COVER STORY • White Paper on International Economy & Trade 2019 • 2

RRoundtable with Dr. Satoshi Inomata, Masashi Kurose, Michitaka Nakatomi & Dr. Shujiro Urata

oundtable Discussion on a
Rules-Based Global Economy

By Japan SPOTLIGHT
The year 2019 will be remembered as a year of rising protectionism. The US-China tech cold war is at thecenter of the risks facing the global economy due to restrictions on trade. METI’s White Paper on
International Economy & Trade 2019 highlights the background and the demerits of protectionism as wellas the need to recreate a new rules-based international trading system. This new rules-based systemshould be discussed with due regard to business interests, as businesses would be the primary actors
affected by the rules. Thus, the White Paper is not a theoretical argument but is based on practical ideas
and discussions with business people.
In this light, our roundtable discussion on the White Paper consists of leading thinkers in Japanknowledgeable in both theoretical thinking and real business practice. Dr. Satoshi Inomata, chief seniorresearcher at the Institute of Developing Economies (IDE-JETRO), is a distinguished trade economist who
has devoted many years of research to the analysis of global value chains (GVCs). Masashi Kurose, apatent attorney and president of Kurose IP Management, is an expert on IP dispute settlements in Asia.
Michitaka Nakatomi, vice chairman and senior executive director of the Japan Machinery Federation (JMF),
is a former METI official who has engaged in many trade negotiations and also a distinguished trade
policy researcher as consulting fellow of the Research Institute of Economy, Trade and Industry (RIETI).
Finally, Dr. Shujiro Urata is professor of Economics at the Graduate School of Asia-Pacific Studies at
Waseda University and a well-known economist with expertise in international trade.
The former director of the Policy Planning and Research Office of the Trade Policy Bureau and author of
the White Paper, Mineko Ota, leads the discussion with the following introductory remarks. She iscurrently director of the APEC Office at METI’s Trade Policy Bureau.
(Roundtable on July 11, 2019)
Participants

Satoshi Inomata

Masashi Kurose

Michitaka Nakatomi

Introduction
Ota: I would like to mention three major points in this White Paper.
First, our quantitative analysis shows that in our global economy all
nations are closely interdependent through expanded trade andvertical division of labor in the manufacturing industry, so-called
GVCs, which is also expanding. Rising trade friction between the
United States and China would affect not only the two superpowers
18 Japan SPOTLIGHT • September / October 2019

Shujiro Urata

Mineko Ota

but also Japan and the rest of the world because of thisinterdependency.
Second, we strongly warned readers that current trade tensions
could be the most serious crisis for free trade since theestablishment of the WTO. We pointed out rising economic disparity
as the background to the crisis, in that expanding inequality has
provoked the belief that trade is the main culprit of rising income
gaps. We also focused on suspected market-distorting practices by
https://www.jef.or.jp/journal/

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China such as low interest rate financing or subsidies, as well asinternational competition in high-tech areas, as the subjects of ouranalysis. In addition, we have done a number of analyses on how
protectionist measures or trade restrictive measures would affect the
global economy. Our conclusion is that those trade restrictive
measures would affect extremely negatively not only the nations
directly involved in trade wars but also third countries and eventually
the overall global economy. Based on these analyses, we strongly
recommended strengthening WTO functions as quickly as possible
to roll back such protectionism.
Our third point is, against such a background, to recommend theJapanese business community enhance its overseas presence not
only in the manufacturing industry but also in retail and service
industries to avoid too heavily depending upon the manufacturingsector in the international arena or to move towards other growing
markets rather than Asia, such as Africa or Latin America, where
Japanese businesses are not yet fully active.
JS: Thank you for your introduction. I think a major point is how to
respond to protectionism. The first issue is how protectionism is to
be interpreted in the context of GVCs. Dr. Inomata, could you pleasestart the discussion?

Current International Relations to Be
Revisited in the Context of GVCs
Inomata: GVC studies have shown notable development in the last
10 years or so. They aim to capture the dynamics of global
production systems evolving from the time of the Industrial
Revolution. In the 19th century, a country exported products whichwere produced within its national borders using only domestic
production factors. However, thanks to the rapid advancement intransportation modes and information and communication
technology, production systems have undergone significant changes
in recent years. Consider the case of producing a shirt; theproduction process can now be fragmented into designing by a
Milanese designer, patterning by a tailor in London, and final massproduction at a factory in Dhaka, in a way that each task istransferred to the place where it can be performed most efficiently.
In line with the fragmentation of production processes, many
developing countries, notably China and Asian Newly Industrializing
Economies (NIEs), have achieved remarkable economic growth. Thisis because GVCs allow individual countries to choose and specialize
in particular segments of a production process as appropriate for
their own technological levels, and hence enabling them to produce
even a high-tech product such as a smartphone at the global scale.
At the same time, it also generated an intense competition overvalue chains between developed and developing countries. As seenin the US-China trade friction as a symbolic example, there is a
growing disharmony of views on how production should be sharedacross borders. Developed countries fear that their domestic jobs,
especially those using unskilled labor, will move out to developing
countries in search of a cheap labor force, while developing
countries are worried that their economies will be “locked in” to thelow value-added segments of supply chains. As a result, we observea rise of protectionism in developed countries, on the one hand, andaggressive industrial promotion in developing countries, on theother. I would call this phenomenon the “New North-South Divide” inthe age of globalization, which is indeed nothing but a battle for value
chain dominance from the GVC perspective.
Urata: The critical question is the speed of such transformations.
The drastic change in international division of labor has happened
only in these last two or three decades. As Dr. Inomata mentioned, indeveloped nations the demand for unskilled labor is decreasing,while the demand for skilled labor or experts is increasing and thus
the wages of the former will be lowered and the wages of the latter
will rise. This results in increasing income gaps. I would also like topoint out that some capitalists are earning tremendously high profits
in this system. I think it would be better to think about them inreferring to increasing income gaps caused by GVCs, in addition to
the gap between skilled and unskilled labor.
Inomata: Returns on capital became extremely high. GVC-driven
globalization is indeed a process in which capital factors of advanced
countries coalesce with unskilled labor factors of developing
countries. This has a rather ironic implication for the US government
that, in the light of protecting the benefits of US global firms, theanti-China campaign is quite self-contradictory in the line of GVC
logic.
Urata: In a situation where the US-China trade war is intensified andChina finds it difficult to export its products to the US, will GVCs bereconstructed to exclude China? Or, in the case of goods being
produced and sold only in Asia, would there be a regional value chain
instead of GVCs to take advantage of the big market in China?
Inomata: I am not sure if supply chains will be continuallyreconfigured in a way that production bases are shifted amongdeveloping economies, from China to other Asian countries, forexample. Rather, I am more concerned about reshoring (or nearshoring) of production capacities back to advanced economies,
which is made possible by the introduction of new technologies suchas automated robotics or additive manufacturing (3D printing).
Nakatomi: The big issue is that international rules and domestic
regulations are not keeping up with the rapid progress of innovation.
Without the relevant rules and regulations, business will not gain thefull benefits of GVCs brought about by new technologies. In thedigital economy, we have such issues as privacy and consumer
protection, localization of data and IPR protection. We welcome the
Osaka Track established by the G20 Summit in Osaka in 2019 where
the G20 countries declared they would start a rule-making process
for the digital economy. But it is still uncertain where we should
resolve this question. If we cannot achieve it and fail to catch up withthe reality of such rapidly progressing innovation, there would be aworld without disciplines where the more powerful will dominate
against the interests of the others.
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Inomata: I share that concern. In particular, in relation to thecompetition over future digital platforms, 5G, between the US andChina.
Kurose: There are products that only China can produce and not
Vietnam or any other place. I think many Japanese manufacturing
companies would have no way but to maintain their production in
China or some companies may even invest more in China.
Urata: I think the growth rate of Japanese business investment in
China is now lower than before. This is because of rapidly rising
wages in China due to a labor shortage as well as US-China trade
friction. I think there are many Japanese firms transferring theirproduction bases from China to Vietnam or some other Southeast
Asian countries.
Another question is the possibility of lost job opportunities
increasing in developing countries as production bases would be
returned to developed nations due to labor-saving technologicalinnovation, as Dr. Inomata mentioned.
Inomata: While labor costs are rising in developing countries,
Industry 4.0 (the Fourth Industrial Revolution) is under way inadvanced countries, making a human labor force less attractive.
Accordingly, lead firms in advanced countries will find it increasingly
expensive to move their production bases to developing countries.
This may bring an additional divide to a group of developing
countries, between those which managed to dodge or get out of the
middle-income trap by introducing new technologies and thosewhich have failed to do so.
Kurose: That is true. I think developing nations are today
increasingly keen on promoting innovation by strengthened patent
protection against such a background.

Background to Rising Protectionism –Chinese Market Distorting Policy Measures& Business Customs
Kurose: There is a research report issued by the USTR in March2018 in accordance with the US Trade Act, Article 301. Among thefour points mentioned in the report, there is a claim that the Chinese
government is unfairly accessing through hacking US companies’
computer networks to obtain confidential data including intellectual
properties, technological data, trade secrets, etc. This has led to FDI
restrictions but at this moment the restrictions are modified. There isalso a claim that the US companies are forced to transfer theirtechnology to Chinese companies if they are doing business in
China. This is a matter of business customs and not a matter ofregulation, as a few remaining regulatory problems were all
eliminated by the Chinese government soon after the publication of
the USTR report. So what the USTR pointed out as issues in thereport do not exist anymore explicitly, though there could be someissues to be resolved in terms of business customs.
The largest issue for Japanese companies is that Chinese law
20 Japan SPOTLIGHT • September / October 2019enables Chinese companies to improve the technology brought
about by overseas companies. “Improvement” is not clearly defined
and thus a mere change of design could be interpreted as
improvement. One big issue was the Japanese Shinkansen. The
Japanese initially thought they could win orders from China byteaching them the technology. But the Chinese improved it and got
many patents for the improved technology, since the Japanesetechnology is basically just know-how that is not patented. They cansell these improved technologies even to the US or other nations.
There were also some regulations enforcing technology transfer,
such as enabling a licensee to continue to use the borrowed
technology even after the termination of a technology license
contract. However, those were eliminated after the publication of the
USTR report.
China, at the beginning of economic reform in the 1980s, pursued
the import of technologies from overseas and digested and absorbed
them. Around 2006 and 2007, they changed direction to recreationand improvement of the borrowed technologies. And thus we see adrastic increase in patent applications.
Another important issue is technical standards. We would have toapply Chinese domestic standards to our products manufactured in
China for the big Chinese market. There was a case of a law suit a
couple of years ago in which Sony Inc., being required to use a
Chinese technology based on Chinese standards for selling theirsmartphones in China, lost to a Chinese company with a patent for asmartphone telecommunication system based on Chinese standards,
and Sony had to pay them a license fee.
Finally, as the US often points out, China is promoting unificationof military technology and private business technology as the latterhas been well developed. Thus, today, private businesses in China
are now working on military technology development. Patentapplications for national defense-related technologies which should
be received by the National Defense Patent Office are increasing.
When the Chinese authorities assume a specific technology is anational defense-related one, it would be categorized as such.
In the case of those technologies, the patent applications are notopen and thus for example in the case of 5G or othertelecommunication systems, we would eventually find existing
patents in China which are not known to us.
Chinese patent applications based upon the Patent Cooperation
Treaty (PCT), those to be applied abroad, continue to increase every
year. In particular, Huawei has so many patents based on PCT.
Huawei could bring law suits in the US by using those patents.
I think what bothers Japanese businesses most today on thisissue is that they would not be able to achieve joint research or otherjoint activities with a Chinese company if the US expels Huawei fromglobal business or starts more serious economic sanctions against
China. The case of development of a driverless car would be the one
possibly most seriously affected by this. Without joint cooperation
with Chinese companies, its development would be significantly
retarded. Ultimately, we will need global rules to mitigate theseconcerns.
Nakatomi: On the question of global rule making, the Agreement on

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Trade-Related Aspects of Intellectual Property Rights (TRIPS) is
beyond the scope of the Doha Round negotiations. This was adecision strongly supported by the US, but it must have made thewrong decision. If there were loopholes in global rules then, WTO
members should have initiated global rule making first, and it shouldhave addressed its claims in accordance with those rules. I
understand the US made a big mistake.
Kurose: TRIPS is annually reviewed by the WTO to see that members
are observing the law. However, the technologies covered by thereview are now rapidly changing and reaching much higher levels
than before. Digital technology is one example. In this light, weshould elaborate the rules on TRIPS, but many developing countries
and recently the US are not ready to do so.
Nakatomi: This is probably because it thought it would be difficult toreach a consensus to further improve the agreement in the WTO.
However, no matter how difficult it may be, all nations should dotheir best to revise the basic global rules on it. At this moment,
without such efforts, we see great ambiguities concerning rules andtheir implementation. I think that is a big problem.
Kurose: The TPP covers the issue of Intellectual Property Rights(IPRs), but TPP11 fails to cover it. The RCEP does not have any
binding rules on IPRs. Thus, unfortunately, the rule-making process
for the IPRs does not seem to be working well.
Nakatomi: I was in charge of negotiations on the Anti-Counterfeiting
Trade Agreement (ACTA) on behalf of the Japanese government. Thiswas successfully concluded at the Quadrilateral Trade Ministers
Meeting in October 2010 in Tokyo but due to opposition by European
NGOs it could not be implemented. I share the view that the major
nations should work together for global rule making to avoid a power
game.
Urata: In China, is the issue of intellectual property rights now
considered critical among Chinese companies? If so, we can be
more optimistic in regarding China as rule abiding on intellectual
property rights.
Kurose: Japanese businesses now believe that Chinese regulations
on intellectual property rights protection are much improved and the
US Bar Association also has the same evaluation. They are adapting
well to rapid technological progress.
Inomata: Prof. Richard Baldwin, a distinguished trade economist,
advocates for regulatory convergence and the establishment ofcommon norms for 21st century global governance. Can China
conform its own domestic rules to them?
Kurose: We do not have common rules now. China complements theincomplete WTO/TRIPS rules by its own domestic laws for digitaltechnology.

Inomata: Without common global norms, there is a danger that two
economic superpowers may pursue the entrenchment of their own
specific rules, which would lead to system bifurcation andpolarization.
Kurose: On the issue of patents, harmonization of rules is critical.
Between China and Japan, their patent specialists have been closely
working together to have common judging criteria for patent
protection. Thus what is acknowledged as a patent in Japan will not
be rejected by the Chinese.
Inomata: The number of China’s patent applications is remarkable.
However, in view of the “quality” of the patent applied for, can we still
say that China has significantly accumulated technological capacity
over time?
Kurose: It is certainly true that though they have so many patentapplication cases, there are many for applied technologies rather
than basic ones. But against the background of an overwhelmingly
large number of patent applications, the Chinese could win many law
suits.
Nakatomi: Regulatory convergence is also an important issue. The
WTO and Regional Trade Agreements (RTAs) cannot meet the needsof new rules reflecting the rapidly progressing technologicalinnovation at this moment. In this situation, unless regulatory
convergence is promoted sector by sector, business itself could becritically affected. We will need to utilize all the policy tools available
and work together for a solution of this issue. On the issue oftechnology, I think we should eventually integrate the results of all
those efforts into the WTO framework in the future.
Inomata: On regulatory convergence, strong leadership by advanced
countries is the key for making common rules. For example,
advanced countries may request developing countries to engage indomestic reforms in exchange for capital transfer (foreign direct
investments (FDI)). Prof. Baldwin once described it as “my-factoriesfor-your-own-reform” strategy.
Now, such a strategy is effective only if there is a huge difference
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in bargaining power, largely based on the amount of disposable
capital, between developed and developing countries. In the near
future, however, newly emerging superpowers such as China or India
are likely to find the deal less attractive since these countries may
have built up sufficient production capacities by then, so that they
can afford not to give in to such a bargain. The terms of trade foradvanced countries will rapidly deteriorate as time goes by. So howquickly we can realize common rules is an issue of particularimportance.
Nakatomi: It is certainly true that regulatory convergence could be
increasingly difficult to achieve today. But, first of all, it isindispensable to achieve collaboration among developed nations on
this. At the same time, it will also be important for us to convince
developing nations of the merits of regulatory convergence inpromoting their own economy with the introduction of newtechnologies. Otherwise all of us would be losers. This must be
understood by all.
Urata: I agree with you, but we should not forget that large market
nations like India and China might have the illusion that their markets
are sufficiently large to attract FDI even without regulatory
convergence. These countries should realize that regulatory
convergence would not only attract more FDI but also facilitate theircompanies to expand their business abroad.
Nakatomi: The WTO has failed to achieve a global consensus on
making rules on such important issues as trade and investment, ortrade and environment, both of which were initially adopted as partof the agenda of the Doha Round.

Consequences of Rising Protectionism
Provoked by US
Nakatomi: Protectionism is contradictory to GVCs and nullifies the
merits of international trade. It also damages the stability ofinternational trade rules and the predictability of business.
Protectionism can be simply defined as a violation of theinternational rules embodied in the WTO. Looking back at the historyof the development of international trade rules, we can find thebackgrounds and reasons for today’s rising protectionism.
In 1995, with the establishment of the WTO, the prohibition of
unilateral measures and an enforced dispute settlement mechanism
were introduced. The adoption of panel reports by negative
consensus (meaning a report will be adopted unless all member
nations unanimously oppose it), and clarification of retaliation
procedures against violations of WTO rules were also introduced andall member nations must generally observe the same rules, except
for “special and differential treatment” for developing nations. Rulemaking in the WTO peaked around 1997, as shown in the achievedagreements on information technology (ITA) in 1996 andtelecommunication and financial services in 1997. Since then, theonly multilateral agreement was an agreement on trade facilitation in2017.
22 Japan SPOTLIGHT • September / October 2019

Consensus in principle, an enforced dispute settlement
mechanism, single undertaking (meaning all member nations inprinciple are obliged to follow the same rules), and definition of adeveloping country by its own announcement – these WTO
principles have made it extremely difficult to carry out rule making in
the WTO. The possibility of a free ride for developing nations, Special
and Differential treatment for developing nations, andinstitutionalized retaliation against violations of WTO rules have all
made it difficult for the WTO to do decision making and rule making.
Since around 2000, regional trade agreements (RTAs) havebecome the main tools for trade liberalization and rule making. In
recent years, mega-FTAs such as TPP11 and the Japan-EU FTA, havecontributed to rule making and trade liberalization. WTO rules havebeen basically on border measures and have not been able to keep
up with the changing reality of international trade and business after
1993 when the Uruguay Round reached a consensus in substance.
For example, revisions of the General Agreement on Trade inServices (GATS) or TRIPS rules or in-depth exploratory studies of
those agreements in the light of reality have not made good progress
and new rules could not be adopted on important new issues suchas trade and investment, trade and environment and e-commerce.
The issue of IPRs that the US considers critical in US-China trade
friction was even beyond the scope of Doha Round negotiations thatstarted in 2001. Such an unfortunate historical background has
generated significant energy for an explosion of protectionist
measures today.
It is extremely difficult to try to respond to today’s complex tradeissues only with the interpretation of the principles adopted by the
WTO in 1995. It is true that judicial processes cannot work without
appropriately functioning legislative processes. Thus, it was foreseenin advance that the WTO dispute settlement mechanism would beparalyzed, assuming that the details of the rules were not clarified
and developed.
Therefore, I believe that restoring and strengthening the functionof international trade rule making is indispensable to mitigate risingprotectionism. The best venue for this must be the WTO and if it is
not possible, we should try to do it in plurilateral agreements or
RTAs. Of course, we must commit to preventing proliferation ofprotectionist measures and avoid using the paralysis of the WTO’s
rule making functions as an excuse. In this regard, the G20’s
message of doing its best to realize a “free, fair, non-discriminatory,transparent, predictable and stable trade and investment
environment” and keeping markets open is crucial, though notenough. In particular, proliferation of protectionist measures, using
national security as a blanket exclusion clause, will be criticallydangerous to the global trading system.
For Japanese industries that have achieved progress based on free
trade and GVCs, proliferation of protectionist measures will have aserious impact. Decoupling of supply chains and rules ofinternational trade would create a difficulty in responding to thecrisis. Decoupling of supply chains would be a disaster for all
nations’ industries. I think the White Paper’s analysis of the impacts
of protectionist measures is very significant.

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Urata: I would like to point out that protectionist measures are
increasing not only in the US but also elsewhere. For example, at the
global level, anti-dumping measures considered to be Non-Tariff
Barriers (NTBs) are increasing. The reason for this increase at the
global level is that more and more people are suffering from thedemerits of globalization, such as those working in the Rust Belt in
the US who have been robbed of job opportunities by globalization.
There is research done by a group of distinguished economists
proving several million jobs have been lost in the US due to imports
from China. This finding has been used to justify protectionist
measures. However, the researchers recommended raising mobility
in the US labor market rather than protectionist measures so that thedamage to labor due to the imports would be mitigated. Trade
Adjustment Assistance, expected to encourage such labor mobility,
should be effectively employed.
I believe, the demerits of globalization may as well be resolved notby protectionism but by a more flexible labor market or better
functioning of market mechanisms. However, there are of course
political issues behind protectionism, as advocates could win
political support from those workers exposed to immediate threats
from imports.
On the issue of the impact of a trade war on the global economy,increased uncertainty will definitely discourage trade and investment,
slowing down economic growth. A number of quantitative analyses
using a general equilibrium model show a negative impact on thenations waging a trade war, in this case the US and China, but apositive impact on the rest of the world due to trade diversion
effects. For example, with the decline of Chinese exports to the US,
Japan could enhance its export opportunities to the US, partly
replacing that decline.
On the other hand, a macroeconomic analysis like the IMF’s World
Economic Outlook shows that global GDP growth will slow down due
to further intensification of the US-China trade war. This would
negatively affect Japanese business as well. I think while the generalequilibrium model is only static and does not take account of
uncertainties due to the trade war, the macro approach shows animportant aspect of the conflict, namely a negative impact overall
upon the global economy.
In order to cope with protectionism, first of all, I think Japan
should clearly explain to the US and China that all nations would bedamaged by a trade war. Second, assuming that US protectionist
measures would be adopted against unfair Chinese trade practices,
the US should work with Japan and European nations together tocorrect Chinese practices and not alone. That would, I guess, lead toa WTO rule-making process. Japan should convince the US of theutility of this approach and should advise China to observe
international rules and understand well that observing them would
have an extremely favorable outcome in the long run.
Lastly, I would like to stress the importance of maintaining andexpanding a rules-based trade and investment environment toachieve global economic growth. Specifically, for Japan it isnecessary to expand membership of TPP11 founded under Japaneseleadership. It is also important to conclude other Asian-based megaregional FTAs such as the RCEP or the China-Japan-South Korea FTA

as promptly as possible.
Inomata: The research paper that Dr. Urata mentioned demonstrates
only a negative impact of China’s exports on US employment.
Apparently, there is also a positive impact from supplying low-costintermediate inputs to US firms, which raises their productivity. The
aforementioned research does not shed light on this point.
Urata: Yes, I agree with Dr. Inomata. Another factor that is often
missed in the analysis is positive impacts on US exports to China.
Though US imports from China are five times as large as US exports
to China, the growing Chinese market could be part of the reason forgrowth in US jobs and production. Thus it would be misleading if we
analyze only the impact of Chinese exports to the US. On theeconomic impact of Chinese exports, I am now conducting researchon the impact of Chinese exports to Japan on the Japanese
economy. My preliminary research reveals that the damage is seen
as a decline of jobs in Japanese small and medium-sized enterprises(SMEs).

How to Revitalize Multilateral Trading
System & What Would Be Japan’s Role?
Urata: In the WTO, rule-making negotiations have not been working
at all and the existing rules are outdated, and the dispute settlement
mechanism is not working well due to the outdated rules. But nocountry has ever started an action towards WTO reform, eventhough all nations mention the importance of WTO reform.
Its unanimous consensus-based decision making has made it
impossible for the WTO to initiate any flexible action for fixing trade
frictions. To make a breakthrough on this, as Mr. Nakatomi
mentioned, there are two alternatives: one is plurilateral agreements
on rules on specific issues to be decided by a voluntary group ofnations, and the other is RTAs and FTAs, in which fewer nations thanin the case of plurilateral agreements get together and create aframework of comprehensive agreements such as the CPTPP. It is
important to expand the membership of such RTAs or FTAs. With
these two categories of agreements expanded, we would eventually
upgrade and modernize the WTO. To carry out such an approach, thefour important players – the US, China, Japan, and the EU – have tocome to an agreement.
Nakatomi: I think the WTO’s comprehensive regime for supporting
free trade and its dispute settlement mechanism are unique andcannot be replaced. Nobody could stop rapid technologicaldevelopments and resulting changes in international trade. The world
without the WTO would be a world without rules and only the winnerof the power game could dominate, and thus a variety ofdisharmonies and inconsistencies would proliferate. Until the WTO isback in the driver’s seat, it is necessary for the time being to promotesimultaneously plurilateral agreements, RTAs, regulatory
cooperation, and strengthened alliances with other internationalorganizations. It would, however, be critical to secure the WTO as thebasic venue of multilateral trading systems. In this regard, it isJapan SPOTLIGHT • September / October 201923

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important for the G20 to perceive the need for WTO reform. It will be
indispensable for the reform to tackle its decision-making
mechanism to restore its legislative function.
As to what can be done immediately, I think strengthening
notification procedures and securing transparency including stronger
penalties for violations, utilization of regular committees andconfirming implementation of existing rules and strengthening them,including in particular the rules on subsidies covering State-Owned
Enterprises (SOEs), is important.
As for the role of Japan, it is important to lead WTO reform on
restoring legislative functions and securing judicial functions,
including solutions to the issue of the Appellate Body which has
played a key role in dispute settlements at the WTO. Japan should
also work to promote plurilateral initiatives and RTAs to maintain free
trade and GVCs. Possible plurilateral initiatives can include those on
digital trade and rules on subsidies. As for RTAs, expansion ofmembership of TPP11 and conclusion of the RCEP should beaccelerated by Japanese initiatives.
The WTO is a lighthouse leading global trade. We must not turn off
the light. I believe the role of Japan is significant in the midst of the
trade war between the two superpowers.
Kurose: In the domain of technology, international standardization is
the most crucial issue. For example, without having global standards
for chargers, electric cars cannot be exported. In the case ofdriverless cars, we would have to decide on a global standard on
telecommunications. There is what we call standard-essential patentclaiming, meaning that an invention must fulfil some specifictechnical standards. In some cases we must use it. We would needto set up license rules as well. We will not be able to wait for a WTO
decision under rapid technological progress. Developed nations havealready started discussions on these matters. Thus, I think rulemaking efforts are making good progress in the domain oftechnology.
Urata: In order to encourage the US to return to free trade, theintegration of the CPTPP and the EU-Japan FTA could be a good idea
for Japan to promote. Another point is to restore the WTO’s
credibility, and the WTO’s secretariat functions such as researchneed to be expanded.

Final Comments on Global Economy& Free Trade
Inomata: I pay close attention to the issue of how new technologies
will impact globalization. As I mentioned earlier, some sorts oftechnological innovation are causing a shift of production capacities
back to advanced countries away from developing countries, giving apoorer prospect for economic development of the latter. The
technological progress in this direction may dampen the
globalization momentum.
On the other hand, the digitalization of production processes, suchas e-commerce, FinTech, or “virtual presence”, can offer huge
opportunities to firms/individuals in developing countries for joining
24 Japan SPOTLIGHT • September / October 2019

GVCs through advanced communication networks. This gives afurther leverage to GVC expansion. Whether or not GVCs willcontinue to develop depends on the net impact of these opposing
forces. The issue of inequality, domestic or international, is then up
to how technologies work for GVCs.
Kurose: About China, it is such a vast country and there are huge
gaps in development among the regions. In terms of intellectual
property, Shenzhen, the most advanced place, has 47% ofinternational PCT patent applications in China, while there are someunderdeveloped regions with no PCT patent applications at all.
Inequality of wealth has been rapidly increasing among the regions.
The Chinese government has carefully addressed the existence ofregional disparities in the country. At the same time, in order tostrengthen international competitiveness, the government is
promoting policies to promote further development of advanced
regions. Most Chinese seem to support the current policies of theadministration.
Nakatomi: We can stop neither globalization nor innovation. But wemust be aware, for example, that digital technology can introduce
such problems as privacy and consumer protection, competition
issues and digital divide, while it can bring enormous benefits to allusers and countries. We will need to find solutions to these
consistent with globalization. Development of GVCs means that no
single country will find solutions on its own, so we will need tocontinue our best efforts for international rule making without falling
into protectionism. Japan has a responsibility to pursue this and thatwould protect Japanese industries’ interests.
Urata: We would have to think about mitigating the income gap andhow all people could benefit from economic growth andglobalization. One way to achieve it is redistribution of income andassets. However, redistribution policy could hamper economic
vitality and dynamism. A better policy would be to support
disadvantaged people or groups, in order for them to be able tobenefit from globalization and economic growth. For example, SMEs
may be given technical assistance so that they can effectively use IT
to be engaged in GVCs, while women could be given appropriate job
opportunities to maximize the use of their talent and skills.
Kurose: I would like to add one more thing. In the domain of IPRs, it
is highly critical to create new international rules. It will be necessary
to elaborate TRIPS. I sincerely hope that international rule-making
efforts to meet the present levels of technology will be promoted
without fail. Otherwise, we will see disastrous confusion.
JS: We must ask Ms. Ota, who is now in charge of METI’s APEC
Office, to help activate the international rule-making process toachieve what her White Paper envisaged.

Written with the assistance of TapeRewrite Corporation.