Japan: January 1998
Japan's efforts to deregulate its economy should be intensified if Japan is to further stimulate domestic demand and provide better market access opportunities for its trading partners.
More deregulation and structural reforms should help Japan stimulate domestic demand and encourage market access
Japan's efforts to deregulate its economy should be intensified if Japan is to further stimulate domestic demand and provide better market access opportunities for its trading partners. A new WTO report on Japan's trade policies and practices notes Japan's intent to strengthen market mechanisms through structural reform and deregulation, and to reorient its economy towards a greater reliance on domestic, rather than export demand. The report notes, however, that several sectors, including agriculture, construction and certain services remain subject to restrictive regulations that affect both foreign market access and the better allocation of domestic resources.
The report observes that Japan's economy has not improved since the last WTO trade policy review in April 1995. Various packages of fiscal and monetary stimulus during 1995 sustained moderate economic growth, but led to a worsening of public finances. Since the second quarter of 1997, there has been a downturn in the domestic economy, with export demand the only significant source of growth. The report also notes that the financial crisis in East Asian economies is likely to affect Japan more severely than other industrialized countries. This is mainly due to Japan's strong trade and investment ties in the region.
The WTO Secretariat report and a policy statement prepared by the government of Japan, will provide the basis for a review of Japan's trade policies and practices on 27 and 28 January 1998.
Deregulation and structural reform are the main themes of Japan's current trade and investment-related measures, and the extent to which significant progress can be made will affect its ability to achieve its economic and social objectives. An improvement in customs clearance times and sanitary inspection procedures, for example, are important elements of the reform measures. On standards and mandatory regulations, comprising both technical and sanitary-related measures, Japan seeks to coordinate domestic measures with international norms.
The report notes that Japan's import and investment promotion programmes maintain substantial government incentives; it is not evident, however, that these programmes fully address the obstacles encountered. The schemes also largely exclude important sectors of interest to trading partners, especially in agriculture and services, which have not generally been exposed to international trade and are subject to extensive government regulation.
Since the last trade policy review in April 1995, there have been no major changes in Japan's tariff structure. The simple average rate was 9.4 per cent in 1997, with some 60 per cent of tariff lines rated at 5 per cent or below. High tariff peaks occur in agriculture, food manufacturing, textiles and footwear, and substantial tariff escalation occurs in a number of sectors, mainly between semi-processed and fully-processed items, particularly in food manufacturing and petroleum refining. Various tariff cuts, including the elimination of applied tariffs, were made either autonomously or under existing agreements, including on certain chemical products, textiles and non-ferrous metals. In regard to information technology products, Japan has pledged to reduce bound tariffs to zero for 57 percent of its tariff lines in this sector. However, tariffs for fishery products, certain wood products and petroleum remain unbound and state trading regulations are in place for such items as rice, barley, wheat, milk products, raw silk, salt and leaf tobacco.
Japan does not belong to any customs unions or free-trade areas, although it is a leading member of the Asia Pacific Economic Cooperation forum (APEC) and the Asia-Europe Meeting (ASEM). It has a number of bilateral agreements or arrangements, mainly with the United States, covering, inter alia, the automobile sector, semiconductors, financial services and insurance. As part of its consultations with the US in 1995, Japan undertook to increase access and sales opportunities on a most-favoured-nation basis, for competitive foreign autos and auto parts. Japan and the United States also agreed to establish the Global Government Forum to discuss issues facing the world semiconductor industry, and invited participation of the European Union and Korea. The report also notes that the only remaining "voluntary" export restraint maintained by Japan is the monitoring arrangement on car exports to the European Union. This arrangement is to be eliminated in 1999.
In line with WTO agreements, Japan has changed its government procurement policy and intellectual property legislation. Since 1995 the share of selective and single tendering in government procurement has fallen in favour of open tendering. In order to combat violations of industrial property rights at the border, Japan's Copyright Law was amended and fines for infringement were tripled in 1996.
Since 1995, Japan has abolished nine of 11 export cartels. Remaining cartels, related either to the protection of quality or intellectual property, or to import monopolies in partner countries, are to be abolished by the end of 1999. Japan has modified its competition law under the Anti-Monopoly Act, though concerns remain about the effects on foreign access to Japan of horizontally and vertically integrated groups. Holding companies, which had been banned previously, are now permitted to a certain degree. Liberalization of Japan's Large Scale Retail Store Law has resulted in a sharp increase in the number of applications to open large stores.
Concerning agriculture, the report states that Japan's productivity remains low. The self-sufficiency ratio fell to 42 per cent in financial year 1995, and agriculture accounted for some 20 per cent of Japan's merchandise imports in 1996. The report notes that the overall level of support to agriculture is still well above the OECD average and that agriculture has to date largely been excluded from Japan's deregulation efforts. While rice imports are not currently subject to tariffication, this special treatment agreed in the Uruguay Round will be reviewed in the year 2000.
Services generated some 64 per cent of Japan's GDP and some 68 per cent of employment in 1996. However, the report notes that Japan's services sector has a lower productivity than its manufacturing sector. Manufacturing generates about 24 per cent of Japan's GDP, a high share compared to that of other developed economies. Regarding the services sectors, the report notes that concerns have been raised on the links that exist between complex regulations and low productivity.
The report notes that Japan is gradually reducing its traditional reliance on government intervention and control in the services sector. New amendments in 1996 led to reforms in financial services; in the WTO financial services negotiations which successfully concluded in December 1997, Japan submitted a revised offer of commitments, including binding of all the major elements of the bilateral measures previously agreed with the United States on insurance, banking and other financial services. These, along with further liberalization initiatives in telecommunications, and other deregulation measures will open services to greater competition. However, unilateral reform measures taken by Japan in air and maritime transport have been mainly confined to domestic services. Protective policies remain in some professional services.
Notes to Editors
The WTO's Secretariat's report, together with a report prepared by Japan will be discussed by the WTO Trade Policy Review Body (TPRB) on 27 and 28 January 1997. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, 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.
The reports cover the development of all aspects of Japan's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993 & 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: JAPAN
Report by the Secretariat Summary Observations
Since Japan's last Trade Policy Review in April 1995, its economic situation has not improved. Various packages of fiscal and monetary stimulus during 1995 sustained moderate economic growth, but led to a worsening in public finances; the overall fiscal deficit of central and local government rose to over 5 per cent and gross government debt to over 100 per cent of GDP. A policy reversal towards fiscal consolidation from mid-1996 onwards, culminating in an increase in the consumption tax in April 1997, seriously dampened domestic demand and from the second quarter of 1997, there has been a downturn in the domestic economy, with export demand the only source of growth.
During the same period, Japan's financial sector has been severely affected both by internal structural problems, with the collapse of a major bank, a major securities company and emergency mergers of some banking firms, and by the economic crisis since mid-1997 in other Asian economies, particularly Thailand and Korea which are substantial recipients of Japanese investment.
In November 1997, the Government announced a new series of proposed measures aimed at reducing regulatory barriers to business and stabilizing financial markets; these measures are aimed at providing a framework for domestic-led recovery without significant negative fiscal implications. The package included proposals for deregulation in the telecommunications, trucking, domestic airlines, job placement and petrol station sectors; proposals for a number of changes in regulations on land use and disposal, including removal of limits on prices of land transactions, modification of land use regulations in urban areas, revision of terms for housing leases, conversion of agricultural land into other uses, including residential, and finance for construction of suburban "weekend houses"; and proposals for stabilization of financial markets, improved protection of investors and depositors, and deregulation of the securities market. The Government also announced that there would be a review of Japan's tax system relating to corporate, financial and land taxes "from the viewpoints of creating an internationally attractive business environment, effective land use and further stimulating private initiatives". Further measures announced in mid-December included a ¥10 trillion package in support of the banking sector and a new income tax reduction amounting to ¥2 trillion for FY 1997.
Some of the measures proposed are directly "pump-priming" in nature; the Government has estimated that the direct effect of the November economic package is expected to be some 6 trillion yen per year (about 1 per cent of GDP). Others, such as the tax policy review, are geared to the longer term.
The financial and structural crisis in other East Asian economies, expected to reduce growth in the region considerably, is likely to affect Japan more severely than other major industrialized countries, because the structure of Japan's trade and investment has become increasingly concentrated in East Asia. A substantial volume of manufacturing output by Japanese-owned firms, destined both for export and domestic markets, has been delocalized to other parts of East Asia, in search of lower costs and dynamic markets; East Asia's share of Japan's exports and imports has thus continued to grow, reaching 43 and 36 per cent respectively in 1996 (compared to 30 and 28 per cent in 1990).
Institutional and Legal Framework
Japan is an original signatory to all the WTO Multilateral Trade Agreements and to the Agreement on Government Procurement. Japan applies MFN treatment to all but six countries and customs territories: Albania, Equatorial Guinea, Lebanon, Nepal, the Democratic People's Republic of Korea and Viet Nam.
Consistency of domestic and external policies is sought both at the Cabinet level and through a number of organizations under the Prime Minister or Cabinet. Japan is party to the Negotiations on Basic Telecommunications, the Declaration on Trade in Information Technology Products (the "Information Technology Agreement") and the recently completed Financial Services negotiations. Japan also participates in the WTO Working Groups on Trade and Investment and Trade and Competition Policy.
Japan has been actively involved in the WTO dispute settlement provisions, both as complainant and respondent. To date, Japan has requested consultations on four and received complaints on eight cases, and has been involved as a third party in six cases. The rulings of a Panel on alcoholic beverage taxation have been confirmed by the Appellate Body, and the authorities have indicated their intention to implement its recommendation. Consultations between the parties are continuing on other cases.
Bilateral and Regional Agreements
Japan has a number of bilateral agreements, arrangements or understandings, mainly with the United States, on increasing market access or reducing trade barriers; these cover, inter alia, automobiles and automobile parts, semiconductors, financial services and insurance. Japan does not belong to any customs unions or free-trade areas; on the other hand, it is a leading member of the Asia Pacific Economic Cooperation (APEC) and the Asia-Europe Meeting (ASEM).
Trade Policy Features and Trends
Recent economic policy has aimed at further strengthening market mechanisms through structural reform and deregulation, and the reorientation of the economy towards greater reliance on domestic, rather than export demand. The Deregulation Action Program, first announced in March 1995 and revised annually since, has sought to clarify and reduce the scope of government regulations, especially in financial services, telecommunications and domestic transport. Agriculture, construction and international transport have, however, largely been exempted from these moves to deregulation. Concerns have, in this light, been expressed regarding the process of structural reform.
Japan added 14 former Soviet Union states to the coverage of its GSP scheme in 1995-1996. Japan has never "graduated" any developing country from the coverage of its GSP scheme; however, the Trust Territory of the Pacific Islands was removed from the scheme in 1997 when the trust ended.
Type and Incidence of Trade Policy Instruments
There have been no major changes in Japan's tariff structure since its last Review. The simple average rate was 9.4 per cent in 1997; some 60 per cent of tariff lines are rated at 5 per cent or below. Tariff peaks occur in agriculture, food manufacturing, textiles and footwear, rising to some 920 per cent (the ad valorem equivalent of a specific rate) on some vegetable products (konnyaku tubers). Substantial tariff escalation occurs in a number of sectors, mainly between semi-processed and fully-processed items, particularly in food manufacturing and petroleum refining.
The simple average tariff on industrial products (defined as Harmonized System (HS) Chapters 25 to 97) was 4.9 per cent in 1997. Various tariff cuts, including the elimination of applied tariffs, were made either autonomously or under existing agreements, including on certain chemical products, textiles and non ferrous metals; in FY 1996, WTO-related reductions in bound tariffs were implemented ahead of schedule for 697 mining and manufacturing items under Japan's APEC commitments. The tariff quota system on fattening cattle for beef, oats, hi-test molasses, rum and tafia was abolished. Under the Declaration on Trade in Information Technology Products, Japan has pledged to reduce bound tariffs to zero for 57 per cent of lines included: virtually all such lines already benefit from duty free treatment de facto.
Port and customs procedures for imports have been accelerated, leading to a reduction in clearance times, which nevertheless remain lengthy by developed-country standards. The authorities state that they are working towards further acceleration of such procedures through an extension of computerization. Four new Foreign Access Zones (FAZ), centralized locations for import-related operations and facilities to streamline the distribution of imported cargo, has been approved.
A total of about 120 tariff lines at the HS nine-digit level, including fishery products, certain wood products and petroleum, remain unbound and import quotas apply to some items. State trading remains in rice, wheat and barley, milk products, raw silk, salt, leaf tobacco, industrial alcohol and opium. The import cartel covering imports of silk from China was abolished and replaced by an import quota system in 1996; annual consultations are held with China regarding imports of silk yarn and fabrics. Surveillance is also in force on some other products, including VERs by China on garlic and ginger. Japan has notified to the Textiles Monitoring Body a phase-out programme for its prior confirmation and customs confirmation system on silk product imports from the Republic of Korea.
Japan seeks increasingly to coordinate domestic technical and sanitary regulations and standards with international norms. The number of Japanese industrial standards (JIS) corresponding to such norms has grown since 1995, with a target of 1,000 standards to be aligned in three years, and the scope of permission for foreign testing, certification, and factory approval has also increased somewhat. Mandatory technical regulations (in some cases implementing otherwise voluntary standards) are in force notably on food, pharmaceuticals, fertilizers, electrical goods, and products covered under safety regulations for road vehicles, though little information on the total number of such regulations is available.
In 1996, Japan introduced operational guidelines to apply the 1994 Action Plan for greater fairness and transparency in government procurement. In that year, the share of overseas products in procurement valued above SDR 100,000 was some 18 per cent. Since 1995, the share of selective and single tendering has fallen in favour of open tendering.
Anti-dumping investigations were initiated and definitive duties were imposed on cotton yarn from Pakistan in 1995. Following reviews in 1996 and 1997, these duties were reduced or eliminated. Japan has never used countervailing actions or GATT safeguard measures.
Import and Investment Promotion Measures
Japan's import and investment promotion programmes include substantial government incentives, yet it is not evident that these programmes fully address the obstacles encountered; to date, most measures have focused on assisting with existing procedures, rather than attempting major structural improvements. Import promotion measures, including tax incentives and financial measures, have been extended at least until March 1998. Promotional measures for inward direct investment, mainly comprising tax incentives, financial support and technical assistance, were also expanded.
Under WTO provisions, Japan is reducing the number and scope of restrictions on exports. The only remaining "voluntary" export restraint is the monitoring arrangement on car exports to the European Union, which is to be eliminated in 1999. Nine of 11 export cartels have been abolished since 1995. Remaining export cartels, related either to protection of quality or intellectual property, or to import monopolies in partner countries are to be abolished by end-1999.
Measures Relating to the Domestic Market
Changes have taken place in Japan's competition law under the Anti-Monopoly Act (AMA). AMA exemptions allowing retail price maintenance on designated cosmetics and over-the-counter medicines were revoked in 1997. The number of permitted ("exempted") cartels has declined steadily. Easing of obstacles to mergers and acquisitions are regarded as official priorities. Concern remains about the effects on foreign access to Japan of horizontally and vertically integrated groups (kigyo-shudan and keiretsu).
Japan is a founding member of the World Intellectual Property Organization (WIPO), and a signatory to most major treaties regarding intellectual property rights. Recent legislative amendments include a reduction in the time required by the patent office to treat patents cases and the introduction of a post-grant opposition system; thus, the average approval time for patent and utility model applications was reduced to under 24 months by end-1995. To combat violations of industrial property rights at the border, the Copyright Law was amended and fines for infringement were tripled in 1996.
Japan's agricultural productivity remains low, reflecting the rapid aging of the agricultural population and the extremely small average size of farms. The agricultural self-sufficiency ratio fell to 42 per cent in FY 1995, and agriculture accounted for some 20 per cent of Japan's merchandise imports in 1996. High tariff peaks and tariff escalation, together with substantial end-use tariff concessions for domestic processing, are prevalent and the overall level of support to agriculture remains well above the OECD average. The high cost of agricultural inputs has been an important factor in encouraging Japan's food processing industries to relocate offshore.
Japan's implementation of tariffication requirements under the WTO resulted in a significant increase in the number of specific rates. Tariffication of quantitative restrictions often implies, as in other WTO members, prohibitive duty levels. Tariff quotas have frequently been underutilized and there is no system for reallocation of unused quotas. Japan has triggered Special Safeguards under the WTO Agreement for a number of products subject to tariffication. Rice imports are not currently subject to tariffication; the question of continuation of special treatment agreed in the Uruguay Round is to be negotiated in the year 2000.
Though some progress in distribution has been made, such as the abolition in 1995 of the requirement that all rice producers should sell their output to the Government, agriculture has to date largely been excluded from Japan's deregulation efforts. Over-production of rice remains a chronic problem and set-aside provisions for rice land have continued to be the Government's primary response to the issue.
Energy and Utilities
More than 90 per cent of Japan's primary fuels are imported; thus, stable supply has been the major objective of Japan's energy policy and regulations have tended to discourage efficiency. As a result, the price of energy has generally been higher than in other developed countries. However, there are signs of a change in policy direction; recent steps to deregulation have incorporated certain competition-enhancing measures, including the liberalization of petroleum product imports in March 1996 and the introduction of competition in wholesale sales of electric power to the utility companies. Some relaxation in regional monopoly arrangements for city gas companies has also been introduced.
Manufacturing generates about 24 per cent of Japan's GDP, a high share compared to that of other developed economies. In 1996, exports of manufactures were some 7 per cent lower than in 1995. Japan's outward foreign direct investment in manufacturing has also continued to increase. Tariffs on most manufactures are generally low by comparison to both historical and international levels; however, exceptions include textiles and clothing and leather and leather products.
Primarily as a result of the 1995 Japan-U.S. Autos and Auto Parts Consultations, Japan undertook, inter alia, to increase access and sales opportunities, on an MFN basis, for competitive foreign autos and auto parts. A certain number of "critical parts" have been deregulated in this connection. As noted above, voluntary export restrictions remain on Japan's car exports to the European Union.
A new consultative framework on semiconductors between the United States has been established, both at government-to-government level and in the private sector. After the expiry of the 1991 Japan-U.S. Semiconductor Arrangement, the two Governments agreed to establish the Global Government Forum at the government level and the World Semiconductor Council at the private-sector level; Governments and producers from the European Union and the Republic of Korea are also involved in these arrangements.
Recent changes in Japan's policy towards pharmaceuticals and cosmetics include the reclassification of certain vitamins, herbs and minerals as food products (easing access to these products), some organizational changes in the review system for new drug application, and relaxation of regulations on parallel imports of cosmetics. Japan participates in the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) to harmonize quality, safety and efficacy requirements of pharmaceuticals.
The iron and steel industry has been designated as one of the sectors that may apply for government assistance, such as low interest loans, loan guarantees and tax breaks, in the framework of the Law on Temporary Measures to Facilitate Business Innovation. The Government guarantees national treatment in the application of the law.
Private services generated some 64 per cent of Japan's GDP and some 68 per cent of employment in 1996. It has often been pointed out that Japan's services sector has lower productivity than manufacturing; with services accounting for about two-thirds of GDP, it is clear that productivity growth in services is a determining factor in Japan's living standards. This is particularly the case for "input" services such as financial services, telecommunications and transport, where productivity gains can significantly cut costs in other sectors.
Concerns have been raised on the close links between complex regulations and low productivity in service sectors. Legislation in certain areas of the financial, telecommunications, air and maritime transport services sectors allows a high degree of discretion to the authorities. Recent initiatives show a sign of change in the direction of policy; along with general deregulation, Japan is gradually reducing its traditional reliance on government intervention and control, for example in moving toward eliminating the "demand-supply adjustment" provisions that limit competition in many areas.
Recent developments in financial services and telecommunications, if fully carried through, may enhance the prospects for productivity growth in these sectors. New amendments to the Foreign Exchange and Foreign Trade Control Law, announced in 1996 as part of structural reform measures (the Japanese version of the "Big Bang") on financial services, further liberalization initiatives in telecommunications, and other deregulation measures listed in the Deregulation Action Program will open these services to greater competition. Bilateral agreements with the United States on insurance banking, and other financial services are to be applied on an MFN basis to all WTO members; all the major elements of these agreements, together with other concessions relating to insurance and foreign exchange trading, will be bound by Japan in the WTO financial services negotiations. However, unilateral reform measures taken by Japan in the air and maritime transport sectors have been mainly confined to domestic services; protective policies also remain in some professional services.
Trade Policies and Foreign Trading Partners
Since the last Trade Policy Review, Japan has been active in implementation of the Uruguay Round Results. Trade liberalization initiatives taken in the Asia Pacific Economic Cooperation forum (APEC), are also to be implemented on an MFN basis. However, the increased concentration of trade and investment in the Asian region has made Japan more directly vulnerable to the financial and economic crisis in the region than are other major industrialized economies.
Some steps have been taken towards greater deregulation and structural reform in Japan's economy; however, these are still partial in scope and several sectors, including agriculture, construction and certain services, especially financial, remain subject to restrictive regulations that affect both foreign market access and better allocation of domestic resources. Firm continuation of the deregulation process would therefore be an essential element in stimulating the domestic market, as the authorities seek, and encouraging improved market access.Back to top
TRADE POLICY REVIEW BODY: JAPAN
Report by the Government
Japan in the Multilateral System
Progress of Globalization and Japan's Policy Efforts
The Government of Japan has, intensified its policy efforts geared toward the 21st century by adopting measures for enhancing further harmonization between the Japanese and the international economy, and responding actively to the globalization trend.
The Government of Japan has implemented extensive reforms in the domestic market in order to realize an economic structure poised to take full advantage of market forces. To this end, the Government has endeavoured to implement a reform policy through deregulation and improved market-access measures, which increase the efficiency and resilience of the Japanese economy, and enhances Japan's international attractiveness as an arena for economic activities. In the area of deregulation, for example, Japan formulated in 1995 a Deregulation Action Program comprising 1,091 items in 11 areas, and has continued to improve and revise this plan in 1996 by adding 569 new items. Likewise, efforts have been made to increase even more the level of freedom, fairness and globalization in the Japanese financial system, and, thus, make the Japanese market comparable to those of New York and London. This reform, for example, would promote access to and use of the Yen across national borders, by allowing smoother fund raising in Japan as well as freer use of the Yen abroad.
Consolidation of the Multilateral System
For more than forty years since its accession in 1955, the Government of Japan has been committed to maintaining and strengthening a free and non-discriminatory multilateral trading system under the framework of GATT/WTO.
Japan has participated actively in the multilateral trade negotiations, including the Kennedy Round, the Tokyo Round, and the Uruguay Round, and Japan has benefited to a great extent from liberalization of world trade within the rule-based system. Japan on its part has contributed to the sustained growth of the world economy through its progressive liberalization and elimination of tariff and non-tariff barriers to trade.
Japan has been actively engaged in promoting further trade and investment liberalization in the WTO as one of its major members, for example, by taking the lead in forming a consensus at the SMC on the so-called new issues such as trade and competition policy, trade and investment, and on the ITA.
Particularly with regard to investment, Japan actively seeks to contribute toward a successful accord on OECD's proposed Multilateral Agreement on Investment (MAI), as well as working to examine the relationship between trade and investment through discussions with developing countries at the WTO.
Japan also believes that it is important to encourage the developing and least-developed countries as well as the economies in transition to achieve early accession to the WTO, since such a step will facilitate the integration of those economies into the multilateral trading system, thereby ensuring universality of the WTO system. Japan is determined to continue to play a leading role in supporting the accession process of applying countries and economies.
Furthermore, Japan attaches great importance to the multilateral trading system, the primacy of which has been reaffirmed in the Singapore Ministerial Declaration. It is, therefore, indispensable to shape regional trade agreements in a manner that they are complementary to it, and consistent with its rules.
The mission of WTO has been in the past and will be in the future to achieve through negotiations the continuing liberalization of trade within a rule-based system. The Government of Japan, fully recognizing its responsibilities, is prepared to address the various challenges, which it may encounter in the endeavour toward further liberalization.
The Trade and Economic Policy Environment
Japan's Economic Environment
Four years have passed since the trough of economic depression in October 1993, and the upswing in economy is one of the longest in the postwar period. The tempo of the recovery is, however, slow. The Japanese economy recorded especially up to the middle of 1995 very small growth rates (nearly zero), and small but frequent adjustments in inventories and production. Various economic measures were thus employed to bolster economic growth, including significant public investment spending, and tax reductions.
However, a strengthened cyclical upswing was seen in FY1996. Adjustments of inventories, production and employment were accelerated. Since mid-95, the exchange rate trend has shifted to the correction of the yen overvaluation which have contributed to positive external demand contribution, contributing thus to economic growth, and the level of job uncertainty has been reduced due to the improved employment situation. In spite of the increase in consumption tax as of April 1997, the basic trend of economic recovery with the demand in private sectors as the primary favourable factor continues, even though the pace of recovery at the moment has become gradual, and circumspect attitudes of enterprises are observed in respect to their judgement on business conditions.
Financial conditions have been those of easy money already since September 1995, when the official discount rate was reduced to a 0.5 percent level. Long-term interest rates have been below 3 percent point since the middle of 1996, while short-term lending rates have remained about the same. Money supply at M2+CD level has increased at an annual rate of about 3 percent. The easy monetary policy has contributed to the economic upswing by stimulating housing construction and investment into plant and machinery.
Stock prices seem to follow separate trends. Those of highly profitable industries have been steady. Those of the financial and construction sectors, on the other hand, have decreased.
With respect to exchange rate movements, the trend in the Yen's depreciation has continued. It is often argued that this exchange rate movement is caused by increasing investment into dollar dominated securities due to the widening interest rate differential between the United States and Japan, and decreasing of the current account surplus.
Trend in Foreign Trade
Trade statistics indicate that Japan's trade surplus expanded for two straight years from 1991 onwards, due, inter alia, to a stagnant domestic economy. A trade surplus value of ¥13.48 trillion was recorded in 1992, the second highest in the period after 1986. There has been, however, an overall and increasingly steady trend toward a contracting trade surplus down to ¥6.74 trillion in 1996, even though ¥3.98 trillion showing a year-to-year increase of 28.3 percent was recorded in the first half of 1997.
Although the total value of exports decreased by 6.5 percent in 1993, it increased for three straight years from 1994 onwards.
- The total value of exports (1996) ¥44.73 trillion (an increase of 7.7 per cent as against 1995)
- A year-to-year increase (the first half of 1997) up by 15.1 per cent (as against the first half of 1996)
- Increase of the total value of exports in 1996 on a regional basis (as against 1995)
The Middle East &n bsp; up by 24.9 percent
China up by 15.5 percent
The Association of Southeast Asian Nations (ASEAN) up by 9.3 percent
The United States & nbsp; up by 7.4 percent
The European Union (EU) &n bsp; up by 3.7 percent
- The total value of imports likewise increased for three straight years from 1994 onwards.
- The total value of imports (1996) ¥37.99 trillion (an increase of 20.4 percent as against 1995)
- A year-to-year increase (the first half of 1997) up by 12.9 percent
- Increase of the total value imports in 1996 on a regional basis (as against 1995)
China & nbsp; up by 30.1 percent
The Middle East up by 28.8 percent
ASEAN up by 25.7 percent
The United States up by 22.0 percent
The share of manufactured goods in total imports has also been increasing steadily, reaching in 1996 a record level of 59.4 percent (a 28.5 percent point increase as against 1985).
Japan's Investment Trend
Japan's outward foreign direct investment (FDI) on an MOF reported base amounted to ¥5,409.4 billion in FY 1996, which represents an increase of 9.1 percent as against FY 1995. Such increasing trend has continued for the third consecutive year. In FY 1995 a 15.8% increase was recorded as against FY 1994.
The major characteristics of outward FDI in FY 1996 were :
(i) A sharp increase of FDI in the transport sector, which was caused by active overseas business operations by automobile companies, raised investment levels in the manufacturing industry to its historically highest level.
(ii) The growth rate of the flow of FDI into Asia, however, slowed down with a recorded annual growth rate of 9.7 percent (¥ 1308.3 billion), as the growth rate was 18.2 percent in FY 1995. This slow down was largely due to a sharp decline in investment in China, which had experienced a rapid increase until the previous FY. Over 70 percent of such investment into China was made into the manufacturing industry. Overall investment into the Asian manufacturing industry recorded therefore a 4.5 percent decline as against the preceding FY, and fell below investment levels into North America. Overall investment levels into North America increased by 15.8 percent (¥2593.3 billion) as against the preceding FY. Investment into the manufacturing industry continued its growth pattern by an annual increase of 36.4 percent.
FDI flows into Japan reached ¥770.7 billion, equivalent to a 108.5 percent increase as against FY 1995, which was caused by doubling of investment amounts into both manufacturing and non-manufacturing industries. Thus, the previous FY's decrease reversed into an increase in FY 1996. Hence, the gap between outward and inward FDI flows was reduced considerably, that is from a 1:13 ratio in FY 1995 to a 1:7 ratio in FY 1996.
Major characteristics of inward FDI flows in FY 1996 were :
(i) In the manufacturing industry, a large increase in inward FDI was recorded for the machinery and metal sub-sectors. In the non-manufacturing industry, investment into the service sector increased with investment originating from Singapore, and investment into the commerce, trade and real estate sectors likewise recorded a significant increase.
(ii) Investment flows originating from North America, which has accounted for the largest share, increased even more (36.9 percent (¥244.5 billion) as against the preceding FY). The share of investment flows originating from Asia increased from 6.7 percent (¥24.7 billion) in FY 1995 to 17.8%(¥137.2 billion). As regards Europe, inward investment flows originating from major countries, such as the Netherlands, Germany, and the UK increased. However, their combined share decreased from 34.5 percent (¥127.4 billion) in FY 1995 to 28.6 percent (¥220.2 billion). Europe's decreased share was due to the significant growth in the share of inward FDI originating from Asia and Latin American countries. A large increase in investment amounts from foreign affiliates in Japan has been recorded (¥23.3 billion in FY1985 to ¥100.0 billion in FY 1996).
Trade Policy Development 1995-1997
The Uruguay Round and WTO Implementation
The Government of Japan has faithfully implemented the results of the Uruguay Round negotiations. The following are some of the examples which demonstrate policy efforts of the Government in this regard.
Average tariff rates were, as a result of the Uruguay Round negotiations, reduced to 1.5 percent for industrial products, 1.0 percent for forestry products, 4.1 percent for fisheries' products, and 9.3 percent for agricultural products. The average tariff rate for non-agricultural products was thus reduced to an overall 1.7 percent level, one of the lowest in the world.
Japan contributed to the successful conclusion of the Information Technology Agreement (ITA) at the WTO Singapore Ministerial Conference in 1996. Japan has already implemented in July 1997 the first tariff reductions, and Japan will eliminate customs tariffs on such information technology products by the year 2000. Regarding the Tariff Elimination Initiative on pharmaceuticals, Japan expanded the number of tariff lines to cover about 400 products, in July 1997 based on the review results.
The rules covering special duties (anti-dumping duty, and so on) were revised in conformity with the Uruguay Round agreements.
Japan has taken the following measures regarding market access in the agricultural field :
a) Since April 1,1995, Japan has implemented tariff reductions in line with its schedule
b) In accordance with access commitments as specified in its schedule, Japan has introduced tariff quota and established current access opportunities, which are subject to tariffication, and
c) Japan has established minimum access opportunities for rice in accordance with Annex 5 of the Agreement on Agriculture.
The following amended domestic laws were passed in order to implement the above measures: the revised Customs Tariff Law; the Temporary Tariff Measures Law; the Manufacturing Milk Producer Compensation Temporary Law, and the Cocoon and Raw Silk Price Stabilization Law. In addition, the Law for Stabilization of Supply-Demand and Price of Staple Food was introduced. Japan's total AMS in the field of domestic support in FY 1995 was below the level committed in its schedule for FY 1995, mainly due to reductions of administered prices and so on.
Since January 1, 1995, tariff reductions have been implemented in accordance with the schedule in the areas of forestry and fishery products.
In the area of trade in services, the government of Japan has played an important role both in the Uruguay Round negotiation and ongoing negotiations thereafter. The government of Japan submitted a high-level offer at the conclusion of Uruguay Round negotiations without any MFN exemptions, covering about 100 out of 155 sectors in its schedule of specific commitments. It includes important service sectors such as, among others, business services, telecommunication services, construction and related engineering services, distribution services, financial services and transport services.
Regarding the ongoing negotiations after the conclusion of the Uruguay Round, especially the negotiation on basic telecommunication services, financial services and maritime transport services, the government of Japan has contributed significantly to the negotiations by tabling advanced offers. Regarding the negotiation on basic telecommunication services, the government of Japan made a commitment eliminating the limitation on foreign investment on a broad range and played an important role for the successful conclusion of the negotiation. The government of Japan is also making serious efforts for the successful conclusion of the negotiation on financial services by submitting a high-level offer reflecting the amendments to the Foreign Exchange and Foreign Trade Control Law.
In the field of intellectual property rights, since the conclusion of the Uruguay Round negotiations, Japan has amended the laws and regulations concerned. Patent Law and Copyright Law have been amended in accordance with the TRIPS Agreement. This amendment includes extension of patent term or expansion of neighbouring rights protection to performances etc. relating to WTO member countries.
Since the establishment of the WTO, Japan has formally raised under the WTO dispute settlement procedures the following four matters with a view to seeking mutually satisfactory agreements; the unilateral actions by the United States under Section 301 and 304 of the Trade Act of 1974 (related to the Japan-US automobile and auto parts issue), the certain automotive investment measures by Brazil, the certain measures affecting the automobile industry by Indonesia, and the measures affecting procurement by the regional government of the United States. Japan has also participated, as a third party, in the disputes between other Members regarding the EC's trade description on scallops, the EC's banana regime, the export subsidies in respect of agricultural products by Hungary, the US import prohibition of shrimp, the EC's custom classification of certain computer equipment, the US measures affecting textiles and apparel products, the US imposition of AD duties on TV import from Korea, and the Quantitative restrictions on import products by India.
Relations with Other Countries and Regional Initiative
Japan as a major trading country maintains close relations with its major trading partners through bilateral consultations, as well as through meetings held within the framework of regional initiatives such as APEC, and ASEM.
Japan has been in a mutually beneficial relationship with other Asian neighbours in economic field. Japan believes that in order to ensure sustainable growth for developing countries and further liberalization in Asia, it is essential to strengthen financial and capital markets, as well as to strengthen the base for further economic growth by modernizing industrial structure and developing infrastructure. For the recent currency crisis in Thailand, Japan promised a great amount of expenditure to the relief package which was arranged by some Asian countries and multilateral development banks, with the IMF playing a central role in coordinating the package. This is one of the examples which demonstrate Japan's readiness to cooperate with the Asian neighbours, through various means, to achieve sustainable development in the region.
Japan believes that the promotion of cooperative economic relations with the economies in the Asia Pacific Region through a forum, such as the Asia Pacific Economic Cooperation (APEC), will foster of an open regional economic community in the area. Japan believes that this would stimulate world trade, and thereby contribute to the development of the global economy. The adoption in 1996 of the Manila Action Plan for APEC, which marked a new "Action Phase" in APEC's activities, was an important development. Japan's Individual Action Plan (IAP) presents a comprehensive package of actions to be taken based upon the Osaka Action Agenda of 1995, which was formulated to implement the Bogor Declaration of 1994. Japan attaches great importance to the IAP process, and has conducted active consultations with other member economies, the results of which are reflected in the IAP to the maximum extent possible. Japan will make continuous efforts to improve its IAP with a view to establishing a dynamic and on-going IAP process, taking into account the interests of the private/business sector, which is the main beneficiary of trade and investment liberalization, as well as other member economies.
Several measures have been taken in the field of trade policy within the framework of the Asia-Europe Meeting (ASEM), since the inaugural meeting was held in March 1996. The Senior Official's Meeting on Trade and Investment (SOMTI), and the Meeting of the Directors-General and Commissioners of Customs were both held twice. The Finance Ministers' Meeting and the Economic Ministers' Meeting were held in September 1997.
Member countries endorsed the Investment Promotion Action Plan (IPAP) and the framework for the Trade Facilitation Action Plan (TFAP) at the Economic Minister's Meeting, bearing in mind that these plans can be adopted at the second ASEM. The Business Forum and the Business Conference were held from the point of view of promoting interaction between business sectors.
Japan - US Trade Relations
Trade relations between Japan and the United States have improved over the past three years as a result of the significant decrease in the United States' trade deficit with Japan, which was partly a result of the growth of US exports to Japan, and partly due to the settlement of individual trade disputes in the areas of automotive and auto parts, semiconductor products and insurance services. Concern has been voiced by the United States about the recent increase in Japan's trade surplus with the United States, which has been recorded since last October, due to the steadily growing US economy and the depreciation of the Yen. It is the view of the Government of Japan that because of the continuing structural changes in the Japanese economy, such as the increase in imports of manufactured products and in the proportion of overseas production by Japanese manufacturers, aside from short-term fluctuations, Japan's trade balance is unlikely to increase significantly over the medium term.
In view of the importance of the trade balance on a global basis, the Government of Japan is committed to promoting further structural reform including deregulation, with a view to achieving economic growth led by domestic demand.
Sector-specific consultations have been held regarding various issues such as automobile and auto-parts, semiconductors and insurance. The results of these consultations have been applied on an MFN basis.
Economic Relations with Europe
Japan and the EU conduct regular meetings at various levels, and exchange views on the respective economic situations and on bilateral trade and investment issues. Sector-wise consultations have taken place to deal with specific issues, when necessary. All results of these consultations have been applied on an MFN basis. Such a cooperative approach based on an intensive dialogue has contributed to provide some positive trends, such as the improvement in recent years in the Japan-EU trade imbalance and the resolution of various bilateral trade disputes in a non-controversial manner. Japan and the EU have also the valuable practice of objective analysis through the joint study of statistics or other objective data within the framework of the EU-Japan Experts Meeting on Trade Statistics and the EU-Japan Experts Dialogue on Distribution.
The EU has concluded Europe Agreements with those Central and Eastern European countries, which desire accession to the EU in the future, and it has also extended associate status to some of its Mediterranean partners by concluding "Euro-Mediterranean Agreements". Japan has expressed to the EU its interest and concern in this matter, since some of the measures taken by the Central and Eastern European countries, which provide preferential treatment to the EU, could have an negative impact on the interest of third countries.
Japan has also expressed to the EU its hope that the whole process of adjustment to the third stage of Economic and Monetary Union (EMU) be pursued in a stable manner, taking into account the essential impact, which the introduction of the single currency "Euro" will have on the world economy.
Regional trade agreements (RTAs), which have increased in recent years in terms of both numbers and scope, have a potential to contribute to the development of the overall global economy. However, in reality there still remain doubts about their consistency with WTO agreements. Japan is seriously concerned that some RTAs have raised the barriers to trade with non-member countries, that they have effectively weakened the free, non-discriminatory, and open multilateral system formed under the WTO.
Japan believes that, under such conditions, the WTO should examine strictly the RTAs about their consistency with the WTO agreements. Japan has, therefore, assumed the initiative and presented proposals to the WTO in order to improve the organization's capacity to review regional trade agreements, and is actively contributing to the work of the Committee on Regional Trade Agreements.
Japan has not belonged to any preferential regional agreements, and offers no preferential tariffs to any country or region, except those extended to developing countries under the Generalized System of Preferences (GSP).
Domestic Policy Developments Affecting Trade Policy
Reforms of the Economic Structure
The Government formulated in December 1995 the Social and Economic Plan for Structural Reforms. Based upon this plan, it has promoted various measures, bearing two objectives in mind, rectification of the economy's high cost structure, and development of lines-of-industry for which high future growth is projected. The Economic Council, which is an advisory body to the Prime Minister, presented in December 1996 to a Cabinet meeting a progress report on the implementation of the reforms identified in the Plan.
The Economic Council also started in July 1996 deliberations on how to promote structural reforms, including deregulation measures, in six areas, namely advanced telecommunications, physical distribution, the financial system, land and housing, employment and labour and medical care and welfare. These six areas were selected, because structural reforms in these areas are considered urgent, and are expected to generate significant economic effects. The Council recommended in December 1996 to the Prime Minister far reaching reforms in these areas, which are compiled in a report titled "Structural Reform in Six Areas".
Prime Minister Hashimoto announced his decision in November 1996 to take bold steps and an integrated approach in the implementation of six major reforms, one of which is also the reform of economic structure. This decision was made with a view to addressing problems that have emerged as a result of undergoing changes in Japanese industry and the slow-down of economic growth due to the progressive aging of Japan's population. In response to the Prime Minister's leadership, the Government adopted as a Cabinet Decision in December 1996 the Program for Economic Structure Reform, and in May 1997 the Action Plan for the Economic Structure Reform. The Action Plan aims at revitalizing the Japanese economy, and it stipulates that the Government will take comprehensive measures, which are geared at the creation of an environment that is favourable to new business activities, and that is attractive to Japanese as well as foreign companies. This is to be achieved in particular by reducing Japan's high cost structure through the implementation of comprehensive deregulation measures in such areas as energy supply, and information and telecommunications, and restraint of the public burden.
The Government revised the Deregulation Action Program further in March 1997 in line with these decisions. In addition, the Government decided in July on Policy Actions to Market Access Issues, in order to take the necessary actions for improving market access, which form part of the reform of the economic structure.
An estimate by the Economic Planning Agency shows the aforementioned economic structural reforms will lead to the an annual increase of real GDP growth rate by 0.9%, and an estimate by the Ministry of International Trade and Industry shows that GDP in 2001 will have increased by 6.0% through deregulation.
Fiscal Structural Reform
On March 18 1997, the Cabinet decided, as an interim target under the five principles of fiscal structural reform recently presented by Prime Minister, to aim to achieve the fiscal consolidation target bringing down the national and local fiscal-deficit-to-GDP ratio to 3% or less; eliminating the issuance of special deficit-financing bonds by FY2003. The Cabinet also decided to designate the three remaining fiscal years of this century as an "intensive reform period" to promote spending reforms and cutbacks while allowing no sacred areas. On June 3 1997, the Government's and ruling parties' Conference on Fiscal Structural Reform (chaired by the Prime Minister) issued the report "the Promotive Measures for Fiscal Structural Reform", and based on the report, the concrete measures and policies for reform and reduction of expenditure have been decided by the Cabinet.
In particular, to ensure that general expenditure, (discretionary expenditures) in the FY
1998 budget is lower than that in the FY1997 budget, the targets for quantitative reductions in the principal areas of expenditure as concluded by the Conference on Fiscal Structural Reform will be reflected at the stage of budget requests for FY1998.
In addition, efforts will be made to further curb spending depending on the progress in reduction of the fiscal deficit. In accordance with this decision, the utmost effort will be devoted to the building of a sound fiscal structure, including the resolute execution of necessary structural reforms. And a bill for fiscal structural reform was submitted to the Diet in the current extraordinary session in the fall of 1997.
The organization and powers of the Fair Trade Commission were strengthened through the Antimonopoly Act (AMA) Amendment, which went into force on June 14, 1996. The amendment is expected to ensure an even more vigorous enforcement by the FTC of the Antimonopoly Act.
Another amendment to the Antimonopoly Act was promulgated on June 18, 1997.
By this amendment:
1) The existing ban on holding companies will be repealed at around the end of 1997 to the extent that holding companies do not constitute excessive concentration of economic power; and,
2) The international contract notification requirement was repealed at the very day of the promulgation.
The FTC promotes actively competition policy together with deregulation. Relating to the review of AMA exemption systems, for example, an omnibus bill was approved by the Diet and it went into force in July 1997 with respect to the repeal and reform of AMA exemption systems under individual laws (laws other than the Antimonopoly Act and the Exemption Act). With regard to the review of Government Regulations, the FTC organized and experts' study groups, in order to propose the direction of the review from the standpoint of competition policy in each sector. The study groups have issued various reports, including on telecommunications (1995), domestic air passenger transportation services (1997), electricity sector(1997) and gas sector(1997).
The FTC takes rigorous legal actions against violations of the Antimonopoly Act. The number of legal cases against such violations were 25 cases in 1995, and 30 cases in 1996. The breakdown of these cases is as follows:
|Cartels (excluding bid-rigging)||5||7|
|Unfair Trade Practices||4||2|
The total surcharge payment contained in the orders over the last two years has been estimated at the total of ¥ 9.5 billion (equivalent to about US $ 79.0 million).
The FTC has been making major efforts to eliminate bid-rigging. Bid-rigging cases account for more than half of the legal actions. Of these cases, the FTC filed for criminal accusations with the Public Prosecutor General in the following two cases : (1) bid-rigging of tenders for electrical facilities' contracts commissioned by the Japan Sewage Works Agency (1995), and (2) bid-rigging of water meters ordered by the Tokyo Metropolitan Government (1997). In 1990, the FTC adopts a policy to actively bring accusations in order to seek criminal penalties against violations that substantially restrain competition in a particular field of trade, such as price cartels, supply restricting cartels, market allocation agreements, bid-rigging, and boycotts which:
1) constitute serious violations that are likely to have a widespread influence on people's lives; or
2) involve firms or industries that are confirmed offenders, or that do not abide by the measures to eliminate the violation, and where the administrative measures of the Fair Trade Commission are not considered to fulfill the aims of the Antimonopoly Act.
In addition, the FTC considers it particularly important that Antimonopoly Act violations be eliminated in those economic sectors where government regulations are relaxed, because such violation could nullify the benefits of deregulation. The FTC has been employing, to this end, various measures authorized under the AMA.
1) It was found that the trade association of road haulage companies decided to increase the transportation fees charged by its members. The association then let its members notify the increases to the government authority in charge. In February 1996, the FTC issued a recommendation decision against such activities for violating the Antimonopoly Act (February 1996, the FTC);
2) The FTC found that a public testing organization for food for patients in hospitals and a related company collaborated to monopolize the market. The FTC issued a recommendation decision against such activities in May 1996; and,
3) The FTC also issued warnings against anti-competitive practices in the fields of taxi and air transport.
In the field of surveys on business activities and the current economic situation, the FTC, in 1996, published the results of the survey on activities of Japanese trade associations perceived from the perspective of foreign-owned enterprises. The results of the survey indicate that the openness, non-discrimination, and transparency of trade associations' activities have been enhanced. However, certain government agencies tend to use trade associations to convey information in facilitating administrative objectives. Among the Antimonopoly Act violations by trade associations established in individual industries, those committed in connection with governmental regulations or administrative actions represent a high proportion. Hence, in order to prevent such violations by trade associations, it is necessary not only for trade associations themselves but also for administrative authorities to take appropriate steps. The FTC is going to make efforts to make the Trade Association Guidelines and other guidelines better known among the general public, and also to make the administrative authorities concerned fully understand the essence of the Antimonopoly Act.
The FTC also published, in 1997, the surveys on the actual conditions regarding transactions of photographic film and paper among the relevant firms.
In the field of technical cooperation, the FTC has held annual training courses on competition policy for participants from developing countries and economies in transition. The FTC has likewise held training courses on competition policy for participants from APEC member countries under APEC's technical and economic cooperation mechanism of "Partners for Progress".
Financial System Reform
The financial system reform was initiated by Prime Minister Hashimoto in November 1996. Through extensive and drastic measures, the reform aims to transform Tokyo into an international financial market the caliber of New York and London. Among the various areas, the forerunner of the reform is the amendment of the Foreign Exchange and Foreign Trade Control Law. The amendment passed the Diet in May, and will come into effect next April. In other areas, reports by the relevant councils were published in June, and putting together the conclusion of the deliberations by those councils, the comprehensive reform plan was published on June 13th.
The plan has been formulated on the basis of the following concepts;
(i) Clarification of the time schedule in order to promote the reform coherently
(ii) Implementation of all reform measures that are considered necessary under the following three principles
° Free (i.e., a liberal market under market principle);
° Fair (i.e., a transparent and reliable market);
° Global (i.e., an advanced and international market);
(iii) Creation of measures from the users' perspective
From the standpoint that the reform must benefit the users, the plan covers all of the following four perspectives;
(i) Expanding the choices of means for investors and borrowers;
(ii) Improving the quality of intermediaries' services, and promoting competition among them;
(iii) Developing a market with further utility;
(iv) Establishing a reliable framework and rules for fair and transparent transactions.
Financial systems must be reformed so as to ensure proper return on the ¥1,200 trillion of Japanese household financial assets, smooth funding for growing industries for the next generation, and active capital flow with the rest of the world. The comprehensive financial system reform in Japan, which includes bold deregulation measures and measures to secure transparency and reliability of the market, is expected to create such a system where the market mechanism functions to its full extent and optimal allocation of resources is achieved.
Through such efforts to reform, Japan seeks to enhance the level of functioning of the Japanese financial market to prevent its possible hollowing out. In doing so, status of the yen as an international currency would be strengthened.
Current Progress in the Deregulation Process
Since 1993, successive Japanese governments have attached outstanding importance to the deregulation process. The Cabinet decided in 1995 on the Three-year Deregulation Action Program (FY 1995 to FY 1997) with a view to :
(i) Expanding the range of available choices in response to diversified consumer needs, and to reducing price differentials then prevailing between Japan and abroad
(ii) Expanding domestic demand, facilitating imports, and increasing business opportunities, and thus contributing to harmonization with the international environment, and
(iii) Reducing administrative work by adopting simplified standard requirements, including the use of electronic and paperless methods.
The final revision of the Three-year Action Program was decided for in March 1997. This program shows that 1,635 deregulation measures had been implemented already as of March 1997. About 1,200 items in total, including 890 new measures mentioned in this program, in twelve areas are expected to be implemented in FY 1997 and later.
The program was formulated through a transparent process, taking into account of the following :
(i) comments and proposals from foreign governments on the occasions of economic consultations;
(ii) written comments and proposals from foreign governments and private sector organizations in Japan and abroad; and
(iii) the opinions received from such fora as the Administrative Reform Committee, and the Economic Council.
The basic approach adopted under the program includes the points listed below :
(i) In principle, economic regulations should ensure a minimum level of transaction costs. The fundamental principle with regard to regulations that are of social nature is to retain a minimum regulatory framework consistent with the need to serve legitimate policy objectives
(ii) The ex-ante type of administration is replaced by an ex-post facto review system
(iii) A deadline for consideration is specified in the existing regulation for each of the proposed changes
(iv) The relevant authorities, which do not respond to requests and opinions on deregulation received from domestic and overseas interested parties, are requested to clarify their reasons for not responding.
Further deregulation measures are expected in future to be promoted steadily in a similarly transparent process.
Future Policy Directions
Further Development Of The Reform Process
With the advances in telecommunications technology, the world is rapidly becoming one global community and dramatic changes are taking place as we move to a new society in which people, products, capital and information flow freely. At the same time, Japan faces a myriad of issues, including the rapid aging of population, the budget crisis and the hollowing out of industry, which, if left unattended, could well result in Japan's being left behind by the global tide. In other words, serious limitation have been revealed in the Japanese socio-economic system, which has sustained the development of the country over the 50 year post-war period. In this new era in which there has been a dramatic increase in cross-border business and national systems themselves are becoming a major determinant of industrial competitiveness, enhancing the economy's overall efficiency and flexibility has been a priority for the Japanese government. Recognizing the urgent needs of wide-ranging reforms, the Government of Japan is now promoting extensive reforms as have been described in this report, so as to create a new Japanese socio-economic system which is more compatible with market mechanisms and thus suitable for the 21st century.
While taking bold steps in domestic reforms, the Government of Japan has been keenly aware of the benefits that it has enjoyed under the multilateral trading system, and the responsibility it has in its maintenance and strengthening. Japan reconfirms its long-standing commitment to maintain and strengthen a multilateral free trade system in close cooperation with other Members at WTO and within other frameworks such as APEC and ASEM, and reiterates its readiness to strive for active and continued leadership in further liberalization of trade and investment in the next decade. Back to top