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JETRO Releases its 2011 Global Trade and Investment Report


August 14, 2011 - Tokyo

JETRO has released its 2011 "Global Trade and Investment Report." Below are some of the highlights of the report, including implications for Japanese firms.

Downside risks remain increasing for the world economy

The world economy recovered in 2010 and is expected to grow by 4.3 percent in 2011, according to June 2011 IMF estimates. Emerging countries, particularly in Asia, are leading this recovery. Meanwhile advanced countries are showing signs of much slower recuperation by posing downside risk. The United States is adjusting its household balance sheets, and Southern Europe is struggling against solvency problems. Higher prices of international commodities, rapid influx of capital into emerging countries, and re-expansion of global imbalance are deemed to be other risks.

World trade in 2010 shows a 22.2% surge in recovery to 15.0 trillion USD

JETRO estimates that world merchandise exports in 2010 increased by 22.2% to 15.0 trillion USD in nominal terms, and by 16.5% in real terms (except fluctuations in commodity prices). The growth in real terms brought the world trade volume back to the level before the world financial crisis in 2008. More recent numbers show that exports of 22 major countries/regions in the first quarter of 2011 recorded 21.2% growth over last year. Japan's exports in 2010 grew by 32.1% to 767.0 billion USD (customs clearance basis), and imports by 25.2% to 691.4 billion USD, showing a dramatic recovery from a significant trade volume reduction in 2009. The earthquake in March, however, had a considerable impact on Japan's trade.

Global FDI in 2010 drops by 4.4% to 1.22 trillion USD

Global foreign direct investment (FDI) registered its third straight decline in 2010, dropping 4.4% from a previous year to 1.22 trillion USD (JETRO estimates; net flows based on balance of payments). FDI in advanced countries declined, whereas those into emerging countries recovered and shows its presence. In the meantime, the total value of cross-border M&As in 2010 increased for the first time in the last 3 years, and the momentum has carried over into the first half of 2011, with an increase of 42.6% over the previous year.

Japan's outward FDI shows recovery

Japan's outward FDI (net flows based on balance of payments) in 2010 declined by 23.3% from a year earlier to 57.2 billion USD. This was because of the decline of reinvested earnings in 2009, which was reflected in 2010 data. In actuality, the outward FDI began increasing from the fourth quarter of 2010. Many outward M&A deals have been occurring towards emerging economies in extensive types of business. Meanwhile, Japan's inward FDI had a steep decrease due to a large-scale withdrawal in the financial sector, while those from Asia including Singapore and China had a dramatic increase of 3 times over last year.

Japanese firms' overseas units account for 53.1% of their whole operating profits

According to data on Japanese firms' overseas income collected by JETRO from the consolidated financial statements of 375 listed companies whose fiscal year ends between December 2010 and March 2011, overseas units accounted for 42.4% of sales (not including exports from Japan) and 53.1% of operating profits. The overseas profits exceed those of domestic, which has only ever occurred once before in 2008. The overseas profits are of great significance to Japanese companies, as firms with overseas offices have had a quicker recovery of profit than the listed companies as a whole.

Export restrictive measures and subsidies for industries are common trade rule issues

Several countries possessing natural resources are introducing measures to restrict the export of certain natural resources. Last July the WTO ruled against such practices in China, which had scanted export of raw materials such as coke, saying they were a violation of trade laws. In addition to the protection offered by the WTO, trade rules set by FTAs will be more essential tools for Japan to stably secure natural resources through import. The countries extensively take financial assistance measures to protect their own domestic industries. The measures include ones for export subsidy, which allegedly violate compliance with the WTO's subsidy rules. Many WTO cases are recently at stake over such subsidies, especially those related to the environmental industry.

The percentage of Japan's trade covered by FTAs increases up to 18.2 % though the pace dips below that of neighboring Asian countries

As of June 2011, 199 free trade agreements (FTAs) were in force worldwide. Cross-regional FTAs and FTAs between countries with large-scale trade volumes are prominent. With the FTA agreement with India taking effect in August, 18.2% of trade in Japan is now with FTA partner countries. South Korea's ratio of 25.2% exceeds Japan, with the EU-South Korea FTA taking effect in July. The ratio in Korea could go up to 35.4%, depending on congressional approval of a US-Korea FTA.

Japan and EU start pre-FTA talks

At the EU-Japan Summit in May, both sides agreed to initiate pre-FTA discussions to define the scope and level of ambition of negotiations. The FTA, between large trade volume countries, is of great significance in liberalizing goods and services and establishing trade rules. Among Japan's imports from the EU, 68.7% are already duty-free; by including items with a tariff of 5% or less, this ratio goes up to 88.0%.

Influence of the Great East Japan Earthquake on trade

Influences of the earthquake on exports were visible in industrial goods, including automobiles and semi-conductors, and in food, such as frozen fish, baby food and tobacco. Recovery of the supply chain system has been much faster than initially expected, and the export decline is beginning to bottom out.

Reaffirming Japan's strengths in developing overseas business

Japan has established a definitive position in the Asian production network by providing high-quality products. A number of cases in which foreign companies have set up offices in Japan even after the earthquake imply that Japan's multi-layer industries and market continue to offer much opportunity. By maintaining or enhancing incentive policies for promoting inward FDI, Japan's attractiveness as a center for business administration, R&D, and manufacturing in Asia may well grow even stronger.

Japan's overseas business leading the way to recovery

The volume of Japan's trade and investment in emerging economies is increasing, yet does not match the pace of growth set by South Korea or China. Some Japanese SMEs are, however, developing overseas markets with their strengths in product development and technologies. Japan's energy-saving as well as disaster prevention technologies and consumer products would well match with increasingly eco-friendly Asian consumers. Japan's adaptation to its rapidly aging society brings about an opportunity to explore the overseas business market, and the service industry has recently been expanding overseas. Reinforcing these strengths in developing overseas business shall contribute to the prevailment of "Japan brand."

About JETRO

The Japan External Trade Organization, or JETRO, is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world. Originally established in 1958 to promote Japanese exports abroad, JETRO's core focus in the 21st century has shifted toward promoting foreign direct investment into Japan and helping small- to medium-sized Japanese firms maximize their global export potential.



Source: JETRO

Contact:

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



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