President Nogami,
Ladies and Gentlemen,
It is a great pleasure for me to be at the Japan Institute of
International Affairs (JIIA). This year happens to be the 50th
anniversary of JIIA since its establishment by former Prime Minister
Shigeru Yoshida in 1959. Over the past 50 years, as Japan's leading
think-tank on international relations, JIIA has dedicated itself to
researching medium and long-term issues of international political and
security affairs and has played an important role in promoting
communication and understanding between Japan and its partners. I would
like to congratulate you on that.
The challenges facing the world today
The world as Prime Minister Shigeru Yoshida knew it has changed
tremendously. His premiership during the hard post World War II years
was devoted to rebuilding a country which had lost its industrial
infrastructure and which desperately needed economic growth. This was
followed by more than 30 years of spectacular growth during which Japan
became the second-largest world economy. During the mid-90s Japan
suffered a major recession but worked hard to gradually recover.
Today, Japan is one of the leading nations in the field of scientific
research, whether in the field of technology, machinery or biomedical.
Its close to 700,000 researchers share the third-largest research budget
in the world. When one walks around the streets of Tokyo, the port in
Yokohama or Kansai airport in Osaka, one has the distinct feeling of
having entered the next century.
And yet if I look at the policy reports and papers produced by this
institute, the challenges the world faces today — much as those in the
post World War II period — are of a global nature. Whether it is climate
change, energy security or nuclear proliferation, all of them require
some sort of international cooperation to be effectively addressed.
The same is true for the economy and finance. The current economic
crisis is a stark reminder of its global reach. According to current
estimates, world trade will contract by 3 per cent in 2009 and this is,
in my view, a very conservative figure. In fact, trade is dropping
faster than growth which is a reflection of the de-leveraging of trade
which had exponentially increased as a result of production processes,
supply chain management and technology. Trade increased as a multiple of
growth, it will decrease as a multiple of recession.
Foreign direct investment is also falling. A report by UNCTAD reveals
that global FDI inflow is likely to have fallen by more than 20 per cent
in 2008 and will probably decline further in 2009.
In the last three months of 2008, Japan's economy has witnessed a 3 per
cent fall of GDP, a decline equivalent to an annual fall of almost 13
per cent, the deepest drop since 1974. Korea's economy is estimated to
have contracted by 2 per cent, with 200,000 jobs being lost. A recent
Chinese government report shows that about 20 million migrant workers
have lost their jobs since last September.
The reality is that the economic ties of our economies are intertwined
in such a manner that the decline in demand in one region means a sharp
decrease in trade and thus in economic activity and growth in the other.
In response, governments of many major economies have taken action and
have passed stimulus packages aimed at fostering a recovery of their
economies and, through that, of the global economy.
It is encouraging to see that the messages coming out of the recent G7
finance ministers meeting in Rome or that of European leaders this
weekend recognise the importance of the stimulus packages being designed
and implemented in a coordinated manner.
For policy makers, the major concern is about how long and deep the
downturn will be. I believe the task ahead of us is twofold.
Short term the focus must be on restoring confidence in the financial
system so that it can lubricate the wheels of the economy again. In
essence, this means tackling bad debts and restoring credit. This is
urgent, and my sense is that as long as the view is that cleaning up the
financial systems remains to be done, there will be no turning point in
the present crisis. If my reading of the numbers of the IMF and the
Financial Stability Forum is correct, we are not even half way.
As this happens, it must also mean giving the relevant multilateral
organizations the resources needed to help countries confront the crisis
today. Regional Development Banks must be re-capitalised. The financial
resources of the IMF need to be expanded. Countries need to join in the
Vulnerability Fund proposed by the World Bank to help out the poorest.
And I want to stress this is for today and not for tomorrow or for next
month. I have discussed these issues with the Japanese leadership today
and I know they are ready to lead on these fronts, as evidenced by the
resources Japan has lent to the IMF. And I know the Japanese leadership
is ready to carry this message to the upcoming G20 leaders' summit.
Longer term, the goal should be to establish a comprehensive regulatory
framework for financial activity; one that provides a stable,
transparent and accountable system; one that reduces risks without
crippling this vital economic activity. And, above all, one which
restores citizens' faith in an open world economy, working for growth
and employment.
How trade fits into the picture both short and long term
In the current economic uncertainty, I see three risks facing the
multilateral trading system which I feel need to be addressed urgently.
The first is the risk of increased trade protectionism. The risk is that
trade is lumped together with the elements of the Washington consensus
which have failed, such as deregulation, and that the baby is thrown out
with the bath water.
Last November in Washington, the G20 Summit underscored the critical
importance of rejecting protectionism and not turning inward in times of
economic uncertainty. Leaders agreed to refrain from raising new
barriers to investment or trade, or from imposing new export
restrictions within the next 12 months.
As the guardian of world trade, the WTO has a unique role in ensuring an
open, transparent, predictable and fair global trading environment. We
have already started monitoring measures taken by members in the context
of the crisis. The picture is a sober one: so far there is only limited
evidence of isolationist moves. However, as the crisis deepens we need
to remain alert.
The G20 London Summit in April should be an occasion for these leaders
to hold each other accountable over that pledge and through this to keep
isolationist pressures under control.
The best insurance policy against isolationist pressures is to
strengthen the global rules-based system through the conclusion of the
Doha Development Round of negotiations.
Completing the Doha Round is the lowest-hanging-fruit global solution
available to the international community. It would provide a boost to
the economy. It would demonstrate that governments are ready to put
their money where their mouths are. And it is within reach. I therefore
hope that the London G20 summit sends a clear signal of the leaders'
commitment to rapidly concluding the Doha Round.
The second risk is the drying up of trade finance. Trade volumes have
dropped significantly, not only because of a fall in demand but also a
lack of trade finance.
At a meeting with providers of trade finance hosted by the WTO last
November, the shortfall in credit for trade was estimated at US$ 25
billion. The response initially focused on providing guarantees for
trade credit. The World Bank/IFC announced a tripling of the ceiling, to
US$ 3 billion, of its trade finance guarantees. Regional Development
Banks, including the Asian Development Bank, also stepped in. However,
three months later the problem of a lack of liquidity persists.
The WTO is working with the World Bank, with the IMF and with export and
import institutions to try and create a liquidity pool to address this
constraint. I hope that countries that have the capacity to do so can
contribute to this initiative which should be set up without delay.
Here again, I must commend Japan for stepping in rapidly in this area
with its recent announcement of US$ 1 billion to support trade finance
through the IFC and the Asian Development Bank. Japan has also been
instrumental in setting up the Asia-Pacific Trade Insurance Network
which was announced at the APEC summit to promote reinsurance
cooperation among regional export credit agencies.
The third risk is that, confronted with the crisis, donors decide to
default on their development aid commitments. This is the time for the
donor community to honour its promises on Aid for Trade to help the
poorest countries take advantage of trade by improving their production
capacities.
Japan has traditionally been generous in its contribution to
development. Just recently, Prime Minister Aso announced that Japan
would provide US$ 17 billion in aid to help Asian countries to weather
the current storm. I hope that part of this aid will go to Aid for Trade
projects. We will have an occasion to review this during the Second
Global Aid for Trade Conference that I will be hosting at the WTO at the
beginning of July.
WTO and the Doha Round are vital for Japan
This is the time to invest in the WTO and strengthen the global
rules-based system which has so carefully been constructed over the last
60 years. Strengthening the multilateral trading system is in Japan's
interest, given Japan's high dependence on trade for its economic
growth. I was just looking at the figures which show that over the last
five years up to 2007, the share of Japan's exports on its GDP grew
faster than that of imports. The Japanese economy has thus become more
dependent on net exports.
The WTO remains Japan's most important platform for securing a
favourable global trading environment and the Doha Round continues to be
the most efficient means to achieve large-scale market opening for
Japan.
What can a successful conclusion of the Doha Round bring to Japan? I
know that this is a question that many of you ask. First, it will bring
better market access conditions for Japan. Average tariffs would be
halved as a result of the round. This would mean saving in tariffs of
over US$ 150 billion annually once the Doha Round is fully implemented.
This is without the new trade flows which would be created as a result
of tariff cuts.
Services is another area which holds promise for Japan. The signalling
conference that we hosted last July gave encouraging signs of the
potential this negotiation holds in this important area; not to mention
trade facilitation or disciplines on anti-dumping, on which Japan has
spent a lot of its energy.
Of course, Japan will face pressure from other WTO members to further
open its agricultural market and to accept new disciplines for fishery
subsidies. I understand this is a difficult decision at home and that it
will take some time. But I just want to assure you that this happens
everywhere. It is not easier for the US or European Union to reduce its
agricultural subsidies or for the Chinese government to reduce its
industrial tariffs further. Multilateral trade negotiations are a give
and take, no country can ever get everything it wants, and no country
will lose everything without returns. Eventually, a delicate balance of
rights and obligations will be reached.
Concluding remarks
In conclusion, as this Institute celebrates
its 50th anniversary, it remains for me to remind you that Japan, as the
second-largest economy in the world, and the fourth-largest exporter,
has benefited greatly from the multilateral system. In these difficult
times, it requires significant players like Japan to show responsibility
and leadership in forums such as the G20 and APEC. I am convinced that
Japan will live up to these expectations.
Thank you for your attention.
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