To cope with intensifying competition with China amid a prolonged economic slump at home, Japan should actively woo foreign direct investment and become more efficient, according to the White Paper on International Trade 2001 released Friday.

The annual report, submitted to the Cabinet by the Economy, Trade and Industry Ministry, does not touch directly on Japan’s import curbs on some Chinese products, but it warns against the indiscriminate use of antidumping measures.

China’s emergence as a manufacturing center has moved East Asia into an era of intensified competition, according to the annual report.

China is breaking the conventional industrial structure in the region by developing both labor-intensive and technology-oriented industries at the same time, intensifying competition with Japan.

The rivalry between the two Asian powers has been underscored recently by a trade row following Japan’s imposition of emergency import curbs on certain Chinese products after domestic makers complained about surges in imports.

Last month, Japan for the first time slapped emergency import curbs under the World Trade Organization’s safeguard mechanism on three farm products from China.

To survive the competition with China, the report urges Japan to aggressively use direct investment from overseas companies to make corporate management more efficient.

Although foreign direct investment to Japan has increased in recent years, its amount is very low compared with that of the United States and European countries, the report says.

The report cites statistics that in 1999, direct investment to Japan accounted for only 1.5 percent of the total direct investment in the world, compared with 31.8 percent to the U.S. and 35.2 percent to the European Union.

The contribution of foreign direct investment to the Japanese economy, such as employment and research and development, is thus limited, according to the report.

In addition, the report notes that American and European companies actively use mergers and acquisitions to gain global competitiveness.

The report also urges Japan to shift its trade policy from addressing trade friction in the late 20th century to constructive rule-making for the global market.

The annual report attributes the country’s prolonged economic slump of the past decade to Japan’s diminishing ability to reform itself.

Japan has, for instance, failed to maximize the benefits of information technology, compared with Europe, the U.S. and other Asian economies, the report says.

The report for the first time takes up the disadvantages caused by globalization, including the damage to the environment and the loss of jobs, a ministry official said.

To cope with those disadvantages, the report calls for the development of safety nets and for the negative development in the process of rule-making to be taken into account. The report also points to the need to accept diversity among countries and take a flexible approach toward international rule-making.

Economic diplomacy

PARIS (Kyodo) Takeo Hiranuma, minister of trade, economy and industry, and his South Korean counterpart met Thursday and agreed that the diplomatic rift triggered by the Japanese history textbook issue should not affect economic ties, Japanese officials said.

Hiranuma and Hwang Doo Yun met on the sidelines of the two-day ministerial conference of the Organization for Economic Cooperation and Development, which ended Thursday.

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