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TRADE POLICY REVIEWS: SECOND PRESS RELEASE AND CHAIRPERSON'S  CONCLUSIONS
Japan : April 1995

“ The view was expressed that asymmetries in trade and investment patterns, and significant differences in price levels, between Japan and the rest of the world, reflected continuing difficulties of access to the Japanese market.”

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See also:

First press release
Summary of Secretariat report
  > Summary of Government report


PRESS RELEASE
PRESS/TPRB/6
6 April 1995

TRADE POLICY REVIEW BODY: REVIEW OF JAPAN
TPRB'S EVALUATION
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The Trade Policy Review Body of the World Trade Organization (WTO) and the GATT 1947 Council conducted its third review of Japan on 4 and 5 April 1995. The trade policy review of Japan was carried over from the 1994 programme of reviews under GATT 1947. The text of the Chairman's concluding remarks is attached as a summary of the salient points which emerged during the two-day discussion.

The review enables the Council to conduct a collective examination of the full range of trade policies and practices of each member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

A record of the discussions and the Chairman's summing-up, together with these two reports, will be published in due course as the complete trade policy review of Japan and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990), Egypt (1992), the European Communities (1991 & 1993), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990 & 1992), Kenya (1993), Korea, Rep. of (1992), Macau (1994), Malaysia (1993), Mexico (1993), Morocco (1989), New Zealand (1990), Nigeria (1991), Norway (1991), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992), South Africa (1993), Sweden (1990 & 1994), Switzerland (1991), Thailand (1991), Tunisia (1994), Turkey (1994), the United States (1989, 1992 & 1994), Uruguay (1992) and Zimbabwe (1994).

TRADE POLICY REVIEW BODY:   REVIEW OF JAPAN
CONCLUDING REMARKS BY THE CHAIRPERSON
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This joint meeting of the Trade Policy Review Body of the WTO and the Council of GATT 1947 has now completed the third review of Japan's trade policies and practices. These remarks, made on my own responsibility, summarize salient points raised during the discussion; they are not intended to substitute for the collective evaluation and appreciation of Japan's trade policies and practices. Details of the discussion will be reflected in the minutes of the meeting.

The discussion developed under four themes:

Macroeconomic developments

Participants welcomed the signs of emerging recovery in the Japanese economy, partly attributable to Japan's continued ability to adapt to a changing external environment. Questions were raised on the expected macroeconomic effects of yen appreciation, as well as the economic consequences of the recent Kobe earthquake.

Participants welcomed the efforts by the authorities, inter alia through deregulation, to encourage a shift from export-led to domestic demand-led growth. Members asked for further information on how the currency appreciation was affecting the structure of the domestic economy, external trade and investment patterns. Some questioned how far the effects of the appreciation were being passed through to domestic prices. The view was expressed that asymmetries in trade and investment patterns, and significant differences in price levels, between Japan and the rest of the world, reflected continuing difficulties of access to the Japanese market. Some participants also associated low productivity in agriculture, construction and certain other services with the presence of trade and investment restrictions.

Members commented on recent changes in the geographical and sectoral structure of Japan's trade and investment, especially noting an increased concentration on Asia. Some wondered whether the yen appreciation would further boost external investment and whether China continued to be an attractive destination.

In response, the representative of Japan said that plant and equipment investment had recently shown signs of a gradual recovery. The recent yen appreciation and the Kobe earthquake would have both positive and negative effects; however, their overall significance was not yet clear.

He noted that the pass-through of yen appreciation to domestic prices was becoming quicker and smoother; the low, stable level of inflation reflected a reduction in import prices. Deregulation had also served to reduce some prices. Although Japan was cited as having a high price level, it was important to note that the exchange rate did not reflect purchasing power parity.

The percentage of foreign direct investment going to Asian countries had increased. As a result, Japan's imports from the region were increasing, particularly of manufactured goods. The low level of FDI into Japan could be related to high land prices, long payback periods for investments or traditional employment practices.

Structural questions

Some participants observed that the trade and current account surpluses, measured in yen terms, had narrowed in recent years; others queried whether structural factors were at the base of the apparently slow response of these accounts to yen appreciation.

Participants welcomed the strengthening of institutional structures concerning trade, including the Office of Trade and Investment Ombudsman (OTO) and the Trade Conference, but wondered if their functions should be further expanded.

An apparent contrast between the general thrust of Japanese deregulation policy and its limited implementation in practice was noted, with housing cited as a specific example. Participants sought information on the concrete effects of past deregulation programmes and, while welcoming the new deregulation package recently announced, emphasized that it should lead to measurable results. A question was raised concerning possible conflicts between deregulation and social objectives in Japan.

Some participants welcomed Japan's import promotion efforts; others noted the possible distortive effects of such measures, if applied on a selective basis.

The importance of strong enforcement of competition policy was stressed, including the need for further pro-competitive moves in areas where vertical alliances persisted and in distribution.

The Japanese representative responded that the current account surplus was at a recent low of 2.5 per cent of GDP. In yen terms, the surplus had narrowed by 10 per cent in 1994, although the decline in U.S. dollar terms had been marginal.

As a result of market-opening recommendations by the OTO's Market Access Ombudsman Council (MAOC), various Japanese laws had been amended. In general, the OTO was strengthening its functions. Further comments were then made by participants concerning the effectiveness of the OTO, including the weakness of legal provisions and enforcement possibilities, and the potential importance of the Office in promoting good relations with trading partners.

The Japanese representative stated that, while deregulation was a top priority for the Government, it took time for reform measures to have their full effect on the economy. Deregulation was expected to vitalize the economy through promotion of competition, improvement of market access and expansion of consumer choice.

The Deregulation Action Program announced on 31 March 1995 covered areas such as distribution, standards and certification, and import procedures. Freedom from economic regulations was a basic principle of the programme; regulations of a social nature would be those minimally required to serve legitimate policy objectives. The programme would be reviewed and revised, as needed, on an annual basis.

In addition, the Government was committed to active implementation of competition policy. Thus the Fair Trade Commission had put emphasis on addressing Anti-monopoly Act violations, enhancing transparency of law enforcement, and reviewing the regulatory system.

Participants emphasized the need for much greater speed and clarity in deregulation, particularly in applying the new programme at the detailed level and in gaining the support of the business sector.

Specific points

Participants commended Japan's significant contribution in all areas of the Uruguay Round negotiations. While the depth of tariff reductions by Japan was recognized, concerns were expressed over remaining tariff peaks and remaining tariff escalation in such sectors as leather, footwear and processed food products.

Members welcomed Japan's earlier 10-year extension of its GSP scheme; some participants, however, urged that ceilings on imports of products of interest to developing countries be removed.

While welcoming Japan's comprehensive commitments in agriculture, the negative trade effects of continued protection in the sector, including high out-of-quota tariff rates were noted. Several participants commented that food security could be enhanced by more liberal market access and diversification of supply, reinforced by the Uruguay Round disciplines on export prohibitions and restrictions. Some members regretted that fisheries had not been included in the Uruguay Round tariff binding process; noting that Japan's fisheries policy would continue to be based on quotas and high tariff levels, they hoped for further liberalization in this sector.

Specific concerns were expressed over access for dairy products, wheat, meat, and fruit, where such factors as State trading and restrictive quarantine/SPS regulations appeared to persist. Participants urged Japan to conform fully with the relevant WTO agreements, in particular through the use of internationally agreed standards.

Some participants commented on the continuation of different levels of liquor taxation; full application of the previous GATT panel recommendations was urged.

The restrictive effects on trade of Japanese industrial standards, including building codes, were noted. Participants called attention to the low number of such standards coinciding with international norms. In government procurement, foreign firms still faced access difficulties, despite recent liberalization; the incidence of single tendering was still substantial, qualification requirements had not been fully streamlined, informal arrangements were widespread and penalties for violations appeared insufficient.

Questions were raised about Japan's consensus on automobile exports with the European Union.

The restrictive effect of the prior confirmation system for imports of silk fabrics was noted and a participant requested that it be abolished; some participants also urged Japan to avoid using safeguard measures under the Agreement on Textiles and Clothing.

Japan's recent bilateral agreement on liberalization measures in financial services was welcomed; however, participants urged Japan to multilateralize the agreement. Full consideration of the interests of developing countries was urged in regard to Japan's position toward the movement of natural persons.

In response, the Japanese representative noted that Japan's tariff structure had been negotiated in the Uruguay Round; rates would be reduced as agreed. In fiscal 1995 Japan had expanded GSP quotas, increased the number of beneficiaries, and reduced rates on 12 tropical products.

In agriculture, Japan considered border measures necessary to maintain minimum domestic production. It intended to set price levels to reflect supply and demand and facilitate structural adjustment. Japan's self-sufficiency was very low in relation to other developed countries. Access opportunities were extended according to Japan's Uruguay Round commitments, under which tariffication was also established. State-trading enterprises were used to ensure that Japan's purchase commitments were met; State enterprises were not involved in marketing or distribution of over-quota imports. For rice, the Food Agency did not discriminate between domestic and foreign importing firms. Specific dairy product quotas would shortly be notified to the WTO as required.

Japan had made tariff reduction commitments for vegetable oils and wood products; remaining differences in tariffs on plywood reflected differences in the degree of competition with the local product. Imports of tropical plywood had grown rapidly, seriously affecting the Japanese industry. The JAS standard was regarded as appropriate for wood construction materials in Japan's climate, with no discrimination between domestic and foreign supplies.

SPS measures were scientifically based and would be harmonized with international standards where these exist, including risk assessment techniques.

The import quota for fish was flexibly applied; in recent years it had not been filled. Tariff reductions agreed in the Uruguay Round would be duly implemented.

The prior confirmation system for silk fabrics was not restrictive or discriminatory; its phase-out programme under the Agreement on Textiles and Clothing would be notified by the end of June 1995. No decision had been taken on the invocation of the textiles safeguard procedure.

Liquor taxes had been adjusted in line with the GATT Panel recommendation. Remaining differentials were not an impediment to market access and consumption of imported whisky was growing rapidly.

Monitoring of automobile exports to the European Union was not mandatory, although it had been notified by the EU as a grey-area measure; exports were below the forecast level. Full liberalization was to be achieved by the end of 1999.

Measures to be taken by Japan on financial services would be implemented on an m.f.n. basis; Japan's final schedule of commitments in this area would be submitted by June 1995.

A number of unilateral government procurement liberalization measures had, in recent years, been undertaken on a non-discriminatory basis.

JIS standards were not mandatory, although some Japanese technical regulations referred to such standards. In some cases, no international standard was available; in others, Japanese standards were not substantially different from international norms.

Despite the weaknesses of the leather and footwear industries, tariff reductions would again be made according to the Uruguay Round.

Japan's r˘le in the international environment

Participants stressed that Japan, as one of the largest members, bore a major responsibility for the smooth functioning of the international trading system, including the implementation of the Uruguay Round.

The importance attached by Japan to the m.f.n. principle was welcomed; participants stressed its importance for Japan, for smaller trading partners, and for the system as a whole. Some members shared Japan's concern about inward-looking regionalism and welcomed the statements made by APEC members in the Bogor Declaration.

Japan was urged to continue to ensure the m.f.n. application of all bilaterally agreed measures; the need for full transparency and participation of all trading partners was stressed.

In response, the Japanese representative stated that Japan fully realized its responsibilities to the multilateral trading system. Japan had done its best to contribute to a successful conclusion of the Uruguay Round and, in the same spirit, it was resolved to meet its responsibilities in order to strengthen the WTO.

Japan was firmly committed to the m.f.n. principle. Thus, although it engaged in bilateral negotiations, the results of such negotiations would be applied on an m.f.n. basis. He fully subscribed to the view that regional arrangements should be an exception to m.f.n. With Japan hosting the 1995 APEC meeting, his Government would keep this principle in mind and make sure that APEC's fundamental nature of open, regional co-operation would remain intact. He recalled that under the Bogor Declaration, trade and investment liberalization would be done in conformity with WTO provisions.

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This review has been a constructive debate on Japan's trade policies. The importance of Japan to the international trading system has been underscored, and Members welcomed Japan's expressed attachment to the most-favoured-nation principle and its resolve to contribute to strengthening the WTO. They also encouraged Japan to pursue its commitment to domestic deregulation and stressed the importance for Japan and its trading partners of clear and concrete progress in this regard.