Aug 26, 2009 20:47 JST

Source: JETRO

JETRO Releases its 2009 White Paper on International Trade and Foreign Direct Investment

TOKYO, Aug 26, 2009 - (ACN Newswire) - The Japan External Trade Organization (JETRO) released its 2009 "White Paper on International Trade and Foreign Direct Investment (FDI)." Below are some of the highlights of the report, including strategies for Japanese firms.

Global economy approaching a bottoming out

Since September 2008, economies across the globe have been in simultaneous recession. Real global GDP growth for 2008 was just 3.2%, the lowest level since 2005, and the first contraction in the post-war era is expected for 2009. And while there are signs of a bottoming out, downside risks remain, as the financial system has not yet fully recovered and economic and currency crises are hitting some developing countries.

Global trade growth slows to 3.8% on a real basis

According to JETRO estimates, global merchandise exports (nominal value) grew by 14.9% year-on-year to US$15.9 trillion in 2008. On a real basis, global merchandise exports grew by only 3.8%, its lowest level since 2001. In the first quarter of 2009, the total value of merchandise exports for 17 major countries/regions (Australia, Brazil, Canada, China, France, Germany, Hong Kong, Japan, the Philippines, the Republic of Korea, Russia, Singapore, Switzerland, Taiwan, Thailand, the UK and the US) dropped 28.4% from a year earlier, the sharpest decline in six years, suggesting uncertainty for a recovery in global trade.

Global inward FDI drops by 25.0%

In 2008, global inward FDI declined 25.0% from a year earlier to US$1.83 trillion (based on JETRO estimates; net, flow, balance of payment basis), while the total value of global cross-border M&As was also down 25.0%, to US$1.21 trillion. Both figures registered their first decline in five years, reflecting the difficult funding/credit environment and decreased investment capacity of businesses. Another decline seems unavoidable in 2009, as the total value of cross-border M&As fell by 64.5% in the first half of the year.

Japan's trade surplus declines sharply; FDI grows steadily

Japan's trade surplus (customs clearance basis) contracted by 78.4% (year-on-year) to US$19.8 billion in 2008, due to a slowdown in exports (rise of only 8.9%) and a surge in imports (up 21.7%). Meanwhile, Japan's income account surplus rose to US$152.5 billion, outpacing trade surplus for the fourth consecutive year.

The country's outward FDI (net, flow, balance of payments basis) grew 78.0% to US$130.8 billion in 2008, setting a new record for the third straight year. This improvement was led by Japanese firms' increased outward M&A transactions, which are becoming an established part of their growth strategy. Japan's inward FDI also set a record in 2008 (for the second straight year), with the FDI stock level rising to 3.6% of GDP, to reach 18.5 trillion yen.

Some countries turn to trade-restrictive measures in global downturn

As the world economy slid into recession, some countries began to take trade-restrictive policies, including raising tariffs on steel products, introducing import licensing procedures and technical regulations, giving priority to domestic products in government procurement and increasing adoption of trade remedies. Reflecting on this, some points emerge: 1) the WTO is functioning as a bulwark against a tilt toward protectionism, with its binding dispute settlement mechanism; 2) a successful conclusion of the Doha Round is becoming increasingly vital to stem any rises in protectionist tendencies and to expand world trade; and 3) the relative importance of binding and liberalization effects of free trade agreements (FTAs) is growing.

Increasing utilization of FTAs in the Asia Pacific Region

As of June 2009, 171 FTAs were in force worldwide. In the Asia Pacific region, across which Japanese firms have built operation bases, a network of so-called "ASEAN plus 1" FTAs, or FTAs between ASEAN and a neighboring country, has been established. ASEAN has FTAs in effect with China (2004), the Republic of Korea (2007) and Japan (2008), and signed agreements with Australia & New Zealand (2009) and India (2009). Under these FTAs, elimination of tariffs on many items will start from 2010, gradually bringing the region into an era of full-scale FTA utilization.

Widening the scope of international trade

Global talks on trade have expanded to cover broader issues such as "trade and environment," investment and services, government procurement, intellectual property rights and competition. Regarding trade and environment, unhindered trade in environmental goods is called for, along with clarification on relationships between multilateral environmental agreements and international trade rules. The EU has introduced a string of product-targeted environmental regulations, and these are becoming de facto international standards.

For issues being discussed at the WTO on areas such as investment and services, government procurement and intellectual property rights, liberalization as well as strengthening of rules (so-called "WTO-plus" provisions) in these areas have been achieved through plurilateral trade agreements and FTAs. A number of efforts are taking place to strengthen international cooperation on competition and other areas not covered under the WTO framework. Active discussions and rule-making for new trade issues and development of a foundation for multilateral trade rules through FTAs and plurilateral agreements are required as well.

High growth expected in renewable energy and low carbon sectors

The global market value for low carbon and environmental goods and services was estimated at GBP3,046 billion (605 trillion yen) in 2007/2008, equivalent to roughly 10% of the total global GDP, according to the UK's Department for Business, Enterprise and Regulatory Reform. Traditional environment sector areas, such as air pollution control and waste water treatment, account for approximately 20% of the global total, while promising growth sectors such as renewable energy and low carbon comprise 30% and 50% of the total respectively. Renewable energy sub-sectors with particularly high potential include wind power (especially offshore power generation), solar and biomass power generation, and those in low-carbon include alternative fuels, electric/hybrid vehicles and batteries, building technologies, carbon capture and storage systems, energy management and others.

Required measures to help Japanese firms in environment fields expand abroad

According to a JETRO survey, Japanese firms are eager to export environment-related products, while at the same time relatively few have progressed far in overseas production (in this area). For these companies to expand their share in the increasingly competitive global environmental market, they need to build a global sales strategy, including strengthening overseas production. To support Japanese firms' international operations, it is necessary to systematically collect and publicize data on global environmental markets and establish an assessment framework to clarify/identify the strengths and weaknesses of Japanese firms, in terms of environmental technologies, as well as their ability to develop new products and provide services. And finally the government needs to formulate policies to assist Japanese firms based on these findings.

Offering Japanese high value added services at low cost in Asia

In emerging economies, growth in spending on services has been stronger than that on goods. A recent JETRO survey revealed that the Japanese firms in information and contents, construction and other service-related industries have a strong desire to expand sales in emerging service markets, especially in Asia, where demand for high-quality, high value-added services offered by Japanese firms has been expanding. But for these firms to further cultivate this growing market, they need to hire and fully train local talent and develop a business model that allows them to offer high value-added Japanese-style services at lower costs, and targeting the region's emerging middle income group.

International Economic Research Division 
Tel: +81-3-3582-5177 
Source: JETRO

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