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Japan: January 1998

“ Some members noted that certain sectors remained highly regulated, including agriculture, food processing, construction, transportation, telecommunications, financial services and distribution, and urged widening of the scope of deregulation and a faster pace of reform.”

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Summary of Secretariat report
  > Summary of Government report

30 January 1998

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    The Trade Policy Review of the World Trade Organization (WTO) concluded its fourth review of Japan's trade policies on 27 and 28 January 1998. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion.

    The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO 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 Chairperson'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), Benin (1997), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), the Czech Republic (1996), Cyprus (1997), 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 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993 and 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).

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    During the last two days, the Trade Policy Review Body (TPRB) has conducted the fourth review - the first under WTO provisions - of Japan's trade policies and practices. These remarks, made under my own responsibility, summarize the 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.

    The discussion, including the introductory statement of Japan and the remarks of the two discussants, developed under three main themes: (i) macroeconomic background and structural reform, (ii) trade policies, and (iii) sectoral issues. Participants also raised a number of questions in writing. The representative of Japan provided a comprehensive reply in the context of the meeting and undertook to provide further details as necessary.

Macroeconomic background and structural reform

    Participants emphasized Japan's important role in the global and regional economy, in the context of the economic crisis experienced by several countries in East Asia. Members welcomed recent measures aimed at increasing domestic demand in Japan. However, some doubts were expressed whether these measures were sufficient and would produce results quickly enough, to address the current economic issues facing Japan. Some members queried whether official projections for growth should be adjusted downwards in the light of current developments. Participants emphasised the need for Japan to stimulate domestic demand, rather than rely on exports to revive growth. Some participants expressed concern on the recent widening of the current account and trade surpluses.

    Participants commended the progress made to date in deregulation and structural reforms and the recent announcement of a new programme to replace the current Deregulation Action Programme. They asked for supplementary information on the new programme. Some members noted that certain sectors remained highly regulated, including agriculture, food processing, construction, transportation, telecommunications, financial services and distribution, and urged widening of the scope of deregulation and a faster pace of reform. Concerns were also raised that deregulation might result in new types of regulation. While some welcomed the opportunities given by Japan for comment by foreign authorities on deregulation, others raised concerns regarding the membership of the monitoring group for the deregulation process.

    Participants raised questions relating to the enforcement of competition policy by the Japan Fair Trade Commission, and urged Japan to strengthen its competition policy regime. Questions were also raised on Japan's perspectives on the balance between outward and inward investment.

    In reply, the representative of Japan said that recent tax reductions should add some 0.2 per cent to Japan's growth, together with a positive psychological effect on consumption. Structural reform should add a further 0.9 per cent per annum to growth in the period 1998-2003. Efforts to stimulate domestic demand through deregulation and reduction in prices were bearing fruit. The Asian currency crisis could affect Japanese exports adversely - both directly, and indirectly through changes in competitiveness - while stimulating imports from Asian countries. A possible fall in Japanese investment in East Asian domestic consumption could be balanced by investment for future exports.

    Concerning the current account and trade surpluses, the authorities expected export growth to slow and imports to accelerate in FY 1998: the surplus in goods and services could be some 1.2 per cent of GDP and the current account surplus around 2.4 per cent, comparable to previous levels.

    Deregulation was having a stimulating economic effect and these efforts would be continued. Concrete examples of structural reform included the liberalization of gasoline imports, elimination of demand/supply requirements in distribution and transportation, and foreign exchange deregulation. Agriculture, construction and international transport had not been excluded from the programme.

    The work of the Administrative Reform Committee had been completed. The Government had set up a body to promote new deregulation efforts. A new three-year deregulation programme had been established, covering all administrative areas. Comments on the programme were welcomed.

    The representative of Japan stressed that numerous exemptions to the Anti-Monopoly Act had already been abolished, and others would be reviewed by March 1998. The exemptions for anti-recession and rationalization cartels had been abolished in December 1997. The JFTC worked closely with the public prosecutor in enforcing the law through administrative decisions and criminal penalties. Care would be taken that administrative guidance would not replace anti-competitive regulations and that restrictive practices not be introduced by trade associations.

    Japan had adopted in 1995 a decision on increased transparency in governmental advisory bodies. Japan attached importance to increasing inward foreign investment, both as a means to increase competition in the domestic market and to encourage restructuring. Potential investors in Japan benefited from a law providing a preferential tax system, and a scheme to make available preferential credit.

Trade policies

    Participants welcomed Japan's emphasis on multilateralism in its trade relations and commended Japan's contribution to the WTO process. It was stressed that Japan conducts its trade almost entirely on an MFN basis, avoiding participation in preferential trade arrangements; assurance was sought that Japan's bilateral trade agreements would consistently be applied on an MFN basis.

    Participants noted that average tariffs in agriculture were higher than in manufacturing, and raised concerns on tariff peaks and escalation in agriculture, food manufacturing, textiles, leather and footwear. Some participants raised concerns on tariff quotas, including high out-of-quota rates; the lack of a reallocation mechanism for unused tariff quotas; import quotas on certain products; length of customs clearance times; and Japan's use of origin marking requirements.

    Participants welcomed Japan's efforts towards increased international harmonisation of standards, including embodying of performance based criteria, and the adoption of new mutual recognition arrangements, while noting that further progress could be made. Participants welcomed the increase of transparency in quarantine procedures and the revision of some Japan Agricultural Standards. However, concerns were raised on the complexity and cost of sanitary and phytosanitary conditions; variety-specific approval procedures for fruits and vegetables; and restrictive standards for frozen foods. Participants encouraged further revision of Japan's Food Sanitation Law.

    Some participants noted that Japan's import and investment promotion scheme did not adequately address obstacles to investment and that tax incentives under the Import Promotion Scheme may favour industrial imports from developed countries. Questions were raised on the advantages of the Foreign Access Zones for foreign exporters.

    Participants also raised concerns on the scope of state trading in Japan, as well as issues regarding transparency and the state of liberalization in government procurement procedures.

    Participants noted recent reductions in the examination periods for patent approvals, and asked for the scope of further actions. Participants also requested information on the proposed amendment to the Civil Procedures Act concerning trade secrets.

    Participants raised concerns on the product coverage of Japan's GSP scheme; and on trade policy towards least developed countries, including in the follow-up to the recent High Level meeting.

    The representative of Japan thanked Members for their recognition of Japan's commitment to the MFN principle in the multilateral trading system. He saw no possibility under present conditions of this commitment weakening. Regional trading agreements, while they could contribute to trade liberalization, had the potential danger of undermining the MFN principle. He noted that tariff rates were reviewed every year on the basis of requests from foreign and domestic entities. Customs clearance times were difficult to compare among countries with differing import systems but efforts were constantly being made to reduce delays; for example, an immediate release system had been introduced for air cargo, and cut flower imports from the EU and Australia were cleared in an average of 1.8 hours.

    On TBTs, Japan had decided in 1997 on a review of procedures to facilitate imports. Legislation to adopt performance criteria had been sent to the Diet to encourage the adoption of international standards. The representative provided details on standards, both concerning JIS and JAS. Japan was giving consideration to recognizing foreign certification agencies.

    The representative also provided information on Japan's SPS measures, including those on frozen products, fruits and vegetables, and plants. Details were given on animal inspection, including disease control.

    The representative of Japan noted that the share of manufactured imports in GDP had risen from 3.2 to 4.5 per cent between 1994 and 1996: therefore he was confident that the import promotion programme was working. Its central focus was not on incentives; deregulation and recognition of foreign standards were also import promotion measures. The import promotion tax concession system had been extended until 1999: it was applied on an MFN basis to all countries exporting duty-free items, not favouring imports from industrialized countries. Imports into Foreign Access Zones had grown more rapidly than the total: again, the infrastructure of FAZs were available to imports from all sources.

    State trading enterprises sought specific policy objectives, and Japan believed their operation was consistent with WTO rules. Information was given on state trading in livestock and tobacco.

    Foreign participation in government procurement varied across products, but overall it was higher than in other major trading partners. Moreover, Japan was going beyond its obligations under the GPA.

    Regarding IPRs, Japan was making efforts to shorten the period of examination for the granting of patents, trademarks and designs. Administrative procedures were also being streamlined.

    Japan's GSP system had a broad coverage and efforts had been made to simplify its use. The system offered particular advantages to least developed countries. The GSP was currently under review to remove countries that had reached higher stages of development; LDCs had more favourable treatment under the GSP scheme.

Sectoral issues

    Some participants raised concerns about the levels of protection and support for agriculture, and likely policy options in the future, including in the next round of liberalization negotiations. Questions were also raised on testing and certification requirements for agricultural products and regulatory obstacles to trade in pigmeat. Others raised concerns about the WTO consistency of the SBS system on rice, the continuation of import quotas on fisheries and the import cartel of laver. A number of participants suggested that the results of Japan's agricultural policies had been inconsistent with the Government's own food security objective. Questions were raised on moves to review Japan's Basic Agricultural Law.

    Some participants raised concerns about inadequate reimbursement prices of pharmaceuticals, also noting burdensome and costly testing procedures for medical devices, pharmaceuticals, chemicals, mechanical and electrical appliances. The continuation of regulatory obstacles to trade in leather and leather footwear was also noted.

    Participants welcomed Japan's contributions to the WTO financial services and basic telecommunications negotiations. However, they raised concerns about low productivity in some services sectors and openness of certain services areas; complex regulations in certain services sectors; and the low level of competition in some services. Particular attention was paid to construction, financial, legal, accounting and distribution services. Participants sought an assessment of the effects of weakness in the financial sector on the trade policy of Japan. Questions were raised on transparency and disclosure in the financial sector, including criteria for receiving public funds. Members requested an up-to-date assessment of the implementation of the "Big-Bang" programme, especially in the light of recent regional developments.

    Some members urged further deregulation in construction materials, including further recognition of international certification procedures, moving towards performance-based standards, revision of fire safety restrictions, and recognition of qualified foreign organizations as Registered Grading Organizations.

    In view of the limited time, the representative of Japan in his reply focused on selected sectoral issues.

    In respect of agriculture, he said that as regards rice, Japan was faithfully implementing the Uruguay Round agreement, particularly by setting the price for minimum access rice some 20 per cent below that for domestic rice and promoting consumption of minimum access rice in Japan's market. Administration of unfilled tariff rate quotas had been improved in FY 1997 by permitting applications for unused quotas at different periods. He noted that the trigger level for special safeguard provisions was based on imports in the previous three years, which in Japan's view was in conformity with the Agriculture Agreement. The import quota on fisheries was intended to prevent resource exhaustion in surrounding waters and was, in Japan's view, justifiable under GATT Article XI:2(i).

    Concerning footwear and leather, the representative described Japan's tariff quota system, and noted the specific difficulties of this sector. He also stated that prior confirmation system for silk aimed to ensure the faithful application of bilateral agreements, not to limit imports; this measure would be phased out by 2004.

    Japan had eliminated tariffs on autos in 1978, and imports had increased substantially in recent years. There was no government involvement in dealership arrangements. The representative gave information on the reclassification of vitamins, herb and mineral products and noted that Japan's tariff classification would not be affected.

    The representative of Japan noted concerns regarding low productivity in services, particularly distribution, and suggested that differences in productivity levels between services and manufacturing were not significantly different from other countries. He said that the Deregulation Action Programme sought to promote transparency in services and to simplify administrative procedures and notification or reporting requirements. He gave examples of increases in recent years in foreign service providers in telecoms, construction, legal and all areas of financial services. He called attention to liberalization measures in various areas of telecommunications and broadcasting, including the abolition of the KDD Law, the forthcoming abolition of the "100 destination rule", improvements in interconnection liberalization on cable providers, modification of accounting rates, and the liberalization of foreign investment.


    We have had a very constructive discussion of Japan's economy and trade policies, which has been held at a difficult time for Japan and the world economy. Many participants have emphasized the importance of market opening and deregulation as well as Japan's role in assisting the resolution of the Asian financial crisis.

    Structural reform, deregulation and market stimulation - leading to more open markets - have been common themes running through this TPR discussion. The Japanese economy was, in earlier days, a major engine of world trade and investment and the TPRB has clearly expressed the hope that Japan can again effectively assume this role through its economic recovery and the positive effects of deregulation.

    All participants have recognized Japan's strong and active participation in the WTO system and the importance attached by Japan to MFN treatment has been welcomed. We hope that Japan will respond positively, as they have undertaken, to the large number of specific or bilateral concerns raised during this meeting by various Members. Back to top