2. The Uruguay Round

Trade issues are closely interrelated with macroeconomic problems. Thus an especially important issue for the Summit is the Uruguay Round of the GATT multilateral trade negotiations.

Sluggish economic growth and high unemployment in many industrialized countries, combined with persistent trade and current account imbalances, have often led to serious trade friction and unilateral or bilateral protectionist measures which are not consistent with

established international rules. Indeed, the open, free and multilateral trading system of the GATT based on non-discrimination and national treatment, has come under serious strain. Moreover, the traditionally neglected area of trade in agriculture has begun to attract worldwide attention because of the devastating effects of export subsidy wars. In addition, there are emerging new areas which are becoming increasingly important in world trade: trade in services, the trade aspects of intellectual property rights problems and trade- related investment measures.

All these compelling issues led to the launching of the Uruguay Round multilateral trade negotiations in September 1986 with the Ministerial meeting held in Punta del Este Uruguay. This new round aims not only at further trade liberalization, but also at establishing new GATT rules if necessary, based upon a review of existing GATT rules in light of new developments in world trade in the 40 years since the original agreement. In other words, our task is to use the Uruguay Round to strengthen, adjust and expand the system of open and multilateral trade of which GATT is the foundation, and to create a solid basis for the continued expansion of world trade into the 21st century.

During 1987 and early 1988, negotiators concentrated their major efforts on the identification and clarification of problems and issues in connection with 15 negotiating items(tariffs, non- tariff barriers, tropical products agriculture, textiles, safeguards, dispute settlements, the functioning of the GATT, trade in services, intellectual property rights, trade-related investment measures, etc. . . ) primarily through the presentation of submissions by participating nations. While this work has produced some meaningful results regarding a number of items, it is important at this point to get into real negotiations on substantive issues in order to be in a position to produce some concrete results when the Trade Negotiating Committee of the Uruguay Round meets in Montreal in December 1988 for a mid-term review at the ministerial level. Of course, presently, it is not yet clear what the specific content of this mid-term review will be. But, at the very least, it will be necessary to take stock of progress during the first half of the scheduled 4 year Round and provide policy orientation for the second half.

But this is only a minimum. For Japan, it is essential that the mid-term review in Montreal produce credible, concrete results in some specific negotiating areas. Likely candidates for early results could include the improvement of the dispute settlement procedures, particularly the speeding up of panel formalities, the strengthening of GATT functions through the incorporation of mechanisms for the surveillance of national trade policies into the GATT structure, and the question of tropical products, which was singled out as a priority issue in the Punta del Este ministerial declaration.

Besides these items, many participants of the Uruguay Round wish to obtain concrete results in such areas as intellectual property rights, trade in services, and agriculture. Japan knows that agriculture is one of the priority items for Canada; but it is one of the most difficult areas as well.

At present, agricultural products are treated differently under the GATT rules, compared with manufactured goods, with regard to such things as export subsidies and quantitative restrictions on imports. Quantitative restrictions on the import of farm products are tolerated by the GATT under certain conditions, such as the existence of policies restricting the production of certain products. Export subsidies, which are' in principle, prohibited for manufactured goods, are also permitted. This has led to the current subsidy war between the EC. and the U.S.

Japan has been maintaining "residual import restrictions" on 22 agricultural items, some of which have been judged illegal under the GATT. However, in reality, even those big and so-called "efficient producers" like the U.S. and Canada maintain import restrictions on agricultural products. The United States, which some 30 years ago obtained waivers of its GATT obligations for its quantitative import restrictions on agricultural products, continues to maintain import restrictions on 14 items, among them dairy products, peanuts, meat and sugar. The E.C. protects its agricultural market through a variable import levy system which has the same effect as quantitative import restrictions, while Switzerland has maintained specific quantitative restrictions recognized in its Protocols of Accession to the GATT Protocol. Canada also has residual import restrictions on a number of items, including butter, cheese and condensed milk. As you can see, we are all sinners in the field of agricultural trade. If a country like Canada or the U.S., which has a vast territory and which can develop its agricultural on so-to-speak "no man's land", has real difficulty in freely importing foreign agricultural products, how about agriculture in a country like Japan? Japan, which has a population six times the size of Canada's, has for its agriculture an area only 15% that of the state of California. One can easily imagine why agricultural problems in Japan are far more difficult than in Canada or in the United States.

It is precisely because of the factors mentioned above that, in the context of the Uruguay Round, we need to review the existing rules and various mechanisms that affect market access and subsidies and bring them all together under a common set of rules. However, in doing so, the legitimate desire of nations with extremely low levels of food self-sufficiency to ensure a stable supply of basic food items from local production should be taken fully into consideration.

There were virtually no controls on subsidies when the present decade began . During the early 1980's the United States and the E.C. dramatically expanded their budget allocations for price and income support in the agricultural sector. Allocations increased 9.5 times in the United States and 2.0 times in the E.C. between 1980 and 1986. This produced a structural over-production situation triggering the notorious export subsidy war. Japan, which is the biggest net importer of foreign agricultural products in the world, has, of course, no export subsidies but it should be noted that it actually reduced its domestic subsidy payments by one-third during the same 1980-86 period. In any event, the important

thing is to reach long-term solutions by establishing a stronger set of rules regarding agricultural subsidies together with a further liberalization of market access.

To begin with, as an emergency measure, Japan has advocated the freezing of export subsidies followed by their phased reduction and eventual abolition through negotiation. It is our earnest hope that through strenuous efforts by negotiators during the remaining part of this year on this most difficult issue of trade in agriculture, we will be in a position to say something concrete and constructive when the Ministers meet in Montreal in December for the Mid-Term Review.

Another vital issue for the GATT is trade in services. In view of the growing importance of trade in services, GATT must establish a stable foundation for the future development of trade in this important new area. It is also evident from some of the trade conflicts that have occurred in recent years in such fields as banking, telecommunications and construction, that nations need a multilateral arena in which to reconcile their respective interests.

Unlike trade in goods, the nature of trade in services varies widely from sector to sector. Moreover, trading patterns are not limited to border trade since services can also be provided through a commercial presence. This means that the trade in services must be governed by rules which contain different elements according to specific sectors. However, Japan believes that there should be a common set of principles applicable to all the sectors of the traded services (such as ''non-discrimination", "national treatment", "transparency", "dispute settlement procedures". etc. . .)

As is the case of trade in services, the trade aspects of intellectual property rights are another important new area that is not sufficiently covered under GATT rules. However, the protection of intellectual property rights will have an increasingly important effect on international trade as high technology commodities come to have a growing share of the trade of a large number of countries. This is a difficult area indeed for, as is true of the case of trade in services, many developing countries are reluctant to accept stringent new GATT rules at their present stage of development. But Japan believes that if, in the trade field, an appropriate level of protection of intellectual property rights is assured, this will be in the interests of the developing countries themselves as investment flows and the transfer of technology to the developing countries could be facilitated accordingly.