WORLD TRADE
ORGANIZATIONWT/TPR/M/32
8 June 1998
(98-2299)
Trade Policy Review Body
28-29 January 1998
TRADE POLICY REVIEW
JAPAN
Minutes of Meeting
Chairperson:  H.E. Mr. Munir Akram (Pakistan)
Page
I. INTRODUCTORY REMARKS BY  THE CHAIRP ERSON ...........................................2
II. OPENING STATEMENT BY THE RE PRESENTATIVE OF JAPAN..........................3
III. STATEMENT BY THE FIRST DISCUSSANT ..............................................................10
IV. STATEMENT BY THE SECOND DIS CUSSANT ..........................................................13
V. STATEMENTS BY MEMBERS OF TH E TRADE POLICY REVIEW BODY .........15
VI. REPLIES BY THE REPRESENTATIVE OF JAPAN AND ADDITIONAL
COMMENTS ......................................................................................................................2 6
VII. CONCLUDING RE MARKS BY THE CH AIRPERSON...............................................39WT/TPR/M/32
Page 2
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON
1. The fourth Trade Policy Review of Japan was held on 28-29 January 1998.
2. The Chairman (H.E. Mr. Munir Akram), introducing the review of Japan, welcomed the
Japanese delegation headed by Mr. Jun Yokota, Deputy Director General of the Economic AffairsBureau, the Ministry of Foreign Affairs of Ja pan, the discussants (Ambassador Anne Anderson,
Ireland, and Mr. Stuart Harbinson, Hong Kong, China), and Members of the Trade Policy Review
Body (TPRB).  The TPRB was to base its work on two reports, one submitted by the Government of
Japan (WT/TPR/G/32) and the other by the WTO Secretariat (WT/TPR/S/32).  A large number of
delegations had submitted advance questions in writing.WT/TPR/M/32
Page 3
II. OPENING STATEMENT BY THE REPRESENTATIVE OF JAPAN
3. The Representative of the Japan expressed the hope that, through the discussions of this
fourth Trade Policy Review on Japan, everyone wo uld have a better understanding of Japan's trade
policy.  The document prepared by the Secretariat for the meeting was comprehensive and
informative, but contained some factual inaccuracies, as well as observations that the Government ofJapan regarded as not totally justified.
4. Since the last Trade Policy Review of Japan in 1995, Japanese economic and trade policies
had "generally remained the same", as noted in the Secretariat report. Japan had strongly supported
the multilateral trading system, and had steadily promoted domestic liberalization since its accession
to the GATT. Japan's basic trade policy was to maintain and strengthen a free and non-discriminatory
trade policy for the sustainable development of the global economy. Japan's assessment of the WTO
was that in the fourth year since its establishment, it was on the whole functioning effectively as thecentre-piece and the guarantor of the multilateral system.
5. Japan prided itself on its leading role in strengthening the functions of the WTO.  For
example, Japan had submitted offers of the highest level and had contributed substantially to the
success of the negotiations.  Since the establishment of the WTO, Japan had implemented in full all
the Uruguay Round Agreements.  As a result, Japan's tariff level was now the lowest amongdeveloped countries, with an average tariff on industrial goods at 1.5 per cent and the incidence of
customs duty as a percentage of import value at 2.8 per cent in FY 1996, a level at least comparable to
other major developed countries.
6.  In order to further improve market access, Japan had decided in 1997 to review all of the past
OTO (Office of Trade Ombudsman) cases (approximately 800) and to take additional measures, aswell as to proceed with a complete review of the standards and certification system from the
viewpoint of international harmonization.  Japan had also conducted bilateral consultations with the
United States and the European Union regarding specific sectors.  Measures taken as a result of these
consultations were applied on an MFN basis, and were expected to facilitate trade and investment.
Japan's policy on the issue of trade disputes was that they should be solved within the multilateralframework under the WTO. Japan would continue to respect the WTO dispute settlement mechanism
and make efforts to enhance its effectiveness and credibility.
7. As to the accession of new members to the WTO, Japan considered it very important to guide
them in so that the multilateral trade regime could be strengthened.  Japan had supported early
accession of all applicants but considered it particularly important that major trading countries, such
as China, join the WTO as quickly as possible.
8. The Government of Japan believed that regional trade agreements must be consistent with the
WTO rules and must complement and enhance the multilateral free trade regime, in order not to
undermine the principles of a free and non-discriminatory multilateral trade system or lead to
segmentation of the world economy.  Japan was involved in a regional economic cooperation
endeavour in the forum of the APEC. Trade liberal ization in the APEC benefited members and non-
members alike as it was implemented on an MFN basis.  Japan believed that the promotion ofcooperative economic relationships among the AP EC members would invigorate world trade and
contribute to the development of the world economy.
9. Despite the overall high quality of the Secretariat report, in the section on tariffs and trade-
related taxes and charges, he believed that the report did not correctly assess Japan's efforts, since it
focused only on the remaining specific items of high tariffs without giving adequate emphasis to theoverall low level of Japan's tariffs.  For example, the Japanese tariff rates on textiles and textile
products may indeed have been higher than those on industrial products, but they were in fact lower
than rates on textiles and textile products of other countries.  Elsewhere in the report, the SecretariatWT/TPR/M/32
Page 4
often pointed out that Japan was lagging behind other developed countries, however, in this case no
comparison was made.
10. As pointed out in the Secretariat Report, customs clearance times had been considerably
shortened, despite the increase of imports.  For maritime cargoes, it took an average of 26.1 hours in
1991, from the moment a proper customs declaration had been made until clearance.  However, in1996 the time had been reduced to an average of 10.2 hours.  For air cargoes, the time had been
reduced from 2.3 hours in 1991 to 1.8 hours in 1996.  Air cargoes were often processed very rapidly,
and those that needed no inspection were normally cleared immediately upon arrival. The "clearance
time" indicated in the Secretariat report included the time prior to customs declaration.  Japan was not
aware of any accurate international comparison of customs clearance time which took into account the
different systems in different countries.  Importers may intentionally leave cargoes in bonded areas
duty free for use as a distribution base.
11. Japan's government procurement procedures were open both to domestic and overseas
suppliers.  With regard to procurement of not less than SDR 100,000, overseas products had
accounted for 14.1 per cent of the total procurement value in 1996.  This figure had remained
somewhere in the range of 14 to 20 per cent for the past five years.  Comparable statistical data for the
United States and the European Union were not available, since they had not made notifications to theGPA Committee since 1992.  However, in 1991, for procurement valued at SDR 130,000 or above,
overseas products had accounted for 14.8 per cent in Japan, whereas the figure had been  9.4 per cent
in the United States and 0.9 per cent in the European Union.
12. The Japanese economy had failed to show strong signs of recovery since last April, with a
decline in demand, particularly consumption, and a difficult situation in employment.  The economyremained sluggish due to slow growth in consump tion and production, resulting from factors such as a
"backlash" from the growth in demand anticipatin g the April 1997 raise in the consumption tax rate
from 3 to 5 per cent, a decrease in real disposable income, and inventory adjustment in the business
sector. Against this background, stock prices had languished in the face of the introduction of the
"prompt corrective action", and private financial institutions were thus said to have become reluctantto provide credits.  As a result, concerns were being raised that the real side of the economy may have
been adversely affected as, for example, small and medium-sized enterprises suffered from a lack of
funds.  In addition, the Japanese financial system had been threatened by a series of failures of banks
and security firms since last November.  These factors had increasingly weakened the confidence of
households and enterprises within the Japanese economy.
13. Furthermore, the serious recession and turmoil in the neighbouring Asian economies
inevitably had, and would continue to have, a negative impact on Japan's exports to Asian countries,which accounted for approximately 40 per cent of Japan's exports.  Serious concerns existed that
slower growth in exports may furt her retard the recovery of the Japanese economy.  However, it could
also be said that the negative impact was mitigated by the fact that among the goods exported to the
Asian countries were parts and materials that were indispensable to them.  Although real GDP growth
in FY 1997 was expected to be 0.1 per cent, Japan believed that real economic growth in FY 1998
would achieve 1.9 per cent.
14. In order to bring about economic recovery, the Government of Japan would take the
following measures in order to increase the conf idence of households and enterprises within the
Japanese economy, thereby pushing the economy back on the track of private demand-led,
autonomous and stable growth:  (i) a temporary national income tax and local income tax reduction,worth about ¥2trillion;  (ii) an extensive tax reform package, including tax reductions on corporate
income, security transaction, land value, etc., equivalent to about ¥840 billion in tax cuts;
(iii) additional public works amounting to approx imately ¥1 trillion in the FY 1997 Supplementary
Budget;  and  (iv) a front-loading of public works worth ¥1.5 trillion.  In addition, the "EmergencyWT/TPR/M/32
Page 5
Economic Policy Package" of November 1997, which included an extensive deregulation programme,
would be rigorously implemented.
15. In order to stabilize the financial system and to address the credit crunch problem, the
Japanese Government would take the following urgent and extraordinary measures, effective for a
limited period: (i) an injection of public funds to expand the scope of deposit insurance to cover allfinancial institutions so as to ensure full protection of the deposits of all financial institutions;  (ii) as a
means to cope with the critical situation of the financial system, purchasing preferred stocks and
subordinated bonds issued by financial institutions to increase capital bases;  (iii) providing the
Deposit Insurance Corporation (DIC) with ¥10 tr illion worth of government bonds and authorizing
¥20 trillion in the government guarantee to the relevant DIC accounts;  (iv) a flexible application of
the so-called "prompt corrective action on domestic banks" and ensuring sufficient funds
(approximately ¥25 trillion in total including credit guarantee) for small and medium-sized enterprisesthrough governmental financial institutions, with a view to enhancing measures to address the credit
crunch.
16. To cope with the need to maintain a vital economy, even under the prospect of the increase in
life-expectancy of the Japanese population, it was considered essential to engage in a far-reaching
economic structural reform in a decisive and swift manner.  Thus, the Japanese Government hadcompleted the Economic and Social Plan for Structural Reform in December 1995 as a cabinet
decision, and based on this it had implemented various deregulation measures to vitalize the economy
and to rectify the "high cost structure" of the economy.  It had also presented the Economic Structure
Reform as part of the "Structural Reform in Six Areas", adopted as a cabinet decision in the "Program
for Economic Structure Reform", which had included a schedule for the promotion of furthereconomic structure reform and concrete measures to be taken (e.g. the fostering of new industries
through comprehensive measures, such as deregulation responsive to the needs in specific sectors,
human resources development, support for research and development, creation of an internationally
attractive business environment through deregulation in order to rectify the high cost nature of our
economy).  A follow-up to this Cabinet Decision had been conducted in December 1997.
17. He said that the Secretariat report statement that the Japanese Government had excluded
agriculture, construction and maritime transport in its deregulation package was factually incorrect.
The Government of Japan had been actively promoting deregulation in a wide range of areas.  For
example, demand and supply adjustment measures in the transportation area would be abolished, the
"Big Bang" would be introduced, and the Building Standard Law would be amended to reflect the
transition from a specification-based to a performance-based criteria.
18. The Government of Japan had decided to make a fundamental policy change regarding the
Large Scale Retail Store Law, while giving full consideration to the recommendation issued by the
advisory group to the Minister of International Trade and Industry at the end of 1998.  By introducing
a new legal scheme to address current and new concerns, such as traffic congestion and environmental
degradation, which was involved in the opening and operating of large-scale retail stores, it was
Japan's understanding that the Large Scale Retail Store Law would lose its raison d'être .
19. In December 1997, the Government of Japan had decided to establish a new three-year
deregulation programme starting in FY 1998, by setting up a new ad hoc  committee for the promotion
of deregulation composed mainly of eminent persons from the private sector for the time being,
thereby further promoting the deregulation process.  On 26 January, the Deregulation Committee had
been established under the Administrative Reform Promotion Headquarters based on this decision.The new committee was expected to conduct hearings with various groups, domestic and foreign,
with a view to drafting a new programme.
20. The structural reform, including deregulation, was expected to increase the growth rate of real
GDP by about 0.9 per cent annually from 1998 to 2003 .  Although the Secretariat report said thatWT/TPR/M/32
Page 6
energy prices in Japan were higher than those in other developed countries, this was not entirely
correct if the rate of taxes included in those prices and the scarce energy resources in Japan were
considered.  Furthermore, deregulation policy was now being implemented and was expected to
further decrease energy prices.  For example, a litre of gasoline, which cost ¥122 on average in 1994,
now cost ¥92.  The Government of Japan intended to  lower electricity charges to the international
level by the year 2001.
21. The Government of Japan had an important policy issue to make its market even more open
internationally and to pursue the realization of a free economic society where the principles of
self-responsibility and market mechanism prevail.  The structure of the Fair Trade Commission
(JFTC) had therefore been strengthened in June 1996, and the final report of the Administrative
Reform Committee in December 1997 stated that "the role of the JFTC is increasing".  The
Government had been striving to implement competition policy actively.  JFTC was dealing rapidlyand effectively with various violations of AMA (Antimonopoly Act), such as price cartels and bid-
rigging.  The number  of recent legal measures taken and amount of surcharge ordered were shown in
the Government report.  JFTC had made criminal accusations against 46 companies and
67 individuals in four cases since 1990;  the latest, in February 1997, had concerned bid-rigging by
manufacturers of water meters purchased by the Tokyo Metropolitan Government whereby25 companies and 34 individuals had become the object of criminal accusation.  Among the
defendants in those four cases, 44 companies and 66 individuals had been convicted. Japan was
conducting surveys and making recommendations on government regulations and was reviewing
exemptions from the application of the AMA.  An Omnibus Act to repeal or reform 35 exemptions
under 20 laws had been enacted last July.  With respect to the remaining exemptions scheduled forfurther review, specific conclusions would be reached by March 1998.  It had already been decided to
repeal the anti-depression cartels and the rationalization cartels under the AMA.
22. The Japanese word "keiretsu" was sometimes mistakenly used to mean the closed nature of
the Japanese market.  However, similar groups of enterprises were also seen in other countries. The
existence of a keiretsu relationship among enterprises had a certain economic rationale, e.g., a stablebusiness among the group enabled efficient activities and management of enterprises based on a
longer-term perspective.  However, the Governme nt of Japan was concerned whether enterprises
preferred doing business only within the group, thus giving rise to anti-competitive trade activities.  A
survey of the six major corporate groups in 1992 had shown that the percentage of intra-group
transaction was less than 7 per cent, and the figure was still declining.  The Government was making
efforts to monitor the situation so that trade among enterprises within the keiretsu relationship would
not prevent fair competition and transparency and that foreign enterprises could penetrate theJapanese market smoothly.
23. It was becoming more important to promote international cooperation between competition
authorities and the international harmonization of competition policy due to the globalization of the
economy.  From this view point, JFTC intended to further cooperate with other competition
authorities, by exchanging views and by positivel y participating in discussions in international
organizations such as the WTO and the OECD.  Th e discussion on the interaction between trade and
competition policy, including the impact of trade measures on competition, was particularly
important.  Furthermore, the Government was to conduct deliberations with a view to establishing a
private remedy system to enable parties who had suffered damages from actions that hindered the
realization of a fair and open market to seek relief on their own initiative and responsibility.
24. The Secretariat report stated that most of Japan's import and investment promotion measures
had focused on assisting existing procedures rather than attempting major structural improvements.
However, the Japanese Government had been implementing measures on economic structural
reforms, deregulation and competition policy as mentioned.WT/TPR/M/32
Page 7
25. Japan had accepted with difficulty the Uruguay Round Agreement on Agriculture;  it had,
however, been implementing the commitments faithfully.  Japan was the largest net importer of
foodstuffs in the world and its food selfsufficiency rate was 42 per cent calorie-based and 29 per cent
cereal-based, both were the lowest among major developed countries. Thus, maintaining a stable food
supply had become an increasing concern for the Japanese people.
26. Japan regarded agriculture as a multifaceted productive activity, involving not only the
provision of a stable food supply to the population, but also the conservation of national land and
environment, the development of rural economies and the promotion of policies that took into account
this multiple function of agriculture.  During the Uruguay Round negotiations, Japan had emphasized
the need for a proper appreciation of the role played by agriculture.  The Agreement on Agriculture
contained, in its preamble, provisions related to non-trade concerns, including food security and the
necessity for environmental conservation.  Similar views could be found in the provisions concerningexport prohibition and restriction.  The inclusion of "stockholding for food security purposes" and
"payment under environmental programme" into a "Green Box", in Annex II of the Agreement, was
another example.  It was Japan's understanding that these provisions reflected its views as mentioned
above.  However, in the present WTO Agreement, the obligations imposed upon exporting countries,
with regard to export prohibitions, export restrictions and the introduction of export tariffs, wereweak, whereas, those imposed upon importing countries, such as on import prohibition and
restrictions and the reduction of import tariffs, were very strict.  As a result, there continued to be a
lack of balance between the obligations and the rights of importing and exporting countries.
27. In assessing agricultural trade, the Secretaria t report did not distinguish between agricultural
products and industrial products, focusing solely on economic aspects such as cost and benefit.  Japan,however, considered it important that the multiple functions of agriculture and its particular nature be
taken into consideration when discussing trade in agricultural products.
28. The Research Council on Basic Problems concerning Food, Agriculture and Rural Areas had
been established by the Prime Minister in April 1997 to determine the basic direction of Japan's
policies on agriculture.  The Council was currently examining specific policies relating to issues onfood, agriculture and rural areas, giving consideration to the multi-function aspect, and would adopt a
report in the summer of 1998.
29. Concerning the level of agricultural support, it was Japan's understanding that the PSE
method had not been adopted in the course of the Uruguay Round negotiations because it had not
reflected the roles provided by agriculture, such as the conservation of national land and the
environment, and also due to the excessive influence of exchange rate fluctuations on the results.  The
AMS method, which had not had such drawbacks, had been adopted instead and had been used tomeasure reductions in the domestic support of Members.  In spite of this, the Secretariat report
assessed the level of agricultural support using, among others, the PSE method.  Japan believed that
the role played by agriculture in the conservation of national land and environment should be
appropriately reflected in such an assessment.
30. In the first follow-up to the Action Plan for Economic Structure Reform, it had been agreed
that the Government would conduct a thorough review  of the standards and certification system based
upon the following principles:  (i) the Government  would maintain only the minimum regulations
necessary to meet proper policy objectives;  (ii) the Government would, to the extent possible,
introduce systems under which certifications were conducted by third parties, including private
corporations; (iii) the system would be compatible with  international standards:  in concrete terms, the
review would be conducted along the following ba sic guidelines, and necessary measures would be
put into practice as soon as possible.
31. First, when the Government designated or accredited a third party institution to conduct the
conformity assessment of technical standards, the international designation and accreditationWT/TPR/M/32
Page 8
standards should be used as a basis and, in appropriate cases, participation by private enterprises
would be allowed. Second, with the adoption of performancebased standards and technical
regulations, relevant JIS standards would be elaborated, and where appropriate private standards and
international standards existed, these would be utiliz ed.  A three-year programme starting in FY 1995
was in process to align around 1,000 standards with the relevant international standards.  Third, theacceptance of foreign data would be further promoted, for example, 23 foreign institutions were
already recognized as third-party institutions in respect of the Law for the Control of Electrical
Appliances.  Fourth, mutual recognition would be further promoted based on the principle of
reciprocity.  Consultations were already being held with the European Union and with Australia in
this respect.
32. In the field of industrial property rights, the Patent Law, the Industrial Design Law, and the
Trademark Law had all been amended in accordance with the TRIPS Agreement.  Japan was alsomaking significant efforts in international harmonization through such ways as participating in
discussions in the WIPO;  the Trademark Law had been revised, in order to ratify the WIPO
Trademark Treaty in June 1996, and had entered into force on 1 April 1997.  Japan was also
conducting a review to assess the need to amend relevant laws in order to establish civil and criminal
procedures to enable parties to seek more adequate and effective remedies against the infringement ofindustrial property rights, especially in the field of patents.  Based upon its result, the Japanese
Government intended to submit amendments to the Patent Law to the regular session of the Diet in
January 1998.  The proposed amendments included:   in the area of civil remedies, measures to
increase the amount of damages through the facilitation of proving lost profit by the IPR holder;  and
an increase in the permitted amount of damages to compensate for lost licence fees.  In the area of
criminal remedies, IPR infringement penalties had be en raised, especially for corporate entities.  The
Copyright Law had been amended in 1994, and had entered into force in January 1996,  fulfilling all
obligations under the TRIPS Agreement. The Law had been additionally amended in 1996 to
strengthen civil and criminal remedies, and again in 1997 to establish the right of authors, performers
and phonogram producers to "make transmittable" their work, performance and phonograms,respectively, in order to comply with the relevant  provisions of the WIPO Copyright Treaty and the
WIPO Performances and Phonograms Treaty.
33. The Government of Japan had undertaken active efforts in the framework of the WTO,
together with other Members, towards creating multilateral rules on the liberalization of trade in
services.  Japan was confident that its Schedule of Commitments under the General Agreement on
Trade in Services was of the highest level among Members, not only with regard to the number of
sectors committed, but also to the level of commitments.  Japan had submitted high-level offers in thefollow-up negotiations on maritime services, basic telecommunications and financial services, thereby
contributing to the successful conclusion of those negotiations, although in the case of maritime
services its contribution had been to no avail.
34. The Secretariat report had touched upon a number of issues in the services sector;  it
described Japan's domestic regulations in the services sector as "often complex and opaque" and notedthat trading partners had requested Japan to simplify the administrative procedures and to ensure the
transparency of those regulations.  The report also raised concerns that Japan's services sector had
lower productivity than the manufacturing sector and allowed a "high degree of discretion to the
relevant authorities".  The Government of Japan did not share these views.  Deregulation was  among
its priority policy issues and was being actively promoted as one of the means to improve the kind ofsituation mentioned in the Secretariat report.  In the telecommunications sector, for example, Japan
had eliminated foreign ownership restrictions, established the rules for interconnection, liberalized
international simple resale and a number of other regulations, and is carrying out the restructuring of
the NTT.  Transparency was assured in the rule-making procedures by publishing proposals and by
seeking comments from those concerned.WT/TPR/M/32
Page 9
35. The Secretariat report stated that "the price of telecommunications services remains
significantly higher in Japan than in the other major industrial countries" (para. 99).  However, in the
long-distance service market where five companies were competing, the level of prices was the same
as in major industrial countries, and in the mobile telephone market, in which seven companies were
competing in some regions, the decrease and divers ification of prices were remarkable.  With the
liberalization of simple resale, the prices of intern ational telephone services were also expected to go
down further.  Deregulation was also taking place in the area of broadcasting, and the Government of
Japan did not agree with the description in the Secretariat report that "Japan has followed a fairly
restrictive policy on broadcasting services and cable TV" (para. 107), when the situation in other
countries was not generally less restrictive.
36. In the financial services sector, the financial system reform had progressed through the
amendment of the Foreign Exchange and Trade Control Law in order to abolish the "authorizedforeign exchange bank" system.  Deregulation programmes in other sectors had also been planned and
implemented, and the number of foreign service suppliers in such sectors as, financial services,
telecommunications, construction services and legal services, was expanding.   Japan was thus
convinced that it would continue to improve transparency and productivity in its services industries
through these efforts.
37. The Secretariat report also pointed out that in Japan, labour productivity in the services sector
was lower than in the manufacturing sector.  However, productivity in the services sector was also
relatively low in  all other major trading partners.  With regard to professional services, the
Government of Japan had provided qualification requirements and licensing procedures for
professional service suppliers to ensure the competence of the suppliers and to protect consumers.However, Japan did not impose regulations solely for the protection of domestic industries.  The
above-mentioned requirements and procedures were no more restrictive than those of other major
partners.
38. The reinforcement of the free trade system w ould support the sustainable development of the
global economy.  In spite of the current Asian economic situation, Members should ensure the fullimplementation of the Uruguay Round results, and proceed with further liberalization under the
multilateral trading system, without resorting to protectionism.  This was the course that Japan would
be taking.WT/TPR/M/32
Page 10
III. STATEMENT BY THE FIRST DISCUSSANT
39. The first discussant (H.E. Ms. Anne Anderson)  recalled that practically every WTO Member
had a stake in the health of the Japanese economy, which  was the second largest in the world.  The
normal high level of interest was magnified in current circumstances, where difficulties encountered
in a number of ASEAN economies had had resonance in Japan.  Questions as to whether Japanesepolicies were a part of the problem or a part of the solution were the subject of vigorous debate.
Given the pace of recent developments, providing a snapshot of the Japanese economy had not been
easy.  A major focus would be on hearing a fully up-to-date assessment from the Japanese delegation
of revised policy orientations in the light of most recent developments.
40. The Secretariat report began with a sobering sentence that "since Japan's last Trade Policy
Review in 1995, its economic situation has not improved".  The interval of almost three years since
the last review fell into two parts, with recovery a nd healthy growth in the earlier half being offset by
a sluggish performance in the second half.  It appeared now that growth for 1997 would be almost nil,
and many predictions for growth in 1998 hovered around 1 per cent, although a much more optimistic
government forecast was for 1.9 per cent.  She wondered whether that was still valid under current
circumstances.
41. The Japanese Government had recognized that it faced major policy challenges.  The report
by the Japanese Government stated that "serious limitations have been revealed in the Japanese
socio-economic system, which has sustained the development of the country over the 50 year post-
war period".  A succession of recent statements by the Prime Minister and other senior-level policy
makers all underlined that this was a period of intensive self-analysis in Japan.
42. Steps at national level were accompanied by active multilateralism. However, while it was
accepted that the Government was seeking to address the range of challenges, a concern was
repeatedly expressed that there was still insufficient commitment to the radical steps required, and that
in some areas the scope of the actions proposed was not commensurate with the scale of the problems.
In the various policy areas under discussion, the same question tended to suggest itself:  whether the
steps currently contemplated went far enough to address the underlying issues.
43. In looking at structural issues, it was important that the strengths of Japan's economy,
including high education standards, positive labour relations, and high savings and investment rates,
were not undervalued under the strain of recent events. However, many of the policies that had suited
the conditions of earlier decades had not translated well into the 1990s, and were holding back
growth. This diagnosis, which had been made a few years ago, appeared to have taken some time to
translate into action.  If a particular set of attitudes and policies had yielded highly beneficial results
over a prolonged period, there is understandable caution about experimenting with change.  Inaddition, the Japanese decision-making process, with its emphasis on persuasive and consensual
approaches, probably did not best lend itself to rapid adjustment to changed circumstances. The
problem now for the Japanese Government was that different types of problems were having to be
dealt with simultaneously.  The very high level of public debt, the highest in the OECD, at around
100 per cent of GDP, undoubtedly constrained policy choices.  Concerns about an ageing population,some 25 per cent now aged 65 or over, low productivity rates, and  high cost industry also had to be
confronted.  New policies to tackle these problems had had comparatively little time to yield results
before the Asian financial crisis had become a whole new factor in the equation.  It was clear that
Japanese policy-makers had high hopes for the impact on growth rates of the various structural reform
measures and she was interested to learn whether Japan felt the analysis and assumptions underlyingthe Action Plan, and the projections for growth result ing from the plan, required any adjustment in the
light of recent developments.
44. The need for a comprehensive and integrated programme of deregulation was stressed in
practically every commentary on the Japanese economy, and was central to government policyWT/TPR/M/32
Page 11
making. The over-regulation of the economy was seen as having effects right across the board,
inhibiting competition and productivity, underpinning hi gh cost structures, acting as a disincentive to
imports and inward investment.  It was critically important for the Government to move ahead with
determination, facing down vested interests wherever necessary, and ensuring that the various actions
over individual sectors were guided by an overall vision.  She said that delegations would certainly beinterested in hearing whatever supplementary details might be available in the course of the
discussion.
45. The need to stimulate the domestic economy was one of the leitmotifs running through every
analysis of the Japanese economy.  Japan's trading partners had been concerned about the recent
situation where growth in the Japanese economy appeared to have been exclusively export driven.   It
was a concern shared by the Japanese Government and policy statements had repeatedly emphasized
the need for domestic-led growth.  Consumption sp ending as a ratio of GDP was significantly lower
in Japan than in other developed countries and generating consumer confidence was a key task facing
the Government.  It was not an easy one against the background of budget deficits and the current
financial crisis. A clear and consistent message to the domestic consumer rather than the kind of
"stop-go" signals which seemed to have been conveyed, particularly with the increase in consumption
tax in April 1997, was perhaps most needed.  The package of 18 December had been very muchwelcomed, although its adequacy in the circumstances had been widely questioned.
46. The discussion about enhancing domestic demand had been brought firmly into focus by the
crisis in a number of Japan's neighbouring countries.  In the face of a collapse in import demand in
these countries, Japanese exporters dependent on these markets might well have to either sell more on
a revived domestic market or sell more on other markets where Japan already ran huge surpluses.
47. There was also the fact that ASEAN countries hit by financial crisis would inevitably be
looking to enhance exports, aided by the huge devaluation of their currencies, as one of the lifelines to
help them through the current crisis.  An influx of cheaper exports from these countries could be
anticipated on European and American markets but undoubtedly ASEAN expor ters would be hoping
for stimulation of consumption in Japan as one of the more important lifelines. It would be helpful tohear in further detail about the prospects for concre te results from the Government's current attempts
to stimulate the domestic economy.
48. The Secretariat report stated that, since the last TPR, Japan's current account surplus had
declined steadily.  It pointed out, however, that th is trend seemed to be reversing from April 1997.
The latest available figures, for the third quarter of 1997, confirmed this:  the value of exports had
risen by 3 per cent in the third quarter while the value of imports had fallen by 15 per cent.  The
depreciation of the yen and the weakness of the domestic economy obviously underlaid these trends.Japan's major trading partners did not view with e quanimity any prospect of further surges in the
Japanese surplus.  On the contrary, they were strongly advocating that the trend of the last nine
months or so be reversed.  As regards Japanese  imports, the key issues would be stimulation of
consumer demand and improved market access. The outlook for Japanese exports seemed difficult to
read;  the low value of the yen would continue to assist exporters.  However, the difficulties in SouthEast Asian economies were likely to have a two-fold effect.  Firstly, given the extent to which
Japanese exports were directed towards that region, the loss of markets, particularly in certain sectors,
were likely to be significant.  Secondly, with dramatic currency losses and decline in production and
wage costs in South East Asian economies, exports from these countries would have a considerably
improved competitive edge over Japanese exports on third country markets.  She was interested tohave some projections by Japan in this area, in particular the diagnosis for Japanese export
performance over the period ahead.
49. She had noted the details of the Japanese GSP scheme;  also the fact that the Secretariat report
stated that the scale of net benefits from the scheme was limited.  None of the least-developed
countries were on the list of top ten beneficiaries of Japan's GSP.  The Japanese market was not easyWT/TPR/M/32
Page 12
to penetrate and it would certainly challenge the resources of a least-developed country.  While
overall market opening would improve the prospects for all potential exporters, it was obvious that the
least-developed countries were coming from very far behind.  She was interested to learn whether any
special encouragement was being considered to help those countries gain a toe-hold in the Japanese
market.
50. On the balance and direction of outward and inward foreign direct investment, Japan's
traditionally high savings rate had funded much of its investment needs in the past and it had relied to
a far lesser extent than most developed countries on inward investment.  The Secretariat report said
that in 1993, the disparity between inward and outward investment flows had been in the ratio of 1:13.
This had been reduced to a ratio of about 1:7 in 1996 but indications were that it had widened again to
about 1:9 in 1997. Many countries had welcomed a nd benefited from Japanese outward investment;
however, the degree of imbalance could hardly be healthy and must be a particular cause for concernin current circumstances since Japan might no longer be able to rely on domestic investment to the
extent it had.  The report showed that Japan was conscious of the major factors likely to be acting
against greater inward investment including high business costs such as land prices and wages, low
expected profitability and a high tax burden.  Other factors militating against inward investment had
been identified as the complex regulatory systems,  lack of transparency in regulatory procedures,
complex distribution systems and exclusionary business practices.
51. There was undoubtedly a realization in Japan that it must become more attractive to foreign
direct investment.  Many of the factors discourag ing such investment were being addressed in the
structural reforms of the economy, particularly in tackling the issues of deregulation.  She was
interested to hear the Japanese perspective on thes e investment imbalances in further detail including
the impact of latest developments.  There had been considerable investment by Japanese
manufacturers in ASEAN countries over recent years.  The difficulties in these economies might have
a deterrent effect on further Japanese investment;  on the other hand, there had been much speculation
about acquisitions likely to be made by foreign investors at lower rates in the weakened ASEAN
economies.  She was interested to hear which scenario the Japanese delegation considered morelikely:  a slowing down of activity by Japanese investors in ASEAN or a possible acceleration. The
impact of the latest developments on inward investme nt in Japan was also worth considering.  It might
be the case that inward investment which might ot herwise have been attracted to Japan would now be
looking with more interest at acquisition opportunities at attractive rates in the ASEAN economies.
52. In conclusion, the financial crisis in South East Asia had caused a seismic upheaval
throughout that region which was requiring new ways  of looking at issues, and new planning.  It
would certainly help if the Government of Japan tried to provide the road map that they weredeveloping for the period ahead.  Japan was an immensely important regional and global economic
power.  Japanese policymakers faced a hugely challenging task in trying to accommodate the
country's national economic interests with the responsibilities that derived from its wider role.  A
great deal rested on their being able to find that accommodation.WT/TPR/M/32
Page 13
IV. STATEMENT BY THE SECOND DISCUSSANT
53. The second discussant (Mr. Stuart Harbinson) said it was always worth recalling Japan's
central importance in the world as a whole, particularly in Asia, as the world's second-largest national
economy.  Japan had reached a crossroads, as was evident in the report by the Government of Japan,
which acknowledged the dramatic changes that were taking place through globalization of the worldeconomy and the fact that these had revealed some limitations in the Japanese socio-economic system.
The Government of Japan was clearly well aware that these limitations had to be addressed, and it had
in many ways made a strong start in recent years.  The task, however, had been made more difficult
and given added urgency by recent events in Japan and elsewhere in Asia.  Japan's success in tackling
its own problems and setting a good example for others to follow was now crucial, particularly for the
region as a whole, but also for the future health of the world economy.
54. The ability of the Japanese economy to respond to the challenges it faced had been hampered
by a number of factors, including the financial services sector.  It was difficult for any trading
economy to compete successfully in the modern business environment without access to top class
financial services, which could only be developed in a truly competitive environment, with good
supervision but without excessive regulation, and with a high degree of transparency.  In Japan, the
situation had been further complicated by the after-effects of the burst-bubble economy since the turnof the decade, and a mounting bad debt problem.  The response of the Japanese Government had been
to publish a number of reports on structural reform of the financial services sector, with the aim of
making Tokyo an international financial centre comparable with New York and London.  He was
interested to hear an up-to-date assessment of how quickly this reform programme (the "Big Bang")
could be carried through in practice and what the prospects for success were, especially in the light ofrecent regional developments.
55. Japan had recently announced a number of measures to stabilize the financial system,
including a concrete plan for recapitalization of financial institutions and measures to address the
so-called credit crunch.  While these support measures were undoubtedly welcome in order to bolster
confidence in the system, they would not, however, appear to be substitutes for decisive action to
overhaul the regulatory system.
56. The Secretariat report drew attention to the fact that productivity in services was well below
that in the manufacturing sector.  Concerns had been raised on the links between the complicated
regulatory environment and low productivity, in particular, in distribution services, suggesting the
need for further deregulation.  While a number of initiatives had been taken, or were in train, and
while progress had certainly been made, the general regulatory environment in the services sector
remained somewhat unsatisfactory.  Japan had had a deficit of no less than US$50 billion on servicestrade in 1995.  The services sector had been accounting for an increasing proportion of GDP and
employment.  Meanwhile, Japan continued to be a larger investor in manufacturing capacity overseas,
a process that was clearly driven by the attractions of producing goods in lower cost locations. A more
competitive services sector could well be the key to unleashing domestic demand, bolstering business
confidence in Japan, reinvigorating the economy, and significantly enhancing the efficiency of themanufacturing sector.  While some progress had undoubtedly been made in this direction, it would
appear that there was still quite a long road to travel.  It seemed that the ongoing adjustment towards
an increasingly service-oriented economy could be facilitated in some cases by adopting more
economically efficient policies with regard to market access.  While the report by the Japanese
Government noted that average tariff rates for industrial products had been reduced to 1.5 per cent,the Secretariat report said that applied tariffs for manufactures averaged 4.9 per cent with some high
peaks.  Tariff escalation was evident in a number of sectors.  Agricultural tariffs were substantially
higher, while a combination of high government support levels and quotas led to over-production
and/or prices that bore little resemblance to world prices.WT/TPR/M/32
Page 14
57. The distortions thus introduced or sustained might have been exacerbated by practices in
other areas such as standards, government regulations and related measures.  He noted that Japan was
making greater efforts towards increased international harmonization of standards and the adoption of
mutual recognition arrangements.  Still, a number of difficulties appeared to remain regarding the
acceptance of foreign certifications and test results.  The adjustments might not have been happeningquickly enough either to mollify Japan's trading partners or to give the economy the flexibility it
needed in today's increasingly globalized economy.
58. The Government of Japan was clearly focusing on a more active implementation of
competition policy, and the Japan Fair Trade Commission had produced many useful studies, surveys,
reviews and guidelines.  However there were still doubts as to how committed the JFTC was to
vigorous enforcement.  Change might be taking place but sometimes at a gradual pace.
59. The overall conclusion was that Japan and its trading partners shared a common interest in
removing distortions and promoting greater efficiency in the Japanese economy.  Japan urgently
needed to stimulate its domestic economy and to deal with the source of trade friction and alleviate
the possible effects of a more difficult exporting environment within Asia.  There seemed to be little
doubt that the Government was fully aware of what  was required.  The question that perhaps needed
to be asked was whether the action which had been taken, or which was in hand, was having thedesired effect quickly enough.
60. On Japan's contribution to development of multilateral trade policy, Japan was an active,
constructive and a very influential member of the WTO.   It was one of the few remaining Members
that conducted its trade almost entirely on an MFN basis.  There was always the possibility that, the
more preferential agreements there were, the greater the fear of exclusion or discrimination, and hencethe greater the temptation, if not to join an existing preferential agreement, then to set up one's own.
He was interested to hear the further thoughts of the Japanese delegation on this theme. He hoped that
Japan would stick to its principles and continue to trade on a full MFN basis, and that it would
concentrate its efforts on the process of ongoing progressive multilateral trade liberalization, thereby
bringing about a convergence between multilateralism and regionalism.WT/TPR/M/32
Page 15
V. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY
61. The representative of Canada emphasized the strengths of his country's relationship with
Japan.  In the context of the structural and economic crisis in a number of East Asian economies,
Japan's continued movement towards a more open and transparent regime would serve to stimulate
production and general economic growth in that region.  Although Canada was on the whole pleasedwith the positive trends in trade and economic rela tions with Japan, concerns remained in respect to
Japan's economic and trade policy regime.  While considerable progress had been made since the
inception of the Deregulation Action Programme in 1995, there remained highly regulated sectors
which had a significant impact on the Japanese economy and the openness of its markets, such as
agriculture and food processing, residential construction, transportation, telecommunications,
financial services, distribution and retail trade.  Canada urged Japan to widen the scope of its efforts to
produce optimum benefit for its economy and trade.
62. Although Canada welcomed the revision of some of the Japan Agricultural Standards, further
movement on such items as horizontal applicati on plywood would be welcomed. Fire restrictions on
multi-unit wooden dwellings in the Building Standard Law could be removed, and a move towards
recognizing qualified foreign organizations as Registered Grading Organizations under the Japan
Agricultural Standards could reduce the cost of lumber.  Japan's system of tariff classification alsodistinguished between species and dimensions of lumber, regardless of its end use.  As a consequence,
Spruce-Pine-Fir imports, key building components, were subject to duties ranging from 4.8 to
6.5 per cent, whereas hemlock imported for the same purpose entered duty free.  It had been estimated
that the full elimination of tariff rates on softwood lumber, as well as laminated lumber and plywood,
would contribute about  ¥4 billion annually to the reduction of housing costs in Japan.
63. Canada maintained that, in Japan's Food Sanitation Law, quality factors should not be used to
justify the prohibition of agrifood products, since these factors did not constitute health and safety risk
as provided for the SPS Agreement. The more restrictive standards in the Law for frozen foods than
for unfrozen products, as well as varietyspecific-based approvals of fruit and vegetable importation,
were not scientifically justified.
64. Japan maintained high specific duties on most cooking oils, including canola oil, to provide
protection to its domestic crushing industry, currently between 20 and 25 per cent on an ad valorem
basis.  The economic feasibility of existing and potential investments was being adversely affected by
the Japanese import tariff on mustard flour and meal and prepared mustard.  For this tariff line the
WTO rate was currently 12.5 per cent and the temporary rate was 10.3 per cent.  Canada had also
expressed concerns regarding field peas.   Japan considered that imported peas compete with domestic
peas intended for human consumption.  The existing tariff structure did not differentiate between foodgrade peas for human consumption and field peas for use in livestock feeds.  Peas were presently
imported under a tariff quota rate of 10 per cent.  This tariff made field peas non-competitive as a feed
ingredient with other protein sources which enter duty free.
65. The representative of New Zealand said that Japan's economic activity was of enormous
global importance. A successful reform programme, one that would seriously encourage efficiency
and promote competition in the Japanese market, wa s vitally important.  The Secretariat report made
clear that Japan had some way to go before unnecessary restrictions in some key areas were removed,
and more effort was needed to come into line with  internationally agreed standards and practices. For
example, there was a wide discrepancy between simple average tariffs for industrial and agricultural
goods.  As a producer of agricultural products, Ne w Zealand was especially sensitive to the tariff
peaks that occur in agriculture.  The simple average applied tariff for agriculture was around
26 per cent, while that for industry was 1.5 per cent.  However, the out-of-quota regime through a
combination of specific and ad valorem  charges resulted in an effective tariff between 500 and
700 per cent for a range of key dairy items. Out-of-quota rates of this size halted trade.  Tariff quotas
should be operated to allow a phased reduction of protection, and should not remain as barriers toWT/TPR/M/32
Page 16
trade.  Tariff quotas and import quotas were a general area of concern to New Zealand;  for example,
the management of tariff quotas and especially the issue of quota underfill.  He queried the rationale
for Japan to maintain tariff quotas for product categories where quotas were unfilled, due to low
market demand.  He remained concerned too that there was no mechanism to reallocate automatically
unused quotas among end-users, and would welcome movement towards eliminating such restrictionson trade.
66. The Secretariat report also noted that most fisheries import quotas had shown little change
over the past several years.  New Zealand was disappointed that Japan showed little sign of moving to
a more acceptable and WTO-consistent approach in this sector.  Japan's assertion that opening its
market would contribute to unsustainable harvesting was not, in his view, credible.  Protection of the
domestic fisheries industry was not a reason to maintain import quotas, and he would be interested in
Japan's WTO justification of its policy, which had also been a matter of concern at the last TPR.
67. Sanitary and phytosanitary issues were amongst the biggest problems for foodstuff exporters
into Japan. These restrictions not only had a significant impact on existing major export industries, but
also impeded the development of some high-quality industries with considerable trade potential.  A
telling example of New Zealand's problems in this area was access for apples.  In 1997, four years
after phytosanitary conditions had been agreed for New Zealand apples to enter the Japanese market,total exports had been less than 9 tonnes.  This did not reflect a lack of market demand, but rather the
sheer complexity and cost of phytosanitary conditions.  He hoped that Japan would note
New Zealand's concerns in this area and work with exporters to find a better approach.  He
nevertheless welcomed Japan's increasing emphasis, noted in the Secretariat report, on moving
towards international standards embodying performance-based criteria.  This was a constructivedevelopment and New Zealand looked forward to continuing a  dialogue with Japan in this area.
68. New Zealand considered that market-access restrictions had an impact on overall economic
efficiency.  They were inconsistent with the overall positive thrust of the bilateral relationship
between New Zealand and Japan, which involved constructive cooperation both bilaterally and in
regional forums such as APEC.  Their retention raised questions about the pace and application ofderegulation in Japan.
69. The representative of Norway sought Japan's assessment of the potential impact of the
weakness of the banking and financial sectors on its trade policy, bearing in mind that the Japanese
Government had reaffirmed its commitments to the maintenance and strengthening of the multilateral
free trade system. He emphasized the strengths of his country's relationship with Japan.
70. Although Japan had confirmed its willingness to give priority to the multilateral approach, the
operation of laws and regulations regarding the so-called "prior consultation system" in Japanese portsseemed to contradict this policy.  He invited Japan to inform the TPRB of the status of the present
legislation and practices regarding this system, and hoped that any improvements the Japanese
authorities might apply would be implemented on an MFN basis.
71. The Secretariat report pointed out that it had not always been easy for outsiders to follow the
process of deregulation because of the multiplicity of programmes.  The adoption of morewide-ranging deregulation was encouraged;  the main rule should be a deregulated market with a
limited number of exceptions, not the other way round.
72. The Secretariat report noted that "distribution continues to be one of the lowest-productivity
sectors in Japan".  A careful observation of day-to-day transport activities in Japanese cities supported
this statement.  The Government had consequently r ecognized the need for reform in this sector.  In
Norway's view, everybody would gain if the refo rms produced a more efficient distribution system.
He believed that Japan would be best served by a distribution system that was both varied and
sophisticated enough to maintain also a wide selection of imported products.WT/TPR/M/32
Page 17
73. The representative of the European Union agreed that recent developments had largely
overtaken those described in the reports.  Japan's economic growth had dropped sharply in recent
months, resulting essentially from a loss of business and consumer confidence, including confidence
in the domestic financial system, and the effects of the Asian financial crisis.  In addition, Japan's
trade and current account surpluses had now been increasing steadily for more than a year.Provisional data showed that the EU's merchandise deficit with Japan had increased by 67 per cent in
1997, an increase well above that for Japan's overall trade with all countries.
74. The Government of Japan's forecast for economic growth in fiscal year 1998 was 1.9 per cent,
emanating entirely from internal demand factors.  He welcomed the expectation that growth would
not be export-led.  However, this constituted a significant change from 1997 when external demand
had underpinned economic growth.
75. In cushioning recent economic developments, bot h in Japan and the rest of Asia, an open and
transparent world trading and financial system had crucial roles to play.  Recent problems in Asia had
arisen at least in part due to a lack of market openness and transparency.  It was now imperative to
tackle these issues, which would provide at least part of the solution to the current economic
problems.
76. Japan's domestic economic policy was central to alleviating recent difficulties.  He fully
supported the goals of the Japanese Government to revitalize the domestic economy and create an
economic system more compatible with market mechanisms.  Recent economic measures went in the
right direction.  However, these measures would not, in themselves, give a significant boost to the
economy in FY 1998.  He asked whether further measures might be needed to restore confidence in
the economy.  Over-reliance on export demand would lead to the burden of adjustment being placed
on Japan's trading partners.  This made it important for Japan to continue its efforts to promote
structural reforms facilitating access to its market.
77. The EU thus supported and welcomed the recent announcement of a new three-year
deregulation programme, starting in April 1998, which responded to a long-standing EU request.  He
welcomed the creation of a group of "eminent persons" to monitor the deregulation process, althoughhe was somewhat disappointed to hear that no European participant had been invited to join this
group, while representatives from other foreign parties had been invited.  The key issue for
deregulation was the implementation of concrete measures.  The new programme should fully take
into account the 200 deregulation proposals that the EU had submitted to Japan in November 1997.
These measures would, if implemented, substantially improve market access for the vast majority of
Japan's trading partners as well as domestic Japanese companies.  He emphasized the need for the
vigorous enforcement of competition policy.
78. The EU recognized the short-term need to st abilize the banking and financial system and to
maintain confidence.  However, care must be exer cised in underwriting existing financial capacity.
Bailing out insolvent or uncompetitive financial institutions risked limiting or delaying structural
reform in this sector and would, in turn restrict market access for foreign firms, further undermining
confidence in the economy.  He welcomed the recent assurances by the Government that it was notthe intention to use public funds to bail out insolvent financial institutions.
79. He recognised Japan's good record concerning the implementation of WTO Agreements, and
looked forward to Japan taking a proactive approach to trade liberalization in the framework of new
WTO negotiations around the turn of the century.
80. As for trade policy towards least-developed countries, Japan was alone among the principal
developed countries in not having yet come forward with concrete proposals to grant additional access
in the context of the recent High-Level Meeting.  The EU encouraged Japan to improve accessWT/TPR/M/32
Page 18
conditions for these countries and looked forward to learning what measures Japan was planning to
take in this regard.
81. Significant progress had been made in 1997 in resolving a number of trade disputes with
Japan.  Most remaining market-access problems related to regulatory obstacles to trade.  Among the
more pressing problems were difficulties in the fields of leather and leather footwear, pigmeat,landing slots at Tokyo's Narita airport, testing and certification requirements for agricultural products,
and distribution.  The EU believed that Japan's trade policies and practices were moving in the right
direction.  The key now was to ensure effective and timely implementation of structural reforms.
Recent economic and trade developments in Japan had reinforced the need for decisive action in this
respect.  Particular emphasis was placed on the finding of the Secretariat Report that the firm
continuation of the deregulation process was "an essential element in stimulating the domestic market
and encouraging improved market access".
82. The representative of Australia emphasized his country's strong economic relationship with
Japan.  She welcomed Japanese initiatives to increase imports by pursuing structural reform, including
through deregulation, and suggested that the pace of reform needed to be hastened, particularly in the
area of agriculture.  She hoped that Japan, as one of the largest economies in the world and as one of
the principal beneficiaries of an open and rule-based multilateral trade system, would play an activerole in achieving further multilateral liberalization.  Australia applauded the important and positive
role played by Japan in the sectoral negotiations in information technology, maritime transport,
telecommunications and financial services, and encouraged Japan to lend its support to calls for a
balanced and comprehensive round of trade negotiations by 2000 that would allow all WTO
participants to secure maximum gains.  She noted that Japan's average applied tariff on manufacturedgoods was less than 5 per cent, and hoped that the low level of tariff would enable Japan to support
also the call for further multilateral industrial ta riff negotiations, to coincide with the mandated
negotiations in services and agriculture.
83. Japan's high levels of protection and support for agriculture remained a major concern to
Australia, notwithstanding the progress that had been made during the Uruguay Round in changing
and making more transparent the methods used.  Support levels remained significantly above
comparable OECD countries, average applied agricultural tariffs were more than five times the level
for manufactured goods, and there were significant tariff peaks and tariff escalation in a number of
sectors.  The operations of state-trading enterprises continued to stifle imports. Tariff-rate quotas
appeared to operate as quantitative restrictions.  These high levels of assistance had not resulted in
significant productivity improvements, nor had they helped Japanese agriculture to adjust
significantly to the changes under way globally.  They had been to the detriment of Japaneseconsumers and taxpayers and also to Japan's food processing industries, which had been encouraged
to move offshore because of the high cost of inputs.  The results of Japan's policies had not been
consistent with the Government's own food security objective.  She was therefore interested in moves
under way in Japan to review its Basic Agricultural Law and to hear about likely policy options in
agriculture, particularly in the lead-up to the ne xt round of agriculture liberalization negotiations
mandated to begin at the end of 1999.  Australia acknowledged that it was the sovereign right of any
WTO Member to support its agricultural sector, but did not accept that this be done in a way that
distorts trade.
84. The SPS and TBT agreements had set out clear and detailed rights and obligations covering
quarantine, food safety measures and other standards and technical regulations to prevent their use asunjustified technical barriers to trade.  She noted that as part of its 1996 APEC Individual Action Plan,
Japan had undertaken to implement more transparent quarantine procedures based on sound scientific
assessment, and welcomed this and other commitments  by Japan to increase the transparency of its
quarantine procedures.  Nevertheless, Australia had a number of quarantine problems with Japan.  She
encouraged Japan to ensure that technical barriers were not disguised restrictions on access to theJapanese market and that they respected the letter and the spirit of the SPS and TBT Agreements.WT/TPR/M/32
Page 19
85. Australia had pursued a number of market access issues through formal and informal bilateral
consultations with Japan, made formal submissions to the Office of the Trade and Investment
Ombudsman with some success, and used the Japanese Fair Trade Commission and the MITI Import
Board to raise market-access concerns. The Japanese Government's Deregulation Action Programme
(DAP) had provided a further useful mechanism to lobby for the removal of regulations which,directly or indirectly, impeded access for imports.  Australia therefore welcomed Japan's recent
decision to establish a replacement programme when the DAP expired in March 1998.
86. Australia noted the lower productivity levels in Japan's services sector than in the
manufacturing sector.  Given that services was a growth area in Japan, productivity growth in services
would have a greater impact on economywide productivity than in manufacturing.  This underlined
the benefits of having open and competitive services markets in Japan, benefits that would accrue not
only to Japan's trading partners but to Japan itself.
87. The representative of Hong Kong, China emphasized that its relationship with Japan was
strong;  Japan was a key target for its exporters and for investment.88. Hong Kong, China's comparative lack of success in both import penetration and investment
into Japan were points generally appreciated by the Japanese Government and highlighted in the two
reports.  It could only be to the benefit of all concerned that conditions for both were made easier.
89. Deregulation in its widest sense was the key to achieving many of the aims of the Japanese
Government in making its economy more compatible with the modern day market mechanisms.
Hong Kong, China was an excellent example of how an economy could flourish in a very open and
transparent regulatory environment.  There was some way to go before Japan achieved its stated aims;
the good intentions for deregulation had not yet translated well into meaningful changes.  He urgedthat the Japanese Government find better ways to expedite the changes needed in order to prosper in
the twenty-first century, in particular, given the current financial turmoil in Asia.  As the second
largest economy in the world, Japan needed to open its markets to other economies currently in
difficulty. All would gain by the full implementation of the measures Japan had, or was proposing to,
introduce.
90. Hong Hong, China welcomed Japan's firm suppor t for the multilateral trading system.  Japan
was a strong and positive force in the system.  Hong  Kong, China would continue to work with Japan
to promote and to strengthen the rules-based multilateral trading system, which remained the bedrock
on which international trade must be built.
91. The representative of Switzerland said that Japa n had a leading role in international trade and
therefore a considerable responsibility for the smooth functioning of the multilateral trading system.
He emphasized Switzerland's strong relationship with Japan. It was of great interest to all WTOMembers to follow closely the evolution and application of the Japanese trade and economic policy
especially in the light of the present complicated circumstances.  Switzerland took a keen interest in
the Japanese decision-making process in trade-related policy areas.  The regulatory environment for
goods and  services was often very complex.  It had been positively noted that one of the Deregulation
Action Programme's basic directions of reform was the change from ex-ante regulatory-typeadministration to ex-post review-type administration.
92. He agreed with the Secretariat that bilateral arrangements could lead  to an erosion in the
observance of the MFN clause, and therefore encouraged Japan to continue to scrupulously observe
the cornerstone of the multilateral trading system.
93. Regarding the pharmaceutical sector, Switzerland was very concerned about Japan's taxation
practices over the last years.  He hoped that existing international standards and recommendations
were also fully applied by Japan in the sector.  Regarding the Public Health Insurance ReimbursementWT/TPR/M/32
Page 20
System, the Swiss pharmaceutical industry agreed with the Secretariat report that the reimbursement
price (Drug Tariff) did not adequately compensate research companies for the costs inherent in
developing new, innovative pharmaceutical products.  The Government of Switzerland was generally
concerned about any inadequately designed price control systems which interfered with a liberal
market, and would follow further developments in this area with great interest.
94. Standards and regulations became increasingly important in a trading environment with low
industrial tariffs.  Situations where goods from overseas faced different standards, additional tests or
different testing methods were rather burdensome and costly, in particular in the areas of medical
devices, pharmaceuticals, chemicals, machinery, mechanical and electrical appliances. As part of the
Deregulation Action Programme, Japan was making great efforts to move towards increased
international harmonization of standards.  He encouraged Japan to undertake further improvements to
adopt new international standards as well as to harmonize Japanese standards with the existing ones.
95. Several Swiss companies doing business in Japan had reported that they faced major delays in
customs clearance, in the case of sea cargo up to ten days.  Although some progress had been made,
as pointed out in the Secretariat report, it was evident that this was still a major obstacle and that the
customs clearance time in Japan remained quite long.  In 1995 it had been indicated that the Ministry
of Finance would adopt a system to allow import pe rmissions in advance in order to reduce the time
for passing customs.  He believed that such pe rmission had never been granted in advance and that
corresponding guidelines did not yet exist, thus, he asked for the status of implementation of this
advance import permission.
96. He noted that access to government tenders was, in many cases, not subject to written rules
and conditions.  Often the reasons given for declining an offer from a company seemed rather unclear.For many sectors and product categories the share of foreign suppliers in government procurement
was extremely small.
97. The representative of India noted that Japan was an extremely important contributor to world
trade.  Economic developments in Japan were invariably looked upon from the perspective of their
impact on the multilateral trading system.  WTO Members had therefore been closely following therecovery in the Japanese economy since the recession of 1993.  While the signs were positive, the
pace of recovery had been slow.  Up to the middle of 1995, the Japanese economy had recorded very
slow growth;  although there had been a marked improvement in 1996, the latter half of 1997 again
saw a downturn, primarily because of the economic tu rmoil in the neighbouring Asian countries.  The
continuing deficit and increase in indebtedness had prompted the Government to take a package of
measures for curtailing spending.  Although a slow-down was foreseen, the package of measures
taken prudentially, and the weaker yen, should ul timately bring in further export-led growth.
98. Since its last Review in 1995, Japan had taken a number of steps towards deregulation and
structural reform.  He noted Japan's statement that both deregulation and structural reforms would
remain in the forefront of Japan's trade and inve stment policies.  Progress in these areas would
enhance Japan's ability to achieve its economic and social objectives.  Market access would
undoubtedly remain a key area of deregulation and reform.  Although the Government had takensome steps to improve market access and distribution among priority areas, much more needed to be
done towards giving priority to import promotion; there were still a large number of policies and
procedures that inhibited the expansion of trade.  From India's perspective, the most significant
impediment was the range of phytosanitary and quarantine regulations governing the import of
agricultural and food products.  This issue remained an area of disagreement between Japan and itstrading partners.  Japanese standards for fresh fruit and vegetables were far more stringent than
international standards.  The insistence on the date of manufacture, instead of the universally accepted
practice of "best before" date, was another source of disadvantage for overseas competitors.  It was
essential for Japan to ensure increased international harmonization and to adopt mutual recognition
arrangements.WT/TPR/M/32
Page 21
99. Another area that impeded trade was the complexity and rigidity in Japan's distribution
system, which raised the cost of market entry and inhibited access by foreign firms.  Exclusive
relations between retailers, wholesalers and manufacturers often presented significant hurdles.
Japanese procedures in this area should be simplified.
100. Japan's implementation of its new tariff regime had resulted in an increase in some tariff rates.
While Japan had taken certain remedial measures, these had not affected tariff peaks, which continued
to occur in the agriculture, food manufacturing, textiles and footwear sectors.  The administration of
tariff quotas needed to be streamlined, especially since tariff quotas frequently remained
under-utilized and there was no system of reallocation of unused quotas.  Further, a number of non-
tariff barriers were also prevalent in the Japanese market.  There were quotas and semi-controlled
trading on a number of agricultural products such as rice, wheat, and barley.  In particular the
Simultaneous Bidding and Selling system (SBS) for rice had acted as a barrier to exports of Indianrice to Japan.  The WTO consistency of the SBS system needed to be examined.
101. The share of services in Japan's overall trade had also been increasing.  However, there were
restrictions in the handling of local business by foreign agents which impeded effective cooperation
between Japanese and foreign firms.  Certain rules and conditions in the legal and accounting services
sectors were not conducive to growth.  Japan's pol icy, whereby even bona-fide businessmen were not
granted multiple entry visas, further inhibited the growth of business.  As a model for other Asian
economies, Japan needed to rectify these shortcomings so that it could continue to foster growth and
bilateral trade both in goods and services.
102. As an original signatory to the WTO, Japan's belief in  and commitment to the multilateral
trading system was well known.  This was best illustrated in its policy towards regional arrangements.Unlike some of the other prominent Members of the WTO, Japan did not support or believe in the
proliferation of customs unions or other preferential regional agreements.  India looked forward to
Japan's continued contribution in the strengthening of the multilateral trading system.
103. The representative of the Republic of Korea noted that, in recent years, Japan had
demonstrated a willingness to engage in a constantly evolving process of liberalization, including
marked tariff reductions.  Japan had initiated various import promotion measures since 1994.  Given
the importance of Japan in the multilateral trading system and the size of its market, Members
expected to benefit from such a process.  However, many obstacles to trade continued to impede
access of foreign products and services to the Japanese market.  Korea encouraged Japan to pursue its
liberalization, covering sectors that had yet to be addressed.  In spite of the Japan's efforts to liberalize
trade and implement import promotion measures, Korea still faced an increasing trade deficit with
Japan.  Korea requested Japan to accelerate its efforts to apply more substantial and tangible measuresto improve market access in general.  While noting Japan's continued efforts to reduce tariffs,
16 industrial goods of concern to Korea, which were competitive with their Japanese equivalent,
retained  high tariff rates.  Accordingly, Korea urged Japan to reduce tariffs on such goods as
polypropylene, suitcases, clothing, silk fabrics, and footwear.
104. The process of deregulation that Japan had initiated appeared to be oriented toward promotion
of the domestic economy, and remained partial in scope.  For Korea, it appeared insufficient in its
level of deregulation.  Such sectors as agriculture and fisheries, construction and certain services,
including distribution, still faced strict regulation that hampered improved market access.  For
example, Japan imposed sanitary inspections on imports of certain foods, contrary to other advanced
countries.  Moreover, even after opening public procurement in the construction sector, there stillexisted various institutions and practices that restricted the access of foreigners into the Japanese
construction market. Korea asked Japan to take concrete steps to accelerate its deregulation process,
thereby contributing to re-ignite the vigour of the East-Asian economy.WT/TPR/M/32
Page 22
105. Tax incentives granted by the Japanese Government for imports were mainly directed at
industrial goods coming from advanced countries which already had a competitive edge.  Japan
should expand tax incentives so that developing countries could also benefit from them.  The Foreign
Access Zone programme did not seem to bring substantial benefits to Members as it focused on
developing local cities rather than on stimulating foreign companies by providing them withincentives.  He asked Japan to provide more information on how the Foreign Access Zone programme
could present a concrete advantage for Members trading with Japan.
106. The representative of Korea expressed appreciation to the Japanese Government for its efforts
at solving market-access problems for imported fishery products through the establishment of the
"Trade and Investment Ombudsman" office.  However, at least two issues on fisheries remained
sources of concern for Korea.  First, Japan was still implementing numerous restrictive quotas on
fishery products imported from Korea.  He urged Japan to increase the quotas or improve the system,and ultimately, on a long-term basis, to eliminate these restrictive quotas on nine items to facilitate the
access of Korean fishery products to the Japanese market. Second, Korea had been and remained
subject to the equivalent of an import cartel for laver through the operation of Japan's Association of
Laver Producers.  Korea strongly hoped that these barriers would be removed as soon as possible.
107. The representative of the United States commended Japan for its significant contributions in
recent WTO negotiations, particularly the Information Technology Agreement, the Telecoms
Agreement, and the recently concluded Financial Services Agreement.  She hoped that these
agreements would provide improved access to the Japanese market for Japan's trading partners in
these important sectors.  In turn, she expected Japan to benefit substantially from these agreements
and from expanding the scope and strength of trade rules under the WTO.
108. She noted that since the 1995 review of Japan, the United States and Japan had reached a
number of bilateral agreements in sectors including auto and auto parts, insurance, semiconductors
and harbour services. She expected these agreements to result in improved access to Japan's market.
She welcomed other steps that Japan had taken since the 1995 review to bring its regime into
compliance with WTO rules, including amending its copyright law to provide retroactive protectionfor sound recordings and the recent settlement of the dispute on distilled spirits.
109. She expressed concern over Japan's large, increasing current account surplus with the rest of
the world, projected to reach about US$93 billion in 1997, an increase of 42 per cent over 1996:  this
represented 2.2 per cent of Japan's GDP, considerably above the levels of most industrialized
countries.  There were no signs of the surplus decreasing in the months ahead;  the projected surplus
for 1998 could likely exceed US$100 billion.  This was extremely troublesome and represented a
serious drag on the rest of the world economy.
110. Japan's global trade surplus was also experiencing a similar trend.  After declining in 1996, it
had risen sharply by almost 50 per cent in 1997 to ¥10 trillion.  The Prime Minister had recognized
that it was necessary for Japan "to rectify the nation's growing trade surplus".  The global trading
system could not afford to have the world's second-largest economy relying on an export-led strategy
to achieve economic growth.  Japan needed to stimulate domestic-demand led growth that would
generate a truly healthy economy.  The Japanese  economy was stagnant, with GDP growth in 1997
likely to be well below 1 per cent.  Based on Japan's current economic policies, economists were
predicting only modest growth, if any, in GDP for 1998.  This situation became all the more of
concern considering the current economic and financial situation in South Asia.  Japan had a critical
role to play in the global economy at this important time, serving as a partner in Asian adjustment andan engine of growth for other economies in the regi on.  It was critical for Japan to take the steps
necessary to deal with the issues in its financial system, to generate solid growth in domestic demand,
to implement immediate and far-reaching deregulation, and to open its market to imports from other
countries.WT/TPR/M/32
Page 23
111. The Secretariat report was replete with examples of structural characteristics of the Japanese
economy that restricted access for foreign products and services and discouraged foreign investment.
For example, while some progress had been made in the area of customs clearance times and sanitary
inspection procedures, these remained quite high by developed-country standards; and, with respect to
investment, the report indicated that the Government of Japan had failed to address sufficiently thereal obstacles encountered by importers and investors, including exclusionary business practices, high
market entry and business costs, and lack of transparency.
112. She shared the concerns of others regarding government procurement. Japan's policy
appeared to be one of carefully matching its own co mmitments to those of others, rather than setting
an example with significant unilateral liberalization. Japan's consistently narrow interpretation of its
commitments frequently resulted in implementation that  did not achieve the desired results because it
failed to address informal barriers to market penetration.
113. She welcomed recent amendments to the Anti-Monopoly Act to strengthen and upgrade the
Japan Fair Trade Commission, while noting and supporting the Secretariat's concern with inadequate
enforcement efforts by Japan.  The United States strongly held the view that Japan's competition
policy efforts would remain inadequate until it significantly strengthened enforcement, including
more criminal prosecutions and higher penalties for violations.  Tables in  the Secretariat reportshowed an actual decline in cases initiate d under the Anti-Monopoly Act between 1993 and 1996.
Serious enforcement efforts would require an increase in JFTC resources, especially investigative
personnel.
114. The regulatory environment for services was often complex and non-transparent.  Various
barriers to foreign penetration in services, such as distribution, telecommunications, professionalservices and transportation, carried a heavy cost for Japan and its trading partners. Distribution was an
area of particular concern to the U.S. Government.  In sector after sector, from glass to film to autos
and paper, U.S. exporters faced barriers to entry and full participation in the distribution channels of
Japan, hindering their ability to move their products to the consumer.  Distribution was one of the
lowest productivity sectors in Japan;  serious opening of Japan's distribution system was in the interestof Japan and its trading partners.
115. While welcoming the deregulatory measures undertaken since the last review in 1995, she
remained extremely concerned about the slow pace of  reform, the resistance to meaningful reform in
many Japanese Ministries and government entities and the serious consequences of failing to continue
to move forward with an aggressive deregulation agenda. Many Japanese newspapers, academicians,
politicians, and business groups, as well as a number of governments had also been critical of the
series of weak Japanese deregulation programmes, and had called for bold action in this area.  Thechallenge for Japan was to seize the current popular support for deregulation and the Prime Minister's
own initiative to bring about this objective.  Deregulation meant more than counting the number of
deregulatory measures that had been taken year to year.  It was critical to look at the substantive
nature of such measures to assess whether they had been effective in liberalizing the Japanese
economy and opening Japan's market.
116. The U.S. Government also remained extremely concerned that steps that Japan might take in
the future under the guise of deregulation would actually result in new types of regulation, less
transparency and further close Japan's market. The legislation currently in draft to repeal the Large
Scale Retail Store Law would include a proposal to al low local authorities to consider what effect new
stores would have on environmental concerns.  Although these were legitimate concerns of localgovernments, she saw the serious danger that vague or non-transparent rules might be abused to
restrict store openings under the pretext of protecting the local environment.  She therefore urged the
Government of Japan to see that the new rules were transparent, consistent and non-discriminatory
and that they minimized the delays in new store openings.  She also believed that it was critical for
interested parties, including foreign gove rnments, to participate in the process.WT/TPR/M/32
Page 24
117. The U.S. Government was currently pursuing a bilateral deregulation initiative with Japan.
Four sectors had been agreed on  for immediate attention: financial services, telecommunications,
housing and medical technology/pharmaceuticals.  She expected Japan to undertake a meaningful
package of deregulatory, market-opening actions in all of these sectors by spring 1998.
118. The U.S. Government welcomed Japan's recognition that it had benefited from the
multilateral trading system and that Japan had a resp onsibility to maintain and strengthen the system.
She looked to Japan to serve as "a leader in further liberalization of trade and investment", and looked
forward to reviewing the results of such initiatives  at Japan's next trade policy review in two years.
119. The representative of Colombia said that, although Japan received only 3 per cent of its
exports, it was an important market because the majority of exports was concentrated in a small
number of agricultural products.  Trade statistics for 1993 to 1996 showed that Japan had a bilateral
trade surplus that  reached 200 per cent of Colombia's exports.  She expressed gratitude for thecooperation of JETRO with the Colombian export promotion agency in developing a project to
increase and diversify Colombian exports to Japan, as well as bilateral initiatives to facilitate
inspection control.  In this context, the development of agricultural policy and implementation of the
SPS Agreement were of great interest;  Colombia had presented some specific questions and looked
forward to the written answers.  An explanatio n regarding the SPS policy for fruit and vegetables
would also be interesting;  in particular whether these measures reflected international standards in
effect or a level of risk specifically determined by Japan, and whether efforts to simplify domestic
regulations were in fact in line with international standards in the sector.
120. Japan had four types of tariffs, including concessional exceptions.  228 companies had used
imported materials with reduced or exempted tariffs for specified purposes.  She asked if Japan couldexplain these "specified purposes" and the system for tariff exemption or reduction for the import of
raw materials to be used in the production of export goods (Article 19 of the Customs Code).  She
also sought information on Japan's policy with regard to the Generalized System of Preferences.  It
appeared that this covered 10 per cent of imports from developing countries, while  75 per cent of
GSP imports was met by ten countries.  She wished to know whether there was any possibility of theprogramme being expanded.
121. The representative of Iceland said that Japan had long maintained strong support for the
multilateral trading system.  Deregulation and structural reform had been vital ingredients of Japan's
trade policy in recent years.  The results of many of the reform initiatives launched by the Japanese
Government remained to be seen.  His impression was that intensified efforts were needed.  He
expressed concerns about the economic difficulties experienced by Japan since the last Review.
122.  Although there had been a slight downturn in Iceland's exports to Japan since 1995, he
emphasized Japan's importance as a valuable trading partner. As stated in the Secretariat report,
Japan's distribution-sector practices and regulations continued to cause its trading partners difficulties.
These complex and multi-layered networks were difficult to access and contributed to high
distribution costs.  The Government of Japan had recognized the need for reform and restructuring of
the distribution sector, and he looked forward to any measures that might be taken.
123. Iceland would have wished Japan to make substantial bindings on fish and fish products
under the Uruguay Round;  a large number of tariff lines in this sector continued to be unbound.  The
use of quantitative restrictions for some fisheries products had also continued under the WTO;  the
Secretariat report suggested that this had been done to contribute to sustainable utilization of fisheries
resources.  Iceland would argue that although this  was certainly a worthwhile goal, there could be
more appropriate ways to pursue it;  the solution lay with responsible fisheries management and trade
liberalization, not restriction.  Iceland asked wh ether the Government of Japan had any plans to
reduce or eliminate this practice.WT/TPR/M/32
Page 25
124. He emphasized that sustainable utilization of fisheries resources could be achieved by a
general abolition of subsidies to fishing industries, which had led to over-capacity, distorted trade and
undermined resources.  Iceland would appreciate  any information on the nature and extent of
subsidies to the Japanese fishing industry, including any indications that these might in future be
modified, reduced or abolished.
125. The representative of Pakistan said that Japan had always played a constructive role in
multilateral trade under the GATT and the WTO and was one of Pakistan's main trading and
investment partners.  He was concerned that the recovery in GDP had come to a sudden halt in mid-
1997.  He expected that measures announced by the Government of Japan in November 1997, coupled
with the so-called "pump-priming" measures ta ken since then, should provide a framework for
domestic-led recovery.
126. He expressed concern about tariff peaks and escalation in agriculture, textiles and clothing,
leather goods and footwear, as well as fisheries.  He urged the Japanese authorities to review their
import policy regime with respect to these products.  While he appreciated that Japan's GSP
beneficiaries currently comprised 150 countries,  the distribution of benefits remained highly skewed
both in terms of the number of main beneficiaries and the range of products.   He hoped that Japan
would consider measures to broaden the coverage of the scheme.
127. The representative of Indonesia, on behalf of the ASEAN  countries, said that  Japan had
achieved and continued to display an impressive performance in the export sector.  Stimulation of its
own economy would provide a much-needed impetus toward alleviating the economic difficulties
faced by some countries in Asia.  The Secretariat report noted that Japan was likely to be more
severely affected than other industrialized countr ies by the financial problems besetting some ASEAN
economies, due to  the growing economic inte rdependence between Japan and these economies.
ASEAN viewed Japan's policy responses vis-à-vis the challenges in the region as extremely
important.  ASEAN looked upon Japan not only as an economic and trading leader, but more
importantly as a partner.
128. Although the overall level of Japan's tariff was relatively low, certain products were still
subject to high protection, tariff escalation and tariff peaks, including  products of major interest to
ASEAN such as agriculture, food manuf acturing, textiles and footwear.
129. Most ASEAN countries had benefited from Japan's GSP scheme.  However, the scale of net
benefits of GSP was still limited, partly because many products of interest to developing countries
were not eligible for GSP benefits, particularly textiles and some agricultural products.
130. ASEAN highlighted the often burdensome SPS procedures required before exports of fruit,
plants and other products were allowed into Japan.  While Japan had accepted greater efforts to movetoward international standards, there was still a need to improve on pre-export clearance procedures.
While many of Japan's requirements might  be justifiable under the SPS Agreement, the
administrative procedures imposed were often lengthy and cumbersome. He referred to particular
cases concerning fruit, rye straw, processed pork and pigmeat.WT/TPR/M/32
Page 26
VI. REPLIES BY THE REPRESENTATIVE OF JAPAN AND ADDITIONAL
COMMENTS
Macro-economic background and structural reform
131. The representative of Japan stated that replies to some of the detailed questions on technical
issues might be provided bilaterally.  The ¥2 trillion tax reduction would have a positive effect on the
Japanese economy, estimated to be about 0.2 per cent of GDP.  This, with other fiscal and  financial
measures, should have a cumulative positive impact.
132. The share of public sector employment in  GDP in terms of Central Government and local
governments employees, had been 8.2 per cent of the total workforce.   More detailed figures would
be provided later.
133. Japan's efforts towards building a domestic demand-led economy were described in the
Secretariat report.  Measures such as the five-year  Social and Economic Plan for Structural Reforms
of December 1995 and the Deregulation Action Programme of March 1995 were bearing fruit in the
form of, for example, decreases in tariffs for telecommunications and in the  price of gasoline.  The
Economic Planning Agency estimated that deregulation since FY 1990 had created about 1.6 per cent
of GDP worth of business opportunities and that future structural reform, including deregulation,
would lead to an annual increase of about 0.9 per cent in GDP between 1998 and 2003.
134. These calculations were of a mid- to long-term nature did not  take into account short-term
cyclical fluctuations;  it would thus be difficult to tell the effect of difficulties in the Asian region on
Japan.  The currency depreciation of ASEAN countries would have a negative effect on Japanese
exports to that region and positive effects on imports from the region.  It would also be difficult to be
definitive about the effects on Japan's foreign direct investment (FDI) in Asia.  However, bycategorizing the FDI into two types, one aiming at sales in the internal market of the FDI-receiving
country and the other aiming at exports from that particular country to the outside region, in the
former case, the recent difficulties were likely to have a discouraging effect on further Japanese
investment, whereas in the latter case, the incentive to invest may have become greater.
135. Exports were foreseen to grow by around a little less than 12 per cent in 1997, whereas about
5 per cent growth was expected in 1998.  On the other hand, Japanese imports were expected to grow
following the recovery of the economy, and as a result, the goods and services account surplus in
fiscal year 1998 was expected to be about ¥6.2 trillion, or some 1.2 per cent of GDP, similar to the
previous year. The current account surplus was also expected to be similar to the previous fiscal year,
i.e. about ¥12.4 trillion, or around 2.4 per cent of GDP.  The above forecast was based on the
assumption that the dollar to yen rate in FY 1998 would be about ¥123 per U.S. dollar.  A similar
projection was made by the IMF in December 1997.
136. A fairly comprehensive account of Japan's structural reform had been given on the first day of
the Review.  Japan had been promoting deregulation according to programmes set up in 1995 and
further revised in 1997;  those programmes concerned 12 areas, including housing, land, information
and communications, and distribution.  Concrete results so far included the liberalization of the import
of gasoline products and the introduction of a tender system in wholesale electricity.  Deregulationmeasures in the field of communications had already been explained.   Foreign exchange controls had
been relaxed and conditions for issuing commercial papers had been liberalized.  Japan had eliminated
and would, in principle, continue to eliminate, clauses under "demand-supply adjustment" in the area
of distribution and transportation.  The remarks that Japan's deregulation efforts had so far excluded
agriculture, construction and international transp ort was incorrect. For example, the obligation by
farmers to sell rice to the Government had been e liminated.  On government procurement, the report
by the Administrative Deregulation Sub-Committee, produced in December 1997 recommended the
improvement of tender procedures related to public works.  The economic impact of all theseWT/TPR/M/32
Page 27
deregulation measures was not being assessed by any formal mechanism in Japan, but an assessment
was being carried out by the Economic Planning Agency.
137. Japan took the view that deregulation stimulated the economy, and thus would continue its
effort to introduce further deregulation.  The Administrative Reform Committee had completed its
work, and deregulation would be carried out according to the recommendations made by thecommittee, which the Government had the obligation to respect as much as possible.  On
26 January 1998, Japan had set up a body to promote new deregulation efforts, comprising mainly
eminent persons from the private sector.  What would be included in the new three-year deregulation
programme was not yet decided, but it would certainly comprise the programmes which had not been
completed, programmes that were included in the final opinion of the Administrative Reform
Committee, and inputs from individuals in Japan and abroad.  The new three-year programme would
cover the entire administrative area.
138. Concerning competition policy, he noted that exemptions to the Anti-monopoly Act of Japan
had already been touched upon in the opening statement.  To sum up, an omnibus act to review or
reform 35 exemptions and 20 laws had been enacted last July;  remaining exemptions were being
reviewed and specific conclusions would be reached by March 1998.  It had already been decided by
the Cabinet in December 1997 to abolish anti-depression cartels and rationalization cartels.
139. Legal systems to deter violation of anti-monopoly or anti-trust laws were different from one
country to another;   the majority of OECD member countries, for example, had no criminal
procedures in this respect.  As for Japan, law enforcement was twofold:  first, administrative
decisions, including cease and desist orders and surcharge payment orders; second, criminal penalties.
The two systems were being utilized comprehensively.   With regard to criminal enforcement, in 1990,
the Fair Trade Commission had announced a policy of actively filing criminal accusations with the
Public Prosecutor General with a view to deterring malicious and grave violations of the  AMA.  In
this respect, JFTC was working closely with the public prosecuting authorities and was exchanging
information and opinions on concrete programmes for each case.  It was not appropriate to make
judgement based solely on the number of measures taken;  for instance, it was almost meaningless tocompare the number of legal measures among the major industrialized countries.  Citing from the
annual report of respective countries, for instance, in FY 1996, the United States had pursued
42 criminal cases and 31 decisions, while the European Union had had seven administrative orders;
the United Kingdom had two administrative orders, and  Germany, seven legal measures, and so on.
The JFTC recognized that whether to allow private citizens to sue for injunctions against violation of
the AMA was a subject for examination.  Concerning transparency of enforcement actions, JFTC
made public not only legal or formal actions but also warnings.  On the other hand, cautions were notconsidered to be measures which should be made public, since there was not enough evidence to
suspect that violation of the AMA existed.  Regarding  the monitoring process, JFTC took actions in
three forms:  firstly, cease and desist orders;   secondly, reporting by the parties on concrete action
taken;  and thirdly, monitoring by JFTC after a decision had been enforced, if deemed necessary.
140. Against a background of reduction in the public service, JFTC had managed to increase its
staff;  the number of personnel engaged in investigations had increased by more than 30 per cent since
FY 1994, and investigative personnel had almost doubled since FY 1989.  However, considering its
expanding scope of activities, JFTC's resources were still limited.  Concerning activities such as
surveys  and guidelines, to make trade practices and activities AMA-consistent, the revised guidelines
introduced in 1994 were also to be applied to administrative guidance given earlier.  JFTC wouldactively hold consultation with ministries and government agencies concerned to ensure that
administrative guidance would not replace anti-competitive government regulations that were
abolished. JFTC had revised and made public the AMA guidelines on trade associations in 1995 and
was taking steps to improve openness of trade associations and make them AMA consistent.  In
regulated sectors in particular, JFTC would watch carefully so that government regulations should notWT/TPR/M/32
Page 28
be replaced by anti-competitive self-restraints, or other practices by trade associations.  JFTC would
also take steps to follow up sectoral surveys on a case-by-case basis.
141. There were no comprehensive data on cross-shareholdings.  However, according to a survey
conducted on the six major corporate groups, the ratio of intra-group stockholding had been
22 per cent.
142. Bilateral cooperation agreements on competition policy could have certain merits, by
clarifying the scope of cooperation and making it more effective.  The Government of Japan would
study bilateral agreements concluded between foreign governments.
143. A Cabinet decision had been taken in September 1995 relating to the introduction of
transparency of councils and advisory bodies.  According to this decision, a council or advisory body
was to be headed by someone other than a retired official of the ministry to which it was affiliated.
Minutes of councils and advisory bodies were being made public.
144. Increasing inward direct investment was important, as this  would introduce more
competition, increase imports, contribute to the structural reform of the economy, and hence would
serve the interests of consumers.  Therefore, in 1994 the Government had set up the Japan Investment
Council, headed by the Prime Minister.  The Impor t and Inward Investment Promotion Law provided
for a preferential tax system;  loans with preferential rates were extended by the Japan DevelopmentBank, JETRO and FIND.  The latter two organizatio ns provided information useful to investors.
145. The first discussant, said that she was struck by the common themes that emerged in the
interventions of many speakers:  structural reform, deregulation, the need to stimulate the domestic
market, and concerns about the trade surplus. Although there was acknowledgement of, and
appreciation for, all of the measures, programmes and administrative steps taken, there was arecurring sense that the whole seemed to be less than the sum of the parts, that it was difficult to see
the real results, and that the various actions should be infused with energy and singleness of purpose.
She had been very interested to hear the Japanese representative addressing the impact of all of the
measures, and would follow the assessment of th e Economic Planning Agency with interest.
146. In many interventions, she heard references to Japan's role in the world and its role as the
second-largest national economy.  "Responsibilities", "leadership" and "partnership" were given a
particular urgency in terms of the current developments in the ASEAN region and parts of Asia.  She
hoped that the message coming from many speakers had been heard and  would be taken back to
Tokyo.
147. On the question of the relationship between the South East Asian crisis and Japan's trade and
investment policies, the second discussant  had an impression that the Japanese representative had
thought that events in South East Asia might make imports into Japan from the region more
competitive and perhaps dampen the demand for Japan's exports to region.  He saw a more active role
for Japan in helping neighbouring economies to overcome their problems.  Market opening, structural
reform, and stimulating the domestic economy were very directly related to helping neighbouring
economies to pull out of the existing difficulties.
148. The representative of the United States asked whether figures or projections for growth or
decline in imports in 1998 were available.  She asked for clarification of the exchange rate used for
the trade figures provided by the Japanese delegation, and whether the same rate was used for
projections for the current account surplus.  In response to the two-part characterization of foreign
direct investment in Asia, she asked whether there were any estimates of the share of  Japanese
investment in each of these categories.WT/TPR/M/32
Page 29
149. The United States was very interested in the EPA's assessment of the impact of deregulation
measures;  she  requested further information, in particular, what specifically were they looking at, the
time frame for the assessment, and whether the results would be made public.
150. She asked whether Japan had seriously considered the U.S. proposal regarding the
establishment of a high-level body in the Prime Minister's Office to oversee the deregulation effort,and if so, why Japan had rejected such a suggestion.  She also asked whether there would be any
oversight by the Government of the overall deregulation process in the new eminent persons' group
from the private sector, established on the dissolution of the Administrative Reform Council.
151. She asked for a detailed response on what steps Japan had taken to improve the openness of
trade associations.  Regarding follow-up measures by the JFTC regarding their surveys, she asked for
further elaboration on the measures that Japan had taken.
152. She believed that Japan had said it was not necessary to change policies in response to the
Asian financial crisis because this was a short-term phenomenon and Japan's policies were
implemented on a medium- and long-term basis. Sh e asked whether there were truly no prospects or
plans to take additional steps to revitalize the Japanese economy, particularly at this critical point in
time.
153. The representative of the European Union asked whether a slow-down in the growth of
Japanese exports could be assumed in the early months of 1998.  Predictions for the current account
surplus in terms of GDP would remain the same as FY 1997, at around 2.4 per cent; the goods and
services surplus would also remain the same at about 1.2 per cent of GDP.  The difference between
these two figures was principally accounted for by transfers and receipts from overseas Japanese
investments.  Recently these had increased quite strongly, mainly because of the somewhat weakeryen increasing the value of receipts in yen terms to Japan.  He asked whether the Japanese authorities
expected this situation to continue.  Approximatel y one quarter of recent Japanese foreign investments
were located in Asian countries, whose currencies were very weak;  the receipts in yen terms would
be somewhat lower, and the yen/dollar exchange rate on which these assumptions had been based
could be stable at around the current level.  He could not anticipate an increase in yen terms of incomereceipts from investments in Europe or the United States, and therefore requested more details on how
these receipts would be maintained at 1.2 per cent of GDP.
154. He was pleased that foreign suggestions for input into the forthcoming new deregulation
programme would be taken into account.  He asked whether the Japanese authorities intended to bring
in measures that would have a significant economic impact across all sectors to the front of the
programme rather than to backload them, as in the 1992 programme.  He was concerned that no
European representative had been nominated to participate in the "Eminent Persons Group" and askedif this could be reviewed to ensure representative foreign opinion.
155. The representative of Japan responded that Japan's imports were projected to grow by about
3 per cent in FY 1997 and about 6 per cent in FY 1998.  The assumed exchange rate would be
¥123/US$ for the current account surplus and for the export and import projections.  He had compared
Japanese, U.S. and EU FDI some years before, a nd had found that Japanese and U.S. FDI had been
more export-oriented, while EU FDI into Asia had been more domestic-market oriented.
156. He asked whether the 16 per cent rate of increase in Japanese exports for calendar year 1977,
mentioned by the EU representative, was in dollar terms or in yen terms.  It would not be easy to
compare a figure in dollar terms with Japan's numbers (11 to 12 per cent growth in FY 1997).  Japan
did not anticipate a sharp deceleration of exports in the last quarter of FY 1997.  One reason for thetrend on the income account was the assumption made on the  dollar exchange rate, which he
expected would be around ¥121/US$ in FY 1997 and ¥123/US$ in FY 1998.  The appreciation of theWT/TPR/M/32
Page 30
yen against Asian currencies had some impact on the projection of the income account for FYs 1997
and 1998.
157. The Fair Trade Commission had issued guidelines on trade associations in October 1995.  At
the time, the Commission had set up an advice section for trade associations.  In FY 1996, JFTC had
received 856  consultations, the Commission had already made public some of the cases on which ithad been consulted;  JFTC had conducted so many surveys that it was almost impossible to take them
up one by one.  As an example, in October 1997 a survey in insurance had been announced, with a
two-fold purpose:  firstly, from the viewpoin t of regulation, and secondly to understand the
transactions between insurance companies and users.  The result would be announced within one year.
158. He noted that there had been a slight mistake in Japan's earlier statement on the assessment of
the effects of deregulation on the economy.   The EPA was not undertaking a new assessment of the
affects, but had done such an assessment two years earlier.  The results of that study had beenmentioned in the opening statement.
159. The Committee on Deregulation, comprising people from the private sector, was set up under
the authority of the Administrative Reform Promo tion Headquarters, headed by the Prime Minister,
with government oversight.  He was not in a position to give any assurances on the participation of
foreign members, but would take note of the statements made.  Japan was in a process of determiningthe context of the programme, thus he could not sa y whether there would be any front-loading or not.
160. On the question of Japan's responsibilities in the Asian crisis, Japan had been providing funds
when the emergency packages of the IMF were drawn up for Indonesia, the  Republic of Korea and
Thailand.  Japan wished to see whether its efforts would bear fruit before venturing into another set of
programmes.
161. The first discussant reiterated  that, although a great deal was under way in the deregulation
area, either not enough was in place or the measures in place were not having practical effects.  Thus,
very clear and constant monitoring, as well as trying to establish the effects of the measures in place,
was very important.
162. Commenting  on a question regarding Japan's emphasis on multilateralism, the representative
of Japan did not think there was any possibility of Japan entering into any regional trading agreements
at the moment.  The essence of regional trading agreements was to differentiate between countriesthat were in the groups and those that were outs ide.  Although such arrangements were permitted
under certain conditions by the GATT, the conditions were not clear enough;  there was an undeniable
danger of undermining the MFN principle.  The work going on in the Committee on Regional Trading
Arrangements was very important;  Japan participated with great interest in that work, especially in
relation to systemic issues.
163. He noted that tariff rates were reviewed every year subject to representations from foreign
governments and the private sector within Japan.  An  explanation of Article 19 of the  Customs Tariff
Law, under which tariffs on materials or inputs c ould be refunded, could be provided.  As he had
already mentioned, the time necessary to clear customs procedures was very short, and was becoming
even shorter.  Japan was not aware of any study that compared different systems in a uniform manner.Japan had introduced improvements by linking different procedures;  the Nippon Automated Cargo
Clearance System was linked with procedures under the Food Safety Law and the Phytosanitary Law
since February and April 1997, respectively.  This kind of interfacing would be progressively
extended to procedures under other laws.  Companies handling import procedures were competing
among themselves in order to provide as rapid a service as possible;  further improvements couldtherefore be expected.  For cut flowers, Japan's figures showed that customs clearance time on
average had been 1.8 hours, which he thought was sufficiently short.  For catalogue sales, the
Customs Overseas Mail Taxation and Information System had been introduced in April 1997;  goodsWT/TPR/M/32
Page 31
sent by mail were cleared the same day.  He did not know the reason for the increase shown for
processing of air cargo.
164. The Secretariat report stated that Japan was reluctant to proceed with a review of standards.
This was not correct.   Japan had decided in December 1997 to proceed with a  comprehensive review
of standards and certification systems.  The international harmonization of mandatory and voluntaryregulations contributed to the smooth processing of imports and improving market access.  That was
why Japan had been promoting this effort.
165. Regarding the Building Standard Law, Japan was actively trying to promote construction
materials that were in conformity with foreign st andards, such as those applied in the United States
and Canada.  The change to performance criteria would be carried out through an amendment in the
law which would be submitted to the present Diet session.  This would allow a smoother acceptance
of foreign products that were in conformity with standards used in other countries.  Japan's industrialstandards were voluntary;   and a review of these standards was carried out every five years.  In
proceeding with the review, inputs were sought from foreign countries.  In determining JIS marks,
Japan was currently using data provided by 17 foreign testing centres from nine countries.   A
publication titled "Guide to JIS Marking System" contained the necessary information pertaining to
testing, etc. could be obtained through JETRO.   He noted that, at present, there were about 8,100 JIS,of which about 2,000 had a corresponding international standard, and among the 2,000, about 1,000
were already in conformity with international st andards.  Japan was bringing the remaining 1,000 into
conformity with international standards and was actively exchanging information with such
organizations as ISO, IEC, BSI, and DINSI,  The same  held true for JAS, at least concerning  Japan's
efforts to take into account international standard s.  Currently, Japan was proceeding with the
internationalization of JAS related to fruit juices and forestry products.  It had not yet been decided
whether Japan would recognize foreign inspection institutions as grading organizations.
166. Deregulation for frozen foods needed to be looked at carefully, in the  light of micro-
biological standards.  Japan recognized that the technical advances in this field provided room for
review of Japan's present practice.  Testing by variety of fruit and vegetable was a delicate question.Japan believed that this  testing was in conformity with the SPS Agreement as was the case for the
more general questions on phytosanitary procedures regarding fruit and vegetables.  The procedure
related to imports of plants was made public;  normally, imports of fresh fruit or vegetables did not
require inspection at the time of exportation by exporting countries.  Japan wished to continue
discussions on SPS measures on apples of Fuji variety produced in Tasmania, and on mango.
Regarding conformity of Japan's SPS system with the recommendations of the  International Office of
Epizootics, Japan banned imports of cloven-hoofed animals from countries where foot-and-mouthdisease, rinderpest and African swine fever had not been eradicated.
167. Japan was still examining whether, or how far, regional aids needed to be modified, and
wished to take this issue to the Committee of Subsidies and Countervailing Measures.
168. Regarding the import promotion programme, the representative of Japan noted that the ratio
of manufactured goods in imports had risen from 55.2 per cent in 1994 to 59.4 per cent in 1996;  theshare in GDP of such products had risen from 3.2 per cent to 4.5 per cent.  Therefore, Japan believed
that the Secretariat report statement that the  import promotion programme was not producing results
was not entirely correct.  Japan also disagreed with the statement that the import promotion
programme consisted mainly of giving the incentives to imports:   deregulation and review of
standards and certification were also included in the import promotion and market access facilitatingprogramme. Concerning the budget allocation for import promotion, the overall MITI budget had
been reduced by 8.7 per cent but the budget related to the Foreign Access Zone (FAZ) would be
increased by 1.5 per cent.  Tax incentives for import promotion would be extended to FY 1999;  these
incentives could be utilized by all countries exporting goods that were imported at zero rate.  InWT/TPR/M/32
Page 32
addition, Japan was developing the FAZ programm e by adding new types of industry to the
programme.
169. State-trading enterprises were set up in order to pursue a well-defined policy objective;  their
operations were on a commercial basis, consistent with the WTO Agreement.  This was also true for
the operation of the Agriculture Livestock Industry Corporation;  revenue for this corporation wasused for the  expansion of dairy product consumption.  Tobacco production was monopolized by
Japan Tobacco Incorporated (JTI), to promote sou nd development of the industry under the provisions
of the Tobacco Business Law.  Private traders could import leaf tobacco dependent upon subsequent
purchase of the imported product by Japan Tobacco Incorporated.
170. Some delegations had mentioned that participating in Japanese government procurement was
difficult.  Japan recognized that there were differences between the products being talked about but, as
a whole, the share of foreign products in Japan's government procurement, as he had already stated,was relatively high, at least higher than in  the United States or EU.  Japan went beyond the
obligations of the GPA with a US$100,000 threshold level for Japanese government procurement.  In
addition, Japan made its procurement programme public at the beginning of each fiscal year, again
going beyond the obligations of the GPA.  Japan also applied the transparency provisions of the GPA
to all prefectures and all 12 designated cities.
171. On intellectual property, Japan was trying to shorten the time needed for examination.  Japan
had set up new programmes on patents, trade marks and designs.  For example, on patents, Japan
intended  to respond within 12 months on whether an application was rejected or whether examination
would proceed.
172. Japan's GSP system covered a  wide range of products;  in industrial products, there were very
few exemptions.  Japan had eliminated the need to provide a certificate of origin for 200 products, and
the requirements were lighter for textile products, and thus Japan's system was worthwhile for
developing countries. Least-developed countries could export to Japan without quantitative limits and
at zero tariff.  Japan was reviewing the GSP as  from 1998, with a view to removing from the list of
GSP beneficiaries some countries regarded as already well developed and having reached aneconomic level comparable to developed countries.
173. The second discussant said he had been reassured by the affirmation of Japan's commitment
to multilateralism.  He had noted the remarks on the efficacy of the import promotion programme, but
he had continuing doubts on philosophical grounds as to its justification.  It would be preferable to
concentrate on removing any distortions or inflexibilities in the domestic economy, allowing the
market to operate freely, rather than possibly adding further distortions through import promotion
subsidies.
174. The representative of Thailand requested Japan's reply in writing to his questions, and
confirmation of the elimination of the Special Emergency Safeguard under the Agriculture Agreement
and safeguard measures on live swine and pork under the Agreement of Safeguards. He also wished to
hear the Japanese view on the consistency of these schemes when both measures were taken
concurrently.  On SPS measures, while these measures might be in compliance with the WTOAgreement, administrative aspects presented an unnecessary obstacle.  He requested Japan's opinion
whether there could be any intention under the Deregulation Action Programme to ease these
obstacles.  Regarding frozen shrimp, he noted that working together in  1995, Thailand and Japan had
been able to reduce the oxy-tetracycline requirement level down to the CODEX level.  However,
another substance used in conjunction with export of frozen shrimp, was oxymolic acid which was thesame as oxy-tetracycline.   He asked why Japan could not reduce the level of this substance to the
same as oxy-tetracycline.  On prepared and processed pork, the normal  requirement by Japan for
these products was to either boil or steam at 100oC for one minute, or to cook by any other  means for
30  minutes.  Certain  products from Thailand needed to be fried or grilled;  frying or grilling forWT/TPR/M/32
Page 33
30 minutes would practically destroy any product.  He wondered whether there was any practical
reason for this regulation to be so rigid.
175. The representative of Brazil expressed much interest in the responses given by Japan with
regard to practices in the agricultural sector.  Exports of tropical fruit was an area  of key interest to
Brazil;  Brazil would be very interested in hearing a comment from Japan on the compatibility of itspractices for the imports of fresh mangoes with the  SPS Agreement.  Brazil adopted the
hydrothermic-immersion method of control against the Mediterranean fly pest, however, the Japanese
authorities requested a type of control that made it impossible to export the fresh fruit.  The Japanese
market for fresh fruit was very important;   worth US$1,200 million in 1997.  Brazil had had a
residual part of the market due to the phytosanitary requirements adopted by Japan.  This issue  had
been raised bilaterally many times.  Over the last four years, Brazil had presented numerous tests
showing the validity of its immersion process to combat this specific pest, but without anybreakthrough solution to the problem.  Moreover, Brazil had learned recently that the Japanese
authorities were accepting this method from other exporting countries and also accepting the concept
of regions free from the "Mediterranean" fly.  This discrepancy of treatment was not exactly
compatible with the procedures and the spirit of the SPS Agreement.  Brazil was ready to enter
bilateral consultations with  Japan on this topic.
176. The representative of Colombia sought a detailed answer to specific questions raised
regarding SPS measures on certain products of interest to Colombia.  He also sought clarification on
exemptions under Article  19 of the Customs and Tariff Law and indications as to the criteria adopted
or followed in inviting interest ed suppliers to make proposals for imports by tobacco marketing
agencies.  With regard to the GSP, the representative of Japan had said that the coverage wassufficient.  Certainly the coverage of industrial products was far ranging and the number of exceptions
was limited, however, the  actual impact of the GSP was very small;  only 5 per cent of Colombia's
total imports benefited from tariff preferences and less than 10 per cent of imports from developing
countries enjoyed GSP treatment.
177. The representative of the United States asked questions with respect to intellectual property
rights, to clarify points that had been raised by the Japanese representative with respect to the
response time for applications on patents and trade marks.  He asked whether a twelve-month
response period was currently in place or whether that was something Japan planned to do in the
future.  He also sought a reply, either orally or in  writing, to his question with regard to trade secrets,
specifically with respect to the amendments to the civil procedures act that Japan would put into place
in June 1998.
178. The representative of Canada asked whether any systemic reviews of linkages in respect of
customs procedures were being considered.  He understood that considerations for certification of
foreign organizations as registered grading organizations under the JAS Law had not yet been decided
and asked whether a review was under way or was to be set up to make a decision.  With respect to
standards questions, he asked whether criteria used for certification bodies in the private sector for JIS
mark licensing were published by JETRO.  He sought  clarification of the indication in the Secretariatreport that  Japan did not favour unilateral recognition of the standards and procedures.  With respect
to the Food Sanitation Law, Japan had said it recognized that advances in distribution allowed some
room for consideration of changing the approach to frozen foods.  He asked whether there was, or
would be, a review.  Regarding trade marks, he cited an example of the granting of a trade mark for
the use of the word "organic" for beverages, even though the term referred to a method of production.Canada was prepared to discuss these issues bilaterally.
179. The representative of Hungary said that the share of Asian countries in Japan's foreign trade
had increased by more than 10 per cent in the 1990s, which clearly showed that significant
concentration of trade might occur even without free-trade areas or customs unions.  Hungary shared
the concerns expressed by many delegations with regard to a number of substantive and proceduralWT/TPR/M/32
Page 34
elements of the Japanese SPS mechanism.  For example, the whole range of fresh Hungarian fruit and
vegetables was prohibited from entering the Japanese market;  in other product areas, such as meat,
SPS concerns did not seem to necessitate the maintenance of the significant administrative burdens
now in place.
180. The representative of Australia noted that tariffs were reviewed annually.  While this was
reflected in the Secretariat report, he had found it problematic that Japan pursued tariff reviews in the
absence of any central body with responsibility for such matters.   He asked whether Japan had plans
to establish a tariff reviewing mechanism that woul d allow tariff anomalies to be considered in an
open and transparent way.  He thanked Japan for its response that standards issues associated with
Fuji apples and varieties of mangoes from Australia would continue to be addressed bilaterally.  He
noted that both of his specific questions on these items related to time frames.  On customs
procedures, he agreed with Japan's statement that clearance times had been reduced, and thatimprovements had been made, costs in areas such as cold storage warehousing, commercial
fumigation and handling remained high, and impacted negatively on the demand for fresh produce.
The problem seemed to lie in the lack of sufficient competition, particularly at airports.  He asked
whether these problems were likely to be addressed by the Committee on Deregulation.
181. The representative of the European Union said that while regional aid was a matter for
discussion in the Subsidies Committee, he looked forward to hearing from Japan on its regional aid
programmes.  Japan's description on GSP provisions for the least-developed countries was interesting,
but he understood that there were no plans to take additional measures to facilitate access.  He flagged
the question of tariffs and the management of tariff quotas in the sensitive area of leather and shoes as
a very important one for the European Union, on which he hoped to see some substantive progress inthe near future.
182. The representative of New Zealand asked whether the annual review of tariffs was
coordinated by one body, e.g. the Ministry of Finance, and  whether there was any formal mechanism
by which requests for reviews of tariffs by the Government or the private sector were gathered
together for overall consideration.  New Zealand's experience in this regard was that such amechanism both assisted it with its annual review process and made life easier for its trading partners.
He also asked for details of how the results of the annual review process were transmitted to foreign
governments.  He thanked the Japanese representative for his answer on state trading enterprises.
New Zealand would continue to take a close interest in the operations of the animal and livestock
industries corporation, because of the large sums which it received in terms of quota rent, which he
noted were substantially higher than the cost of imported products to the consumers.
183. He sought an oral reply to New Zealand's question on quantitative restrictions on fisheries
which New Zealand had previously raised in the 1995 review of Japan.  He looked forward to written
responses to other specific questions.
184. The representative of the Republic of Korea said improvement in access for imports on the
part of Japan would be most appreciated.  Other important trading  centres were contemplating ways
of absorbing, or at least leaving the door open to, goods from the region currently affected by thecrisis.
185. The representative of Malaysia sought written replies to questions on tariff escalation for
timber, and cocoa-based products;  in the area of pharmaceutical products, especially condoms whose
exports had been affected;  and on the strict Food Sanitation Procedures for exports of cosmetics into
Japan.   On phytosanitary requirements on cut flowers, he recognized that while the measures imposedby Japan may be in conformity with  the SPS Agreement, administrative delays remained serious.
ASEAN had talked about the need for Japan not to forget the bigger picture, and the discussants and
several other participants had also alluded to this statement.  He trusted that the Japanese delegation
would take this call  back with them and exercise the right policy options.WT/TPR/M/32
Page 35
186. The representative of Japan responded that he could only respond to a limited number of
issues in part due to the time remaining.   He could confirm the response time for patents;  this
programme was already in place.  As for trade marks, the target date was the year 2000, and for
design registration, the target date was 2002.  On the question of least-developed countries, Japan's
basic position was that the way to help lay in capacity building, and not in according preferentialmarket access.  Despite this basic position, Japan was doing quite a lot in the area of economic and
technical cooperation for these countries, and had begun examining the possibility of extending the
list of products benefiting from the GSP system.  This examination was at a very early stage.
Regarding the review of Japan's tariff system, the body responsible for all tariffs was the Ministry of
Finance.   Each year, the Minister of Finance asked the Customs and Tariff Council for proposals for
modifications to Japan's tariffs.   This body's advice or recommendations were incorporated into
Japan's Customs and Tariff Law, after approval by the Diet.  Questions related to SPS would beanswered in writing.
187. The representative of the United States said that she had raised another question on trade
secrets and sought confirmation that a reply in writing could be expected;   the representative of Japan
replied that the United States would receive an answer in writing.
188. The representative of Norway, also sought an swers in writing to his country's questions  on
fishery products.
189. The first discussant noted with great interest Japan's statement about examining the possibility
of extending the products in the GSP system to in clude more items of interest to LDCs, and strongly
encouraged that exercise.
Sectoral policy
190. The representative of Japan said that in vi ew of the limited time he would concentrate on
some of the more interesting questions and woul d respond Norway's questions regarding fisheries
quotas under this heading.
191. Regarding low productivity of services, particularly distribution, he pointed out pointed out
that using the revised criteria of the System of National Accounts, the figure for Japan would be70 per cent, or at least more than 60 per cent as indicated in the Secretariat report. This relative
difference between the productivity of the distribution sector and manufacturing industries, which
were more capital intensive, held true for other countries as well.  On rice, Japan had been faithfully
implementing the Uruguay Round agreements, in pa rticular, by setting the price for "minimum
access" rice comparatively lower than domestically produced rice.  The difference was about
20 per cent. Japan was making efforts to promote consumption of "minimum access" rice in Japan's
national market.  On the import quota on fishery products, Japan actually had measures in place tolimit the fishery harvest. Thus he thought that the basis for justification of Japan's measure could be
found in GATT Article 11, second paragraph (i).
192. There had been questions about the utilization of the unused tariff rate quota. From FY 1997,
Japan had introduced a measure to improve the utilization of quotas for several products;  this
consisted in allowing applications in periods other than the beginning of the fiscal year.  Regardingspecial safeguards, he noted that Japan set the trigger level based on the figures of imports in the past
three years, according to para. 4 of Article  5 of the Agriculture Agreement.  He knew of no provision
in the Agriculture Agreement to take into account the utilization situation of the tariff rate quota in
triggering the SSGs.   Thus he believed that the two systems could operate separately and that Japan's
actions were in conformity with the Agreement.
193. Concerning frontal collision tests for automobiles;  Japan had made a prior notification of this
proposed measure in January 1993.  He knew of no submission of opinion from the European UnionWT/TPR/M/32
Page 36
or its member countries.  As a result, Japan had introduced this measure for nationally produced cars
from April 1994.  But in order to give lead time to imported cars, Japan had given an additional five-
year allowance for imported cars.  The measure would be put into place from April 1999.  Japan was
very conscious of the importance of harmonizing regulations related to automobiles, and was actively
participating in the work of Working Party 29 of the ECE.
194. A question regarding shipping had been raised, suggesting that Japanese fast ferry companies
were engaged in dumping. The problem concerned a Japanese company competing in the Japanese
market for purchase of a ship, and an  Australian company finding it difficult to compete with this
particular Japanese company.  It would be a novel notion to call this dumping.  He asked for more
clarification from the Australian delegation about their concern.
195. Australia had raised a question about the warehousing business.  There was no
demand/supply adjustment criterion in market entry to this sector, and  prices were not subject toapproval by the Government.
196. Japan  maintained  a tariff rate quota system for leather, introduced after Article  XXVIII
negotiations.  In the course of the Uruguay Round negotiations, Japan had agreed upon cuts in the
primary rate of 20 per cent and also a cut in the secondary rate of 50 per cent. These measures were in
place and Japan was implementing them faithfully.
197. The Prior Conformation System (PCS) with regard  to silk was in place to ensure the faithful
application of Japan's bilateral agreements with China and the Republic of Korea, by preventing
circumvention of these agreements, which did not have a quantitative limiting effect.  The PCS
complemented the bilateral measures, and would remain until 2004 when the agreements would be
phased out.
198. The Japanese tariffs on automobiles were relatively low.   Importation of automobiles had
been 184,000 units in 1992, but that number had increased to 364,000 units in 1997.  There was no
governmental regulation on dealership.
199. He noted that Japan was in the process of reclassifying vitamins, herbal and mineral foods.
For these products, Japan did not have any TRQ system.
200. On services, he presented figures to show that  participation in the Japanese market was
expanding.  In the telecommunications sector, in 1997, there were 141 companies operating as
Type-I  telecommunication carriers.   Among these, 27 companies had foreign capital participation.
Among 87 Type-II carriers, 28 companies had  foreign capital participation.  In construction, there
had been 34 foreign companies in the sector in 1988, increasing to 77 in 1997.  In financial services,
foreign equity companies increased from 49 companies in 66 branches in 1993 to 59 companies and
76 branches in 1997;  the number of banks had increased from 64 in 1980 to 92 at present;  thenumber of life insurance companies had doubled in the past ten years;  and the number of
Gaikokuho-Jimu-Bengoshi (foreign legal consultants) had increased from 31 in 1987 to 87 in 1998.
201. He stated that the Government of Japan was actively engaging in deregulation in the field of
telecommunications.  Japan had finished all procedures for the acceptance of the WTO Basic
Telecommunications Agreement and had taken measures to implement the Agreement.  Restrictionson foreign ownership had been abolished and the clause on prevention of excess facilities in the
Telecommunications Business Law, a kind of "demand supply adjustment" provision, had been
rescinded.  Rules for inter-connection had also been introduced.  Japan was preparing a bill on the
deregulation of KDD to be submitted to the present Diet session and had announced in
December 1997 that it would abolish the "100 destination" rule by the end of June 1998.WT/TPR/M/32
Page 37
202. In the field of broadcasting, foreign-ownership restrictions on cable providers would be
abolished with the  entry into force of the Basic Telecommunications Agreement.   Japan had also
modified its accounting rates regime for WTO member countries so that accounting rates could be
lowered through competition.  Japan expected that liberalization of international resale would lead to
diversification and lower prices for international services.   Foreign-ownership restrictions would beabolished except for that of NTT and  KDD, for which  foreign-ownership restrictions should also be
eliminated with the abolition of the KDD law.
203. In Japan, Internet domain names were administered by a private organization (Japan Network
Information Centre), and it was the Government's polic y, in principle, to respect their decisions. He
noted  some misunderstandings on the issues raised, that registration costs in Japan were not high
compared with other countries. There were improvements in registration procedures, such as an
introduction of on-line registration; and the requirements of local presence, such as businessregistration.  In addition the restriction of one name per corporation existed in the other countries.
204. The second discussant said that, although a lot of progress had been made, any major trading
economy needed to have a top-class, competitive services sector.  This could only be achieved by
deregulation, with  good supervision and ensuring full transparency.  Much still needed to be done in
many services sectors.  If further progress could be made, then the economy would be reinvigorated;the manufacturing sector would also benefit from enhanced efficiency, and there would be more
demand both for domestically produced and imported goods.
205. The representative of New Zealand thanked Japan for the response to one of the questions
regarding quantitative restrictions on fisheries and looked forward to written responses on that and
other the questions on the issue.  New Zealand did not consider that GATT 1994 Article XI:2:c(i) was
a justification for the QRs in place and would therefore continue bilateral dialogue with Japan on this
important issue.
206. The representative of Australia said that he would greatly appreciate written responses to a
number of questions, especially in the area of agriculture.  Australia's question related to the high cost
of warehousing was to suggest that greater competition between operators would reduce prices.
207. The representative of Canada said that Japan had not responded to many of Canada's follow-
up questions on agriculture, services, and other areas.  Canada would submit in the next few days a
list of the questions that had not been addressed.
208. The representative of Thailand emphasized the importance of the rice sector.   Thailand had
submitted written questions regarding rice, specifically on clarification of the mark-up system for
imported rice, the transparency of the SBS programme, determination of country of origin for imports
of rice and also with regard to administration of the export of rice for food aid, particularly inconjunction with the minimum-access commitment for the years 1995-96.  He would also appreciate
written replies on these issues.
209. The representative of Hong Kong, China appreciated the clarification made on the status of
the PCS for silk fabrics.  However, she noted that it was not very clear whether the system would
remain intact until 2004 or would be progressively phased out.  If the  latter was the  case, moredetailed information on the implementation of this phasing-out system would be appreciated.  She
also sought  information on when  the foreign-ow nership restrictions for KDD would be abolished.
She would be pleased to receive responses from the Japanese delegation in writing.
210. The representative of the United States noted that not all their questions to Japan had been
answered.  She would re-submit them to Japa n and would appreciate written responses.WT/TPR/M/32
Page 38
211. The representative of the European Union said that with regard to the recapitalization of
financial institutions, he would be interested to k now the criteria for these institutions receiving public
funds.  On the implementation of financial sector reforms and strengthening bank supervision, he
enquired about the reasons for the delay in the implementation of "prompt corrective action".  He
noted that Japan had announced measures to allow banks to ignore accounting offsets on newportfolio holdings by booking securities at acquisition cost.  He asked for further information on this.
On the issue of landing slots at Narita airport, he requested information on the reallocation of unused
slots, and conformation that only IATA guidelines would be used in this reallocation.  On maritime
services and port practices, he was interested in Japan's expectations with regard to the effect of
implementation of three- and four-party agreements reached in 1997.  He also noted that the
United States and Japan had recently concluded an arrangement on the procurement by NTT, and he
would be interested to know if Japan envisaged ope ning up the monitoring of this agreement to third
parties.
212. The representative of India said that he woul d be pleased to receive written answers to his
delegation's questions.WT/TPR/M/32
Page 39
VII. CONCLUDING REMARKS BY THE CHAIRPERSON
213. 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 po ints raised during the discussion; they are not
intended to substitute for the collective evaluation and appreciation of Japan's trade policies andpractices.
214. 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.
(i) Macroeconomic background and structural reform
215. 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 officialprojections for growth should be adjusted downw ards 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.
216. 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 innew 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.
217. 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.
218. 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 fallin Japanese investment in East Asian domestic consumption could be balanced by investment for
future exports.
219. Concerning the current account and trade surplu ses, the authorities expected export growth to
slow and imports to accelerate in FY 1998:  th e 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 previouslevels.WT/TPR/M/32
Page 40
220. 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.
221. 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.
222. 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 criminalpenalties.  Care would be taken that administrative guidance would not replace anti-competitive
regulations and that restrictive practices not be introduced by trade associations.
223. 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 inJapan benefited from a law providing a preferential tax system, and a scheme to make available
preferential credit.
(ii) Trade policies
224. 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 tradealmost 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.
225. 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;  thelack 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.
226. 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 phytosanitaryconditions;  variety-specific approval procedures for fruits and vegetables;  and restrictive standards
for frozen foods.  Participants encouraged further revision of Japan's Food Sanitation Law.
227. 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 theadvantages of the Foreign Access Zones for foreign exporters.
228. 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.WT/TPR/M/32
Page 41
229. 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.
230. 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.
231. 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 ag reements, 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 beenintroduced for air cargo, and cut flower imports from the EU and Australia were cleared in an average
of 1.8 hours.
232. 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 andJAS.  Japan was giving consideration to recognizing foreign certification agencies.
233. 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.
234. 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 dutyfree items, not favouring imports from industrialized countries.  Imports into ForeignAccess Zones had grown more rapidly than the total:  again, the infrastructure of FAZs were available
to imports from all sources.
235. 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.
236. 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.
237. 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.
238. 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 morefavourable treatment under the GSP scheme.
(iii) Sectoral issues
239. 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.WT/TPR/M/32
Page 42
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 objectiv e.  Questions were raised on moves to review
Japan's Basic Agricultural Law.
240. 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.
241. Participants welcomed Japan's contributions to the WTO financial services and basic
telecommunications negotiations.  However, they raised concerns about low productivity in someservices 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.
242. 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 RegisteredGrading Organizations.
243. In view of the limited time, the representative of Japan in his reply focused on selected
sectoral issues.
244. 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 centbelow 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).
245. 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.
246. 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 representativegave information on the reclassification of vitamins, herb and mineral products and noted that Japan's
tariff classification would not be affected.
247. The representative of Japan noted concerns regarding low productivity in services,
particularly distribution, and suggested that differ ences in productivity levels between services and
manufacturing were not significantly different from other countries.  He said that the DeregulationAction Programme sought to promote transparency in services and to simplify administrative
procedures and notification or reporting requirements.  He gave examples of increases in recent yearsWT/TPR/M/32
Page 43
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.
**********
Conclusion
248. 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.
249. 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 investme nt 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.
250. 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.
__________