TRILATERAL FORUM TOKYO 2013

UNLOCKING THE POTENTIAL OF
THE U.S.-JAPAN-EUROPE RELATIONSHIPSHARON STIRLING-WOOLSEYDANIEL M. KLIMAN
BRUCE STOKESTSUNEO WATANABEBHAVYA LAL
STEPHANIE SHIPP
BONJI OHARA© 2013 The German Marshall Fund of the United States. All rights reserved.
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Unlocking the Potential of
the U.S.-Japan-Europe Relationship

Trilateral Forum Tokyo
October 2013

Sharon Stirling-Woolsey,1 Daniel M. Kliman,2 Bruce Stokes,3 Tsuneo Watanabe,4Bhavya Lal,5 Stephanie Shipp,6 and Bonji Ohara7

Introduction
Sharon Stirling-Woolsey and Daniel M. Kliman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Transpacific-Transatlantic Single Market
Bruce Stokes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Why Myanmar Matters: Ensuring the Future of the Liberal International Orderin East Asia
Tsuneo Watanabe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
National Innovation Systems: Invention to Innovation
Bhavya Lal and Stephanie Shipp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
China and the Future of the International Order
Bonji Ohara . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

1

Sharon Stirling-Woolsey is a program coordinator for Asia at the German Marshall Fund of the United States.

2

Daniel M. Kliman is a senior advisor for Asia at the German Marshall Fund of the United States.

3

Bruce Stokes is a non-resident fellow at the German Marshall Fund of the United States.

4

Tsuneo Watanabe is a senior fellow and director of foreign and security policy research at the Tokyo Foundation.

5

Bhavya Lal is a research staff member at the IDA Science and Technology Policy Institute.

6
Stephanie Shipp is an adjunct research staff member at IDA Science and Technology Policy Institute and a research professor at the Virginia
Bioinformatics Institute, Virginia Tech.
7

Bonji Ohara is a research fellow at the Tokyo Foundation.

1

Introduction
Sharon Stirling-Woolsey and Daniel M. KlimanFor the United States and Japan, the evolutionof the global economy, the emergence of
new players, and the internationalizationof security threats place a new premium oncooperation with other, likeminded powers.
In recent years, policymakers and analysts inWashington and Tokyo have focused primarily on
enhancing U.S.-Japan ties with Asian and Pacificcountries such as Australia and India. However,in the pursuit of global order, another trilateralrelationship holds great potential: that involving
Europe, Japan, and the United States. Collectively,
these leading democracies constitute a bulwarkof the current international system, and despite
recent economic difficulties, they together possess
unparalleled hard and soft power.
A mismatch has developed between the potential
benefits of the Europe-Japan-U.S. relationship andthe mechanisms that exist to catalyze trilateral
cooperation. Outside the realms of trade andinvestment, the European policy community
has tended to focus on internal challenges anddevelopments in the European near abroad.
Meanwhile, the Japanese government has dedicatedmuch of its attention to security cooperation with
the United States, changing power balances in
Asia, and reviving domestic economic growth. In
the United States, foreign policymakers remain
segmented between Atlanticists and Asia hands.
Today, however, the time is ripe to forge deeper
trilateral ties.
In the United States, initiatives such as the TransPacific Partnership (TPP) negotiations and thedeployment of additional U.S. military forces tothe Indo-Pacific rim highlight the economic andstrategic importance of Asia. At the same time,
Washington has moved to enhance ties with Europe
through the Transatlantic Trade and Investment
Partnership (TTIP) talks.

In Japan, recent elections have given Shinzo Abe
and his administration more political capitalthan any Japanese prime minister since Junichiro
Koizumi, who left office in 2006. Domestically,
Prime Minister Abe’s primary objective has been to
lift Japan out of decades-long economic stagnation.
Internationally, the new government in Tokyo seeks
to carve out a higher profile role for Japan and topromote cooperation with new partners.
In Europe, there is a newfound recognition that
reviving domestic economic growth will require
simultaneous trade deals with the United Statesand Asian countries, including Japan. European
countries display a growing interest in playing
a more coherent role in Asia — one that would
advance regional peace, prosperity, and freedom.
Lastly, multiple developments have raised thestakes for U.S.-Japan-Europe cooperation.
Stalled talks at the World Trade Organization
have created a demand for alternative, largescale trade negotiations. More than ever before,
countries are competing to capture the highground of innovation. New doubts about nuclear
power together with the maturation of shale gas
technology have reshaped the energy landscape.
How China’s rise will have an impact on the
global order in the years ahead remains an open
question. Meanwhile, Iran and North Korea
pose a continuing challenge to the nuclear nonproliferation regime that remains a backbone ofglobal security. Yet there are positive developments
too: Myanmar’s political opening presents anopportunity to consolidate democracy in that
long-troubled country, while the emergence of new
foreign aid donors such as Brazil, Turkey, and India
may help to revitalize development cooperation at atime when longtime donors confront growing fiscal
constraints. Closer cooperation among the UnitedStates, Japan, and Europe can maximize the upsideof these developments and minimize the challenges
some pose to global peace and prosperity.

Unlocking the Potential of the U.S.-Japan-Europe Relationship1

A mismatch hasdeveloped between thepotential benefits ofthe Europe-Japan-U.S.
relationship and themechanisms that exist
to catalyze trilateral
cooperation.

Trilateral Forum
Tokyo brings together
policymakers,
journalists, business
representatives, andresearchers from
Europe, Japan, and theUnited States to discuss
crosscutting global andregional issues.

Toward a New Trilateral Agenda
The German Marshall Fund of the UnitedStates (GMF) and the Tokyo Foundation havecome together to launch a new platform forstimulating trilateral cooperation. First convened
in 2012, Trilateral Forum Tokyo brings together
policymakers, journalists, business representatives,
and researchers from Europe, Japan, and theUnited States to discuss crosscutting global andregional issues. To capture the best ideas generated
during the 2013 discussions and provide inputs
to policymakers, four participants have authoredshort papers on areas ripe for deeper trilateral
cooperation.
Bruce Stokes, in his paper “The TranspacificTransatlantic Single Market,” argues for closer tradecooperation among the United States, Japan, andEurope. Pointing to the deadlocked Doha Roundof multilateral trade talks, Stokes contends that thethree leading democracies should capitalize on the
momentum generated by the TPP talks, the TTIP
discussions, and EU-Japan free trade negotiations.
If concluded and harmonized with each other,
these three agreements would create a $38 trillion
market that could effectively raise the bar both atthe World Trade Organization and in negotiations
with external parties. To achieve this, Stokes
recommends closer coordination among Europe,
Japan, and the United States regarding negotiating
objectives, modalities, implementation timeframes,and exemptions. He also calls for the inclusionof docking agreements that would allow othercountries to join if they are willing to accept therequisite standards. This would create the potential
for an even broader free trade area and erase thethreat of discrimination. Lastly, to alleviate Chinese
fears of economic containment, Stokes recommends
that Brussels, Tokyo, and Washington engage inopen discussions with Beijing. These talks should
directly address what is being discussed in the
EU-Japan free trade negotiations, the TPP talks,
and the TTIP discussions. Policymakers in all three2

Trilateral Forum Tokyo

capitals should voice their willingness to ultimately
welcome China into this commercial space, albeit
with explicit standards.
Tsuneo Watanabe, in his paper “Why Myanmar
Matters: Ensuring the Future of the Liberal
International Order in East Asia,” explores how
Myanmar, and East Asia more broadly, havebecome a new frontier for trilateral cooperation.
Watanabe argues that the region will test whether
Chinese aspirations for national rejuvenation
can coexist with the interests of neighboring
countries and the larger international community.
Commending the Obama administration’s
rebalance to Asia, he asserts that Europe and Japan
must work with the United States to construct
a rules-based order in Southeast Asia, where
territorial disputes are increasingly contentious andthe balance of power remains in flux. Watanabe
observes that Japan has taken recent steps inthis direction by helping to fund major regional
infrastructure projects and by engaging in maritime
capacity building, including the sale of equipment
and participation in military exercises. Europe iswell positioned, in his perspective, to also train
and equip local coast guards and navies. Watanabe
contends that Myanmar’s trajectory will have an
impact on the future regional order, and that themost pressing challenges to Myanmar’s continued
political transition are amending the constitution
and addressing ethnic conflict. On the latterissue, Tokyo has demonstrated new thinking:the Japanese government is collaborating witha domestic non-governmental organization tofacilitate the reconciliation process in Myanmar.
Watanabe recommends that the United States,
Japan, and Europe more closely coordinate theirassistance to Myanmar, as supporting the country’s
democratization and economic development will
significantly contribute to a stable, rules-based
system in Southeast Asia and beyond.

In their paper “National Innovation Systems:
Invention to Innovation,” Bhavya Lal andStephanie Shipp analyze the national innovation
systems of Germany, Japan, and the UnitedStates, and explore ways the three can leverage
their national endowments through international
cooperation. Broadly speaking, innovation policies
are strategically enacted to not only promotecomparative advantage, but also to deliberately
develop and sustain economic strength in key
sectors. Lal and Shipp argue that rather thanapproaching the creation of innovation policies
with an established check-list, policymakers must
understand their country’s endowments — culture,
natural resources, demographics, education,
entrepreneurship, and attitudes toward risk —before they can act to leverage them effectively.
Industries play a key role in the innovation process
through their effective coordination of researchand development, production, and marketing.
Germany, Japan and the United States remain
bulwarks of innovation; however, competingknowledge centers are emerging in Seoul,
Singapore, and China. To maintain innovation
advantages and improve capacity, Lal and Shipppropose that Germany, Japan, and the UnitedStates create international clusters where skills,
knowledge, and resources are shared among
partners to complement existing endowments andaddress challenges collectively. Such collaboration
will boost their innovation capacity well beyond
what any of the three could independently
accomplish.
Bonji Ohara, in his paper, “China and the Futureof International Order,” looks to the Defense

White Paper released by Beijing in April 2013 togain insight on China’s larger national aspirations.
Ohara observes that Beijing’s main security
concerns center on the U.S. rebalance to Asia;
China’s claim over the Senkaku/Diaoyu islands,
which Tokyo administers, remains a secondary
issue. According to Ohara, Beijing’s main focus
is not the East China Sea, but the South China
Sea. Control over this body of water would enable
Beijing to securely deploy submarine-based ballistic
missiles and establish robust deterrence vis-à-vis
the United States. The geographic expansion ofChinese economic interests is also evident in the
Defense White Paper, Ohara notes. The documentemphasizes the role of the People’s Liberation
Army in conducting anti-piracy efforts in thewestern Indian Ocean and evacuating Chinese
workers from Libya during the revolution there.
Although the Defense White Paper falls short ofreal transparency, Ohara maintains that it does
represent a step toward greater openness in Chinese
security policy. Ohara worries that tensions in
the East China Sea could escalate into a military
conflict pitting Tokyo against Beijing, particularly
given the degree of mistrust that exists between thetwo capitals. He recommends that the EU, which is
not party to any regional dispute, serve as a force
for restraint and confidence building.
These four papers provide only a snapshot of
the possibilities for deeper U.S.-Japan-Europe
cooperation. Unlocking the potential of thistrilateral relationship will go a long way towardadvancing peace, prosperity, and freedom in a
rapidly changing world.

Unlocking the Potential of the U.S.-Japan-Europe Relationship3

Unlocking the potentialof this trilateralrelationship will goa long way towardadvancing peace,
prosperity, and freedom
in a rapidly changing
world.

2

The Transpacific-Transatlantic
Single Market
Bruce Stokes

Europe, Japan, and the United States havebegun the process of creating a $38 trillion,
largely barrier-free market through theparallel negotiation of the Trans-Pacific Partnership(TPP), the Transatlantic Trade and Investment
Partnership (TTIP), and a free trade agreement(FTA) between Japan and the European Union.
While these negotiations are not formally linked,
they are all driven by the same desire to further
liberalize trade and investment at a time whenthe multilateral effort to do so through the
Doha Round in the World Trade Organization is
irretrievably stymied. These simultaneous, threepronged talks are also motivated by a shareddesire to improve national competitiveness in theface of growing competition from China. Eachnegotiation also faces political obstacles at homethanks to discrete domestic special interests. Ashigh ambition agreements they will address issues
never before dealt with in trade negotiations. To
enhance their chances of success, Brussels, Tokyo,
and Washington should coordinate their efforts,
open the resulting agreements to the participationof others willing to make similar commitments,
and be transparent with Beijing about the aim ofthese deals and what China could do to join in thebenefits.
Substantive and Conceptual Roadblocks
The roadblocks to achieving the TPP, TTIP, and an
EU-Japan FTA are both substantive and conceptual.
The substantive issues are neuralgic, sectorspecific problems that cannot be underestimated.
If they were easy to resolve, they would long ago
have been dealt with in previous negotiations. In
addition, these trade deals raise new substantive
questions that have never been part of major trade
agreements. The conceptual issues may ultimately
pose a greater obstacle, however, because theyreflect the need for Japan, Europe, and the UnitedStates to engage each other and negotiate in an
unprecedented manner.

The major substantive roadblocks to TPP are wellknown. Among other issues, for Japan it is rice andTokyo’s 700 percent import tariff. For the UnitedStates, it is greater access to the Japanese auto
market. For New Zealand, the issue is increased
access to the U.S. dairy market. For Vietnam, it is
U.S. textile, apparel, and shoe tariffs. For all nations,coming up with a common set of rules for dealing
with state-owned and state-affiliated enterprises is a
substantive roadblock. And there are myriad otherissues that could cause friction: insurance, privacyof personal data in an increasingly digital economy,
intellectual property protection, dispute settlement,
investor-state relations, trade facilitation, andsupply chain impediments.
The political opposition to a TPP deal canpotentially be mollified through long phase-outs ofdomestic protection, as the Obama administration
hopes to do with the recent agreement between
Washington and Tokyo, which pushes back theelimination of U.S. auto and truck tariffs and links
them to the longest phase-out period for any other
item. Other issues may ultimately be left out of the
final agreement, as sugar was in the U.S.-Australia
FTA and rice was in the U.S.-Korea FTA.
There may be even thornier substantive issues
facing TTIP. Transatlantic tariffs are low andWashington and Brussels have engaged in a
regulatory dialogue for years. But there have beentransatlantic disputes over agricultural issues —poultry, beef hormones, bananas, and geneticallymodified organisms — since the 1960s. And the
U.S. federal structure, which gives states regulatory
power over insurance, professional services, andpublic procurement, will pose a major obstacle tofurther liberalization of the U.S. market, especiallyin light of the anti-Washington sentiment insome states. With state governments protective of
their prerogatives, past U.S. administrations havebeen largely unsuccessful in convincing them toharmonize their procedures in accordance with an

Unlocking the Potential of the U.S.-Japan-Europe Relationship5

While these negotiations
are not formally linked,
they are all driven
by the same desire
to further liberalize
trade and investment
at a time when themultilateral effort to doso through the Doha
Round in the World
Trade Organization is
irretrievably stymied.

Brussels, Tokyo, andWashington have neverengaged in majorbilateral or regional
trade negotiations withequals.

FTA. In the new digitally driven economy, differing
U.S. and European perspectives on privacy may
also make it difficult for Washington and Brussels
to agree on privacy rules, especially in the wake ofrevelations of the U.S. National Security Agency’s
widespread surveillance of phone and internet data.
The EU-Japan FTA, too, confronts substantive
obstacles. These include opposition from European
automakers to greater Japanese access to theEuropean car market and a potential clash between
the interests of niche European agricultural
producers and the Abe government’s desire toencourage more value-added food production in
Japan.
Ultimately, however, the more challenging
impediments to TPP, TTIP, and an EU-Japan FTA
may prove to be psychological. Brussels, Tokyo, andWashington have never engaged in major bilateralor regional trade negotiations with equals. These
three negotiations will require true give and takeat the bargaining table, not explicit or implicit
dictating of terms. U.S., European, and Japanesepoliticians will have to accept that long-sacrosanct
special interests can no longer be fully protected.
And publics in all three jurisdictions will needto understand that a new phase of globalizationmeans that issues that were once consideredpurely domestic in nature are now integral partsof a global economy, and that the neat dividing
line between domestic and international spheresof regulation and cooperation is now increasingly
blurred.
Moreover, past trade negotiations have been
single undertakings; nothing was agreed upon
until everything was decided. The negotiation wasthen concluded and the result was presented tothe public as a final product. TTIP, in particular,
is consciously structured as a rolling negotiation.
There is an acknowledgement from the beginningthat some issues will be resolved in a defined period

6

Trilateral Forum Tokyoof time, while others will not be resolved and will
require continued deliberation even after a TTIP
is agreed upon. This may be a realistic way to deal
with new, extremely thorny issues. However, it also
may lower the bar for success at a time when all
three negotiations purport to aim for high standard
agreements. This rolling negotiation potentiallycomplicates trying to sell an eventual deal toskeptical publics and parliaments because the final
agreement may look like it dodged many of thetough issues.
Geostrategic Implications
TPP, TTIP, and the EU-Japan FTA break new
ground because they are consciously geo-strategic
in nature and intent. China is the elephant at thenegotiating table. How to deal with the economic
and strategic challenge posed by an increasinglycompetitive, successful, and aggressive China is aprime motivating force for all three initiatives. Thisis something that Brussels, Tokyo, and Washington
never acknowledge publically, but which U.S.,
European, and Japanese officials all admit privately.
The explicit goal of these three negotiations
is not to contain China (although Beijing seesit that way). One goal of all three agreements,
however, is to craft a set of regulatory and technicalstandards that will require China to play by U.S.European-Japanese rules if it wants to compete inthose markets and other markets that may adopt
the agreed upon standards. The geo-economic
importance of common trilateral standards
cannot be overstated. Shared technical standards
in a $38 trillion market will enable economies ofscale unheard of in the past, while creating a levelcompetitive playing field. It will encourage Chinese,
Korean, and other manufacturers to conform to
those standards in order to sell in the trilateralmarket, thus removing impediments to U.S.,
European, and Japanese companies entering theirmarkets.

Of even greater importance, in their attempt tosynchronize regulatory standards, TPP, TTIP, andthe EU-Japan FTA will also begin to harmonize
rule-making procedures in the three polities. To theextent that transparency, due process, and the ruleof law can become the norm in regulatory standard
making in such a large segment of the global
economy, this could have a powerful influence onrule setting in other parts of the world.

Over time, Brazil, India, Indonesia, South Africa,
and Turkey may have a growing incentive to join
one or more of these groupings. Their membershipwould effectively create a global free trade
agreement that encompasses the vast majority of
the world market. Even before this happens, othermembers of the World Trade Organization may
be encouraged to overcome their differences andrevive meaningful multilateral negotiations.

China’s recently expressed interest in joining TPP
must be seen in this light. No senior officials in
Brussels, Tokyo, or Washington seriously believethat China is ready to meet the high standards
aspired to in TPP, TTIP, and the EU-Japan
negotiations, if only because that would require awholesale transformation of the Chinese economy.
But Beijing does not want future technical andregulatory standards to be set by the Americans,Europeans, and Japanese. Hence the desire to slow
down these talks by holding out the prospect that
China might be willing to join.

Advancing Trilateral Cooperation
To accelerate completion of TTIP, TPP, and the EUJapan free trade agreement, Brussels, Tokyo, andWashington need to work more closely together,both on the substance of the deals they are craftingand on their shared long-term vision for this $38
trillion market they are creating.

Revitalizing Global Trade Liberalization
It is unlikely at any time in the immediate futurethat these three agreements will be merged into
a formal, single trilateral free trade area. Smalldifferences will exist, reflecting different special
interests and national regulatory cultures. But, if thedeals are done at roughly the same high standard,
the economies will be effectively integrated to an
unprecedented degree. This will, in turn, create apowerful attraction for others to join, as alreadydemonstrated by the late entry into TPP by Japan,
Mexico, and Canada. Once the Canada-EU FTA
and TTIP are completed, there will effectively be a
North American (Canada, Mexico, United States)European FTA, because Europe will have deals withall three countries in North America. Similarly,
South Korea may find it politically easier to join
TPP than to do an FTA with Japan. Likewise, Tokyo
may find it politically easier to establish a trade deal
with Seoul.

Their first task should be to better coordinate
negotiating objectives, modalities, implementation
timeframes, and exemptions. Each deal is uniqueand must stand on its own. There will never becross-negotiation trade-offs, where the UnitedStates is compensated by Europe in TTIP for
market access granted Japan in TPP thanks
to an understanding reached in the EU-Japan
negotiation. Nevertheless, the fact that all three ofthese talks are going on simultaneously and the factthat at the end of the day, one trilateral-integrated
market will be created enables negotiators to take abroad view. They must be expected to see the forest
they are creating, not just the trees. Doing so would
help with the creation of complementary objectives,
ways of handling issues that do not contradict
each other, parallel phase out periods for the mostdifficult trade and investment barriers, and short,balanced lists of exemptions.
TPP, TTIP, and the EU-Japan FTA are a direct
response to the shortcomings of the multilateralsystem. But they do not create meaningful trade
diversion. They can create market opportunities
for other countries by affording those nations the

Unlocking the Potential of the U.S.-Japan-Europe Relationship

7

Brussels, Tokyo, andWashington need towork more closely
together, both on thesubstance of the deals
they are crafting and on
their shared long-term
vision.

opportunity to join this new trilateral market on areciprocal basis.

Europe, Japan, and theUnited States should
launch a discussion
with China to ensurethat Beijing fully
understands what
is and is not being
negotiated.

TPP, TTIP, and the EU-Japan FTA should beequipped with docking provisions that allow
other nations to participate in these agreements inthe future if they meet the standards and norms
adhered to by Europe, Japan, and the United States.
Such a docking mechanism would create an evenbroader trade and investment area free of mostbarriers. Moreover, if other countries are worried
about the potential discriminatory nature of TTIP,
TPP, and the EU-Japan agreement, a docking
provision creates an opportunity to free themof that discrimination. Avoiding discrimination
should not be solely the responsibility of Brussels,
Tokyo, and Washington. With a docking option,other governments can control their own fate if
they are willing to commit to the same level ofmarket opening. If they are not, then the onus forany discrimination rests on their shoulders.
Finally, Europe, Japan, and the United Statesshould launch a discussion with China to ensure

8

Trilateral Forum Tokyo

that Beijing fully understands what is and is
not being negotiated in TPP, TTIP, and the EUJapan agreement. The goal of such a dialogue
would be to allay unreasonable Chinese fears
about containment. But it would also provide an
opportunity to make it clear to the Chinese that
the U.S., European, and Japanese goal is to create abarrier-free, integrated market — nearly four times
the size of the Chinese economy — with common
technical and regulatory standards. The message
should be unequivocal: if the Chinese want tocompete in this new trilateral commercial space,
they are welcome. However, they both have to meetthose standards and open their own market toothers on reciprocal terms. A joint dialogue with
Beijing would also send a message that Brussels,
Tokyo, and Washington are ready to work together
in dealing with China, and that the Chinese willfind it increasingly difficult to play one party off
another.

3

Why Myanmar Matters: Ensuring the Future of
the Liberal International Order in East Asia
Tsuneo WatanabeThe global policy community sees East Asia asa prosperous and stable region, an engine of
economic growth, and the locus of business
opportunities. The region’s development began withJapan’s “economic miracle” of the 1960s and 1970s,
which was followed by rapid growth in South
Korea, Taiwan, Hong Kong, and Singapore in the
1980s, China in the 1990s, and India in the 2000s.
Members of the Association of Southeast Asian
Nations (ASEAN), such as Indonesia, Malaysia, and
the Philippines, have also recently been growing
steadily. The latest business “frontier” in Southeast
Asia — for developed economies like Japan, theUnited States, and the European Union — isMyanmar under President Thein Sein’s initiative fordemocratization and market reform.
An interesting aspect of the current Myanmar
boom among businesses in developed economies
is Myanmar’s own decision to wean itself from an
exclusive diplomatic and economic relationshipwith China. The closed, military government is
now taking steps toward becoming a more open
and democratic society and economy. Analysts
view these moves as part of President Thein Sein’s
strategic calculation to maintain an appropriate
distance with China, which had virtuallymonopolized economic relations with Myanmar
over the past 20 years.
Naturally, the Myanmar case has attracted theinterest of Western observers because it offers
hints regarding the shape of the future liberalinternational order in the light of the structural
power shift in Southeast Asia, prompted by China’s
rise. The Obama administration’s initiatives toengage positively with Myanmar are part of its“rebalancing” policy toward the Asia-Pacific, whichemphasizes its relations with Southeast Asia, as aregion where U.S. administrations had not spentmuch political capital following the retreat from theVietnam War.

In the face of the Asian financial crisis of 1997,
which dealt a body blow to most Southeast Asian
economies, Washington’s commitment was
regarded as minimal, while Japan’s New Miyazawa
Initiative provided huge financial support. This
was a case in which Japan-U.S. coordination broke
down. The U.S. commitment to addressing disputes
in the South China Sea was also minimal in 1995,
when China built structures on Mischief Reef,
over which the Philippines also claims sovereignty.
The United States now appears ready to seriously
address issues pertaining to the future governanceand order of Southeast Asia, where participants
are worried about the consequences of China’s
rising economic and political influence. Myanmar
is definitely a case offering a glimpse of the future
shape of the regional order, where the forces ofChina’s rise and U.S. rebalancing interact.
Dreams and Anxieties
New Chinese President Xi Jinping has vowed toachieve the “Chinese Dream” of great rejuvenationof the Chinese nation. This is a vague slogan
with many connotations, and has invited myriadinterpretations. Xi himself ascribes four meanings
to the slogan: a strong China, a civilized China, aharmonious China, and a beautiful China. He has
also vowed to achieve the “two 100s”: a moderately
well-off society by 2020 — the 100th anniversaryof the Chinese Communist Party — and a fully
developed nation by 2049 — the 100th anniversaryof the People’s Republic. Although the slogan does
not contain any aggressive elements, countries
embroiled in territorial disputes with China in
the South China Sea are worried that they may be
trampled upon as China forges ahead toward its
dream.
For example, Vietnamese scholar Nguyen
Hung Son points out that China’s neighbors are
wondering whether Xi’s “Chinese Dream” can really

Unlocking the Potential of the U.S.-Japan-Europe Relationship

9

Myanmar is definitely acase offering a glimpseof the future shapeof the regional order,
where the forces ofChina’s rise and U.S.
rebalancing interact.

The EU has anadvantage in dealing
with China since it does
not have a territorial
dispute or direct conflictwith China while being
an influential economic
and trading partner.

coexist with their own.1 China has grown very
assertive in territorial disputes with its neighbors
in the South China Sea. In addition, China does
not respect many international rules, such as theUnited Nations Convention on the Law of the
Sea (UNCLOS) and the Declaration of Conduct(DOC) over the South China Sea, although China
is formally committed to them. Nguyen statesthat China pursued a moderate and cooperative
approach to these issues in the past, but that its
attitude has changed as a result, he believes, ofthe relative decline of U.S. strength and Japanese
economic power.
Japan, too, shares such worries, owing to tensions
over the Senkaku/Diaoyu Islands in the East China
Sea, as does the United States and the European
Union. Chinese assertiveness is a concern not justfor the regional order but for international rulemaking in the East Asian region, where the Westhas extensive business and economic interests.
In this context, the Obama administration’s
rebalance toward Asia is resisted by China andwarmly welcomed by its worried neighbors. At
the same time, Japan and other U.S. allies andfriends are aware of the United States’ limited
financial resources and political capital, andthey grew concerned when Washington began
seriously contemplating intervening militarily in
Syria to oppose the Bashar al-Assad regime’s useof chemical weapons. However, it would not be
constructive for East Asian nations to restlessly
fret over the fluctuating balance of power between
the United States and China. It is not the U.S.
goal to antagonize China through containment or
encirclement, nor would that be in the interest ofJapan or the EU. On the other hand, U.S. power isstill regarded as an effective tool in inducing China
to be a more cooperative player in regional rule1
Nguyen Hung Son, “Can the Chinese Dream Coexist with OtherDreams?: Views from Vietnam” (in Japanese), in Gaiko (Diplomacy)
published by the Ministry of Foreign Affairs of Japan, July 2013, pp.36–37.

10

Trilateral Forum Tokyo

making and in hedging against China’s arbitrary
exercise of power against asymmetrically smallerneighbors.
It is the imperative of the international community— particularly the EU and Japan — to work with
the United States to create a stable Southeast Asian
environment where all actors, from small to large,
respect common rules and enjoy the fruits of peace
and prosperity. The EU has an advantage in dealing
with China since it does not have a territorial
dispute or direct conflict with China while being
an influential economic and trading partner. By
working with countries sharing vital interests,
Japan, too, needs to proactively support the shapingof the regional order.
Japan’s New Approach to Assistance for ASEAN
For Japan, stability in the South China Sea andthe ASEAN region is critically important for its
own security and prosperity. Japan is still heavily
dependent on the sea lane from the Gulf region
through the Strait of Malacca and the South China
Sea to the East China Sea for imports of energy
resources critical to its economic survival.
In the past, Japan’s vital interests were protectedby the U.S. military presence. Although this fact
has not changed, Japan has gradually begun tocooperate more fully with U.S. and regional efforts
to stabilize the Southeast Asian region, which canbe a choke point in the energy flow to Japan andwhere countries share Japan’s interests in tempering
China’s territorial aggressiveness.
Japan plans to provide capacity building toSoutheast Asian countries suffering from a wide
maritime capability gap with China, which has
rapidly increased the number of patrol ships,
surveillance vessels and aircraft, submarines,
and fifth generation jet fighters. Japan has been
providing official development assistance to
ASEAN countries throughout the post–World

War II period. This was regarded as a form of war
reparations for Japan’s military aggression in the
1930s and 1940s.
Recently, Japan has found a new rationale for
its assistance to ASEAN nations: to help them
reduce the economic and military gap with China— a country to which Japan has also provided
substantial economic assistance in the past.
During the Japan-ASEAN Summit Meeting inNovember 2011, then Prime Minister Yoshihiko
Noda pledged $25 billion to promote projects forenhancing ASEAN connectivity. In the JapanMekong Summit in April 2012, Japan offered $7.4
billion over three years to help five Mekong statesbuild up their infrastructure.
The Japan Self-Defense Forces (SDF) haveactively participated in joint military exercisesfor humanitarian assistance and disaster relief inSoutheast Asia, including the U.S.-Thai Cobra Goldjoint/combined exercises since 2005. In July 2011,
Japan joined, for the first time, the joint maritime
military exercise with U.S. and Australian forces in
the South China Sea off the coast of Brunei. And
in spring 2012, the SDF joined the U.S.-Philippine
joint military exercises called Balikatan.
In addition, Japan is helping to directly strengthen
regional maritime security capabilities by providing
patrol vessels to Southeast Asian countries. In
December 2011, the Noda administration eased
Japan’s self-imposed restrictions on weapons
exports. Japan is still committed to not exporting
weapons to other countries, although exceptions
have been made in the past for Japan’s alliancepartner, the United States. Now, exceptions arebeing made in cases that contribute to peace andadvance international cooperation.
Japan is planning to provide the Philippines withpatrol vessels for its coast guard and maritime
communication systems using its official

development assistance (ODA) budget in the
coming years. Contributing to ASEAN’s capacity
building in such a manner is a new approach forJapan.
Japan’s mainstream assistance to ASEAN has
traditionally been for economic development, andthis is a policy that has the support of all politicalparties. However, assistance for capacity buildingin the security arena was quite controversial amongliberal opposition parties. Now aware of the toughreality faced by Southeast Asian nations in dealing
with an assertive military giant, public opinion has
gradually changed. Many scholars have begun toaddress this new frontier, calling on Japan to offer
direct assistance to enhance developing countries’
security capacity, although Japan still avoids
transferring combat weapons.
Importantly, Japan’s new approach is coordinatedwith U.S. policy in Asia. At the two-plus-two
meeting in April 2012, Japanese and U.S. foreignand defense ministers agreed on joint cooperation
to assist other Asian countries’ security efforts. The
agreement is as follows:
The Ministries confirmed the great importance ofworking together to promote peace, stability, andprosperity in the Asia-Pacific region, and enhancing
effective, efficient, and creative cooperation. In thiscontext, the U.S. government plans to continue tohelp allies and partners in the region to build theircapacity with training and exercises. The governmentof Japan, for its part, plans to take various measures
to promote safety in the region, including strategic
use of official development assistance, for example
through providing coastal states with patrol boats.2
Although China may be irritated by suchcooperation, it is an important step toward creating
2
Secretary of State Hillary Clinton, Secretary of Defense Leon Panetta,
Minister for Foreign Affairs Koichiro Gemba, and Minister of Defense
Naoki Tanaka, Joint Statement of the Security Consultative Committee,
April 27, 2012.

Unlocking the Potential of the U.S.-Japan-Europe Relationship

11The situation in
Myanmar is an omenof developments that
could influence regional
rule making over thelong term.

a stable regional balance by enhancing the security
capacity of the region’s states. The EU has a part toplay in such efforts as well, as many EU countries
are experienced in providing capacity building
assistance to Middle Eastern and African nations.

conflicts are a grave matter that could derail
Myanmar’s economic and democratic development.
Economic assistance, combined with reconciliation
support, from the international community will bea critical facilitator.

The Challenge of Myanmar
The situation in Myanmar is an omen ofdevelopments that could influence regional rulemaking over the long term. Its political andeconomic structures are far from stable, however,and there is no guarantee that the process of
democratization advanced by President Thein Sein
will not be reversed.
The initial challenge will be whether Myanmar canamend its constitution, under which the military is
granted 25 percent of all parliamentary seats andthree important ministers — the internal minister,border management minister, and defense minister— are appointed by the supreme commander of thenational military. Since a constitutional amendment
requires the approval of a 75 percent-plus-one-seatmajority in both houses of parliament, it remains ahigh hurdle. Opposition leader Aung San Suu Kyi is
now cooperating with the Thein Sein government
in seeking an amendment. One litmus test will
be how steadily democratization proceeds in thenext election, scheduled for late 2015. A criticaltask for the international community regarding
Myanmar will be to share its notions about andtechnical knowledge of establishing a healthy
civilian-military relationship through the process of
democratization and economic development.

In this area, Japan has demonstrated new thinking.
To facilitate the reconciliation process, thegovernment is collaborating with an NGO thathas been assisting ethnic minorities in Myanmar
for decades. The Nippon Foundation — one of
the largest nonprofit, philanthropic organizationsin Japan (which also helped establish the Tokyo
Foundation) — has been providing food andmedical assistance to ethnic minorities since1976. In February 2013, the Japanese government
appointed Nippon Foundation Chairman Yohei
Sasakawa as special representative to help achieve
ethnic reconciliation in Myanmar. Sasakawa was
the sole observer at the first official peace talks
between the Myanmar government and the United
Nationalities Federal Council — an alliance of 11
ethnic militias — held in Thailand in February
2013. That the chairman of a Japanese NGO would
be granted government status to facilitate such areconciliation process is a new development. Thisshows that collaboration between the Japanese
government and NGOs in the international arena
has been growing in areas such as in advancing
disarmament demobilization, and reintegration(DDR) activities in Afghanistan and Africa, andJapan’s civil society can henceforth be expected tomake further contributions to expanding the role ofcivil society throughout East Asia.

The second challenge will be to address the ethnic
conflict from which Myanmar is still suffering, evenafter 25 ethnic groups signed a ceasefire agreementwith the military government in 2007. The Karenand Shan (Myanmar National Democratic AllianceArmy) continue to fight the central government
in the east of the country. Small, armed ethnic
Rohingya groups are active in the west. Ethnic

Myanmar faces enormous challenges, however,
and addressing them is beyond the task of any
one NGO or foreign government. Sasakawa has
stressed the critical importance of the international
community’s continued economic support for
Myanmar’s ethnic minorities, many of whom are
suffering from extreme poverty. This can play a keyrole in the domestic reconciliation process and abet

12

Trilateral Forum Tokyo

the country’s democratic development.3 Such a role
may be identified as a common mission for the civilsocieties of Japan, the United States, and Europe.
Japan-U.S.-EU Trilateral Cooperation
The international community’s role in helping
Myanmar meet the challenges of reconciliation,
democratization, and economic development
must be considered wisely. One dilemma
would be an excessive emphasis on businessdevelopment in urban areas, as this could widen
the gap between the rich, urban majority and3Interview with Yohei Sasakawa, “Toward Reconciliation with Minorities
and Ending Poverty: Issues in the Current Democratization Process in
Myanmar” (in Japanese), Gaiko (Diplomacy), published by the Ministryof Foreign Affairs of Japan, July 2013, pp. 51–56.

the poor, rural minority. In this context, theinternational community’s continued assistanceto rural, minority areas is of critical importance.
Formulating a common strategy and enhancing
coordination among Japan, the United States, andthe EU in their assistance would be a symbolicmodel case in supporting the steady economic
and peaceful development of Myanmar and other
ASEAN countries. Such trilateral cooperation,
moreover, would not conflict with China’s rise in
the region, as long as all actors share the common
goal of a stable and prosperous East Asian region.
The process itself may contribute to creating a rulebased and liberal international order throughout
East Asia.

Unlocking the Potential of the U.S.-Japan-Europe Relationship13

The international
community’s continued
assistance to rural,
minority areas is of
critical importance.

4

National Innovation Systems:
Invention to Innovation
Bhavya Lal and Stephanie ShippA

nation’s success in being innovative depends
on how it uses its endowments and shapes
its policies to create a thriving marketoriented economy.1 A national innovation systememerges from a spirit of techno-nationalism,combining a belief that the technologicalcapabilities of a nation’s firms are key sources of
their competitive performance with a belief thatthese capabilities are in a sense national and canbe built by government action.2 We posit that it is
not a generic checklist of policies that determine
a nation’s innovative capacity, but rather its ability
to leverage its endowments. Central to leveraging
endowments are collaborations within a country
between government, academia, and the private
sector as well as international partnerships. In thiscontext, our paper provides a brief overview of thenational innovation systems of Germany, Japan,
and the United States.
Defining a National Innovation System
The term innovation is ubiquitous and difficult
to define precisely. There are likely as many
definitions as there are experts. Using an amalgamof various authoritative sources,3 innovation canbe defined as the introduction of a new, or improved
upon, product, process, model, or service in any field,that produces a new advantage or value, and is either
widely disseminated into the market, or influences
the market such that economies are impacted.4 The
term covers a broad spectrum of business activity,
1
Lewis Branscomb used the term “invention to innovation” to convey thenotion of moving technologies from the laboratory to the marketplacewith the goal to create an innovative economy. See Branscomb, Lewis M.
and Phillip E. Auerswald. “Between Invention and Innovation: An Analysis of Funding for Early-Stage Technology Development.” Gaithersburg,
MD: Report for National Institute of Standards and Technology, 11 2002.
2
Nelson, Richard. 1993. National Innovation Systems: A Comparative
Analysis. Oxford University Press Place. New York.
3
Stone, A., S. Rose, B. Lal, and S. Shipp. 2008. “Measuring Innovation andIntangibles: A Business Perspective,” IDA Document D-3704, December
2008. https://www.ida.org/upload/stpi/pdfs/ida-d-3704.pdf
4OECD. 2005. Oslo Manual: Guidelines for Collecting and Interpreting
Innovation Data, 3rd Edition. Paris.

and Stone et al.5 describe the breadth of the termby pointing to its presence in new or improved
products (as at firms like Microsoft and Nintendo),
processes (as at Toyota or Siemens), experiences (asat Disney or Facebook), or business models (as withApple’s iTunes store + iPod, or Car2Go).
Because innovation is a process that involves new
ideas, concepts, and/or technology, is not limited
to only science and technology but can crossover into many fields (manufacturing processes,
business practices, etc.), and is directly tied to its
adoption into the economy and therefore qualified
by its successful transition into the economy, it isoften spoken of as an interconnected innovation
system. Differentiating from an innovation system,a national innovation system refers to a system of
primary actors and their relationships — viewed
from the national level — that are rooted in one
nation state, and interact to influence and/or foster
innovation in the nation. National innovation
strategies aim to incorporate the principles ofcreating a healthy innovation ecosystem andnumerous productive innovation pipelines intofunctional policies that then guide stakeholders
toward fostering innovation.
Elements of a National Innovation System
Nations pursue innovation for a range of motives
but more often than not, innovation is considereda pathway for economic development, helping toincrease wealth or prosperity through the creationof new products and services and in turn (preferably
high-paying) jobs. Given this goal, a nationalinnovation system is not a cookie-cutter blueprint
and means different things in different countries.
Many policymakers across the world, in modifying
or developing their national innovation policies,
appear to give the impression that there is achecklist of generic policies available (science,5

Stone, A., S. Rose, B. Lal, and S. Shipp. 2008. op cit.

Unlocking the Potential of the U.S.-Japan-Europe Relationship15

A national innovation
system is not a cookiecutter blueprint andmeans different thingsin different countries.

The first element ofa national innovation
system is the presenceof endowments.

technology, engineering, and math education;patent policies; R&D investments; etc.) that theyneed to implement to become innovative. The
approach is not incorrect, and many of the checklist
items are well worth the investment. However, weposit that it may be more effective for policymakers
to better understand their own endowments(whether natural resources, culture, or other) andleverage them to improve the innovative capacity of
their nations.

require a supply of educated, technologicallycompetent workers who are trained by firms
themselves or in external training systems linked
to firms, or both. Japan and the United States
have invested heavily in university education, andscientific and technical educational structures moregenerally. Germany has invested relatively more invocational training and has new policies in place toincrease university attendance and the number ofdoctorates in the workforce.

A national innovation system is not a tabularasa. At its core are what could be considered anation’s endowments, which drive its approach toinnovation. For example, countries that lack natural
resources must import them, which forces theireconomies toward export-oriented manufacturing
and an innovation system that supports
mercantilism. Countries that have natural resources
benefit from revenues and foreign investment thatleverages those resources.

Countries use a variety of policies to support
industry-oriented research and to ensure that there
is a central locus of research and development(R&D) in the disciplines associated with particulartechnologies. The United States is in the processof designing and setting up three new Innovation
Manufacturing Institutes focused on specifictechnologies6 to replicate other successful national
institutions like the Fraunhofer Institutes inGermany.7

Of course, natural resources are not a nation’s only
endowments. So are socio-economic, cultural,and political circumstances (e.g. diversity, size ofcountry, demographics, attitudes toward education,authority, risk and entrepreneurship etc.).

Endowments, such as a nation’s size and natural
resources, affect comparative advantages but
also drive conscious decisions to develop andsustain economic strength in certain areas. The
United States’ abundance of natural resources inagriculture and energy has historically focusedits research. The recent breakthroughs in shale

Figure 1 summarizes the components of a nationalinnovation system and shows how they areinterlinked and influence each other. This figure
also helps explain that a wide range of factors
influence the innovative performance of a nation(and its industries), and clarifies that the features of acountry’s innovation system can vary significantly.
The first element of a national innovation systemis the presence of endowments. Differences inendowments change how a government structures
its innovation policies. For example, Germany andJapan’s lack of natural resources have led them todevelop strong manufacturing sectors with a focus
on high technology. Their high-tech industries

16

Trilateral Forum Tokyo6
The three new Innovation Manufacturing Institutes to be competed
are “Digital Manufacturing and Design Innovation,” “Lightweight andModern Metals Manufacturing,” and “Next Generation Power Electronics
Manufacturing.” See White House, Office of the Press Secretary. 2013.
Obama Administration Launches Competition for Three New Manufacturing Innovation Institutes. May 9. http://www.whitehouse.gov/thepress-office/2013/05/09/obama-administration-launches-competitionthree-new-manufacturing-innova
7“The National Network for Manufacturing Innovation (NNMI)
program has the goal of advancing American domestic manufacturing.
This program will seek to accomplish this by creating a robust nationalinnovation ecosystem anchored by up to fifteen Institutes for Manufacturing Innovation.” See Executive Office of the President, National
Science and Technology Council, Advanced Manufacturing National
Program Office, 2013. “National Network for Manufacturing Innovation: A Preliminary Design,” January. http://manufacturing.gov/docs/
NNMI_prelim_design.pdf

Figure 1: The Three Core Components ofa National Innovation Systemoil discoveries were due to a combination of
government action and market drivers.8
Governments can promote policies that make thebusiness environment more favorable to foreign
investors. These include establishing research
priorities, implementing policies to address industrial
mergers and acquisitions, encouraging inter-firm
agreements and joint ventures, and creating analogs
to venture capital. The second element of a nationalinnovation system is therefore the way a government
leverages its nation’s endowments.
Germany, Japan, and the United States each have aninnovation strategy to guide decision-making andinvestments over the next five to ten years.
A. Andrews. 2006. “Oil Shale: History, Incentives, and Policy.” Congressional Research Service. April 13. http://www.fas.org/sgp/crs/misc/
RL33359.pdf; N. Onishi. 2013. “Vast Oil Reserve May Now Be Within
Reach, and Battle Heats Up.” New York Times. February 3. http://www.
nytimes.com/2013/02/04/us/vast-oil-reserve-may-now-be-within-reachand-battle-heats-up.html?pagewanted=all&_r=08

Germany’s innovation
strategy is documented in
the 2012 Federal Report on
Innovation and Researchand emphasizes increasing
the number of researchers,
maintaining the qualityof research institutes, andcontinued development ofsmall and medium sizedcompanies.9,10 The HighTech Strategy for Germany
focuses on forwardlooking projects in climate
and energy, health andnutrition, mobility, safety,
and communication,
strengthening cooperation
between industry andscience, and integrating
Germany’s national
approach into the Europe
2020 innovation process.11

In Japan, the March 2011 Fukushima nuclear
catastrophe is reshaping the local culture, domestic
politics, urban planning, and science, technology,
and innovation policies. The Japanese government
has passed a “Law on Special Measures for
Industrial Revitalization and Innovation” to support
business reconstruction, equipment investment,

9
Federal Ministry of Education and Research. 2012. “Federal Reporton Innovation and Research.” http://www.bmbf.de/pub/bufi_2012_en_
abstract.pdf

H. Belitz, A. Eickelpasch, and A. Lejpras. “Innovation Policy
for SMEs Proves Successful.” DIW Economic Bulletin, ISSN 21927219, Vol. 3, Iss. 4, pp.11-19 https://www.econstor.eu/dspace/bitst
ream/10419/74674/1/741336871.pdf

10Federal Ministry of Education and Research.” High-Tech Strategy 2020
for Germany. Ideas. Innovation. Prosperity.” http://www.bmbf.de/pub/
hts_2020_en.pdf

11

Unlocking the Potential of the U.S.-Japan-Europe Relationship17

Endowments, suchas a nation’s size andnatural resources,
affect comparativeadvantages but
also drive conscious
decisions to develop
and sustain economic
strength in certain
areas.

and financing of business investments
in various industries.12

Industries in Germany,
Japan, and the UnitedStates have invested increating value throughknowledge assets,characterized by anincreased focus on
design, adoption ofopen innovation, andimplementation inexisting clusters.

The United States Strategy for
American Innovation has three broad
pathways.13 The first is to “invest
in building blocks of American
innovation” with a focus on education,
fundamental research, infrastructurebuilding, and advancing the IT
ecosystem. The second is to promotemarket-based innovation throughR&D tax credits, intellectual property
policy, entrepreneurship, and open
markets. The third is to catalyze
breakthroughs for national priorities
and advanced manufacturing andhealth care through the developmentof clean energy, biotechnology,
and nanotechnology. This strategyemphasizes the use of prizes and grandchallenges to encourage public-private
partnerships as a starting point to theirresearch.

Table 1: Regional Knowledge Powerhouses — Japan,
United States, and Germany are Top 51
RegionCountry

Number of patentapplications in 2010

Tokyo

Japan

8,914

Osaka

Japan

4,821

California

United States

3,586

Bavaria

Germany

3,240

BadenWuertlemberg

Germany

2,793

Seoul

Korea

2,335

Paris

France2,334Singapore

Singapore

2,017

Shenzen

China

1,914

Amsterdam

Netherlands

1,435

Source: WIPO, DB Research 2011
1 I. Rollwagen and S. Voigt. 2013.

Governments are not the only agents leveraging anation’s endowments. Not all of the activities andinvestments made in innovating are conductedby R&D labs or get counted as R&D. Nonetheless,while drawing extensively on external sources
like universities and government labs, in mostindustries, the majority of innovative effort ismade by the firms themselves. This is due to thefact that in most cases, profiting from innovation
requires the coordination of R&D, production,and marketing, which tends to proceed much
more effectively within an organization. Industries
What is the Law on Special Measure for Industrial Revitalization
and Innovation. http://www.meti.go.jp/sankatsuhou/outline/data/etc-1/
SummaryTheLaw.pdf

in Germany, Japan, and the United States haveinvested in creating value through knowledge
assets, characterized by an increased focus
on design, adoption of open innovation, andimplementation in existing clusters.14 Currently,
the key existing centers of knowledge are Bavariaand Baden-Wuerttemberg, Tokyo and Osaka,
and California. However, new knowledge-based
clusters in South Korea, China, and Singapore
are emerging.15 Many of these new centers ofknowledge were created through government
incentives and programs, such as the creationof special economic development zones andtechnology parks that leverage and enhance a

12

The White House. 2011. “A Strategy for American Innovation:
Securing Our Economic Growth and Prosperity.” http://www.slideshare.
net/whitehouse/a-strategy-for-american-innovation

13

18

Trilateral Forum Tokyo

I. Rollwagen and S. Voigt. 2013. “More Value Creation ThroughKnowledge Assets.” Deutsche Bank, DB Research. January 7. http://
www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/
PROD0000000000299481.pdf?kid=dbr.inter_ghpen.headline

14

15

I. Rollwagen and S. Voigt. 2013.

country’s endowments.16 Thus, the third element ofa national innovation system is how firms leverage
their nation’s endowments.
Competence in design and production, effective
overall management, ability to assess consumer
needs, and links into upstream and downstream
markets (which often tend to be transnational) areall vital to innovation. Strong does not mean large,
nor does it necessarily entail heavy government
spending on formal R&D. Rather, a dynamic
national innovation system requires that the bulkof the inputs and direction for innovative activity
come from the firms themselves.
Leveraging Endowments through Collaboration
There are several opportunities for Germany, Japan,
and the United States to collaborate in order toleverage endowments and improve their innovative
capacity.17 They could create international clustersof knowledge, providing complementary skills
and information to advance a field or to enhancetheir strengths. One recommendation would be
to focus on a field that is still high risk, that will
require investments over the medium to longterm, and that, if successful, could fundamentallychange manufacturing. One such area might be
additive manufacturing, more commonly referred
to as 3D printing. The United States is currently
an industry leader in many areas of additive
manufacturing, including low- to mid-priced
OECD. 2012. “OECD Science, Technology, and Industry Scoreboard
2011: Innovation and Growth in the Knowledge Economies.” Paris. In
Germany, the Fraunhofer Institutes are well-known examples of public,
university, and private partnerships working together on applied problemsof direct interest to firms.

16

For example, investing in students and researchers and supporting
their study and work overseas is occurring in Germany, Japan, andthe United States. Investments in increasing the number of students inscience, engineering, and mathematics and supporting their study on aninternational scale is also important. In 2011, there were 700,000 foreign
students in the United States, 200,000 in Germany, and over 100,000
in Japan, (UNESCO, http://stats.uis.unesco.org/unesco/TableViewer/
tableView.aspx?ReportId=171) but the numbers could be larger, given the
global nature of business.

17

machine manufacturing and adoption. The UnitedStates accounts for 38 percent of all industrial
additive manufacturing installations; Japan issecond with 9.7 percent, followed by Germany
with 9.4 percent.18 Japan was historically a leader
in additive manufacturing technology but, over thelast few years, has produced relatively few machinesthat sell outside its domestic market.
By creating an “international cluster” of expertise,each partner country could provide resources
and knowledge in their areas of research andmanufacturing strengths, learning from each otherand enabling all partners to address research andrelated challenges collectively.19 Thus Germany,
Japan, and the United States can each leverage
their endowments and at the same time increase
their level of innovation capacity in the additive
manufacturing arena over and above what they
could do on their own.
Conclusion
In this paper, we emphasize the central role ofnational endowments in developing nationalinnovation systems. These include traditional
endowments such as natural resources as well as
endowments that each country develops to leverage
their natural resources or sometimes their lackof natural resources. Thus, their endowments
also include culture, government policies andinvestments, and firms’ approaches to conducting
business, which are instrumental in creating anational innovation system. One significant way toleverage these endowments is through international
cooperation. Germany, Japan, and the United“U.S. Lead in Additive Manufacturing Base Narrows.” From the ControlDesign.com News Desk. 06/06/2013. http://www.controldesign.com/
industrynews/2013/us-lead-in-additive-manufacturing-base-narrows.
html

18

Stephanie S. Shipp, Nayanee Gupta, Bhavya Lal, Justin A. Scott, Christopher L. Weber, Michael S. Finnin, Meredith Blake, Sherrica Newsome,and Samuel Thomas, Emerging Global Trends in Advanced Manufacturing.
IDA Paper P-4603, March 2012. https://www.ida.org/upload/stpi/pdfs/p4603_final2a.pdf

19

Unlocking the Potential of the U.S.-Japan-Europe Relationship

19

States have been successful in leveraging theirendowments to spur innovation and are still world
leaders, but other countries’ innovative capabilities
are rapidly emerging. To accelerate innovation,
Germany, Japan, and the United States should

20

Trilateral Forum Tokyo

collaborate to create and implement policies toincrease knowledge creation among themselves.
These policies can work to leverage each nation’s
endowments while enhancing the strength of thethree countries individually and collectively.

5

China and the Future of the International
Order
Bonji OharaT

he international community remains
uncertain about whether China will
ultimately support the existing international
order or go its own way. To gain new insight on
Beijing’s current approach, this chapter analyzes
China’s white paper on national defense, which was
released this past April.
China’s Real Intentions
On April 16, 2013, the Japanese government
lodged a protest with Beijing over a statement in
China’s white paper on defense, released earlier
that day. The problematic passage, as translatedby the Chinese government, reads “On the issues
concerning China’s territorial sovereignty andmaritime rights and interests, some neighboring
countries are taking actions that complicate orexacerbate the situation, and Japan is making
trouble over the issue of the Diaoyu [i.e., Senkaku]
Islands.” The statement appears in Section I, “New
Situation, New Challenges, and New Mission,”in the midst of a long passage enumerating thechallenges facing China’s security apparatus.
Noting that this is the first time a Chinese defense
white paper has referred to Japan by name, manyobservers in Japan have concluded — based on
this sentence — that Beijing is doubling down on
its hard-line, anti-Japanese stance. To understandChina’s real intentions, we need to consider thestatement in the context of the white paper as awhole and also in relation to previous reports.
China’s white papers on defense are issued every
two years, and the latest edition represents a
departure in some respects. Titled “The Diversified
Employment of China’s Armed Forces,” it is the first
Chinese defense white paper organized around a
specific theme, as Xinhua pointed out in its news
coverage.
Section I articulates Beijing’s perception of thecurrent security situation, as well as the basic

policies and principles governing the use of
its armed forces. Warning of new potential for
instability, the first paragraph concludes with thisstatement: “The Asia-Pacific region has become anincreasingly significant stage for world economic
development and strategic interaction between
major powers. The United States is adjusting its
Asia-Pacific security strategy, and the regionallandscape is undergoing profound changes.” Inshort, China perceives troubling changes in its
security environment as a result of the strategic
rebalance to Asia announced by the Barack Obamaadministration.
The second paragraph in Section I elaborates
on the challenges and threats of this changing
security situation. After observing that a “certain
country” has “strengthened its Asia-Pacific military
alliances, expanded its military presence in theregion, and frequently makes the situation there
tenser,” it notes further that “some countries” in theimmediate region are making the situation worse.
The “certain country” is clearly the United States,
and the “some countries” obviously includes Japan,
which is explicitly criticized in the second part ofthe sentence for “making trouble over the issue of
the Diaoyu Islands.” Taken as a whole, the passage
strongly implies that the United States has createda tense situation, in the midst of which Japan is
beginning to cause trouble. In short, China regards
the United States, not Japan, as its main security
issue. The specific reference to Japan sends a
message that when it comes to the Senkaku Islands,
Beijing refuses to gloss over its dispute with theJapanese government.
The United States as China’s Rival
China’s defense policy and behavior reflects its
perception that the United States is a rival. The
South China Sea is a priority area that it believes
it must control if China is to be a true rival,
establishing “mutually assured destruction” with
the United States by being able to launch a nuclear

Unlocking the Potential of the U.S.-Japan-Europe Relationship

21

China perceives
troubling changes in its
security environment
as a result of thestrategic rebalance
to Asia announced by
the Barack Obamaadministration.

China knows it cannot
win a war with theUnited States, so it
wants to avoid any
conflict that might
escalate into a militaryconfrontation.

retaliation in case of a U.S. nuclear attack. China
already knows it cannot operate nuclear-poweredballistic missile submarines in the East China
Sea because it is effectively controlled by Japan’s
Maritime Self-Defense Force and the U.S. Navy.
Therefore China insists on controlling the South
China Sea.
This perception suggests that China was not reallyintending to dwell on the Senkaku issue. China
knows it cannot win a war with the United States,
so it wants to avoid any conflict that might escalate
into a military confrontation. But on the other
hand, China cannot back down from a territorial
dispute. This means that the Senkaku issue presents
a thorny dilemma for China.
In the remaining paragraphs of Section I, thewhite paper articulates a doctrine for dealing withvarious challenges, predicated on a basic policy of“diversified employment of China’s armed forces”
and guided by five principles.
The first of these principles is “Safeguarding
national sovereignty, security, and territorial
integrity and supporting the country’s peacefuldevelopment.” In the explanatory text, the reportmakes it clear that defending the nation and its
territory from security threats is “the goal of China’s
efforts in strengthening its national defense and thesacred mission of its armed forces, as stipulated in
the Constitution of the People’s Republic of China
and other relevant laws.”
Maintaining the traditional emphasis on a “military
strategy of active defense,” this year’s white
paper differs in that it makes special mention ofmaritime rights, outer space, and cyberspace asareas of national defense, echoing the Pentagon’s
designation of outer space and cyberspace as the
fourth and fifth domains of warfare, respectively.
Cyber warfare appears to be an issue of particularconcern to the Chinese.

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Trilateral Forum Tokyo

Here, we also encounter the assertion: “We will not
attack unless we are attacked, but we will surely
counterattack if attacked.” In Japan, some havetaken this as a stern warning regarding the Senkaku
Islands, but the use of this expression is nothing
new for the Chinese; indeed, its earliest official use
appears to be a 1939 statement by Mao Zedong
aimed at a rival political party, the Kuomintang.
(The Chinese online encyclopedia Baidu Baike
traces the expression all the way back to Cao Cao[155–220], a military leader of the Eastern Han
dynasty.)
When Mao used it, he was issuing a warning
against a preemptive strike, but in the years sincethen, it has become a fairly common slogan
conveying the notion that anyone who attacks
China will pay the ultimate price. In the mostrecent white paper, it appears in quotation marks,
followed immediately by the explanatory comment:“China will resolutely take all necessary measures
to safeguard its national sovereignty and territorial
integrity.” In short, the phrase expresses China’s
determination to defend its sovereignty and its
territory — which, as Beijing sees it, includes the
Senkaku/Diaoyu islands.
Safeguarding Economic Activity
Regarding the remainder of the document, themain focus of concern in Japan has been thosepassages dealing with “maritime rights andinterests” and “overseas interests.” Under theheading “Safeguarding Maritime Rights andInterests,” the white paper highlights efforts toboost cooperation between the Navy and various
law-enforcement organs, citing the “Donghai
Collaboration 2012” joint exercises held in the East
China Sea in October 2012. Under “Protecting
Overseas Interests,” it stresses the role of thePeople’s Liberation Army in safeguarding Chinese
economic activity around the world, including its
anti-piracy operations in the Gulf of Aden andthe waters off Somalia and its mass evacuation ofChinese nationals from Libya.

China’s foreign and security policies are deeply
linked to the development of its domestic economy.

Interestingly, the sub-section on “Safeguarding
Maritime Rights and Interests,” which has received
so much attention in Japan in relation to the
Senkaku/Diaoyu dispute, is found not under
Section III, “Defending National Sovereignty,
Security, and Territorial Integrity,” but under
Section IV, “Supporting National Economic andSocial Development.” This serves as a reminderthat China regards the matter of maritime rights
and interests in the East China Sea as more than aterritorial issue.

A Need for Restraint
With a few exceptions, China’s new defense white
paper falls short of Xinhua’s claims regardingtransparency and specificity, but it does reveal
an effort to move in that direction. China will
henceforth need to disclose its security perceptions
more clearly.

This was apparent also in the Report on the Workof Government that outgoing Premier Wen Jiabao
submitted to the National People’s Congress inMarch, which mentions the need to safeguard
China’s maritime rights and interests in an
economic and environmental context, unrelated tosecurity.
Addressing economic problems is the priority
for the Chinese leadership at present, and Beijing
will try to protect its global economic interests inany way it can. China is building up its militarycapability, but this does not mean that China
is eager to start a war. On the contrary, China
is afraid that the United States and some othercountries may blockade the Strait of Malacca andharm China’s economic interests and development.
Shipments of energy resources from the Middle
East are vital for the Chinese economy, so China
is making efforts to build alternative routes that
do not pass through the strait, such as pipelines
through Myanmar and Pakistan.
China is now contemplating a “March West”
strategy to build land transport routes, solidify
relations with Central Asian countries, and develop
inland areas of China. This also demonstrates that

The white paper is also marked by a new
consciousness of the role of the People’s Liberation
Army within the international community. Whileconveying a strong commitment to defend thenation’s sovereignty and territory, it stresses
compliance with international law, norms, andtreaties, which would seem to preclude a nuclear
first strike or any other act of unilateral aggression.
That said, governments frequently disagree on theline between defensive and preemptive action, andinternational law is often willfully interpreted byeach government. China’s latest defense white paper
betrays a deep concern over the consequences of
the United States’ rebalance to Asia, and given thereport’s specific mention of Japan in relation to the
Senkaku/Diaoyu Islands, the prospects for an end
to the current standoff in the East China Sea seemdim.
In such a tense security environment, should either
Japan or China decide to take military action in the
East China Sea for their own reasons, the role of theinternational community, especially the European
Union, would be significant. Any action taken by
a government will be criticized if it is seen to be
improper.
There is a huge perception gap between Japan and
China, and this gap must be narrowed to avoid amilitary confrontation. Enhancing understanding
between Japan and China can be difficult due to a

Unlocking the Potential of the U.S.-Japan-Europe Relationship

23

Addressing economic
problems is thepriority for the Chinese
leadership at present.

lack of mutual trust, so there might be an importantrole for international players that are not directly
parties to regional disputes. The EU is such aplayer, especially as it has a major voice in theinterpretation of international laws. The EU may beable to provide Asian countries, including China,
with a framework for bridging perception gaps with
the international community.
Any military conflict between Japan and China
will cause extensive damage not only to the two

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Trilateral Forum Tokyo

countries but also to the global economy andsecurity environment. Therefore, it is crucial
for all sides to exercise the utmost restraint andreact calmly to each situation, so as to avert
misunderstandings and clashes that might escalate
into war. For all the major powers, avoiding acollision is imperative and will require greater
coordination in the pursuit of policies that each canaccept.

OFFICES
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Belgrade • Ankara • Bucharest • Warsaw • Tunis

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