In May 2023, the G7 Summit will be hosted in Hiroshima against the severe backdrop of a global energy crisis and supply chain disruptions that are stoking the fires of inflation, shaking consumer confidence and threatening the most economically vulnerable.
Russia’s aggression against Ukraine, climate change and Covid-19 are fueling global concern. In a speech given at the Center for Strategic and International Studies in January, Yasutoshi Nishimura, Japanʼs Minister of Economy, Trade and Industry, expressed his alarm, saying that “the global shocks that have occurred, one after the other in the span of only a little more than two years, have truly been a wakeup call.”
All three challenges are likely to be high on the agenda at the G7 Summit and relevant ministerial-level meetings to be held throughout the year. The Ministry of Economy, Trade and Industry (METI) will take the lead at the ministerial meetings along with relevant ministries and aims to drive discussion and policy action in three key areas—trade, climate change and energy, and digitalization.
Revitalizing Global Trade and Investment
Trade is a key policy issue, especially given the rise of serious supply chain disruptions due to Russia’s devastating war in Ukraine.
“Russia’s aggression against Ukraine has shaken the international order and there are concerns about a global economic slowdown. At the G7 meetings, we would like to emphasize the importance of upholding the free and fair economic order,” said Takuya Kimura, Principal Director of the Multilateral Trade System Department at METI.
The topics will include the promotion of trade and investment; World Trade Organization reform; how the G7 will deal with unfair trade practices that distort markets; and proposals on strengthening economic security.
Even if these key issues are addressed, however, the global economy faces insurmountable hurdles without the existence of healthy trade and investment relationships between nations. METIʼs work at the upcoming G7 will include laying the foundation for future progress.
Around the world, shortsighted trade practices could lead to unfair trade. Such practices include forced technology transfer, whereby foreign companies operating in a host nation are required to carry out all processes, from design and development to the manufacturing of advanced technology products, in that nation, possibly forcing companies to share their sensitive technologies with the host nation’s companies.
We must build a world where “countries will come together based on trust and strengthen their cooperation under the banner of free trade, without slipping into protectionism,” Nishimura said.
Climate Change and Energy in Focus
Japan is looking to promote green transformation, or GX, which can rewrite the rules of the prevailing socioeconomic system by inducing transformational changes, without shoehorning emission reductions and economic growth into an either/or relationship.
“Green transformation is a major keyword in Japan. The idea is that emissions reduction and economic growth are not in a trade-off relationship. Instead, they can coexist,” explained Shinichi Kihara, Deputy Director General for Technology and Environment at METI.
GX will not stop at Japanʼs borders, and Japan will make efforts to approach countries with major emission outputs while also providing appropriate support to developing countries making the transition to a green regime. Ultimately, Japan seeks to promote GX in all sectors, including energy and industry.
At the same time, the energy crisis has put the spotlight on global energy security. Nishimura believes it is necessary to undertake decarbonization in a way that is fully compatible with ensuring a stable supply of energy, and that it will be important to undertake various and practical pathways that fit the needs and expectations of individual nations.
Japan will make the utmost efforts to promote its clean energy transition, including installing the greatest possible amount of renewable energy facilities and using nuclear plants as much as possible.
Boosting Digitalization
Another major transformation underway is digital transformation, or DX, which has been defined as the creation of new value through innovation made possible by the adoption of digital technology that aims for the creation of a more prosperous society. The role of digitalization as a bulwark against unpredictable events has been highlighted in recent years by global challenges such as the Covid-19 pandemic and Russiaʼs aggression against Ukraine.
The free flow of data in the face of arbitrary restrictions and ensuring data integrity are essential if the digitalized world is to operate as intended.
In a move that has garnered positive international feedback, Japan proposed a guiding principle, Data Free Flow with Trust (DFFT), that seeks to enable cross-border free flow of data while addressing privacy, data protection, intellectual property rights and security concerns. The principle was first suggested by then-Prime Minister Shinzo Abe at Davos 2019, and later endorsed at the G20 Osaka Summit, Japan, in June 2019. Since then, the DFFT has been widely accepted as a primary principle for international digital policy coordination in various international forums.
Reaching a global consensus or convergence on the rules that involve privacy and security will take time. The G7, currently under Japanese presidency, is expected to formulate the priorities in operationalizing the DFFT so that countries can work together despite their varied approaches to data governance. Vigorously moving the DFFT into its operational phase, the Japanese government has announced to establish an institutional arrangement to promote interoperability across data regimes, implement the priorities that have been identified by the international forum and advance solutions for cross-border data transfer through public-private cooperation.
It is also important to redesign governance for a digitalized society. DX technologies such as artificial intelligence, IoT, and the metaverse now have the ability to fundamentally reshape the way companies operate and how individuals relate to society.
It is vital to explore new governance options, including involving multiple stakeholders in discussions of how to flexibly update governance systems in response to changes in the operating environment.
International Cooperation Is the Only Way Forward
At the end of the day, the G7 is not just about the interests of advanced industrialized nations, but about building a way forward together with the entire international community.
“In 2023, Japan will host the G7 Summit, and the United States, India, and Indonesia will chair APEC, the G20 Summit and ASEAN, respectively,” Nishimura said. “While working in cooperation to deal with global-level issues, we will lay out for the international community a path forward for building a new economic order.” It will be also essential for Japan to work in coordination with the Global South to tackle various global challenges. “Japan, working within that partnership, is fully determined to fulfill its significant responsibilities.”