APEC Economic Leaders' Meeting

1. What do you think will be discussed in the APEC Economic Leaders' Meeting scheduled for the first week of September in Vladivostok, Russia?

     The Asia-Pacific Economic Cooperation (APEC) is a forum of 21 countries and regions in the Pacific Rim seeking economic cooperation. It engages in various activities oriented towards liberalizing trade and investment and promoting business and economic and technological cooperation.

     Four priority issues are set for the APEC 2012 meetings: trade and investment liberalization and regional economic integration; strengthening food security; establishing reliable supply chains; and, last but not least, intensive cooperation to foster innovative growth.

2. The term "supply chain" refers to a series of activities from the procurement of raw materials to the delivery of finished products to end-users through processing, distribution and sales. What problems do we have in terms of the supply chain?

     Except countries such as Japan, which import crude oil or ironstone, for example, and export petroleum or steel products, a supply chain used to be confined to one country. Nowadays, it has widened and networked across borders. International trade ties up such cross-border activities. At present, not only finished products such as television sets and automobiles but also materials, parts and components are traded internationally. Products made in Japan, for example, consist of many materials and parts produced outside Japan.

     Today, China increasingly exports its products to the United States and has a growing trade surplus with the US. However, it imports parts and materials from Japan, South Korea, Taiwan and other countries for many of the products assembled in China. So one can say that those other Asian countries are indirectly exporting their stuff to the United States through China's finished products and that they have an indirect trade surplus with the US as a part of China's trade surplus. Even for products made in Japan, Japan imports parts and materials from China, for example, and then assembles them in Japan. We know that international trade of what is called intermediate goods accounts for about half of global trade.

     Expansion of the supply chain beyond national borders may risk instability in world trade. For example, automobile production in US factories was seriously affected by the suspended production of parts in Japanese factories hit by the Great East Japan Earthquake. Similar problems may be caused by economic integration prompted by APEC or free trade agreements. Let's assume Thailand and Vietnam conclude a free trade agreement which abolishes tariffs in both countries. Automobiles manufactured in a Thai factory cannot be treated as Thai-origin products if they consist of a substantial volume of Japanese parts exported from Japan to the Thai factory. They are treated as Japanese-origin products on which import duties are imposed when they are exported to Vietnam. In order to avoid import duties, the Thai factory will try to reduce the importation of auto parts from Japanese manufacturers, many of which are small- and medium-sized companies with the result that they will suffer from shrinking business. In order to cope with the first issue mentioned above, production and distribution systems which can quickly and effectively respond to disasters must be established. Coping with the problems mentioned in the latter half of this paragraph would require the establishment of a free trade zone covering the entire Asia-Pacific region, just as the one pursued by the Trans-Pacific Partnership agreement.

3. You were invited to attend the APEC meeting.

     Together with the APEC Economic Leaders' Meeting to be held on September 8th and 9th, which will be attended by political leaders, the APEC CEO Summit is scheduled to be held on September 7th and 8th, at which economic and political leaders will exchange their views and opinions. Russian President Vladimir Putin, Chinese President Hu Jintao, and other leaders will give speeches, while other presidents, prime ministers and ministers of APEC member economies will participate in the APEC CEO Summit meeting. The Australian Minister for Trade and Competitiveness and I will join in one of the sessions discussing global food security. There are about 20 sessions in the two-day meeting, during which more than 50 ministers and economic leaders will participate in the discussions. To my great regret, I am the only one from Japan to be a discussant at the meeting. I would think that more Japanese would participate in the meeting given the size of Japan's economy.

4. One of the priority issues to be discussed is food security.

     There are two elements in ensuring food security: the financial capacity to buy foodstuffs and actual availability. Impoverished developing countries lack both of these elements. The poor, who spend most of their income on foodstuffs, will have difficulty buying enough food if food prices rise. A surge in grain prices would have a particularly serious impact on these people as they obtain the energy they need to continue living mainly from grain. When a developing country suffers a food shortage, developed countries often provide food aid. However, foodstuffs transported to ports in developing countries under aid programs may not reach people in need if these countries have not built a basic infrastructure for inland transportation. A similar situation occurred when Japan was hit by the Great East Japan Earthquake. At that time, disaster victims, even though they had enough money, were unable to obtain foodstuffs due to disrupted inland distribution channels. Global food production is sufficient to feed the entire world population. Nonetheless, there are about a billion starving people without access to food either because of poverty or insufficient infrastructure, even while many people suffer from obesity in developed countries.

     Wealthy countries such as Japan will not suffer a food crisis even if grain prices soar. But a food crisis can hit developing countries. The allocation of corn for ethanol production has been criticized as a cause of the dramatic jump in grain prices. Once the prices of agricultural products decline, import duties are often imposed on foreign products to protect the domestic agricultural industry, which further lowers the price because of decreased demand in the international market. Conversely, once the prices of agricultural products increase, governments tend to restrict exports of domestic products to prevent them from flowing out of the domestic market, which boosts prices even more because of decreased supply in the international market. Such government trade measures for agricultural products have been condemned as one of the reasons behind increased volatility in global food prices. We will discuss these issues in the upcoming APEC 2012 meetings in Vladivostok.

(This article was translated from the Japanese transcript of Mr. Yamashita's speech in the "Business Prospect" session of the radio program "First in the Morning News" broadcast by NHK Radio Channel1 on September 4, 2012.)