White Paper on International Economy and Trade 2018

[Outline]

July 10, 2018Trade Policy Bureau,

Ministry of Economy, Trade and Industry

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Table of ContentsPart 1 Global economy

Chapter 1 Recent trends in the global economy and Japan’s external trade and investment

Chapter 2 Economic trends and external economic policies in major countries/regions

Part 2 Analysis: Significant shift in the global economy

Chapter 1 Expanding digital trade

Chapter 2 Rise of emerging and developing economies

Section 1 Changes in the roles of emerging and developing countries in the global economy

Section 2 Response to global excess production capacity

Chapter 3 Rapid change in the Chinese economy

Section 1 Macroeconomic trends

Section 2 Advance of new industries

Section 3 External trade and investment

Section 4 Business opportunities for Japanese companies

Part 3 Policies

Chapter 1 Development of free, fair and high-level trade rules

Section 1 Progress in mega-FTAs (TPP11, Japan-EU EPA, RCEP, etc.)

Section 2 Investment-related treaties

Section 3 Japan-U.S. economic relations

Section 4 WTO

Section 5 G7/G20 and OECD

Section 6 APEC

Chapter 2 Emerging country strategy (China, ASEAN/Asia-Pacific, India, Russia, the Middle East, and Africa)

Chapter 3 Comprehensive trade policy

Section 1 Promotion of utilization of economic partnership agreements

Section 2 Consortium for New Export Nation

Section 3 Food exports

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While companies in such sectors as energy, banking and telecommunicationsdominated the top rankings of companies in terms of market capitalization 10years ago, IT platform providers have advanced in the rankings. Six of the topten companies are now IT platform providers.

Advance of IT platform providers

Remarks: The above figures are as of February 12, 2008 and January 1, 2018Source: Thomson Reuters

Global rankings of companies in terms of market capitalization

In line with the expansion of digital trade, global companies providing IT platforms for EC and cloud computing services are increasing their presence.

A decade ago, in 2008, telecommunications companies, as well as banks, and oil and gas companies, led the rankings, as businesses providing telecommunication infrastructure tended to be highly valued in terms of market capitalization against the backdrop of a marked rise in the diffusion rate of mobile phones. However, in recent years, online services provided through information and communication networks have risen in prominence.

In the global top 10 rankings in terms of market capitalization as of January 2018, Apple was No. 1, followed by other U.S. and Chinese IT platform companies, such as Alphabet (Google), Amazon, Facebook, Tencent, and Alibaba.

Part 2 Chapter 1 Expanding digital trade

2008

# Company name Country Sector

Marketcapitalization (1milliondollars)

1 China National PetroleumCorporation China Oil/gas 723,998

2 Exxon Mobil Corporation U.S. Oil/gas 511,887

3 General ElectricCompany U.S. Industrial

conglomerates 374,637

4 China Mobile HongKong

Wirelesscommunicationservice

354,245

5Industrial andCommercial Bank ofChina Limited

China Banking 339,004

6 Microsoft Corporation U.S. Software 333,054

7 Gazprom Russia Oil/gas 331,964

8 Royal Dutch Shell plc Netherlands Oil/gas 264,764

9 AT&T Inc. U.S.Wirelesscommunicationservice

252,051

10 China Petroleum andChemical Corporation China Oil/gas 249,659

2018

# Company name Country Sector

Marketcapitalization

(1 milliondollars)

1 Apple Inc. U.S.Computerhardware

825,593

2 Alphabet Inc. U.S. Onlineservices 731,933

3 MicrosoftCorporation U.S. Software 686,283

4 Amazon.com, Inc. U.S.Departmentstores

671,084

5 Facebook, Inc. U.S. Onlineservices 512,471

6 Tencent China Onlineservices 497,697

7 BerkshireHathaway Inc. U.S. Casualty

insurance 491,154

8 Alibaba GroupHolding Limited China Online

services 454,451

9 JPMorgan Chase &Co. U.S. Banking 387,707

10Industrial andCommercial Bankof China Limited

China Banking 354,750

Data protectionist moves are increasing, including data localization regulation,requirement for the adoption of mandatory security standards, and requirement forsource code disclosure that impedes free cross-border data flow.

If new regulations related to data are introduced, the GDP of that country is expectedto be negatively impacted.

Other challenges include how to secure an environment of fair competition betweenIT platform providers and existing industries and how to ensure the protection andsafety of consumers.

Challenges for digital trade

Impact on GDP from introducing data usage regulations

Changes in the number of regulations related to cross-border

data flow (1960 to 2017)

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The promotion of the free flow ofinformation is developing afavorable cycle that is creating newtechnical innovations and businessmodels and is improving the qualityof people’s lives.

On the other hand, digitalprotectionist moves are alsoemerging, including imposingrestrictions on the free flow ofcross-border data and theinstallation locations of servers.

National regulations related tocross-border data flow haveincreased rapidly over the past 20years.

If a country introduces cross-sectoral data localization regulation,its GDP is estimated to suffer anegative impact ranging from minus0.7% to minus 1.7% due to suchfactors as a domestic price increaseand a productivity decline caused byan increase in the usage cost of dataprocessing services.

Number of regulations related to cross-border data flow

(by region/country) (as of 2017)

Part 2 Chapter 1 Expanding digital trade

Remarks: The years represents the timings of entry-into-force and revision of regulations Based on a survey by ECIPESource: ECIPE and Digital Trade Estimates

Number ofregulations

Share

Europe 37 42.5%

Germany 5 5.7%

Russia 5 5.7%

Asia-Pacific 33 37.9%

China 9 10.3%

Middle East/Africa 7 8.0%

North America 6 6.9%

Canada 5 5.7%

U.S. 1 1.1%Central and SouthAmerica

4 4.6%

Total 87 100.0%Remarks: The number of regulations which were inforce in 2017. The countries indicated above (exceptfor the United States) had more than five regulations.Source: ECIPE and Digital Trade Estimates

-0.8

-1.1 -1.1

-0.8-0.7

-1.1

-1.7-1.8-1.6-1.4-1.2

-1-0.8-0.6-0.4-0.2

0

Brazil China EU28 India Indonesia ROK Viet Nam

(%)

Remarks: The above figures are estimates based on the assumption of the introduction of data usage regulations, including data localization, in all sectors in each countrySource: Prepared by METI from “The Cost of Data Localization: Friendly Fire on Economic Recovery” (ECIPE)