February 16, 1999

1. Background
   

   ●	The Result of the Uruguay Round

   • At the Uruguay Round, the first multilateral regime for service trade (GATS) was created. Liberalization commitments will be expanded further at the next round of WTO negotiations, scheduled to begin in the year 2000.
     

   ●	Increasing Weight of Services in Economic Activities

   • Proportion of service industry in Japan's GDP is increasing:
     1970　　56.6%　　　　　1995　　65.8%
     
   • Proportion of service industry in world trade in 1997 was about 20%.
     Rate increase between 1985 and 1995
     　　　　Goods 10.9% per annum　　　　Services 11.9% per annum
     

   ●	Advancement of Globalization

   • As the service industry globalizes, and large-scale alliances and mergers of companies go on, the provision of high quality service by major companies has finally become possible on a world-wide basis.
     

   ●	Advancement of Information Society

   • With the introduction of electronic commerce, economies of scale are beginning to operate within the service industry and firms are enjoying increasing returns by taking advantage of the attributes of networks that target global markets.
     

   ●	There still exist a number of obstacles, especially for developing countries, as the service industry aims for globalization.

   
   

2. Basic Policy
   

   ●	Liberalization of Service Trade

   • With structural changes to the service industry such as globalization, advancement of information society, and progress toward a service economy, the next service negotiation will be a significant opportunity and challenge for Japan, pointing to the need that it has to develop a proactive strategy.
     

     1)	As service industry globalizes, harmonization of respective regulations will make the business activities of the world market more efficient. In other words, the manufacturing industry, which is a user of the service industry, can lessen its cost for its worldwide business activities.

     2)	Through further liberalization, Japan can achieve its own continuing economic structural reform.

   ●	Enhancing Liberalization Commitments Further liberalization can be achieved through expansion of the scope of GATS, as well as revision of the content of each WTO Member's specific commitments regarding market access and national treatment

   • Through liberalization of the service industry of each WTO Member, the opportunity for export and investment by Japan's service industry will increase.
     

   
   

3. Eight Guidelines
   

   ●	Horizontal Approach Cross-cutting liberalization based on such standards as ensuring transparent administrative procedures, deregulation of foreign investment, and relaxation of regulations on foreign workers

   • It is more effective in achieving a result in a shorter amount of time than the request-offer approach conducted between individual countries for each sector.
     
   • Because the above issues arise mostly in developing countries, increased levels of liberalization can be expected in such countries.
     

   ●	Harmonization and Mutual Recognition Broad harmonization of countries' respective domestic regulations with certain standards in major service areas that go beyond the traditional liberalization framework, also multilateral or plurilateral mutual recognition of qualifications and standards

   • From the service suppliers' point of view, provision of the same level of service throughout the world will be possible.
     
   • From manufactures' point of view, supply of the same level of services no matter where manufacturers are located will be possible.
     
   • Avoidance of complex and varying procedures from one country to another will be possible through mutual recognition of qualification and standards.
     

   ●	Electronic Commerce Active discussion at the WTO of rules regulating electronic commerce, which will contribute to the development of electronic commerce

   • Uniform application of the MFN and national treatment and general prohibition of quantitative restrictions
     
   • Consideration of developing countries' interests
     
   • Development of environment for private sector initiative
     

   ●	Development of GATS Rules GATS has only formulated basic rules on MFN and national treatment. Development of rules governing safeguards, government procurement and subsidy is needed.

   • In order to liberalize service trade, the impact of liberalization on countries' service industries, economic activities, and consumer benefits needs to be considered and rules on such areas as safeguards will need to be developed.
     
   • In order to ease developing countries anxiety concerning liberalization, consideration of safeguard rules are needed.
     

   ●	Safety-Nets Examining responses to the economic and social damages that liberalization may cause is important.

   • Discussion of international competition rules to handle damages caused by monopolies is needed.
     
   • Adequate consideration needs to be given to securing universal service, maintaining local communities, avoiding systemic risk and other issues which need to be viewed from a broader social perspective
     

   ●	Cooperation among International Institutions International cooperation among specialized agencies needs to be included in the construction of the international framework for the service industry of the 21st century.

   • For example, when making international standards, working with ISO is essential.
     

   ●	Developing Countries' Participation At the next liberalization negotiation, active participation of developing countries is necessary.

   • It is important to use various fora such as APEC and ASEM to convince developing countries of the significance of liberalization.
     

   ●	Industry Participation Establishment of a framework within Japanese industry is needed.

   • The United States and Europe have each already developed frameworks within industry, the Coalition of Service Industry and the European Service Network respectively, in order to work together on the substance of a strategy for the next negotiation.