RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/76
17 October 2000
(00-4186)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
JAPAN
Report by the Government
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), the policy statement by the Government of Japan is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Japan.Japan WT/TPR/G/76
Page 3
CONTENTS
Page
I. JAPAN IN THE MULTILATERAL SYSTEM 4
(1) P ROGRESS OF GLOBALIZATION AND JAPAN 'S POLICY EFFORTS 4
(2) C ONSOLIDATION OF THE MULTILATERAL SYSTEM 4
II. THE TRADE AND ECONOMIC POLICY ENVIROMENT 5
(1) J APAN 'S ECONOMIC ENVIRONMENT 5
(2) T REND IN FOREIGN TRADE 6
(3) T REND IN FOREIGN INVESTMENT 7
III. TRADE POLICY DEVELOPMENT, 1998-2000 7
(1) T HE URUGUAY ROUND AND IMPLEMENTATION 7
(2) R ELATIONS WITH OTHER COUNTRIES AND REGIONAL INITIATIVE 8
(a) Japan-U.S. relations 8
(b) Relations with Europe 8
(c) APEC 9
(d) ASEM 10
(e) Regional Trade Agreements 10
(3) D OMESTIC POLICY DEVELOPMENTS AFFECTING TRADE POLICY 10
(a) Reforms of the Economic Structure 10
Economic Plans 10
Action Plan for the Economic Structural Reform 11
Economic Strategy Council 11
Economic Policy Measures 11
Benefit of regulatory reforms 11
(b) Fiscal Structural Reform 12
(c) Competition Policy 12
(d) Financial System Reform 15(e) Current Progress in the Deregulation Process 17
(f) Agricultural Policy Reform 18
IV. FUTURE POLICY DIRECTIONS 20
(1) F
URTHER DEVELOPMENT OF THE REFORM PROCESS 20
(2) S EATTLE AND AFTER 20WT/TPR/G/76 Trade Policy Review
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I. JAPAN IN THE MULTILATERAL SYSTEM
(1) PROGRESS OF GLOBALIZATION AND JAPAN 'S POLICY EFFORTS
1. The intensification of globalization offers both benefits and challenges.  A globalized world
could create further market access and extended opportunities for business activities.  The growth of
information technologies (IT) is intensifying the pace of globalization.  IT will be one of the most
potent forces in shaping the 21st century.
2. This trend could be beneficial to many enterprising individuals, firms and communities.  A
large firm which already has international networks can further take advantage of IT and the Internet.
Small business operators can also create a networks with relatively low cost due to the progress of IT.
3. The potential benefits of IT in spurring competition, promoting enhanced productivity, and
creating and sustaining economic growth and jobs hold significant promise.
4. In order to share the benefits of globalization and IT, it is important to seize "Digital
Opportunities" by laying various key foundations, such as economic and structural reforms, sound
macroeconomic management, development of information networks, development of human
resources and active utilisation of IT by the public sector.
5. In this context the Government of Japan has intensified its policy efforts by implementing
extensive reforms through deregulation and improved market-access measures, which enhances
Japan's attractiveness as an arena for economic activities as described in the latter section of this
report.
(2) CONSOLIDATION OF THE MULTILATERAL SYSTEM
6. For more than 40 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.
7. Japan has participated actively in the multilateral trade negotiations, including the Kennedy
Round, the Tokyo Round, and the Uruguay Round, and it has benefited to a great extent from
multilateral system 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.
8. Japan has been actively engaged in promoting further trade and investment liberalization in
the WTO, as shown in the presentation of numerous proposals and papers in the context of the third
Ministerial Conference, including on numerous issues of competition policy, investment rules, trade
facilitation and E-commerce.
9. Japan also believes that it is important for the developing and least-developed countries as
well as the economies in transition to share the benefits of the results of the negotiations.  In this sense
a broad-ranged negotiations are necessary to create an environment in which both developing and
developed countries enjoy the benefits and achieve sustainable development.  Also early accession of
acceding countries to the WTO is important to facilita te their integration into the multilateral trading
system.  Japan is determined to continue to play a leading role in supporting the accession process ofapplicant countries and economies.Japan WT/TPR/G/76
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10. 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 ensure that regional trade agreements are complementary to the multilateral system, and consistent
with its rules.
11. The mission of WTO has been and will be to achieve through dialogue and negotiations
within a rule-based multilateral trade system the enhancement of standards of living.  The
Government of Japan, fully recognizing its responsibilities, is prepared to address various challenges
it may encounter.
II. THE TRADE AND ECONOMIC POLICY ENVIRONMENT
(1) JAPAN 'S ECONOMIC ENVIRONMENT
12. The Japanese economy had been in recession since the spring of 1997, but the recession came
to an end around the spring of 1999, owing to the implementation of various policy measures such as
additional public investment, income tax reduction, accommodative monetary policy, and measures
for stability of the financial system.  Since then, economic activities have continued to improve
moderately.  The Asian economic recovery has also  contributed to the improvement after the second
half of 1999.  In the process of recovery, as the inventory adjustment progressed, industrial productionand corporate profits increased.  These developments provided a good background for the recovery in
investment in plant and equipment since the end of 1999.  Exports continue to increase due to the
good economic condition of Asia, Europe, and the Un ited States.  Imports, especially those from Asia,
are increasing.
13. Although the employment situation remains seve re with the unemployment rate staying at a
high level, overtime hours worked and job offers have been increasing.  The business perception of
excessive employment is decreasing although the level is still high.  On the other hand, with respect tothe household sector, private consumption has not yet shown a clear trend of improvement despite the
fact that decrease in income is coming to the end.  In short, although the Japanese economy is
improving moderately, it is still not on an autonomous path of recovery.
14. The Government of Japan will continuousl y carry out economic and fiscal management
measures focusing on economic recovery, and will operate appropriately in order to attainautonomous economic recovery, carefully taking into account the trend of the economy.  The
government of Japan will compile a new set of policies to implement the Plan for the Rebirth of
Japan.
15. With regard to the financial situation, overall the accommodative monetary condition has
been maintained.  A zero interest rate policy had been in place since February 1999, but on11 August 2000 the targeted overnight call rate was raised to an average of around 0.25%.  Long-term
interest rates have been lower than 2% except in February 1999.  Short-term interest rates had
remained stable except for the temporary rise because of Y2K problems.  However, since
August 2000, they have increased somewhat.  The m oney supply (M2+CDs) has been increased at the
year-on-year change of about 2.0-3.0% from February to July in 2000.  The accommodative monetarypolicy has contributed to the economic recovery by stimulating investment in housing and equipment,
while money demand by private sector still remains weak.  On the other hand, stock prices had shown
a rising trend due to the removal of uneasiness in the financial system and continuing economic
improvement.  However, partly due to the influence of stock price adjustments in the United States,
they fell in mid-April of 2000, and have remained weak.WT/TPR/G/76 Trade Policy Review
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16. With regard to the dollar-yen exchange rate from 1998 to August 2000, the dollar depreciated
from ¥147.64 in August 1998 to ¥101.25 in November 1999.  The dollar has traded in a tighter range
since the turn of 2000, mainly between ¥104 and ¥110.
(2) TREND IN FOREIGN TRADE
17. Trade statistics indicate that Japan's trade surplus expanded in 1997, after four straight years
of decline, and rose to its highest level of ¥1 3.99 trillion in 1998.  In 1999, both exports and imports,
but especially exports decreased, and as a result, the trade surplus decreased to ¥12.28 trillion.  In the
first half of 2000, the imports largely increased reflecting the recovery of the Japanese economy, and
the trade surplus declined by 4.6%.
18. The total value of exports decreased two straig ht years from 1998 onwards, due mainly to the
economic crisis in East Asian countries.  In the first half of 2000, the total value of exports has beenrecovering.
- The total value of exports in 1999 amounted to ¥47.55 trillion (a decrease of 6.1% as
against 1998).
- A year-to-year increase in the first half of 2000 up by 8.9% (as against the first half
of 1999).
- Increase or decrease of the total value of exports in 1999 on a regional basis (as
against 1998).
NIEs (incl. Korea, Singapore, Hong Kong and Taiwan) up by 0.2%
China up by 1.4%
The Association of Southeast Asian Nations (ASEAN) up by 1.3%
The United States down by 5.6%
The European Union (EU) down by 9.2%The Middle East down by 31.3%
19. The total value of imports likewise decreased for two straight years from 1998 onwards, due
mainly to the slump of the Japanese economy and the yen’s appreciation.  In the first half of 2000, the
total value of imports has been recovering.
- The total value of imports in 1999 amounted to ¥35.27 trillion (a decrease of 3.8% as
against 1998).
- A year-to-year increase in the first half of 2000 up by 13.7% (as against the first half
of 1999).
- Increase or decrease of the total value of imports in 1999 on a regional basis (as
against 1998).
NIEs up by 9.2%
The Middle East up by 3.6%
ASEAN up by 1.3%
China up by 0.6%
The United States down by 13.0%EU down by 4.6%Japan WT/TPR/G/76
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20. The share of manufactured goods in total imports has also been increasing steadily, reaching
in 1999 a record level of 62.5% (a 12.3% point increase as against 1990).
(3) TREND IN FOREIGN INVESTMENT
21. Japan’s outward foreign direct investment (FDI) on an MOF reported basis amounted to
¥7,439.0 billion in FY1999, which represents an increase of 42.6% as against FY1998.  The FDI
largely increased after the decrease (21.2%) in FY1998.  The major characteristics of outward FDI inFY1999 were:
(i) FDI in the manufacturing industry in FY1999 swelled to ¥4, 719.3 billion three times
the amount for FY1998 (¥1,568.6 billion) mainly because of several large FDIs such
as in the food sector.  FDI in FY1999 in the non-manufacturing industry decreased by
¥900 billion to ¥2,698.8 billion, mainly due to the decline of FDI in the finance andinsurance sector.
(ii) On the whole FDI in developed countries sharply increased due to several big M&As
in these countries.  About 76% of all FDI therefore was concentrated in FDI in North
America and Europe.  The tendencies in Asia vary among the countries.  FDI in
Korea was boosted to ¥109.3 billion from ¥38.7 billion in FY1998, which was thelargest FDI in Asia in FY1999, while FDI in Thailand shrank to ¥91.0 billion, a half
of the amount in FY1998.
22. FDI flows into Japan in FY1999 almost double d for two consecutive years to ¥2,399.3 billion
from ¥1,340.4 billion in FY1998.  The growth rate of infl ow (+79.0%) was larger than that of outflow
(+42.6%).  Therefore, the gap between outward a nd inward FDI flows was reduced from a 4:1 in
FY1998 ratio to a 3:1 ratio in FY1999.  The major characteristics of inward FDI in FY1999 were:
(i) FDI in the manufacturing industry increased to ¥979.7billion (+213.4%) mainly
because of a rapid increase of FDI in the machinery sector.  FDI in the
non-manufacturing industry also increased to ¥1,491.6 billion (+38.1%) with
increases of FDI in the telecommunications sector and the trading sector.
(ii) The amount of inward FDI from every ot her region except North America and Japan
increased.
1  There were particularly dramatic increases of FDI from France
(+4,341.1%), Canada (+9,648.8%), Netherlands (+268.2%) and Cayman
(+1,058.6%).
III. TRADE POLICY DEVELOPMENT, 1998-2000
(1) THE URUGUAY ROUND AND IMPLEMENTATION
23. 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% for industrial products, 1.0% for forestry products, 4.1% for fisheries’ products, and
9.3% for agricultural products.  The average tariff rate for non-agricultural products was thus reduced
to an overall 1.7% level, one of the lowest in the wo rld.  And 50.9% of all tariff lines are duty free, the
highest in the world (6-digit bases).
                                                     
1 Investments from Japan are those by foreign owned companies in Japan.WT/TPR/G/76 Trade Policy Review
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24. Japan has put weight on increasing export earni ngs for developing countries, promoting their
industrialization and encouraging their economic growth.  Furthermore, Japan is one of the countries
that proposed to implement tariff-free and quota-free treatment, consistent with domestic
requirements and international agreements, under its preferential scheme, for essentially all products
originating in least-developed countries.
25. Japan had applied a special treatment on rice imports under the WTO Agreement on
Agriculture since 1995.  But it has been replaced by a tariff scheme since April 1999, in accordance
with Annex 5 of the Agreement on Agriculture.
26. Japan completed the elimination of customs tariffs on all information technology products in
January 2000 in accordance with the Information Technology Agreement (ITA) at the WTO
Singapore Ministerial Conference in 1996.  Regarding the Tariff Elimination Initiative onpharmaceuticals, Japan expanded the number of tariff lines to cover an additional 639 pr oducts in
May 2000 based on the Second review results.
27. The "Benrishi-ho" (Patent Attorney Law) is to be revised. Requirements concerning
nationality and residence are to be abolished from the current "Benrishi-ho" (Patent Attorney Law)
with the aim of expanded recruiting of patent attorneys regardless of nationality.  The revised law,which will come into effect on 6 January 2001, is also expected to help "benrishi" (patent attorneys)
more smoothly carry out their tasks in the recent globalized business environment.
(2) R
ELATIONS WITH OTHER COUNTRIES AND REGIONAL INITIATIVE
(a) Japan-U.S. Relations
28. Japan's trade surplus with the United States has increased since 1996.  This is mainly due to
the robust domestic demand of the U.S. economy which has caused a surge of the trade deficit for the
U.S. and also because Japan’s imports from the U.S. have decreased due to Japan’s weak private-sector demand.  However, although Japan’s trade surplus with the United States has increased,
Japan’s share within the total U.S. trade deficit has been declining.
29. The Governments of Japan and the United States have been exchanging views in the
Japan-U.S. deregulation dialogue since 1997 concerning deregulation in such areas as
telecommunications, housing, medical devices and pharmaceuticals, financial services, energy, andstructural issues including competition policy.
30. In July 2000, the Governments of Japan and the United States issued the Third Joint Status
Report on the Japan-U.S. Enhanced Initiative on Deregulation and Competition Policy as a result of
the dialogue.  This report contains deregulatory measures taken by both governments which are
expected to improve market access for competitive goods and services in order to enhance consumers’interests and to increase efficiency and promote economic activity.  Consistent with international
obligations, these measures will provide non–discriminatory treatment to competitive foreign goods
and services.  Sector-specific consultations have also been held between Japan and the United States
regarding various issues.
(b) Relations with Europe
31. Japan and the EU have been conducting regular meetings at various levels, and exchanging
views on their respective economic situations, and on bilateral trade and investment issues, including
those of regulatory reform.  Sector-wise consultations have also taken place to deal with various
issues, such as telecommunications, agriculture, etc., when necessary.  All results of theseJapan WT/TPR/G/76
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consultations have been applied on an MFN basis.  Such a cooperative approach based on intensive
dialogues has contributed to the resolution of various bilateral trade disputes in an amicable manner.
32. In the 9th Summit Meeting between Japan and the EU held on 19 July 2000, in which Japan
and the EU leaders discussed the strengthening of overall Japan-EU relations, including economic and
trade relations, the leaders agreed to establish a new cooperative framework for a stronger partnership
by issuing a new political document that is to be implemented by an action plan at the Japan–EUSummit Meeting in 2001.
33. In the action plan for economic and trade affairs, Japan and the EU will jointly seek to utilize
the dynamism of globalization for the benefit of the whole world and to this end will continue to work
towards strengthening the multilateral system.  Areas for co-operation will include, inter alia , the
WTO, the international monetary and financial system, regulatory reform, improving market access,improving the investment environment through prom otion and facilitation of investment, competition
policy, customs co-operation, information technology including electronic commerce and
telecommunications, business dialogue, dial ogue among consumers' organizations.
34. The negotiations on two agreements have recently made a great progress for the facilitation of
the economic partnership between Japan and the EU. First, regarding the Mutual RecognitionAgreement, a mutual understanding has been reached between the negotiating teams of both sides,
and they are to undertake the necessary domestic consultations, bearing in mind the obligations as
Members of the WTO.  Second, as for an cooperation agreement in the area of competition policy,
Japan and the EU have also reached a mutual unde rstanding on substantive elements of the future
agreement.
35. Concerning the euro, Japan has expressed its hope that the confidence in the euro should
establish as an international currency and that th e euro should contribute to the stability of the
international financial and monetary system.
(c) APEC
36. Japan believes that the promotion of cooperative economic relations with the economies in
the Asia-Pacific Region through forums, such as  the Asia-Pacific Economic Cooperation (APEC),
will foster an open regional economic community in the region.  Japan believes that this wouldstimulate world trade and thereby contribute to the development of the global economy.
37. Japan has conducted its activities in line with the three pillars of APEC activities:  trade and
investment liberalization and facilitation, and economic and technical cooperation.  As for
liberalization and facilitation, Japan attaches great importance to the IAP (Individual Action Plan)
process and will continue to actively participate in it.  As for economic and technical cooperation(Ecotech), Japan is one of the most vigorous members in initiating a number of Ecotech activities to
attain sustainable growth and equitable development amongst members in the region, while reducing
economic disparities and improving economic and social well-being.  For instance, this year Japan
proposed the review of Joint Activities stipulated in the Ecotech part of the Osaka Action Agenda,
which was adopted in 1995 as the guideline of APEC’s activities.  APEC endorsed the proposal and isnow in the process of conducting the review.
38. Furthermore, taking into consideration lessons learned from the Asian crisis, APEC has
expanded its activities to macro-economic coordination and the support for the structural reform
efforts of APEC members.  Accordingly, Japa n has responded positively to such expansion of
activities.WT/TPR/G/76 Trade Policy Review
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(d) ASEM
39. Measures have been taken in the field of trade policy within the framework of the Asia-
Europe Meeting (ASEM) since the inaugural mee ting held in March 1996.  In addition to the two
summit meetings, the Foreign Ministers' Meeting, the Economic Ministers' Meeting, and the Finance
Ministers' Meeting have been held twice, respectively.  The ASEM partners adopted the Trade
Facilitation Action Plan (TFAP) and the Investme nt Promotion Action Plan (IPAP) at the Second
Asia-Europe Meeting (ASEM 2), and have been carrying out various works under them.  The Asia-
Europe Business Forum has been held annually since 1996 to promote interaction between the
business sectors of the two regions.
(e) Regional Trade Agreements
40. 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,
if they genuinely facilitate trade liberalization wi thin the region and are fully consistent with the
WTO.  However, in reality Japan is seriously concerned that some RTAs have raised barriers to trade
with non-member countries, and that they have effe ctively weakened the free, non-discriminatory, and
open multilateral system formed under the WTO.
41. Japan believes that, under such conditions, the WTO should examine properly the RTAs with
regards to their consistency with the WTO agreements.  Japan has, therefore, assumed the initiative
and presented proposals to the WTO, especially during the preparation phase of the Ministerial last
year, 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.
42. Japan does not belong to any preferential regional agreements, and offers no preferential
tariffs to any country or region, except those extended to developing countries under the GeneralizedSystem of Preferences (GSP).  However, the RTAs could play a complementary role to the
multilateral trading system both in the field of liberalization and in the process of rule making, on the
condition that they are consistent with the WTO rules.  On this basis, the possibility and the
desirability of free trade agreements are being examined by various sectors (by the joint study group
composed of business representatives, academics, and the Government officials in the case ofSingapore;  by the non-governmental sectors in the case of Korea and Mexico).  Having said that,
Japan continues to attach great importance to strengthening the multilateral trading system as
embodied in the WTO as the basis for its policies, and it considers that the RTAs should be
complementary to the multilateral trading system and fully consistent with the WTO rules.
(3) D
OMESTIC POLICY DEVELOPMENTS AFFECTING TRADE POLICY
(a) Reforms of the Economic Structure
Economic Plans
43. Since December 1995 until 1998, the Government had promoted economic structural reforms
based on the "Social and Economic Plan for Structural Reforms".  The progress of the reforms was
reviewed annually and reported to the Cabinet by the Economic Council, which is an advisory body tothe Prime Minister.  The review report of December 1998, however, pointed out that the plan was
outdated because of changes in economic conditions , and requested the formulation of a new plan.
44. The new plan "Ideal Socioeconomy and Policies for Economic Rebirth" was formulated in
July 1999.  It sets forth a fundamental reform of the socioeconomic system, and indicates the directionJapan WT/TPR/G/76
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toward the ideal socioeconomy in the early 21st century, which should be consistent with four major
socioeconomic trends:  transition to the knowledge-based society;  low-birth rate and aging of
population;  globalization;  and increasing environmental restrictions.  The plan then clarifies the
important policy objectives and measures over the next ten years, and offers guidelines for household
and corporate activities.
45. The review report of the plan issued in June 2000 not only reports on the progress of the
implementation of the indicated policy measures, but also specifies three strategic policy issues which
the Government should work on immediately (within th ree years or so).  They are, promotion of the
IT revolution, development of a recycle-based socio-economy, and creation of a vital and less-anxious
society under aging population.
Action Plan for the Economic Structural Reform46. The Government adopted as a Cabinet Decision in May 1997 the Action Plan for the
Economic Structural Reform.  The Action Plan aims at revitalizing the Japanese economy by the
creation of new businesses and business environment that is attractive to Japanese as well as foreign
companies.  This is to be achieved by reducing Japan’s high-cost structure through the regulatory
reform and restraint of the public burden.  The Government followed up on the Action Plan inDecember 1997 and in January 1999.  And the Government also established Competitive Commission
in March 1999 and it was succeeded by the Industrial Rebirth Council in July 2000, which seeks to
realize reforms based on the opinion of business leaders.  The concrete reforms which the
Government has proceeded with so far are as follows:  System Reform for Corporate Structure, Labor
Market Reform, Creation of new business, Technologi cal innovation and its transfer to industry, and
Deregulation.
Economic Strategy Council47. The Economic Strategy Council, another advisory board to the then
Prime Minister Keizo Obuchi, was inaugurated in August 1998 to discuss and propose ideas for
reviving the Japanese economy and building a prosperous socio-economy in the 21
st century.  Its final
report "Strategies for Reviving the Japanese Economy" submitted in February 1999 calls for
fundamental structural reforms in both the public and private sectors to build a new economic systemof Japan.
Economic Policy Measures
48. The Government has tackled economic structural reforms based on these plans and reports.
Economic policy packages consecutively formulated since 1998 (the Comprehensive Economic
Measures of April 1998, the Emergency Economic Package of November 1998, and the PolicyMeasures for Economic Rebirth of November 1999) al so contain structural reform measures (such as
regulatory reforms and social infrastructure investment for the 21
st century) as a major component of
the packages, in addition to usual demand stimulating measures.
49. In order to create the new basis for development in the 21st century, the Government of Japan
will focus on four areas - the promotion of the IT Revolution, measures for environmental issues,measures for the aging society, and provision of city infrastructure - in a new set of policies to be
compiled for implementing the Plan for the Rebirth of Japan.WT/TPR/G/76 Trade Policy Review
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Benefit of regulatory reforms
50. According to the analysis by the Economic Planning Agency, the regulatory reforms which
have been carried out in the eight sectors (including domestic and international telecommunications
services, domestic custom air transportation, etc.) have created a large benefits in terms of increased
consumer's surplus, through substantial declines in prices and charges.  The estimated benefits amount
to 8.6 trillion yen (cumulative total up to the FY1998), which is equal to 2.3% of Japanese nationalincome in FY1998.  Supply side effects such as  increased productivity, decreased production costs,
and greater technical progress, should add further to the benefits.
(b) Fiscal Structural Reform
51. On 28 November 1997, the Fiscal Structural Reform Act was passed by the Diet to bring
about fiscal consolidation.  The two pillars of this act were to bring down the general government(central and local government excluding the social s ecurity funds) fiscal deficits to 3% of GDP or less
by FY2003, and to terminate the issuance of central government deficit-financing bonds (as distinct
from "construction bonds" which finance public works, investments etc.) by FY2003.
52. After the enactment of the Fiscal Structural Reform Act, however, the government faced
numerous unanticipated adversities such as bankruptcies of several major financial institutions in thecourse of carrying out its economic management policies.  These worsened the domestic economy,
and the Diet first postponed the fiscal consol idation target to FY2005 (29 May 1998) and then
suspended the law (11 December 1998).  The timing for lifting of this suspension will be decided by
taking into consideration overall economic and fiscal conditions, and after the Japanese economy is
put on to the recovery track.
53. The general government fiscal deficit for FY2000 is expected to reach approximately 9.4% of
GDP, which is much worse than for any other major industrial country, putting Japan’s fiscal situationinto a critical phase.  It is envisaged that the general government gross debt outstanding at the end of
FY2000 will reach approximately 132.9% of GDP, which is the worst among major industrial
countries.
54. Under these circumstances and projections, there is no doubt that an utmost priority should be
given to fiscal structural reform.  However, an important and necessary precondition for such a reformis to make sure that the economy is getting back onto a path towards full recovery led by private
demand.  As the Japanese economy has begun to show positive signs, the Government of Japan will
strive to tackle the issues related to the fiscal stru ctural reform including the modalities for the tax and
social security systems.
(c) Competition Policy
55. In parallel with deregulation, exemption systems from the application of the Antimonopoly
Act have been reviewed step by step since 1995.  Exemption provisions under respective laws were
repealed or reduced in 1997.  A bill that eliminated the exemption systems under the AMA was
submitted to the Diet on 16 February 1999 and was enacted on 15 June 1999.  (It was promulgated on
23 June 1999 and took effect on 23 July 1999.)
56. The enactment included that the abolition of depression and rationalization cartels under the
AMA and the abolition of the Exemption Act.  In addition, based on the results of deregulation in the
electric and gas sectors, a bill amending the AMA was submitted to the Diet on 21 March 2000.  The
bill included the deletion of Section 21 which is the exemption of natural monopolies, and was
enacted on 12 May 2000.  (It was promulgated on 19 May 2000 and took effect on 19 June 2000).Japan WT/TPR/G/76
Page 13
57. As for private-sector remedies, the Government of Japan established study groups (MITI in
September 1997 and FTC in March 1998) to consider systems to permit private parties to sue for
injunctions against unfair business practices, including AMA violations.
- MITI’s study group issued its final report in June 1998, which concluded that it is necessary
to permit private parties to bring injunctions against unfair business practices.  The FTC's
Study Group's discussions covered 1. introduction of injunctive relief through civil litigationagainst the AMA violations as well as 2. improvement of the damage compensation system
against the AMA violations.  In October 1999, the FTC received a final report from the Study
Group and made it public.
- Taking account of the above reports and opinions from various parties, the Government of
Japan submitted a bill to the Diet on 21 March 2000 that permits private parties to seek andobtain injunction orders from the courts against parties engaged in activities that violate unfair
trade practice set forth by the AMA and that improves the damage compensation system
against the AMA violations, and the bill was enacted on 12 May 2000 (it was promulgated on
19 May 2000).
58. A bill aiming at reducing the scope of reporting and notification, requirements regarding
mergers and stockholding and improving examination procedures, was enacted on 22 May 1998,
promulgated on 29 May 1998 and came into force on 1 January 1999.  (Some parts of the bill were
put into force immediately when it was promulgated.)  In addition, a bill calling for an amendment to
the AMA regarding the stipulation of the regulations for spin-off, which are similar to the regulations
for mergers and acquisitions, etc. was enacted.  (It was promulgated on 31 May 2000.)
59. The FTC has conducted many medium and long-term reviews of the Government’s regulatory
system from the point of view of competition policy and held meetings of the Study Group onGovernment Regulations and Competition Policy since July 1988, which consist of scholars and
others, in order to review government regulations and study ways to promote competition policies in
the related sector.
60. Since June 1999 the Study Group has investigated ways to promote new entries into the
public utilities and safeguard of conditions for fair competition between new entry entrepreneurs andexisting ones.  The Study Group is also studying other ways to ensure fair competition, the problem of
government regulations and the direction of reforms in each sector where deregulation is in under
way.  Recently, the Study Group has released its reports on some utilities.
61. Moreover, the FTC, in cooperation with the Ministry of International Trade and Industry,
worked out and released "guidelines on appropriate trade of electricity" in December 1999 and"guidelines on appropriate trade of gas" in March 2000 in order to promote competition in electric and
gas sector, based on these reforms of electric power and gas service sector.
62. The FTC takes rigorous legal actions against the violation of the Antimonopoly Act.  The
number of legal cases against such violations was 27 cases in 1998, and 32 cases in 1999.  The
breakdown of these cases is as follows:WT/TPR/G/76 Trade Policy Review
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1998 1999
Private monopolization 3 0
Bid-rigging 15 22
Cartels (excluding bid-rigging) 3 3
Unfair Trade Practices 5 5
Others 1 2
Total cases 27 32
63. Surcharge payments contained in orders over the last two years has been estimated to total
about ¥26.7 billion (equivalent to about US$247 million).
64. Among them, surcharge payment orders in certain cases, amounting to about 11.1 billion
(equivalent to about US$101 million), were nullified due to the initiation of hearing procedures inaccordance with Article 49 of the AMA.
65. The FTC has been making efforts to eliminate bid-rigging.  Big-rigging cases account for
more than half of the legal actions.  The FTC filed for criminal accusations with the Public Prosecutor
General in the following two cases:
(1) Market allocation agreements among seamless pipe makers (1999);  and(2) Big-rigging of petroleum products ordered by the Central Procurement Office of the
Defense Agency (1999).
66. In 1990, the FTC adopted 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 repeat 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.
67. The FTC conducted a follow-up survey to fully determine the actual conditions of
competition in the flat glass market concerning foreign and domestic firms, and published the surveyreport in 1999.  The results of the survey indicated that there have been substantial changes in flat
glass trade among companies in Japan as a result of actions taken by domestic flat glass manufactures
in response to problems pointed out by the FTC in its 1993 survey, and that the openness of the
distribution market for flat glass has increased.
68. The Government of Japan and the Government of the U.S. signed a bilateral agreement
concerning cooperation on anti-competitive activities on 7 October 1999.  The agreement entered into
force upon its signature.  This agreement is expected  to strengthen the enforcement of the competition
laws against anti-competitive activities having international aspects as well as to develop the
cooperative relationship between the competition authorities of Japan and the U.S.
69. In the field of technical cooperation, the FTC has been holding several training courses on
competition policy.  One of the training courses invites operational-level staff members of theJapan WT/TPR/G/76
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competition authorities in developing countries and countries with economies in transition.  Other
training courses of the FTC are held by country.
70. The FTC has also been sending its experts for more in-depth technical assistance on
competition policy to some developing countries and countries with economies in transition.
71. In the framework of the "PFP" (Partners For Progress) initiative of APEC, the FTC has been
coordinating a five-year training program on competition policy with the Royal Thai Governmentsince FY1996.  The fourth program was held in Bangkok in March 2000, with intensive discussions
on specific topics in sub-group meetings.
(d) Financial System Reform
72. In the period 1998-2000, the Japanese government continued to implement the financial
system reform plan formulated in June 1997 (known as the Big Bang), while taking measures torestore the stability of the financial system.  This reform covered all areas of the financial sector, and
it drastically removed restrictions on financial products, services and organizational structures of
financial institutions, as well as improved fair trading rules for customer protection.
2
73. It also strengthened the framework for dealing with corporate failures.  To date, the plan has
been implemented as initially scheduled, and is nearing completion.  The reforms have been highlyeffective, as can be seen, for example, in the active movement towards consolidation and restructuring
of financial institutions, new entrants (including prospective ones) into the financial sector from other
business sectors, and the introduction of new financial products.
74. In 1998, two laws vital for restoring the stability of the financial system were enacted.  One of
them was the Financial Revitalization Law, which improved the financial resolution schemes for the
protection of depositors and sound borrowers in g ood faith. The temporary nationalization of troubled
banks was also made possible.  The other law was the Financial Function Early Strengthening Law,which established a new system for capital injection into financial institutions using public funds.
Both laws have been quite effective in dealing w ith problems leading to under-capitalization and the
failure of large banks and other deposit-taking institutions.
75. In this period, the Japanese government fundamentally reorganized its financial regulatory
framework.  In June 1998, the Financial Supervisory Agency (FSA) was established to take over thefinancial supervisory and inspection functions of the Ministry of Finance (MOF), leaving the MOF
with planning and policy formulation functions regarding the financial system.  The Financial
Reconstruction Commission (FRC) was establishe d in December 1998, with the responsibility of
formulating the government’s policies for restorin g the soundness of the financial system through
capital injection and the resolution of failed institutions.  The FSA was mandated by the FRC toimplement measures to restore the soundness of the financial system by taking prompt corrective
action against undercapitalized institutions, along with other administrative measures.
76. The FSA swiftly carried out financial supervision and inspection based on clear and
transparent rules, through adherence to market discipline and the principle of self-responsibility.  The
                                                     
2 Examples of the measures taken after 1998 were:  in December 1998, over-the-counter sales of
investment trusts by banks were allowed, corporate-type investment trusts and privately-placed investment trusts
were introduce, and the licensing system for establishing securities companies was replaced by a registrationsystem.  In October 1999, brokerage commissions of securi ties companies were fully liberalized, restrictions on
the range of businesses allowed to securities subsidiaries of banks were eliminated, and insurance companieswere allowed to set up banking subsidiaries.WT/TPR/G/76 Trade Policy Review
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most significant measures taken by the FSA up to June 2000 included:  (a) intensive inspection of
financial institutions to secure confidence in the financial conditions and management of those
institutions and to expedite the disposal of bad loans;  (b) the adoption of "Financial Inspection
Manuals" which set out the approach to inspections of deposit-taking institutions as well as the
adoption of "Insurance Inspection Manuals" which take into account the particular characteristics of
insurance companies;  and (c) the introduction of a computerized off-site monitoring system tocontinuously and accurately monitor the financial and other conditions of banks and other financial
institutions.
77. The FRC and the FSA also deliberated on the issue of new entrants into the banking business
from other business sectors.  After going through the public hearing procedures, the FRC and the FSA
issued in August 2000 basic principles and operational guidelines regarding the licensing andsupervision of new types of banks including entrants into the banking business from other business
sectors.  In addition, supervisory issues arising from electronic sales of financial services were studied
by a study group consisting of experts on financial law and electronic commerce created under the
auspices of the FSA.  The study group issued a report in April 2000 entitled, "Electronic Sales of
Financial Services and Supervisory Policy".  The report contained a large number of proposals toadapt the existing regulatory framework to the electronic environment.
78. Meanwhile, the Financial System Planning Bureau of the Ministry of Finance prepared draft
legislation, which were all enacted by the Diet in May 2000, with the purpose of reforming the safety
net for depositors and insurance policyholders, and for developing new infrastructure of financial
markets and services.  As part of the measures to enhance the safety-net for depositors and
policyholders:  (a) the Deposit Insurance Law was amended to terminate the emergency full
protection of all deposits currently in force as of end-March 2002, and at the same time to provideadditional funds for resolving failed financial institutions and to reform the deposit insurance system
for application from April 2002;  and (b) the Insurance Business Law was amended to simplify the
process of demutualization, to apply bankruptcy legislation to insurance companies, and to provide
additional funding to the Life Insurance Policyholders Protection Corporation through additional
contributions from the insurance industry and the introduction of fiscal support.
79. As part of the efforts to develop new infrastructure of financial markets and services:  (a) the
Law on Securitization of Specified Assets by Special Purpose Companies (SPC Law) as well as the
Securities Investment Trust Law were amended to expand the range of products eligible for
investment under these laws and to facilitate the use of SPCs and collective investment schemes;
(b) the Law on Sales of Financial Products was legislated to require financial service suppliers toprovide customers with material information concerning financial service products;  and (c) the
Securities and Exchange Law and the Financial Futures Trading Law were amended to allow stock
exchanges and financial futures exchanges to be or ganized in the form of joint-stock companies as
well as in the form of membership organizations as at present, and to introduce an electronic
disclosure system for corporate financial information.
80. These reforms are complemented by the introduction of the revised accounting standards that
aim to increase the transparency of financial accounts.  Consolidated accounting became mandatory in
FY1999, and financial instruments are to be evaluate d at market value in FY2000.  These significant
accounting changes help to improve financial disclosure and to bring Japanese accounting standards
in line with international standards.
81. Most recently, on 1 July 2000, the Financial Services Agency (new FSA) was established,
with the integration of the Financial Supervisory Agency and the Financial System Planning Bureauof the Ministry of Finance.  The six basic poli cy principles of the newly-created FSA are to:Japan WT/TPR/G/76
Page 17
(a) establish a reliable and vigorous financial system;  (b) develop a state-of-the-art financial
infrastructure;  (c) develop and properly implement regulations to protect users;  (d) ensure
transparency and fairness in financial administration based on clear rules under market
discipline and the principle of self-responsibility;  (e) enhance the expertise of the staff and
improving the administrative structure;  and (f) reinforce cooperation with foreign regulators
and contribute to international rule-setting.
Following these principles, the new FSA strives to make the financial system reliable and vigorous,
and the financial markets fair and efficient.
82. With considerable effort by both government and industry, the financial system has largely
regained stability in Japan.  However, further ef forts to restructure financial institutions and to
promote efficiency in the financial system are still ongoing.  The new FSA is determined to pursue itsgoals through exercising accountability and ensuring transparency in its activities.  At every stage of
its implementation of policies in the financial sector, the Japanese Government has worked in full
conformity with the commitments made under the General Agreement on Trade in Services (GATS),
and will continue to do so in the future.
(e) Current Progress in the Deregulation Process
83. Since 1993, successive Japanese Governments have attached outstanding importance to the
deregulation issue.  The Cabinet decided on "the Program for Promoting Deregulation" (FY1995 to
FY1997) in 1995 and "the Three-Year Program for Promoting Deregula tion" (FY1998 to FY2000)
in 1998 as a comprehensive program that covered all ministries and agencies.
84. For further deregulation measures, the final revision of "the Three-Year Program for
Promoting Deregulation" was decided for in March 2000, which took the requests and comments
coming from overseas and within Japan into account,  and in which incorporated the contents of the
Regulatory Reform Committee's Report.
85. The basic goals of this Program are outlined as follows:
(1) Through a drastic structural reform of Japan's society and economy, to create a free
and fair socio-economic system that is fully opened to the international community
and based on the rules of self-responsibility and market principles;  and
(2) To shift emphasis in public administration from ex ante facto  regulations to ex post
facto  monitoring of compliance with general rules.
86. To achieve these goals, deregulation will be promoted along with this Program during the
three-year period from FY1998 to FY2000, while emphasizing the following points:
(1) Regulations will be abolished or otherwise relaxed under the principle of
minimization of economic regulations and social regulations minimized;
(2) Regulatory arrangements will be rationalized by, for example, the introduction of
inspection by the private sector;
(3) Regulations will be made simpler and clearer;
(4) International harmonization of regulations;WT/TPR/G/76 Trade Policy Review
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(5) Speeding up of regulatory procedures;  and
(6) Transparency in procedures for formulating regulations.
87. In pursuing the objectives above and in parallel with the promotion of deregulation, i.e.
relaxation and lifting of regulations, the Government will tackle the tasks of regulatory reform as
follows:
(1) Competition policies will be actively developed to promote the functioning of
competitive market forces;
(2) New rules will be established in support of the transition from ex ante facto
regulations to ex post facto  monitoring;  and
(3) New systems of information disclosure and consumer policy will be instituted for the
establishment of the principle of self-responsibility.
88. This Program will expire at the end of March 2001.  However, the Government will continue
to promote deregulation and regulatory reform in order to put the economy on a track to self-sustained
recovery, and will move ahead with the formulation of a Three-Year Program for the Advancement of
Regulatory Reform.
89. In addition, in Japan, all restrictions on foreign investment in the telecommunications sector
apart from NTT have been lifted in accordance with the WTO basic telecommunications agreement.
As a result of deregulation of telecommunications charges and the adjustment of minute rules
regarding interconnection fees, competition among carriers has been promoted and significantly
contributed to the development of telecommunications.
(f) Agricultural Policy Reform
90. Japan’s agricultural policy had been based on the 1961 Agricultural Basic Law, and had
aimed to improve agricultural productivity by increasing the farming scale, fostering the independentmanagement, and promoting the transfer of producti on to those crops increasing in demand, in order
to reduce the gap in productivity and income between agriculture and other industries.  The
government had pursued these goals through production policy, price and distribution policy and
structure policy.
91. However, since that time Japan’s economy and society have experienced major changes,
spurred by factors such as rapid economic growth and the significant advance of globalization.
Conditions affecting Japan’s food, agriculture and rural areas have also undergone profound changes.
Some of the objectives of the Basic Law have been achieved, but there also have arisen problems,
such as:  (a) a substantial decline in the food se lf-sufficiency ratio; (b) ageing of the farming
population and reduction in farmland area;  and (c) depopulation of hilly and mountainous areas.
92. At the same time, people’s expectations for agriculture and rural areas have been on the rise.
There has been an increasing demand that the agricultural sector should fulfil its multifunctional role:
a stable supply of high-quality food;  maintenance of the viability of rural areas;  conservation of land
and the environment;  fostering of water resources;  formation of rural landscape;  and preservation of
cultural traditions etc.
93. In order to cope with these situations, the government has pursued  agricultural policy reform
to establish new policies toward the 21
st century.  And in July 1999, the new Agricultural Basic LawJapan WT/TPR/G/76
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(the Basic Law on Food, Agriculture and Rural areas) was enacted for the first time in nearly
40 years.
94. The new Basic Law provides four basic principles for policies to stabilize and improve
people’s lives and promote the sound development of the national economy:  (a) securing of a stable
food supply;  (b) fulfilment of the multifunctionality of agriculture;  (c) sustainable agricultural
development;  and (d) the development of rural areas.
95. Based on the new Basic Law, the Basic Plan for Food, Agriculture and Rural Areas was
adopted by the Cabinet in March 2000.  The Basic Plan indicates concrete directions of the policies to
be taken over the next ten years concerning the stable supply of food, sustainable development of
agriculture and rural development.  For example, the plan calls for the following measures:
(1) Expanding the scale of farm management through promoting the efficient use of
farmland to establish a desirable agricultural structure;
(2) Review of the price policies for major products in such a way as to make them
properly reflect supply/demand situations and quality evaluation, complemented with
measures to mitigate adverse effects of price fluctuation on farm management
supposed to be encouraged;
(3) Proper use of agricultural chemicals and fertilizers and improvement of soil fertility
through the effective use of organic substances such as livestock manure, rice straw
and food residues, in order to maintain and promote cyclical functions of agriculture;
(4) Promoting the incorporation of farm management, since corporate farming plays an
important role in improving farmer’s management and promoting new entrants into
the business;  and
(5) Support to make up for any disadvantages in agricultural production conditions of
hilly and mountainous areas to enable continued proper agricultural production
activities.
The Basic Plan should be reviewed about every five years and amended, if necessary, in light of
changes in food, agriculture and rural areas and the results of the evaluation of the effectiveness of
each measure.
96. Some of the direction provided in the Basic Law and the Basic Plan have already been
realised in concrete policy measures, with some  of them actually implemented before the formal
enactment of the Basic Law.  These include:
(1) Price policies for major products have been under review with a view to increasing
market orientation.  With regard to rice,  the volume of government purchases was
reduced substantially, and a new direct payment by a fund co-financed by the
Government and producers was introduced in 1998 to compensate part of the loss of
income caused by a fall in the market price of voluntarily marketed rice.  The
payment is provided only to producers who completely fulfil the required crop
diversion target.  Wheat, which used to be exclusively distributed through thegovernment, is now distributed through private sector, complimented with a new
Stabilization Fund commenced in 2000.  Price policies for soybean, sugar and dairy
products were also reformed;WT/TPR/G/76 Trade Policy Review
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(2) The Law for Promoting the Introduction of Sustainable Agricultural Production
Practices was enacted in 1999 with a view to taking further steps to promote
sustainable agricultural production harmonised with the environment.  The new law
requests all prefectural governments to establish the guideline for introducing
sustainable agricultural production practices for main crops, fully taking into
consideration the differences in natural conditions;  and
(3) Area-based direct payment for farmers in hilly and mountainous areas was introduced
in 2000, to support agricultural production activities in disadvantaged area and thus
maintain the multifunctional role of agriculture.
97. Another feature of the Basic Plan is the setting of a target for the food self-sufficiency ratio.
The target was set in light of its usefulness as a guideline 1) in evaluating to what extent domestic
agriculture is responding to people’s demand, and 2) in endeavour to ensure food supply capacity in
case of unexpected events.  With consideration of the declining trend of food self-sufficiency which is
now the lowest among developed countries, and the feasibility of achieving the target through various
measures included in the Plan, the target was set to improve the ratio to 45% in 2010.
98. Improving the food self-sufficiency ratio requires the efforts of all the people concerned,
including farmers, the food industry and consumers.  The Government is to take various measures
concerning production mentioned above, but also those concerning consumption, including the
establishment of a dietary guideline which encourages consumers to review their dietary patterns,
such as improving the nutritional balance and reducing the amount of unfinished or dumped food.
IV. FUTURE POLICY DIRECTIONS
(1) FURTHER DEVELOPMENT OF THE REFORM PROCESS
99. In the telecommunications sector, interconnection fees will be further lowered with the
introduction of Long-Run Incremental Cost (LRIC)  Methodology in FY2000.  In addition to this,
network access diversity will be promoted.  As a result, competition will be further enhanced.
100. In order to promote IT, the IT Strategy Headquarters and IT Strategy Council were
established in July 2000.  Policy resources will be concentrated on IT-related matters such as further
pro-competitive policies in the telecommunications sector, bridging the digital divide, informationsecurity and protection of personal information.
(2) S
EATTLE AND AFTER
101. Although the WTO could not succeed in launching a new round of negotiations at Seattle, we
must continue to work toward the early launch of a new round in order to enable the WTO to
contribute to global economic development through the promotion of multilateral trading system.
102. In this connection, we must address the following points.  First, we consider it necessary to
further integrate developing countries into the WTO system.  To this end, the implementation of
Uruguay Round agreements should be properly addressed so that benefits of the negotiations are
equitably shared among developing and developed countries.  We also need to promote technical
assistance to developing countries.  In this regard, the adoption of the short-term package in Geneva,regarding implementation of Uruguay Round undertak ings, increased market access for the LDCs,
technical assistance for enhanced capacity building as well as improvement in WTO transparency,
was an important first step in this direction and must be pursued expeditiously.Japan WT/TPR/G/76
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103. Second, we recognize the need to pay proper attention to the concerns of the civil society such
as question on environment.  We believe it is necessary to address not only market access but also the
issues of global environment and the sustainable utilization of exhaustible natural resources, which
are also the concerns of the civil society.
104. Third, we consider that the strengthening of rules and disciplines and further liberalization are
essential.  In this connection, we should work on the disciplines on anti-dumping rules, multilateralrules on investment, electric commerce, etc.
105. Japan believes that the next round of WTO negotiations should cover an ambitious, balanced,
and inclusive agenda in order to enable the WTO to properly address the above issues and to respond
to the various concerns of all members in a well-balanced manner.
106. The Government of Japan will try to contribute to the multilateral trade system with other
members so that it will continue to play a central role in world trade well into the 21
st century for
further global economic development.
__________