RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/105
26 April 1999
(99-1671)
Council for Trade in Services Original:  English
COMMUNICATION FROM JAPAN
ASSESSMENT OF TRADE IN SERVICES
The following communication has been received from the delegation of Japan with the
request that it be circulated to Members of the Council for Trade in Services to assist in the discussionon the Assessment of Trade in Services.  This communication has previously been circulated
informally at the Council meeting on 22 March.
_______________
I. INTRODUCTION
1. This non-paper has been prepared by the delegation of Japan as our contribution to
discussions on "an assessment of trade in services in overall terms and on a sectoral basis with
reference to the objectives of this Agreement" pursuant to Article XIX of the GATS.
2. The purpose of the GATS is "to establish a multilateral framework of principles and rules for
trade in services with a view to the expansion of such trade under conditions of transparency and
progressive liberalization and as a means of promoting the economic growth of all trading partners
and the development of developing countries," as is provided in its preamble.  However, the
background Note of the Secretariat (S/C/W/94) points out that, due to the lack of sufficient statistics
of trade in services, it is extremely difficult to make empirical and quantitative assessments on how
trade liberalization has affected the expansion of trade and/or the economic development of nations.We should also take into account the short history of the GATS (only four years have passed since its
entry into force).
3. Bearing such realities in mind, this paper will outline the current situation of Japan's trade in
services and will make inductive indications on  how the results of the UR and the following
negotiations has affected the expansion of trade in services for Japan, which has the largest servicetrade deficit in the world.
1
4. Japan evaluates the GATS and multilateral negoti ation for trade in services in the following
manner:
(a) The greater transparency and progressive liberalization:
(i) have reduced the cost of entry; and
                                                     
1 This paper understands that the assessment of trade in services with respect to individual sectors has
been sufficiently conducted as part of the information exchange program by the Council of Trade in Servicessince June 1998.S/C/W/105
Page 2
(ii) enhanced the legal stability and predictability concerning government
regulations.
Those changes, together with the general trends of globalization of the world
economy, have contributed to a large extent to the expansion of trade in services.
(b) The progressive liberalization of trade in services within an appropriate regulatory
framework contributes not only to enhanced productivity due to economics of scalebut also contributes to economic growth even in service importing countries through
the transfer of technology to domestic industries, the creation of employments
(through transactions in mode 3), and the strengthening of the competitiveness of
domestic service industries.
II. ANALYSIS OF JAPAN'S TRADE IN SERVICES – CONTRIBUTION AS THE
LARGEST NET IMPORTER
5. Although the existing statistics, in which detailed information on sectors or modes as defined
in the GATS are lacking, cannot describe the trade of all services sectors in a sufficiently accurate
manner, those statistics are still useful in understanding the overall trend of trade in services.
6. It is clear, even through the current statistics, that the portion of services industries within the
whole national economy is extremely large .  The share of services industries in the Japanese GDP
increased from 57.4 per cent in 1970 to 66.1 per cent in 1996.  Greater rates of increase were recordedin the distribution and financial sectors, whereas the share of construction and transport services in the
whole services sector went down.  The pictures of individual sectors are somewhat different from the
overall picture of general increase.  From the perspe ctive of employment, the share of the labour force
employed by the services industries among all the labour force employed increased from 46.0 per cent
in 1970 to 61.7 per cent in 1996.
2
7. As the largest net importer of services, Japan's role has been significant in the expansion of
trade in services through providing services markets to the rest of the world .  According to the WTO
Secretariat Note (S/C/W/94, p. 23), Japan is the sixth largest exporter of commercial services
(US$ 68.1 billion) and the second largest impor ter of such services (US$ 122.2 billion).
8. According to the Balance of Payment Statistics Yearbook 1998 brought out by IMF, Japan
always has a substantial amount of imbalance in trade in services.  (As is rightly pointed out in the
Secretariat Note, it should be noted that the statis tics do not include the trade in services through the
establishment of commercial presence).  Japan's trade deficits in services were around US$ 40 billion
from 1990 to 1994.  However, since the GATS entered into force in 1995, the deficit has been
expanding and is now around US$ 50 to 60 billion.
9. On a sectoral basis, Japan's trade deficit is extremely high in travel services as well as
transport (passenger in particular) and patent paymen t.  The expanding trade deficit in the travel and
passenger transport services reflects the current trend of increasing numbers of Japanese people going
abroad for sightseeing and business purposes.  The increase in the transport of goods and patent
payment presumably reflects the more active use of patent rights and distribution routes by
manufacturing industries.  The new trends in recent years include dramatic increase in the amount of
                                                     
2 These statistics come from the National Economy Accounting Yearbook (1998), which was drawn up
by Japan's Economic Planning Agency.  Services industrie s, defined in these statistics, consist of construction,
electricity/water/gas supply, wholesale and retail distri bution, financial and insurance services, real estate,
transport, and communication.  They do not include government services and non-profit private services withinfamilies.S/C/W/105
Page 3
transactions in the fields of information communi cations and financial services, and the improving
trade balance in financial services.
10. Looking at the data from geographical perspectives, Japan's trade in services are most
predominantly occupied by transactions with Nort h America, Europe and Asian regions.  Japan has
made trade deficits in services with respect to all th ese regions in overall terms.  In some sectors, e.g.
construction, insurance/finance, and patent payments, Japan records a trade surplus vis-à-vis  Asia, but
Japan marks a large deficit vis-à-vis  North America and Europe even in those areas.
11. The foreign direct investment (FDI) to Japan in services areas has also been increasing
dramatically in recent years .  According to the statistics based on the government reporting system,
the FDI in services increased from US$ 2.37 billion (FY 1995) to US$ 4.08 billion (FY 1996).
Although the figure marked a slight decrease in FY 1997 to US$ 3.35 billion, it reached
US$ 3.46 billion in the first half of FY 1998.  The overall trends show that the foreign service
industries have been very active in making direct investments in Japan (see Chart 1).
12. The share of FDIs in non-manufacturing industrie s (which are approximately the same as the
services industries) far exceeds the share of those in manufacturing industries by the ratio of 6:4 (in
FY 1997, 189 FDIs were reported in manufacturing industries which reached US$ 2.18 billion in
total, whereas the figure in non-manufacturing industries was 1112 FDIs which reached
US$ 3.35 billion).  These statistics show that the services sector is playing an important role withinthe FDI flows to Japan and that this trend has co ntinued to grow further in the last few years.
III. PROGRESSIVE LIBERALIZATION OF TRADE IN SERVICES THROUGH
MULTILATERAL NEGOTIATIONS
A. 
JAPAN 'S EXPERIENCE
13. During the UR and the following negotiations on financial services, maritime services, and
basic telecoms, Japan proposed high-level trade libe ralization offers compared with those proposed by
other trading partners and thus, greatly contributed to the further strengthening of the multilateral
trade system in the field of services.  As is shown in Table 1 on page 11 of the Secretariat's Note
(S/C/W/94), Japanese commitments cover a much larger number of sub-sectors compared with other
trading partners, in many of which Japan made full commitments both in market access and nationaltreatment for all modes.  As for the most-favoured-nation treatment, the fundamental principle which
underpins the multilateral trading system, Japan has listed no exemptions.
14. At the time when Japan made commitments, it accomplished the necessary amendments to its
domestic legislation, thereby contributing to the expansion of trade in services in the sectors
concerned.  The following are some of the examples of such efforts:
(a) Legal Services
15. In the UR negotiations, Japan made commitments in legal services area which include the
following:
- Legal services provided by a lawyer qualified as "Bengoshi" under the Japanese Law;
- consultancy services on the law of jurisdiction where the service supplier is a
qualified lawyer.
16. When it made commitments on the latter servic e, Japan amended the law (Special Measures
Law Concerning the Handling of Legal Business by Foreign Lawyers:  Foreign Lawyers Law).  In the
amendment process, Japan also amended the mandatory reciprocity clause so that it would not need toS/C/W/105
Page 4
list any MFN exemptions.3  Furthermore, in its additional commitments, Japan permits a foreign
qualified lawyer (Gaikokuho-Jimu-Bengoshi) to practice international law, associate with a Japanese
lawyer (Bengoshi), and representation in arbitration.4
17. Beyond those commitments, Japan made the following liberalization efforts by amending the
Foreign Lawyers Law to respond to the needs expressed from outside and within:
- The practical experience requirement for qualification which is necessary for approval
was relaxed;
- practice of so-called third-country law was permitted under certain conditions;
- restrictions regarding objectives of a joint enterprise between a Gaikokuho-Jimu-
Bengoshi and a Bengoshi were abolished in conducting foreign legal cases;
- representation in the procedure of international arbitration was permitted, regardless
of an applicable law.
18. Thanks to the liberalization commitments and the further relaxation of regulations, foreign
lawyers are successfully entering into Japanese markets.  As of 15 March 1999, 97 lawyers having
qualified in 11 foreign countries have been registered as Gaikokuho-Jimu-Bengoshi as Japan, among
which 71 belong to foreign law firms.
(b) Basic Telecommunication Services
19. In the basic telecom services, one of the sectors which continued negotiation after the UR,
Japan made commitments which abolished all restrictions concerning foreign capital participation and
board members with the exception of NTT and KDD.  Due to the elimination of foreign capital
restrictions, there are now 10 companies (which belong to "Type 1 telecommunication business")
where foreign capital participation is more than one-third of the total capital. Among them, seven
entered the Japanese telecom market after the entry into force of the Fourth Protocol.  Five of theseven companies are 100 per cent owned by foreign capital.  Such new entrants have created a
desirable competitive environment by the reduction of costs and the creation of various types of
services, thus leading to an expansion of employment and increased competitiveness among the
service suppliers.  For example, due to the new entrants, domestic and international communication
prices went down to about one-fifth compared to the price in 1985 (see Chart 2).
IV. JAPAN'S ASSESSMENT OF TRADE IN SERVICES
B. 
TRADE EXPANSION EFFECTS CAUSED BY PROGRESSIVE LIBERALIZATION
20. By their agreement to the GATS, all WTO Members have accepted legal obligations of Most-
Favoured-Nation treatment and ensuring transparency, and, according to the conditions and
restrictions provided for in their own commitments, they have also accepted further obligations withregard to market access (Article XVI) and nationa l treatment (Article XVII).  By expanding the
coverage of such obligations through negotiations, the GATS tries to ensure the transparency of
domestic regulations and progressive liberalization.  Japan considers that such trade liberalization
within the framework of the GATS is having the following effects:
                                                     
3 Commercial presence is required and services must be supplied by a natural person.
4 A service supplier is required to stay in Japan not less than 180 days in a year in modes 1, 2 and 4.S/C/W/105
Page 5
(i) Reduction of costs for entry and for service supply
21. The acceptance of obligations under the GATS and further expansion of such obligations
through negotiations lead to the expansion of the areas where Members are prohibited from imposing
quantitative restrictions in supplying services and where foreign service suppliers are granted no less
favourable treatment than the domestic service s uppliers.  Through such international commitments,
foreign service suppliers will be free from the costs at their entry or after their entry regardingquantitative restrictions and discriminatory treatment .  Although it is impossible to make a
quantitative analysis on how much trade is produced through such a mechanism, the examples of the
entrance of foreign lawyers and foreign telecom service suppliers clearly show that the current
mechanism has a positive impact on the expansion of trade in services.
(ii) Legal stability on Domestic Regulations – Enhancing the Predictability
22.  Commitments annexed to the GATS mean that Members are not allowed in a legal sense to
impose more restrictive measures than they committed in their schedules .  Therefore, liberalization
commitments contribute to enhancing transparency and predictability on the measures by Members.
The legal stability and predictability have a significance in creating a better environment for
investment by foreign service suppliers, and thus facilitate the expansion of foreign direct investments
in services by other Members.
C. 
EFFECTS ON ECONOMIC GROWTH FROM THE PROGRESSIVE LIBERALIZATION OF TRADE IN
SERVICES
23. The liberalization of trade in services and the expansion of such trade contributes not only to
the enhanced productivity due to economies of scale but also to economic growth even in service
importing countries through the transfer of techno logy and know-how to domestic industries, the
creation of employment (through commercial presen ce of foreign providers), and the strengthening of
the competitiveness of domestic service industries .
24. For example, in Japan, due to the liberalization of the type 1 telecommunication business,
telecom employment doubled during the five years starting 1993, the sales increased by more than
70 per cent, investment for plant and equipment by 50 per cent, and employment of new common
carriers by 70 per cent during the same period.
Number of Employees in new common carriers (NCC)
0500010000150002000025000
93 94 95 96 97 98Cellular
Satellite
Regional
Long distance & internationalS/C/W/105
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1993 1994 1995 1996 1997 1998
(estimate)
All NCC 15,007
(16.5%)17,989
(19.9%)21,254
(18.1%)24,176
(13.7%)24,430
(1.1%)24,776
(1.4%)
% of Type 1 6.2% 8.0% 9.7% 11.0% 13.4% 13.9%
Long-distance
& international7,732 7,941 8,013 8,196 8,452 8,750
Regional 2,362 2,806 3,254 4,294 5,206 5,693
Satellite 331 323 318 332 326 370
Cellular 4,982 6,919 9,669 11,354 10,446 9,963
25. Liberalization of services trade also enhances the efficiency of manufacturing business .  For
instance, service input ratio in our manufacturing industry, which was 22.2 per cent in 1980, had
grown to 29.5 per cent in 1995, close to 30 per cent of th e total.  In addition to the growing impact of
service industry on the manufacturing business, higher productivity ripple effect of service industry
lead to the increasing productivity of the whol e economy including manufacturing, in tandem with
growing knowledge intensity of industrial activities, development of information age, and more active
use of outsourcing.  Thus development of high-quality service industry through liberalization of trade
in services is of great importance in growing the competitiveness of manufacturing business and
attracting investment.
26. In response to the above arguments, some studies point out negative elements, e.g. the
possible abuse of the monopoly position by foreign companies and tax avoidance.  But those
problems should be addressed by appropriate competition and taxation policies.  Imposing trade
regulations would not meet such purposes.  The strengthening of trade restrictions may jeopardize
even the positive impacts which the trade liberalization is expected to bring about.
27. We sometimes hear the argument that trade liberalization only benefits developed countries
and it does not benefit developing countries.  We would like to stress that trade liberalization benefits
all WTO Members and not developed country Members alone.  What should be noted in particular is
that the commitments in mode 3 (commercial presen ce) create a favourable environment for foreign
service suppliers and that the entry of foreign service suppliers creates various kinds of positive side
effects, including the creation of new employment, the transfer of new technology and know-how, and
their contribution to government budgets.  When we look at the dramatic increase of entries of foreign
financial companies to Japan, it is very clear that foreign services suppliers cannot afford bringingpeople from home for filling all the posts required for the institution.  Foreign investment creates a
large amount of local employment, which will bring economic and social benefits to the nation.
D. 
FUTURE AGENDA
28. Japan views that next round of services negotiation should cover all sectors and not exclude a
priori  any specific sector.  Particularly in maritime services, where negotiation has been suspended,
relevant regulations of the Members have continued to be liberalized, and there is a good prospect of
new developments in the forthcoming negotiations.  Thus, early completion of the negotiation in this
sector will benefit not only to services trade but also to trade in goods.  Improving market access and
national treatment limitations and MFN exemptions as well as expanding the coverage of
commitments will also contribute to the further expansion of services trade.
29. Various technological developments in recent years in the services sectors are creating new
services.  Electronic commerce, in particular, has been expanding at an astonishing speed after the
UR, and is creating a new frontier for the expansion of world trade in services.  DiscussionsS/C/W/105
Page 7
concerning electronic commerce in WTO have been mostly focused on how the existing rules,
including the GATS, apply to electronic commerce.  The possibility is still open for creating new
disciplines for the promoting of the healthy devel opment of electronic commerce in the future by an
agreement by all the Members.  WTO needs to consider discussing appropriate disciplines so that
technological development will bring benefits to all the Members.
30. The active participation of developing countries in the next round of services negotiation is
indispensable to ensure that trade liberalization be conducted pursuant to the purpose of the GATS.
Japan expects that developing country Members will specify their own interest from the service trade
liberalization and take part in the next round of negotiation with their own concrete ideas and
initiatives.
31. Although this paper has stressed the contribution of progressive liberalization in services to
the expansion of services trade and economic growth, this does not mean Japan supports the
elimination of all kinds of domestic regulations.  As is provided in the preamble of the GATS,regulations for legitimate purposes must be allowed.  Bearing in mind that the lack of appropriate
regulations and controls in the financial markets was one of the reasons for the economic crisis in
Asia, the legitimacy of appropriate regulations needs to be duly taken into account in the future
negotiations.  Therefore, in parallel with the negotiations for commitments, desirable disciplines on
domestic regulations need to be considered in the next services negotiations.S/C/W/105
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RATE REDUCTIONS
CURRENT STATUS OF RATE REDUCTION (UNIT Ұ1)
a) Telephone service 
(Tokyo-Osaka [500km]:  3 minutes daytime weekdays)
69 6390 90400
050100150200250300350400
1 April 85 NTT 1 Feb. 98 NTT 1 Feb. 98 long-distance
NCCs1 March 98 TTNet 1 July 98 KDD(-77.5%)Figures are in Yen
b)  International telephone service 
(Japan-US:  3 minutes daytime, international direct dial call)
1,530
240168 150240
-5001,0001,5002,000
1 April 85 KDD 21 Dec. 98 KDD 1 Jan. 89 DDI 1 Dec. 98 WorldCom Japan 1 Dec.98 JT 15 Dec.98 IDC(-84,3%)Figures are in YenS/C/W/105
Page 9
c) Leased circuit service 
(Tokyo-Osaka [500 km]:  64 kbps)
138,000 157,500169,3001,100,000
-200,000400,000600,000800,0001,000,0001,200,000
1 April 85 NTT 1 Sep. 95 NTT 1 June 98 Long distance NCC's 1 Feb. 97 Regional NCC's(-84,6%)Figures are in Yen
Using NT based  circuits (max. 15 km) at both end of the NCC leased  circuit.
d)  Cellular phone service 
(Basic fee, or line charge up to 31 March 1994)
4,500 4,600 4,6006,60030,000
-5,00010,00015,00020,00025,00030,000
1 April 85 NTT 1 Feb. 97 NTT DoCoMo
Analog1 Dec. 94 NTT DoCoMo
800MHz Digital1 June 97 NCC's 1 June 97 Digital NCC's(-78.0%)Figures are in Ye n
1 April 1984, Introduction of competition, by 4 carriers. In each regional block and COAM (customer-owned and mainland) system.(In Kanto Region)S/C/W/105
Page 10
CHART 2
FDI in Japan by Industry (based on investments notified)
(Units:  US$ million, %)
FY 1995 FY 1996 FY 1997 1st half FY 1998 Total for FY 1950-1997
Value Value No. of investments Value No. of investments Value Value
Annual % % Annual % % %
change share change change share change share
Manufacturing 1,464 2,762 189 - 22 2,179 39.4 - 21.1 97 6 801 18.8 7.3 25,209 50.1
Chemicals 1,132 617 54 - 5 603 10.9 - 2.2 13 - 6 146 3.4 - 5.4 7,802 15.5
Machinery 191 1,383 56 - 17 1,184 21.4 - 14.4 61 31 582 13.7 12.3 11,977 23.8
(Electrical ) 119 744 29 - 9 843 15.3 13.4 n.a. -- n.a. -- -- 1,587 3.2
(Ordinary) 66 174 26 - 7 106 1.9 - 39.3 n.a. -- n.a. -- -- 280 0.6
(Transport
equipment)4 465 1 - 1 235 4.2 - 49.5 n.a. -- n.a. -- -- 699 1.4
Foodstuffs 43 3 7 4 18 0.3 506.3 -- - 7 -- -- - 100.0 627 1.2
Textiles 24 8 12 9 15 0.3 82.8 2 - 6 2 0.1 - 71.3 138 0.3
Rubber/leather
products22 95 3 - 4 153 2.8 61.5 2 2 35 0.8 -- 560 1.1
Petroleum 20 73 31 - 3 47 0.8 - 35.7 13 - 1 1 0.0 - 95.1 1,279 2.5
Metals 1 468 3 - 7 2 0.0 - 99.5 2 -- -- -- -- 1,571 3.1
Glass/earth/stone
products0 0 3 2 6 0.1 2580.6 -- - 1 -- -- - 100.0 180 0.4
Others 31 115 20 - 1 151 2.7 31.5 4 - 6 34 0.8 113.0 1,075 2.1
Non-
manufacturing2,373 4,079 1,112 19 3,348 60.6 - 17.9 627 70 3,462 81.2 154.1 25,083 49.9
Finance/insurance 1,044 243 86 36 1,317 23.6 442.5 67 32 1,973 46.3 1,054.0 5,027 10.0
Trade/commerce 706 1,477 588 - 22 812 14.7 - 45.1 276 - 22 672 15.8 72.1 9,882 19.6
Services 503 2,095 357 16 723 13.1 - 65.5 212 26 661 15.5 65.0 6,316 12.6
Telecom 56 19 25 - 4 27 0.5 43.0 21 11 88 2.1 448.5 453 0.9
Real estate 16 235 33 - 11 392 7.1 67.0 25 12 49 1.1 - 87.2 1,883 3.7
Transport 13 9 10 -- 3 0.1 - 66.4 14 7 4 0.1 43.5 259 0.5
Construction 1 0 6 2 3 0.1 577.0 -- - 4 -- -- -- 122 0.2
Others 34 1 7 2 71 1.3 4,919.1 12 8 15 0.4 1,708.6 1,141 2.3
Total FDI in
Japan3,837 6,841 1,301 - 3 5,527 100.0 - 19.2 724 76 4,262 100.0 102.2 50,293 100.0
Source:  Same as Table 23
Notes: 1. Percentage change on previous year (same period).  Some percentages do not match due to rounding of fractions.
2. Statistics from FY 1996 onwards have been released only in yen, and so are converted into US dollars by JETRO at the interban k period average rate from Bank of Japan.
__________