.8

1.0

0.9

-

-

0.9

0.7

0.8

-

-

2.0

5.0

3.4

-

-

0.4

0.8

0.6

-

-

7.6

4.4

6.1

-

-

27.7

42.6

34.6

-

-

Total
(Note)(1) The tariff-free quota rate refers to the share of total value of trade of categories for which tariffs have been immediately abolished and categories for which tariffs will
be abolished in stages within 10 years to the total value of trade.
(2) Tariff-free quota rates represent the share of 2005 for trade with Singapore, the share of 2002 for trade with Mexico, the share of 2004 for Japan and the share of 2003
for Malaysia for trade with Malaysia, the share of 2005 for trade with Chile, the share of 2004 for Japan and the share of 2003 for Thailand for trade with Thailand, theshare of 2003 for trade with the Philippines, the share of 2005 for trade with Brunei, the share from May 2004 to April 2005 for trade with Indonesia and the share fortrading partner countries/regions of ASEAN represents the share for ASEAN6.
(Source) Trade Statistics of Japan, Ministry of Foreign Affairs, METI, “2008 Report on Compliance by Major Trading Partners with Trade Agreements” (METI)

Table II-5 FTAs utilizing preferential tariffs of major FTAs in effect in Japan and
the Asia-Pacific region
FTA

Share %
(n=87)

N um berJapan-Thailand

31

35.6

Japan-M alaysia

31

35.6

A SEA N Free Trade Area (AFTA)

25

28.7

Japan-M exico

25

28.7

Japan-C hile

11

12.6

Thailand-India

8

9.2

Thailand-A ustralia

7

8.0Japan-Singapore

55.7

C hina-A SEA N

55.7（Source） "Survey on International O perations of Japanese Firms (FY 2007)"(JETR O )142

Table II-6 FTAs planning to utilize major FTAs in effect in Japan and theAsia-Pacific region
FTA

NumberShare % (n=114)

Japan-Thailand

66

57.9

ASEAN Free Trade Area (AFTA)

31

27.2

China-ASEAN

27

23.7

Japan-Malaysia

23

20.2

Thailand-India

21

18.4

Japan-Chile

10

8.8

Japan-Singapore

10

8.8

South Korea (ROK)-ASEAN

8

7.0

China-Hong Kong

8

7.0

Japan-Mexico

6

5.3

Thailand-Australia

4

3.5（Source） "Survey on International Operations of Japanese Firms (FY2007)"(JETRO)

Table II-7 Status of utilization of the preferential tariffs of the FTAs in effect in
the Asia-Pacific region
Parameter(Number ofcompanies that
responded)

Number ofcompanies
utilizing
preferential
tariffs (%)

55

29.1

24

20.8

Electric machinery

46

19.6

Chemicals

46

17.4

Other manufacturing

35

17.1

Food and beverages

62

14.5

Ceramics/earth & stones

14

14.3

Textile, fabric/apparel

24

12.5

General machinery

81

12.3

Medicine and cosmetics

20

10.0

Trading & wholesale
Information and communication machinery and equipment,
electronic components & devices
Steel, non-ferrous metal, metal products

167

7.2

43

4.7

47

4.3

Precision equipment

30

3.3

Automobile, automotive parts, other transportationequipment
Coal and petroleum products, plastic products, rubber
products（Note） The respondent firms are not necessarily limited to those engaged in trading.
（Source） "Survey on International Operations of Japanese Firms (FY2007)" (JETRO)

143

Table II-8

Automobile Sales of Japanese Automobile Manufacturers and status of

Passenger Car Imports in Mexico

Imports

Number of vehicles sold locally

FY 2004
Japanese firms with production base in
MexicoJapanese firms without production basein Mexico

FY 2005(Unit: Number of vehicles, %)FTA quota
FY 2007(FY 2007)

FY 2006

299,043

324,605354,256

352,797

45,2700

1,634

13,04025,322

11,574

Mazda

0

771

7,495

16,604

5,505

Suzuki

0

762

4,413

5,700

4,092

Isuzu

0

101

824

2,077

1,221

Fuji Heavy Industries

0

0

308

703

400

Hino Motors

0

0

0

238

356

299,043

326,138

326,472

378,119

56,844

1,095,733

1,131,768

1,139,718

1,099,866-

Market share of Japanese firms

27.3

28.8

28.6

34.4

-

Value of imports from Japan

754

1,074

1,249

1,535

-

Total value of imports

6,942

8,270

9,400

9,596

-

Market share of Japanese firms among
passenger car imports

10.9

13.0

13.3

16.0

-

Total Japanese firms
Total number of passenger cars sold in
Mexico(Note) (1) The HS Code for passenger cars is 8703.
(2) The FTA quota is for April through March.
(Sources) Mexican Ministry of the Economy, AMIA (Mexican Automotive Industry Association), ANPACT (National Associationof the Manufacturers of Busses, Trucks and Tractor Trailers of Mexico), and the Trade Statistics of Mexico.

Table II-9 Value of exports from Thailand and Malaysia to Japan utilizing FTAs
Exportingcountry
Thailand(Unit: US$ million, %)November-December
2007

Item
Value of exports to Japan utilizing FTA (FOB basis)

642

Value of Japanese imports from Thailand utilizing FTA (CIF
basis, estimated)

706

Value of Japanese dutiable imports from Thailand (CIF basis)

1,112

Share to the value of total dutiable imports (estimated)

63.4
2007

Malaysia

Value of exports to Japan utilizing FTA (FOB basis)

1,949

Value of Japanese imports from Malaysia utilizing FTA (CIF
basis, estimated)

2,144

Value of Japanese dutiable imports from Malaysia (CIF basis)

4,822

Share to the value of total dutiable imports (estimated)

44.5（Note）（1） The values of Japanese imports from Thailand and Malaysia utilizing FTA are the estimated figures derived
by converting the value of exports to Japan utilizing FTA (FOB basis) of the respective countries into a
CIF-basis value by adding 10% thereof (with insurance premium and freight assumed to be equivalent to
10% of the FOB value).
(2) Based on Japan's Tariff Schedule from April 2008 and Trade Statistics from 2007; the value of dutiable
items has been calculated by deducting the value of such items as classified free in the WTO rate columnof the Customs Tariff Schedule. Practically, as there are other items classified free under the Temporary
and EPA Tariff rates or imported tariff free in limited quantities under the import quota system, the actual
value of the dutiable imports is assumed to be less than the figure given above.
(Source) Thailand Ministry of Commerce, Malaysia Ministry of International Trade and Industry, trade statistics ofThailand and Malaysia, and the Tariff Schedule of Japan

144

Table II-10 FTAs in effect in the Asia-Pacific (ASEAN+6) region
FTA
Date, Status
Australia-New ZealandJanuary 1983
Laos-Thailand
June 1991
ASEAN Free Trade Area (AFTA) January 1992 (start of tariff reduction January 1993)
Singapore-New ZealandJanuary 2001
Japan-Singapore
November 2002
Singapore Australia
July 2003
ASEAN-China
July 2003
January 2004 (EH for agricultural and fisheries
products)
July 2005 (start of tariff reduction for nonagricultural products)
Thailand-India
September 2004 (start of Early Harvest)
Thailand-Australia
January 2005
Thailand-New Zealand
July 2005
Singapore-India
August 2005
Singapore-ROK
March 2006
Japan-Malaysia
July 2006
ASEAN-South Korea (ROK)
June 2007
Japan-Thailand
November 2007
Japan-Indonesia
July 2008
Japan-Brunei
July 2008(Source) WTO, governments

Table II-13 Utilization of FTAs in Thailand and Malaysia(Units: Millions of dollars, %)Total value of exports utilizing FTA

Share to the total exports

Trading partner country/region
2005
Thailand

Malaysia

ASEAN (excluding Singapore)

2007

2005

2006

2007

4,942

5,299

7,609

30.0

28.2

30.9

China

614

1,450

1,769

6.7

12.3

11.1

India

267

328

399

17.6

18.1

14.0

(82 items of the Early Harvest Scheme)

267

328

399

79.0

89.1

98.1

Australia

2,122

2,746

4,067

67.3

62.6

66.2

ASEAN (excluding Singapore)

2,731

2,898

3,736

18.5

18.4

19.1

274

1,043

1,629

2.9

8.9

10.0

-

-

403

-

-

11.1

7,673

8,197

11,345

24.6

22.8

25.7

888

2,493

3,398

4.8

10.6

10.8

8,561

10,69014,743

17.2

18.0

19.5

China
South Korea (ROK)
Total

2006

ASEAN (excluding Singapore)
China
China-ASEAN (excluding Singapore)(Note) (1) The share to the total exports is the value of exports utilizing CEPT/total value of exports.Total value of exports includes items
eliminated on a MFN basis by the exporting trading partner.
(2) Malaysia’s trade figures with ROK are based on June to December 2007 results.
(Source) Malaysia Ministry of International Trade and Industry, Thailand Ministry of Commerce, and trade statistics of Thailand andMalaysia.

145

Table II-11 Share of trade between countries with FTAs in effect, signed andunder negotiation of the amount of total intra-regional trade in the Asia-Pacific(ASEAN+6) region (2007)(Unit: %)Importingcountry
Esportingcountry

SouthJapan China Korea
(ROK)

Japan

-

8.1

4.0

ThailandIndonesia

1.9

0.7

Malaysia Philippines

1.1

0.7

Singapore

BruneiVietnam

Cambodia

Laos

Myanmar

India

Australia

New
Zealand

Total

1.6

0.0

0.4

0.0

0.0

0.0

0.4

1.0

0.2

20.0

Trade with Share of trade
countries with with countries
FTAs in effect with FTAs in
effect(exports)

5.2

26.0

China

7.5

-

4.1

0.9

0.9

1.3

0.5

2.2

0.0

0.8

0.1

0.0

0.1

1.7

1.3

0.2

21.6

6.8

31.6

South Korea
（ROK)

1.8

6.8

-

0.4

0.4

0.5

0.3

0.9

0.0

0.3

0.0

0.0

0.0

0.4

0.4

0.1

12.3

2.4

19.7

Thailand

1.3

1.1

0.2

-

0.3

0.6

0.2

0.7

0.0

0.3

0.1

0.1

0.1

0.2

0.4

0.0

5.7

5.5

96.2

Indonesia

1.7

0.8

0.6

0.3

-

0.4

0.1

1.0

0.0

0.1

0.0

0.0

0.0

0.3

0.3

0.1

5.6

5.0

88.4

Malaysia

1.2

1.1

0.5

0.6

0.4

-

0.2

1.9

0.0

0.2

0.0

0.0

0.0

0.4

0.4

0.1

7.1

6.1

86.7

Philippines

0.6

1.4

0.1

0.1

0.0

0.2

-

0.4

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

3.0

2.3

78.5

Singapore

1.1

2.1

0.8

0.9

2.2

2.8

0.4

-

0.1

0.5

0.0

0.0

0.1

0.7

0.8

0.1

12.6

12.6

100.0

Brunei

0.2

0.0

0.1

0.0

0.1

0.0

0.0

0.0

-

-

0.0

0.0

0.0

0.0

0.1

0.0

0.5

0.4

86.6

Vietnam

0.4

0.2

0.1

0.1

0.1

0.1

0.1

0.1

-

-

0.0

0.0

0.0

0.0

0.2

0.0

1.4

0.8

53.8

Cambodia

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

-

0.0

0.0

0.0

0.0

0.0

0.0

0.0

69.5

Laos

0.0

0.0

0.0

0.0

0.0

0.0

-

0.0

0.0

0.0

0.0

-

-

0.0

0.0

0.0

0.1

0.1

97.3

Myanmar

0.0

0.0

0.0

0.2

0.0

0.0

0.0

0.0

0.0

0.0

0.0

-

-

0.0

0.0

0.0

0.3

0.2

74.7

India

0.3

0.9

0.3

0.1

0.2

0.1

0.0

0.4

0.0

0.1

0.0

0.0

0.0

-

0.1

0.0

2.5

0.5

21.1

Australia

1.9

1.5

0.8

0.3

0.2

0.2

0.1

0.2

0.0

0.1

0.0

0.0

0.0

0.6

-

0.5

6.5

1.1

16.2
49.5

New Zealand

0.2

0.1

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.4

-

1.0

0.5

Total

18.1

24.2

11.6

5.8

5.6

7.3

2.7

9.4

0.1

2.7

0.3

0.1

0.3

5.0

5.5

1.3

100.0

49.5

5.4

6.8

2.2

5.4

5.1

7.0

1.8

9.4

0.1

2.2

0.2

0.1

0.3

0.9

1.7

0.7

49.5

30.0

28.2

18.8

93.8

91.9

95.1

68.8

100.0

95.4

79.7

95.0

96.5

91.5

18.7

30.5

56.2

Trade withcountries with
FTAs in effect(imports)
Share of trade withcountries with
FTAs in effect(Note) (1) The light-colored shading indicates trade between countries with FTAs in effect, the dark-colored shading indicates trade between countries with FTAs that are signed (not in effect),
and the half-tone shading indicates trade between countries with FTAs under negotiation.
(2) The share represents each country’s / region’s value of trade with countries that have FTAs in effect of the total value of exports and imports to the ASEAN+6 region.
(3) The Thailand-ROK portion alone of the ASEAN-ROK FTA has not gone into effect. Includes the trade amount between India and Thailand, which only covers items under the Early
Harvest Scheme (82 items). FTA negotiations between Japan and ROK have been suspended.
(4) The Singapore-New Zealand FTA is part of the Trans-Pacific FTA (Brunei, New Zealand, Chile and Singapore).
(Source) “DOT May 2008” (IMF)146

Table II-12 Total value of exports utilizing AFTA (CEPT) and CEPT utilization
rates in Thailand and Malaysia(Units: Millions of dollars, %)Trading partnercountry/region
Total forThailand andMalaysia

Total value of exports utilizing CEPT
1998

2005

2006

2007

Vietnam

7

632

1,343

1,763

2,772

0.8

30.3

38.3

36.3

43.2

Philippines

179

748

1,333

1,529

1,928

9.3

24.9

33.2

32.0

34.1

Indonesia

99

913

2,468

2,231

3,530

5.0

20.6

33.9

30.1

34.3

Malaysia

212

801

1,270

1,363

1,850

11.9

20.7

22.4

20.5

22.1

Thailand

91

594

1,227

1,270

1,206

3.9

13.0

16.2

14.9

13.8

Brunei

0

2

5

14

15

0.1

0.7

1.3

3.3

3.0

Singapore

17

247

393

382

445

0.1

1.1

1.3

1.2

1.2

Laos

0

4

22

23

30

0.0

0.9

2.8

2.3

2.1

Myanmar

0

2

6

4

13

0.0

0.4

0.6

0.4

1.0

Cambodia

Thailand

Malaysia

2003

Share to the total exports
1998

2003

2005

2006

2007

0

0

1

1

1

0.0

0.0

0.1

0.1

0.1

Total

606

3,942

8,066

8,580

11,789

2.2

9.3

13.3

12.4

14.7

Total (excluding Singapore)

589

3,696

7,673

8,198

11,345

5.6

18.4

24.6

22.8

25.7

Total

391

2,561

5,146

5,509

7,865

4.0

15.5

21.5

20.2

22.5

Total (excluding Singapore)

383

2,454

4,942

5,299

7,609

7.4

23.0

30.0

28.2

30.9

Total

214

1,382

2,921

3,071

3,924

1.2

5.3

7.9

7.3

8.7

Total (excluding Singapore)

206

1,242

2,731

2,898

3,736

3.8

13.2

18.5

16.9

19.1

(Note)The share to the total exports is the value of exports utilizing CEPT/total value of exports.Total value of exports includes items for whichtariffs have been eliminated on a MFN basis by the exporting trading partner.
(Source) Malaysia Ministry of International Trade and Industry, Thailand Ministry of Commerce and trade statistics of Thailand and Malaysia

Table II-14 Share of ACFTA countries and area to agricultural and fisheryimports of major ACFTA signatories(Unit: US$ million, %)Before FTA (2003)
Total Import

Import fromACFTA Country& areaThailand

1,547

121

Malaysia

1,332

Indonesia
Philippines
China

After FTA (2007)
Total Import

Import fromACFTA Country& Area

7.8

2,768

304

11.0

197

14.8

2,348

457

19.5

724

142

19.6

2,015

386

19.1

647

29

4.4

1,044

84

8.1

4,090

567

13.9

7,821

1,418

18.1

Share

Share

(Note) (1) Agricultural and fishery products subject to Early Harvest are those under HS01to 08.
(2) Thailand, Malaysia, Indonesia and Philippines are shown in ratio to imports from China, andshown in ratio to imports from ASEAN countries.
(Source) Trade statistics of the respective countries

147

Table II-15 Status of FTA utilization in Thailand (imports)(Unit: US$ million, %)Trading partner country/region

2007

3,053
Value of imports utilizing ASEAN
China
379
FTA
India
35
Australia
437
New Zealand
156
Total
4,060
ASEAN
20.5
Ratio of the value of
3.7
imports utilizing FTA to China
3.3
the value of total dutiable India
Australia
31.4
imports
New Zealand
44.4
Total
14.5
(Note) Value of dutiable imports has been derived by calculating trade value of theitems listed in the MFN Tariff Schedule from 2007 and by deducting the samethe value of total imports.
(Source) Thailand Ministry of Commerce and trade statistics of Thailand

Table II-16 Trends in Australian imports of passenger and commercial cars
(Unit: Millions of dollars, %)2004
Passenger
cars

2005

2006

2007

Share change
compared to 2004

Total value of imports

8,141

9,268

9,482

11,651

-

Share

Japan

58.9

55.1

49.6

45.3

△ 13.6

Germany

13.4

10.5

10.3

10.6

△ 2.8

South Korea
(ROK)

5.9

7.5

10.0

9.8

3.9

Thailand

1.1

2.2

4.8

8.5

7.4

Commercial
Total value of imports
cars

2,556

3,040

3,343

4,596

-

Share

Thailand

25.3

38.1

32.0

36.3

10.9

Japan

43.8

29.9

28.3

27.6

△ 16.2

US

15.0

13.1

21.3

14.1

△ 0.9

103,686

118,610

132,778

157,887

-

2,767

3,663

4,723

6,630

-

2.7

3.1

3.6

4.2

-

Total value of imports
Value of imports fromThailand
Share of Thai
imports to total(Source) Australian trade statistics

148

Table II-17 Major items by value of trade among the 82 Thailand-India Early
Harvest categories(Unit: Millions of dollars, %)Items
Exports

Imports

2003

2004

2005

2006

Annual average growthrate 2004–2007

2007

Polycarbonates

11

17

112

52

115

90.6

Air conditioners

9

8

16

28

37

69.4

CRTs for TVs

0

5

21

32

32

88.9

Epoxy resins

3

5

11

16

27

73.5

Total exports

639

905

1,519

1,815

2,853

46.6

Gear boxes

0

4

30

40

36

103.0

Total imports

877

1,138

1,275

1,625

2,236

25.2

△ 239

△ 233

244

190

617

-

Balance of trade(Note) Gear boxes until 2006 were HS code 2002-8708.40. From 2007, a portion of 8797.99 has been incorporated
in 8708.40.

Table II-18 Status of AFTA and ASEAN+1: In effect and under negotiation(Unit: Millions of dollars, %)

FTA

AFTA

Value of trade

Share of Asia-Pacific(ASEAN+6) intraregional trade

StatusStarted tariff reduction since January 1993. The
original members of ASEAN (Thailand, Malaysia,
Indonesia, Philippines, Singapore and Brunei) havealready eliminated tariffs of 80% of all items.

Year of tariff elimination2010 (Original members of
ASEAN)
2015 (CLMV)

220,203

16.1

China

186,121

Went into effect in July 2003.
EH scheme covering agricultural and fisheries product 2010 (Original members of
ASEAN)(HS01-08) started in January 2004.
13.6
2016 (Vietnam)
Non-agricultural and fisheries products and other2018 (CLM)
agricultural and fisheries products in July 2005,
started reduction of tariff.

South Korea(ROK)

70,487

5.2 Went into effect in June 2007.

Japan

173,595

Agreement at East Asia Summit in November 2007.
12.7 Each country completes signature in April 2008.
Expected to go into effect in 2008.

–

India

36,713

2.7 Under negotiation.

–

Australia
New Zealand

53,602

3.9 Under negotiation.

–

ASEAN

2010 (Original members of
ASEAN)
2015 (CLMV)(Note) The year of tariff elimination refers to the year in which the tariffs of items classified as Normal Track are eliminated.
(Source) Each agreement and statistics from each government

149

Fig. II-5 Ratio of Export-oriented Companies (with export percentage of over70%) to Japanese Manufacturing Companies
58.7

Total ASEAN

49.8
45.0

Thailand

33.3
62.6

Malaysia

47.9
54.5

Singapore

63.3
55.0

Indonesia

39.7
79.9

Philippines

71.4
66.7

Vietnam

51.9
0

10

20

30

40

50

FY2007

60

70

80

90

FY2002(Note) FY stands for fiscal year beginning from April 1 to March 31.
(Source) "2007 Survey of Japanese Affiliated firms in ASEAN and India(2002)" and "Business Status of Japanese Affiliates in Asia (2007)"

Table II-19

Classification of operational certification procedures.

Classification

Outline of System

Examples of Applicable FTA

Third-party certification system

Japan-Singapore, Japan-Mexico, JapanAn exporter provides a third-party organization
Malaysia, Japan-Thailand, Japan-Chile,(government or designated agency) withinformation to prove that its export products satisfy AFTA, ASEAN-China, ASEAN-ROK,
Singapore-India, etc.
rules of origin and the third-party organization,
upon judgment of the origin of such products,
issues a certificate of origin.

Hybrid type Approved products system(Third-party certification in
the initial stage followed byinvoice declaration for ali it d exporteri d)Approved
systemFor all exporters, a third-party organization will
certify origins of the products at the first time ofexportation. In a limited period thereafter,
certificates of origin for individual exports are notd
The iself-certification
system and other more
simplified methods of application are madeavailable to exporters authorized by thegovernment or designated authorities. Other
exporters than those approved by the government
or designated authorities are required to apply for
judgment of origin by a third-party organization.

Self-certification system

All exporters certify origins of their products on
their own responsibility.

Singapore-Australia

EU・EFTA (excluding Switzerland), EUMexico, EU-Chile, EFTA-Mexico, EFTAChile

NAFTA、US-Australia, US-Singapore,
Trans-Pacific, Singapore-New Zealand,
Mexico-Chile, Thailand-New Zealand, USROK (not in effect yet), etc.

(Note) Trans-Pacific is joined by Singapore, Brunei, New Zealand and Chile.
(Source) The websites of the respective countries and the "2008 Report on the WTO Inconsistency of Trade Policies by Major Trading Partners".

150

3. Increasing importance of comprehensive FTAs: current status andutilization status of the liberalization of investments, services andgovernment procurement(1) Continued importance of lowering tariffs
The past WTO rounds resulted in significant tariff reductions for the countries (Table
II-6). These countries are still battling with one another for further tariff reduction on
agricultural, mining and industrial products in the current new rounds.
High tariff levels in developing countries and the importance of reducing hightariffs in major countries
The tariffs in major industrialized countries, including Japan, the U.S. and theEuropean countries, have been reduced to significantly lower levels. However, there arestill a number of developing countries that maintain high tariff levels (Table II-7). The
average applied tariff rates (by item) in India and Brazil in 2007 come to 14.5% and12.2%, respectively, and remain at high levels compared with the rate of 3.5% of the
U.S. and 5.2% of Japan. India and Brazil, being members of BRIC, attract global
attention as the most promising developing countries and high hopes are held for theirtariff reduction.
Some industrialized countries maintain high tariff levels on some items, including
trucks in the U.S. (with a maximum of 25%) and electrical appliances in the EU (with amaximum of 14%). High tariff rates are permitted legally to the extent that they do not
exceed the bound rates of the WTO, but in view of free trade, it is preferable that they
be reduced to a lower level.
Industrialized countries concluding FTAs must satisfy Article 24 of the GATT, which
obliges them to eliminate substantially all tariffs. For this reason, Europe and the U.S.
are demanding higher levels of liberalizations in the FTAs with developing countries.
Moreover, FTAs can be effective in eliminating the high tariffs of the industrializedcountries. The US-ROK FTA has been successfully reducing or eliminating the US’s
high tariff on trucks (25%) and the ROK’s high tariffs on agricultural products (atalmost 49%), vehicles (10%) and pharmaceuticals (8%).

Increasing demands for the reduction of non-tariff measures and businessbarriers
Trade barriers are not limited to tariffs. Amid the global trend of falling tariffs, thenon-tariff measures (NTM) of each country are drawing considerable attentions.
In the definitions of the United Nations Conference on Trade and Development
151

(UNCTAD), NTMs are classified into: (1) quantitative restrictions, including importlicenses and tariff quotas; (2) technical restrictions, including labeling requirements andquality inspections; and (3) price regulations, including control of exports and importprices. These restrictions are maintained in a large number of countries for purposes
other than trade restrictions, such as product safety and procedures necessary foradministration, for example, but problems will arise when they are too restrictive forinternational trade.
In the “2007 JETRO White Paper on International Trade and Foreign Direct
Investment”, the economic effects of tariff reduction and non-tariff barrier reduction in
ASEAN+6 was estimated. If these countries had mutually eliminated tariffs andremoved half of their NTM, Japan’s GDP would have been increased by another 1%,
while the increasing effect would have been limited to 0.05% if only the NTM had been
eliminated. These figures show the importance of eliminating NTMs.
For companies engaged in international operations, it is imperative to reduce costs
incurred as a result of domestic regulations on services necessary for business activities
including finances and logistics, as well as of inadequate infrastructure, in addition to
direct trade costs such as tariffs and NTMs. The WTO has the “General Agreement on
Trade in Services (GATS)”, “Trade-Related Investment Measures (TRIM)” and otheragreements that can affect domestic regulations. However, the covenants under GATS
are definitive and the application of TRIM is limited to prohibition of local content andtrade-balancing requirements. On top of these, the WTO has in effect the “Agreement
on Government Procurement (GPA)” to facilitate national treatment in government
procurement of each country, as well as efficiency and transparency in the related
procedures, but the multilateral agreement has been signed by only 13 countries andregions.
It is also significant that countries, as a means to supplement the deregulatory anddisciplinary measures on the various agreements of the WTO, use FTAs to influence
their trading partners in terms of their tariffs and NTMs, as well as measures relating toinvestments, services, government procurements and other factors that pose barriers to
the conducting of their business.

(2) Investments and services through FTAs and status of their utilization



Expanding world trade in services and FDIs
World trade in services and FDIs continues to expand in the same manner as trade ingoods. The value of world trade in services amounted to 3,257.3 billion dollars in 2007
and accounted for 6.0% of the world GDP, representing a rise of 2.6 points from 3.4%
152

in 1990 (Figure II-8). Trade in services is divided into four modes. In terms of theshare of the respective modes in world trade in services, the WTO estimates that Mode1 (cross-border trade) accounts for 35%, Mode 2 (consumption abroad) accounts for
10% to 15%, Mode 3 (commercial presence) accounts for around 50% and Mode 4(presence of natural persons) accounts for 1% to 2%, respectively. (10) Modes 3 and 1
constitute the major part of trade in services. (11) Mode 3 is the mode in which
companies provide services to overseas consumers through business bases establishedacross the border, and this means the services are provided through direct investments.
--------------------------------------------------------------------------------------------------------10. Based on “International Trade Statistics 2005” (WTO)
11. Mode 1 (cross-border trade) is the mode in which a supplier in their country provides services to a
consumer in their country and covers the services provided through telephone, etc. Mode 2 (consumption
abroad) covers services provided by a supplier in their country to a consumer visiting such country, andthis includes overseas tours. Mode 3 (commercial presence) covers services provided by a supplier to a
consumer in the consumer’s country through a commercial base established in the consumer’s country.
Mode 4 (presence of natural person) covers services provided to a consumer by a supplier visiting theconsumer’s country, and this includes concerts given by foreign artists, etc.

---------------------------------------------------------------------------------------------------------

World FDI, which includes direct investments in the manufacturing industry, as wellas in the service industry, entered a correction phase when the IT bubble collapsed in
2001. However, it has been growing continuously since 2004 to reach 2,107,4 billion
dollars in 2007, which accounted for 3.9% of the world GDP.
For trade in services and FDI in Japan, imports have been exceeding exports, leaving
the balance in the red. However, the exports are growing at a rate higher than that ofimports, and the degree of deficit is getting smaller year by year.
As a result of expanding overseas operations by Japanese firms, Japan’s outward FDI
stock has also increased to 546.8 billion dollars as of the end of 2007, marking a
twofold increase from 258.7 billion dollars, as of the end of 1996 (Figure II-9). Profit(return) from FDI has been increasing commensurate with the accumulation of FDI
stock. Japanese firms looking for new profit-earning opportunities are highly motivated
to expand their business to overseas markets, including emerging market economies.
Japan’s balance of income, which represents the revenue earned from the country’s
entire overseas assets, including FDI and portfolio investment, has been exceeding thetrade balance for three consecutive years since 2005.
FTAs and investment treaties to exercise discipline in advance
153

The framework for protection of trade in services and FDI and revitalization throughliberalization is provided by the WTO through such agreements as the General
Agreement on Trade in Services (GATS) and Trade-Related Investment Measures(TRIM), as well as the Services and Investment Chapters of the FTAs and investment
treaties. The sustained growth of world trade in services and FDI has meant greater
significance for the disciplinary framework over trade in services and FDIs.
GATS disciplines trade in services by granting “most favored nation” status as well as
market access and national treatment. However, the areas of the most favored nation
status that have been reserved in the annex are not covered by the agreement, while only
the areas of market access and national treatment that have been promised in a positive
list method are covered by the agreement.
TRIM, as indicated by its name, regulates only the investment measures related to
trade. Practically, the agreement expressly prohibits each signatory country fromdemanding local content, demanding balance between exports and imports, restricting
access to foreign exchange and exercising export control. Disciplines related to otherinvestment rules and liberalization of investment have been slated for further
negotiations, such as the Singapore Issues by the WTO, but no progress is being madeas talks at the Doha Round have stalled because of their failure to agree to startnegotiations.
While investment rules are partly disciplined through Mode 3 of GATS and by TRIM
in the WTO, no comprehensive framework for the rules has been built up yet. In thesecircumstances, bilateral and some multilateral investment rule-making are being
undertaken preemptively through FTAs and investment treaties. (12) According to the“2008 Report on the WTO Inconsistency of Trade Policies by Major Trading Partners”(13), the investment chapters of FTAs and investment treaties are classified into two
kinds of treaties. One is the “investment protection treaty” which defines national andmost-favored nation treatments for post-establishment, expropriation and compensation,
fair and equitable treatment and the settlement of disputes between investors and states.
The other is the “investment protection and liberalization treaty” which covers, besides
the investment protection rules, national treatment for pre-establishment, most-favorednation treatment for pre-establishment and prohibition of performance requirements.
The investment protection treaty is, as suggested by its name, meant to provide elements
of insurance to investors while the investment liberalization treaty is to contribute torevitalization of FDIs through improvement of predictability and liberalization at theinvestment permission stage. In the areas related to investment protection, particularattention has been drawn to the regulations on dispute settlements between investors154

and states, in recent years. These regulations are designed to form a comprehensive
prior agreement between the investor and the state that dispute over expropriation andcompensation or breach of fair and equitable treatment, if any, and may be referred toarbitration by the ICSID (International Center for Settlement of Investment Disputes)
and the UNCITRAL (United Nations Commission on International Trade Law). In
Japan, increased attention is being paid to the regulations since Nomura Securities Co.
substantially won in the Saluka Case (a case of arbitration by Nomura against the Czech
Republic government based on the bilateral investment treaty between the Netherlands
and Czech Republic [BIT] (14)). The Saluka Case is known as the first instance in which
a Japanese affiliate has utilized the articles on investor-to-state dispute settlement.
--------------------------------------------------------------------------------------------------------12. As a framework to discipline multilateral investment rules, the “Energy Charter,” which came into
effect in 1998 and is currently signed by 53 countries and organizations, disciplines investments in thearea of energy.
13. Refer to the “2008 Report on the WTO Inconsistency of Trade Policies by Major Trading Partners”(Ministry of Economy, Trade and Industry) for GATS, TRIM, Services and Investment Chapters of theFTAs and investment treaties.
14. According to UNCTAD (United Nations Conference on Trade and Development), 2,573 BITs
(excluding FTAs, including investment chapters) have been concluded in the world (as of the end of2006). In terms of a country, Germany (with 134 treaties), China (with 120 treaties) and Switzerland (with114 treaties) are among the top-rankers. (Per “Recent developments in international investment
agreements <2006-June 2007>” <UNCTAD>)---------------------------------------------------------------------------------------------------------

Among the FTAs including liberalization of investment, NAFTA is known as the
typical example. The majority of the FTAs currently concluded in the Asia-Pacificregion are classified as investment protection and liberalization treaties.
In Japan, a rapidly increasing number of comprehensive economic partnershipagreements, including investment chapters (EPA) and investment agreements, have beenconcluded in recent years. Out of the 21 FTAs, including the investment treaty andinvestment chapter Japan has already concluded, 20 FTAs have already gone into effect.
The ratio of outward FDI stock covered by investment treaties and investment chaptersof the FTAs to Japan’s outward FDI stock in the 11 countries where FDI stock statistics
are available comes to 22.4% on the basis of the investment treaties and FTAs signed
and in effect, and to 21.3% on the basis of those in effect (10 countries) (Table II-20).
As the Japanese government has announced a policy to be actively engaged ininvestment treaties, as well as in FTAs, from the viewpoint of assisting Japanese firms
155

in their overseas business development, the investment treaty network is expected to befurther expanded in the future.



Examples of liberalization of investments and services in NAFTA
FTAs and investment treaties containing WTO-plus contents are particularly
significant, especially when we consider what little progress has been made by the
WTO negotiations on investments.
FTAs and investment treaties mainly consist of binding contents of existing
regulations (15), and contain only limited contents in terms of liberalization exceeding
existing regulations at the investment permission stage. Binding contents of existing
regulations are significant as they contribute to improve predictability of the firms ofsignatory countries conducting business activities in the partner’s country. However,liberalization exceeding existing regulations, including restrictions on foreign
investments, is expected to further revitalize investments.
--------------------------------------------------------------------------------------------------------15. Binding contents of existing regulations commit in principle not to make revisions exceeding theexisting regulations, which contributes to improved predictability of firms.

---------------------------------------------------------------------------------------------------------

Hereunder, with a focus placed on liberalization exceeding existing regulations, anoutline of liberalization through the major FTAs already concluded and examples ofbusiness utilizing such liberalization will be discussed.
The first subject of discussion is the liberalization on foreign investment policies by
Mexico under NAFTA, which is known as a typical example of an FTA, including
liberalization exceeding existing regulations. In conjunction with the measures toliberalize investments and trade in services based on NAFTA, Mexico has revised theforeign investment law on an MFN basis to provide the treatment granted to the U.S.
and Canada to the EU and Japan outside of NAFTA.
Areas in which the measures included in NAFTA has led to the relaxation of theforeign investment law in general are: (1) cable television (liberalized on January 1,
1999); (2) advanced and value-added telecommunication (liberalized on July 1, 1975);(3) construction (liberalized on January 1, 1999); (4) automobile parts (liberalized on
January 1, 1999); (5) operation of bus and truck terminals (completely liberalized on
January 1, 2004); (6) international bus and truck transportation (completely liberalizedon January 1, 2004); and (7) commercial banks (liberalized on January 19, 1999).
Since foreign investment policies were liberalized to all countries following theliberalization under NAFTA, liberalization in the area of investments and trade in156

services did not become a major subject in the negotiations of the EU-Mexico andJapan-Mexico FTAs conducted afterwards.
In the area of finance industry, however, special measures exist for countries thathave signed FTAs with Mexico, based not on the provisions of foreign investment laws
but on the provisions of the financial institution laws, etc. and these special measures
have major significance to negotiations of FTAs with Mexico. In the Mexico’s domestic
laws related to financial institutions, such as the Financial Institutions Law andInsurance Institutions Law, there exist provisions concerning the establishment offoreign financial institution’s subsidiary in Mexico (Chapter III of the Financial
Institutions Law and Chapter I BIS of the Insurance Institutions Law). They define
foreign financial institutions authorized to establish subsidiaries in Mexico as “financial
institutions established in countries that have concluded an international treaty or
agreement with Mexico that permits the mutual establishment of financial subsidiaries.”
Even after 1999, when restrictions on foreign equity participation in commercial banks
were eliminated, a foreign bank newly entering the Mexican domestic market in theform of a subsidiary, not through acquisition of an existing bank, was required to be an
enterprise of the country signatory to NAFTA. As the service agreement of the
EU-Mexico FTA went into effect in March 2001, it became possible for European banks
to operate in Mexico. The first European financial institution to be established after the
FTA went into effect was Credit Suisse First Boston Bank, which received a banking
license in July 2002.
As the Japan-Mexico FTA, which went into effect in April 2005, includes a chapter
concerning “financial services”, it may be interpreted that Japanese banks are allowed tooperate in Mexico in and after April 2005. Under the provisions of the InsuranceInstitutions Law, it is possible for a Japanese insurance firm to operate in Mexico as a
subsidiary of an insurance firm of the country that has entered into an FTA with Mexico.
One Japanese commercial bank and two Japanese insurance firms have established theirlocal corporations in Mexico in the form of 100%-owned subsidiaries of their U.S.
corporations utilizing the provisions of NAFTA.
NAFTA provisions concerning cross-border truck transportation between US
and Mexico and disputes over their application
While Mexican trucks have been allowed to operate in the U.S. only inside thecommercial zone within 20 miles (approximately 32 kilometers) from the border since
1982, NAFTA stipulates the liberalization of cross-border truck transportation between
the U.S. and Mexico in stages. According to the US schedule on specific commitment of157

NAFTA, it is stipulated that trucking service from Mexico to the U.S. Border States will
be permitted effective from 1997 and cross-border truck transport to all areas of the U.S.
effective from 2000.
While the liberalization was deferred in consideration for labor union and otheropposition forces under the Clinton administration, the Bush administration issued an
enforcement order in November 2002 when the related bills were passed by the US
congress. As the Teamsters Union (US labor union for truck drivers) and citizens’
groups, including environment protection organizations, demanded an emergency
moratorium on the enforcement order, issue of the total liberalization was referred to
judicial judgment. In January 2003, U.S. District Court made a decision to order the U.S.
Department of Transportation to conduct an environmental impact assessment once
again, and the federal government, dissatisfied with the judgment appealed to the U.S.
Supreme Court, which delivered in June 2004 a judgment to permit the liberalization
without conducting another round of environmental impact assessments. However, theliberalization was delayed in implementation as the two countries failed to reach an
agreement on the procedures to ensure security.
On February 22, 2007, the two governments finally agreed to commence a pilot
program for mutual access for truck transportation, in which only a total of 100 trucking
companies from the two countries will be granted access to the other country for safety
confirmation in the first year. If no problems are found in the period, trucking
operations between the U.S. and Mexico will be gradually liberalized to permit up to
100 selected trucking companies from each country, up to 25 a month, to attain afull-scale liberalization on a mutual basis.
The Federal Motor Carrier Safety Administration (FMCSA) reports that, as ofDecember 2007, a total of 55 trucks from 10 Mexican trucking companies have been
deemed to have met the US requirements and have been granted permission toparticipate in the program, while a total of 41 trucks from four US trucking companies
have been given access to Mexico from the Mexican government.


Examples of liberalization of investments in Australia through the
US-Australia FTA
Liberalization of investments exceeding existing regulations is included in the
US-Australia FTA (which came into effect in January 2005). Australia’s foreign
investment policies are characterized by the fact that, although in certain limited areas:(1) FDIs on a scale exceeding a fixed limit or in designated sectors are subject to priorapproval by Foreign Investment Review Board (FIRB); and (2) “national interest158

clauses (16)” are included, by which the Treasurer is authorized to turn down anapplication for investment when it is judged to be against the national interest of thecountry. (17)--------------------------------------------------------------------------------------------------------16. For example, the national interest clauses were used in 2001 by the Treasurer when he turned down
the application filed by Royal Dutch Shell in an attempt to acquire Woodside Petroleum, one of the majorenergy firms in Australia.
17. For Australia’s policies on FDIs, refer to the website at http://www.firb.gov.au/content/default.asp.

---------------------------------------------------------------------------------------------------------

In more concrete terms, prior approval by the Foreign Investment Review Board(FIRB) is required in the following events under the Foreign Acquisitions andTakeovers Act (FATA) 1975: (1) establishment of new firms involving a total
investment of A$10 million or more; (2) acquisition of Australian firms with total assets
of A$100 million or more; (3) acquisition of offshore firms with assets of A$200 million
or more in Australia; (4) investment of 5% or more in media firms; (5) all direct
investments by foreign governments or their agencies; (6) acquisition of interest in realestate in certain regions and certain areas; and (7) proposals where any doubts exist.
In addition, industry-wise restrictions are applied to the sectors of banking, airservices, airport management, shipping, media and telecommunications. Acquisition ofexisting Australian banks by foreign firms is subject to prior approval. In the sector of
air services, investments of up to 100% may be made in domestic carriers to the extent
not to hurt the national interest while investments in international carriers are limited to49% (investments in Qantas Airways are limited to 25% for individual investors and to
35% for foreign air carriers). Furthermore, investments in airports are limited to 49%(5% for air carriers). Investments in Telstra (a telecommunications company, 17% of
which is invested in by the Australian government) are limited to 35% for foreign
investors and to 5% for individual investors.
In the US-Australia FTA, the prior approval requirements have been madeinapplicable, in principle, to US companies, excluding the U.S. government and theiragencies, when they establish a new firm, as defined in (1) above, in Australia. With the
exception of acquisition by the U.S. government and their agencies and in somesensitive sectors, the prior approval threshold for acquisition of an Australian firm, as
defined in (2) above, has been raised from A$100 million on an MFN basis to A$913
million (as of 2008, and the amount is automatically raised according to the yearly GDP
deflator). As to the acquisition of foreign firms as defined in (3) above, the priorapproval threshold has been raised similarly to A$913 million. Partly loosened159requirements are being applied to U.S. firms with respect to acquisition of interest
referred to in (6) above. In terms of industry-sector restrictions, acquisition ofAustralian banks by U.S. firms has been made not subject to prior approval.
As a result of liberalization of investments exceeding existing restrictions defined in
the US-Australia FTA, U.S. firms are granted improved market access at the investment
permission stage, when compared with firms from other countries. Although there
seems to be no instances in which an application of investment filed by a Japanese firmhas been turned down under the Australia’s prior approval system, U.S. corporations
under the US-Australia FTA are granted more favorable conditions in investments thanthose given to Japanese counterparts.


Examples of liberalization of investments in Thailand
Partial liberalization of investments in Thailand has been incorporated into theThai-Australian FTA. In Thailand, business activities of foreigners are controlled by theForeign Business Act, which defines that the following three categories of industries
should be subject to government control and manages them by way of negative lists: (1)businesses where business operations of foreigners are not permitted (List 1); (2)businesses that may affect national security, art and culture, traditional and folk
handicraft, natural resources and environment (List 2); and (3) businesses in which Thainationals are not yet ready to compete with foreigners (List 3). Article 4 of the Act
defines “foreigners” as: (1) a natural person not having a Thai nationality; (2) a juristic
entity that is not registered in Thailand; (3) a juristic entity incorporated in Thailand
with a majority of the total number of shares or registered capital owned by foreigners
as defined in items (1) or (2) of this paragraph, and a Limited-partnership or ordinary
registered partnership managed or jointly managed by foreigners as defined in item (1)of this paragraph; and (4) a juristic entity incorporated in Thailand with a majority ofthe total number of shares or registered capital owned by any foreigners as defined in
items (1), (2) and (3) of this paragraph. (18)--------------------------------------------------------------------------------------------------------18. Under Thai legislation, a firm is defined foreign so long as the majority of its shares are owned by“foreigners.” In practical investments in restricted industries, however, there seem to be cases in whichsuch majority of shares are allotted to Thai partners of a joint venture in preferred share (preferred individend and residual assets but limited in voting rights, when compared with common share) in order for
the foreign investor to retain a majority on a basis of voting rights. Accordingly, it is possible for a foreign
enterprise to secure a majority of voting rights (substantially secure management authority) in a Thai firmof the restricted industry. In these circumstances, a bill to amend the Foreign Business Act and to define160

“foreigners” on a basis of voting rights was approved in the cabinet meeting (Surayud’s caretaker cabinet
subsequent to the military coup d’état) in January 2007. The amendment bill was rejected in August 2007
by Thai congress due to a proposal to define a foreigner in a more rigid manner. (JETRO Daily by JETRO,
dated August 10, 2007)---------------------------------------------------------------------------------------------------------

Included in the List 1 are agriculture, forestry and fisheries, as well as newspapers,
radio and television broadcasts, while List 2 includes weaponry, domestic transportation,
sericulture, sugar and salt production, and mining. Retail and wholesale services,
construction services, engineering services and advertising services, all of which arehighly interesting to foreign firms, are included in List 3. While foreign investments ofless than 50%, which will allow the invested firms not to be defined foreign, arepermitted in all of the restricted industries, foreign investments of 50% or more are notpermitted in the industries included in List 1. Foreign investments of up to 60% or 75%
are allowed in the industries included in List 2 subject to permission from the Ministerof Commerce under an approval by the cabinet, while similar investments of up to
100% are allowed in the industries included in List 3 subject to permission by the Chiefof Bureau under an approval by the Foreign Business Committee. In practicaloperations, investments of 50% or more by foreign firms are hardly permitted in theindustries included in Lists 1 and 2, while such investments are sometimes permitted in
the industries included in List 3.
While foreign investments in Thai industries are restricted as mentioned above, arelaxation of foreign equity-cap restrictions has been incorporated into theThailand-Australia FTA in addition to the binding contents of the existing regulations.
In more practical terms, Australian firms are allowed to make investments of up to 60%
in the mining industry, while investments in the area on a basis of MFN are limited toless than 50%. Similar favorable treatments are provided to consulting services(shareholding of less than 50% on a MFN basis expanded to up to 100% in the FTA),
construction services (shareholding of up to 100% allowed), retail and wholesale
services of firms manufacturing in Thailand (shareholding of up to 100% allowed),
tertiary education services in science and technology (shareholding of up to 60%
allowed), restaurants and hotels (shareholding of up to 60% allowed) and services
ancillary to maritime cargo services (shareholding of up to 60% allowed) (Table II-21).
Particularly, it is of great significance that Australian firms are allowed to makeinvestments of up to 60% in the mining industry as “mining” belongs to the country’s
key industry included in List 2.
During the period from the time the FTA went into effect to April 2008, one
161

Australian firm entered Thai market using the Thailand-Australia FTA.
In the Japan-Thailand FTA, liberalization of investments exceeding existing
regulations has been incorporated, such as in the case of the Thailand-Australia FTA. In
more concrete terms, the FTA stipulates that: investments of up to 100% are allowed inconsulting services; up to 51% in logistics; up to 60% in the repair and maintenancefield, in cases where the manufacturer or its group firm handles products manufacturedin Thailand or Japan; up to 75% in wholesale and retail services handled by the
manufacturer or related firm of the products manufactured in Thailand or Japan; and up
to 60% in hotels and restaurants. (19)--------------------------------------------------------------------------------------------------------19. The minimum amount of investment and other detailed terms and conditions are sometimes set
individually for each area of industry.

---------------------------------------------------------------------------------------------------------

Under the US-Thai Treaty of Amity and Economic Relations (concluded in 1966),
Thailand commits to the U.S. comprehensive liberalization of investments exceeding
existing regulations. Pursuant to the provisions of the treaty, U.S. firms are permitted tomake investments of up to 100% in all sectors of Thai industries other thancommunications, transport, fiduciary functions, banking, exploitation of land andnatural resources, and domestic trade in domestic agricultural products that have been
designated as exceptions. During the period from March 2000 to April 2008, a total of
776 US companies were established in Thailand utilizing the US-Thai Treaty of Amity
and Economic Relations.



Examples of liberalization of investment in the banking sector in Singapore
In Singapore, where restrictions over foreign investments are generally limited,
detailed regulations have been established for investments in the area of financial
services. In terms of QFBs (Qualifying Full Banks) and Full Banks (20), which arepermitted to engage in local-currency denominated retail operations in the domestic
market, the number of banking licenses issued to foreign banks is limited and thenumber of branches and access to the ATM networks of the local banks are also
restricted. (21)--------------------------------------------------------------------------------------------------------20. QFBs and Full Banks are in different statuses from each other and different restrictions are imposedon them in terms of criteria for establishment of branches and ATMs.
21. According to the Monetary Authority of Singapore (MAS), as of June 12 2008, six local banks and
108 foreign banks exist in Singapore, out of which 25 are classified as full banks, 42 as wholesale banks

162and 41 as offshore banks.

---------------------------------------------------------------------------------------------------------In GATS, Singapore has made comprehensive limitations in terms of market accessand national treatment in the financial sector, the minimum amount of deposit in local
currency, and the establishment of branches and ATMs. Accordingly, FTA negotiations
with Singapore often focus on the issues in the area of financial services. The case of
Citibank is known as a good example of a successful business expansion in Singapore
following the liberalization of investment in the area of financial services through theFTA. In the Financial Services Chapter of the US-Singapore FTA (which went into
effect in January 2004), the following promises that Singapore has made with the U.S.
are incorporated: liberalization that will eliminate the restrictions on the number of
QFBs and wholesale banks after a certain period of time (for QFBs a year and a half, forwholesale banks three years after the FTA goes into effect); expansion of the number ofbranches and ATMs to 30 at the time the FTA goes into effect, and elimination of such
restrictions in two years; provision for the creation of ATM networks between QFBs;
and two and a half years after the FTA has gone into effect, allowance for QFBs
incorporated as subsidiaries in Singapore to negotiate ATM connections with local
Singapore banks (QFBs not incorporated as subsidiaries in Singapore to commencesuch negotiations four years after the FTA has gone into effect).
Citibank has expanded its retail operations through the liberalization of the number ofbranches and ATMs provided for in the US-Singapore FTA. As a matter of fact,
Citibank’s ATMs are now easily found at subway stations and other various locations in
Singapore. After incorporating a local subsidiary in Singapore (with the capital of S$1.5
billion) in June 2004, Citibank announced in January 2005 to increase the number ofbranches and ATMs, spending more than S$20 million. Compared to the total of ninebranches and ATMs (four branches and five ATMs) it had in Singapore as of January
2005, Citibank now has branches and ATMs at 79 different locations (18 branches and
61 ATMs), as of June 2008. The alliance with Singapore Mass Rapid Transit (SMRT),
which manages the Singapore subway system, to promote ATMs located at subway
stations, has contributed to an increase the number of ATMs. In addition, Citibank has
its ATMs connected to those of other QFBs (ABN AMRO, HSBC, Maybank andStandard Chartered Bank).
The expansion of business in Singapore by Citibank has been made possible by theliberalization of investments through the FTA, and it may be pointed out as one of thetypical examples of an FTA utilized in the areas of services and investments.
In the Singapore-India FTA, Singapore has promised India liberalization in terms of163

granting QFB banking licenses to a maximum of three banks, allowing QFBs to have amaximum of 25 branches and ATMs, permitting ATM connections between QFBs, andthe elimination of restrictions on the number of wholesale banks. A QFB license has
been granted to the State Bank of India (SBI).
On the other hand, India has liberalized its financial sector in favor of Singapore byrelaxing restrictions portofolio investments in India by foreign institutional investors. To
make security investments in India, foreign institutional investors need to be registeredas such in India, and they are allowed to make investments of up to 10% in Indian firms.
In the Singapore-India FTA, GIC and Temasek, in both of which the Singapore
government has made investments, are expressly defined as two separate legal entities.
By this definition, it may have been made possible for these two institutions to invest in
Indian firms up to 20%, not 10%, in total for the two.
In the 2007 amendment protocol to the Japan-Singapore FTA, Singapore liberalized
investments in its financial sector in favor of Japan by expanding the number of fullbank licenses to be granted to Japanese banks by one and also by eliminating the
restrictions on the number of wholesale bank licenses to be granted to Japanese banks.
In Singapore, two Japanese banks have been granted full bank licenses before theamendment protocol goes into effect, and the Japan-Singapore FTA is expected toprovide advantages to other Japanese banks when they try to acquire full bank licenses
in Singapore.

(3) Liberalization of government procurement
 Limitations of liberalizing the government procurement market under the
WTO and advantages of its liberalization through FTAs
According to national accounting estimates, the share of government procurement inmajor countries to their respective GDPs comes to 10% or more in the U.S., United
Kingdom, Canada and the ROK, 8% in France and Italy, 7% in Japan, 6% in Germany
and 4% in Mexico. The share comes to 9% in total of the nine countries, illustrating thesubstantial size of their government procurement markets (Figure II-10).
Despite the substantial size of such market, government procurement in international
trade has shown, in many cases, governments’ providing preferential treatment todomestic companies and products for security reasons and, particularly in developing
countries from the standpoint of protecting their fledgling domestic industries. Taking
these situations into consideration, in GATT, government procurement has been handled
as an exemption from the principle of national treatment.
While the importance of government procurement is increasingly recognized among164

some industrialized countries, the “Code on Government Procurement” was signed in
the Tokyo Rounds held in 1979 and the “Government Procurement Agreement (GPA)”
came into effect in 1996.
The GPA is a plurilateral agreement joined by 13 countries and regions, including
Japan, the U.S., the EU (27 countries), Canada, Hong Kong, the ROK, Israel,
Liechtenstein, Norway, Aruba (Dutch), Singapore, Switzerland and Iceland. The GPA
comprises 24 articles that oblige the signatories to provide national treatment andestablish fair and transparent procurement procedures and challenge procedures, as wellas to eliminate the offsets.
While the GPA was epoch-making in introducing national treatment into thegovernment procurement market where preferential measures for domestic industries
are extremely common, the commitments made in the GPA are more restrictive thanthose made in other WTO agreements in terms of the facts that it is participated by only
13 countries and regions and that the participants are not bound by such commitments
outside of the scope of application as well as the government agencies in thecommitment list they have agreed on.
While it is considered important, in these circumstances, that each country will keep
on demanding its trading partners to open up their markets through FTAs, developing
countries and some others firmly determined to protect their domestic industries tend toshow strong resistance in negotiation.
The U.S. has been demanding its trading partners to open up their markets by having
government procurement included in FTAs. When a FTA partner is not a signatory to
GPA, the U.S. requires from the partner liberalizing and disciplining regulation in thealmost same degree as it would otherwise have been required under the GPA. As a resultof NAFTA, Mexico has become the first non-GPA-signatory country to liberalize its
government procurement market. In the meanwhile, when a FTA partner is a signatory
to GPA, the U.S. requires from the partner liberalization in higher degree as it isrequired under GPA. The ROK, a signatory to the GPA, has promised to lower thethreshold values for its central government and to expand the scope of applicableagencies in the US-ROK FTA. The threshold values for procurement of goods andservices by the ROK’s central government (any procurement made in excess will be
subject to GPA), which was SDR130,000 (approximately KW210 million) under the
GPA, has been reduced to KW100 million under the US-ROK FTA to provide U.S.
companies with increased opportunities to enter the government procurement markets.
Japan, being as similarly interested in government procurement markets like the U.S.,
has incorporated the government procurement chapter into the FTAs concluded with
165

Singapore, Mexico and Chile.



Increasing opportunities for companies to participate in government
procurement
As of August 2008, Mexico has concluded 12 FTAs with 44 countries. Mexico, not aparticipant of the GPA, has opened up its government procurement market to the U.S.
and Canada through NAFTA, to 27 EU countries under the framework of the
EU-Mexico FTA and to Japan under the framework of the Japan-Mexico FTA.
Government procurement in Mexico is made through bidding by local companies inprinciple while its legal system is operated in the order of the Mexican constitution,international agreements and domestic laws. In other words, when a company of a FTA
partner country of Mexico successfully meets the requirements given in the FTA, it will
be eligible to participate in bidding for government procurements in Mexico.
The US-Mexico FTA went into effect in 1994 while the EU-Mexico FTA went into
effect in 2000, respectively. The Japan-Mexico FTA came into effect only in April 2005,
and before that time, Japanese companies would have been precluded from participatingin the international bidding in Mexico, which was open only to the FTA partnercountries of Mexico. The companies from the U.S. and European countries were
eligible for participation in the bidding.
Since the Japan-Mexico FTA went into effect, Japanese companies have been given
constant opportunities to participate in the international biddings offered in Mexico.
Mitsubishi Heavy Industries, Ltd. won in February 2006 the contract for thesupercritical thermal power generating facilities (coal type) of PACIFIO from the Power
Agency of Mexico (total investment amount: US$611 million). It was the first major
project won by a Japanese enterprise after the FTA with Mexico went into effect.
Also, in Mexico, preferential treatment is given to domestic products when the bids
for machinery and equipment are evaluated. Domestic products are compared withforeign products with 10% deducted from their actual prices (Table II-22). However,companies of Mexican FTA partners are granted national treatment and accordingly freefrom the preferential measures given to Mexican companies. Before the Japan-Mexico
FTA went into effect, Japanese businesses were suffering from these discriminating
measures, but the FTA has eliminated such discrimination lying between the Japanesecompanies and their US and European counterparts.
There are instances where companies of a country not signatory to the GPA benefit
from a FTA as the FTA eliminates discrimination against the country. The U.S. applies
measures called the “Buy American Act” to products and services of the country not166signatory to the GPA. The Buy American Act provides preferential treatment todomestic companies and products, including the offsets (to purchase American products
or use American-made content [50% or over]), with 6% to 12% (varies according to theterms and conditions) added over the price of foreign products at the time of evaluation.
Australian companies were forced into unfavorable competition in the huge government
procurement market in the U.S. as the country was not a signatory to the GPA.
The U.S. and Australia have liberalized their government procurement markets in theframework of the US-Australia FTA, which came into effect in January 2005. The U.S.
has exempted Australian companies and products from the Buy American Act, thereby
granting national treatment to Australian companies with respect to government
procurement exceeding certain amounts and eliminating the added value over Australianproducts.
Australia, on the other hand, has granted U.S. businesses access to procurements
offered by the central government, government agencies, and all state and territorial
governments of the country, which amount to 80 in total.
Exempted from the requirements of the Buy American Act by U.S. federal and state
governments, Australian companies now enjoy increased opportunities to access theAmerican government procurement market. For example, Infohrm from Brisbane,
which offers personnel consulting services, was registered in July 2007 in the scheduled
price list of the U.S. General Services Administration (GSA) in the areas of auxiliary
general personnel services. As almost all of the products and services procured by thefederal government are selected from the companies registered in this schedule, thisAustralian company is given a new advantage created by the US-Australia FTA, which
was not available to Australian companies before the FTA went into effect. Anotherbusiness from Australia, Innovonics, with its head office located in Melbourne
specializing in manufacturing and distributing surveillance cameras, supplied, in
September 2005, the State of New Jersey Transit Authority with digital surveillancecameras for public buses—a value equivalent to US$2.3 million.
Supplementing the limited GPA disciplines as well as eliminating discrimination against
non-GPA-signatory countries through FTAs will provide companies with enhanced
opportunities to participate in the government procurement of FTA partner countries andcontribute to an expansion of international trade.

(4) Eliminating NTM and business barriers through comprehensive FTAs
There are FTAs around the world covering a broad range of areas. Some of the
NAFTA-type FTAs promoted by the U.S., the FTAs of the EU, the EFTA (European
167

Free Trade Association) and the FTAs advanced by Japan cover a broad fields, including
the improvement of business environments, intellectual property rights, trade remedies,and cooperation and movement of natural persons, in addition to the trade in goods,
investment, trade in services and government procurement. These so-called“WTO-plus” liberalizations and disciplines are expected to greatly contribute toeliminating non-tariff measures (NTM) and improving business environment.
Highly-evaluated efforts to improve business environments
Improvement of business environments is a unique scheme included in the FTAs
concluded by Japan. Introduced for the first time into the Japan-Mexico FTA, whichcame into effect in April 2005, improvement of business environments has been
included in the Japan’s FTAs with Malaysia, Chile, Thailand and Indonesia. The
Meeting of the Sub-committee on Improvement of Business Environment (thecommittee in the Japan-Mexico FTA) provides the opportunity for government
representatives of the two countries of the FTA to discuss with each other how toprovide solutions to problems facing Japanese affiliates developed in the FTA partnercountries when they conduct their business. Up to now, meetings were held three times
in Mexico, twice in Malaysia and once in Chile in April 2008.
Under Japan’s FTAs concluded with Malaysia and Thailand, liaison offices have been
set up (in the Ministry of International Trade and Industry in Malaysia, in the Office of
the Board of Investment, Ministry of Industry in Thailand, and in the Ministry ofForeign Affairs in Japan). When Japanese companies operating in the FTA partnercountries are in trouble with local rules and regulations, they may bring inquiries to theliaison offices. They are then referred to the liaison office of the trading partner country
through the local Japanese embassy. The liaison then refers them to the relevant
ministries of its government asking for a reply, which will eventually be relayed to thecompany through the embassy. Thus, Japanese companies with troubles in business areguaranteed to receive replies from the government concerned. The liaison offices also
refer inquiries placed by Japanese companies to the Sub-committee, which then takes up
some of them deemed significant or involving a large number of companies.
The plenary session of the Committee held once a year within a framework of the
FTA with Mexico is attended by representatives from the Ministry of Foreign Affairs,
and the Ministry of Economy, Trade and Industry of the Japanese government, bydelegates from Nippon Keidanren, the Japanese Chamber of Commerce and Industry in
Mexico, Japanese Maquiladora Association (JMA) from the private sector and by
JETRO. The issues taken up in the session are discussed between the representatives
168

from the Japanese Chamber of Commerce and Industry in Mexico and related agency of
the Mexican government when deemed necessary, and measures for their solution arebeing taken.
Furthermore, the Japanese Chamber of Commerce and Industry in Mexico has
established a section that meets to work on subjects highly interesting to its Japanese
member companies. The section holds meetings with Mexican government authorities
on an occasional basis and studies concrete measures to improve the businessenvironment. When necessary, it conducts a questionnaire survey toward the member
companies to confirm current status of facts and demands improvements in discussions
with Mexican government agencies. Meanwhile, seminars sponsored by the section
provide Japanese companies with opportunities to understand the business environment
in Mexico.
Efforts by the Japanese Chamber of Commerce and Industry in Mexico to improvethe business environment have produced concrete results. Issues raised by Japan and thecurrent status and results of solution efforts by Mexico are listed in Table II-23. One ofthose issues, customs and clearance procedures, will be taken up hereunder for further
study.
While issues concerning customs and clearance procedures has been taken up since2007 for discussion at the meeting between the Japanese Chamber of Commerce andIndustry in Mexico and Mexican government agencies, the issue of HS2002/2007
related to the Certificate of Origin (certificate of origin required for an application ofpreferential tariff defined in the FTA) has come to a solution.
Behind the issue of HS2002/2007 is a revision of the “International HarmonizedCommodity Description and Coding System (HS)” performed by the World Customs
Organization (WCO) every five years in principle. Japan switched to the HS2007
version effective from January 2007 while Mexico did so effective from July 2007.
Since then, both countries have been indicating the HS item numbers based on the
HS2007 classification in import declaration forms.
Along with the introduction of the HS2007 version, the Mexican governmentcommenced issuing certificates of origin showing the tariff item numbers based on the
HS2007 version effective from July 1, 2007, with recognition that certificates of origin
issued by Japan should also show them based on the same version. On the other hand,
the Japanese Chamber of Commerce and Industry continued to issue certificates oforigin in HS2002 version even after Japan switched to the HS2007 version. This is dueto the recognition of the Japanese government that the FTA with Mexico should still be
operated based on the HS2002 version as the schedule of concessions and the rules of169

origin by item attached to the FTA were prepared based on the HS2002 version.
In September 2007, a Japanese fishery product processing company exported aprocessed fishery product to Mexico utilizing the Japan-Mexico FTA. The certificate oforigin issued for the product with an item number based on the HS2002 version was
judged invalid in Mexico as the item number did not agree with the number shown in
the import declaration prepared in Mexico for the product based on the HS2007 version.
Several other certificates of origins were later judged invalid from similar reasons, andthe Japanese embassy in Mexico, JETRO and Japanese Chamber of Commerce andIndustry in Mexico jointly requested cooperation from the related agencies of Mexican
government to find a solution to this problem, utilizing the framework for the
improvement of business environment.
As a result, the Mexican government has amended a part of its “2007 General Rules
on International Trade” and decided to deem valid such certificates of origin thatindicate the products covered in item numbers are different from those defined in the
HS2007 version. Even if their certificates of origins are denied by the customs,
companies are now able to refute them based on the rules amended as above.
Furthermore, for a shipment already imported with duty paid based on general tariffs, it
has become possible for the importer to file a revised declaration based on FTA tariffs
and ask for a refund of the import duty paid in excess.
In Malaysia, meeting of the Sub-committee was held twice so far, and the Japanese
government demanded solutions to the hijacking of trucks on highways, failure innatural gas distribution and power failure, on-the-spot measures against copied products
and improvement of import procedures for EG (electrically galvanized) steel plates(Table II-24).
In response to the above demands, the Malaysian government has launched acampaign to prevent truck-hijacking and included expenses to improve safety measuresin the 2008 budget. In addition, measures have been taken for improved security at
highway rest areas and intensified patrol activities on highways. Schedules have been
made to construct fenced parking areas with security personnel for high-risk shipments
and to install more than 1,000 units of surveillance cameras along the highways.
While tariff rates are being reduced on a global basis, it is of increasing significanceto reduce NTM and business barriers especially in developing countries. The
Improvement of Business Environment introduced by Japan attracts attention from therest of the world as a scheme capable of identifying the problems facing local
companies and finding a solution to them through cooperation between the governmentsor chambers of commerce of the countries concerned.
170

Efforts by countries to prevent abuse of trade remedy measures
Antidumping duty (AD) and countervailing duty are the measures employed toremove damage which imported products (meaning products dumped by exporting
companies in cases of AD, and products with unfairly high competitiveness createdthrough grants given by the government of the exporting country in the case ofcountervailing duty) may give to domestic industries of the importing country by
imposing additional duty on imported products. Countries are allowed to apply thesemeasures pursuant to the provisions of the WTO rules.
However, frequent use of trade remedy measures may be a serious threat to exporting
countries. In fact, a large number of countries, including Japan, are proposing in the newrounds of WTO to enhance regulations on the AD Treaty in order to prevent thecountries like the U.S., actively applying the measures from abusing them.
There are FTAs, although small in number, in the world in which the participating
countries mutually agree to abandon an application of trade remedy measures. The
European Economic Area (EEA), FTA between EU and EFTA (excluding Switzerland),the Australia-New Zealand FTA and the Canada-Chile FTA, belong to this sort of FTA.
The US-ROK FTA, similar to some others, does not prohibit the use of such measures
but obliges the participating countries to give a notice to the other country before they
start investigations or provides an opportunity for mutual consultation.
In the EEA where the signatories have mutually eliminated trade remedy measures,
there exists an underlying belief that dumping, in which problems are often caused bymonopolistic firms, can theoretically be dealt with under a competition law. In fact, theEFTA side has adopted the EU competition law and employed the common competition
policy. For instance, when a Japanese affiliate in Europe restricted competition inmusical instrument products in EU countries and Iceland signatory to EFTA in July
2003, the company was found guilty of violating Article 81 of the EC Treaty and Article
53 of EEA Agreement and was charged with a penalty of 2.56 million euros.
The Canada-Chile FTA also has highly political elements involved. Canada,
dissatisfied with the abuse of AD measures by the U.S. for a long time, proposed in the
NAFTA negotiations to mutually eliminate the application of AD measures. While this
proposal was turned down by the U.S., Canada, with a hope of eventually eliminating
AD in the future Free Trade Area of the Americas (FTAA), agreed to eliminate AD with
Chile, which at that time did not have many kinds of products to compete with those of
Canada.
In the FTA concluded with the ROK, the U.S. agreed on the obligation to mutually171

give prior notice to the other country when investigations are commenced and promised
to provide an opportunity for bilateral consultation. For the first time since NAFTA, theU.S. has acceded to a request of this nature. Accordingly, the Korean government andcompanies, who receive an advance notice from the U.S. on the commencement of its
investigations, will be able to make positive explanations in the conference and checkthe investigating authorities. Furthermore, the two countries are expected to establish acommittee on trade remedies to see if these opportunities and considerations areproperly provided.
The U.S. and China have been reminded of the problems under the WTO concerning
the system and operation of AD. These arrangements made in the US-ROK FTA may be
helpful to Japan in preparing for its future FTAs as Japan is often targeted with AD duty
(Figure II-11).


Bilateral cooperation advantageous to both sides
The EU and Japan have incorporated cooperation chapters in their FTAs to provide
developing countries with technical assistance. Even though the EU and Japan reduce
tariffs through FTAs, FTAs will not be fully utilized unless developing countries havehigh export capabilities. Even though the EU and Japan liberalize tariffs through FTAs,
FTAs will not be utilized effectively when quality of the customs system andcapabilities of the customs officials in developing countries are not high enough.
Therefore, companies from the EU and Japan, as well as developing countries, benefit
from cooperation. Through the framework of FTAs concluded by Japan, the following
categories of cooperation are scheduled to be provided: cooperation to provide partnercountries with increased opportunities of market access, such as health quarantine andcertification of standards; cooperation to help partner countries improve their operationof FTAs, such as customs cooperation and cooperation to contribute to liberalization of
investment and services by partner countries, such as IT technology and tourism.
The EU provides candidate member countries with various kinds of cooperation. In
order to be granted membership to the EU, candidates are obliged to liberalize theirtrade and investment at the level of industrialized countries in Western Europe and tocoordinate related rules and regulations. Implementation of rules and regulations
requires improvement of the governance and operational capabilities of the government.
The European Commission and member countries have provided Central and Eastern
European countries that joined EU in 2004 and 2007 with various items of cooperation
to realize efficient accessions.
According to an officer in charge in the European Commission, cooperation with
172

Central and Eastern European countries in technical standards was started around 1988.
To the officials of government and Conformity Assessment Body (CAB), on-the-job
training and seminars were given by specialists in all areas including surveillance,
certification and technology assessment to help them improve their capacities. As aresult, such officials were judged to have reached the level of their counterparts in
Western Europe before their countries were admitted to the EU.
The know-how on cooperation owned by the EU is utilized in the FTAs concluded
with countries and regions outside of the EU, also. For Mexico, a FTA partner to the EU,
the EU has implemented a large number of cooperation items through the “Capacity
Building Project of the Mexico-European Union Free Trade Agreement(PROTLCUEM)”.
PROTLCUEM programs focus mainly on the areas of customs procedures andquarantine between the government agencies to enhance utilization of the EU-Mexico
FTA. The program has been in practice since 2005, and the budget of 16 million euros
to support the program is equally shared between the EU and Mexico. Included in the
programs are research and analysis in specific areas to support operations of concerned
agencies, technology aid, enhancement of systems, transfer of technology andknow-how, and exchange of information on best practices and training.
In April 2008, Mexico put the deregulation measures on international trade into
practice. The measures include a relaxation of requirements for registration of approved
exporter to Europe under preferential tariff and an elimination of procedures to apply
for expansion of products, components and facilities subject to the in-bond processing
program (IMMEX) widely utilized by Japanese affiliates, and can be called acomprehensive improvement capable of reducing NTM. Cooperation that can assist thissort of efforts of liberalization by developing countries will be advantageous to both ofthe developing and industrialized countries.
Presence of natural persons strongly demanded by developing countries
In the WTO, movement of a natural person from one country to another is addressedin Mode 4 “Presence of Natural Persons” of GATS. In Mode 4, movement of a natural
person is limited to the “measures to regulate a temporary stay.” In other words, the rule
applies to service providers under contract, including intra-company transferees,
short-staying personnel and computer technicians, etc. Workers who move looking for
employment and holders of permanent citizenship are not covered.
Among the FTAs in the world, movement of natural persons is most liberalized in theEU, in seeking a unification of labor markets. Various rules and regulations have been173

introduced to promote free movement of workers in a manner far beyond the conceptsof the Mode 4 of GATS. The citizens of EU member countries are allowed to stay inother EU member countries for a period of up to three months without restriction, andsubject to employment, period of their stay may be extended to six months or more.
Permanent resident status will be granted to those who have stayed in the country formore than five years. In order to secure smooth movement of natural persons, laws arebeing developed for freedom of opening business in other countries and mutual
recognition of professional qualifications for doctors, architects, etc.
Pursuant to the provisions of the Schengen Agreement, which was incorporated into
the Treaty on European Union in 1999, immigration control at the borders between
countries signatory to the Agreement have been abolished. In March 2008, nine out of
10 Eastern European countries that newly joined the EU participated in the Schengen
Agreement to eliminate immigration control at their borders with countries in Western
Europe.
Under the Mode 4 of GATS, the U.S. admits “Short Stay (90 days or less)”,“Intra-company Transferees (a stay of three years or less with extension of 2 years whenpermitted)” and “Professionals (a stay of three years or less, up to 65,000 persons in a
year, four-year college graduate in principle)”, etc. In FTAs, the U.S. provides partnercountries with employment opportunities in the form of the special admission quota of“Professionals”. In the framework of NAFTA, the U.S. has promised to receive 5,500
persons a year (quota eliminated from 2004) from Mexico (TN visa), 5,400 persons
from Singapore (H1B1 visa) and 1,400 persons from Chile (H1B1 visa). While themovement of natural persons was not included in the US-Australia FTA, an extra quotaof the Professional Visa (E3) of 15,000 persons a year has been granted to Australia
apart from the FTA.
While the ordinary U.S. visa for professionals (H1B) is issued to 65,000 applicants ayear, 150,000 applications were filed in 2008 within a few hours after thecommencement of acceptance. Accordingly, it is of great significance that separate
quotas have been established for TN and E3 visas, different from H1B in kind, and for
H1B1 visas to expand H1B quotas. The number of people granted visas through these
extra quotas are on a steady increase even though the quotas are not fully utilized yet(Table II-25).
Money remitted to home countries by emigrating workers working in industrializedcountries plays an important role in the economy of the developing countries. According
to the statistics released by the World Bank, emigrating workers remitted 240 billion
dollars to developing countries, accounting for 1.9% (provisional figures for 2007) of174

their GDP. In terms of country, India received the top amount of 27 billion dollars,
followed by China receiving 25.7 billion, Mexico receiving 25 billion and thePhilippines receiving 17 billion. In terms of the share to GDP of the receiving countries,
remittances to Tajikistan and Moldova respectively show a very high percentage of
36.2%.
The movement of persons often creates sensitive issues to the countries that receive
such movement. On the other hand, money remitted home by emigrating workers may
give significant economic effects to developing countries. Industrialized countries may
open up their industries, which are not sufficiently stuffed by their own workers, toimmigrating workers and secure the optimum distribution of their labor.

175

Fig. II-6 Average Applied Tariff Rate by Country (time series)（Unit： ％）

2000

Br
az
il

a
In
di

d
an

K

1995

Th
ail

1990

RO

in
a
Ch

EU

US

Ja
pa
n

90
80
70
60
50
40
30
20
10
0

2006

Source: Trains database （UNCTAD）

Fig II-7

Average Applied Tariff Rate by Country（by product）（Year 2007，Unit： ％）

60
50
40
30
20
10
0
Japan

US

EU

China

ROK

ThailandAgricultural Products
Non-Agricultural Products
Total
Source: Trade Profile（WTO）

176

India

BrazilFig. II-8

Trends in trade in services and FDI as percentages of world GDP(%)(Billion dollars)

3,500

7.0

3,000

6.0

2,500

5.0

2,000

4.0

1,500

3.0

1,000

2.0

500

1.0

0

0.0
85

86

87

88

89

90

91

92

93

94

95

96

97

Value of export of services
Value of exports of services as a share of GDP

98

99 2000 2001 2002 2003 2004 2005 2006 2007
(Year)

FDIs (based on balance of payments, inward FDIs)
Value of FDIs as a share of GDP(Source) Balance of payment statistics of each country, “BOP May 2008” (IMF), “World Investment Report” (UNCTAD),
WTO, “WEO April 2008” (IMF)

Fig. II-9 Japan’s outward FDI stock and returns on FDIs

(100 million
dollars)(100 million
dollars)

500

6,000

450
5,000

400
350

4,000

300
250

3,000

200
2,000

150
100

1,000

50
0
1996

1997

1998

1999

2000

2001

2002

Japan’s outward FDI stock

2003

2004

2005

2006

0
2007 (Year)

Return on FDI (right axis)(Source)“Balanceof ofPayments
Statistics”(Ministryof Finance,Bankof Japan),“Foreign
Exchange
Rates”(Bankof Japan)(Source)“Balance
Payments
Statistics”(Ministryof Finance,Bankof Japan),“Foreign
Exchange
Rates”
(Bank
of
J

)

177

Table II-20 FDI stock of Japan (as of the end of 2007), major partners andinvestment agreements, FTA Investment Chapter(Unit: US$ million, %)Country /Region

Stock

Share

Country/Region

USA

174,199

31.9

Germany

9,524

EU27

145,280

26.6

Taiwan7,742

1.4

The Netherlands

63,941

11.7

The Philippines

5,780

1.1 FTA concluded

ASEAN

61,435

11.2

India

4,218

0.8 FTA negotiated

Luxemburg

3,537

0.6

Investment Treaty, FTA

Bilateral Investment Treaty in effect;
Japan-China-ROK Investment
Treaty negotiated

Stock

Share

Investment Treaty, FTA

1.7

China

37,797

6.9

Cayman Islands

32,038

5.9

Sweden2,956

0.5

United Kingdom

32,021

5.9

Saudi Arabia

2,585

0.5

Thailand

19,776

3.6 FTA in effect

Spain

1,736

0.3

Australia

17,9403.3 FTA negotiatedVietnam

1,711

0.3 Bilateral Investment Treaty in effectSingapore

17,586

3.2 FTA in effect

Mexico1,469

0.3 FTA in effectFrance12,415

2.3

Switzerland

1,118

0.2 FTA negotiatedSouth Korea (ROK)

12,103

2.2 Japan-China-ROK Investment Treaty

New Zealand

951

0.2

Bilateral Investment Treaty in effect;
negotiatedBelgium

12,071

2.2

Republic of South Afric

852

0.2

Brazil

11,028

2.0

Italy

837

0.2

Hong Kong

9,129

1.7

Russia373

0.1 Bilateral Investment Treaty in effectIndonesia

8,315

1.5 FTA in effect

United Arab Emirates

254

0.0

Malaysia

8,184

1.5 FTA in effect

Iran

5

0.0

Canada9,577

1.8World Total

546,839

100.0

Bilateral Investment Treaty in effect(Note)(1) The figures in this table cover FDI stock only. Investment treaties have "investment" defined in other manners and include other investment.
(2) The figures were originally shown in JPY and converted into USD at the BOJ end-of-term interbank rate.
(3) The following countries are not included in the table but have an investment treaty or FTA (investment chapter) with Japan: Egypt, Sri Lanka, Turkey, Pakistan, Bangladesh,
Mongolia, Cambodia (not in effect yet), Laos (not in effect yet), Chile, and Brunei. (Refer to "2008 Report on the WTO Inconsistency of Trade Policies by Major Trading Partners")(Source) "International Investment Position" (Ministry of Finance, Bank of Japan) "Foreign Exchange Rates"(Bank of Japan) and "2008 Report on the WTO Inconsistency of Trade
Policies by Major Trading Partners", etc.

Table II-21
Examples of liberalization of investment exceeding existing
regulations in Thailand-Australia FTA
MFN basis

Australia

Consulting service

Less than 50%

100%

Construction service

Less than 50%

100%

Retail & wholesale services by
manufacturers manufacturing in Thailand

Less than 50%

100%

Tertiary education services in science andtechnology

Less than 50%

60%

Restaurants & hotels

Less than 50%

60%

Maritime cargo services

Less than 50%

60%

MiningLess than 50%60%(Note)(1)Details conditions such as the minimum amount of investment established to certain sectors.
(2)Investment of 50% or more on MFN basis can be allowed when individual permission obtained.
(Source) Australia MInistry of Foreign Affairs & Trade, Australia-Thailand FTA Agreement.

178

Fig. II-10

Size of the government procurement market of major countries(%)(Billion dollars)

3000

14.0

12.8

2,664
11.5

10.8

2500

12.0
9.9

8.4

2000

10.0

8.1

7.4
1500

9.4

8.0
1,336

5.6
6.0

1000

4.0

4.2
500

332

292

182

2.0

158

138

130

69

28

Germany

Italy

CanadaROK

Mexico

0.0

0
Japan

U.S.

U.K.

FranceTotal(Note) The government procurement amount is derived by adding gross fixed capital formation and products/non-products sales to final
consumption expenditure of general government, less depreciation of fixed assets, indirect taxes and employment compensation. The
procurement amounts for Japan and ROK represent the average amounts for 2003–2005, while Mexico’s amount represents the average for
2002–2004.
(Source) National Accounts of OECD Countries 2007, OECD

Table II-22 System of preferential treatment of domestic products in Mexico’s
government procurement(Case 1: For domestic products of non-signatories of FTAs)
Asking priceAppraisal value
Mexican products

10

9.00 (10% less of 10.00)

Products of a non-signatory country

9.8 9.80 (No change to asking price)

Results of bid○
×*10% preference is shown to the appraisal value of Mexican products(Case 2: For domestic products of signatories of FTAs)
Asking priceAppraisal value

Results of bid

Mexican products

10(No change to asking price)×

American products

9.8(No change to asking price)○* No preference is shown to Mexican products(Case 3: When evaluating the value of domestic products of FTA signatory and non-signatory
countries)
Asking priceAppraisal value
Results of bid
American products

10(No change to asking price)×

Products of a non-signatory country

9.8(No change to asking price)○*No preference is shown to American products179

Table II-23 Progress made by the Committee on Improvement of Business
Environment under the Japan-Mexico FTA
Field
Public safety

Specific problem- Deteriorating safety at the airport and residential areas- Increase in theft and burglaries of goods, rising cost of security measures

Progress/results- Sustained discussions with the Ministry of Public Safety- Patrols undertaken at railway terminals- Improved security at Mexico City International Airport- Deliberation of enhanced security of freight transport routes

Protection of
intellectual property
rights- Adverse effects of the distribution of counterfeit goods on sale and brand images- Sustained discussions with the Mexican Institute of Industrial Property- Companies whose products have been victims of counterfeiting must file requests- The said Institute has issued letters of warning to companies infringing
for administrative hearings and formal complaints to detect counterfeit goods, but are trademarks following the request of Japanese companies
reluctant to do so because of the risk of retribution from the offending companies- The staff of the said Institute have been dispatched to Japan to study the systems- Customs do not have the authority to confiscate counterfeit goods
employed by Japanese customs to crackdown on counterfeit goods- Promise to cooperate with customs to crackdown on counterfeit goods at theborder- Representatives of Japanese companies are participating as observers in the
Mexican government’s committee on intellectual property rights

Facilitating
immigration
procedures- Complicated Customs procedures at the US-Mexico border- Japanese business travelers given limited access to Mexican destinations througherrors of border immigration control officials- Incurring unnecessary immigration procedures because of the misinterpretation offacts by regional immigration officials

Taxation/ customs
procedures- Weakening of Japan’s competitive edge due to the time and cost spent in clearing
customs- Unclear method of resolution in cases where differences in tariff classifications
occur- Too much time required for Value Added Tax rebates- Improvement of services through the establishment of a field office at the USMexico border- Official notice stating unlimited access to Mexican destinations for Japanesebusiness travelers- Preparation of the “Visa Manual” in cooperation with the Mexican Immigration
Agency- Holding seminars on visas in regional cities with officials from the Mexican
Immigration Agency serving as lecturers- Introduction of custom form for travelers in Japanese- Contact person for customs and taxation matters is designatedCertification standards - because of domestic testing requirements (entailing double work), antiquated- A revision of the specifications of electronic devices has been decided and thestandards that do not conform to International standards and troublesome procedures, government has promised that Japanese companies would be able to participate inexcessive time and additional costs are being incurred in the introduction of new
this process
products
Infrastructure- High electricity costs and frequent electrical outages- Deliberation with local governments to improve the infrastructure around the- High ground transportation costs
border area
- Expansion of the Otay border (Tijuana-San Diego)- Paving of the portion of the roads in Tijuana

Table II-24 Progress made by the Sub-Committee on Improvement of Business
Environment under the Japan-Malaysia FTA
Field
HijackingSpecific problem- Occasional incidences of truck-hijack on highway reported- Increase in theft and burglary at the sites of factory and storage

Gas supply- Lack of natural gas, and new supply not being implemented

Electricity- occasional electricity outages, damaging to production activities

Intellectual property
rights- counterfeit goods flown from foreign countries

Progress/results- Budget for improvement of public safety measures added to 2008 budget- Stepped up security at rest stops and highway patrols conducted- Installation of security guards and fenced parking planned for high risk
freight- Installation of 1,000 surveillance cameras planned- Deliberation including hike in gas prices by top government officials- Japanese companies will not be subject to discriminatory treatmentcompared with local companies- Government has prepared a set of preferential treatments in cases wherecompanies implement energy saving measures- Tenaga Nasional will invest 1.9 billion ringgits (15.0 billion ringgits in thenext five years) in measures to remedy the supply shortage situation- Tenaga Nasional will be liable for damages in the case of intentional
outages or outages caused by negligence- Establishment of courts for intellectual property rights and implementationof stepped up measures at the border

Import procedures for - It is getting increasingly difficult to acquire duty-free importation - Sustained discussions on duty-free importation status will take place
EG steelstatus for electrogalvanized (EG) steel

180

Fig. II-11 The number of anti-dumping measures investigated and applied
against Japanese products by country (Year 1995-June 2006)（Unit：the number of investigation and application）
35

33

30

27

25

23

21

20

20

18

15

13

11
9

10

7
5

5

2

0
U.S.

China

India

ROK

EU

investigation

application

Australia(source) WTO secretariat.

Table II-25 The number of issuance of the "Professional" visa in the U.S. (related
to FTA)（Unit：persons）
CountryType of visa

TN
Canada, Mexico(NAFTA)

Remarks
Number permitted per year:
no limits, Period: 1 year (maybe extended)TD (spouse andchildren of TN)

Singapore, Chile

H1B1

E3

Number permitted per year:
5,400 (Singapore), 1,400(Chile), Period: 18 months(may be extended)
Number permitted per year:
15,000, Period: 2 years (maybe extended)

Fiscal Year
2002

2003

2004

2005

2006

2007

699

423

908

1,902

2,972

4,091

856

796

1,268

1,941

2,779

3,438

72

275

440

639

－

－

－

－

－

4

1,918

2,572

－

－

－

3

1,053

1,368

Australia (note)
E3D (spouse andchildren of E3)

Employment allowed tospouse(Note) In terms of Australia, another special quota was established separately from the quota under the FTA.
(Source) US Department of State181

4. Toward the active utilization of global FTAs
(1) Expanding Asia-Pacific FTAs and increasing utilization by companies
Japan’s FTAs in the Asia-Pacific region are showing progress. FTAs have alreadygone into effect on a bilateral basis with Singapore, Malaysia, Thailand, Indonesia andBrunei, respectively, and FTAs with the Philippines and ASEAN as a whole are waiting
for a “go” sign. In addition, its FTA negotiations with Vietnam, Australia and India areunderway.
Among others, great expectations are being placed on the bilateral FTA with Thailand,a huge production base in ASEAN for Japanese companies. Despite being one of themost recent, the Japan-Thailand FTA has been selected in the questionnaire survey
conducted by JETRO as the FTA in which Japanese companies use preferential tariffs
most or as the FTA they consider to utilize more than any other FTAs. Utilization of theJapan-Thailand FTA by Japanese firms, particularly in responding to the internal
demand of Thailand, is expected to be expanded as the tariffs in Thailand are lowered.
In the Asia-Pacific region, formation of FTAs by ASEAN+1 is in progress. Countries
such as Japan, China, the ROK, India, Australia and New Zealand, the players
comprising such future wide-area FTAs as ASEAN+3 and ASEAN+6, are expanding
their efforts to establish FTAs with the ASEAN countries, which will be placed at thecore of those future FTAs. Of those, the ASEAN-China FTA attracts great attention
among Japanese affiliates operating in the region. Although their utilization remains at alow level at the present moment, the ASEAN-China FTA is expected to be used more
actively by companies as the tariffs are scheduled to be reduced or eliminated in fullscale from January 2009 and completely abolished for many categories by 2010. The
ASEAN-Japan FTA was ratified in Japan in June 2008, and it is now waiting to be
ratified by each ASEAN country. When the ASEAN-Japan FTA goes into effect, theJapanese companies operating in the region will become able to utilize cumulative ruleof origin to import flat panels for TV and other high-value-added components fromJapan, and export assembled products to other ASEAN countries free of tariffs. This canbe a great support for Japanese companies with supply chains expanded over the
ASEAN region.
In April 2008, New Zealand signed an FTA with China, which is the first FTA
signed by an industrialized nation with China. China, with its average effective tariff
rate being as high as 10% in 2007, has promised to New Zealand to eliminate tariffs on
the items equivalent to 96% of its imports (on a basis of export value). In the ASEAN+6
regions, FTAs other than those in the ASEAN+1 frameworks are becoming substantial.
For companies, it is becoming increasingly important to consider business strategies
182with the developments of the Asia-Pacific FTA network in mind.
In building up wide-area FTAs, it is important to consider FTAs that are easy toutilize so that they will become even more attractive to companies. In forming FTAs
with the Mediterranean coast countries, the EU has introduced the identical rule oforigin with respect to all items. When rules are unified, companies will no longer berequired to make different kinds of preparation according to different FTAs, and theircertification costs are expected to be lowered. It is desirable that the rule of origin be
unified to the greatest possible extent in the Asia-Pacific region too. Furthermore, therespective criteria used to define changes in tariff classification, added value andmanufacturing process are not of the same usability to all industries and companies. It is
required that selectable rules fully reflecting the opinions of the companies be
introduced, and considerations should be given to procedures of origin certification. As
mentioned earlier, the Asian-style systems of certification by third party and the
NAFTA-style system of self-certification respectively have their advantages anddisadvantages. For the electric and electronics industry, in which just-in-time
procurement is required, the approved exporter system of the EU-style can be analternative when the risks involved in an importation through a third country are fully
considered.
The FTA has also brought about liberalization in fields such as investment, trade-inservices and government procurement, in addition to trade in goods. Europe, the US andJapan are actively promoting liberalization of trade in services, investments andgovernment procurement through FTAs. The mutual access for truck transportation
between the US and Mexico, the establishment of Mexican subsidiary of Credit SuisseFirst Boston, the increase in the number of branches and ATMs in Singapore for
Citibank, and the successful bidding for the Mexican power generation business by
Mitsubishi Heavy Industries are all examples of companies utilizing the advantages ofthe liberalization of trade in services, investment and government procurement throughFTAs. The market access to these fields in the ASEAN countries and other developing
nations is limited. When Japan promotes FTAs in the Asia-Pacific region, the point lies
in how much “WTO-plus” liberalization will be achieved.
Furthermore, the Committee on Improvement of Business Environment scheme
invented by Japan attracts great attention to FTAs in the Asia-Pacific region as a means
to solve problems in trade and investments faced by Japanese companies developed in
Asia. As seen in the examples of Mexico and Malaysia, it will lead to an improvementin the business environment, which governments and the private sector in close
cooperation with each other actively utilize and participate in, in order to demand the183governments of partner countries to correct problems in trade and investments.

(2) Further expansion of FTAs, and various efforts by each country
Efforts by Europe and the US to strengthen their economic relationships, including
those with FTAs with countries in the Asia-Pacific region, become clearer. The US has
FTAs with Singapore and Australia, and signed an FTA with the ROK. In June 2008, theUS announced commencement of the negotiations on a bilateral investment treaty (BIT)with China and Vietnam, to which US has carefully kept its eye as they developed theirlegal systems in accordance with the promises they made when they joined the WTO.
As for the EU, they are advancing FTA negotiations with the ROK, the ASEAN
countries and India. The high-level efforts made by Europe and the US towardelimination of tariffs and “WTO-plus” liberalization of investment, trade in services andgovernment procurement, as well as elimination of NTM, are highly likely to influence
the economic integration flow of this region.
The FTAs of Europe and the US with countries in the Asia-Pacific area areconsidered to be advantageous to those Japanese affiliates that have a wide production
network established in the region. Concerning trade in goods, for instance, suchcompanies will become able to utilize these FTAs when they export products to EU
from their production bases in ASEAN.
However, in case the FTAs of Europe and the U.S. are more advanced andcomprehensive than those of Japan, it is possible that companies with production basesin Japan will be discriminated against in Asia. When the tariff on certain items iseliminated only for Europe and the U.S., situations disadvantageous to Japan will becreated. Furthermore, the countries in the Asia-Pacific region are not signatories to the
GPA, with the exception of the ROK and Singapore. If these countries open up theirgovernment procurement markets only to Europe and the U.S., Japanese companies will
be put at a disadvantage, as seen in the case of Mexico mentioned earlier. It is requiredthat Japan continues to promote high-level and comprehensive FTAs so as to avoid
being placed at a disadvantage compared to Europe and the U.S. in the battle over FTAs
Implementing measures on domestic industries that will be impacted by the FTAs
will have the effect of holding down domestic adjustment costs and will be essential in
facilitating FTA measures. For example, when the U.S., Mexico and the ROK open up
their domestic markets to partner countries, they simultaneously implement bailouts
including subsidies for domestic industries that are likely to be affected.
Before NAFTA went into effect in 1994, the U.S. introduced the “NAFTA
Transitional Adjustment Assistance Program (NAFTA-TAA)” anticipating the damage
184

that may be caused to the textile, apparel and automotive industries. Through the
NAFTA-TAA, 525,407 workers received assistance in 4,116 cases. Later, the
NAFTA-TAA was integrated into a more comprehensive TAA program following the
introduction of the “2002 Transitional Adjustment Assistance Act (2002 TAA as
amended)”.
With corn and frijoles and other agricultural products included in the sensitive list,
Mexico introduced the “Farmers Direct Support Program (PROCAMPO)”, which was
aimed, through direct income assistance, at assisting low-income farmers inmodernizing their farm and farmland and to transfer themselves from traditional farm
products to those with higher profitability. During the 14 years from 1994 to 2007,
PROCAMPO payments amounted to 16.024 billion dollars (converted from theamounts published in peso denomination at the average annual exchange rates to USD
of the respective years concerned).
Agriculture is also a sensitive field to the ROK. The ROK promised to liberalize theiragricultural market almost completely in the US-ROK FTA, and has established an
assistance program of KW20.4 trillion (equivalent to approximately JPY2 trillion, as ofJuly 2008) over a period of 10 years from 2008, in consideration for the damages
expected to be suffered by the country’s agricultural industry following theliberalization. For its manufacturing and service industries, the ROK has announced
projects to assist them in enhancing their competitiveness and are transferring joblessworkers in the industries to other fields. Through these assistance projects, the ROK has
been trying to soften the damages caused by FTAs to its domestic industries.
Demands made by partner countries are not limited to an elimination of tariffs on theitems in the fields they specialize in. If the partner is a developing country, there exists acase in which they request assistance to enhance export capabilities of their companies
so that they may make the best use of their FTAs. Japan, as well as the EU, has
incorporated cooperation into its FTAs with developing countries and implements
cooperation schemes to assist them in operating the FTAs, which includes improvementof the export capability of their companies, development of their industries, andsimplification of their customs and quarantines. The cooperation in these areas also has
effects that lead to smoother trade and investment. Cooperation produces advantage toindustrialized countries as well as to developing countries.
Japan has accepted nurses and care workers from Indonesia. This is an attempt thathas never been tried before, and attention should be paid to its future development.
Many developing countries are interested in sending their workers to industrializedcountries, though this is a difficult question for countries that receive them from the185viewpoint of employment, as accepting a certain volume of labor with appropriate
consideration given to conditions in their countries is expected to be advantageous toboth sides.
While competition with the rest of the world over FTAs is getting more and more
intensified, these examples of successful efforts by other countries is helpful as areference for Japan to strengthen economic relations through FTAs.

186

III. Consumer Markets Expanding Worldwide
1. Consumption Trends in Japan and Worldwide
As Japan has been the first to see an aging Baby Boomer generation amidst a
declining birth rate, resulting in a population contraction, the country has little room forany market growth in volume terms. Breaking into overseas markets is thus ever more
important for Japanese companies aiming for growth, and prospects for winning overconsumer markets in emerging economies, where both the markets themselves andconsumer income levels are expanding, are an important theme that will determine
company futures. Meanwhile, demographics worldwide are graying in both developed
and developing nations, and thus looking at how the consumer market in Japan ischanging as the population ages could be effective in discerning likely trends inworldwide consumer markets.
We will now turn our attention to the changes and characteristics of the Japanese
consumer market amidst the aging of the country's population. We will then explore abroad overview of the characteristics of worldwide consumer markets from theperspectives of both income levels and age brackets.

(1) Japan's consumer market both maturing and facing an aging population
In recent years, Japan's consumer market has been more noticeably maturing andundergoing consequent qualitative changes. For starters, the average propensity toconsume, in other words the ratio of spending to disposable income, has been trending
gradually downwards overall for the past 20 years since 1988 (in terms of the trailingthree-year average; same below), and it appears that consumption is beginning tomature as basic demand is met（Figure III-1）. Looking at the average propensity toconsume (APC) by age bracket, we find that, while the APC for consumers under 60 has
been declining, the APC for those 60 and over has been rising. The APC tends to run
relatively higher for older age brackets as they retire, have their pensions as their main
source of income, and begin to spend down their savings. However, lacking any majorchanges apparent in disposable income, any increase in the propensity to consume canbe viewed as an indication of increased consumer confidence in that age group. As of
2007, roughly 40% of total consumer spending was concentrated in the 60-and-older
bracket (1), an increase from the roughly 30% posted in 2000. Breaking this down by
product category shows that the share of spending for all areas aside from education
shifted towards the 60-and-over group between 2000 and 2007, as the upper age
brackets take on a leading role in Japanese consumption trends.
187--------------------------------------------------------------------------------------------------------1. Based on two-or-more-person working-class households (excluding agriculture, forestry and fisheryhouseholds).

---------------------------------------------------------------------------------------------------------

Looking next at the share of consumer spending by category over the long term, thecategories that have posted the most share growth in order are transportation andtelecommunications, followed by "other", and then cultural and entertainment (FigureIII-2). These three categories comprised approximately 50% of total consumer spendingin 2007, and also included substantial amounts of unnecessary and non-urgent
consumption, also called "optional consumer spending" (2). Among the spending
categories by application, everything aside from utilities includes some form of optional
consumer spending, but close to 70% of total optional consumer spending for 2007 wasfor the three categories listed above. Moreover, optional consumer spending comprisedaround 60% of total spending within each category. Meanwhile, categories that include
substantial basic consumer spending, such as foods or shoes and apparel, all saw theirshare of total spending decline.
--------------------------------------------------------------------------------------------------------2. As defined by the Ministry of Internal Affairs and Communications (MIC). Categories where elasticity
of expenditure > 1. The elasticity of expenditure is an index showing how many percentage points
spending categories change by for every 1% change in total consumer spending. Spending categories with
an elasticity of expenditure of under 1.00 are classed as basic consumer spending (necessities), andinclude areas such as food, rent, utilities, and healthcare services. Spending categories of 1.00 or higher
are classed as optional consumer spending (luxuries), and include areas such as education, durable goods
for culture and entertainment, and various monthly fees.

---------------------------------------------------------------------------------------------------------

By age bracket, consumers aged 40 and older comprise the bulk of total optional
consumer spending, at 84.1% of total spending for 2007. Considering that the dipping
birth rate and graying demographic means that the brackets responsible for so muchoptional consumer spending are expanding, such spending is therefore also likely toincrease going forward. Comparing optional consumer spending between 2007 and2000 shows that spending by the 60-and-over bracket grew by 1.8%, whereas spendingby other age brackets declined, such that total optional consumer spending in Japan
shrinking by 12.6%. This indicates characteristically solid optional consumer spending
in the older age brackets.
Meanwhile, demand for optional consumer spending in the older age brackets is notnecessarily higher than in the younger brackets. While the 40-and-over brackets do
188

indeed comprise the bulk of total optional consumer spending, the spending actually
peaks in the 50s bracket, with the 70-and-older bracket comprising less of total optional
spending than the 30s bracket (Figure III-3). Moreover, optional consumer spending asa percentage of total spending within each age bracket is lowest for the 60-and-overgroup at 32.2% in 2007, indicating less interest in optional consumer spending
compared to other age brackets. Conversely, this percentage is highest for consumers
between 40 and 59, with roughly half of total spending for this group going to optional
consumer spending (for 2007 figures, 51.9% for those 40 to 49, 49.3% for those 50 to59). This percentage is also on the rise for the 20s and 30s brackets.
However, there is room for increased optional consumer spending in the 60-and-overgroup, and a high net asset level is one reason for this (Figure III-4). This kind of wealtheffect from savings generally arises when those age brackets receiving their retirement
funds are expanding. Another factor of note is that mandatory spending (3) comprises asmaller percentage of total spending for the 60-and-over group than for other age
brackets (Figure III-5). Mandatory spending as a percentage of actual expenditures(consumer spending + non-consumer spending) peaks in the 40s bracket, dropping toaround half of the peak level for the 60-and-over group. Put another way, this indicatesthat the degree of freedom for consumption peaks in the later age brackets.
--------------------------------------------------------------------------------------------------------3. This category is defined as: Mandatory spending = Non-consumer spending + Housing and land rent +Utilities + Education + Payment of debt for land and housing (paying down housing loans).
Non-consumer spending is defined as according to the MIC (comprising mainly items such as direct taxes
and social security payments).

---------------------------------------------------------------------------------------------------------

Another reason for the increase in optional consumer spending is a change in lifestylethat increases free time. The Cabinet Office's Survey on Time Use and Leisure
Activities for 2006 shows that time spent on tertiary activities (free-time activities)
increases from around the 50s bracket, with more time spent on mass media
consumption such as TV watching, relaxing, and similar activities as ages increase. Thissituation leads to growth prospects for those goods and services markets commonlydescribed as time-intensive consumption, making it likely that optional consumer
spending that includes such consumption will expand.
One typical example of this category is package tours. The 60-and-over groupaccounted for 57.9% of total package tour spending in 2007, and 64.0% of overseas
package tour spending. Given that these percentages stood at 46.5% and 47.6%
respectively in 2000, we can clearly see that spending in this category has increased for189the older age bracket. The older demographics are similarly more apt to demand goods
and services in the cultural and entertainment category4, including such things as video
games, various monthly fees (such as classes for sports or music), sporting events, andinternet use.
--------------------------------------------------------------------------------------------------------4. 57.4% of total cultural and entertainment spending for 2007 was optional consumer spending.

---------------------------------------------------------------------------------------------------------

Growth in optional consumer spending primarily among the older age groups is thus
likely to lead to a qualitative change in Japanese consumption patterns, even while there
is little room for any quantitative growth. In as much as most countries will sooner orlater face a declining birth rate and an aging population, the changes occurring in theJapanese market hold no small importance for the future. Meanwhile, as already seen,
demand for optional consumption is actually higher among the lower age brackets. Thisis another important factor to consider when analyzing the consumer markets of newly
emerging economies, which have relatively much larger young populations than thedeveloped countries.

(2) Overseas consumer markets have much room for development
Worldwide consumer markets some 11.5x bigger than Japan'sJapan's population has been declining since a peak in 2005, whereas the global
population will continue expanding over the medium to long term. According to themedium variant of the United Nations' 2006 population forecast, the global population
is expected to grow from 6,515mn in 2005 to over seven billion by 2015, and reach ninebillion by 2045. Populations are also aging, and the proportion of the global population
aged 65 or older is projected to rise from 7.3% in 2005 to over 10% in 2025, climbing
further to 16.2% by 2050. Examining the relation between demographic andconsumption trends in the various economies of the world should reveal some usefulhints in divining how Japanese companies may best develop their presence in overseas
consumer markets.
Looking broadly at consumer markets worldwide, we see that the global consumer
market in 2006 amounted to $29,201.3bn (nominal), some 11.5x larger than the Japan's
consumer market of $2,537.7bn. Categorizing the data by developed or developing
economy shows that consumer markets in the 31 developed economies amounted to$22,227.9bn or 76.1% of the global market, while emerging economies amounted to$6,973.4bn or 23.9% of the total (Figure III-6). Average annual growth rates over the
1990s stood at 4.3% for the developed economies and 4.0% for the developing
190

economies, but the pace of growth in the developing world overtook the developed
world during 2000-2006, when growth rates came to 5.4% and 9.0% respectively, withthe consumer markets of the developing world achieving noteworthy expansion (FigureIII-7).


Consumption patterns differ by income and age bracket
Consumer spending trends in each country and region vary widely, depending on
various factors such as the structure of local industry, household composition, saving
rates, social security systems, and cultural backgrounds. That said, we have examined
consumption patterns for the 70 countries for which we can compile consumer spending
data by category, by classifying the data according to age bracket and income levels.
Breaking the figures down by income levels, we grouped the lower end of the
middle-income countries according to the World Bank's classification together with thelower-income countries in consideration of the number of data samples available.
Breaking the figures down by age bracket, we divided the countries for which we hadstatistics almost equally based on the aging index (population ratio of those aged 65 andolder compared to those aged under 15) calculated in the United Nations' population
statistics (2005 medium variant), with 23 countries in the older group (aging index of atleast 90), 24 in the middle-aged group (index of at least 20 but under 90), and 23 in theyounger group (index of under 20) (refer to Figure III-9 for details on country
classifications).
Looking at consumption patterns by income levels shows that food, clothing, andshoes comprise a large proportion of total spending in low-income countries, whereas
the relative shares for housing, furnishings and household items, transportation, culturaland entertainment, lodging and eating out, and other such categories tend to increase as
income levels rise. Looking at consumption by age bracket shows a lack of any clear
trends in terms of broad categorizations (Figure III-8), aside from the finding thatyounger countries (mostly belonging to the lower income country group) tend to spend
relatively more on food. The following shows the characteristics for each spending
category upon analyzing based on detailed categorizations.
① Food (including alcohol and tobacco)
In the younger countries, households tend to have many children, and thus thiscategory has a greater weighting among overall expenditures, with grains having aparticularly heavy weighting. Older countries also tend to have a slightly heavier
weighting for food than the middle-aged country group, as the variety of consumption

191

behaviors decreases. Alcohol and tobacco expenditures increase the older the population
regardless of income level, as these become a form of time-intensive consumption.
② Clothing and shoes
This category has a high expenditure rating among countries in the middle-income or
higher grouping that are also in the younger age bracket. This is likely due to thetendency for younger people to spend more on fashion as income levels increase beyonda certain level. In this same income level group, older countries have an even higher
weighting than middle-aged countries, but this appears to be caused by a simplificationof consumption behavior as populations age.
③ HousingThis share of the total increases the older the population, with imputed rent and utility
fees showing this trend in particular. Imputed rent increases as homeownership rises,
while utility fees increase as people age and spend more time at home. Middle-aged
countries have a higher weighting for other house and land rents, while younger
countries spend more on maintenance and improvements.
④ Furnishings and household items
This category sees the most spending by the middle-aged country group, while theolder country group has the least weighting in this category for all income levels. The
middle-aged group likely has a heavy weighting here due to household spending whencouples first marry and set up their homes, and due to the large number of working
households leading to increased use of housecleaning services.
⑤ Healthcare
While spending on healthcare, pharmaceuticals, and doctor fees increases the older
the population for middle-income and higher countries, countries in the lower-income
group also exhibit heavier weightings in the middle-age and younger brackets.
⑥ Transportation and telecommunications
Older countries in all income groups are increasing their spending to purchase andmaintain automobiles and other vehicles, while conversely decreasing their spending ontransportation services such as railroads and buses. For telecommunications
expenditures, IT equipment purchases have a strong weighting in middle-aged countries,
while IT service fees tend to increase their weighting as populations age andcommunications becomes a form of time-intensive consumption.
⑦ Cultural and entertainment, and education
Cultural and entertainment spending tends to increase at all income levels as
populations age, with this trend particularly noticeable for cultural and entertainment
goods (such as games, toys, audiovisual products and software, outdoor goods, and192

gardening and pet goods), cultural and entertainment services (such as sporting matchtickets, art and other museum entry fees, pinball and other amusement fees, and golf andski resort fees), and package tours. Spending on cultural and entertainment durable
goods (such as audiovisual equipment or computers) and other durable goods (such asmusical instruments or outdoor sporting goods) has the heaviest weighting among
middle-aged countries, with older countries having a somewhat low weighting. The
relative weighting for educational expenses tends to increase the younger the country
regardless of income level, suggesting an inverse relationship.
⑧ Lodging and restaurant spending
Although there is some variation seen in spending on lodging and restaurants
between the different income levels, broadly speaking, the older the population, thegreater the weighting, with this trend strengthening the higher the income.
⑨ Other consumer spending
This category has the heaviest weighting in the middle-aged country group at all
income levels, with this trend most pronounced for individual services (beauty services
and products), sundries (such as watches and accessories), insurance, and financial
services. The working generations form the majority of the population of countries in
the middle-aged group, and such people have more opportunity to go out, greater needfor insurance to protect household incomes, and are more aggressive in taking risks with
their assets, all of which is reflected in their consumption trends.


Attracting the key young working generations
Based on the above analysis and future projected changes in population composition,
we now look at those areas of the world consumer markets that are likely to see growth.
The UN's population forecasts (medium variant) project the worldwide population
increasing from roughly 6,514.75mn in 2005 to climb by a net increase of some
1,150mn by 2020, but they also show the youth population (those under 15) declining
from around 2035, with overall demographics aging, and the elderly population
comprising over 10% of the total and rising from 2025.
However, population aging will proceed differently in each country and region. East
Asian countries, for instance, already tend to have shrinking youth populations andburgeoning elderly populations, and will likely see overall population begin to decline
through around 2035-2040, whereas the Southeast Asian countries are likely to see
working-age populations increase gradually even as their demographics age, withoverall population maintaining a growth trend. In Africa, the Middle East, South Asia,
and Central Asia, working-age populations are likely to continue to grow rapidly as193countries maintain overall population growth. Immigration is expected to keep North
American populations expanding as well. In Europe, the overall population size willremain largely flat while the demographic ages and the working-age population shrinks,
with total population in Eastern Europe, Russia, and the CIS countries sustaining adownward trend due mainly to a decline in the working-age population (Figure III-10).
Assuming changes in population composition in each region, we anticipate growth in
the East Asian and European markets for products and services targeting older clientele,and in Africa, North America, and other areas, we see room to break into the consumer
markets targeting the working-age population. East Asia and Europe in particular have
many countries with incomes above a certain level, and these should likely be the main
targets over the near term for Japanese companies, given that these can leverage theirexperience and expertise in responding to the graying population in Japan.
Naturally, the consumption patterns for each country and region vary according tofactors such as household composition and income levels and savings rates bygeneration, and thus there are limits on how much consumer activities can beunderstood just on the basis of countrywide income levels and demographics. In fact,
Russia's older age brackets have little presence in the consumer markets due largely tounderdeveloped financial institutions and low savings rates, while younger generations
with more disposable income are leading consumption. Similar situations can be seen inother emerging economies. As these emerging markets see improving income levels,and as the younger working generations grow older, an effective means of gaining
ground in these emerging markets from a medium- to long-term perspective would be topush hard to gain acceptance among these demographic groups and build them up as anearnings generator.

194

Fig. III-1

Average propensity to consume and expenditure per household in Japan

90.0

5.0%

88.0

4.0%

86.0

3.0%

84.0
82.0

2.0%

80.0

1.0%

78.0

0.0%

76.0
-1.0%

74.0

-2.0%

72.0
70.0

-3.0%
1988

1992

1996

2000

2004

Average propensity to consume (nationwide, backward 3-year moving
average)
Average propensity to consume (aged 65 or older backward 3-year
moving average)
Yoy change in growth rate of average monthly expenditure perhousehold (nationwide, backward 3-year moving average, right scale)(Source) "Family Income and Expenditure Survey" ( Ministry of Internal Affairs and Communications)Fig. III-2

Percentage of consumption expenditure by item in Japan

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1963

1968

1973

1978

1983

Food
Fuel, Light & W ater Charges
Clothing & Footwear
T ransportation & Communicat ion
Cult ure & Recreat ion

1988

1993

1998

2003

Housing
Furniture & Household Items
Medical Care
Education
Other Consumption Expendit ures

(Sources "Family Income and Expenditure Survey" ( Ministry of Internal Affairs and Communications)195

Fig. III-3

Share of optional consumer spending by age bracket (2007)

35.0%
30.0%

Share of optional
consumer spending by
each age bracket

25.0%
20.0%
15.0%
10.0%
5.0%
0.0%

e
Ag

29

o

o
ry

e
ng

r
A

ge

9
-3
30
A

ge

9
-4
40
A

ge

9
-5
50
A

ge

9
-6
60
Ag

e

70

or

er
o ld

(Source) The MIC's "Family Income and Expenditure Survey, Savings and Liabilities".

Fig. III-4

Net assets by age bracket (2007)

2,500
Net assets（10 thousand yen)

（10 thausand yen）

2,000
1,500
1,000
500
0
-500
Age 29 oryounger

Age 30-39

Age 40-49

Age 50-59

Age 60-69(Source) The MIC's "Family Income and Expenditure Survey, Savings and Liabilities".

Fig. III-5

Mandatory spending by age bracket(2007)

70.0%
60.0%
50.0%
40.0%
30.0%

Mandatory spending
rate

20.0%
10.0%
0.0%

A ge

r y ou
29 o

nge r

A ge

9
3 0- 3A ge

9
4 0- 4A ge

9
5 0- 5A ge(Source) The MIC's "Family Income and Expenditure Survey".

196

9
6 0- 6A ge

err o ld70 o

Age 70 or older

Fig. III-6

Share of the worldwide consumer market by country or region (2006)
India
1.8%

South Africa
0.5%

Russia
1.6%

Other developing
conutries
14.4%

Brazil2.2%

U.S.A.
31.7%

China
3.3%
Other developed
countries
4.4%
Japan
8.7%

Asia ＮＩＥs
2.9%

Eurozone
20.8%

Other developed
countries in Europe
7.6%

Fig. III-7

Worldwide consumer market trends (nominal, USD basis)

30,000（US＄billion）

Developing countries
Developed contries

25,00020,00015,00010,000

5,000

0
90

92

94

96

98

2000

2002

2004

2006

(Note) Categorization as developed or developing is according to WEO (IMF) data.
(Source) Together with Figure III-6, based on materials from the United Nations' National
Accounts Main Aggregates Database (August 2007) and the Directorate Generalof Budget, Accounting and Statistics, Executive Yuan (Taiwan).

197

Fig. III-8 Consumption trends by income level and age bracket(1) By income level
100%

7.7
5.2

10.7

90%

8.1

80%

2.0

6.1

3.1

12.3

60%

12.0

50%

4.8
6.6

6.5
3.1

Other consumption expenditures
Accommodation & eating out
Education
Culture & Recreation
Communication
Transportation
Medical care
Furniture & household items
Housing
Clothing & footwear

5.7
3.9

5.7
3.4

10%

4.0
2.9

14.7

18.0

21.7

20%

9.3
4.8
4.9

4.2
6.3

40%
30%

2.7
4.1

9.1

70%

5.9
4.1
2.7

37.2

Alcoholic beverages & cigarettes
Food & non-alcoholic beverages

24.0

12.8

0%
High-income group

Middle-income
group

Low-income group

(31)

(19)

(20)

11.0

6.8
4.8

(2) By age bracket
100%
90%
80%
70%
60%
50%
40%
30%

7.5
7.2

1.2

6.4

3.4

7.7

8.2
12.1
4.4
5.5
20.0

3.3

2.9

4.1
3.0

11.1

3.4

4.5
5.9

10.8
5.0
6.7

17.7

18.5

5.6
2.6

20%

6.3
4.6

5.8
3.2

10%

19.4

18.6

Older gourp

Middle-aged gourp

Younger group

(23)

(24)

(23)

30.6

Other consumption expenditures
Accommodation & eating out
Education
Culture & Recreation
Communication
Transportation
Medical care
Furniture & household items
Housing
Clothing & footwear
Alcoholic beverages & cigarettes
Food & non-alcoholic beverages

0%(Note)(1) The percentage of total spending for each spending category for each country or region, averaged for each grouping(2) Figures in parentheses are the number of countries.
(3) Income levels are based on World Bank categories (per-capita GNI for 2006), with medium-low-income countries includedin the low-income grouping (per-capita GNI of at least $906 but not more than $3,595) due to the number of data samples.
(Source) Both this Figure and Fig. III-9 are based on the UN's National Accounts Main Aggregates Database (August 2007) andWorld Population Prospects: The 2006 Revision (March 2007), the World Bank's World Development Indicators (WDI)2008 (April 2008), and materials from Euromonitor International.

198

Fig. III-9

Percentage of expenditure by item, viewed by age and level of income (nominal)(7) Group of low income and aged countries (2)(4) Group of middle income and aged countries (7)[Population]
60 million[Scale of consumer markets][Population]
190 million[Scale of consumer markets]
700 billion dollars

Food & non-alcoholic
beverages

43

0%

10%

Furniture & household
Culture &Accommodation
Transportationutensils
recreations
Education
Medical careCommunicatio
Others
Housing

Clothing & footwear
Alcoholicbeverages &Aged countries

82.9 million dollars

6.1

20%

30%

40%

11.7

50%

10.8

60%

80%

90%

Age classification

Clothing & footwear
Housing

Medical care Communication

Education

OthersFurniture & household
Accommodations &utensils
Transportation Culture & recreation
eating out

0%

10%

4.9 6.2

20%

30%

19.6

40%

(Dataaggregatedfor7countries)
Bulgaria
LatviaCroatia
Russia50%

5.2 3.8

13.3

4.1 7.0

60%

70%

80%

Estonia

5.0 5.4

90%

Romania

13.7

100%

Lithuania

0%

4.2 5.6

10%

20%

21.5

30%

40%

(Data aggregated for 14 countries)
Italy
Japan
Germany
Austria
Belgium
Portugal
Switzerland Finland

5.9 4.8

12.3

3.1

9.5 1.0 9.0

50%

60%

70%

80%

GreeceSweden

9.2

90%

Spain
Hungary(8) Group of low income and middle-age countries (13)(5) Group of middle income and middle-age countries (12)(2) Group of upper income and middle-age countries (25)[Population]
320 million[Scale of consumer markets]
1.2218 trillion dollars[Population]
580 million[Scale of consumer markets]
14.7929 trillion dollars

Clothing & footwear
Alcoholicbeverages &Middleage
countries

Accommodation
Furniture & household Transportation Culture &sutensils
Medical care
Housing
Communicatio Education
OthersFood & non-alcoholic
Education
OthersMedical care Communication
Clothing &beverages
Furniture & household
Culture & Accommodations &Alcoholic beverages f& t
utensils
Transportation recreation eating out
Housingcigarettes

2.8 8.4

11.4

5.5 5.6

4.2 4.0

8.2

Furniture & household
Clothing & footwear
utensils
Housing

Alcoholic beverages & cigarettes

Medical care Communication Education

OthersAccommodations &Transportation Culture & recreation eating out

3.2

3.4
36.5

Food & non-alcoholic
beverages

100%

Slovenia
Czech Republ[Population]
1.45 billion[Scale of consumer markets]
1.926 trillion dollars
Food & non-alcoholic
beverages

23.8

4.7

3.4 5.7

17.7

7.5 4.1

9.3

4.2 5.9

4.3

10.8

11.3

3.1 5.1

20.8

6.7

2.9

5.2

12.2

50%

60%

9.5

2.6 7.8

12.7

5.3

0%

10%

20%

30%

40%

50%

60%

(Data aggregated for 4 countries)
Thailand
China
Azerbaijan
Ageing index 20

Food & non-alcoholic
Alcoholicbeverages
beverages &
i

1.6
24.0

100%

(Data aggregated for 2 countries)
UkraineBelarus
Ageing index 90

Education
Communicatio
Clothing & footwear
Furniture & Medical care
Food & non-alcoholic
OthersCulture &household utensils
Accommodation
beverages
recreation
Alcoholics
Housing
Transportation
beverages &1.7
4.2 3.4 6.0 3.4 3.6 2.5
3.2

70%

(1) Group of upper income and aged countries (14)[Population]
390 million[Scale of consumer markets]
7.3589 trillion dollars

70%

80%

90%

0%

100%

10%

20%

30%

40%

(Data aggregated for 6 countries)
PolandSlovakia
Argentina

Tunisia

50%

60%

70%

Kazakhstan

80%

90%

Chile

100%

0%

10%

20%

30%

40%

(Data aggregated for 14 countries)
FranceDenmark
UK
Australia
U.S.
CanadaSingapore
IsraelBrazil

70%

80%

90%

HongKong
Netherlands
NewZealand Ireland(9) Group of low income and low-age countries (85)(6)Groupofmiddleincomeandlow-agecountries(13)(3) Group of upper income and low-age countries (7)[Population]
3.11 million[Scaleofconsumermarkets]
1.9631 trillion dollars[Population]
290million[Scaleofconsumermarkets]
1.1961trilliondollars[Population]
30 million[Scale of consumer markets]

Food & non-alcoholic
beverages

Clothing & footwear Furniture & household
Transportation Culture & Accommodationutensilss
Medical care
Alcoholic
Educatio
Housing
OthersCommunicatio
beverages &Food & non-alcoholic
beverages

Communicatio
Education
OthersClothing & footwear Furniture & household
Culture &Medical careutensils
recreation Accommodations
Transportation& eating out
Alcoholic beverages & cigarettes Housing

Food & non-alcoholic
beverages

NorwaySouthKorea

220.3 billion dollars
Education
OthersMedical care Communication
Culture & Accommodations
recreation & eating out
Transportation

Clothing & footwear

Alcoholic beverages & cigarettes Housing

100%

Furniture & household
utensils

Young age countries
36.5

0%

10%

20%

2.8 5.2

30%

40%(Data aggregated for 14 countries)
Indonesia
VietnamEcuador
Algeria
India
Egypt
Nigeria
Jordan16.2

50%

4.9 4.8

60%

Peru
Bolivia

70%

3.3

4.5
10.1 2.4
4.2
6.4
2.2

80%

MoroccoPhilippines

90%

24.1

16.5

6.3 4.8

14.1

4.0 5.2

6.2

15.9

7.2

0%

10%

20%

30%

40%

(Dataaggregatedfor6countries)
TurkeyMexicoVenezuela

50%

60%

70%

80%

Turkmenistan Malaysia

90%

0%

100%

SouthAfrica

3,595 dollars
Low income country

26.8

11,115 dollars
Middle income country

Level of income

199

10%

20%

30%

(Data aggregated for 3 countries)
KuwaitUAE

Low
Per capita GNI

1.1 8.4

9.6

2.5

9.8

3.7

3.9 5.3

8.0

5.0

100%

Columbia
Pakistan

3.0 5.2

40%

50%

60%

SaudiArabia

70%

80%

90%

100%

Table III-1 Consumption trends and composition features by age bracket
Category

Consumption trend / composition features• Older people have more limited consumption
behaviors, and stay home longer (spending on food,clothing, utilities, and cultural and entertainment goods)• When going out, they use their own vehicles
Older (purchasing and maintaining same)
countries • Increasing weighting for time-intensive consumption(alcohol and tobacco, communications, cultural andentertainment services, package tours)• Increasing spending for pharmaceuticals and healthcare
goods• Main consumers are working-age in their 30s and 40s(household services, insurance)
Middle• Often go out (beauty services, accessories)
aged• Increase in marriages and household set-up (furniture,countries
household goods, cultural and entertainment durable• Aggressive in their asset allocation (financial services)• Have many young children (food, education)• For incomes above a certain level, young people spend
Younger more on fashion (clothing)countries • Much of the population does not have adequate assets,
and people are more likely to use public transportation
than to have their own vehicles (transportation services)Fig. III-10

Population patterns by broad age bracket(1) Increase in elderly population, while overall population shrinks（Eastern Asia）（thousand people）
2,000
Age0-14

Eastern Asia
15-64
65-

1,500
1,000
500
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

200

(2) Working-age population supports overall population growth（Africa, Middle East, North America, South Asia, etc.）
2,500
2,000

（thousand people）
Age0-14Africa15-64

65 or older

1,500
1,000
500
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

(3) Older population increases as overall population size remains mostly flat
（Western Europe, Northern Europe）

250
200

（thousand people）
Age0-14

Western Europe
15-64

65-

150
100
50
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

(4) Decrease in working-age population, while overall population shrinks（Eastern Europe, Russia and CIS countries, Southern Europe）（million people) Eastern Europe (including Russia and ＣＩＳ）
350
Age0-14
15-64
65300
250
200
150
100
50
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

(Note) Regional classifications are according to UN materials.
(Source) Based on the UN's World Population Prospects: The 2006 Revision (March 2007).

201

2. Consumption Structure of the World and Responses by JapaneseCompanies(1) Biggest consumers of Japanese products are Asia, the US and the EU
Data indicating what countries and regions have been consuming Japanese products
is vital for over viewing Japan’s strategies for overseas. It means grasping the total
overseas sales of Japanese companies (total consumption demand), that is exports plus
overseas production of Japanese companies. To calculate this, we take the sum ofoverseas local sales from Japanese companies' local production and purchases fromoverseas Japanese subsidiaries, multiply that by the average percentage of ownershipstake of Japanese companies in their overseas subsidiaries in order to estimate sales on apurely Japanese company basis, and then add to that Japanese exports of goods andservices to the relevant regions (Table III-2).
Total overseas consumption demand for Japanese companies came to ¥211tn in 2005,
amounting to roughly 40% of Japan's GDP. Exports from Japan amounted to ¥74tn, or
35% of the ¥211tn total. In other words, the remaining 65% or roughly twice the valueof exports corresponds to local sales from local production together with purchasesfrom Japanese companies in third-party countries. Local sales from local production are
greater than exports in the US, the EU, Oceania, and the ASEAN 4 and NIES 3
countries.
Looking at the share of total overseas sales of Japanese products and services byregion, Asia accounts for 36%, North America for 35%, and the EU for 20%. By
country, the US comprises 33%, much higher than China's 13%. Consequently, the threebiggest purchasers of Japanese products are the US, Asia, and the EU. Central andSouth America account for only 4%, the Middle East for 1%, Oceania for 3%, andAfrica for 1%, with these areas all comprising only small shares. However, this showsthat, including Eastern Europe, these regions could be viewed as good prospects toincrease their share of consumption of Japanese products.
The US is certainly one of the major demand areas for Japanese companies, and thedecoupling theory that the US economy is now having less of an impact does not seemto hold completely true for Japanese companies. That said, Asia is already the biggest
sales areas for Japanese companies, and demand in the BRIC countries of Brazil, Russia,
India, and China is growing substantially. Consequently, it is vital for Japanesecompanies to expand their sales channels in the consumer markets not only of the US
and the EU, but also in the BRIC countries and the post-BRIC newly emerging
economies.

202

(2) Biggest sales area for US products is Europe
The biggest purchasers of Japanese products have been Europe and the US, and thegeographically near Asian Pacific region. Taking a similar view of the overseas sales
locations of US companies, we see that, in 2004, the biggest purchaser of US products
and services was Europe, which comprised almost half of the total at 47% (Table III-3).
The UK was the biggest single country at 14% of the total.
Although the Asian Pacific region (including Japan) is geographically far from theUS, the area comprises 24% of all US foreign sales, corresponding to the same relative
weighting Europe has for Japan's products. This indicates how attractive the Asian
Pacific consumer market is for the US, and how it has gained in purchasing power.
Meanwhile, Canada and Central and South America comprise roughly 13% of US
foreign sales, or roughly about the same weighting as China has for Japan.
Japanese sales in 2004 came to 8% of the worldwide total for US product sales, on apar with Germany (8%), France (6%), and Mexico (6%). Japan is therefore relatively
much less important to the US than the US is to Japan, given that the US makes up 33%
of Japan's foreign sales. Meanwhile, China (including Hong Kong) accounted for only
4% of worldwide US product and service sales. Central and South America comprised
12.4%, an expectedly large share, whereas the Middle East made up 1.7% and Africa
accounted for 1.6%.
Total overseas consumption demand for US products and services amounted to $4tn
in 2004, roughly double the size of Japan's. The US also has a relatively higher ratio
than Japan of local sales from local production versus exports. This is likely due to theactive M&A activities in Europe by US companies, leading to a more developed local
presence.
As such, Japan's main overseas sales markets are centered around three focus areas
roughly equally, while the US has the one main focus in Europe, which comprises
roughly half of US overseas sales, with another quarter going to Japan and the rest of
the Asian Pacific region, and another quarter going to Canada and Central and SouthAmerica.
With the increasing impact of the newly emerging economies going forward, themain countries and regions for foreign sales by both Japan and the US will likely bediversified and more evenly distributed. In other words, for both Japan and the US, as
the relative importance of Asia increases, we look for Europe and particularly Russia
and Eastern Europe to likewise become more important. Then as the weightings forCentral and South America, the Middle East, and Africa increase, the aggregate total
market is expected to expand.
203

(3) Japanese companies showing more interest in newly emerging markets in 16
countries
The middle and upper classes are expanding rapidly in the newly emerging
economies, backed by high economic growth rates, and purchasing power is growing
faster than in the developed countries. Given considerable capital inflows, most newly
emerging economies are subject to high inflation rates, but growing production andconsumption are also leading to high real GDP growth. Strategically gaining ground inthese newly emerging consumer markets is becoming vital for the business models ofJapanese companies. This also holds true for companies that previously focused on
domestic demand by prioritizing the domestic Japanese market.
There has been no hard and fast definition of newly emerging markets to date. The
BRIC countries of Brazil, Russia, India, and China, the NEXT 11 countries of Turkey,
Vietnam, Indonesia, Bangladesh, Egypt, the Philippines, Iran, South Korea, Mexico,
Nigeria, and Pakistan, and the five VISTA countries of Vietnam, Indonesia, South Africa,
Turkey, and Argentina are common examples. Thus, the term "newly emerging
economy" is somewhat vague, and generally lumps together those developing countries
undergoing rapid growth.
In this White Paper, our analysis of consumer markets looks at the world in the six
regions of the Asian Pacific, Russia and Central and Eastern Europe, Central and SouthAmerica, the Middle East and Africa, North America, and Western Europe, looking
especially at the four BRIC countries and other emerging economies of rising interest.
For the non-BRIC areas of interest, we made use of access logs of the overseas businessdata posted on the JETRO website (JETRO File, J-FILE (5)). There were 4.38mn accesshits for the fiscal 2007 J-FILE, as of 21 March 2008. Breaking this down, our definition
for emerging economies of increasing interest is based on (1) the top 50 J-FILE areas
accessed after excluding the developed and BRIC countries, and of these, (2) thoseareas for which fiscal 2007 access hits were up by at least 30% over the previous year,
or for which fiscal 2006 hits were up at least 20%, and (3) those countries and regionswith per-capita GDP of at least $500.
--------------------------------------------------------------------------------------------------------5. Comprehensive informational website providing data and the systems of the economy, trade, andinvestment of countries around the world, accessible at http://www3.jetro.go.jp/jetro-file/country.do---------------------------------------------------------------------------------------------------------The resulting group of countries and regions is shown in Table III-4, giving us 16
newly emerging countries of increasing interest for Japanese companies (the JETRO
File Increasing-Interest Countries: the JFIC 16). The first feature of this list is the204regional distribution, with three of these 16 newly emerging countries located in Asia,
three in the Middle East, four in Central and South America, three in Eastern Europe,and three in Africa. Japanese company interest is therefore broadly spread around theglobe.
The second feature is that the area of most interest is Asia, as expected, followed inorder by the Middle East, Central and South America, and Central and Eastern Europe.
South Africa ranks seventh in terms of interest, reflecting the increased attention Africa
has been garnering recently.
The third feature is that many of the JFIC 16 countries are rich in resources such as
minerals, foods, and human resources (including those overseas remitting money backhome), putting them in a position to benefit from rising prices on foods and natural
resources. Even in countries where deteriorating terms of trade are causing incomes tomove elsewhere, this can be offset by remittances from abroad, such as we see in Egypt.

(4) Shift to upper income levels in newly emerging countries, mainly in the BRICs
countries, Russia, and Eastern Europe
In order to more closely examine the characteristics of different levels of disposable
income in the countries and regions around the world, we regrouped the 15 income level
categories from $500 through to over $75,000 into three main groups from lower tohigher of five categories each, starting with the low-income group ($500-$4,999), themiddle-income group ($5,000-$34,999), and the high-income group ($35,000+). The
household breakdown for 2007 disposable income shows a large number of low-income
households in the Asian Pacific, the Middle East, and Africa, with middle-income
households numerous in Russia, Eastern Europe, and Central and South America. As
expected, the high-income group was comprised mostly of Western Europe and the US.
The newly emerging countries have seen rising income levels in recent years, with
consumption patterns diversifying and becoming more upscale. However, over 70% ofhouseholds in the BRIC countries are still in the low-income group. While the 2007
figures alone are not enough to explain diversifying consumption, comparing income
distributions between 2002 and 2007 clearly shows a major change. The middle-income
group has grown dramatically in Russia and Brazil, with the low-income groupshrinking from over 60% of the total to under 30%. Although China and India did not
see as much change, the middle-income group expanded in China from 8% in 2002 to
20% in 2007, and in India, from 5% to 12%.
As to why there has been such a different shift in income levels between Russia andBrazil on the one hand and China and India on the other, it is likely due first to rapidly205rising energy resource prices boosting incomes considerably in Russia and Brazil. There
are also differences in inflation, and greater increases in prices in Russia and Brazil
have also acted to boost incomes from the low to the middle range. This has resulted indifferent growth rates in overall disposable income, with incomes in Russia rising from2002 to 2007 by 214%, and by 162% in Brazil, compared to only 88% in China and104% in India.
The shift to the higher-income group was also quite notable in the JFIC 16 countries.
Overall, these countries reduced their weighting of low-income households, with sizable
shifts to the high-income level in Pakistan, Thailand, Romania, Argentina, Venezuela,
Egypt, Turkey, and South Africa, where inflation were relatively high. Mexico, the UAE,
and Saudi Arabia decreased their weightings in the middle-income group, and increased
them in the high-income group. Mexico and Saudi Arabia saw high-income households
rise to 20% of the total, but the UAE pushed this to near 80%, making this one of therichest countries in the world.
In Eastern Europe, the shift to the higher-income group was seen due in part to direct
investment by foreign companies primarily in the automotive sector, and to the ensuingincrease in employment. Eastern Europe as a whole produced 2.44mn automobiles in2006, with production in Poland rising considerably from 320,000 units in 2003 to
710,000 in 2006, Hungary rising from 130,000 to 190,000, and Romania rising from
100,000 to 210,000. Poland has become a manufacturing base for high-end consumer
electronics destined for the European market, and the country currently produces 20%of flat-panel TVs for Europe, which is expected to increase to 70% by 2010. Romania
has undergone a round of privatization, and reformed its tax code to implement a 16%
flat tax rate from 2005, which appears to have led to increased disposable income.
Inflows of foreign investment have galvanized the local economies in Thailand,
Turkey, and South Africa, lifting income levels. Disposable income in Thailand has
risen substantially, with per-capita GDP reaching $4,000 in 2007. The social
requirements for getting married are to have a house and a car, and high-end
automobiles are apparently selling well.
European and Japanese companies are both making headway in Turkey, increasingly
establishing local manufacturing bases to ship to markets in Europe and other Middle
Eastern areas. South Africa, meanwhile, is a resource-rich country with not only
diamonds and rare metals but also the sixth-largest reserves of coal in the world, with
the number of households earning at least $15,000 rising to 1.37mn for blackhouseholds in 2005, beating out the 1.19mn for white households. In Vietnam, high-end
goods are selling better than the statistics due to factors such as rising stock and real206

estate prices boosting the number of high-income earners, as well as increased overseas
remittances and employment boosting household income levels.
Argentina is on a par with Turkey and Brazil in experiencing accelerated growth,since coming through its economic crisis in the early 2000s. Much as in Brazil, this has
been backed largely by rising grain prices and an influx of foreign investment. Peru has
seen an increase in middle-income households due to the country's enormous metal ore
reserves, including copper, silver, lead, gold, iron ore, and even phosphorous andmanganese. Similar to the situation in Mexico, the country has benefited significantly
from money remittances from abroad, backing active middle-income level consumptionthat cannot be explained just on the basis of annual income statistics.
Excluding those Caribbean countries with small populations, Mexico ranks after
Chile and Venezuela among Central and South American countries in terms of 2007
per-capita GDP. The country has many high-income households, numbering some
5.26mn in 2007 and accounting for 36% of all JFIC 16 high-income households. Turkey
has 1.97mn high-income households, while Venezuela and Poland each have roughly
1.13mn. Among the BRIC countries, China has the most at 3.09mn, followed by Russia
with 1.96mn. The US as a single country has 81.5mn high-income households, roughly
70% of Western Europe's 116mn.
Thus, we see that the JFIC 16 shift to higher incomes is occurring in other newly
emerging countries and not just the BRIC countries, and also that some non-BRIC
countries are even achieving higher incomes than the BRICs. The growing regions arewidespread, and we look for Japanese companies to take a broad approach to these
newly emerging markets.

(5) Big 3 consumption items are food and non-alcoholic beverages, housing, andtransportation
The spread of credit cards and loans in the newly emerging countries has led to anincrease in consumption. Countries such as Venezuela with high inflation rates that
actually exceed interest rates effectively have negative interest rates, increasing theadvantages of using loans. Rising employment has also increased the number ofworkers per family, and rising household incomes are another factor underlying growing
consumption. Moreover, anticipations of further income growth are boosting consumer
spending even more than increases in disposable income in some cases, buoying thepropensity to consume.
According to Euromonitor, 2007 total worldwide consumer spending was up by 54%
over 2002, amounting to $31,650bn. North America and Western Europe comprised
207

64% of the global total, followed by the Asian Pacific's 19%. The BRIC countries
accounted for 10%, and the JFIC 16 for 8%. In terms of growth in consumer spending
from 2002 to 2007, Russia and Eastern Europe were up the most by 172%, followed byCentral and South America at 95%, the Middle East and Africa at 77%, and thenWestern Europe buoyed by a favorable economy to rise 72%. The BRICs were up by
89% to beat out the JFIC 16's 79%. This was due to the inclusion in the JFIC 16 ofcountries with growth rates under 60%, such as Mexico, Saudi Arabia, Peru, and Egypt.
The countries with high growth rates tend to be resource-rich and have high inflation.
2007 consumer spending by country for the BRICs and JFIC 16 shows that China,
Brazil, Russia, and India come out on top, followed by Mexico, Turkey, and Poland.
Countries with high consumption growth rates from 2002 to 2007 were Russia (up244%), Romania (272%), Nigeria (208%), Turkey (188%), Argentina (146%), andSouth Africa (159%).
Looking at consumption of goods and services by category, the three biggest
spending items for the newly emerging countries are foods and non-alcoholic beverages,
housing, and transportation (including vehicle purchases). The weighting for foods andnon-alcoholic beverages was lower in Europe and the US, with heavier weightings forhousing, cultural and entertainment, accommodation and food services, and otherconsumer spending (including beauty products and services, and entertainment). Healthinsurance spending also had a heavy weighting in the US.
2007 BRIC spending on foods and non-alcoholic beverages comprised 31% of thetotal, while housing accounted for 13% and transportation for 10%. China and Indiaeach spent almost 35% of their totals on foods and non-alcoholic beverages, and 10% of
Chinese consumption went to telecommunications, for double the level in other BRIC
countries. Conversely, transportation spending in China was quite low at only 3% of thetotal. The biggest weightings in the "other" category were Brazil's 14% and India's 10%.
The JFIC 16 average 2007 weighting for foods and non-alcoholic beverages came to26%, compared to 19% for housing and 13% for transportation. Egypt's foods andnon-alcoholic beverages spending comprised 40% of the country's total, whereas in the
UAE, this category only accounted for 9%, with the difference instead able to be spent
on other items like transportation and education. Those countries with a weighting ofaround 40% for foods and non-alcoholic beverages were Pakistan, Vietnam, Egypt, andNigeria. This weighting stood at a low 17% for Hungary and at around 20% for Poland,
Argentina, and South Africa.
Housing expenditures in most JFIC 16 countries exceeded 10%, but in Vietnam, thiscategory accounted for only 4%. Meanwhile, transportation costs had a low weighting208

of 4% in Pakistan, and 7% in Egypt and Nigeria. Accommodation and food services
accounted for a high 9% in Peru, while clothing and shoes was up to 10% in Saudi
Arabia. The "other" category amounted to 13% in Poland, 10% in Argentina, and 11%
in Mexico, Saudi Arabia, and South Africa, suggesting that income levels leave someroom for luxuries.
Categories that posted high growth from 2002 to 2007 in both the BRIC and JFIC 16
groups were cultural and entertainment, telecommunications, transportation, andfurniture and household items. Clothing and footwear also posted high growth in the
JFIC 16 countries, while accommodation and food services as well as health insurance
also grew substantially in the BRIC countries. Spending growth was surprisingly rapid
for Russian telecommunications (718%), education (538%), and accommodation andfood services (473%), and was also rapid for Indian telecommunications (198%) andChinese transportation (187%). In the JFIC 16 countries, transportation spending rosehigher than other categories in Pakistan (133%), Thailand (123%), and Turkey (345%).
Countries with relatively rapid growth of the "other" category were Thailand (142%),
Argentina (166%), and Poland (107%).
Russia is notable for not just increasing its disposable income, but also for its low
weightings for saving, housing, and utilities, as most spending is going towards
consumption. Compared to other countries of similar income levels, Russia has
considerable purchasing power. In China, despite the demographics already leaning
towards older ages, the one-child generation receives substantial family financial
support from both parents and both sets of grandparents, and the resulting highpurchasing power for housing or luxury goods is helping drive the Chinese consumer
market.
Some examples of sales promotions for automobiles and other items are consumption
tax exemptions in Venezuela, or lowered import tariffs and income taxes in Egypt.
Imports of used automobiles into Mexico have been up sharply since the 2005 abolitionof import restrictions for vehicles manufactured by NAFTA signatories. In Poland, the2004 ascension to EU membership brought with it the end to used-car emissions gas
regulations, and of the 1.29mn passenger automobiles sold in 2007, the share of newcars had declined to 20%. Due to higher insurance fees for used automobiles, more
foreign insurance companies are entering the Polish market, such as French firm Axa.
Vietnam is set to liberalize its retail markets in 2009, and companies are eagerly
anticipating the event. The markets have become more energetic, with foreign
investment quintupling from 2005 to 2006, and the expected increases in both income
levels and younger generations should be positive for future development. Of note in209Vietnam is the large number of motorbikes, but spending for high-end automobiles, golf
fees, and other items are increasing. Meanwhile, many department stores andhypermarkets have set up shops in Thailand, leading to more diverse consumption.
Automobile sales have also been firm, with the country posting a heavier weighting forautomobile purchases than other countries.
Consumption in Turkey is typified by a preference for new items, brand goods, andvisually attractive items. Meanwhile, more long-term planning backs some trends, asconsumers tend to look beyond just the brand name for good after-sales service as well.
South Korean products have come to the fore recently for automobiles and consumer
electronics, threatening the dominance of Japanese brands.

(6) Younger shoppers more influential in newly emerging consumer markets
In China and Vietnam, younger people are shopping more, not just at high-end
specialty shops but at supermarkets as well. Despite the advancement of graying
demographics in China, the so-called "post-80" generation of those in their teens andtwenties born after 1980 tend to lead consumption trends. The one-child generation issometimes described as having six pockets money-wise, given their financial support
from both parents and both sets of grandparents. The impact of such support fromfamily members is considerable, aiding in the purchasing of not just condominiums, butalso high-end handbags and automobiles.
In Russia, per-capita income is on the rise among the younger generations, and isalready higher than the overall average. This is backed both by a declining
unemployment rate, reflecting a strong economy, as well as higher educational
achievements among younger people, all leading to an increase in income levels.
Moreover, younger Russians can afford to buy automobiles as they have little need tospend on housing, allowing them to put large part of their disposable income towards
consumption. Thus, a younger person with an annual income of some $20,000 is still
able to buy a car. Paying for items such as cars and consumer electronics using loans is
also gaining acceptance in the newly emerging countries, which likewise is bolstering
consumer confidence among younger generations.
In Asia, Indonesia is notable for higher average income levels stands among 20th and30th compared to other age groups, and these levels are increasing year by year.
Vietnamese demographics lean heavily towards the younger generations, and rising
employment is bringing about increased incomes, with overall purchasing powerincluding for younger people on the rise, supported not just by family members in
Vietnam, but also by remittances from family members living overseas.
210

Items where younger people (specifically, those under 30th) are leading consumption
appear to be foods and non-alcoholic beverages, fashion, consumer electronics and IT
products, furniture, household goods, telecommunications services, and education. As
income levels in the emerging countries rise, this expands to include automobiles,
housing, and high-end or brand furniture and other goods. The popularity ofJapanese-made beverages in China appears to be due to an image of hip-ness expressedby the shape of the bottles and other factors. Younger generations are also more likely to
go online to find information about products and fashions. Despite relatively low ratesof PC ownership in Vietnam, younger people there still go online by frequenting
internet cafes, where they research a broad swath of subjects from job prospects to thelatest discount sales. Parents indirectly benefit as they glean such information from theirchildren, such that younger generations influence the consumptions patterns of thewhole family.
Not all of the newly emerging countries have the same "six pockets" situation as in
China, but they do all, aside from Russia and Eastern Europe, demographically lean
towards the younger generations. India, Pakistan, Vietnam, and other Asian countries;
Turkey, Saudi Arabia, the UAE, and other Middle Eastern countries; Mexico, Venezuela,
Peru, and other Central and South American countries; and Egypt, Nigeria, and other
African countries all have heavier demographic weightings towards the younger end.
Looking at 2007 population statistics for those aged 0-39 shows that this segment
comprised roughly 50% in Europe and the US, but 65% in the BRIC countries, and 73%
in the JFIC 16 (Figure III-19).
Larger young populations in the emerging countries imply that parental purchasing
power is correspondingly more likely to be focused on their children. Even countries
such as China, where the one-child policy has brought about a graying demographic anda smaller young population, spending on children does not tend to decrease. Instead,demand rises for baby products, milk, and other high-quality, high-end items.
Figure III-20 shows actual relative purchasing power (incomes) for younger
generations. As shown in the graph, incomes for people under 40 comprise 38% of thetotal for the G7 countries, but 53% in the BRICs and 57% in the JFIC 16, clearly
indicating higher income levels for younger people in the newly emerging countries.
Higher relative incomes for younger people tend to translate to relatively more of an
impact on consumption than for older generations, in a simple comparison. Considering
also support from parents and grandparents for purchases of housing, automobiles,
clothing, consumer electronics, and other items, the impact of younger consumers on
the whole consumer market is even higher than the numbers suggest.
211

Incomes for younger people are sometimes put towards the whole household, and do
not always go directly towards purchasing power. However, surveys show that roughly
half of parent incomes in China are spent on their children, and thus consumption trends
are expected to develop along similar lines in other emerging countries, with spending
centered around education.
Aging demographic trends are beginning to be seen in emerging countries as well, as
was seen in the developed countries, and the long-term picture suggests an increasing
influence from older generations. That said, newly emerging countries are likely tomaintain a heavier demographic and income weighting towards younger generations
than in the developed countries. Upon factoring in greater abilities to use the internet for
research, deeper understanding of product technological advancements, active use ofloans, and the use of parental incomes, younger generations are expected to have amajor impact on consumption trends in the markets of newly emerging countries.
Japanese companies will therefore need sales strategies for the newly emerging
countries, such as China, India and the other BRICs and JFIC 16, that take theconsumption trends and influence of younger age brackets into account.

(7) Penetration rates for durable consumer goods in newly emerging countries
expected to rise further
Table III-5 shows the 2007 penetration rates by region for ten types of durable
consumer goods. In the chart, we see that North America and Western Europe arealmost saturated for everything but air conditioners, game consoles, and motorcycles.
Demand going forward will therefore be primarily based on replacement. For air
conditioners, Western Europe has a penetration rate of only 10%, making growth in thisarea likely.
Another region with advanced market penetration is Eastern Europe. Color TVs,
refrigerators, and washing machines have penetration rates of over 80%, and penetration
rates for vacuum cleaners and passenger cars are close to those in the US and Europe.
Penetration rates are rising for consumer electronics in the Asian Pacific region, andalthough they are not as high as in Eastern Europe, they are on a par with Central andSouth America. That said, there is still room for growth. Rates in the Middle East andAfrica have not reached the levels seen in other regions, excluding a few richer
countries, and these regions have the best prospects for growth going forward.
By country, China has extremely high penetration rates for color TVs, cellular phones,
and refrigerators. India, meanwhile, has low rates overall for everything but color TVs,
suggesting that a giant of a market lies sleeping. Much like India, Pakistan, Vietnam,
212

and Nigeria are also prospective high-growth markets. By product, penetration rates
worldwide for air conditioners, cameras, PCs, and passenger cars are only some 30-40%,
and would have to sell at double the current rate to achieve the same levels seen forrefrigerators and washing machines.
Penetration rates for cameras and cellular phones are considerably low compared toother countries in India, Pakistan, and Nigeria, leaving ample room for growth.
Passenger car penetration rates stood at 6.2% in China, 5.5% in India, and only 1.1% in
Vietnam, leaving room to double or even increase by an order of magnitude to reach the
12.2% seen in Thailand.

213

Table III-2 Total consumption demand for Japanese goods and services by country and region (2005)(Unit：billion yen, ％）North America Central
U.S.
Local sales by local subsidiaries (a)Imports from Japanese companies in other countries (b)a+b (c）"c" (d)Exports from Japan of goods and services (e)Total consumption demand (d+e)
Share of total consumption demand

54,926 52,173
9,843 9,056
64,769 61,229
54,535 51,555
18,757 17,511
73,292 69,066
34.7 32.7

and
South
America

Asia

MiddleASEA
NIES3 East
N49,948 9,271 9,412
243
6,759 5,447 6,133
264
16,707 14,718 15,545
507
14,067 12,393 13,089
427
13,150 6,266 8,597 2,055
27,217 18,659 21,686 2,482
12.9
8.8
10.3
1.2

Europe3,021 29,960
2,830 19,012
5,851 48,972
4,927 41,234
3,215 34,192
8,142 75,426
3.9
35.7

OceaniaEU

China

17,787
17,42135,20829,645
13,65043,29520.5

17,34017,07334,413
28,976
12,183
41,15919.5

Africa World

2,684
2,484
5,168
4,351
1,974
6,325
3.0

704
663
1,367
1,151
929
2,080
1.0

109,325
52,517
161,842
136,270
74,772211,042100.0(Note)(1) "a" and "b" are local sales by local subsidiaries, and imports into the relevant regions from Japanese companies in other countries, respectively, bothfor fiscal 2005. "e" is exports of goods and services, for calendar 2005.
(2) "d" is calculated by multiplying "c" by the 84.2% average ownership stake by Japanese companies in their overseas subsidiaries (the average figure is
calculated from METI's Survey of Overseas Business Activities).
(3) Imports from Japanese companies in other countries into China, the ASEAN4, and the NIES 3 (b) are calculated from the weightings of Asian regional sales.
(Source) Figures are calculated based on METI's Survey of Overseas Business Activities, and the Bank of Japan's balance of payments tables.

Table III-3 Total consumption demand for US goods and services by country and region (2004)(Unit：billion dollars, ％）Central and South America Asia-PacificCanadaMiddleAustralia Japan East

Brazil Mexico

EuropeFrance Germany Netherlands UK

Africa Wolrd

China(incl.
Hong
Kong ）

Local sales by local subsidiaries (a)309.9 220.7

57.1

82.7 467.5

71.0 164.1

10.8 1,005.8

122.0

163.8

61.4 310.2

26.4 2,041.1

71.7

Imports from US companies in other countries (b)a+b (c）

13.6 53.2
323.5 273.9

13.8
70.9

19.9 190.1
102.6 657.6

28.9 66.7
99.9 230.8

21.2 566.9
32.0 1,572.7

68.8
190.8

92.3
256.1

34.6 174.8
96.0 485.0

16.5 861.5
42.9 2,902.6

29.2
100.9

Exports from US of goods and services (d)Total consumption demand (c+d)
Share of total consumption demand219.9 230.2
543.4 504.1
13.4 12.4

18.7
89.6
2.2

128.7 313.4
231.3 971.0
5.7 23.9

20.9 88.4
120.8 319.2
3.0
7.9

36.9 330.7
68.9 1,903.4
1.7
46.9

34.4
225.2
5.6

50.4
306.5
7.6

32.8 77.2
128.8 562.2
3.2 13.9

21.1 1,152.2
64.0 4,054.8
1.6 100.0

61.7
162.6
4.0

(Note) Chinese figures for local sales by local subsidiaries and for imports from US companies in other countries are each calculated by multiplying the respective totals for the Asian
Pacific region by the sales weighting of Chinese subsidiaries relative to the Asian Pacific regional total.
Source: Based on the US Department of Commerce's "Survey of Current Business".

214

Table III-4 Markets in 16 emerging countries that attract growing interest, andthe type of resource endowment
Number of J-FILE cases forType of resource endowment% of GDP (2006)
FY2007
JFIC16
RegionPopulationPer
capitaYoy
Yoy
Trading Remittance(1,000(1,000 change in change in GDP
Mineral Food
Human gains/loss from abroad(dollars) people)
cases) 2007
2006
resources resources resources
1 Vietnam
Asia
182
34.5
818
85,407
○
○
○
0.6
7.9
Asia
159
32.9
3,882
63,137
○
△
△ 6.4
0.6
2 Thailand
Middle East
85
72.9
21.5
9,033
73,443○△ 5.0
0.3
3 Turkey
4 UAE
Middle East
70
28.4
33.6
40,001
4,815○
45.4
5 Pakistan
Asia
69
56.6
877 163,902
○
△ 4.9
4.0
6 MexicoCentral and South America
69
32
8,232 108,522
○
○
2.3
2.9
7 South Africa Africa
65
31.2
24.4
5,625
50,250○○0.0
0.3
8 Venezuela
Central and South America
64
69.3
23.2
8,647
27,339○49.9
0.1
9 Saudi Arabia Middle East
54
22.4
22.3
15,192
24,735○
34.6
10 Peru
Central and South America
53
56
3,826
28,573
○
○
○
3.5
2.0
Eastern Europe
52
17.7
32.6
11,006
38,102○△
1.4
1.3
11 Poland
12 Argentina
Central and South America
49
33.8
6,825
38,438○○2.4
0.3
13 Romania
Eastern Europe
44
44.2
7,653
21,556○12.8
5.5
Eastern Europe
41
33
13,75910,058○△ 3.3
0.3
14 Hungary
15 Nigeria
Africa40
33.1
1,120 148,093
○
○
23.6
2.9
16 Egypt
Africa40
40
1,742
73,971
○
○
△ 4.9
5.0
JFIC164678 960,340
Worldwide
4,377
28.3
9.2
8,253 6,637,864
BRICｓ
2,563 2,789,649
Chian
378
23.6
6.5
2,585 1,315,302
○
△ 1.4
0.9
India
172
13.2
28.2
1,005 1,140,503
○
○
△ 7.4
2.8
Russia
126
35.8
42.2
9,078 142,054
○
△
20.5
0.3
Brasil
113
27.7
48.6
6,852 191,791
○
○
△ 2.3
0.4
(Note)(1) Emerging countries that attract growing interest: Countries that are ranked in the top fifty in terms of the number of J-FILE searches withthe developed countries and the BRICs excluded, to which the number of hits rose 30% or more yoy in 2007 or rose 20% or more yoy
in 2006 and of which the per capita GDP amounts to at least 500 dollars(2) For J-FILE country and region, data as of March 21, 2008 was used, and for the per capita GDP and population, data as of 2007 was used.
(3) The "type mineral resources" means that "iron ores + mineral fuels" and "base metals and their products "are in the black, thereby
benefitting from the trade.
(4) Peru and South Africa are treated as mineral resources because the surplus in "base metals and their products" outpaces
the deficit in "iron ores + mineral fuels."(5) "Food resource type" are countries with trade surplus by Foods. Human resources type: countries whose remittance from overseas workers
accounts for 2% or more of GDP are ○, less than 2% to 1% are △(6) Profit on terms of trade against GDP is bsed on 1990 prices.
(Source) JETRO's internal information, Euromonitor International, and JETRO overseas information files and the number of accesses by country215

Fig. III-11 Distribution ratio of number of households by disposable income
group worldwide in 2007

100%
90%

Upper income group(disposable incomeof US$35,000 or
more)

80%
70%
60%
50%

Middle income group(disposable incomeof US$5,000 ～ lesst han 35,000)

40%
30%
20%

Low income group(disposable incomeof US$500 ～ lesst han 5,000)

JFIC16

BRICs

WesternEuropeNorth America

Middle East
and Africa

Central andSouth America

Russia andEastern Europe

Asia-Pacific

0%

World

10%

(Source) P repared based on Euromonit or Int ernat ional

Fig. III-12 Distribution ratio of number of households by disposable income
group in BRICs (2007/2002)
100%
80%
60%
40%
20%

India

Upper incom e group (disposable incom e of US$35,000 or m ore)
Middle incom e group (disposable incom e of US$5,000～less than 35,000)
Low incom e group (disposable incom e of US$500～ less than 5,000)(Source) P repared based on Euromonit or Int ernat ional

216

7

2
2 00

Russia

2 00

7

2
2 00

2 00

7

2
2 00

China

2 00

7

2
2 00

BRICs

2 00

7

2 00

2

2 00

0%

BrazilFig. III-13 Distribution ratio of number of households by disposable income group in JFIC16 (2007/2002)
1 00%

8 0%

6 0%

4 0%

2 0%

JFIC16 P akistan T hailand Vietnam Hungary P oland Romania Argentina Mexico

P eru Venezuela Egypt

Saudi
ArabiaUAE

T urkeySouth
AfricaUpper income group (disposable income of US$35,000 or more)
Middle income group (disposable income of US$5,000 ～ less than 35,000)(Source) P repared based on Euromonitor International

Low income group (disposable income of US$500 ～ less than 5,000)

217

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

2007

2002

0%

NigeriaFig. III-14 Consumption expenditure of world and rate of increase（％）(billion dollars)

200

35,000180

30,000160

25,000140
120

20,000100
15,00080
60

10,000

40

5,000

20

0

0
W orldAsiaP acificRussian Central andMiddleN orthW estern

A merica

E uropeand EasternSouth

East andEuropeA merica

AfricaBRICs

JFIC16

Sum of consumpt ion expendit ures (2007)
Rat e of increase (2007/2002 ）(Source) Prepared based on Euromonitor International

Fig. III-15 Consumption expenditure and rate of increase in BRICs and JFIC16（％）（ billion dollars)
1,400

300.0

1,200

250.0

1,000

200.0

800
150.0
600
100.0

400

Sum of consumption expenditures (2007)
Growth rate of total consumption expenditure (2007/2002)(Source) P repared based on Euromonit or Int ernat ional

218

NigeriaSouth Africa

TurkeyUAE

Saudi Arabia

Egypt

Peru

Venezuela

MexicoArgentina

Romania

PolandHungary

VietnamThailand

Pakistan

Russia

0.0
India

0
Brazil

50.0

China

200

Fig. III-16 Distribution of consumption expenditure in world and BRICs in 2007
100%
Other consumption
expenditures
Accommodations & eating
out

80%

Education
Culture & Recreation

60%
Communication
Transportation

40%

Medical care
Furniture & household items

20%

Housing
Clothing & footwear
Alcoholic beverages &cigarettes

BRICs

BrazilRussia

India

China

Western Europe

North America

Middle East and Africa

Central and South America

Russia and Eastern Europe

World

Asia-Pacific0%

Food & non-alcoholic
beverages〔Source〕Euromonitor International

Fig. III-17 Distribution ratio of consumption expenditure in JFIC16 in 2007
100%
90%
80%

Other consum ption
expenditures

70%

Accom m odations & eating
out

60%

Education
Culture & Recreation

50%

Com m unication

40%

Transportation

30%
Medical care

20%

Furniture & household item s

10%

Housing
Clothing & footwear

NigeriaSouth A frica

TurkeyUAE

E gyptSaudi A rabia

Venezuela

Peru

MexicoArgentina

Romania

PolandVietnamH ungary

ThailandJFIC16

Pakistan

0%(Source) Prepared based on Euromonitor International219

Alcoholic beverages &cigarettes
Food & non-alcoholic
beverages

Fig. III-18(2007/2002)

Rate of increase by item of consumption expenditure of world

U.S.

200.0
180.0
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0

W estern Europe
JFIC16FooAl d &
coh o n on-alic
b e l cohve
ra olicg
C l e s & b ev
eot
Fu
hin cig ra g
rn
a
g
re es
it u
&
re
fo t tes
ot
&
w
ho
us
Ho ea rehusoing
Me ld it
em
di
Tr
ca
s
an
lc
sp
ar
Co
Cu
o
e
rt a
mm
ltu
Ac
tio
re
un
n
co
i
&
c
Ot
m
a
R
t io
he
mo
ec
n
rc
re
da
on
tio
E d at io
su
ns
n
uc
mp
&
at
t io
ea
io n
n
ti n
ex
go
pe
ut
nd
it u
re
s

BRICs

JFIC16U.S.

(Source) Prepared based on Euromonitor International

Fig. III-19 Distribution ratio of age by region in world
Age 65 or older
100%
Age 60-64
Age 55-59
80%

Age 50-54
Age 45-49
Age 40-4460%

Age 35-39
Age 30-3440%

Age 25-29
Age 20-24
Age 15-1920%

Age 0-14

JFIC16

BRICs

Western Europe

North America

AfricaMiddle East andAmerica

Central and South

EuropeRussia and Eastern

Asia-Pacific0%(Source) Prepared based on Euromonitor International

220

Fig. III-20 Distribution ratio of disposable income by age group
100%
11.1

12.3
21.3
80%

12.7

14.8
19.2

18.9

60's or above

20.1

60%

50's
40's

21.3
23.7

30's

23.4

40%

20's or under
18.3
20%
33.6

29.3
19.8
0%
G7

BRICs

JFIC16(Source) Prepared based on Euromonitor International

Table III-5 Penetration rate of durable goods per household in world, BRICs andJFIC16 (2007)
Airconditioner

World
Asia-PacificEastern Europe
Central and South
Middle East and Africa
North America
U.S.
Western Europe
BRICs
China
India
RussiaBrazilJFIC16
PakistanThailand
Vietnam
Hungary
PolandRomania
Argentina
MexicoPeru
Venezuela
Egypt
Saudi Arabia
UAE
TurkeySouth Africa
Nigeria

CameraColor TV

31.5
45.8
2.6
9.5
4.5
61.7
63.2
9.8

32.5
23
38.9
18.9
4.1
97.1
97.7
73.8

77.2
82.9
88.2
76.4
22
98.8
98.8
97.1

1.6
2.8
11.5

22.9
4.4
43.1
16.5

98.6
78.9
95.1
93.4

-

Mobilephone

Motocycle

-

81.2
93.3
9.5
67.5
66.1

9.6
10.5
10
5.5
4.6
5
4.9
17.3
9.5
5.2
17.3
7.9

Passenger
car

PC

Refrigerator

Vacuumcleaner

47.1
28.6
84.7
31.5

27.2
11.6
37.5
27.1
9
87.6
87.8
74.9

35.7
35.6
33.8
18.9
4.7
73.4
73.1
62.5

63.5
58.1
85.3
70.1
20.2
99.9
100
98.5

6.2
5.5
38.3
35.3

53.7
13.4
38
22.6

92.2
18.1
96.1
89.8

46.9
40.0
75.0
24.4
8.2
98.1
98.3
90.7

Game
machine

6.6
3.4
4.5
7.4
1.4
24.2
24.2
16.8
1.4
0.9
3.6
7.3

Washing
machine

52.6
46.4
80.8
43.5
15.7
84.1
84.3
94.1

68.1
18.2
96.1
35.8

1.5

3.4

67

9.6

15.2

4.7

10.2

16.4

28.1

0.6

14.6

13.3

79.3

95.5

74.2

21.6

12.2

21.7

85

37.3

9.3

46.2

2.7

4.5

76.5

10.1

10.8

1.1

13.8

26.9

27.1

0.1

12.3

3.4
3.2
1.8
14.2
12
14.7
17.6
3.2
80.2
90.7
8.1
16.5

70.5
57.3
40.3
38.4
27.9
28.6
22.9
4.9
35.2
16
29.8
13.2

98.9
98.7
88.3
95.4
93.9
60.1
88.9
83.4
97.7
99.8
92.4
64.5

84.8
79.7
49.8
68.5
66
22.2
80.3
30.2
84.5
93.1
84.7
44.2

14
3.4
1.2
15.1
1.6
3.6
9.9
7.9
16.2
12.2
12
11

59.5
49.6
30.2
42.8
40.2
18.5
19.7
25.9
80.6
97.1
37.6
33.2

55.5
45.5
30.2
27.3
24
12.9
23.5
11.6
37.5
47.3
21.8
15.6

39.6
97.6
86
90.5
80
42.1
96.8
89.1
97.9
99.9
98.2
52.5

93.1
93.5
55.8
38.4
28.4
25.1
28.5
17
95.4
98.4
80.8
39.1

10.4
8.1
3
14.2
12.5
2.5
8.5
1
11.8
15.1
16.2
6.8

80.6
80.9
75.2
91.6
81.7
17.7
59.7
92.2
96.4
99.3
89.6
45.7

1.8

4.9

35.3

10.8

17.6

12.4

4.8

21.9

8.5

0.8

11.3

(Source) Prepared based on Euromonitor International221

3. Characteristics and Trends of Consumer Markets in Countries
throughout the World(1) Consumer markets maturing in developed countries
Consumer markets in the developed countries are growing more slowly than in the
newly emerging countries, but consumption expenditure of the US and the three main
countries in Europe (the UK, Germany, France) comprised 46% of the global total tomaintain the leading position in terms of worldwide consumption.
In addition to the various factors leading to more diverse demographics andhousehold composition, including falling birth rates, aging populations, people getting
married later in life, and an increase in households with no children, rising
environmental concerns are also having a major impact on consumption behaviors. As
Japanese companies work to gain market penetration, it is important that they keep an
eye on these trends and narrow their focus on target markets.
Health, environment, and CSR all having major impact on consumption
The main European countries of the UK, Germany, and France have many consumers
that shop with a keen eye on the value of products or brands. As women have become
more active participants in European societies and the number of single-personhouseholds has increased, lifestyles are more resembling the norm in the US, leading toincreased demand for dining out and delivery services and the spread of take-out foodestablishments such as Starbucks. Meanwhile, consumers in Europe tend to be moreconcerned about the environment than their US counterparts (Table III-6).
In the UK, people are increasingly concerned about ethical behavior. An example of
how this is materializing is how consumers are changing their behavior to buy moreenergy-efficient products and make more use of public transportation. Heightened
health consciousness is leading to rapid growth in sales of organic foods and beverages
that use no pesticides or other agricultural chemicals and are easier on the environment.
Backed by active support to developing countries, sales of Fair-trade (6) foods andbeverages in 2006 were up 46% from the year before. The Fair-trade label is recognized
by a high 57% of UK adults.
--------------------------------------------------------------------------------------------------------6. The fair trade movement aims for sustainable agricultural development and the improvement ofstandards of living by trading in the agricultural products of developing countries at a fair price, and thus
fair trade products tend to be more expensive.
---------------------------------------------------------------------------------------------------------In Germany, consumers take environment into considerations in nearly all purchasing
decisions (Roland Berger brand survey, in the economics publication Absatzwirtschaft).
Roughly half of people in Germany view environmental and social harmony as
extremely important when deciding on their food purchases, and are apparently willing222

to pay more for clothes, shoes and services that environment friendly. Germans are also
highly aware of Fair-trade products, and severely check damage on environment andchild labor in manufacturing processes.
In France, consumers tend to base product purchase decisions on safety
considerations. Cosmetics that use organic ingredients and are approved by thegovernment to use the "BIO" (7) label are gaining ground in the market. Moreover, rising
health and environmental awareness have made bicycles a common form oftransportation in urban areas.
--------------------------------------------------------------------------------------------------------7. Certifies that at least 95% of the constituents of a product are derived from either natural or organic
sources.
---------------------------------------------------------------------------------------------------------

Consumers that prioritize the environment and health over prices will be an important
key in discerning future consumption trends in Europe.
In the US, recent years have seen the sizes of many different products increase. 2006
new car sales averaged 1.9 tons per vehicle, an increase of almost 20% from the 1.6 tons
in 1996. The average screen size of TVs sold in 2006 was 26 inches, following ten yearsof screens growing by roughly one inch annually (US Consumer Electronics
Association). From 1980, refrigerators have increased in size by 10% and washingmachines by 25% (Association of Home Appliance Manufacturers). However, since2007, rising crude oil prices and pessimism about the future of the US economy, among
other factors, appear to have put the brakes on increasing product sizes, and smaller
models are now preferred in the automobile market, for example. Sales of SUVs andlarge pickup trucks, with their poor fuel economy, have been declining sharply as
consumers increasingly switch to hybrids and compacts. Consumers are also
increasingly concerned about energy efficiency and environmental impact when
shopping for other items such as consumer electronics and household goods, out of a
growing awareness of maintaining their standard of living amidst rising prices. People
are also more focused on health issues, leading to the rapid increase in sales of organic
foods, primarily among high-income consumers.
In the US and European markets, consumers are ever more mature, and increasingly
looking beyond just quality and performance to also factor in whether companies aremaintaining corporate social responsibility (CSR), and making purchasing decisions
based on comprehensive judgments. Establishing a positive brand image in this context
is another important key to success in these markets.

(2) Newly emerging countries hold untapped potential for consumer markets
The BRIC countries are continuing their impressive growth backed by rising income
levels, but consumption structures differ for each country. Consumption expenditure as223

a percentage of GDP in 2007 stood at 80% in Brazil, 66% in Russia, 63% in India, and
40% in China. The remarkably low figure for China highlights how economic growth isled by investment rather than consumption. This could also be viewed as an indicator ofroom for further consumption growth.
Population projections by the UN show that, while Russia's population began
shrinking in the mid-90s, China's will peak around 2030. On the contrary, Brazil andIndia are likely to see continued population growth until 2050. Broadly categorizing
future targeted consumer groups by generation, the focus in India and Brazil will bebroader and relatively younger than in China and Russia.
Young age groups leading consumption in China (case of Shanghai)
The driving force behind Chinese consumption is the age bracket from the mid-20s
through the mid-30s. This bracket is very interested in improving their careers andstandards of living on all levels, and is also very interested in foreign brands. In the near
future, consumption will be led by the age group born after the introduction of the
one-child policy in 1979, the so-called "post-80" generation. While income levels of“post 80” are not very high, these people are very adept at gleaning information online
or via word of mouth, and are leading consumption in areas such as consumer goods,
digital products, and fashion. Of particular note, women have considerable influence
over purchasing decisions not only for themselves but also for men’s goods. (Table
III-7).
Lifestyles are changing, primarily for people in the white-collar, high-income
brackets. In Shanghai, many households have both husband and wife working, andfewer than 5% of households cooking every day at home (Survey by Shanghai Jiao
Tong University, 2007). Frozen, reheatable, pre-packaged, and instant foods
consequently have wide acceptance. The food service industry in China as a whole iscontinuing to grow by double digits, and numerous Japanese companies have entered
the Chinese market.
There is considerable interest in food safety, and demand for foods in Shanghai isalso changing to focus more on health and high quality. Large supermarkets have set up
organic produce areas, and for beverages, middle- and high-income consumers aresupporting the spread of vegetable juices and mineral water.
In major Chinese urban cities, including Shanghai, consumers are increasingly
demanding high quality, while also having strong faith in the value of foreign brands
and high-priced goods. Due to the redundancy of domestically produced goods, there isfierce competition for low-priced merchandise, and thus in gaining market share it isvery important to enhance the value of brand and build up a favorable image for young
consumers.

224



Russian markets seeing overheating for high-end goods
Rising income levels, buoyed by increasing resource prices since the mid-2000s, havebeen one major factor behind the rapid rise in Russian consumption. That said, we lookat some of the social background of expanding consumption since the early 2000’s,
prior to the spike in resource prices. (1) Most households do not have sizable housing
loans to repay, and utilities and other living expenses are low. (2) Russians are very
distrustful of financial institutions, and are thus more prone to put any savings towards
consumption. (3) Both the man and woman work in more than half of married couples.
In addition, one more factor spurring consumption growth has been the rapid spread ofsales on installment and consumer loans, making it easier for people to purchaseautomobiles and other big-ticket durable consumer goods. Compared to Europe, theaverage Russian new-car buyer is notably younger and has a notably lower averageannual income (Table III-8). Russia has undergone major political and social changes
during the 20 years of transition to a market economy, including the confusions broughton by economic structural reform by the IMF, and lifestyles have also gone throughsubstantial changes. Some of these changes include: (1) instead of the conventional
greengrocers, supermarkets and hypermarkets are more common; (2) shift from a vodka
society to a cafe culture, and business lunch is now common; (3) daily diets are moreoriented towards health than before. Structurally, Russia's economy is based onexporting resources and lacks accumulation of domestic industry. Thus, the current
boisterous increase in demand is outstripping supply. Imports help offset the difference,with Russian consumers in high demand for high-priced foreign brands. Number offoreign passenger car sales for 2003 came to some 20% of total passenger car sales, but
this had expanded to over half of the total by 2006, rising to some 70% by 2007 (Table
III-9). The cellular phone market shows similar trends, with high-end handsets sellingwell. Credit card transaction balances for 2007 were up some 11 times over the 2003
level (Figure III-21). This is remarkable growth even among the newly emerging
countries, and indicates that the consumer market might be overheating.


Indian markets oriented more towards middle end market
As of 2007, India's population stood at over 1.1bn and is projected to reach 1.447bn
by 2025 to surpass China's and become the largest in the world (UN figures), making
the country the next giant potential market after With an extremely large number ofpeople living in poverty, the driver of consumption in India is the middle class. As
described in section 2 (4), middle-income households (with annual disposable incomesof $5,000-35,000 or less) grew from 5% of the total population in 2002 to 12% in 2007.
The high-income group (incomes of $35,000 or more) grew only marginally, from 0.4%

225

to 0.6%.
The market for the so-called five big-ticket items – color TVs, refrigerators, washingmachines, air conditioners, and microwaves and other consumer electronics, has been
expanding in recent years, and this is largely due to the rise of the middle class.
Meanwhile, though the high-end US and European brands have been making inroads,
primarily in apparel, with an eye towards the high-income group, this is limited to someof the urban areas. The fiscal 2007 (from April through the following March) passenger
car market posted sales volume of over 1.5mn vehicles with a market share of only
3.3% for high-end models with vehicle lengths of over 4.5m, as the bulk of sales wereof compact and mid-sized cars.
In the consumer electronics market, local and South Korean companies that haveproduct lineups targeting middle-income consumers have the bulk of the market, while
Japanese companies, which are stronger in high-value-added products for higher-end
consumers, still have only limited market presence. The Japanese consumer electronics
makers are therefore more cautious in their marketing efforts, and are taking a
wait-and-see approach to making a full-scale market entry.
The spread of the internet has led to the rise of online business-to-consumer (B2C)
business. Estimates by domestic industry groups suggest 50mn internet users as ofMarch 2008. Fiscal 2007 B2C transactions were estimated to be up 30% from the year
before to 92.1bn rupees (roughly $2.3bn), of which 70bn rupees were for travel agencies
that offer flight ticketing, lodging reservation, and other travel arrangement services.
The airline sector is seeing fierce competition from numerous new entries, and allcompanies are using e-tickets as a means to cut costs, which is also boosting onlinetransaction volume. The spread of credit cards is yet another factor substantiallycontributing to growth in online transactions. Total credit card transaction volume for2007 was up some times over the 2003 level, for the second-fastest growth rate among
BRIC countries after Russia.
Installment sales dramatically increasing uptake of durable consumer goodsin the Brazilian market
Following the success of economic reforms implemented in 2003, Brazil has
benefited from rising prices for resources and foods, with 2007 domestic automobile
sales posting a new record of 2.48mn units as the consumer market picks up the pace.
The rapid spread of installment sales and credit cards in recent years has significantly
boost consumer purchasing power. It has become a common scene for households withmonthly incomes of 2,000 reais (roughly ¥120,000) to be able to purchase a newcompact Fiat automobile for 25,000 reais (roughly ¥1.5mn) on a 72-payment
installment plan. Coming into 2008, the upper limit for number of installments on new226

car purchases was increased from 72 to 99, adding fuel to the rush of the middle-income
group to own an automobile.
The adoption of durable consumer goods is also increasing at a rapid pace. The PC
market in 2007 was up by 23% from the year before to 10.1mn units. The TV market
has also more than doubled in three years from the 4.2mn units in 2004 to reach roughly
10mn TVs sold. High-value-added models such as LCD and plasma-screen TVs havebeen selling well, largely due to electronics chain stores issuing house-brand credit
cards that can only be used at their own stores. Installment plans are common for
durable consumer goods, much as for automobiles, and product price tags often show
the monthly installment price in a bigger font than the price of products themselves.
Low-income consumers have never been the center of companies' marketing plans in
the Brazilian market, but as purchasing power increases, businesses are expanding theirmarketing scope, as evidenced by Wal-Mart focusing on the northeast of the country,
where low-income shoppers are the majority.
Consumption expanding in the JFIC countries
Consumption is growing in the JFIC countries as well, backed by favorable economic
trends. Burgeoning high-income populations, the rise of middle classes that are able topurchase automobiles and other durable consumer goods, and increasing purchasing
power on the spread of credit cards and consumer finance are some of the points incommon with the BRIC countries. Retailers from Europe and the US have been opening
stores in the JFIC countries that have targeted not just high-income levels but mid-level
incomes as well, and a rush of new construction of shopping malls and electronics chain
stores is bolstering consumer demand. Moreover, younger age brackets comprise morethan half of the population in many of the JFIC countries, and consumer market
prospects here are good.


Vietnam and Pakistan: Younger age bracket leading, with remittances fromabroad also driving consumption
Vietnamese incomes are rising, backed by economic growth driven mainly by export
processing, and per-capita GDP more than doubled from $402 in 2000 to $818 in 2007.
Remittances from people working abroad comprised a high 7.9% of GDP in 2006,
which is also one of the major factors boosting consumption (Figure III-22).
Purchases in Vietnam used to be all cash up-front, but stable and rising incomes have
led to more common use of loans to make bigger purchases. Secured loans are themainstream, but more financial institutions are offering lending services to meet
individual needs, such as providing unsecured loans to borrowers with good credit.
Sales of retail and service have grown by 20% annually since 2005, and production227

volumes for automobiles, motorbikes, TVs, and other durable consumer goods for thedomestic market have increased by 2to 5 times from the 2000 levels (Table III-11).
Furthermore, there were 18.5mn new telephone service subscriptions in 2007 (roughly
in line with the total number of new subscriptions for the period of 2004-2006) and
1.18mn new internet subscriptions. As of December 2007, estimated total subscribers
have reached 46mn for telephone and 18.55mn for internet, respectively.
People aged 30-45 comprised the main clientele for retail and service companies,
affecting over 50% of all sales. However, 60% of the total population is under 30, age
bracket of 18-30 is garnering attention as potential customers. Younger shoppers tend tobe fickler than the older age brackets, making it more difficult to discern demand trends,
but they do tend to use the Internet considerably and tend to like newer products.
Companies are therefore embarking on advertising and sales promotion campaigns in abid to bring in these newly targeted trend-setting younger consumers.
Despite considerable worries about the political situation and basic safety in Pakistan,
individual consumption continues to climb steadily. The main factors behind this growth
are rising wages and also remittances from workers abroad. Remittances from thebooming Middle Eastern countries are rising firmly, comprising 4.0% of GDP in 2006
(Figure III-22). A bullish stock market and buoyant real estate prices have also
stimulated consumption among higher-income households. A JETRO investment costsurvey conducted in 2006 indicated that Karachi office rents in 2006 were up some 2-3
times over three years previously.
Passenger car sales volumes have also expanded, from 40,000 in fiscal 2000/01 (fromJuly to the following June) to a record-high 180,000 in 2006/07.
Local automobile dealers state that market growth is backed by rising income levels,
the spread of automobile loans, and a rapid increase in corporate demand. Domestically
produced passenger cars are all Japanese makes, excluding one model produced byHyundai, with Suzuki having a particularly large presence much as in India, capturing a
62.4% share of the passenger car market. Suzuki's compact cars are the first carpurchase for many Pakistani consumers. Of these, production and sales of the Mehran
model (800cc) has been at the top of the charts for six consecutive years. Despite
declining tariffs on imported cars, they remain high at 90% for engine sizes of over
1800cc, and demand for high-end autos is thus limited to corporate cars. However,backed by firm foreign investment, Mercedes Benz, BMW, and other high-end car
showrooms are beginning to pop up around Karachi, targeting foreign companies andhigh-income consumers.


Development of consumer finance bolstering purchasing power in Mexico
Looking at 2006 household income distributions, we find a very severe income

228disparity, with the top 10% of households by income earning 35.7% of the total, and thebottom 10% earning only 1.8%. People under 30 comprised 58.4% of the total
population, and those under 40 comprised 73.8%. Marketing that targets younger age
brackets is thus important to success in Mexican markets.
Passenger car market penetration rose from 34.2% in 2002 to 40.2% in 2007. Thatsaid, complying with the NAFTA, in August 2005 the government abolished restrictions
on the import for used cars produced more than 10 years before, opening the gates tomajor growth in used-car imports from the rest of North America. Thus, the bulk of theincrease in market penetration is likely due to middle- and low-income consumers
buying used cars. Elsewhere, market penetration of DVD player expanded rapidly from
4.0% in 2002 to 45.7% in 2006. This is partly due to DVDs being a common form ofentertainment for low-income consumers, as the prevalence of pirated movies meansthat consumers can easily purchase a DVD for less than half the price of movie theater
admission even right after the movie is released.
The spread of durable goods has been pushed along by growing consumer financeand the increased adoption of credit cards. Total credit card transactions roughly tripledfrom 2003 to 2007 (Figure III-21). The loan balance for consumer finance has also been
expanding at a very rapid pace, growing by an annual average of 38.8% since 2000.
This indicates that items previously out of reach for low-income consumers can now bepurchased.
Middle Eastern consumer markets polarizing
Egypt has a total population of 73.97mn, of which 61.8% are under 30, and 74.4% areunder 40, for a very sizable young population. Although the overwhelming majority of
Egyptians fall under the low-income bracket, the middle- and upper-income groups
have been increasing in recent years, and consumption is picking up. Multinational
corporations are investing more in the country on domestic demand growth due toeconomic reforms begun in 2004, and on strengthened investment environment.
Large-scale shopping malls and large suburban supermarkets (including hypermarkets
such as the Carrefour) are beginning to appear, which are different from existing stores.
Malls have strong support from younger shoppers, while supermarkets are popularamong families. Malls have gained ground with younger shoppers for their wide arrayof foreign-brand stores, offering attractive apparel, furnishings, electronics, and cafés.
Numerous stylish cafés similar to Starbucks have been springing up, offering not justcoffee and tea, but also a wide variety of foods as well, and these establishments are
growing popular primarily among more high-income younger people.
The spread of durable consumer goods is also increasing at a rapid pace. Automobile
sales volumes have been continuously increasing since a major reduction in import229

tariffs in 2004, with low-priced South Korean and Chinese makes seeing particularly
rapid market share expansion. Banks have recently begun offering automobile loans,and middle-income and female consumers are making use of these loans to purchasecars, increasing the automobile purchaser base.
Local research agencies have also reported that market penetration for consumer
electronics rose across the board from 1995 through 2005. This was likely backed by
the rapid increase in the number of people having credit cards. The Herald Tribune
newspaper reported that MasterCard cardholders in 2007 had increased by 40% over theprevious year, marking the fastest increase in the world.
Egyptian consumers have very different consumption behavior depending on income
level. High-income consumers tend to prioritize quality more than price, and preferbrands that have global presence. For cars and consumer electronics, for instance,
Japanese and German products are viewed highly for their quality and durability.
Younger consumers see driving a Japanese or German car as object of admiration.
Japanese brand TVs are popular among consumers largely due to their good after-sales
service programs.
Meanwhile, middle-income consumers trend strongly towards lower prices, withstringent demands for a balance between price and quality. It is the South Korean
companies that are boosting their brand recognition in the market by following thesetrends. Products by Hyudai, Daewoo, and other carmakers, and by LG, Samsung, andother consumer electronics manufacturers boast high quality but reasonable prices,leading to quickly ballooning market share.
Saudi Arabia has a population of 24.74mn, of which 17.3mn or 70% are Saudis, andthe remaining 6.4mn are foreigners. 62% of the population is under 30 and 79% is under40, for a sizable younger age bracket. The average birth rate for 2000-2005 was 4.1, oneof the highest in the world. Shopping malls sport a correspondingly large number ofchildren's and baby clothing stores.
The economy continues to grow backed by high oil prices, and high consumerpurchasing power is prompting construction of more and more shopping malls andhypermarkets, which sell primarily European and US brands.
2007 per-capita GDP came to $15,192, but given the large number of children
earning no income that are still counted in population figures, we estimate that effective
income levels for Saudi Arabians are considerably higher. The country also has no
income tax, national schools and hospitals are free, and utility costs are low, all of whichkeep disposable incomes high. The lack of any consumption tax and the decision to
boost salaries by 5% every year for the next three years for civil servants, which
includes most Saudis, make it very likely that consumption will continue its steady
expansion.

230

The United Arab Emirates (UAE) has a population of 4.82mn (2007), and a distinct
demographics as only some 20% were citizens (2005 census), with the remaining 80%
all foreigners. The country also has a large number of foreign visitors compared with its
population size (roughly 7mn in 2007 on a hotel lodging basis). Some 80% of visitors
went to the Emirate of Dubai, making visitors the next most important class of
consumer after residents. Dubai's retail market is expected to exceed that of neighboring
Saudi Arabia in 2009. Many foreign companies therefore view Dubai as an important
market in the Middle East.
Younger age brackets comprise the bulk of the small citizen population, with thoseunder 20 making up 51% of the total (2005 census). Large families are thus quite
common, and given also high income levels, major home appliances and similar
products also sell well. Consumer confidence is strong among UAE citizens, who havehigh disposable income levels thanks to generous public welfare programs, and among
non-UAE Arabs from neighboring countries with low propensities to save. For
automobiles, high-end cars and large SUVs are extremely popular. Various brands ofEuropean SUVs, such as Porsche, BMW, Volkswagen, and Rover, and Japanese
high-end automobiles and mid-sized sedans all enjoy broad market penetration. It isregarded that UAE is the country where Ferrari is sold more than anywhere else it theworldwide.
For consumer electronics, larger products are selling well here, such as LCD TVs
with screens of 100 inches or larger, or washing machines with capacities of at least
10kg. Japanese companies are facing notable competition from cheaper South Korean
products, but almost no competition from Chinese automobiles, consumer electronics,
or other products, due in part to very different income level targeting.

(3) US and European retailers accelerating their global expansions
Japanese companies' global expansions to date have been primarily limited to theautomotive, consumer electronics, and other manufacturing sectors. Most manufacturers
have established production bases in Asia, and have pursued business models whereby
they process and assemble in Asia, and then sell the final product in Japan, the US, andother countries. Going forward, a different global business model is needed that goesbeyond product supply type or export oriented to also work on capturing local consumer
demand. As such, using such a new global business model that focuses also on local
sales, domestic demand industries, primarily services are expected to become major
players in global markets.
______________________________________________________________________

231

Column Ⅲ-1◎ Example of a new car sales strategy in the Polish market
Alliance with financial services the key to spread of passenger cars
The countries of Central and Eastern Europe have developed as the production basefor European automakers, and continuing improvements in income levels pushed 2007
per-capita GDP over $10,000 for Poland, Hungary, and the Czech Republic. Companies
are thus increasingly interested in this area as a consumer market. Here, we look at thecase of breaking into Poland's passenger car market.
Poland's passenger car sales volume has been gradually expanding, and of the 1.29mn
units sold in 2007, new cars comprised only some 20%, with the vast bulk of sales madeup of used cars. The risk of an influx of used cars has been a concern for some time,
given the country's location right next to the European automobile production andconsumption powerhouse of Germany. The Polish government therefore imposed strict
regulations on used-car emissions to prevent any excess import of used cars. However,Poland's accession to the EU in May 2004 meant that the country's environmental
regulations that singled out used cars and were not in accord with existing EU emissions
regulations had to be scrapped, as they were deemed to be unfairly limited used car
distribution within the EU.
Fig. Poland's passenger car market- Since joining EU, used cars comprise most of the market （Unit：10 thousand cars）
120

Ne w c ars

Used c ars

100

80

60

40

20

0
2001

2002

2003

2004

2005

2006

2007

Source:New cars: Poland's Automotive Market Research Institute SAMAR.
Used cars: Poland's Ministry of Finance.

The passenger car companies that have succeeded in securing a share of Poland's
new-car sales are also putting their efforts into installment sales. Many of Poland's
passenger car showrooms also include service desks for directly managed automobile232

financing companies like Toyota Bank and Volkswagen Bank. South Korean automaker
Hyundai Motor, a latecomer to the Polish market, allied with US consumer financecompany GE Money Bank in September 2007 to bolster its automobile financing in
Poland. The diversification and declining premium of auto insurance are other importantfactors for passenger car sales. Numerous foreign insurers such as French company Axa
and US company Liberty Direct are entering the Polish market, and are gaining
popularity by offering various services (such as roadside assistance services in case of
accident) and discount plans. These companies are strong allies as automakers push for
growing new-car sales, and insurers also commonly set up insurance agent desks inpassenger car showrooms. In addition, the automobile leasing business is expanding,backed mainly by corporate demand. Leased automobiles are particularly popular for
financially weak Polish corporations, as they can lower vehicle maintenance costs byswitching to fixed leasing fees. As such, rather than simply focusing on selling
consumer goods such as passenger cars, it is more effective in the emerging markets toalso offer other services that support the purchaser, in particular by partnering withfinancial products in boosting sales.
___________________________________________________________________The retail sector has tended towards domestic demand, but European and US
companies have been rapidly expanding their global business operation (Table III-13).
French company Carrefour spent the early 1970s building up its presence in Europe, andthe later 1970s expanding in North, Central, and South America. German company
Metro also built up in Western Europe in the 1970s, moving into Eastern Europe in the
1990s. UK company Tesco also expanded into Eastern Europe in the 1990s. US
company Wal-Mart opened stores in Canada and Central and South America in the
1990s. The US and European retailers have also been expanding in Asia at a high pace,but this movement did not become apparent until the late 1990s or early 2000s.
The globalization of retail has come later than for manufacturing, with regional
expansions into the newly emerging countries and other areas occurring only recently.
As retailers do not manufacture, there was less impetus to quickly establish bases in
low-wage countries, and they had to wait to develop global sales bases for risingconsumption demand in the newly emerging economies.
Although European and US companies have been prompted to expand overseas bysaturation of domestic markets and increasing competition, their overseas development
has not been solely in response to such passive factors, and has also involved deliberate
and active globalization strategies with an eye to rising income levels in the newly
emerging countries. By comparison, Japanese companies have been more passive in233

their efforts, sticking mainly to Asia and making moves only when requested bypartners. However, some retailers have already made clear and aggressive developments
in Asia, mainly in China, and despite saturation of domestic markets, active
globalization efforts are about to begin. While the Japanese retailers have focused
mainly on Asia, US and European retailers have been broader in their global strategy.
Even within this group, different companies have been moving into different regions.
Tesco has been expanding more in Central and Eastern Europe than in Western Europe,and has also opened stores in Asia, expanding at the same pace in both areas. Metro has
focused on Western Europe, Russia, and Central and Eastern Europe, and recently has
been increasing its new openings in China and Vietnam. The Vietnamese retail industry
is not set for liberalization until 2009, but Metro has been approved already to open astore by applying for a joint venture membership wholesale business. Carrefour has
pulled out of the US, Japan, and South Korea, but is moving forward in Europe, Central
and South America, and the rest of Asia. Wal-Mart is quite active in opening stores in
Asia, adding to its stores in China and Japan, and also has plans to open acash-and-carry type of stores from 2009 in India, where retailer regulations are rather
strict.
Most of European companies' overseas store openings have focused on lower prices
and foodstuffs, and have tended to be large-scale hypermarkets, with all checkout
counters clustered near the entrances. By contrast, Japanese retailers have generally
opened general merchandise stores, focusing on apparel but also offering foods,
sundries, and consumer electronics, among other items. These stores have emphasized
not so much on low prices as quality and service, and checkout counters are located ineach section of the stores. This business model eschews the low-cost strategy taken by
the hypermarkets and aims instead to capture demand from Asia's upper-middle classes.
China has become a fierce battleground for the retail companies. Carrefour has
focused on urban locations that consumers can reach on foot or by bicycle, while
Wal-Mart has focused on suburban openings where consumers drive or take shuttle
buses, and both have outstripped the Japanese companies in terms of the pace of new
openings.


Examples of expanding in the BRICs countries by major region
The retail market in China is the scene of stiff competition between local and foreign
retailers employing various store formats. The advance of foreign-affiliated department
stores includes a large number of Asian companies, such as Taiwan's Pacific Department
Store or Malaysia's Parkson, but few Japanese department stores. Japanese company
Isetan has five stores in China, including two in Shanghai, and has plans to open a store
in Beijing in late 2008. Women are the main target, and the stores carry a lot of Japanese234

apparel brands. The company finds that apparel is difficult to differentiate, and so uses
high-end foods as a tool for better differentiation. Locally based companies include
high-end department stores that extensively carry high-end European and US brands,
and department store competition in urban areas is intense.
Among general merchandise stores, Aeon has 33 stores (including in Hong Kong),and opened a mall-type shopping center in the Beijing suburbs in summer 2008. The
company agreed to a partnership with major Chinese developer Shanghai Industrial
Investment (Holding), and plans on further active development of other mall-type
shopping centers. Ito-Yokado has seven stores in Beijing and three in Chengdu, andplans to open stores in these areas as dominant position of the shopping malls. The
company also has two high-end supermarkets in Beijing. Management's policy issummed up in its slogan of "ten stores, ten colors", implying that stores in each region
should meet local customer needs. Meanwhile, Izumiya has announced openings in
Suzhou and UNY will be opening in Shanghai, as other new openings also increase.
However, these plans are still small in scale compared to Wal-Mart (206 stores),
Carrefour (112), and other European and US hypermarkets.
Japanese convenience store chain Lawson operates 282 stores in Shanghai, followed
by Family Mart's 144 stores in Shanghai, Guangzhou, and Suzhou, and thenSeven-Eleven Japan's 64 stores in Beijing. There are numerous local convenience store
chains, but even just looking at convenience store chains above a certain size inShanghai, there are more than 4,000 stores currently in operation, and despite Japanesechains gaining favorable reputations among consumers, competition is stiff. As well,there are some constraints such as restrictions on trucks entering downtown areas during
the day, required temperature ranges for prepared foods, and restrictions on the sale oftobacco products. Moreover, the chains face the challenge of reduced benefits fromoperating a franchise, as tax and finance matters are not allowed to be handled by the
corporate headquarters. Lawson carries numerous products imported from Japan, andhas vendor plants that specialize in prepared home meal replacement foods, aiming todistinguish itself through original products such as rice balls and bento box lunches.
Chain stores also advertise and send out mobile-phone email information of sales
promotions. Family Mart is putting its energy behind these home meal replacement
foods, while also working to build up its image as exemplified by its "SQC" slogan,short for "service, quality, cleanliness". Seven-Eleven is the only chain that preparesfood within its stores. Its bento box meals, prepared in-store, have garnered a favorable
reputation, and convenience store daily bento sales volume in Japan amounts to around70, compared to an average of 300 at Seven-Eleven Beijing.
Many foreign firms have been moving into Russia's retail market since 2000,
including Auchan Group (France), Metro (Germany), and Rewe (Germany), and it has

235become common to see consumers at large suburban shopping centers buying large
volumes of food and other daily sundries. Major European and US retailers have plans
to move into Russia starting from 2008. With solid consumer confidence, Russia is oneof the markets viewed as most promising, but when it comes to new store openings,
there have been cases of government officials delaying the needed land-use permits.
Metro Group started construction of a Metro Cash and Carry in the city of Voronezh inMarch 2005, but the Voronezh Oblast government announced in June that the opening
would be delayed. The reason given was that the site would obstruct the take-off andlanding route for a runway owned by a local airplane manufacturer. That July, Metroand the manufacturer reached an agreement on supplying finance for the runway. It wasreported that this agreement resulted in a payment of 10.5mn rubles, but the details of
the deal have not been disclosed. The company's Voronezh store opened in August 2005.
As we see in this example, there are risks connected with business expansion that
require due diligence in gathering information and making preparations.
In the Brazilian retail market, Casino Group (France) affiliate CBD, Carrefour, and
Wal-Mart hold a combined market share of roughly 40%, indicating the very strong
market presence of foreign retailers. Carrefour entered the Brazilian market in 1975,
followed much later by Wal-Mart in 1995, and both companies have been expanding byacquiring local retailers. Brazil has a very large poor population, but a strong economy
has been boosting purchasing power even in the low-income group. In order to boost
earnings in the fiercely competitive domestic market, Wal-Mart has been the first to
adopt a strategy of expanding its presence in the relatively undeveloped northeast of thecountry. The company operates a large-scale supermarket chain in the region under thename of "Todo Dia" (meaning "every day"). Management plans to bolster its operationsin the Brazilian northeast by leveraging the business expertise in selling to low-income
consumers in Mexico and other countries.
Foreign companies face restrictions when entering the retail sector in India.
Investments by foreign companies in local retailers is limited by law just to thosespecialty retailers which sell a single brand (maximum 51% ownership stake allowed),
and no investment is allowed in retail chains that sell multiple brands. Wal-Mart hasestablished a cash-and-carry 50-50 joint venture with a local company, and plans toopen stores from 2009. Carrefour, Tesco, and Metro are also making preparations toenter the market. Each company appears to be building up its purchasing anddistribution networks within the limits of the current foreign capital restrictions,preparing for a future deregulation of the retail sector. Another possibility that has arisen
is for local companies to operate chains under the names of the foreign companies as
franchisees.

236



Progress of foreign retailers in the JFIC 16 countries
Foreign retailers are making real inroads in the JFIC 16 countries as well. Carrefour
and Tesco are increasing their presences in Central and Eastern Europe and Asia, while
Wal-Mart is expanding mainly in South and Central America, and also in China.
Alliances and M&As among local retailers are increasing in these areas as they position
themselves to fight back.
Wal-Mart moved into Mexico in 1991, followed by Carrefour in 1994. However,
Carrefour has been unable to topple Wal-Mart from its leading position in the Mexican
retail market. In 2004 Carrefour headquarters put forth a policy of restructuring
unprofitable operations, under which the company sold its Mexican operations to local
supermarkets and withdrew from the Mexican market.
Some of the factors behind Wal-Mart's success include expanding its store network
through acquisition of the biggest local supermarket chain and aggressive investment, as
well as negotiating purchasing prices with internationally famed food manufacturers
like Coca Cola and Nestlé, putting the company in a solid competitive position bykeeping purchasing costs down and thereby keeping selling prices low as well. Anotherfactor is that Wal-Mart has also established new IT-technology-based distribution
systems and distribution centers that use these systems to process over 80% of themerchandise sold in Mexican stores, allowing for reduced distribution costs.
Carrefour, Tesco, and other European retailers are gaining ground in the ASEAN and
Middle Eastern countries. In Thailand and Indonesia in particular, the past ten years
have seen accelerated expansion of foreign-affiliated hypermarkets, and they are themain players in retail markets.
In Thailand, hypermarkets account for 50% of total retail market sales. All of thehypermarkets are foreign-based, and Carrefour has a notable presence in this area with27 stores. European hypermarket chains are taking the tack of accelerating theirsmall-store operations focusing on foods and daily sundries, which will likely increase
competition with the Japanese retailers that focus on foods.
In Pakistan, foods sold in local markets and supermarkets tend not to be very fresh,and often look poor as well. This market thus has ample opportunity for foreign retailers
that pay careful attention to product quality. Membership wholesaler Metro opened its
first store in the country in October 2007, and now has four stores. Management plans
to expand to ten stores over the medium term. Dutch-based Macro has partnered withlocal conglomerate Macro-Habib, and now operates four membership wholesale stores.
In Turkey, of the largest four supermarket chains, Migros is the biggest, followed byCarrefour and then Tesco. Migros management decided in February 2008 to sell thecompany to Moonlight Capital, a subsidiary of UK investment fund BC Partners.
Swedish furniture giant Ikea and high-end outlet Harvey Nichols have also invested.

237

There have recently been a notable number of electronics chain stores moving into thecountry, including UK company Darty, German company Media Markt, and UK
company Electro World, making this market one of the toughest with competition
among foreign firms.
Among the Persian Gulf countries, Saudi Arabia and the UAE both prohibit any
100% foreign capital ownership, and thus foreign businesses operate here by means offranchises or joint venture with local companies.
In Saudi Arabia, Carrefour is active in hypermarkets and US Saks Fifth Avenue andUK company Marks & Spencer are active in high-end department stores, and there islittle competition among foreign retailers
Japanese retailer and ¥100 Shop operator Daiso is entering by franchising. The
company opened numerous stores in the Gulf Cooperation Council region in 2004-05,
and opened its first Saudi Arabian store in March 2008 to cover all six of the GCC
countries. The product lineup is mostly the same is in Japan, selling ¥100 merchandisefor local prices of some ¥150 - ¥170 and targeting middle- and low-income consumers,
including migrant workers from overseas. There are also one-price low-end US andEuropean shops as well, but Daiso is distinguishing itself from the competition withhigher product quality.

(4) Japanese brands garnering high reputation for quality and after-sales service
Reports from JETRO overseas offices (Table III-15) indicate that Japanese products
are well regarded for high quality and dependable after-sales service, in both developed
and newly emerging countries.
To boost their product brand image, Japanese companies adopted the strategy ofboosting their image first in the developed countries of the US and Europe. For TVs,
they established an image of advanced technology and high quality with their launch offlat-panel TV models. The same approach was followed for the launch of digital
cameras and Blue-Ray disc recorders, and the implementation of hybrid engine
technology in automobiles also garnered a favorable reputation for advanced technology,energy savings, and environmental friendliness.
Japanese products have gained high reputations not just for automobiles andconsumer electronics, but also for robots, semiconductor production equipment, forklifts,
and other fields such as measurement devices and other precision instruments. Their
broad-ranging manufacture and integral production design that adjusts the functioningof intra-components is what has allowed these companies to build such high-quality
products.
The strong reputation of Japanese brands is spreading to the newly emerging
countries too, and Japanese products have high brand recognition. In Indonesia and238

Uzbekistan, Japanese products have a better reputation than European and US products.
In the Middle Eastern countries of Saudi Arabia and Turkey, Japanese brand image isvery favorable, and consumers have firmly-rooted faith in the quality of Japanesebrands. Since the creation of the Japan-Mexico Economic Partnership Agreement,
Japanese cars have garnered high marks in Mexico, and a customer satisfaction survey
found that Japanese cars came in at the top of four out of nine categories.
Competition with South Korean and Chinese products is increasing of late, andJapanese brands cannot rest on their laurels. South Korean products are increasing theirrecognition in Turkey and stealing market share from Japanese companies, and the sameis occurring in Egypt. In Thailand, an automobile sales and after-sales service customer
satisfaction survey found that Ford was ranked best, as US companies also catch up.
Japanese brands have established a strong position in automobiles and consumer
electronics, but they do not have as strong of an image in other product and service
categories as compared to European and US companies. While Japanese companies are
increasing their profile, such as with Issey Miyake and Shiseido in the UK and
UNIQLO in China, they still need to do more to bolster their image.
In China and other newly emerging countries, companies can establish strong brandimages by implementing effective market strategies. One Japanese food manufacturer
has apparently been able to change eating habits in Shanghai by introducing raw tofu.
Another manufacturer of children's goods has gained the strong support of Chineseparents and grandparents by making their stores more convenient for customers byplacing their high-priced but high-quality baby products together with related productson the sales floor. The baby products market sees little competition from US andEuropean companies, and Japanese companies have also gained market share based on
their reputations for safety in products such as powdered milk, with a favorable brandimage taking root.

(5) Examples of Japanese companies expanding
Looking at examples of Japanese companies expanding overseas shows that they
adopt different pricing and branding strategies depending on the country. What all theseexamples have in common is that the companies are operating their businesses in tune to
local needs, using their base of strong technology and high quality. Such moves
overseas show that companies are moving to capture the business opportunities present
in various markets around the world.


Expanding earnings base by developing mid-priced products for local
markets
Electronics is often described as a traditional external demand sector, and239

manufacturers have already established a brand image in the US and European markets
of high quality and high prices. They have also secured a certain share of the market for
high-end products, and the high profit margins gave them little incentive to aggressively
pursue the market for mid-priced products. Of particular note, large-scale discountersand electronics chain stores in the US market have a strong grip on price levels, andJapanese manufacturers have been loath to enter the mid-priced product market for fearof damaging their brands or getting sucked into price competition. However, it is vitalthat they develop products meeting market needs if they are to seize the earnings
opportunities present in the rapidly expanding mid-priced products market (Table
III-16).
Sony made a move in this direction in 2007 when it put a group of its US engineers
together to lead development of its Bravia line of flat-panel TVs. These have slightly
lower resolution than other higher-end models and a price point of some $200 lower,
and are being sold on the mass market through Wal-Mart and other outlets, putting Sony
into play in the affordable flat-panel TV arena for the first time.
There is a considerable market for high-margin, high-priced products in the US,
leaving less incentive to target the mid-priced product market as compared to the newly
emerging countries. That said, a strategy like Sony's is needed if companies are to breakinto markets in the newly emerging countries, where there is less room for high-end
products. Sony has also developed and is selling TV models designed specifically for
India, where income levels are low and consumers are extremely price-conscious. Highmovie and music consumption prompted the company to develop models thatemphasize sound quality, and sales are growing.
Europe a place where brands can be establishedJapanese companies have been making a notable move into the European market infields such as apparel and cosmetics. The consumer electronics case above is one wherea company that had already established a high-end brand moved its focus down to the
mid-priced product market. In contrast, companies like clothing manufacturer andretailer UNIQLO and cosmetics maker Shiseido are moving into Europe in the aim ofbuilding up their brand image and then leveraging that to boost earnings in the emerging
countries. In fact, products that have sold well in Europe and the US tend to have amajor impact on consumers when marketed in the newly emerging markets.
Image of high quality for Japanese foods, sundries, and apparelFor products that come into direct contact with the body, such as foods, cosmetics,
and clothing, companies are effectively leveraging the positive image of Japanesebrands as high quality, safe, and reassuring in the newly emerging countries as well.

240

Baby product company Pigeon has captured over 30% of the market in China. Local
companies hold 60% of the market, but the company imports raw materials from Japanto maintain its high quality and does not lower prices to boost sales volume, opting
instead to maintain its higher prices. The company is also avoiding selling via chain
stores, keeping its image as a high-end product by selling mainly through department
stores and specialty retailers.
In the Saudi Arabian market in 2005, Unicharm acquired a 51% stake in Gulf
Hygienic, with which the company had been in a technological and material supplierpartnership, marking its full-scale entry into the country. Since then, the company has
brought in high-quality merchandise that it has been selling in Japan, and put forward amarketing campaign of "Japanese Technology, Made in Saudi Arabia". This
combination has garnered high marks from consumers in neighboring countries as well,and the company has captured the number-two spot in the domestic market, while also
exporting roughly 25% of local production and solidifying its position, aided in part bylarge family sizes in the region.
The commonalities between these two cases are introducing products and quality ofthe same level as is sold in Japan, leveraging Japanese brands to the utmost effect. Evenin the newly emerging countries, with their sizable populations of very price-conscious
middle-income consumers, aiming to present quality on a par with Japan in the courseof building up their brands has been a vital strategy in differentiating from cheaper
competing products.
As shown in section 2 (6), Kirin Beverage in China is succeeding in building up an
image for its “Afternoon Tea” product that is at once traditional and high quality, while
also modern and premium in line with the times. The price is set high, on a par withlocal beers. The product is targeted at female consumers in their teens and early 20s, andbased on the opinions of this group, the company designed the plastic bottles to express
an elegant high-end product similar to a woman's silhouette, while also fitting easily
into a man's hand. The advertising strategy sets its sights on women born in 1980 orlater, and makes use of both word of mouth and the media. By developing a product that
goes beyond just the high-end image of Japanese brands to also reflect local sensibilities,
the company has been able to bring in late-teens female customers while maintaining its
existing customer base.
For foods, Japan's high-quality fruit such as apples and melons have been selling wellto the well-to-do of Asia, but amidst rising awareness about food safety issues, Japanese
foods are becoming well regarded not just for their high quality, but also for their safety.
In Thailand, MOS Food Services has opened three stores in major department stores in
Bangkok, and has plans to open ten more. 90% of the customer base is Thai, and in
addition to meeting the taste of local Thai people who like fast food, the company has

241apparently also succeeded in building up its brand image of Japanese food being bothsafe.
______________________________________________________________________

Column Ⅲ-2◎ Case of a market entry attuned to changing needs in Europe

The EU expanded to 27 countries with the 2007 entry of Bulgaria and Romania, andit has been drawing attention for the high potential as a single market of nearly 500mn
people. However, breaking into the European market is not easy, given factors such as(1) stiff competition from European, US, Japanese, and South Korean companies, (2)the need for advanced technology to meet stringent environmental regulations
implemented to combat global warming, and (3) high quality being viewed as too much(too costly). We now look at how industrial machinery part maker THK broke into theauto parts market as an example of how to meet the market's demands for products thatare both high-value-added and low-priced.
Capturing market demand by leveraging technical abilities
THK was first in the world to commercialize linear motion guides in 1972, and its
products are widely used in everything from machine tools and industrial robots, tosemiconductor production equipment and LCD production lines. More prosaically, its
technology is used in subway platform screen doors, apartment building seismic
isolators, and CT scanners. The company is moving into new business fields byapplying its technology, and has begun making auto parts. Its mainstay products are linkballs, joints for connecting stabilizers and suspensions. Link balls are aluminum die-castsingle-part pieces, lighter than the conventional steel but also more durable against
corrosion and wear. THK Europe, based in Germany, has stated that European-madecars using its link balls include Daimler's B and C classes, BMW's 1 and 3 series andfour-wheel-drive vehicles, Peugeot's Picasso, and Renault's Megane, and apparently thecompany cannot keep up with high demand. The company entered the US market withthe aim of supplying Japanese automakers there, after which it began supplying to Ford,and later moved sideways into Europe. Japanese companies began manufacturing linkballs in the 1980s, followed by European companies in the 1990s, but this area requires
massive capital investment, and none but the major Western European companies wereable to afford it. Other companies copy THK's efforts, but management explains that its
patented technology and economies of scale make it more competitive in terms of
product quality and price, or in other words, the realization of a high-value-added but
lower-cost product.
The source of THK's competitiveness appears to be (1) its technology, forming the242basis for its product development, (2) the ability to beat competitors in putting its
technology into product line, and (3) large-scale production, all of which generatesynergies that make it difficult for others to imitate. That said, market needs must also
be keenly understood to break into the market. European automakers are very much indemand of alternative parts as a bid to reduce costs as competition heats up. THK
accurately read those market demands. THK has been successful in its entry into theEuropean market thanks to its innovative new product development, acute discernmentof specific auto parts market demands, clarification of existing and potential customers,
and accurate grasp of the possibilities for product supply.
______________________________________________________________________(6) Intellectual property issues
When expanding overseas, two major risk factors are possible intellectual property
right infringements, and how to handle them. Most of the copied goods in circulation in
the newly emerging countries are manufactured in China or Southeast Asia. The
problems of copies and pirated products can be broadly classed as (1) domestically
produced items distributed domestically, (2) domestically produced items shipped
overseas, and (3) items produced overseas and imported. The situation in somecountries is a combination of these scenarios (Table III-17).
It requires fairly advanced technology to produce products domestically, and China
and Thailand are the typical examples given their development backed by introductionof foreign capital. As we have seen in Vietnam and India, items that require significant
technology or expense to produce are often brought in from China or elsewhere, with
the imported copies often sold under counterfeited labels. The Middle Eastern countries
have little manufacturing capacity, and thus almost all copied goods are brought in fromoverseas.
According to a Japanese electronics maker operating in Egypt, Chinese-made copies
have been on the rise, as seen by the case where many customers claim about thedefects in products sold under the company's brand. However, the company has not soldthe brand in the area for some ten years. With the cooperation of the local police, thecounterfeiter was tracked down in September 2006. Companies are bolstering their
response to copies in the newly emerging countries, but enforcement is still inadequate,
due to factors such as a lack of manpower at the relevant government agencies. Givenalso the low income levels, consumers do not care much about buying copied products
so long as they are cheaper, and there is very little awareness of intellectual property
issues. Protection systems are being put into place, but many problems still remain, suchas lack of enforcement and the need to educate consumers. It is extremely important thatcompanies entering these markets be able to fend for themselves.

243

Table III-6 Features and trends of consumer markets in the US and the main European countries
Demographics and household composition

Consumption trends

Growing products and services, response to health andenvironmental issues

U.S.

・ Aging population, late marriage, increase in・Increase in multitasking, leading to more emphasis on easy, ・Strong sales of hybrid vehicles. 2007 Prius sales were up 70%
childless households.
・
convenient, and fast. For take-home meals, consumers
over the year before.
Those 21 or older comprise roughly 70% of total prioritize ease over flavor or nutrition (private-sector survey). ・Market expanding rapidly for organic foods. Market doubled
population. Childless (including single-person) ・More workers are off-site, with some 4.2mn people in thefrom 2001 to 2005. 39% of fruits and vegetables are organic.
households comprise 68.4% of the total (end- US working at home; this trend is stronger among
・ Light beer is more popular amidst more interest in health2007 population statistics).
entrepreneurs and those with high academic education.
and diet. Bud Light ranked the top-selling beer in 2007.
・Consumer electronics consumers prioritize the environment ・ The energy drink market grew by 8 times from 2002 to 2007.
and energy efficiency. Sturdy and long-lived products are
popular.
・Increasing consciousness on prices. → Leading to more useof Wal-Mart by high-income people.

UK・Birth rate gradually dipping as demographic
grays, and number of marriages declines.
・• Population 16 years old or less has declined
from 26% of the total in 1971 to 19% in 2006.
Population 65 years or older has likewise
increased from 13% to 16%.
・•
The number of marriages was at its lowest
level since 1895. (England and Wales)

Germany

・Increase in compact car purchases since 2004.
・Market expanding rapidly for old consumers. ・Female-targeted marketing on the rise. Backed by high・Unilever's Becel Pro-Activ cholesterol-lowering margarine.
Overall population peaked in 2005, and now
education levels, career desires, later marriages, and risingdeclining.
・• Dannon's Actimel-brand LC1 lactobacillus-culture yogurt.
divorce rate.
・Population 60 years or older comprise roughly ・Increased health awareness leading to a boom in health and ・Major café chain Tchibo and major supermarket chain Lidl
25% of the total.
function foods. In the yogurt drink market, French company
apply Fairtrade labels to merchandise.
・Childless and single-person households
Dannon is expanding its market share, followed by Yakult.
comprise 69% of the total.
・Moral-conscious consumers are on the rise. Focus on
Fairtrade and other products that do not cause environmental
destruction during manufacture.

France・Despite people having children later in life, the ・Spending increasing for children's clothing and baby goods.
birth rate is still around 2.0.
・35-hour workweek the norm. Shorter working days mean an
・• Institutionnal development leads to out-of- increase in demand for convenient and quick fast food andwedlock children comprising more than half of delivery services.
all births (2006).

・A prolonged favorable economy has boosted spending on
dining out and leisure, and increased ownership of high-end
automobiles
・Increasing US cultural influence. Rise of cafés similar to
Starbucks.
・Consumers more concerned about corporate social
responsibility. Growth in "Fairtrade" foods and beverages.
・The top household expenses are now for items such as
second cars, dining out, and package tours.

(Source) Based on data from reports submitted by overseas JETRO offices.

244

・The top household expenses are now for items such as
second cars, dining out, and package tours.
・Department store chain Marks & Spencer recommends
clothing with the Fairtrade cotton label.
・Tesco sells high-energy-efficiency light bulbs at half-price.
・Major supermarket chain Sainsbury's changes the packaging
on 500 of its private brand items to compostable materials.

・Increasing awareness of food safety issues prompts spread ofgovernment-certified-organic "Bio" labeling.
・Health boom sparks corresponding bicycling boom in Parisand other urban areas.

Table III-7 Features of China's "post-80" generation
・More than half still live with parents after finding employment.
・Over 10% still receive allowances after finding employment.
・ Credit card holders aged 23 and over tend to be female more than male.
・Over 80% responded that the internet is more indispensable than TV.
・Those responding that they intend to spend their money on themselves evenafter marrying were 23.5% for women and 7.5% for men.
・Roughly 60% of men responded that women' opinions have impacts when
making purchasing decisions.
(Source) Based on a JETRO survey administered to 400 unmarried internet users (half men,half women) living in Shanghai and between the ages of 18 and 27.

Table III-8 Characteristics of Russian new-car (passenger car) buyers
RussiaAge
Average annual income ($)
Male/female ratios

Europe30

46.7

20,80046,300Male 84%／Female 16% Male 69%／Female 31%

Average family size

3.3

2.8

Source: Association of European Businesses in the Russian Federation (AEB)
automobile division materials (September 2006).

Table III-9 Russian passenger car sales volume（Unit: 1,000 cars）
2003

2004

2005

2006

2007

Russian makes

883.1

876.8

832.2

752.5

756.2

Foreign makes

216.5

408.2

614.3

1020

1649.8

Total

1099.61285

1446.5

1772.52406

Source: Based on materials from ASM Holdings and Ernst & Young.

245

Fig. III-21 Rate of increase in transaction value of credit cards in major
emerging countries (2007/2003)(Benchmark 2003 = 100)
1,200

1,000

800

600

400

200

Eg
yp
t

ia
ra
b
Sa

ud
iA

il

nd
la
Th
ai

Br

az

in
a
Ch

V

ie

tn
am

o
ex
ic
M

Po

la

nd

a
In
di

Ru

ss
ia

0

(Source) P repared based on Euromonit or Int ernat ional

Table III-10 Characteristics and trends of consumer markets in BRICs

China

RussiaIndia

BrazilCharacteristics and trends, and background of expanding consumption

Leades in consumption○Word-of-mouth advertising and the Internet have a strong influence.
○Growing awareness of health and food safety. Japanese products have highcredibility, such as diapers and powdered milk.
○There are many dual-income households, and eating out and frozen pouch-packed
foods are popular.

○People who are about thirty years of age play the strongest
leading role in consumption.
⇒In the future, the generations “born in the 1980 or after”
will play the leading role in consumption mainly of products
such as consumer goods and digital products.
○Women have a very strong influence on consumption.

○The social background of expanding consumption is as follows:①Very little payment of housing loans, and living expenses, such as fuel and lightcharges, are cheap.
②People prefer consumption to saving due to their extreme mistrust of financial
institutions.
③Other factors such as the rapid popularization of consumer financing○There are more people able to buy small cars and household electric appliancethanks to a rapidly decreasing poverty group and a rising middle class.
○Credit cards have been rapidly popularized.

○People in their thirties or early forties play a leading role inconsumption.

○The middle class is emerging.
The explosive growth of household electric appliances. South
Korean and local companies dominate the market, which aretargeting this class.

○The determining factors for consumers to buy are (1) prices, (2) products diversity ○Women have a growing importance.
and(3) the site location.
○Installment payment and credit cards have been rapidly popularized.
・When buying durable consumer goods, consumers put priority on monthly amount of
installment payment rather than commodity prices.

(Source) Prepared based on reports from JETRO overseas offices246

Fig. III-22 Ratio of remittance from abroad to GDP in major emerging countries(%) (2006)
Philippines

13.0
7.9

Vietnam

5.5

Romania

5.0

Egypt

4.0

Pakistan

3.0
2.9
2.8

MexicoNigeria
India

2.5
2.0

Poland
Peru

0.9
0.6

China
Thailand

0.4
0.3
0.3
0.3
0.3

BrasilHangary
RussiaSouth Africa
Turkey0.3
0.1

Argentine
Venezuela

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

〔Source〕 Development Prospects Group, Migration and Remittances Team（World
Bnak）

Table III-11 Features and trends of consumer markets in the JFIC countries (1)Rapidly-growing goods and servicesReasons and factors for rising consumption

Leading consumers

Changes in trends and lifestyles

Vietnam ・Retail and service sales rising by ・Joined WTO in January 2008, with retailand distribution markets to be opened up
20% annually since 2005.
・Automobile, motorbike, and TV from January 2009.
production volume for domestic ・Sizable remittances from abroad. 7.9% of
GDP in 2006.
consumption expanded by 2-5
・Credit cards and consumer loans
times over 2000 levels.
spreading.
・18.5mn new telephone
subscribers in 2007 (equal to total
new subscribers for 2004-2006).
・Internet users estimated at
18.55mn (December 2007).

・Ho Chi Minh City is the center・Those aged 30-45 are leadingof consumption.
consumption.
・60% of population under 30, with ・Vehicles considered"luxurious"shifting fromthe 18-30-year-old, the focus
motorbikes to automobiles.
going forward.
・Golf booming among high・Women increasing theirpurchasing power. In Hanoi, half of income consumers.
・More couples are doublehousehold income comes fromincome, with prepackaged andwomen.
fast foods on the rise.

・Sizable remittances from abroad. 4.0% ofPakistan ・Passenger car sales volumes
have also expanded, from 40,000 GDP in 2006.
in fiscal 2000/01 to a record-high ・Auto loans spreading
・Bullish stock and real estate markets
180,000 in 2006/07.
・Production and sales of Suzuki's stimulating high-income consumption.
Mehran model (800cc) ranked the ・Karachi office rents in 2006 up some 2-3
times over three years previously (JETRO
top for six consecutive years
investment cost survey conducted insince 2002. Toyota Corolla2006).
(1300cc) ranked second.

・Automobile sales growing,backed by corporate demand.
・Those aged 24 and younger
comprise roughly 60% of total
population, with younger
consumers to take the lead.

・Color TVs rapidly gaining market
penetration, mainly from South
Korean and Chinese
manufacturers.

・Upon joining the EU in May 2004,
・Strong consumer confidence・Since 2000, opening of numerous
emissions gas regulations targeting usedamong the new riches and higher joint-use shopping centers thatcars were abolished, leading to an increase income levels that can purchase a include movie theaters and otherin used car sales.
passenger car.
entertainment facilities. Now
・Bolstering automobile financing
common for the whole family to(installment sales) one point for success.
go and spend long time.
Setting up auto loan and insurance desks
right in the showroom. Passenger car
leasing also popular among corporations.
Source: Based on data from reports submitted by overseas JETRO offices.
Poland・Used car sales ballooned from
270,000 in 2002 to 1mn in 2007.
Used cars comprise the bulk of
the market (80%).

247

Table III-12

Features and trends of consumer markets in the JFIC countries (2)Rapidly growing goods and services

Reasons and factors for rising consumption

Leading consumers

Changes in trends and lifestyles

Mexico・In 2006, the mobile phone household ・Total 2007 credit card transactions were ・Population under 30 years old
・Convenience stores expanding
penetration rate (47.6%) beat out that up a high 2.8 times over the 2003 level.
comprises 57.4% of total, those
rapidly. (Euromonitor figures showfor fixed phones (46.7%) for the first
Spread of automobiles and consumer
under 40 comprise 73.8%. Average number of stores rising fromtime.
・DVD players are electronics contributing.
household size is 3.9 people.
5,242 in 2004 to 8,140 in 2007).
seeing rapid adoption. Penetration rate ・Remittances from family members working Marketing targeting younger
Shifting away from family-run
jumped from 4.0% in 2002 to 45.7% in in the US is supporting purchasing power consumers is important.
stores.
・
2006. Backed in part by easy access for low- and middle-income households.
・Big income disparities. Top 10% of Conveyor-belt fast-food sushi is
to pirated movies
households by income level earn
popular.
35.7% of total. Bottom 10% earn
1.8% of total (2006).
Egypt
The consumer electronics penetration ・Credit card ownership is increasing
・Population stands at 72mn and is ・Large shopping malls arerate changed as follows from 1995
rapidly. MasterCard cardholders in 2007
growing. Young people aged 6-24 appearing in urban areas andthrough 2005.
had increased by 40% over the previous
comprise 1/3 of the population.
Carrefour and other hypermarkets
TVs 78.8%→92.8%,
year, marking the fastest increase in the
Very large low-income group.
in the suburbs, with foreign
Refrigerators 55.9%→85.7%,
world (Herald Tribune newspaper).
Economic reforms in recent years brands popular for consumer
Washing machines 74.9%→92.1%
have prompted expansion of newelectronics, apparel, cafés, andriches.
other categories. • Starbuckstype cafés expanding quickly.
Saudi Arabia ・High-end watches and perfumes
・Rising crude oil prices.
・Men leading consumption.
・Women are achieving higher
popular products targeting richer
・Low tax rates, no consumption tax. Car- ・Total population of 23.7mn, oflevels of education (womenclasses.
based society; most shoppers travel by car. which 40% is under 14. Household comprise roughly 60% of college
・Mobile phones.
Long night-time business hours.
size of roughly six people. The
graduates).
average birth rate for 2000-2005
was 4.1.
・Large families are quite common,and shopping malls have a large
number of children's and baby
clothing stores.
UAE
・High-end automobiles and large SUVs ・Dramatic economic growth backed by
・Of the small citizen population,・High-end and super-luxury
are extremely popular. These include rising oil prices.
・ those under 20 make up 51% of the hotels mainly targeting rich
European models such as Porsche,Some 80% of the total population of 4.22mn total (2005 census). Large families foreign travelers are doing well.
BMW, Volkswagen, and Rover. Ferrari is made up of foreigners, mainly guest
and high income levels mean strong Rush of new construction.
is also regarded as one of the bestworkers.
consumer appetite.
selling brands worldwide.
・Foreign travelers numbered some
7mn (2007). Travelers are the next
most important consumers after
residents.
Source: Based on data from reports submitted by overseas JETRO offices.

Table III-14 Major patterns of international expansion by retail trade
Department store

Supermarket

Warehouse store

Cash and carry (C&C)
Membership wholesale
Box store (hard discountstore)

Hypermarket(supercenter)

Japanese-style
hypermarket

Convenience store

Sale with a comprehensive merchandise line consisting ofcommodities such as jewelry, precious metals and luxury brands
A business category born in the United States, whereby frequently
consumed foodstuffs and daily necessities can be bought throughself-services
A business category that utilizes large vacant stores or the empty lotsof warehouses to sell low-price products such as food through selfservices
A business category of wholesale that uses the takeaway method tosell food and non-food commodities for business use on a cash basis(typical company: Metro, etc.)
A membership system that sells commodities to businesses andconsumers (similar to C&C)
Characterized by selling at a complete discount, centering on private
brands, and displaying commodities in cardboard box
Characterized by a large store space to sell commodities with a highpurchase frequency, mainly foodstuffs, and other daily necessities,
groceries and drugs, by putting up low prices everyday, basicallywith one-floor store space equipped with concentrated cash registers
and large parking facilities (typical companies: Carrefour of France
and Tesco of UK).
A business category commonly seen in the international expansion
by Japanese companies, which comprehensively deals in clothing aswell as other commodities, like foodstuffs, daily necessities,
household electric appliances and furniture, in a 3-6 story buildingthat has retail spaces individually equipped with cash registers andlarge parking facilities (it is different from the hypermarket in that(1) it has clothing as the main commodity, (2) it attaches more
importance to quality and services instead of low prices, and (3) it
has no concentrated cash registers)
Characterized by centering on commodities that are consumed rightafter purchase, and providing convenience in terms of site location,business hours and commodity lineup(source) Prepared with reference to various kinds of materials

248

Table III-13 Number of international stores for retail trade in Japan, the UnitedStates and Europe
Carrefour (France, as ofDec. 31, 2007）

Aeon
Ito Yokado Wal-Mart (U.S., as of
May 2008)(Japan, as (Japan, as ofof Feb. 20,
Jun. 3,2007)
2008)
Year that
Number of Number of Number Year that Number Year that Number of Number of Number
storesstoresof stores
businessof stores business of stores businesshypermarkets
hard
expansion
expansion
expansion
discount
startedstartedstartedstoresEurope andRussiaFranceUK
Ireland
Belgium
Spain
GreeceItaly
Denmark
Netherlands
Portugal
RussiaUkrainePolandCzech
Hungary
Romania
Slovak Rep
TurkeyNorth America,and Central
and South
US
CanadaMexicoArgentina
BrazilColumbia
Other Central
and South
Americancountries

406

56
161
28
59

4,299

Tesco (UK, as ofFeb. 24, 2007）

639

394

1

1992

95

1997

2,912
397

471
72

280
84
101

1995
1996
1994
1996
2003

11
19

519

48
30

255

695

60
60

59
150
46

Metro (Germany, asof Oct. 31, 2007)

353

86
33

1971
1971

9
34
7
48
5
16
10
36
16
25
12
19
23
5
10

1970
1972
1992
1972
1971
1969
1990
2001
2003
1994
1997
1994
1996
2000
1990

2007

395
300

238

275

626

China

112

275

47

2004

34

1996

Indonesia
Malaysia
Singapore
TaiwanJapan
ROKThailand
Vietnam

37
12
2
48

19

2002

3

2004

109
81
370

2003
1999
1998

3

2002

8

2002

3

2003

India

1999

2,197

Asia

27

353

51

58 (since
1996）
33(including
Hong
Kong）

305
1,037
23
315

1994
1991
1995
1995

517

1992, 2005

12 (since
1997）

598

12

206

1996

392

2002

18
1
6
2009 (C&C
store to beopened)

899
5,269
1,325
445
58
12
3,148
Total
(Note) In addition to this, Carrefour has expanded its international business of supermarket and convenience stores, but that is mainly inWestern Europe and is omitted here.
(Source) Prepared based on the data of individual retailers' homepages

249

Table III-15
UK

Germany

RussiaJapanese product brand image

Automobiles
A 2007 UK automobile customer satisfaction survey (conducted by J.D.
Power) found that Lexus was ranked first, VW and Czech maker Škoda
tied for second, Honda came in third, then Toyota in fourth and Daihatsu
as fifth.
Japanese cars are viewed favorably, second only to German cars. The
image for German cars is high quality and good service, but high price.
Japanese cars are seen as more reasonably priced and reliable, and asusing advanced technology.

Mexico-Japanese products are viewed favorably for similar body types, good
taste, and high quality.

A J.D. Power customer satisfaction survey showed that for nine
categories, Japanese cars were in the top three for six of them, andranked number one for four.

A JETRO questionnaire found that, in terms of an image of high-quality
products, Japan ranked first (Sony, Panasonic, Sharp, Pioneer, andothers), Europe second (Indesit, Ariston, Nokia), South Korea third (LG,
Daewoo, Samsung), and China in fourth.

A JETRO questionnaire found that the best-known automobiles wereJapanese with 88% recognition, followed by European and US makes at
33%, and then South Korean cars at 29% (multiple responses).

Indonesia

Egypt

-

In a customer satisfaction survey conducted by IMRB International andIn this same customer satisfaction survey, for TVs, Samsung ranked first,
Business Week, for passenger cars, Ford and Honda ranked as tied for the followed by LG in second, and Sony in third, and for air conditioners,
top, followed by multiple Japanese companies for second, and Hyundai for Hitachi came in first, with LG in second, and Samsung in third. For
third.
apparel, the top was Allen Solly (UK), then Provogue (India), and Louis
Philippe (UK) in third.

Uzbekistan

Malaysia

The household penetration rate for flat-panel TVs is 32% for Japanesemade, 12% for Philips, and 8% for Samsung.

2007 sales volume stood at 21,000 for Volvo, 15,000 for Mercedes Benz,
13,000 for Lexus, and 6,000 for Infiniti. In terms of brand recognition, BMW
did best at 88%, followed by Lexus at second with 79%, then Infiniti at third
with 72% (Association of European Businesses in the Russian Federation).

China

India

Consumer electronics, apparel, game consoles, others
Japanese brands are favorably viewed for attention to detail, and thatthey have designer brands establishing an independent image.

The best-known TV makers were Japanese at 83%, then South Korean at
41%, and then European and US at 17%. The best-known mobile phonemakers were European and US at 67%, then Japanese at 38%, and thenSouth Korean at 25%. Products people would buy again were Japanese at
78%, European and US at 35%, Chinese at 12%, Indonesian at 9%, andSouth Korean at 9%. For good after-sales service, 78% of respondents
chose Japan, then South Korea at 22%, and then Europe and the US at
22%.

Including the country's second-largest automaker Perodua (owned in part Interviews with consumer electronics retailers found that high-end
by Daihatsu and Mitsui), Japanese cars have 62.2% of the market in 2007, shoppers buying high-priced items such as flat-panel TVs tend to choose
and their brand image is one of high reliability.
Japanese products.
For cars and consumer electronics, Japanese and German brands have
US brands have good recognition for restaurants and apparel. South
good recognition. Japanese products are seen as having high quality, high Korean cars and consumer electronics are gaining better recognition.
Chinese products are also burnishing their image.
prices, and good after-sales service.

Source: Based on data from reports submitted by overseas JETRO offices.

Table III-16: Examples of Japanese companies expanding
Company nameProduct development
targeting the local market

Sony

Targeted
country /marketIndia
U.S.

Consumer electronics UAE
manufacturers

Entry by selling image ofJapanese product safety,
quality, and after-sales
service

Product details
Development and sales of models for the local market that emphasize soundby including large speakers
Development and sales of Bravia line of flat-panel TVs with lower resolution,
but lower price, targeting the mass market
Development and sales of large washing machines to suit the larger families ofthe Middle Eastern market

AcecookVietnamDevelopment and sales of instant noodle products that meet local sensibilities
and tastes. Company name becoming synonymous with "instant noodles".

Honda

MexicoGained consumers' trust in the passenger car market with quick and polite"Japanese-style" after-sales service.

Toshiba

BrazilPigeonChina

Expanding sales of low-priced but high-quality TVs with warranties of overfour years (one-year warranties are more common), with after-sales support
another selling point.
Maintaining image of high-quality high-end baby goods, and expanding market
share

Unicharm

Saudi Arabia

Bringing products into the market from Japan, becoming second brand in the
country.

Kirin Beverage

China

Boosting sales while keeping image as traditional and high-end by matchingproducts to the tastes of local young women.

MOS Food Services

Thailand

Successful with Japanese foods image of high quality and safety

Source: Based on data from reports submitted by overseas JETRO offices.

250

Table III-17
China

RussiaIndia

BrazilVietnamThailandIntellectual property issues in the main newly emerging countries
・The manufacture of copies is becoming more sophisticated, involving division of labor, smaller
production lots, and applying for foreign trademarks in advance, among other measures.
Tougher domestic law enforcement is boosting exports of copies to Southeast Asia and the
Middle East. While exquisitely produced copies are on the rise, there are also numerous ongoingincidents of inferior-quality copies causing to accidents and injuries.
・The Chinese government promulgated its National Intellectual Property Strategy in June 2008,
setting forth a medium- to long-term national policy aiming to attain the highest global
standards in the creation, utilization, and protection of intellectual property rights by 2020. The
government also frequently implements national campaigns to smoke out counterfeiters andvarious other events.
・There have been some problems related to pirated DVDs and beverages, but these have notextended to manufacturing in general.
・By registering trademarks with the customs authorities, the system can inhibit the importationof copies and parallel imports, and Japanese companies have been increasingly interested inthis system over the past year and more.
・There are many cases of copies being imported from China and the Middle East. There aremany cases of infringement on trademarks and designs, which are more easily copied.
・A JETRO questionnaire sent to Japanese companies active in the country in August 2006
confirmed that 14 of 38 companies suffered damages. That said, only a few companies havedone anything specific to combat the problem, suggesting that the damages are not enough toseriously impact operations.
・The legal system is adequately in place, but enforcement is inadequate. There is a veritableflood of pirated or smuggled CDs and software, and the government's enforcement efforts have
had little effect. There are many copied products even of laptop PCs and DVD players.
・Trademark applications take a very long four to five years, and patent registrations take evenlonger from five to seven years. Infringement is not unusual even after registering. Any lawsuitbrought will only see slow progress in the courts, and any plaintiff must be willing to spend
significant time and money to prosecute the case.
・Pirated DVDs and foreign brand-name handbags and clothes are on sale at low prices. Most ofthese are apparently brought in from China. There are also many copied brand-namemotorbikes, and Japanese manufacturers state that at least assembly, if not more, is being
undertaken in Vietnam.
・The government is making efforts, such as its new IP law enacted in July 2006. However, alack of people with the specialized expertise and other factors are hampering implementationd fmedia (DVDst・Illegaland CDs) are estimated at some 40-50% of total media sales. copies canbe found in everything from auto parts, motorbikes and parts, and electronics, to officeequipment and other areas.

Egypt・Chinese-made copies sometimes show up in the market.

Saudi Arabia

・Following the country's December 2005 accession to the WTO, the government has beenworking to protect IP rights, but a shortage of manpower at the relevant authorities means that
copies can be found even in the cities. Japanese companies have also been damaged by the
spread of copies for items such as auto parts, plant equipment, and printer ink cartridge.

UAE

・Japanese companies have suffered the most from copies of auto parts, tools, small
electronics, and computer products. Some Japanese companies have also been successful inferreting out copied textiles for apparel.
・The government authorities are strengthening their response, but are still far from making any
major improvement. Several Japanese companies have also joined with agents to put
advertisements warning against copies, and further diligent efforts are still required.

Source: Based on data from reports submitted by overseas JETRO offices.

251

4. Future Global Market Strategies for Japanese Companies(1) 90% of responding companies plan to either begin selling overseas or boost
ongoing overseas sales
Japanese companies are increasingly interested in expanding overseas, including in
the newly emerging countries, and are increasing their reliance on overseas earnings.
Export industries are further boosting their sales in overseas markets, and even moredomestic-demand sectors such as retail, daily sundries, construction, agriculture, andprocessed foods are also actively building up their overseas presence.
In order to better understand the situation and the impact of the changes, JETRO
conducted a questionnaire survey of 3,495 member companies between 18 April and 14
May 2008. 947 companies responded for a reply rate of 27.1%. 60% of the respondents
were in manufacturing, breaking down to general machinery companies comprising 8%of all respondents, while 7% were in foods and beverages, and 6% were automobile orauto parts companies. 40% of respondents were non-manufacturing, with roughly halfof these in wholesale. 37% were large companies, and 60% were small andmedium-sized enterprises (SMEs).
The questionnaire asked about current and future overseas sales, with 87% of all the947 respondents answering either that they currently sell overseas and could see oralready project sales growth, or that they do not sell overseas yet but might do so or are
already planning to expand overseas. Of particular note, 16% of all SMEs replied thatthey have no overseas presence yet but might or are planning to expand overseas, amuch higher ratio than the 2% recorded for large companies. That said, the vast
majority of large companies at 85% replied that they are already operating overseas,suggesting that the domestic market is close to saturated.
Future plans to expand overseas were most often indicated in the fields of textiles andapparel; lumber, wood products, paper, and pulp; petroleum and plastic products;
construction (residential); transportation; agriculture, forestry and fisheries; andspecialty services (such as consulting and legal). These are sectors that have operated
primarily within Japan, and the questionnaire results show strong interest in expanding
overseas by these domestic-demand businesses. Meanwhile, no plans to expand
overseas were most often indicated in the sectors of retail (38%), transportation (37%),
finance and insurance (89%), and specialty services (40%), with the vast majority
comprised of non-manufacturing sectors.
The top active reason given for selling overseas from among the 824 replies to thisquestion was the growth potential of the newly emerging markets, at 55% of
respondents. This was followed at 51% by concerns that the domestic market is mature252

or saturated. However, only 14% replied that they are changing their focus fromdomestic demand to overseas markets, highlighting that companies are not giving up on
domestic demand, but rather strategically seeking to capture demand in expanding
overseas markets. 23% of companies also replied that they intend to move into markets
in developed countries, for the fourth answer, clearly showing that the developed
markets of the US and Europe remain attractive targets.
Companies answering that they were concerned about the maturity and saturation of
the domestic market were mostly in the sectors of foods and beverages, cement andceramics, steel and non-ferrous metals, general machinery, construction (residential),
and agriculture, forestry and fisheries. Those replying that they are attracted by highoverseas rates of return were mostly in the fields of retail, specialty services, cement andceramics, and IT equipment and electronics. One reading of these results is that
intensifying competition is compressing domestic rates of return, prompting thebusiness strategy of offsetting this by expanding overseas.

(2) Countries and markets targeted for sales growth
Of the 839 companies that replied to a question about which countries are the mostimportant targets for sales over the next three years, 440 or 52% answered, "China". The
US was the next biggest target at 32% (272 companies), followed by India at 25% (206),
Thailand at 22%, and Russia at 20%. The top picks were not just the BRIC and ASEAN
countries, but including South Korea, Taiwan, Thailand and Vietnam, but also Germany,
the UK, France, and other Western European countries, as companies target both thedeveloped and newly emerging markets for sales growth.
Of the newly emerging JFIC 16 countries, Thailand ranked fourth, followed by
Vietnam in seventh, then Saudi Arabia as 19th, and Mexico as 20th. Interest in selling in
the JFIC 16 countries is rising, and we expect their relative ranking as target markets toincrease as time goes by.
Looking just at the top ten countries, the SME replies were similar to the large
company replies, with many indicating China, the US, and India as target markets, but
20% of SMEs also indicated South Korea, more than the 16% of large companies, andSMEs were also more likely to target Vietnam, Taiwan, and Germany than the large
companies were. This is probably due to these areas being important consumers ofintermediate goods supplied by SME manufacturers. Filtering by sector, mostcompanies in almost all sectors chose China as the most important target, but India wasalso chosen by many companies in specialty services such as consulting and legal.
The most common means of supplying products and services to the chosen target

253markets was by exports, (China was the top target at 53% of replies, and Germany was
ranked tenth at 30%). The most common countries for local production bases were
China (33%), Thailand (18%), the US (17%), Taiwan (10%), Indonesia (9%), and South
Korea (8%).
In reply to a question about target demographics for the next three years, 389 or 46%
of respondents answered that they were targeting high-end product sales to high-income
consumers, and 323 or 39% answered that they were targeting mid-priced product sales
to middle-income consumers. The companies targeting wealthier consumers were in the
sectors of textiles and apparel (71%), pharmaceuticals and cosmetics (67%), foods andbeverages (64%), retail (90%), and finance and insurance (67%). Meanwhile, sectors
targeting middle-income consumers were precision instruments (52%), foods andbeverages (50%), ICT equipment and electronics parts (42%), agriculture, forestry andfisheries (44%), wholesale (43%), and specialty services (42%).
These results show that Japanese companies are targeting both the upper and middle
classes, while those targeting the wealthy are emphasizing branding strategies, andthose targeting middle-income consumers are aiming for a larger population of potential
customers.

(3) Problems faced in selling overseas
The most numerous replies to a question about the problems and risks in sellingoverseas, by region, mentioned the difficulties of getting information about regulations
and permissions, of finding good sales channels, of finding good partners, and ofunderstanding local business customs. Asia was most often cited for problems inprotecting intellectual property (IP) and securing human resources, while the developed
countries of Europe, the US, and the Pacific were most often noted for rising customer
demands.
Regions most faulted for the difficulty in learning about regulations and permissions
were Russia and the CIS countries, the Middle East, and Africa. Asia ranked next,
indicating that it is still not easy to get accurate information about regulations andpermissions even in the Asian countries. Unexpectedly, large companies were more
likely than SMEs to answer that regulation and permission information was difficult tocome by, indicating the high level of demand for this type of information.
The top countries cited for difficulties in finding sales channels and partners were the
non-Asian developing regions of Central and Eastern Europe, the Middle East, Africa,
Russia and the CIS countries, and Central and South America. The troubles of finding
sales channels and partners are an age-old problem, and one that companies have254

worked on starting in the developed countries and then mainly in Asia. History is likely
to follow similar lines as businesses expand their efforts outside of Asia in otherdeveloping regions.
The top two regions noted for difficulty in understanding business customs weredeveloping regions, but Asia was ranked third for this category. That said, Asia wasranked last for the challenge of not understanding consumer tastes, showing that Asian
consumers are not a problem for Japanese companies. Even so, Asia's third-worst
ranking for difficulty in understanding business customs is a clear indication of thecomplexity of business negotiations in the region.

(4) Progress in developing products and services for the local market, and in
human resource development
Of the 839 responses to a question about whether companies were developing
products and services for the local market, 60% (502 companies) answered in theaffirmative, and 36% (299) in the negative. In a follow-up question to those saying"yes" as to development strategies, 52% or 262 companies replied that the parent
company was developing products for the local market, and 43% or 214 replied that theparent company was developing and providing global strategic merchandise. The parent
company is developing products for the local market at most manufacturers, but
numerous companies in the sectors of steel and non-ferrous metals, IT equipment andelectronics parts, precision instruments, and general machinery replied that they wereinstead developing strategic products for the global market. Meanwhile, 31% of
respondents (156 companies) replied that subsidiaries are developing products for the
local market. The sectors with the most such responses were foods and beverages,
textiles and apparel, chemicals, and printing. Foods and beverages go without saying,
but the heavy leaning in this direction for apparel companies was due to subsidiaries
taking the initiative in product development. Daily sundries also appear to fall into thiscategory, but local company interviews revealed that parent companies are developing
various types of products, from which the products best suited to the local market are
selected and sold.
Only 11% of respondents answered that they outsource development to local partners
or other local companies, but this number is likely to increase as companies further
expand their businesses in the newly emerging countries. Among specialized services, ahigh 42% of respondents are making use of local universities and research facilities.
Making use of local human resources is vital for developing locally optimal products
and boosting competitiveness. So far, Japanese companies have sourced employees

255more from within their groups than their US and European counterparts, but humanresources strategy that brings in people from more global perspective is getting
increasingly necessary.
When asked about how they were actually making use of employees overseas, themost common replies were that hiring was the responsibility of a local HR manager, thatthe company had introduced its own earnings targets, that the pay scale was
performance-based, and that the company had established its own specialist system witha separate pay scale. Of particular note, large companies were more likely than SMEs to
respond that they had implemented specific policies for employee placement andtraining in order to boost overseas competitiveness.
Meanwhile, many companies in the sectors of IT equipment and electronics parts,
lumber and paper pulp, retail, transportation, agriculture, forestry and fisheries, andspecialty services answered that they view Japanese language ability of local employees
as important. That said, only 7-8% of respondents noted that they employ exchange
students in Japan as management candidates, or that they have promotion systems inplace leading to management positions overseas or at headquarters. While Japanesecompanies are clearly evolving in their approach to local recruitment and training, it isalso clear that a good number of companies are still heavily reliant on Japanesenationals at their overseas operations.
11% of respondents answered that they have the same employee evaluation systems
in place overseas as in Japan, with the most globalized companies in the sectors ofceramics and cement, and automobiles. While having the same evaluation systems inplace both in Japan and abroad might not be necessary, Japanese companies will likely
be increasingly pushed to undertake efforts such as implementing their own specialist
systems and setting up promotion systems leading to management position for both
local affiliates and the headquarters.

256

Fig. III-23 Forecast of overseas sales for the current stage and the future
Not sellingoverseas anddoes not plan to
do so in the
future11.4%

Selling overseas
and may scale
down orwithdraw in the
future
1.6%

Selling overseas
and may expand
business in the
future75.9%

Not sellingoverseas but
may do so in
the future
11.1%(N=947)(Source) Figures and Tables of this sub-section are based on “JETRO Survey on Global
Market Strategies for Japanese Companies” released in August, 2008.

Fig. III-24

Reasons for actively conducting sales activities overseas
0%

20%

40%

60%

Growth potential of emerging markets

55.0%
51.3%

Mature and saturated domestic market

34.6%

Increasing business inquires from abroad

23.8%

Opening up markets in developed countries
Parent company and/or customers have expanded business overseas

19.4%

Request from overseas business partners

18.3%
15.4%

Expansion of overall production capacity
Shift of the domestic demand-based policy to overseas markets

14.3%

Increasingly fierce competition in Japan

13.2%
10.1%

Cheap labor cost
Low rate of return in Japan

8.1%

High rate of return in foreign countries

8.0%

Tariff and tariff barriers removed or eased due to FTA/EPA

3.5%

Responsive measure against the yen appreciation in the future

3.2%

Others3.8%

No reply

0.5%

257

( M ultip le rep lies, N=824 )Fig. III-25

Countries with the highest sales priority in the coming three years
0%

20%

40%

China
U.S.
India
ThailandRussiaSouth Korea
VietnamTaiwanGermany
BrazilIndonesia
Hong Kong
UK
FranceSingapore
Malaysia
Italy
Australia
Saudi Arabia
MexicoCanadaSpain
Netherlands
PolandPhilippines
Middle East, Asia and others
TurkeySouth Africa
Czech Republic
New Zealand
Hungary
Europe and others
Egypt
Argentina
IranPakistan
Chile
Central and South America and others
Russia, Central and East Europe, and others
Bangladesh
Nigeria
Asia and others
No reply

24.6%
21.8%
20.3%
18.2%
16.3%
15.9%
15.9%
12.3%
12.0%
11.3%
10.4%
10.3%
9.7%
9.4%
8.8%
8.3%
7.2%
6.2%
5.8%
5.8%
5.0%
4.9%
4.8%
4.6%
4.5%
4.3%
4.2%
3.6%
2.9%
2.5%
2.3%
2.0%
1.7%
1.4%
1.4%
1.3%
1.3%
1.1%
1.0%
0.6%
22.2%

258

32.4%

60%
52.4%

(Multiple replies, N=839)

Fig. III-26 Targets in overseas markets
0.0

20.0

40.0

Selling mainly highend products targetingthe high-income
group

60.0

（％）

41.5
46.4

Selling mainly midpriced products
targeting the middleincome group

36.6
38.5

Selling mainly low-end
products targeting the
low-income group

Present
Within the next three years(Multiple answers, N=839)

9.1
10.7

36.2

No response

32.2

Table III-18 Problems with and risks of overseas sales activities (by item)(Unit: %)Difficult to obtain
information on regulations
and licensing procedures

Difficult to find sales
channels
Central andEastern Europe

Difficult to find partners

Middle East andAfricaMiddle East andAfrica36.6

39.1 Russia and CIS

44.4 Russia and CIS

32.9

Central and
38.5
Eastern Europe
Central and South
35.7
America

38.4 Asia

30.6
19.9

30.8 Asia
30.5 North America

Central and
34.4
Eastern Europe
Central and South
25.6
America
24.5 Oceania
24.3 North America

23.6 Oceania

23.6 Western Europe

6.2

Russia and CIS

48.3

Middle East andAfrica40.4 Russia and CIS
Middle East and
36.6
AfricaCentral and South
35.7
America
35.6 Oceania

32.6 Western Europe

North America

22.0 Western Europe
11.8 North America

Oceania

9.0

Asia
Central and SouthAmerica
Central andEastern Europe
Western Europe

Difficult to catch
consumers' preferences

Asia

Difficult to understand theregion's business practices

42.5

Difficult to secure a stablesource of manpower

Middle East andAfricaCentral andEastern Europe
Russia and CIS

14.3 Asia
Central and10.3
Eastern Europe
8.2 Russia and CIS

18.4

Oceania

7.9

North America

18.0North America

6.2

Western Europe

6.2

Central and SouthAmerica
Middle East andAfricaCentral and SouthAmerica
Asia

5.2
5.2

There are problems withintellectual property
protection

27.2 Asia
19.2

16.9

46.0

46.6

9.7

Western Europe

43.6

9.7

Oceania

32.6

8.9

Asia

28.4

6.2

Central andEastern Europe
Middle East andAfricaCentral and SouthAmerica
Russian and CIS

19.2

16.1 North America

4.9

Western Europe

14.1 Oceania

2.2

Oceania6.7

0.9

Western Europe

7.9
6.2

Customers' requirements arerising (quality, price, delivery
deadline, etc.)45.8 North America

Central and SouthAmerica
Russian and CIS
Central andEastern Europe
Middle East andAfrica

15.6

16.8
13.0
11.6

Multiple answers, N= 305 (North America), 154 (Central and South America), 640 (Asia), 89 (Oceania), 227 (Western
Europe), 146 (Central and Eastern Europe), 207 (Russia and CIS), 161 (Middle East and Africa)259

Fig. III-27 Strategy of product, commodity and service development
0%

20%

40%

60%

The parent company develops products for local markets.

52.2%

The parent company develops and supplies world strategy
products.

42.6%
31.1%

The local subsidiary develops products for local markets.
Strengthen collaboration with overseas alliance companies.

11.6%

Commission to local enterprises.

11.4%

Establish local R&D facilities and strengthen functions.

8.0%

Make effective use of local universities and research
institutions.

6.8%

Establish and strengthen the local liaison office.

4.8%

Commission to local foreign-affiliated companies

2.6%

Commission to a specialized design company (fabless)

1.2%
7.0%

OthersNo reply( M ultip le rep lies, N=502 )2.6%

Fig. III-28 Measures for personnel utilization and nurturing to enhancecompetitiveness in overseas markets
0%20%

The personnel evaluation system and its operation are entirely left
to the discretion of the local personnel manager.
The subsidiary adopts its own performance target, which is reflectedin pay raises and promotions.
Emphasis is laid on the Japanese language proficiency forrecruitment of local employees.
There is a high degree of dependence on Japanese employees who
reside locally.
The subsidiary adopts the merit/performance-based system and awage system in line with it.
The subsidiary adopts the same personnel evaluation system as inJapan.
The subsidiary establishes its own professional career system andintroduces a different system for wages.
Foreign students studying in Japan are recruited as candidates for
managing staff both inside and outside the head office.

40%
28.1%
23.1%

16.4%
16.1%
13.2%
10.8%
8.0%
7.5%
6.8%

Employees with poor performance are promptly replaced.
The company is pushing forward a system to promote employees tothe managerial level in the subsidiary and the head office.
Local employees of the subsidiary only do jobs of a supplementary
nature.
Internship opportunities are provided to local students to pave theway for recruitment.

6.7%(M ultip le rep lies, N=839)

3.2%
2.9%

No reply

260

36.9%

IV. Japanese Economy Headed for Further Globalization both
Domestically and Abroad (Conclusion)
Rising downward risk for global economy
The world economy expanded by 4.9% in 2007 over the previous year, mostly in linewith the high growth posted in 2006 (in real terms, on a purchasing power parity basis).
However, there is a rising risk that global economic growth in 2008 will fall short of thislevel, due to a deteriorating financial environment and inflation in the developed
countries of Europe and the US and the resource-consuming countries of the developingworld. Total worldwide export value for 2007 (JETRO estimate, visible trade) came to$13,759.7bn for a 15.0% increase over the previous year, maintaining double-digit
growth for the fifth consecutive year. However, export volume grew by only 5.6% as thepace of growth fell by half. This was largely due to export volume growth being
constrained by 2007 export prices on a dollar basis rising by more than 9% from theyear before. Prices on primary products surged coming into 2008, further dampening
growth in world trade.

Japan offsetting income transfer due to high resource prices with trade
investment profits
Rising prices for imports of crude oil and other resources are causing a decline in theratio of import volume over export volume for resource-consuming countries.
Calculating the impact of this change in terms of trade (export prices / import price)shows that resource-rich countries among the newly emerging markets, such as
Malaysia, are seeing trading gains as export price increases outstrip import priceincreases (8.9% of GDP in 2007), while at the same time, a net-export balance of trade(trade surplus) is boosting incomes (16.9% of GDP in 2007). However, in newly
emerging countries with few natural resources, income tends to flow abroad. Japan,
meanwhile, has seen its terms of trade deteriorate substantially, and the country's 2007
trading gain against GDP was -3.4%, but net amounts received from overseas(remittances and investment earnings from overseas) came to 3.2%, and net exports
came to 4.7%, for a grand sum of a positive 4.6% to more than offset the flow ofincome out of the country.



Direct investment in 2008 headed for an unavoidable slowdown

261

Worldwide inward direct investment in 2007 beat out the previous peak of $1.6tn in2000 to come in over the $2tn mark for the first time. This was largely due to active
cross-holder M&As, an increase in reinvestment from earnings growth at companies
that had expanded overseas, and the relatively weak US dollar. Cross-holder M&As
increased not just in Europe and the US, but also in the newly emerging countries.
Newly emerging countries tend to have many SWFs and state-owned enterprises, andtotal such assets were estimated at roughly $2-3tn in 2007, and are expected to climb to$12tn in 2012. The leading sectors for M&As were financial, and resources and energy.
The impact of the subprime mortgage implosion in the latter half of 2007 has put thebrakes on growth, and this slowdown has become more visible coming into 2008.
Results for 1H of 2008 show a 14.5% decline from the year before, making a major
full-year decline likely unavoidable.



Working around a decline in share of exports to the US by changing target
regions and sectors
Japanese trade in 2007 posted record highs for both imports and exports. Export
volume broke above the $700bn level for the first time, and exports as percentage ofGDP reached an all-time high of 16.3%. Yen-based exports were slow in the first quarterof 2008 due to the strong yen and high crude oil prices. However, exports on a dollar
basis continued to increase, and the slowdown in exports to the US was offset byincreases in exports to the EU, ASEAN, the Middle East, and Central and SouthAmerica. While Japanese exports are becoming less reliant on the US market, they are
becoming more reliant on China and other emerging countries. Exports to China
exceeded those to the US in 2007, making China Japan's biggest trading partner in total
value terms for both imports and exports. There were also changes in targeted sectors,
with less going to electrical and general machinery and more going to the automobile,
base metal products, petroleum refining, and precious metal (gold, silver, platinum)
sectors.

Good opportunity to expand Japan's external M&A
Japan's 2007 foreign direct investment value hit a record high, climbing 46.5% overthe previous year to reach $73.5bn. This growth was buoyed by increased M&A toboost international competitiveness, investment to secure supplies of crude oil andmetal ores, increased reinvestment of earnings, and other factors. Amidst rising
investment in most areas, there was some sign of a slowdown in the second half of 2007,262

but investment resumed a growth track coming into 2008. This was a reflection offavorable corporate earnings, ample cash flow, and a declining reliance oninterest-bearing debt, among other factors. The impact of the subprime mortgage
implosion has been limited in Japan compared to Europe and the US, leaving Japanesecompanies in a position that much more favorable for cross-holder M&A. As a result,
we look for Japanese companies to take this opportunity to forge aggressively ahead
with their M&A strategies.

Promoting investment in Japan to invigorate economy
Japanese inward investment in 2007 posted a record high of $22.2bn. This waslargely backed by recognition of the Japanese market as an attractive target in Asia, anda favorable view of an improved investment environment, including business cost,government red tapes, and the openness of the market. Business sectors around theworld are also reorganizing, including finance, automobiles, and pharmaceuticals, andthis is also having an impact on M&A activities in Japan. Large M&As have led
investment in Japan, such as Citigroup's acquisition of Nikko Cordial Corporation. If
this globalization of the Japanese economy through foreign investment in Japan
proceeds, it could both invigorate the economy and add impetus to Japanese companies'
overseas expansions.

High expectations for utilization of ASEAN+1 FTAs
The Japanese government is making progress establishing FTAs mainly withcountries in the Asian Pacific region, with agreements already in effect with Singapore,
Mexico, Malaysia, Chile, Thailand, Indonesia and Brunei. Moreover, an agreement
between ASEAN and Japan (the ASEAN-Japan Comprehensive Economic Partnership,
AJCEP) would allow Japanese firms operating in ASEAN countries to import flat
panels and other high-value-added components from Japan and then export the finishedproducts to other ASEAN countries without incurring any tariffs. Japanese firms can
expand their business opportunities still further by utilizing not just the AJCEP, but also
the ASEAN-plus-one FTAs. For example, many Japanese firms are keenly interested in
the ASEAN-China Free Trade Area (ACFTA). Substantive tariff reductions andelimination are set to begin from January 2009, with most categories of goods no longer
subject to tariffs by 2010, leading to expectations of increased activity among firms thathave looked forward to this change. The establishment of any extensive FTAs must
consider how to make trade easier for firms. One part of this is harmonizing rules of263

origin within the region. It is also desirable that firms can make use of a choice of
criteria type allowing the choice to be of three criteria; i.e. change in tariff classification
criterion, value-added content criterion, and manufacturing process criterion.
Furthermore, procedures of origin certification include Asian-type third-party
certification system and NAFTA-type self-certification system, but another option is toimplement an EU-type approved exporter system that would compensate for the
disadvantages of both other systems.



Further liberalization of services, investment, and government procurement
Liberalization under the so-called WTO-Plus is producing substantial advantages,
such as the establishment in Mexico of a Credit Suisse First Boston Bank subsidiary,cross-border truck transportation between the US and Mexico, and an increase in bothbranch locations and ATMs at Citibank Singapore. In addition, Japan's unique schemeof “Committee on Improvement of the Business Environment” has already beensuccessful with numerous points of taxes and customs procedures, and it is hoped thatthe committee will also help work on FTA issues in future. As Europe and the US
clarify their FTA strategies for Asia, Japan must proceed with comprehensive FTAs with
the Asian Pacific countries to ensure that Japanese companies are not placed at a
disadvantage. Depending on the circumstances, the demands of negotiating countries
could lead to more liberalization for goods trading in categories that are sensitive forJapan. Some countries have responded to local industries not doing well after an FTA
has been enacted by providing subsidies or otherwise rescuing those industries. As
compensation for liberalizing trade under an agreement with newly emerging countries,
the Japanese government may have to offer support and cooperation to help boost
Japanese companies' export competitiveness.

Supporting companies in searching for sales channels and partners in newly
emerging countries
A questionnaire to JETRO members received replies from 947 companies, of which
87% answered that they might or already plan to expand their overseas sales. The main
reason given at 55% of replies was the high growth potential of the newly emerging
markets. Roughly half of the replies mentioned concerns about the saturation of thedomestic market, but only 14% of companies indicated a shift in policy fromdomestic-demand focus to a focus on overseas markets, indicating that they have notnecessarily given up on domestic demand, and instead have opted to move into overseas

264markets in anticipation of opportunities for exploring earnings growth. Many companies
also noted problems in newly emerging markets, specifically difficulties in finding sales
channels and partners. Japanese companies have been able to overcome these challenges
in the developed countries and in East Asia, but these issues and lack of local
information are major hurdles for Japanese companies operating in the Middle East,
Africa, Central and Eastern Europe, and Central and South America.



The broad approach required for resource-rich newly emerging countries
Based on access data by country of the JETRO File, we compiled a list of the 16
non-BRIC newly emerging countries for which interest is increasing (JETRO File
Increasing interest Countries: the JFIC 16). These emerging countries spread around theworld, in Asia, the Middle East, Central and South America, Central and Eastern Europe,and Africa. As income levels have increased, there has been a substantial shift frommiddle to high incomes. Factors behind rising incomes in these countries include rising
prices for foods and resources, increased employment by influx of foreign capital, andmore money remitted from abroad, among others. In the world economy, there areconcerns that the subprime mortgage crisis and rising food and resource prices could
cause slowdown in demand not just in the developed world but in the newly emerging
markets as well. Share prices have fallen off considerably in the newly emerging
countries of China and Vietnam, where the governments have adopted tight monetary
policy to curb inflation, making it difficult for the economies to maintain the same highpace of growth seen to date. However, most of the JFIC 16 countries have ample
mineral, food, and human resources (including money remitted from abroad), making
them more likely to benefit from rising food and resource prices. These
resource-endowed countries are consequently strategic overseas targets for Japanesecompanies.



Targeting the younger age bracket in newly emerging countries
Unlike China, Russia, and Central and Eastern Europe, the older age brackets in the
BRICs and JFIC 16 countries are still quite limited, with younger people forming alarger percentage of the total population. The bracket of people aged 39 and younger
comprises roughly 50% of the population in Europe and the US, but 65% in the BRICs
and 73% in the JFIC 16 countries. Moreover, this bracket has 57% of total disposable
income in the JFIC 16, well above the 38% in the G7 countries. This suggests thatyounger consumers have a stronger influence on consumption in the newly emerging

265

countries, and considering also income transfers from parents, they are considered tohave an even greater impact than the figure indicates. Even in China, where theone-child policy has led to a graying demographic shift, the younger "post-80"
generation is expected to lead consumption. Japanese companies need sales strategies
for these newly emerging countries that factor in the consumption behavior andinfluence of this younger age bracket.

266

Appendix

267

Note 1: Definition of products
1. Products

2. IT products
Name of products

Total ValueHS

Name of products

00～99

Machinery and equipment
Genral equipment
Air conditioners

84～91
84
8415

Electrical equipmet

85Transport equipment

86～89

Automobiles①Computers and peripherals
Multifunctional digital equipment

8443.31

Computers and peripherals

8471

Parts for computers and peripherals

8702～8705

HS No.
8443.31, 8471, 8473

8473

②Office equipment

8469, 8470, 9009

③Telecommunications equipment

8517, 8525.10,
8525.20, 8526

④Semiconductors and electronic components

8540～8542

Passenger vehicles

8703

Motorcycles

8711

Integrated circuits

8542

8707～8708
8407.31～8407.34⑤Other electronic components

8504, 8518, 8522, 8523,
8529, 8532～8536

Automotive parts
Precision instruments
ChemicalsElectron tubes and semiconductors

90～91

Flat panel displays

28～40

Industrial chemicals
Pharmaceuticals and medical supplies
Plastics and rubber
Foodstuffs⑥Video equipment

28～38

Digital cameras

30

Reception apparatus for television

39～40⑦Audio equipment

1～11, 16～24⑧Measuring and testing equipment

10⑨Machines and apparatus for the manufacture ofsemiconductor devices

1005

Rice

1006

Processed food products

16～24

Ethanol (Ethyl alcohol)

2207.10

Oils, fats, and other animal and vegetable products

12～15

Soybeans

IT parts

Animal and plant fats

15
64～67, 92～97

Iron ore

8443.31, 8471, 8486.10,
8486.20, 8486.30, 8486.40,②, ③, ⑥, ⑦, ⑧

Total IT equipment

Parts + finished products

2601

Mineral fuels, etc.

272701～2705
2708～2713, 2715

Mineral fuels
Coal

2701

LNG

2711.11

Petroleum and petroleum products
Crude oil
Textiles and textile products
Synthetic fibers and textiles
Clothing
Base metals and base metal products
Steel2708～2710
2712～2713, 2715
2709
50～63
54～55
61～62
72～83
72～73

Primary steel products

72

Steel products

73

Copper7403

Nickel

7502

Aluminum

7601

Lead

7801

8486
8473, 8486.90, ④, ⑤

Finished IT products

1201

Miscellaneous manufactured goods

8519～8520
8519.81

GrainsCorn

8525.808528.71, 8528.72

8543, 9014～9015,
9024～9027, 9030～9032

03

1001

8529.90
8521, 8525.30, 8525.40,
8528, 9006

Portable audio players

Seafood

Wheat

8540～8541

268

Note 2: Estimates of world trade in 2007
The value of world trade in 2007 was estimated by aggregation based on the trade statistics of 53 countries and regions from which the data wasavailable in July 2008, and then obtaining a grand total for the following three categories. The trade value by products is the aggregation of (1) and (2).
(1) The total export and import value of the 53 countries and regions.
(2) For countries from which custom statistics were not available (mainly developing countries and regions, approximately 120), the value ofexports from those area was extracted from the imports statistics (CIF basis) of the 53 countries and regions and converted to FOB basis(forimports, the export values (FOB basis) were converted to CIF basis).
(3) For trade among countries and regions from which trade statistics were not available, data was extracted from “Direction of Trade Statistics”
May 2008 (IMF).
<53 countries and regions>Japan, US, Canada, Belgium, Netherlands, Luxemburg, Germany, France, Italy, Ireland, Denmark, Greece, Spain, Portugal, Austria, Finland,
Sweden, UK, Norway, Switzerland, Australia, New Zealand, South Korea, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, Indonesia,
Philippines, China, India, Vietnam, Mexico, Argentina, Brazil, Chile, Columbia, Costa Rica, Panama, Peru, Venezuela, Czech Republic, Hungary,
Poland, Slovakia, Slovenia, Lithuania, Russia, Ukraine, Romania, Turkey and South Africa

Note 3: Estimates of global direct investment value in 2007
Global inward direct investment was estimated as below.
(1) Collected figures of 82 countries and regions from which the data for 2006 and 2007 was available.
i) For the following countries, each country or region’s balance of payments statistics were used: the United States, Canada, Australia, New
Zealand, United Kingdom, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Portugal, Luxemburg, Netherlands, Spain,
Denmark, Sweden, Cyprus, Czech Republic, Estonia, Slovakia, Slovenia, Hungary, Latvia, Lithuania, Malta, Poland, Bulgaria, Norway,
Switzerland, China, Taiwan, Hong Kong, South Korea (ROK), Malaysia, the Philippines, Singapore, Thailand, India, Argentina, Brazil,
Chile, Columbia, Mexico, Venezuela, Russia, Israel, and Turkey. For countries that released two types of statistic values, i.e., one includingtransactions via special purpose enterprises (SPEs) and the other not including such transactions, the former was used. The data based on thelocal currency was converted to US dollar according to the IMF’s annual average rate.
ii) For Japan, the balance of payments statistics released by the Bank of Japan were converted to the US dollar at the average quarterly Bank ofJapan interbank rate.
iii) For the following 22 countries, the data of the IMF’s Balance of Payments Statistics (BOPS, June 2008) was used: Armenia, Azerbaijan,
Bangladesh, Belize, Bosnia and Herzegovina, Cape Verde, Costa Rica, Croatia, Dominica, Georgia, Iceland, Indonesia, Kazakhstan,
Moldova, Pakistan, Panama, Romania, Sao Tome and Principe, South Africa, Uganda, Ukraine, and Uruguay.
iv) For the following nine countries, the data of the Economic Commission for Latin America and the Caribbean (ECLAC) was used: Peru, El
Salvador, Trinidad and Tobago, Honduras, Bahamas, Guatemala, Nicaragua, Ecuador and Bolivia. (Inward direct investment only)(2) For 59 developing countries from which the data for 2007 was not available and of which the data for 2006 was listed in the BOPS (June 2008),
the data of the said statistics was obtained as the data for the estimation.
(3) As a result of the above operations, the inward direct investment value data of the following countries and regions was available: 23 developed
countries (Industrial Countries based on the IMF’s classification: the United States, Canada, Japan, New Zealand, Australia, EU15, Iceland,
Norway and Switzerland) (an aggregate sum of US$1.4422 trillion), and 59 developing countries and regions (countries other than the23
developed countries) (an aggregate sum of US$600.4 billion). The aggregate sum for the 59 countries in 2006 accounted for a percentage of
90.3% in the aggregate sum for 118 developing countries from which the data for 2006 was available.
(4) The aggregate sum for the 23 developed countries was used as the inward direct investment value for developed countries in 2007, and that for the
59 developing countries was divided by the percentage of 90.3% for 2006 to obtain an estimated 100% value, which was used as the direct
investment value for developing countries in 2007. The aggregate sum for developed and developing countries was used as the total global
inward direct investment value.
Incidentally, the same method was used for the outward FDI value: From the 23 developed countries (a sum of US$1.869 trillion) and 45
developing countries (US$270.3 billion, with the aggregate sum for the 45 countries accounting for a percentage of 95.4% in the aggregate sum for 84
countries from which the data for 2006 was available), the sum was estimated respectively for developed countries, developing countries and theworld total.
269

Table 1 GDP growth rate and contribution rate by country and region
(%)
2004
US
EU27
Japan
East Asia
China
ROK
ASEAN10
ThailandSingapore
Malaysia
Vietnam
India
Australia
New ZealandLatin America
BrazilCentral and Eastern Europe
RussiaMiddle East
AfricaWorld
For reference
Developed countries
Developing countries
Asia Pacific
ASEAN + 3
BRICｓ excluding South Africa
BRICｓ including South Africa

2005

2006

2007

GrowthGrowthGrowthGrowthContribution
Contribution
Contribution
Contribution
rate
rate
rate
rate
3.6
16.9
3.1
15.7
2.9
12.8
2.2
9.7
2.7
13.5
2.1
11.3
3.3
15.3
3.1
14.4
2.7
4.0
1.9
3.1
2.4
3.4
2.1
2.9
8.3
26.2
8.1
29.5
8.8
29.3
9.1
32.0
10.1
17.7
10.4
21.3
11.1
21.2
11.4
23.4
4.7
1.8
4.2
1.8
5.1
1.9
5.0
1.9
6.3
4.7
5.6
4.8
6.0
4.5
6.4
5.0
6.3
1.0
4.5
0.8
5.1
0.8
4.8
0.8
9.0
0.6
7.3
0.5
8.2
0.5
7.7
0.5
6.8
0.7
5.0
0.6
5.9
0.6
6.3
0.7
7.8
0.5
8.4
0.6
8.2
0.5
8.5
0.6
7.9
6.3
9.1
8.4
9.7
8.2
9.2
8.3
3.8
1.0
2.8
0.8
2.8
0.7
3.9
0.9
4.5
0.2
2.8
0.1
1.5
0.1
3.0
0.1
6.2
10.1
4.6
8.5
5.5
8.9
5.6
9.4
5.7
3.3
3.2
2.1
3.8
2.1
5.4
3.1
6.9
5.4
6.1
5.3
6.6
5.2
5.8
4.7
7.2
4.3
6.4
4.3
7.4
4.5
8.1
5.1
5.9
4.3
5.7
4.8
5.8
4.3
5.8
4.4
6.5
3.8
5.7
3.8
5.9
3.5
6.3
3.8
4.9
100.0
4.4
100.0
5.0
100.0
4.9
100.0
3.2
7.5
6.6
6.5
8.3
8.5

34.7
64.5
40.2
31.0
36.8
36.0

2.6
7.1
6.5
6.3
8.3
8.4

34.7
64.5
40.2
31.0
36.8
36.0

3.0
7.8
7.2
7.0
9.0
9.2

35.0
64.2
40.0
31.0
36.8
36.1

2.7
7.9
7.4
7.2
9.5
9.6

31.1
67.8
42.4
33.2
40.6
39.9

(Notes)(1) The world growth rate was calculated by the IMF using purchasing power parity weighting.
(2) Each country or region's contribution rate was calculated using 2006 prices and purchasing power parity weighting.
(3) Figures may differ from those found elsewhere due to revisions, differing source data, and other factors.
(4) East Asia includes the ASEAN10, China, the ROK (South Korea), Hong Kong, and Taiwan.
Asia Pacific includes ASEAN10, Japan, China, the ROK, Australia, New Zealand and India.
(5) Developed and developing countries are as defined by WEO (IMF).
(Sources) WEO(IMF), national statistics.

Table 2 World Export matrix (2007)(US$ million)
World
NAFTA

Japan

EU27

ASEAN + 6 East Asia

US
World
NAFTA
US
Japan
EU27
ASEAN + 6
East Asia
China
ASEAN
APEC

13,747,700 2,473,552 1,861,730
1,829,061
925,784
521,117
1,162,600
384,978
707,134
163,443
142,486
5,315,140
421,880
356,719
3,487,566
650,110569,023
3,006,209
487,352
460,947
1,219,690
268,737
237,822883,748
120,813
109,796
6,141,634 1,661,333 1,163,696

557,223 5,403,560 2,854,002 2,557,150
73,900292,930
299,150
228,094
62,665
247,788262,778
204,479
103,480
272,694
330,993
59,737 3,600,480
341,101
252,604
246,882
560,126 1,363,551 1,371,839
244,582
471,192 1,237,135 1,220,547
101,697
246,147
293,877
359,347
87,611
109,567
493,375
423,735
364,789 1,087,488 1,975,310 1,882,944

APEC
China

ASEAN

880,944
76,966
65,238110,245
98,381
330,651
388,794
93,191
627,923751,630
65,22360,56085,98473,370467,550
370,787
92,930220,203541,194

5,887,824
1,254,880
674,635
509,325
868,701
2,337,478
2,068,927
763,291
634,599
4,044,920(Notes)(1) Exports from each country/region to Taiwan were converted to FOB figures by multiplying 0.9 to Taiwan's CIF imports.
(2) ASEAN + 6 includes ASEAN10, Japan, China, the ROK, Australia, New Zealand and India.
(3) East Asia consists of China, ROK, Taiwan, Hong Kong, and ASEAN10(4) APEC includes Japan, U.S., ROK, Taiwan, Hong Kong, Singapore, Thailand, Malaysia, Indonesia, Phillippines, China, Canada, Mexico,
Chile, Vietnam, Papua New Guinea, Australia, New Zealand, Brunei Darussalam, Peru, and Russia (21 countries/regions).
(Sources) "Direction of Trade Statistics", May 2008 (IMF) and Taiwan's trade statistics.

270

Table 3

World trade by country and region(US$ million, %)Exports
Imports
2005
2006
2007
2005
2006
2007
GrowthGrowthGrowthGrowthGrowthGrowth
Value
Value
Value
Value
Value
Value
rate
rate
rate
rate
rate
rate
North America
1,266,632
11.5 1,424,845
12.5 1,582,764
11.1 1,988,076
14.0 2,203,834
10.9 2,336,989
6.0
US
905,978
10.7 1,036,635
14.4 1,162,479
12.1 1,673,455
13.9 1,853,938
10.8 1,956,962
5.6
Canada360,655
13.6 388,211
7.6 420,284
8.3 314,621
14.7 349,895
11.2 380,027
8.6
Europe4,575,316
9.6 5,196,327
13.6 6,051,771
16.5 4,516,562
10.4 5,202,372
15.2 6,128,980
17.8
EU15
3,721,963
7.5 4,164,740
11.9 4,786,136
14.9 3,714,639
9.2 4,206,257
13.2 4,854,614
15.4
Germany
969,884
6.7 1,109,183
14.4 1,327,670
19.7 775,553
8.4 907,678
17.0 1,059,704
16.7
France462,968
2.5 495,875
7.1 553,710
11.7 503,744
7.0 541,964
7.6 615,927
13.6
Netherlands
405,806
13.5 464,000
14.3 552,296
19.0 363,191
13.6 417,213
14.9 492,434
18.0
Italy
372,689
5.4 417,329
12.0 492,241
18.0 384,533
8.2 442,719
15.1 504,960
14.1
UK
394,090
13.4 447,163
13.5 443,675△ 0.8 502,143
7.6 566,086
12.7 635,501
12.3
Belgium
334,237
9.0 367,039
9.8 430,979
17.4 318,551
11.6 352,017
10.5 413,728
17.5
Spain
192,526
5.4 213,765
11.0 241,225
12.8 288,479
11.7 328,906
14.0 373,100
13.4
Sweden130,220
5.7 147,911
13.6 169,288
14.5 111,340
10.9 127,724
14.7 151,501
18.6
Austria
124,998
5.7 136,902
9.5 163,124
19.2 127,137
6.0 137,356
8.0 162,579
18.4
Ireland109,604
4.7 108,800△ 0.7 120,987
11.2
68,525
10.8
73,163
6.8
82,56912.9
Denmark
84,951
10.3
92,636
9.0 103,611
11.8
75,43910.7
85,58013.4
99,773
16.6
Finland65,9697.1
77,13016.9
89,776
16.4
58,941
14.6
68,95717.0
81,552
18.3
Portugal
38,1376.7
43,365
13.7
51,471
18.7
61,165
11.5
66,703
9.1
78,288
17.4
Greece17,16912.1
20,78321.0
23,621
13.7
54,077
2.6
63,63817.7
75,535
18.7
Luxembourg
18,71515.1
22,86022.1
22,464△ 1.7
21,8198.8
26,55421.7
27,463
3.4
Poland89,24619.1 110,925
24.3 139,093
25.4 101,402
13.1 127,240
25.5 163,065
28.2
Czech Republic
77,976
13.1
95,05321.9 122,711
29.1
76,332
9.2
93,35222.3 118,203
26.6
Hungary
62,80113.0
75,39020.0
94,792
25.7
66,405
9.8
78,38618.0
95,203
21.5
Slovakia
31,95016.1
41,96831.4
58,33639.0
35,27919.8
44,94927.4
60,424
34.4
Romania
27,64217.5
32,48717.5
40,36224.2
40,34623.3
51,341
27.3
70,100
36.5
Slovenia
19,212
17.5
23,25921.1
30,09829.4
20,285
14.3
24,18619.2
31,60630.7
Lithuania
11,76326.4
14,15720.4
17,191
21.4
15,48725.0
19,41825.4
24,254
24.9
Switzerland
130,795
10.2 147,884
13.1 171,916
16.3 126,440
13.1 141,468
11.9 161,110
13.9
Norway103,74125.8 122,125
17.7 137,857
12.9
55,47414.4
64,267
15.9
79,63423.9
Asia
2,906,697
15.1 3,400,183
17.0 3,939,596
15.9 2,694,158
15.6 3,120,414
15.8 3,580,931
14.8
Japan
598,215
5.9 647,290
8.2 712,735
10.1 518,638
14.1 579,294
11.7 621,084
7.2
East Asia
2,167,332
17.4 2,581,248
19.1 3,025,892
17.2 1,975,063
14.5 2,295,051
16.2 2,656,196
15.7
China
761,99928.4 969,073
27.2 1,218,015
25.7 660,119
17.6 791,614
19.9 955,818
20.7
ROK
284,41912.0 325,465
14.4 371,327
14.1 261,238
16.4 309,383
18.4 356,453
15.2
Hong Kong
292,328
10.0 322,664
10.4 349,663
8.4 300,635
10.0 335,753
11.7 370,733
10.4
Taiwan188,963
8.4 213,004
12.7 234,710
10.2 181,743
7.7 202,038
11.2 218,648
8.2
ASEAN
639,623
14.3 751,043
17.4 852,177
13.5 571,327
15.0 656,264
14.9 754,544
15.0
Singapore
229,68115.5 271,916
18.4 299,404
10.1 200,075
15.2 238,900
19.4 263,247
10.2
Thailand
109,84813.1 130,621
18.9 163,529
25.2 118,112
24.1 128,652
8.9 151,759
18.0
Malaysia
140,979
12.0 160,845
14.1 176,311
9.6 114,626
8.9 131,223
14.5 147,065
12.1
Indonesia
85,66019.7 100,799
17.7 114,101
13.2
57,70124.0
61,0655.8
74,47322.0
Phillippines
41,007
3.6
47,03714.7
50,2706.9
44,0520.0
51,53317.0
55,317
7.3
Vietnam
32,44722.5
39,82622.7
48,561
21.9
36,761
15.0
44,89122.1
62,68239.6
India
99,65131.8 121,259
21.7 147,564
21.7 138,370
42.2 172,876
24.9 217,543
25.8
Oceania
134,676
19.7 153,885
14.3 177,440
15.3 156,275
15.4 171,146
9.5 204,509
19.5
Australia
105,891
22.6 123,478
16.6 141,338
14.5 118,610
14.4 132,778
11.9 157,887
18.9
New Zealand
21,7386.9
22,4493.3
26,95820.1
24,541
13.0
24,7881.0
29,082
17.3
Central and South America 538,228
19.4 637,574
18.5 716,298
12.3 520,082
17.6 620,689
19.3 733,685
18.2
Mexico214,233
14.0 249,997
16.7 272,044
8.8 221,820
12.7 256,130
15.5 283,234
10.6
Brazil118,30822.6 137,470
16.2 160,649
16.9
73,551
17.2
91,39624.3 120,621
32.0
Chile
38,59824.9
55,88444.8
65,78817.7
29,78833.3
34,75016.7
42,714
22.9
Argentina
40,38716.8
46,546
15.3
55,78019.8
28,68727.8
34,15419.1
44,707
30.9
Colombia
21,092
28.3
23,73012.5
29,07622.5
21,13128.1
25,46820.5
32,58728.0
Peru
17,001
37.4
23,431
37.8
27,58817.7
12,502
23.6
15,32722.6
20,46433.5
Venezuela
12,222
79.7
15,77429.1
14,284△ 9.4
21,92044.3
30,63639.8
41,90836.8
Costa Rica
7,151
16.5
8,453
18.2
9,569
13.2
9,173
13.9
12,74038.9
14,095
10.6
Panama
955
7.6
985
3.1
1,079
9.6
4,111
14.8
4,657
13.3
6,729
44.5
Russia, CIS
257,14729.7 317,293
23.4 395,395
24.6 169,753
28.5 229,788
35.4 327,288
42.4
Russia184,91635.0 226,524
22.5 279,724
23.5
91,48134.3 128,151
40.1 189,619
48.0
Ukraine34,2874.9
38,36811.9
49,24828.4
36,141
24.6
45,035
24.6
60,67034.7
Middle East
454,205
31.2 569,397
25.4 640,812
12.5 405,084
19.8 468,218
15.6 582,765
24.5
Turkey73,38915.985,535
16.6 107,215
25.3 116,542
19.8 139,576
19.8 170,057
21.8
Africa263,98027.8 323,472
22.5 371,491
14.8 236,175
16.6 275,675
16.7 345,235
25.2
South Africa
51,87012.8
57,897
11.6
69,86820.7
55,02915.5
68,15723.9
79,924
17.3(Notes)(1) Processed from national trade statistics available.
(2) Figures of Europe, Asia, Oceania, Central and South Africa, Russia and CIS, Middle East and Africa are estimated. See Reference Section "Note2" for the estimating method.
(3) Figures of ASEAN include Singapore, Thailand, Malaysia, Indonesia, Phillippines and Vietnam.
(4) Figures of East Asia include China, the ROK, Hong Kong, Taiwan and the 6 ASEAN countries.
(Sources) National trade statistics.

271

Table 4

World exports by major products (2007)
World
Value

Total value
Machinery and equipment
General machinery
Air conditioner
Electrical equipment
Transport equipment
Automobiles
Passenger vehicles
Motorcycles
Automotive parts
Precision instruments
ChemicalsIndustrial chemicals
Pharmaceuticals and medical supplies
Plastics and rubber
Foodstuffs
Seafood
Grains
Wheat
Corn
Rice
Processed food products
Ethanol (Ethyl alcohol)
Oils, fats, and other animal and vegetable products
Soybeans
Animal and plant fats
Miscellaneous manufactured goods
Iron ore
Mineral fuels, etc.
Mineral fuels
Coal
LNG
Petroleum and petroleum products
Crude oil
Textiles and textile products
Synthetic fibers and textiles
Clothing
Base metals and base metal products
Steel
Primary steel products
Steel products
CopperNickelAluminumLead
IT products
Total IT equipment
IT parts
Finished IT products
Computers and peripherals
Multifunctional digital equipment
Computers and peripherals
Parts for computers and peripherals
Office equipment
Telecommunications equipment
Semiconductors and electronic components
Electron tubes and semiconductors
Integrated circuits
Other electronic components
Flat pnel displays
Video equipment
Digital cameras
Reception apparatus for television
Audio equipment
Portable audio players
Measuring and testing equipment
Machines and apparatus for the manufacture ofsemiconductor devices

13,759,746
5,598,140
1,816,339
31,642
1,804,765
1,545,411
753,808
616,165
20,433
323,138
431,624
1,770,803
1,190,494
345,013580,310
819,553
68,03368,55728,986
20,161
11,080364,710
3,905
107,290
22,91459,856403,667
42,112
1,799,402
1,716,608
53,86057,724
1,452,237
955,658
609,438
72,731
342,344
1,191,227
672,429
418,864
253,565
55,96523,96756,273
5,549

EU15
US
GrowthGrowthGrowth
Value
Value
rate
rate
rate
15.0 1,162,479
12.1 4,786,136
14.9
13.0 603,883
8.7 2,054,598
12.1
14.3 198,910
9.1 764,999
17.6
26.3
2,305
0.6
7,900
25.5
10.0 148,563
1.8 441,360
0.1
16.9 189,297
15.0 696,753
16.7
17.0
60,65826.2 358,198
15.6
15.5
44,86028.7 298,995
13.8
11.3
1,405
29.5
6,849
18.4
13.8
40,5584.3 137,216
14.1
7.6
67,114
7.1 151,486
5.3
17.3 183,433
13.0 891,023
17.6
18.2 124,692
13.5 637,420
17.8
19.3
29,24315.4 238,923
19.0
15.7
58,742
11.9 253,603
17.3
18.4
74,60224.6 375,667
17.6
6.2
3,869
0.7
17,7658.8
44.4
21,09956.7
13,575
39.0
45.1
8,332
98.0
6,572
32.4
54.8
10,108
39.3
2,262
22.9
24.0
1,389
9.7
1,263
21.5
17.2
24,36613.1 189,080
17.7
11.4
51
12.8
1,246
77.6
35.9
16,121
38.3
25,83221.0
42.5
10,004
44.0
627
27.2
38.5
3,036
43.2
16,821
18.4
17.4
29,11318.1 141,509
16.8
23.7
719
13.1
3,060
31.3
11.2
42,24821.1 268,091
9.2
11.4
39,64422.7 225,326
9.4
6.4
4,150
17.3
2,888
13.1
12.4
132
△ 17.0
129
214.6
12.0
30,60921.3 200,541
11.4
10.6
1,114
30.7
46,5088.9
9.9
22,100△ 2.7 165,108
12.1
8.1
3,745
1.5
22,018
9.9
11.6
3,619
△ 14.985,63715.0
22.5
63,52315.6 469,078
23.3
26.0
32,03822.8 285,363
27.0
28.0
17,12436.1 173,702
28.9
22.9
14,91410.4 111,660
24.2
11.5
417
△ 11.1
7,566
4.2
57.3
243
65.0
4,438
63.0
7.9
1,089
△ 0.4
11,567
6.2
67.3
83
26.8
1,334
77.8

Japan
China
GrowthGrowth
Value
Value
rate
rate
712,735
10.1 1,218,015
25.7
486,955
8.5 623,439
28.0
139,246
10.6 228,599
22.5
1,586
23.5
8,220
44.0
135,003
5.5 300,340
32.0
179,172
13.0
54,99643.1
121,025
15.3
7,402
113.2
108,180
14.6
2,811
82.8
6,283
△ 1.7
3,827
19.8
31,833
10.1
13,38739.0
33,534△ 7.8
39,504
14.1
82,793
11.6
87,63830.0
50,297
10.9
51,115
35.4
2,463
△ 0.5
2,052
34.0
32,496
12.6
36,523
23.2
3,605
15.8
33,249
17.5
1,161
17.3
4,753
0.2
10
△ 4.4
1,967
89.5
0 481
198.2
0
△ 98.5
874
112.0
10
2.0
479
17.1
2,041
13.2
16,477
19.4
1
△ 3.7
53
△ 87.6
258
6.1
2,222
15.5
4
4336.2
196
34.7
92
4.3
327
△ 16.3
7,779
21.3 100,953
22.3
0
14.0
9
1458.4
9,297
57.7
19,944
12.2
8,601
58.8
18,725
11.4
1
22.4
3,295
△ 10.50150.2
0△ 11.98,221
65.4
11,816
9.8
0 1,687△ 38.48,439
4.2 165,821
20.1
3,794
6.9
14,16016.7
365
4.7 108,652
22.6
59,792
14.3 115,526
35.4
42,195
14.1
76,61347.5
30,107
16.0
39,94458.9
12,088
9.6
36,669
36.9
3,303
42.9
953
△ 35.4
43
159.9
536
33.2
76
18.8
1,338
△ 52.976398.2
607△ 14.7(US$ million, %)ASEAN4
Asia NIES
GrowthGrowth
Value
Value
rate
rate
504,21114.8 1,255,105
10.8
204,664
2.9 764,299
9.7
74,784
7.2 167,284
△ 0.8
4,710
44.6
2,324
2.3
98,313△ 4.2 433,659
11.9
23,06626.1
94,200
17.8
9,933
35.3
39,119
12.6
5,215
48.0
36,265
12.1
487
30.7
836
8.8
7,168
29.4
16,828
18.9
8,502
2.7
69,156
13.7
58,182
19.6 134,707
14.3
20,53626.8
69,616
15.4
606
36.4
7,178
24.3
37,64616.1
65,09113.1
31,97722.6
14,223
16.6
5,242
13.9
2,705
7.3
3,903
33.9
36
21.7
17
322.1
0
50.5
130
71.1
0
△ 21.2
3,736
44.4
34
23.1
17,179
23.7
8,189
15.5
39
46.0
4
85.1
22,650
59.0
1,094
14.2
13
57.9
5
△ 9.5
22,191
60.4
582
32.0
12,255
7.5
33,2107.5
185△ 15.2
1△ 93.262,9039.9
80,36717.7
61,8709.9
79,164
18.4
6,737
10.7
1
90.5
17,3956.4
0
12.5
35,547
11.1
78,33718.5
20,3818.7
63△ 18.921,994△ 0.9
68,469
△ 0.1
5,577
8.5
12,4390.5
12,161△ 6.6
31,808△ 0.0
28,56028.4
83,812
15.8
12,39924.5
49,666
17.5
6,169
36.0
32,410
19.0
6,230
14.8
17,256
14.7
3,208
36.7
1,852
△ 6.3
1
△ 30.0
995
18.4
670
3.5
1,366
59.5
36
21.9
432
69.1

1,977,008
988,354
988,654445,452
16,792
277,753
150,907
5,006
306,954443,735
77,846
365,890
387,879
61,338
186,447
39,35660,1389,330
7,262
159,402

14.4
7.2
7.2
3.2
0.1
2.0
1.1
0.0
2.2
3.2
0.6
2.7
2.8
0.4
1.4
0.3
0.4
0.1
0.1
1.2

189,853
98,75591,09840,362
331
24,347
15,684471
20,15950,4138,570
41,84330,841
3,692
5,997
1,412
1,809
839
676
31,597

16.3
8.5
7.8
3.5
0.0
2.1
1.3
0.0
1.7
4.3
0.7
3.6
2.7
0.3
0.5
0.1
0.2
0.1
0.1
2.7

454,210
192,576
261,633
110,580
5,086
71,99633,498877
79,08958,508
13,68644,822
99,216
8,837
32,726
7,515
12,0902,555
2,034
62,878

9.5
4.0
5.5
2.3
0.1
1.5
0.7
0.0
1.7
1.2
0.3
0.9
2.1
0.2
0.7
0.2
0.3
0.1
0.0
1.3

142,983
85,01357,970
9,015
1,166
4,173
3,676
114
8,441
44,526
11,15933,36734,881
8,939
15,771
11,779995
155
121
17,171

20.1
11.9
8.1
1.3
0.2
0.6
0.5
0.0
1.2
6.2
1.6
4.7
4.9
1.3
2.2
1.7
0.1
0.0
0.0
2.4

378,800
130,095
248,704
133,045
6,801
93,482
32,762
1,460
80,83634,984
11,10323,88262,1959,489
54,866
10,645
11,402
2,845
2,148
8,101

31.1
10.7
20.4
10.9
0.6
7.7
2.7
0.1
6.6
2.9
0.9
2.0
5.1
0.8
4.5
0.9
0.9
0.2
0.2
0.7

135,416
81,13354,283
51,136
153
34,392
16,590616
7,196
46,201
8,229
37,972
18,334
3,421
7,112
992
811
405
4
4,402

26.9
16.1
10.8
10.1
0.0
6.8
3.3
0.1
1.4
9.2
1.6
7.5
3.6
0.7
1.4
0.2
0.2
0.1
0.0
0.9

463,204
328,232
134,972
64,9402,429
23,622
38,889895
68,813
191,423
20,509170,914
97,496
21,77023,312
5,286
2,707
2,077
1,959
12,165

36.9
26.2
10.8
5.2
0.2
1.9
3.1
0.1
5.5
15.3
1.6
13.6
7.8
1.7
1.9
0.4
0.2
0.2
0.2
1.0

32,802

0.2

9,175

0.8

7,780

0.2

12,909

1.8

466

0.0

13

0.0

2,083

0.2

(Notes)(1) See Reference Section"Note 1" for the definition of products. (2) Value of world exports based on JETRO estimates. (3) Asia NIES include the ROK, Hong Kong, Singapore and Taiwan.
(4) As to the IT products, due to the revision of HS Codes in 2007, growth rates are not available. (5) Figures of IT products exports of Japan do not correspond with the figures of Chapter I.
(Sources) National trade statistics.

272

Table 5 World imports by major products (2007)
World
Value
Total value
Machinery and equipment
General machinery
Air conditioner
Electrical equipment
Transport equipment
Automobiles
Passenger vehicles
Motorcycles
Automotive parts
Precision instruments
ChemicalsIndustrial chemicals
Pharmaceuticals and medical supplies
Plastics and rubber
Foodstuffs
Seafood
Grains
Wheat
Corn
Rice
Processed food products
Ethanol (Ethyl alcohol)
Oils, fats, and other animal and vegetable products
Soybeans
Animal and plant fats
Miscellaneous manufactured goods
Iron ore
Mineral fuels, etc.
Mineral fuels
Coal
LNG
Petroleum and petroleum products
Crude oil
Textiles and textile products
Synthetic fibers and textiles
Clothing
Base metals and base metal products
Steel
Primary steel products
Steel products
CopperNickelAluminumLead
IT products
Total IT equipment
IT parts
Finished IT products
Computers and peripherals
Multifunctional digital equipment
Computers and peripherals
Parts for computers and peripherals
Office equipment
Telecommunications equipment
Semiconductors and electronic components
Electron tubes and semiconductors
Integrated circuits
Other electronic components
Flat pnel displays
Video equipment
Digital cameras
Reception apparatus for television
Audio equipment
Portable audio players
Measuring and testing equipment
Machines and apparatus for the manufacture ofsemiconductor devices

14,236,939
5,117,487
1,621,105
26,902
1,793,960
1,285,783
674,172554,512
17,425
304,383
416,639
1,661,930
1,132,684
328,281529,245
737,724
72,091
48,665
17,923
18,215
6,326
323,975
3,395
93,68624,315
46,627413,348
63,9401,827,439
1,745,434
65,42063,9821,450,584
1,032,827
504,032
51,943
301,369
1,067,602
583,204
370,776
212,428
52,10725,71857,6145,279

USGrowthValue
rate
15.4 1,956,962
12.4 796,725
12.5 249,925
23.8
3,841
11.3 248,869
16.0 239,673
16.0 155,252
14.4 134,321
10.1
3,156
15.0
53,218
6.9
58,25916.4 192,560
17.5 139,390
19.0
48,94814.2
53,171
17.2
81,534
7.3
10,660
42.1
1,640
34.7
501
55.4
257
25.4
385
16.4
39,928
2.4
886
32.8
5,628
47.7
97
30.8
3,421
17.0 110,952
38.3
535
10.3 365,073
10.0 360,366
14.2
1,723
12.1
5,598
10.7 321,163
9.6 245,771
7.2
99,222
3.2
4,018
9.3
75,55421.5 115,991
23.6
57,30724.9
25,66521.4
31,642
11.4
5,913
50.7
3,950
8.2
8,290
59.9
575

EU15
GrowthGrowth
Value
rate
rate
5.6 4,854,614
15.4
4.3 1,820,987
13.5
2.5 615,183
16.3
7.6
11,60934.5
8.6 466,627
9.3
1.4 609,301
16.8△ 0.7 312,648
17.8△ 1.2 264,721
16.8△ 15.09,239
16.0
5.5 135,502
16.1
6.9 129,876
1.9
8.6 753,246
18.8
11.2 531,755
19.1
16.0 186,656
20.7
2.4 221,491
18.0
7.6 380,115
18.3
4.5
31,7588.9
45.0
17,750
57.2
61.3
6,983
43.4
43.8
5,657
86.3
21.2
1,745
27.7
5.0 166,755
19.2△ 40.5
1,856
52.1
19.7
36,405
26.6
71.8
5,899
40.2
22.4
20,23819.9
9.0 170,232
20.7△ 14.0
11,156
20.5
9.8 606,341
6.5
9.5 544,196
4.5
△ 2.4
21,072
10.3
30.3
10,858△ 10.99.7 434,409
7.2
9.2 295,542
6.5
3.1 211,041
12.3
6.8
19,18710.1
2.9 139,398
13.1
1.5 472,010
25.9
0.0 266,581
30.0△ 11.1 179,206
31.9
11.4
87,37526.2△ 11.7
19,698△ 0.9
47.7
10,80450.2△ 9.0
25,340
18.3
39.1
2,117
67.2

Japan
GrowthValue
rate
621,084
7.2
174,240
4.1
55,585
1.7
1,455
5.5
73,647
8.8
21,774
10.6
7,880
0.4
7,686
0.4
586
15.5
5,824
18.4
23,234△ 8.1
54,425
10.3
39,975
11.7
8,312
9.6
14,4496.8
51,711
4.5
10,220
△ 5.8
6,635
40.4
1,632
27.4
3,842
48.7
363
19.5
19,624
2.3
262
0.6
5,577
18.0
1,664
29.9
1,075
25.3
19,833
10.0
8,830
23.2
173,0267.0
172,1317.4
14,8086.8
26,74817.0
121,5145.5
104,136
5.3
29,350
1.0
1,110
14.8
22,5950.9
37,821
23.5
13,954
25.0
8,272
34.8
5,682
13.0
753
47.5
1,943
82.3
7,999
6.2
85
26.1

China
GrowthValue
rate
955,81820.7
487,037
16.6
124,218
13.8
582
7.4
256,83017.3
35,01417.8
10,906
45.2
9,838
41.7
5
15.0
11,852
18.1
70,975
18.4
123,434
20.4
68,523
21.9
3,458
44.0
54,911
18.7
13,178
15.4
3,443
9.1
515
△ 37.321△ 80.87△ 43.5217△ 24.6
4,543
11.5
2△ 64.220,01763.9
11,472
53.2
7,575
93.2
4,520
35.1
33,796
61.5
104,882
17.7
103,144
17.3
2,422
49.6
604
423.0
97,60217.2
79,771
20.1
25,376
△ 1.2
6,565
△ 0.9
1,812
14.3
77,69429.9
31,05615.1
23,019
14.9
8,038
15.7
10,716
94.9
3,863
77.2
630
△ 36.988
32.0(US$ million, %)ASEAN4
Asia NIES
GrowthGrowth
Value
Value
rate
rate
428,615
15.1 1,209,081
11.3
180,510
3.7 577,122
8.5
57,99214.7 151,263
5.3
691
38.3
1,851
15.1
93,442△ 3.9 340,788
10.0
20,04612.8
34,366
20.6
4,908
23.5
8,807
15.9
2,972
19.8
7,653
16.2
449
3.7
383
20.0
5,789
10.0
6,483
11.2
9,030
6.0
50,7050.9
50,54917.6 112,740
10.7
32,714
19.6
75,636
13.1
2,653
19.0
6,910
16.4
17,83514.0
37,104
6.1
24,161
29.3
39,145
17.3
2,473
18.7
5,606
10.4
4,441
29.6
4,633
33.7
2,210
24.1
1,229
34.3
828
11.7
2,785
36.5
1,380
55.5
547
21.4
10,20326.0
15,114
12.9
7
4.4
123
1.3
3,203
35.9
4,443
28.8
1,352
55.1
1,280
30.8
1,310
24.1
1,873
40.9
3,020
19.0
31,111
15.4
513
△ 0.5
4,206
22.1
72,687
12.6 204,122
14.5
71,80412.6 200,373
14.0
1,584
26.3
11,27920.3
31332.7
16,946
8.1
66,52011.5 167,098
14.0
42,17611.0 107,409
7.5
8,172
7.4
47,056
1.7
2,153
6.5
5,265
0.3
862
23.2
25,626
3.3
46,083
23.4
99,07919.7
28,46124.9
53,431
29.5
19,942
30.9
41,913
30.8
8,519
12.7
11,518
25.0
3,586
18.9
8,444
6.6
135
89.9
3,082
16.2
2,446
12.7
5,477
△ 6.2
482
82.0
768
45.8

1,975,624
1,046,101
929,522432,280
16,628264,394
151,259
4,945
286,057
512,447
73,358439,088377,049
67,568173,006
40,58066,017
11,556
9,142
151,450

13.9
7.3
6.5
3.0
0.1
1.9
1.1
0.0
2.0
3.6
0.5
3.1
2.6
0.5
1.2
0.3
0.5
0.1
0.1
1.1

288,41787,584200,833
84,081
4,022
57,77822,281
1,136
56,75526,485
5,395
21,09037,7683,270
52,643
9,557
25,9452,592
2,223
22,480

14.7
4.5
10.3
4.3
0.2
3.0
1.1
0.1
2.9
1.4
0.3
1.1
1.9
0.2
2.7
0.5
1.3
0.1
0.1
1.1

521,009201,350
319,658
154,988
6,818
103,106
45,064
1,284
92,31059,49818,08541,413
94,654
12,651
63,042
13,76925,957
4,338
3,378
46,936

10.7
4.1
6.6
3.2
0.1
2.1
0.9
0.0
1.9
1.2
0.4
0.9
1.9
0.3
1.3
0.3
0.5
0.1
0.1
1.0

87,66946,44941,22019,441
1,356
12,819
5,265
250
9,352
24,1302,781
21,34916,523
4,262
5,222
1,602
910
666
533
9,165

14.1
7.5
6.6
3.1
0.2
2.1
0.8
0.0
1.5
3.9
0.4
3.4
2.7
0.7
0.8
0.3
0.1
0.1
0.1
1.5

283,366
218,277
65,08937,879387
20,012
17,480200
19,235145,087
16,415
128,671
55,215
7,661
5,073
3,046
160
126
84
14,751

29.6
22.8
6.8
4.0
0.0
2.1
1.8
0.0
2.0
15.2
1.7
13.5
5.8
0.8
0.5
0.3
0.0
0.0
0.0
1.5

105,799
85,842
19,957
21,59083
5,917
15,590350
5,703
50,765
4,475
46,29019,475
3,188
1,725
341
57
119
46
6,017

24.7
20.0
4.7
5.0
0.0
1.4
3.6
0.1
1.3
11.8
1.0
10.8
4.5
0.7
0.4
0.1
0.0
0.0
0.0
1.4

376,754
269,611
107,143
46,9691,646
19,707
25,616626
38,976
171,727
18,826
152,901
71,254
12,694
14,743
6,282
1,538
1,718
1,582
21,467

31.2
22.3
8.9
3.9
0.1
1.6
2.1
0.1
3.2
14.2
1.6
12.6
5.9
1.0
1.2
0.5
0.1
0.1
0.1
1.8

26,834

0.2

4,476

0.2

3,959

0.1

2,920

0.5

5,800

0.6

56

0.0

9,274

0.8

(Notes)(1) See Reference Section"Note 1" for the definition of products. (2) Value of world exports based on JETRO estimates. (3) Asia NIES include the ROK, Hong Kong, Singapore and Taiwan.
(4) As to the IT products, due to the revision of HS Codes in 2007, growth rates are not available. (5) Figures of IT products imports of Japan do not correspond with the figures of Chapter I.
(Sources) National trade statistics.

273

Table 6

FDI of major economics (net flows based on balance of payment)(US$ million, %,)Inward FDI
2006

USCanada2007

241,961 237,542
62,765 108,655
EU27763,316 1,092,864
EU15693,129 1,001,850
Belgium
63,912
39,058Luxembourg
124,903 118,798
Austria
2,533
30,939Danmark
4,322
9,314
Finland5,481
8,476France78,154 157,970
Germany
55,16851,812
Greece5,364
1,918
Ireland△ 937
25,891
Italy
39,23940,202
Netherlands
105,446 251,564
Portugal
11,305
5,632
Spain
26,88953,385
Sweden23,162
20,952
UK
148,189 185,941
12 new EU members
70,18791,014
Czech Republic
6,077
9,285
Hungary
12,653
31,912
Poland19,19817,580Slovakia
4,165
3,265
Slovenia646
1,426
Estonia
1,674
2,482
Latvia1,664
2,173
Lithuania
1,840
1,934
Cyprus
1,504
2,079
Malta
1,865
959
Bulgaria
7,507
8,429
Romania
11,393
9,492
Norway6,475
3,388
Switzerland
26,27540,391
Australia
25,73622,266
New Zealand
8,013
2,871
Japan
△ 6,789
22,181
East Asia
181,801 258,703
China
78,095 138,413
ROK
3,586
1,579
Taiwan7,424
8,161
Hong Kong
45,06059,877ASEAN 547,63550,673Thailand
9,010
9,575
Malaysia
6,047
8,462
Indonesia
4,914
5,571
Philippines
2,921
2,928
Singapore
24,742
24,137
India
19,352
22,300Argentina
5,037
5,720
Brazil
18,822
34,585Chile
7,358
14,457
Colombia
6,464
9,028
Mexico19,291
24,686
Venezuela△ 590
646
Russia32,38752,475Israel
14,694
10,576South Africa
△ 184
5,746
Turkey19,98922,029Developed Countries 1,061,613 1,442,179
Developing Countries 477,188 665,260
World
1,538,801 2,107,439

Outward FDI

GrowthShare contributionrate△ 1.8 11.3
73.1
5.2
43.2 51.9
44.5 47.5△ 38.9
1.9
△ 4.9
5.6
1121.5
1.5
115.5
0.4
54.6
0.4
102.1
7.5
△ 6.1
2.5
△ 64.3
0.1
n.a.
1.2
2.5
1.9
138.6 11.9
△ 50.2
0.3
98.5
2.5
△ 9.5
1.0
25.5
8.8
29.7
4.3
52.8
0.4
152.2
1.5
△ 8.4
0.8
△ 21.6
0.2
120.9
0.1
48.3
0.1
30.6
0.1
5.1
0.1
38.2
0.1
△ 48.6
0.0
12.3
0.4△ 16.70.5△ 47.70.2
53.7
1.9△ 13.51.1△ 64.20.1
n.a.
1.1
42.3 12.3
77.2
6.6△ 56.0
0.1
9.9
0.4
32.9
2.8
6.4
2.4
6.3
0.5
39.9
0.4
13.4
0.3
0.2
0.1
△ 2.4
1.1
15.2
1.1
13.6
0.3
83.7
1.6
96.5
0.7
39.7
0.4
28.0
1.2
n.a.
0.0
62.0
2.5
△ 28.0
0.5
n.a.
0.3
10.2
1.0
35.8 68.4
39.4 31.6
37.0 100.0

2006

2007

△ 0.8 241,244 333,271
8.1
39,11753,81858.0 918,702 1,349,387
54.3 886,226 1,305,846△ 4.4
56,171
51,845△ 1.1 110,614 181,848
5.0
5,623
31,7300.9
9,249
15,192
0.5
3,161
8,623
14.0 121,370 224,650△ 0.6
94,700 169,886
△ 0.6
4,167
5,338
4.7
14,73522,0480.2
42,06890,78025.7 208,391 110,539
△ 1.0
6,971
6,217
4.7 100,250 119,605△ 0.4
21,99337,707
6.6
86,764 229,839
3.7
32,47743,541
0.6
1,479
1,355
3.4
17,546
33,102
△ 0.3
9,161
3,353
△ 0.2
368
384
0.1
902
1,569
0.1
1,105
1,531
0.1
173
232
0.0
290
600
0.1
855
1,064
△ 0.2
△1
19
0.2
175
265
△ 0.3
422
67
△ 0.5
21,143
12,501
2.5
69,85450,968△ 0.6
22,63824,209
△ 0.9
374
2,811
5.1
50,16573,48313.5 100,455 129,460
10.6
17,83016,995△ 0.4
8,127
15,276
0.1
7,399
11,107
2.6
44,97953,1600.5
22,12032,923
0.1
1,032
1,756
0.4
6,041
11,017
0.1
2,703
4,407
0.0
103
3,442
△ 0.1
12,241
12,3000.5
10,38911,861
0.1
2,119
1,196
2.8
28,202
7,067
1.2
2,876
3,830
0.5
1,098
370
0.9
5,758
8,256
0.2
2,076
2,237
3.5
23,15145,652△ 0.7
14,992
7,064
1.0
6,536
3,156
0.4
924
2,106
66.9 1,336,115 1,869,022
33.1 242,614 283,155
100.0 1,578,729 2,152,177

GrowthShare contribution
rate

38.1 15.5
37.6
2.5
46.9 62.7
47.3 60.7
△ 7.7
2.4
64.4
8.4
464.3
1.5
64.3
0.7
172.8
0.4
85.1 10.4
79.4
7.9
28.1
0.2
49.6
1.0
115.8
4.2
△ 47.05.1△ 10.8
0.3
19.3
5.6
71.4
1.8
164.9 10.7
34.1
2.0
△ 8.4
0.1
88.7
1.5
△ 63.4
0.2
4.3
0.0
73.9
0.1
38.5
0.1
34.3
0.0
107.3
0.0
24.4
0.0
n.a.
0.0
51.7
0.0
△ 84.10.0△ 40.90.6△ 27.0
2.4
6.9
1.1
651.3
0.1
46.5
3.4
28.9
6.0
△ 4.7
0.8
88.0
0.7
50.1
0.5
18.2
2.5
48.8
1.5
70.1
0.1
82.4
0.5
63.0
0.2
3241.7
0.2
0.5
0.6
14.2
0.6
△ 43.50.1△ 74.90.3
33.2
0.2△ 66.3
0.0
43.4
0.4
7.8
0.1
97.2
2.1
△ 52.90.3△ 51.7
0.1
127.9
0.1
39.9 86.8
16.7 13.2
36.3 100.0

16.0
2.6
75.1
73.2
△ 0.8
12.4
4.6
1.0
1.0
18.0
13.1
0.2
1.3
8.5
△ 17.1
△ 0.1
3.4
2.7
24.9
1.9
△ 0.0
2.7
△ 1.0
0.0
0.1
0.1
0.0
0.1
0.0
0.0
0.0
△ 0.1
△ 1.5
△ 3.3
0.3
0.4
4.1
5.1
△ 0.1
1.2
0.6
1.4
1.9
0.1
0.9
0.3
0.6
0.0
0.3
△ 0.2
△ 3.7
0.2
△ 0.1
0.4
0.0
3.9
△ 1.4
△ 0.6
0.2
92.9
7.1
100.0

(Notes)(1) JETRO estimates for "World" and "Developing Countries" figures.
(2) For countries and regions of which dollar-based data are not released, conversion is made by using annual (for Japan, quarterly) averageexchange rate.
(3) “East Asia” stands for the sum of China, the ROK (South Korea), Taiwan, Hong Kong and five ASEAN countries. ASEAN5 consists of Thailand,
Malaysia, Phillipines, Indonesia and Singapore.
(4) “Developed countries” consists of 23 countries based on classification by the IMF. “Developing countries” are defined as all the other countries
and regions.
(5) If figures including special purpose companies (SPEs) and excluding SPEs are both available, JETRO adopts figures including FDI via SPEs.
(Sources) National and regional balance of payments statistics, BOPS (IMF) and UN Economic Commission of Latin America Countries (ECLAC).

274

Table 7

World cross-border M&A (by country and region)

World

US
Canada
ＥＵ27
ＥＵ15

UK
FranceGermany
Netherlands
Italy
Spain

T
a
r
g
e
t

12 new EU members

C
o
u
n
t
r
y

East Asia

a
n
d
r
e
g
i
o
n

Czech RepublicHungary
PolandSwitzerland
NorwayAustralia
Japan

China
ROK
TaiwanHong Kong
ASEAN 6Singapore
Thailand
Malaysia
Indonesia
Phillippines
VietnamIndia
MexicoBrazilUnited Arab Emirates
South Africa
RussiaUS
Canada

ＥＵ27
ＥＵ15
A
c
q
u
i
r
e
r
c
o
u
n
t
r
y
a
n
d
r
e
g
i
o
n

UK
FranceGermany
Netherlands
Italy
Spain
12 new EU members

Switzerland
NorwayAustralia
Japan
East Asia

China
ROK
TaiwanHong Kong
ASEAN6Singapore
Thailand
Malaysia
Indonesia
Phillippines
India
MexicoBrazilSaudi Arabia
United Arab Emirates
South Africa
Russia

2004

2005

2006

Value

Value

Value

(US$ million, %, number of cases)
first half year of 2008

2007
Value

Growthrate

Share

455,834 847,707 1,013,217 1,555,926
53.6 100.0
84,740 109,247
188,237
319,315
69.6 20.5
22,398 29,490
74,174
122,63365.3
7.9
237,394 521,899
508,031763,21050.2 49.1
228,119 496,589
485,246744,558
53.4 47.9
73,297 206,464
215,324
219,886
2.1 14.1
25,901 35,862
47,806
63,97033.8
4.1
48,622 65,330
63,30784,89834.1
5.5
19,265 33,547
36,241
186,722 415.2 12.0
15,296 51,803
35,65933,991 △ 4.7
2.2
9,293 26,451
14,05464,990 362.4
4.2
9,275 25,310
22,78518,651 △ 18.1
1.2
578 11,187
1,775
1,574 △ 11.3
0.1
528
3,227
3,444
6,285
82.5
0.4
1,881
2,652
5,032
3,340 △ 33.6
0.2
4,978 10,689
13,962
21,558
54.4
1.4
1,897
8,395
6,475
10,51762.4
0.7
15,429 11,930
17,477
66,111 278.3
4.2
10,386
3,596
4,354
22,584 418.8
1.5
25,842 52,473
59,42359,4530.0
3.8
9,203 14,678
16,032
10,964 △ 31.6
0.7
6,039
8,889
3,665
2,582 △ 29.6
0.2
622
3,173
6,481
6,679
3.0
0.4
4,113
9,858
15,906
10,849 △ 31.8
0.7
5,864 15,875
17,33928,380
63.7
1.8
1,352
5,753
7,812
10,633
36.1
0.7
1,429
443
5,121
3,132 △ 38.9
0.2
993
1,632
2,681
5,036
87.8
0.3
1,699
7,488
885
4,280 383.3
0.3
311
552
619
4,684 656.3
0.3
81
7
220
615 178.9
0.0
2,560
5,881
8,455
21,135 150.0
1.4
6,675
5,425
2,489
11,439 359.5
0.7
8,018
9,870
10,947
19,393
77.2
1.2
29
213
80
1,740 2077.2
0.1
2,255
6,693
6,980
9,331
33.7
0.6
6,768
9,100
9,122
26,284 188.2
1.7
133,673 157,058
221,060
284,97128.9 18.3
35,842 23,902
39,471
66,741
69.1
4.3
200,183 487,730
442,600
814,784
84.1 52.4
199,033 485,249
434,167
810,969
86.8 52.1
73,968 120,968
92,545
304,643 229.2 19.6
24,023 94,779
70,702112,208
58.7
7.2
16,919 39,135
54,233
113,401 109.1
7.3
7,051 93,817
23,47132,36137.9
2.1
7,056 33,534
18,56976,742 313.3
4.9
34,257 31,297
101,366
55,045 △ 45.7
3.5
1,150
2,481
8,433
3,815 △ 54.8
0.2
8,604 18,280
49,03927,743 △ 43.4
1.8
4,849 10,428
10,351
11,50211.1
0.7
15,225 37,089
54,82952,872 △ 3.6
3.4
5,892 11,285
21,18341,025
93.7
2.6
21,255 36,816
48,15873,330
52.3
4.7
2,361
8,746
14,38918,190
26.4
1.2
218
329
2,589
9,444 264.7
0.6
1,016
593
427
1,753 310.3
0.1
3,242 11,896
10,562
9,341 △ 11.6
0.6
14,418 15,252
20,191
34,60271.4
2.2
11,961
9,582
14,87828,199
89.5
1.8
75
220
102
267 162.7
0.0
2,027
2,856
4,604
5,061
9.9
0.3
108
620
363
906 149.7
0.1
247
1,974
236
169 △ 28.4
0.0
854
2,159
7,311
31,383 329.3
2.0
2,096
3,144
3,803
19,990 425.7
1.3
8,598
2,441
19,881
10,999 △ 44.7
0.7
79
6,688
5,681
13,207 132.5
0.8
394
8,480
25,72424,050 △ 6.5
1.5
637
2,458
11,4182,232 △ 80.4
0.1
2,414
6,801
4,257
20,920 391.4
1.3

No. ofcases

Growthrate

Share

No. ofcases

9,878 597,335 △ 14.5 100.0
1,569 135,259
0.3 22.6
502 20,770 △ 46.8
3.5
4,020 266,525 △ 22.6 44.6
3,591 254,209 △ 23.8 42.6
917 108,256 △ 20.2 18.1
405 14,121 △ 69.4
2.4
633 24,437 △ 51.1
4.1
256 16,812 △ 28.0
2.8
237 20,401
8.0
3.4
264 36,947
85.7
6.2
429 12,316
14.6
2.1
81
5,280 507.2
0.9
542,806 △ 45.2
0.5
84
2,117
6.9
0.4
165 15,195 △ 3.7
2.5
114
4,451
8.1
0.7
424 15,327 △ 5.1
2.6
151 12,719 △ 27.8
2.1
1,059 26,981 △ 11.3
4.5
361
3,891 △ 28.5
0.7
35867 △ 3.8
0.1
34
1,118 △ 65.9
0.2
208
3,845 △ 14.5
0.6
421 17,259
5.9
2.9
153
9,485
90.1
1.6
51
99 △ 87.0
0.0
1062,526 △ 30.1
0.4
63
2,463
13.2
0.4
20
2,037 △ 56.1
0.3
28
649 412.7
0.1
237
3,583 △ 78.8
0.6
121
1,260 △ 67.5
0.2
163
8,333 △ 30.8
1.4
24687 266.8
0.1
58
6,783
45.9
1.1
151 10,816 △ 4.1
1.8
2,057 74,862 △ 49.9 12.5
590 41,353
57.7
6.9
4,175 290,971 △ 11.6 48.7
4,028 288,139 △ 12.3 48.2
1,232 86,141
0.3 14.4
577 37,453
0.1
6.3
475 53,954
21.8
9.0
314 53,716 233.4
9.0
210 20,609 △ 43.5
3.5
198
7,629 △ 80.1
1.3
147
2,832 303.5
0.5
230 16,041
21.1
2.7
138
1,238 △ 78.4
0.2
472 16,147 △ 47.1
2.7
262 22,168 △ 33.1
3.7
798 54,189 149.4
9.1
108 27,185 398.1
4.6
57
3,157
45.0
0.5
26
963 160.5
0.2
1942,053 △ 61.6
0.3
413 20,831 148.8
3.5
213 17,148 156.7
2.9
14955 347.2
0.2
165
2,529
88.0
0.4
6
188 318.3
0.0
14
11 △ 88.0
0.0
192
8,616 △ 67.8
1.4
34429 △ 90.3
0.1
48
3,030 △ 36.9
0.5
12
1,083
0.9
0.2
85 24,419 234.8
4.1
49
2,879
99.3
0.5
95 13,985
85.6
2.3

4,198
670
208
1,662
1,462
451
138
216
98
94
110
200
49
18
35
54
54
202
65
461
165
15
18
69
194
69
21
37
31
18
18
109
36
92
19
27
93
863
225
1,814
1,742
488
243
213
160
89
81
72
115
60
133
112
319
50
25
16
56
172
81
8
72
6
5
115
14
30
7
48
25
71

Value

Notes
(1) Data as of July 7, 2008. (2) ASEAN 6 consists of Thailand, Malaysia, Indonesia, the Philippines, Singapore and Vietnam.
(Source) Thomson Reuters

275

Table 8

World cross-border M&A (by industry)(US$ million, %, number of cases)

Industry Total
Primary industries
Oil and Gas; Petroleum Refining
Agriculture, Forestry, and Fishing
MiningManufacturing
Food ・Tobacco
Food and Kindred Products
Tobacco Products
Textile and Apparel Products
Wood and paper products
Wood Products, Furniture, and Fixtures
Paper and Allied Products
Stone, Clay, Glass, and Concrete Products
Chemicals
Chemicals and Allied Products
Drugs
Metal and Metal Products
Machinery and equipment
Machinery
Electronic and Electrical Equipment
Computer and Office Equipment
Communications Equipment
Transportation Equipment
Aerospace and Aircraft
Measuring, Medical, Photo Equipment; Clocks

Printing, Publishing, and Allied Services
Miscellaneous Manufacturing
ServiceElectric, Gas, and Water Distribution
Transportation
Transportation and Shipping (except air)
Air Transportation and Shipping
Telecommunications
Construction Firms
RetailWholesale Trade
Retail Trade, Eating and Drinking Places
Real Estate; Mortgage Bankers and Brokers
Finance, insurance
Commercial Banks, Bank Holding Companies
Investment & Commodity Firms,Dealers,Exchanges

Insurance
Hotels and Casinos
Other service
Advertising Services
Broadcasting Services
Leisure related Services
Film related Services
Business Services
Prepackaged Software
Others
ＩＴ

2004

2005

2006

Value

Value

Value

455,834
29,91021,476
1,422
7,013
131,890
23,292
22,360
932
5,048
4,439
907
3,532
5,617
44,586
14,211
22,3205,261
31,937
5,296
11,727
1,326
2,871
3,685
489
6,543
10,865843
294,034
27,121
9,562
6,141
3,421
33,977
1,781
30,465
7,491
22,97447,552
100,551
36,14428,94918,4905,872
37,152
754
2,826
1,887
169
19,445
5,807-

847,707
134,985
119,132
2,043
13,810243,036
56,15850,589
5,569
3,532
8,235
4,047
4,188
15,22063,50830,91327,904
31,42648,751
4,950
12,796
3,190
1,913
8,060
3,114
14,728
11,462
4,742
469,686
67,25636,94330,056
6,887
72,801
7,778
33,492
8,622
24,87060,955103,060
60,264
21,772
15,091
8,969
78,430
1,595
18,9803,712
852
25,422
18,364-

1,013,217
102,40939,2992,406
60,704
250,618
27,78725,877
1,910
3,608
6,451
4,597
1,854
12,03070,28230,22630,47918,007
86,693
19,427
19,2152,047
19,601
7,294
9,673
9,437
23,6652,096
660,191
52,641
66,26929,31836,952
116,523
18,102
34,5128,450
26,062
77,931
164,51776,30042,12937,67925,427104,269
2,068
17,3406,830
1,132
28,357
20,110-67,497

135,639

209,4722007
Growth
Value
Share
rate
1,555,926
53.6 100.0
123,365
20.5
7.9
80,201
104.1
5.2
5,311
120.8
0.3
37,853 △ 37.6
2.4
492,295
96.4
31.6
70,795154.8
4.6
48,65488.0
3.1
22,141 1059.3
1.4
10,302185.5
0.7
13,711
112.6
0.9
5,026
9.3
0.3
8,685
368.5
0.6
48,911306.6
3.1
129,146
83.8
8.3
26,628 △ 11.9
1.7
89,469193.5
5.8
112,916527.1
7.3
86,498 △ 0.2
5.6
24,31125.1
1.6
21,023
9.4
1.4
2,548
24.5
0.2
4,090 △ 79.1
0.3
9,703
33.0
0.6
11,96723.7
0.8
12,85536.2
0.8
18,844 △ 20.4
1.2
1,173 △ 44.0
0.1
940,26642.4
60.4
150,271
185.5
9.7
47,732 △ 28.0
3.1
42,02243.3
2.7
5,710 △ 84.5
0.4
61,184 △ 47.5
3.9
15,002 △ 17.1
1.0
72,943111.4
4.7
19,186127.1
1.2
53,757
106.3
3.5
94,37921.1
6.1
354,502115.5
22.8
178,657
134.2
11.5
127,646
203.0
8.2
43,29514.9
2.8
18,412 △ 27.6
1.2
125,840
20.7
8.1
2,855
38.1
0.2
31,49781.6
2.0
4,984 △ 27.0
0.3
2,700
138.6
0.2
44,84458.1
2.9
16,089 △ 20.0
1.0
n.a.
n.a.
153,394 △ 26.8

No. of
cases

9,878
847
319
75
453
2,965
331
320
11
102
155
66
89
169
623
268
233
311
1,064
307
281
49
66
123
30
208
143
67
6,065
252
382
324
58
235
198
802
505
297
515
1,077
234
561
204
120
2,484
62
120
83
43
1,397
448
1

9.9 1,748(Note)(1) Data as of July 7, 2008. (2) Based on industries of sellers.
(3) IT consists of computer and accessory equipment hardware, communications equipment, software, telecommunication services.
(Source) Thomson Reuters

276

first half year of 2008
No. ofGrowthShare cases
rate
597,335 △ 14.5 100.0 4,198
59,6393.6
10.0
396
22,954 △ 51.8
3.8
148
1,210
5.4
0.2
39
35,476
304.6
5.9
209
210,903 △ 2.4
35.3 1,288
50,17458.7
8.4
136
26,964
154.9
4.5
133
23,20910.3
3.9
3
1,764 △ 61.4
0.3
49
4,062 △ 58.7
0.7
66
802 △ 81.2
0.1
283,260 △ 41.4
0.5
38
25,837159.2
4.3
51
61,386 △ 9.0
10.3
259
31,660202.9
5.3
95
22,589 △ 55.1
3.8
98
18,410 △ 50.2
3.1
156
44,213 △ 5.1
7.4
498
6,516 △ 38.8
1.1
164
10,9785.9
1.8
129
166 △ 88.9
0.0
15
1,003 △ 61.8
0.2
25
10,949109.5
1.8
66
122 △ 98.4
0.0
414,47863.8
2.4
95
4,079 △ 52.0
0.7
50
977
59.7
0.2
23
326,778 △ 23.1
54.7 2,512
47,170 △ 25.7
7.9
115
13,654 △ 21.8
2.3
162
10,218 △ 21.9
1.7
137
3,436 △ 21.6
0.6
25
29,552 △ 32.3
4.9
73
1,387 △ 86.1
0.2
65
23,689 △ 49.6
4.0
359
10,13125.9
1.7
230
13,558 △ 65.2
2.3
129
26,441 △ 39.4
4.4
173
111,790 △ 4.7
18.7
423
53,57544.0
9.0
83
39,928 △ 30.2
6.7
215
16,424 △ 21.2
2.7
89
5,343 △ 46.9
0.9
4767,752 △ 6.6
11.3 1,095
420 △ 83.5
0.1
29
5,867 △ 69.3
1.0
42
1,104 △ 65.7
0.2
37
410 △ 84.0
0.1
2035,82247.3
6.0
603
19,688
123.2
3.3
219
15
n.a.
0.0
2
Value

67,823 △ 29.1

11.4

733

Table 9Japanese trade by country and region(US$ million, %)Exports
Imports
2005
2006
2007
2005
2006
2007
GrowthGrowthGrowthGrowthGrowthGrowth
Value
Value
Value
Value
Value
Value
rate
rate
rate
rate
rate
rate
Asia
289,661
5.8 307,779
6.3 343,113
11.5 230,383
12.2 252,506
9.6 267,926
6.1
China
80,3408.8 92,852
15.6 109,060
17.5 109,105
15.8 118,516
8.6 127,644
7.7
ROK
46,8806.1 50,321
7.3 54,199
7.7 24,536
11.4 27,345
11.4 27,252 △ 0.3
Taiwan43,9104.7 44,152
0.6 44,780
1.4 18,187
9.1 20,345
11.9 19,809 △ 2.6
Hong Kong
36,132
2.1 36,469
0.9 38,818
6.4
1,580 △ 2.6
1,521 △ 3.7
1,448 △ 4.8
ASEAN 1076,074
4.4 76,349
0.4 86,990
13.9 73,076
8.4 79,990
9.5 86,898
8.6
Thailand
22,601
11.6 22,924
1.4 25,553
11.5 15,667
11.2 16,896
7.8 18,275
8.2
Malaysia
12,6080.4 13,223
4.9 15,027
13.6 14,778
4.8 15,488
4.8 17,368
12.1
Indonesia
9,297
2.6
7,378 △ 20.6
9,047
22.6 20,937
12.1 24,149
15.3 26,445
9.5
Philippines
9,117 △ 4.9
9,015 △ 1.1
9,458
4.9
7,771 △ 5.6
7,963
2.5
8,704
9.3
Singapore
18,545
3.3 19,360
4.4 21,784
12.5
6,744
7.4
7,485
11.0
7,031 △ 6.1
Vietnam
3,610
13.6
4,142
14.7
5,673
37.0
4,560
18.3
5,295
16.1
6,125
15.7
India
3,539
16.4
4,457
25.9
6,152
38.0
3,216
23.2
4,058
26.2
4,153
2.4
Oceania
15,617
5.5 15,502 △ 0.7 17,891
15.4 28,182
24.2 31,765
12.7 35,529
11.9
Australia
12,492
5.9 12,509
0.1 14,199
13.5 24,609
26.7 27,947
13.6 31,161
11.5
New Zealand
2,455
7.3
2,096 △ 14.6
2,489
18.7
2,528
2.6
2,534
0.2
2,686
6.0
North America
143,762
6.9 155,614
8.2 153,903 △ 1.1 73,543
3.7 77,757
5.7 80,857
4.0
US
134,889
6.4 145,651
8.0 143,383 △ 1.6 64,497
3.3 68,071
5.5 70,836
4.1
Canada
8,873
16.2
9,963
12.3 10,520
5.6
8,976
6.9
9,623
7.2
9,957
3.5
Cental and South America
25,11216.0 30,574
21.8 35,063
14.7 16,107
17.2 20,411
26.7 24,117
18.2
Mexico
6,921
33.5
9,283
34.1 10,221
10.1
2,552
17.6
2,823
10.7
3,153
11.7
Panama
7,426
22.7
8,096
9.0
8,594
6.1
44 △ 61.7
35 △ 20.8
13 △ 62.3
Brazil
2,728
16.4
3,049
11.8
3,989
30.8
4,435
21.8
5,089
14.8
5,981
17.5
Chile
947
31.4
1,088
14.9
1,581
45.3
5,161
23.6
7,256
40.6
8,133
12.1
Europe7.3 112,492
11.6 65,974
2.4 67,001
1.6 72,510
8.2
93,952 △ 0.6 100,835
EU1582,644 △ 1.9 87,619
6.0 96,355
10.0 57,542
1.9 58,082
0.9 62,745
8.0
Germany
18,761 △ 1.0 20,433
8.9 22,581
10.5 17,966
5.3 18,463
2.8 19,388
5.0France7,817 △ 6.4
7,628 △ 2.4
8,365
9.7
8,564
2.7
8,972
4.8 10,015
11.6
UK
15,1741.4 15,238
0.4 16,268
6.8
6,754
1.5
6,718 △ 0.5
7,520
11.9
Italy
5,776 △ 10.5
6,428
11.3
6,709
4.4
6,924
0.5
7,037
1.6
7,234
2.8
Danmark
873
6.8
886
1.5
766 △ 13.6
2,396 △ 14.3
2,037 △ 15.0
2,020 △ 0.8
Ireland
1,946 △ 2.0
1,638 △ 15.8
1,599 △ 2.4
3,793
0.0
3,494 △ 7.9
4,090
17.1
Netherlands
13,203 △ 1.3 14,740
11.6 18,513
25.6
2,143
7.8
2,176
1.5
2,799
28.6
Belgium
7,175 △ 0.5
7,155 △ 0.3
7,895
10.4
2,137
2.5
1,848 △ 13.5
1,926
4.2
Luxembourg
227
5.7
202 △ 11.0
193 △ 4.8
43 △ 16.2
33 △ 23.7
46
40.0
Spain
5,113
5.5
5,633
10.2
5,574 △ 1.1
1,747
1.8
1,926
10.3
1,971
2.4
Portugal
747 △ 20.6
768
2.7
819
6.7
197 △ 0.6
188 △ 4.7
169 △ 10.2
Greece886 △ 32.9
1,420
60.4
1,300 △ 8.5
118 △ 5.3
77 △ 35.2
56 △ 26.8
Austria
1,080 △ 13.7
1,194
10.6
1,292
8.2
1,334
2.2
1,543
15.7
1,597
3.5
Sweden
1,972
6.2
1,848 △ 6.3
1,962
6.2
2,182
3.4
2,215
1.5
2,235
0.9
Finland
1,894
9.8
2,407
27.1
2,519
4.7
1,242 △ 10.4
1,355
9.1
1,680
24.0
Switzerland
2,172 △ 0.7
2,420
11.4
3,019
24.8
5,064
5.3
5,106
0.8
5,210
2.1
Central and Eastern Europe
4,858
25.3
5,638
16.1
7,661
35.9
1,544
19.7
1,711
10.8
2,009
17.4
Poland
1,011
21.5
1,057
4.6
1,637
54.8
229
8.8
263
14.8
379
44.3
Czech Republic
1,443
15.8
1,943
34.7
2,618
34.7
393
43.2
424
7.7
479
13.2
Slovakia
233
119.1
487
109.3
437 △ 10.3
108 △ 14.2
168
55.0
204
21.3
Hungary
1,830
25.5
1,758 △ 4.0
2,380
35.4
569
11.9
579
1.8
620
7.1
Bulgaria
33
16.2
82
150.1
134
63.5
39
40.9
50
28.7
53
7.2
Romania
180
104.4
188
4.7
256
35.9
156
49.1
184
17.7
223
21.5
Russia, CIS
37.9
8,315
60.2 12,482
50.1
6,825
10.4
7,369
8.0 11,514
56.2
5,191
Russia
4,485
44.2
7,065
57.5 10,738
52.0
6,205
9.0
6,658
7.3 10,554
58.5
Middle East
16,575
14.6 19,194
15.8 26,184
36.4 87,667
39.8 109,190
24.6 113,824
4.2
Iran
1,347
20.6
1,174 △ 12.8
1,329
13.2 10,354
25.4 11,113
7.3 12,678
14.1
Saudi Arabia
4,192
14.2
4,641
10.7
6,711
44.6 28,739
55.7 37,215
29.5 35,350 △ 5.0
Kuwait
1,185
26.8
1,190
0.4
1,665
40.0
7,667
33.5
9,105
18.8
9,928
9.0
United Arab Emirates
4,868
5.7
6,050
24.3
8,053
33.1 25,324
38.2 31,590
24.7 32,298
2.2
Oman
1,393
20.0
1,731
24.3
2,524
45.8
2,741
69.1
2,673 △ 2.5
3,578
33.9
Qatar
994
67.9
1,460
46.8
1,842
26.2 10,692
35.8 14,814
38.6 16,942
14.4
Israel1,226
5.6
1,206 △ 1.6
1,896
57.3
842
7.0
834 △ 1.0899
7.9
Africa7.8
9,459
14.6 11,602
22.7
9,934
14.2 13,266
33.6 14,770
11.3
8,253
Egypt
792
4.0
1,140
43.9
1,287
12.9
118
105.8
397
235.8
839
111.2
Nigeria
522
35.8
565
8.1
732
29.6
999 △ 29.9
811 △ 18.8
674 △ 16.9
Liberia
1,112
19.4
873 △ 21.5
1,190
36.2
0
215.6
8 3084.1
0 △ 98.3
South Africa
3,287
13.2
4,062
23.6
4,599
13.2
5,541
20.4
6,635
19.7
7,709
16.2
World
598,215
5.9 647,290
8.2 712,735
10.1 518,638
14.1 579,294
11.7 621,084
7.2
APEC
6.7 488,067
7.4 527,354
8.1 341,916
11.2 374,233
9.5 402,149
7.5
454,562NAFTA
7.9 166,556
9.2 165,942 △ 0.4 77,358
4.3 81,877
5.8 85,316
4.2
152,472
Mercosur 4
17.2
3,831
13.5
4,984
30.1
4,862
16.4
5,715
17.6
6,910
20.9
3,375
EU27
88,249 △ 0.9 94,139
6.7 105,270
11.8 59,261
2.3 60,064
1.4 65,009
8.2
SAARC
5,986
16.9
7,272
21.5
8,773
20.6
3,726
18.2
4,662
25.1
4,802
3.0
(Note) Exchange rates are converted to US$ based on applicable customs rate.
(Source) Ministry of Finance, Trade Statistics .

277

Table 10

Japan's exports by products （2007）(US$ million, %)
World
US
EU27
China
ASEAN10
Asian NIEs
GrowthGrowthGrowthGrowthGrowthGrowth
Value
Value
Value
Value
Value
Value
rate
rate
rate
rate
rate
rate

Food
Raw material
Mineral fuels
Chemicals
Organic chemicals
Medical products
Plastic materials
Manufactured goods
Iron and steel products
Nonferrous metals
Manufactures of metals
Textile yarn, fabrics
Non-metallic mineral ware
Rubber manufactured
Paper & paper manufactures
Machinery
Power generating machine
Computers and units
Parts of cumputer
Metalworking machinery
Pump and centrifuges
Construction machines
Mechanical handling equip
Heating or cooling machine
Textile machines
Bearings
Electrical machinery
Semiconductors etc
Integrated circuits
Visual apparatus
Video rec or repro app
Television recivers
Audio apparatus
Parts of audio,visual app
Electrical power machinery
Telephony,telegraphy
Electrical measuring
Electrical apparatus
Batteries and accumulators
Transport Equipment
Motor vehicles
Passenger motor cars
Buses and trucks
Parts of motor vehicles
Cycles with engines
Ships
Other
Scientific,optical inst
Photographic supplies
Blank/recorded media
Total

3,548
8,879
8,744
65,74920,007
3,171
19,86883,82234,303
13,195
9,525
6,982
8,037
8,825
2,737
141,167
22,027
7,590
15,887
10,745
10,671
11,386
7,166
4,917
2,697
3,232
143,952
44,50529,902
14,42912,308
2,121
709
9,803
7,379
8,719
11,14817,1293,602
177,030
121,667
107,780
13,01628,4996,275
14,846
79,844
17,7604,675
5,187
712,735

15.3
572
14.7
446
57.6
1,737
12.5
6,999
11.9
1,664
△ 0.9
1,081
13.1
1,497
12.3
8,422
14.4
1,908
22.7
751
5.6
1,964
2.3
515
8.5
968
11.8
1,841
7.0
463
10.9 30,025
10.4
5,864
7.5
3,065
3.8
4,462
△ 6.9
2,255
17.3
1,704
17.0
1,938
12.7
1,158
△ 6.7
532
12.9
133
6.9
595
4.1 22,432
6.6
3,193
9.4
2,016
△ 5.4
4,205
12.6
3,650
△ 36.4555△ 12.9277△ 26.4
1,100
9.7
1,721
104.6
1,986
2.3
2,715
3.9
1,930
10.7
555
12.8 58,526
15.0 45,049
14.3 44,172
21.2
870
9.6
8,518
△ 1.9
2,173
8.9
0
6.0 14,224△ 16.4
2,943
△ 0.7
858
9.9
1,615
10.1 143,383

10.8
134
△ 10.3
717
49.7
723
1.4
7,334
△ 2.1
2,325
△ 11.3
1,011
△ 0.0
1,596
△ 2.4
6,825
△ 6.1
1,033
3.7
832
△ 1.8
1,269
1.4
607
9.8
943
△ 6.9
1,928
△ 6.7
205
△ 4.1 27,725
△ 4.4
4,599
△ 0.4
2,184
△ 0.3
5,208
△ 16.1
2,093
△ 3.7
2,690
△ 33.8
2,499
△ 9.3
1,092
△ 32.8
1,407
20.0
145
△ 5.2
749
△ 3.1 21,776
4.2
3,862
9.1
1,829
△ 13.0
4,470
15.1
3,971
△ 56.3499△ 20.0179△ 23.4
2,336
13.8
1,022
16.4
1,205
1.9
1,934
△ 8.3
1,848
30.6
336
△ 0.6 27,391△ 0.7 18,481
0.2 17,732△ 31.4
748
△ 1.6
4,459
△ 19.82,676
1,008△ 2.7 12,644△ 20.5
2,968
△ 7.8
793
13.7
1,171
△ 1.6 105,270(Source): Same as Table 9.

278

13.5
395
23.2
3,864
53.2
1,785
5.9 15,342
2.4
6,490
1.4
194
11.0
5,213
18.2 16,828
21.8
6,501
41.5
3,456
8.7
1,708
16.8
2,991
3.4
1,004
24.9
553
7.1
517
19.0 20,290
17.5
2,594
5.2
555
12.5
2,049
37.7
2,271
17.3
1,246
41.9
652
26.8
881
25.4
722
17.4
1,255
22.0
456
4.2 29,903
1.1 10,114
2.2
7,517
△ 6.4
1,392
5.8
1,339
△ 33.8
53
△ 8.4
53
△ 8.2
2,055
9.8
1,396
68.6
1,898
11.5
1,628
8.4
4,493
△ 12.5
1,499
15.2
7,030
17.2
2,764
16.5
2,465
37.3
285
20.2
4,065
9.1
1
△ 20.418
2.8 13,622
4.2
3,906
△ 10.9446
6.5
358
11.8 109,060

△ 6.7
416
20.0
845
29.4 1,817
25.7 7,710
31.7 1,621
34.8
10319.4 2,584
11.7 15,979
9.2 7,898
33.0 2,838
10.3 1,936
△ 1.1
931
15.7 1,001
15.1
741
3.7
604
7.1 18,046
13.8 3,289
21.9
290△ 17.7 2,207△ 0.1 1,340
8.0 1,354
35.1 1,111
5.9 1,143△ 23.9
527
23.2
260
20.5
523
18.6 22,164
23.5 10,598
34.7 6,482
38.7
747
49.5
628
47.2
120
△ 21.545△ 29.0 1,091
3.9 1,133
576.3
788
5.7 1,176
13.5 2,948
13.0
319
30.9 9,257
77.5 3,891
81.6 1,876
50.5 1,654
22.9 3,38864.9
120420.8 1,461
23.5 10,757△ 3.5 1,496
4.5
305
0.0
960
17.5 86,990

29.6
1,775
12.8
2,530
351.4
2,564
13.5 25,096
6.6
6,238
15.8
405
12.0
8,077
16.8 24,672
20.8 11,777
23.2
4,844
6.9
1,677
4.8
1,340
5.9
3,511
16.7
714
13.9
742
15.4 28,326
36.1
1,829
△ 19.4
1,134
5.1
2,293
△ 14.1
1,637
25.7
1,694
54.8
1,214
32.5
1,166
2.8
948
26.2
324
3.9
704
2.0 41,181
3.5 18,910
4.8 14,443△ 13.5
1,997
2.7
1,634
△ 39.8363△ 7.7
88△ 26.1
1,319
25.2
1,415
115.3
1,950
△ 0.0
3,047
△ 0.0
5,171
△ 1.8
667
26.2
7,692
26.4
3,003
18.0
2,375
37.3
545
16.5
1,797
13.8
205
69.3
1,881
11.0 25,745
△ 9.3
5,484
△ 1.4
1,866
6.2
1,089
13.9 159,581

19.9
9.0
74.8
9.8
3.3
11.4
9.9
12.5
18.7
12.8
1.4
1.2
6.6
1.4
7.4
9.4
△ 1.5
14.7
13.0
△ 44.1
9.0
16.0
△ 9.2
△ 33.5
15.9
△ 2.1
△ 1.2
1.2
1.3
△ 2.1
14.6
△ 23.3△ 1.5△ 51.5
△ 2.8
306.4
△ 7.1
△ 3.2
10.8
11.4
10.6
15.8
8.7
0.2
14.5
29.0
△ 0.1
△ 33.5
4.3
11.1
6.2

Table 11

Japan's imports by products （2007）(US$ million, %)
World
US
EU27
China
ASEAN10
Asian NIEs
GrowthGrowthGrowthGrowthGrowthGrowth
Value
Value
Value
Value
Value
Value
rate
rate
rate
rate
rate
rate

Food
Fish
Shrimps
Meat
Cereals
Vegetabls
FruitsRaw material
Wood
Ore of nonferrous
Iron ore and concentrates
Soy beans
Mineral fuels
Petroleum
Petroleum products
Petroleum spirits
Liquefied natural gas
Liquefied petroleum gas
Coal
Chemicals
Organic chemicals
Medical products
Manufactured goods
Iron and steel products
Nonferrous
Manufactures of metals
Textile yarn,fabrics
Non-metallic mineral ware
Wood manufactured
Machinery
Power generating machine
Computers and units
Parts of computer
Electrical machinery
Semiconductors etc
Integrated circuits
Audio and visual apparatus
Video rec or repro app
Electrical power machinery
Telephony,telegraphy
Electrical measuring
Transport equipment
Motor vehicles
Parts of motor vehicles
Aircraft
Other
Scientific, optical inst
Clothing and accessories
Furniture
Bags
Total

51,27012,746
1,923
8,729
7,713
3,567
3,594
48,061
4,780
18,086
8,815
1,662
172,009
104,609
16,865
13,272
26,705
8,428
14,77946,414
12,4189,145
62,827
8,317
22,209
8,448
6,237
6,121
6,943
55,262
8,068
15,8406,754
79,03024,20021,151
12,441
2,952
4,954
9,415
5,017
21,507
7,882
5,348
5,952
84,705
13,74423,7345,296
4,330
621,084

4.4 13,984△ 5.8 1,168△ 9.9
11
3.8 1,779
33.7 5,174
△ 2.5
645
4.6
873
18.0 4,838
△ 4.4
672
25.8
553
22.9
0
29.6 1,298
7.2
947
5.4
0
5.0
649
11.0
166
16.7
278
4.3
18
6.5
1
9.9 9,520
7.1 1,503
7.3 1,430
11.4 4,306
27.6
182
19.4 1,343
10.5
871
1.5
235
△ 1.1
596
2.3
202
3.0 10,878
17.4 4,425△ 12.4 1,055
△ 7.7
462
6.3 11,697△ 2.1 4,181△ 2.3 3,887△ 7.2 1,198
29.2
72
3.3
333
126.6 1,067△ 2.7 1,957
10.6 6,521
0.0
573
18.5
575
18.8 5,050
2.2 8,146△ 11.3 4,047
0.3
195
3.4
151
6.2
62
7.2 70,836

8.5 6,023△ 7.0
444△ 22.011
21.5 1,146
41.2
335
1.5
243
△ 2.0
180
20.7 2,263△ 5.2 1,001
28.0
75
－
0
32.5
0
△ 1.1
380
－
0
23.6
366
85.5
325
△ 23.703105.72△ 98.30
8.7 15,675
7.0 4,963△ 1.1 5,381
3.3 6,017△ 1.6
466
6.6 1,765
12.4
868△ 14.4
673
△ 5.3
979
13.9
484
△ 2.2 9,026
5.0 1,854△ 33.6785△ 39.1230△ 3.5 6,245△ 10.6987△ 10.2
854
13.4
227
82.3
58
11.0
629
117.7
414
△ 14.7 1,442
11.8 8,935△ 9.1 6,138△ 11.9 1,727
18.6
725△ 1.0 10,445△ 4.0 2,686△ 24.8 1,640△ 19.9644△ 19.2 1,667
4.1 65,009(Source): Same as Table 9.

279

13.3
7,813
△ 6.2
2,694
2.2
152
0.2
1,064
10.0
558
22.7
1,843
8.9
642
3.5
1,728
6.7
291
45.1
106
△ 88.4
0
－
72
152.9
2,574
114
165.2
679
247.3
606
－
0
△ 21.7
3
1,202
9.5
6,810
11.9
1,399
7.9
397
7.0 15,806
7.0
1,869
27.6
1,988
5.3
3,974
△ 3.7
3,436
△ 5.5
2,134
9.8
1,237
22.4 21,175
38.5
782
△ 9.3
9,902
△ 12.2
3,736△ 1.3 26,052△ 10.1
2,219
△ 8.3
1,515
△ 21.9
6,540
36.5
2,041
△ 11.4
2,618
35.3
4,079
2.1
678
9.3
2,290
3.5
25
25.7
1,202
29.7
5
△ 1.4 43,395
△ 5.2
2,600
△ 1.1 19,584
△ 1.0
2,865
1.5
2,397
8.2 127,644△ 2.8 5,803△ 14.5 2,657△ 6.5 1,050
4.4
531
26.0
227
△ 6.8
195
5.5
775
△ 1.2 10,518
△ 3.6
480
15.5 4,974
38.2
457
△ 8.7
0
△ 9.6 24,073△ 75.7 4,988
22.8 3,398
30.4 1,715－ 13,364△ 14.6113△ 19.7 2,209
27.3 4,129
14.9
772
31.0
106
6.7 7,97816.9
204△ 3.3 1,319
14.9 1,137
2.3
822
5.8
848
0.0 2,605
5.8 7,191
49.7
491△ 4.2 3,126
9.2
880
13.1 16,110
1.1 5,093△ 0.6 3,783△ 7.5 2,827
45.7
635
6.1
910
143.0 1,661
9.0
45017.5 1,23022.8
7123.7 1,01971.9
15
6.6 9,865△ 4.6 1,268
1.0 1,485
6.8 1,014
10.6
109
7.7 86,898

1.8 2,288△ 4.3 1,119
△ 9.5
5
0.4
31
△ 1.9
85
△ 3.1
232
7.2
98
23.7 1,584
△ 9.6
24
31.6
3
22.6
7
0
12.2 3,705
10.9
4313.2 3,620
11.3 2,387
12.6
0△ 25.240
14.0
00.8 4,869
0.3 1,21433.3
231
4.3 7,593
51.3 3,069
34.8 1,281
8.3 1,410
8.3
665
△ 1.5
608
△ 8.2
57
△ 5.0 6,616
36.5
316△ 13.6 1,543△ 31.0 1,582
6.4 18,474△ 3.9 12,522△ 6.2 11,883△ 9.6 1,569
△ 5.1
118
4.5
353
171.5 1,904
9.7
197
26.2
972
△ 1.6
39
31.4
540
40.4
42
10.9 9,440
4.8 2,331
5.6
336
1.2
310
8.3
51
8.6 55,541

△ 2.3
△ 7.5
△ 15.6△ 21.8
△ 6.8
△ 2.3
△ 0.6
18.2
0.2
133.1
30.2
△ 18.6△ 46.8△ 18.1
1.1－△ 18.0
△ 2.7
△ 5.1
△ 9.2
17.3
12.0
21.8
24.1
3.7
3.3
△ 6.0
△ 11.5△ 10.724.8△ 32.1△ 12.36.1
2.6
2.7△ 10.5
△ 2.2
2.8
100.5
8.8
4.3
△ 32.92.9
65.1△ 12.5△ 36.8△ 23.6
△ 8.7
△ 4.4
△ 2.0

Table 12 Japan's Foreign Direct Investment by Country and Region(Based on Balance of Payments, net)
(US$ million, %)OutwardAsia
China
Hong Kong
Taiwan
ROK
Singapore
ASEAN 10
ThailandIndonesia
Malaysia
Philippines
India
Vietnam
Oceania
Australia
New Zealand
Guam
Marshall Islands
North America
US
CanadaCentral and South America
MexicoBrazilCayman Islands
PanamaBermudaDutch Antilles
British Virgin Islands
Peru
Argentina
Puerto Rico
Western Europe
EU
Germany
UK
FranceNetherlands
Italy
Belgium
Luxembourg
SwedenSpain
Denmark
Ireland
Austria
CyprusMalta
Switzerland
NorwayTurkeyEastern Europe, Russia, etc.
RussiaPolandHungary
Czech
Middle East
Saudi Arabia
United Arab Emirates
Egypt
AfricaSouth Africa
Liberia
Mauritius
World

Inward

2005

2006

2007

16,188
6,575
1,782
828
1,736
5,002
2,125
1,185
524
442
557
154
266
943
640
62
-24
262
13,16812,126
1,042
6,402
629
953
3,915
451
151
108
-98
95
29
39
7,509
7,872
270
2,903
541
3,315
44
-195
25
82
363
82
-111
8
-30
-61
56
128
73
721
95
275
191
150
542
494
19
25
25
-17
-284
309
45,461

17,167
6,169
1,509
491
1,517
6,923
1,984
744
2,941
369
375
467
512
723
466
125
98
20
10,188
9,297
892
2,547
-2,603
1,423
2,814
558
-305
0
255
64
11
18,02917,925
1,128
7,271
842
8,497
51
133
-478
416
136
6
-229
41
-11
-1
183
17
7
367
160
234
-102
-18
242
254
-56
21
899
466
-99
533
50,165

19,388
6,218
1,131
1,373
1,302
7,790
2,608
1,030
325
1,045
2,233
475
1,506
4,204
4,140
-22
41
19
17,385
15,672
1,713
9,482
501
1,244
5,838
791
-428
1,120
50
82
20,456
19,934
880
3,026
479
12,440
45
796
2,291
254
10
-2
-600
3
16
-2
61
-91
-26
509
99
206
27
87
958
746
60
55
1,101
82
-70
1,026
73,483

Share
26.4
8.5
1.5
1.9
1.8
10.6
3.5
1.4
0.4
1.4
3.0
0.6
2.0
5.7
5.6
n.a.
0.1
0.0
23.7
21.3
2.3
12.9
0.7
1.7
7.9
1.1
n.a.
n.a.
1.5
0.1
0.1
n.a.
27.8
27.1
1.2
4.1
0.7
16.9
0.1
1.1
3.1
0.3
0.0
n.a.
n.a.
0.0
0.0
n.a.
0.1
n.a.
n.a.
0.7
0.1
0.3
0.0
0.1
1.3
1.0
0.1
0.1
1.5
0.1
n.a.
1.4
100.0

Growth
Rate
12.9
0.8
△ 25.0179.4△ 14.2
12.5
31.4
38.4
△ 88.9
183.3
495.9
1.7
193.9
481.2
789.0
n.a.
△ 57.9
△ 8.9
70.6
68.6
92.0
272.3
n.a.
△ 12.6
107.4
41.9
n.a.
n.a.
340.1
△ 22.2
659.2
n.a.
13.5
11.2
△ 22.0△ 58.4△ 43.146.4△ 10.7499.0
n.a.
△ 38.9△ 92.4n.a.
n.a.
△ 92.6n.a.
n.a.
△ 66.7
n.a.
n.a.
38.7
△ 38.0△ 11.8
n.a.
n.a.
296.0
194.1
n.a.
167.9
22.5
△ 82.4
n.a.
92.7
46.5

Asia
China
Hong Kong
TaiwanROKASEAN 10
ThailandIndonesia
Malaysia
Philippines
Singapore
India
Oceania
Australia
New Zealand
North America
US
CanadaCentral and South America
MexicoBrazilCayman Islands
PanamaBermudaBritish Virgin Islands
Wetern EuropeEU
GemanyUK
FranceNetherlands
Italy
Belgium
Luxembourg
SwedenSpain
Ireland
Austria
Switzerland
Eastern Europe, Russia, etc.
RussiaMiddle East
Saudi Arabia
United Arab Emirates
IsraelAfricaSouth Africa
Mauritius
World

2005

2006

2007

1,565
11
960
-26
31
592
-6
0
0
1
598
1
-114
-113
1
-636
308
-944
1,278
1
1,069
14
-38
205
1,123
1,858
237
132
-78
2,541
6
-1,188
363
-63
41
-123
-1
-748
9
-1
10
1
0
3,223

-852
12
-2,136
110
108
1,063
1
3
1
-1
1,062
-1
36
35
0
-2,666105-2,771
566
0
-82
9
428
181
-3,938-4,274
-542
1,807
274
-7,583
48
884
-12
669
40
128
40
317
-4
-1
0
-1
63
63
-6,789

1,605
15
47
36
221
1,283
1
2
-1
1
1,282
3
215
207
7
12,70913,270
-561
2,831
1,480
3
309
883
4,785
642
-813
540
504
-390
62
148
484
368
-44
-211
-8
1,162
1
3
1
4
33
0
32
22,181

Share
7.2
0.1
0.2
0.2
1.0
5.8
0.0
0.0
n.a.
0.0
5.8
0.0
1.0
0.9
0.0
57.3
59.8
n.a.
12.8
n.a.
n.a.
6.7
0.0
1.4
4.0
21.6
2.9
n.a.
2.4
2.3
n.a.
0.3
0.7
2.2
1.7
n.a.
n.a.
n.a.
5.2
0.0
n.a.
0.0
0.0
n.a.
0.0
0.1
0.0
0.1
100.0

Growth
Rate
n.a.
24.9
n.a.
△ 66.9
104.0
20.7
11.2
△ 49.4
n.a.
n.a.
20.7
n.a.
500.9
491.9
n.a.
n.a.
12567.8
n.a.
399.8
n.a.
n.a.
n.a.
△ 67.3△ 27.7
387.0
n.a.
n.a.
n.a.
△ 70.1
83.6
n.a.
30.6
△ 83.3n.a.
△ 45.0
n.a.
n.a.
n.a.
265.9
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
△ 47.9n.a.
△ 48.4n.a.

(Note)(1) Figures were first released in Japanese yen and quarterly converted into US dollars using Bank of Japan average inter-bank rates.
(2) "-"indicates net outflow.
(3) "0"indicates an amount of less than one million US dollars; "." indicates no investment recorded during the corresponding period.
(4) EU includes the 10 accession states from the second quarter of 2004, and also includes Bulgaria and Romania from the first quarter of 2007(5) "World" includes countries those are not classified into each region. Therefore, "World" is not necessarily equal to the sum of regional component.
(Sources) Ministry of Finance Balance of Payments Statistics and Bank of Japan foreign exchange rates.

280

Table 13 Japan's Foreign Direct Investment by Industry (Based on Balance of Payments, net)
(US$ million, %)OutwardManufacturing (total)
Food
TextileLumber and pulp
Chemicals and pharmaceuticals
Petroleum
Rubber and leather
Glass and ceramics
Iron, non-ferrous and metals
General machinery
Electric machineryTransportation equipment
Precision machinery
Non-manufacturing (total)
Farming and forestry
Fishery and marine products
MiningConstruction
Transportation
Communications
Wholesale and retail
Finance and insurance
Real estate
Services
Total

2005

2006

2007

26,146
1,685
416
826
3,363
531
831
258
1,331
1,296
4,377
8,611
1,419
19,315
23
-44
1,372
148
824
1,712
4,623
9,227
-851
1,086
45,461

34,513
1,025
180
420
4,413
2,921
1,107
2,759
1,795
1,663
7,041
8,597
1,420
15,652
42
28
1,577
-64
1,507
-3,368
5,483
5,562
-811
188
50,16539,515
12,776
371
745
3,744
-280
835
837
2,202
2,642
4,691
8,671
1,293
33,968
93
64
4,053
490
2,133
-331
4,792
19,458162
1,406
73,483

Inward
Share
53.8
17.4
0.5
1.0
5.1
n.a.
1.1
1.1
3.0
3.6
6.4
11.8
1.8
46.2
0.1
0.1
5.5
0.7
2.9
n.a.
6.5
26.5
0.2
1.9
100.0

GrowthRate
14.5
1146.2
106.6
77.3△ 15.2n.a.
△ 24.6△ 69.722.7
58.9△ 33.4
0.9
△ 9.0
117.0
123.3
128.2
156.9
n.a.
41.6
n.a.
△ 12.6
249.8
n.a.
648.7
46.5

2005

2006

2007

-2,191-211
188-22-1,168
-44
1
103
-34
164
-1,195
32
-59
5,414
-1
0
0
41
2,108
912
1,157
645
15
178
3,223

254
-717
58
-23
1,538
37
35
193
60
-24
32
-1,408598-7,043
11
-39
1
37
28
-9,715
-387
2,265
72
122
-6,789

1,381
365
109
3
-1,010
935
35
663
230
-22
-391
331
20
20,800
41
-33
19
-288
-633
1,660
17,661
1,413
295
22,181

Share
6.2
1.6
0.5
0.0
n.a.
4.2
0.2
3.0
1.0
n.a.
n.a.
1.5
0.1
93.8
0.2
n.a.
n.a.
0.1
n.a.
n.a.
7.5
79.6
6.4
1.3
100.0

(Notes)(1) Figures were first released in Japanese yen and quarterly converted into US dollars using Bank of Japan average inter-bank rates.
(2) "-"indicates net outflow.
(3) "0"indicates an amount of less than one million US dollars.
(4) Figures by industry are released since 2005.
(Sources) Ministry of Finance Balance of Payments Statistics and Bank of Japan foreign exchange rates.

281

Growth
Rate
443.2
n.a.
87.5
n.a.
n.a.
2424.21118.5
244.1
284.8
n.a.
n.a.
n.a.
△ 96.6
n.a.
274.3
n.a.
n.a.
△ 49.6
n.a.
n.a.
n.a.
679.6
1868.0140.8
n.a.

Table 14 Japan's Foreign Direct Investment Stock by Country and Region(Based on Balance of Payments, net)
(US$ million, %)Outwardend of end of end of
05
06
07
Asia
88,187 107,653 132,986
China
24,655 30,316 37,797
Hong Kong
6,715
7,776
9,129
Taiwan
5,932
6,328
7,742
ROK
8,251 10,669 12,103
ASEAN 1040,478 49,837 61,435
Thailand
11,677 14,839 19,776
Indonesia
7,681
7,457
8,315
Malaysia
4,803
7,763
8,184
Philippines
3,496
4,253
5,780
Singapore
11,810 14,270 17,586
Vietnamn.a.
n.a. 1,711
India
1,802
2,315
4,218
Oceania
12,961 13,794 19,617
Australia
10,618 12,181 17,940
New Zealand
900
994
951
North America
156,189 163,230 183,776
US
150,152 156,411 174,199
Canada
6,037
6,818
9,577
Central and South America
33,064 39,291 54,749
Mexico
3,635
1,773
1,469
Brazil6,001
7,829 11,028
Cayman Islands
18,071 21,440 32,038
Europe92,453 118,657 145,884
EU
92,140 118,852 145,280
Germany
6,197
7,415
9,524
UK
24,264 31,613 32,021
France11,325 13,064 12,415
Netherlands
34,591 45,419 63,941
Italy
845
807
837
Belgium
7,774
9,630 12,071
Luxembourg
763
1,128
3,537
Sweden
1,563
2,199
2,956
Spain
1,390
1,348
1,736
Switzerland
869
985
1,118
Eastern Europe, Russia, etc.
1,824
2,315
2,864
Russia157
258
373
Middle East
1,685
2,038
3,066
Saudi Arabia
1,439
1,753
2,585
United Arab Emirates
185
183
254
Iran
5
4
5
Africa
1,332
2,701
3,895
South Africa
793
1,125
852
OECD nations (Note 4)
273,584 309,275 363,214
TOTAL
388,197 449,680 546,839

Inwardend of end of end of
05
06
07
Share
24.3
6,702
8,247
9,390
6.9
102
100
125
1.7
2,612
1,928
2,301
1.4
1,391
1,475
1,534
2.2
313
423
694
11.2
2,264
4,310
4,721
3.6
42
42
44
1.5
6
8
9
1.5
13
13
1
1.1
44
43
46
3.2
2,159
4,205
4,620
0.3
n.a.
n.a.
0
0.8
10
9
13
3.6
478
492
779
3.3
472
485
764
0.2
3
3
11
33.6 47,729 44,273 45,947
31.9 43,888 41,989 44,795
1.8
3,841
2,284
1,152
10.0
8,218 12,123 15,227
0.3
4
4
5
2.0
31
30
32
5.9
5,599
8,400 10,469
26.7 38,101 42,367 62,341
26.6 35,758 39,625 55,117
1.7
5,904
4,582
3,811
5.9
3,033
4,983
5,962
2.3 10,777 11,549 12,776
11.7 11,654 12,175 26,025
0.2
559
495
509
2.2
474
1,901
1,947
0.6
1,632
1,635
2,267
0.5
352
742
709
0.3
111
195
102
0.2
2,264
2,640
3,942
0.5
47
47
46
0.1
46
46
48
0.6
14
14
20
0.5
2
2
3
0.0
1
1
1
0.0
- -0.442
0.7
1
63
99
0.2
0
66.4 86,553 87,463 106,484
100.0 101,322 107,663 133,888

Share
7.0
0.1
1.7
1.1
0.5
3.5
0.0
0.0
0.0
0.0
3.5
0.0
0.0
0.6
0.6
0.0
34.3
33.5
0.9
11.4
0.0
0.0
7.8
46.6
41.2
2.8
4.5
9.5
19.4
0.4
1.5
1.7
0.5
0.1
2.9
0.0
0.0
0.0
0.0
0.0
n.a.
0.1
0.0
79.5
100.0

(Notes)(1) Figures were first released in Japanese yen and converted to US dollars using Bank of Japan average inter-bank rates.
(2) "-" indicates net outflow.
(3) "."indicates no investment recorded during the corresponding period.
(4) OECD member countries include the EU15, Australia, Canada, Iceland, New Zealand, Norway, Switzerland, Turkey, U.S.A., Mexico,
Czech Republic, Hungary, ROK, Poland and Slovakia (29 countries in total). However, Slovakia is included since 2007.
(5) EU figures are based on EU25 for ends of 2005 and 2006, and EU27 for end of 2007.
(Sources) Ministry of Finance and Bank of Japan balance of payment and cross-border investment statistics and Bank of Japan
foreign exchange rates.

282

Table 15

Area

Worldwide FTA

NameEuropean Union
European Free Trade Association (EFTA)
EU－Switzerland
EU－Algeria
EU－Syria
Gulf Cooperation Council (GCC)
EU－Andorra
EFTA－Turkey
Economic Cooperation Organization (ECO)
Central European Free Trade Agreement (CEFTA)
Economic Community of West Afarican States (ECOWAS)EFTA－Israel
Armenia－Russia
Kyrgyzstan－Russia
Faroe Islands－Norway
European Economic Area (EEA)
Georgia－Russia
Common Market for Eastern and Southern Africa (COMESA)
Commonwealth of Independent States (CIS) economic union
Faroe Islands－Switzerland
Kyrgyzstan－Armenia
Kyrgyzstan－Kazakhstan
Armenia－Republic of Moldova
EU－Turkey
Georgia－Ukraine
Armenia－Turkmenistan
Georgia－Azerbaijan
Kyrgyzstan－Republic of Moldova
Armenia－Ukraine
EU－Faroe Islands
Turkey－Israel
EU－Palestinian Territories
Eurasian Economic Community (EAEC)
the Pan Arab Free Trade Area
Kyrgyzstan－Ukraine
EU－Tunisia
Europe, Russia
Kyrgyzstan－Uzbekistan
and the NIS,
Georgia－Armenia
Middle East,
Economic and Monetary Community of Central Africa (CEMAC)
AfricaEFTA－Palestinian Territories
Georgia－Kazakhstan
EFTA－Morocco
EU－South Africa
Georgia－Turkmenistan
Western African Economic and Monetary Union (WAEMU/UEMOA)
EU－Morocco
EU－Israel
East African Community （EAC）
Turkey－Macedonia
Southern African Development Community （SADC）
EFTA－Macedonia
EU－Macedonia
Armenia－Kazakhstan
EFTA－Jordan
EFTA－Croatia
EU－Croatia
EU－Jordan
EU－Lebanon
Turkey－Bosnia And Herzegovina
Turkey－Croatia
EU－EgyptSouthern African Customs Union （SACU）
EFTA－Tunisia
Turkey－Palestinian Territories
Turkey－Tunisia
Turkey－Morocco
Faroe Islands－Iceland
EU－Albania
Turky－Syria
EFTA－Lebanon
Turkey－Egypt
EFTA－Egypt
EU－Montenegro
Turkey－Albania
EU－Bosnia and Herzegovina

Date of theagreement
1958/1/1
1960/5/3
1973/1/1
1976/7/1
1977/7/1
1981/5/1
1991/7/1
1992/4/1
1992/11/1
1992/12/21
1993/7/24
1993/1/1
1993/3/25
1993/4/24
1993/7/1
1994/1/1
1994/5/10
1994/12/8
1994/12/30
1995/3/1
1995/10/27
1995/11/11
1995/12/21
1996/1/1
1996/6/4
1996/7/7
1996/7/10
1996/11/21
1996/12/18
1997/1/1
1997/5/1
1997/7/1
1997/10/8
1998/1/1
1998/1/19
1998/3/1
1998/3/20
1998/11/11
1999/6/24
1999/7/1
1999/7/16
1999/12/1
2000/1/1
2000/1/1
2000/1/1
2000/3/1
2000/6/1
2000/7/7
2000/9/1
2000/9/1
2001/1/1
2001/6/1
2001/12/25
2002/1/1
2002/1/1
2002/5/1
2002/5/1
2003/3/1
2003/7/1
2003/7/1
2004/6/1
2004/7/15
2005/6/1
2005/6/1
2005/7/1
2006/1/1
2006/11/1
2006/12/1
2007/1/1
2007/1/1
2007/3/1
2007/8/1
2008/1/1
2008/5/1
2008/7/1

Area

Name

Central American Common Market （CACM）
Caribbean Community （CARICOM）
Asociacion Latinoamericana de Integracion （ALADI）
Andean Community (CAN)
Common Market of the South （Mercado Comun del Cone Sur）
North American Free Trade Agreement （NAFTA）
Costa Rica－Mexico
Canada－Chile
Mexico－Nicaragua
Chile－Mexico
Americas
Mexico－El Salvador
Guatemala－Mexico
Honduras－Mexico
Chile－Costa Rica
Chile－El Salvador
Canada－Costa Rica
Panama－El Salvador
United States－Chile
United States－the Dominican Republic＋Central America （５） (CAFTA-DR)
Chile－Panama
Asia-Pacific Trade Agreement
Papua New Guinea－Australia
South Pacific Regional Trade and Economic Cooperation Agreement （SPARTECA）
Australia/New Zealand Closer Economic Relations Trade Agreement （ANZCERTA）
Lao People's Democratic Republic－Thailand
ASEAN Free Trade Area （AFTA）
Melanesian Spearhead Group (MSG)
New Zealand－Singapore
India－Sri Lanka
Japan－Singapore
Singapore－Australia
China－Macau
China－Hong Kong
ASEAN－China （Framework Agreement）
Asia-Pacific Thailand－India
Thailand－Australia
Pakistan－Sri Lanka
Thailand－New Zealand
India－Singapore
South Asian Free Trade Area (SAFTA)
ROK－Singapore
Japan－Malaysia
India－Bhutan
ROK－ASEAN
China－Pakistan
Japan－Thailand
Pakistan－Malaysia
Japan－Indonesia
Japan－Brunei
EU—Overseas Countries and Territories (OCTs)
Protocol relating to Trade Negotiations among Developing Countries (PTN)
United States－Israel
Global System of Trade Preferences among Developing Countries (GSTP)
Canada－Israel
Israel－Mexico
EU－Mexico
EFTA－Mexico
United States－Jordan
EFTA－Singapore
EU－Chile
United States－Singapore
Cross-Regional
ROK－Chile
EFTA－Chile
United States－Australia
Japan－Mexico
Jordan－Singapore
United States－Morocco
Trans-Pacific Strategic Economic Partnership Agreement (P4)
Panama－Singapore
United States－Bahrain
EFTA－ROK
China－Chile
Japan－Chile(Notes)(1) EEA has only made report based on GATS Agreement, but the agreement contains GATT elements.
(2) Based on the data reported by member countries to WTO except ROK-ASEAN, Thailand-India and Japan-Brunei.
(Source) WTO website (http://www.wto.org/english/tratop_e/region_e/region_e.htm) as of July 18, 2008.

283

Date of theagreement
1961/10/12
1973/8/1
1981/3/18
1988/5/25
1991/11/29
1994/1/1
1995/1/1
1997/7/5
1998/7/1
1999/8/1
2001/3/15
2001/3/15
2001/6/1
2002/2/15
2002/6/1
2002/11/1
2003/4/11
2004/1/1
2006/3/1
2008/3/7
1976/6/17
1977/2/1
1981/1/1
1983/1/1
1991/6/20
1992/1/28
1993/7/22
2001/1/1
2001/12/15
2002/11/30
2003/7/28
2004/1/1
2004/1/1
2003/7/1
2004/9/1
2005/1/1
2005/6/12
2005/7/1
2005/8/1
2006/1/1
2006/3/2
2006/7/13
2006/7/29
2007/6/1
2007/7/1
2007/11/1
2008/1/1
2008/7/1
2008/7/31
1971/1/1
1973/2/11
1985/8/19
1989/4/19
1997/1/1
2000/7/1
2000/7/1
2001/7/1
2001/12/17
2003/1/1
2003/2/1
2004/1/1
2004/4/1
2004/12/1
2005/1/1
2005/4/1
2005/8/21
2005/12/31
2006/5/28
2006/7/24
2006/7/31
2006/9/1
2006/10/1
2007/9/3

2007 JETRO White Paper on “International Trade and Foreign Direct Investment”
November, 2008

Japan External Trade Organization (JETRO)
International Economic Research Division, Overseas Research Department〒107-6006

12-32 Akasaka 1-Chome, Minato-ku, Tokyo, Japan

TEL：03-3582-5177
FAX：03-3582-5309

Copyright (C) 2008 JETRO. All rights reserved.

284