WT/TPR/S/107 Trade Policy Review
Page 54
IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. Since Japan's previous Trade Policy Review, the Government has continued to implement
structural reforms;  progress has been made especially in the services sector, including financial
services and telecommunications.
2. In agriculture, there have been few policy changes since the previous Review.  In 2001, the
Government announced a Priority Plan for a Stable Food Supply and Aesthetic Land Development,
which calls for directing measures and resources towards productive sectors, and at the same time
providing safety measures to address risks associated with structural reform.  Since March 2001,
certain stock companies have been allowed to partic ipate in farming (effectively limited to companies
formed by farmers).  The average applied MFN tariff for agriculture (WTO definition) decreasedslightly from 18.9% in FY2000 to 18.6% in FY2002.  Total transfers to agriculture exceed the sector's
contribution to GDP.  Japan's food self-sufficiency ratio has remained stable at around 40% since the
previous Review;  Japan remains the world's largest net importer of food.
3. Japanese manufacturing has traditionally been much more exposed to international
competition than agriculture and certain services.
1  Tariffs on manufactured goods are usually low;
moreover, non-tariff barriers are few and the sector receives relatively little financial or other support
from the Government.  As in most other industrialized countries, manufacturing's contribution to
Japan's GDP has been declining steadily;  it accounted for 21.6% of GDP in 2000, compared with
23.0% in 1995.
4. By contrast, the share of services in Japan's GDP has been growing steadily;  it accounted for
70.1% of GDP in 2000, up from 68.8% in 1995.  Reforms have continued, especially in financial and
telecommunications services.  Against the background of a heavy debt overhang, financial servicesreforms have concentrated on strengthening prudential norms and eliminating non-performing loans
(NPLs).  Over-the-counter sale of some insurance products by banks has been permitted since
1 April 2001, and the "third sector" (e.g. personal accident and liability) was liberalized in July 2001.
In the telecommunications industry, the limit on foreign ownership restrictions of NTT was relaxed
from 20% to one third, and an independent dispute-settlement commission was established.
(2) 
AGRICULTURE
(i) Overview
5. Since its previous Trade Policy Review, Japan's regulatory environment for agriculture has
remained generally unchanged, except for some initiatives, such as the relaxation of land ownership
restrictions introduced in 2001.  The sector continued to receive substantial government support;provisional estimates by the OECD indicate that total transfers to agriculture amounted to 1.4% of
                                                     
1 The degree of openness to competition varies among manufacturing industries.  For example,
according to a recent study by the Policy Research Institute of the Ministry of Finance, the degree ofgovernment intervention, such as subsidization, entry regulations, and authorization of cartels, was lower forwhat the authors regard as "successful" industries than for "unsuccessful" ones.  Successful industries includedsemiconductors, VCRs, satellite transmitters, musical instruments, robots, automobiles, and trucks, while
unsuccessful industries included civil aircraft, chemicals, computer software, apparel, and confectionery (see
http://www.mof.go.jp/jouhou/soken/kenkyu/zk056.htm#01 (in Japanese)).Japan WT/TPR/S/107
Page 55
GDP in 20002, compared to the sector's 1.1% share of GDP, although it should be noted that total
transfers are measured on a gross basis, while GDP is on a value-added basis.3  T h e  c o s t  o f
agricultural inputs may have been a factor in encouraging Japan's food processing industries to
relocate offshore4;  "development and import" schemes, which are conducted by Japanese trading
corporations contracting with foreign agricultural producers with a view to exporting the products to
Japan are apparently increasing.5  According to the au thorities, the average retail prices of food in
Tokyo in 2000 were 25% to 100% higher than in other major cities in the world, although food prices
in Tokyo decreased in 2001.  The authorities attribute high food prices in Tokyo to high transportation
and distribution costs, and other factors reflecting differences in consumer buying behaviour;  high
tariffs also undoubtedly contribute to high food prices.6  In FY2000, Japan's food self-sufficiency ratio
was 40% on a calorie basis.7
6. The Basic Law on Food, Agriculture and Rural Areas, and the Basic Plan for Food,
Agriculture and Rural Areas, which implements th e policy direction stipulated in the law, have
continued to provide the framework and policy dir ection for agriculture in Japan since its previous
Trade Policy Review.  In addition, in August 2001, the MAFF announced a Priority Plan for a Stable
Food Supply and Aesthetic Land Development, which calls for focusing measures and resources onproductive sectors, and at the same time providing safety measures to address risks associated with
structural reform.
8  Japan has notified the Committee on Agriculture of its direct payment programme
as well as two other measures, on rice and dairy farming.9
7. The ownership of farms is restricted to agricultural cooperatives, unlimited partnerships,
limited partnerships, or limited liability companies, or, since March 2001, joint-stock companies that
require approval by the board of directors to transfer the stocks;  a majority of the members of a
corporation must be farmers, and over three quarters of the total voting rights of the corporation andthe majority of directors must be full-time farmers.  To legally own farmland, the main activities of
the corporations must be agriculture and related activities and more than 50% of sales must be from
agriculture and related business.
(ii) Border measures
8. The average applied MFN tariff for agriculture (WTO definition) is 20.1%
10 (FY2002)
compared with an overall average of 6.9% (Chapter III(2)(iii));  some 15% of duties applied to
agricultural goods are non- ad valorem .  Many agricultural subsectors (particularly dairy products,
edible vegetables and certain roots and tubers, products of the milling industry, sugar and sugar
                                                     
2 OECD (2002c).
3 Data on GDP are available online at:  http://www.esri.cao.go.jp/jp/sna/h14-nenpou/3main/3gdp/
1nominl/1nominl-j.html (in Japanese).
4 WTO (2001), p. 81.  In general, the cost of agricultural inputs, the cost of labour, exchange rates,
harvest, and the export policies of exporting countries may affect the behaviour of Japan's food processingindustries in terms of relocating offshore.
5 http://www.greenjapan.co.jp/topic2001_4_1.htm (in Japanese).
6 MAFF (2001).
7 Japan's food self-sufficiency ratio since FY1998 has remained unchanged, at 40%.  The Basic Plan
for Food, Agriculture and Rural Areas, decided by the Cabinet in March 2000, contains a guideline to achieve afood self-sufficiency ratio of 45% by 2010.
8 The Plan includes measures such as assistance for expanding farm size for the scale expansion of
farms to motivated and capable farmers.  Japan is also  investigating the possibility of introducing safety-net
measures to alleviate the effect of risks from price fluctuations on farm income.
9 WTO document G/AG/N/JPN/62, 1 March 2001.
10 The average applied MFN tariff for agriculture (HS 1-24) is 18.6% (FY2002).WT/TPR/S/107 Trade Policy Review
Page 56
products) benefit from relatively high levels of MFN tariff protection (Table IV.1);  several of these
subsectors are also subject to a number of tariff peaks (defined here as tariff rates exceeding three
times the simple applied MFN average).  Some of the average tariffs for the subsectors may be
underestimated, owing to the lack of estimates for AVEs of some specific duties (which tend to
conceal relatively high tariffs).11  For example the duty rate payable on out-of quota imports of rice is
one of the highest rates in Japan's customs tariff, at 406% in terms of ad valorem  equivalent.12
9. Tariff quotas apply mainly to agricultural products, including dairy products, rice, wheat and
barley, silk-worm cocoons and raw silk, prepared edible fat, and starches (Chapter III(2)(iii));  they
cover 2.1% of all tariff lines.13  The extent to which tariff quotas are filled varies by product
(Table AIII.3).  Eligibility for quot a allocations sometimes requires prior approval by the MAFF.  The
procedure for MAFF approval tends to be intricate;  it may require various end-use restrictions, theopinions of other organizations, such as industry associations, and many documents, such as accounts
and business plans.  In-quota imports of rice, wheat, barley, certain milk products, and raw silk are
handled mainly by state-trading entities;  certain amounts of all but raw silk may be imported by
private entities (e.g. the simultaneous buy-sell system for rice (see below)).
14
Table IV.1
Applied MFN tariff protection in agriculture, FY2002
(Per cent)
HS Chapter/DescriptionSimple
average
tariffMaximum
tariffTariff peaksa
(% of lines)Non-
ad valorem
tariff
(% of lines)
01 Live animals 2.4 44.8 2.1 12.5
02 Meat and edible meat offal 11.9 66.1 17.7 19.5
03 Fish and crustaceans, molluscs and other aquatic invertebrates 5.5 15.0 0.0 0.0
04 Dairy produce;  birds' eggs;  natural honey;  edible products of
animal origin, not elsewhere specified or included91.7 1,738.7 91.8 63.0
05 Products of animal origin, not elsewhere specified or included 0.3 3.5 0.0 0.0
06 Live trees and other plants;  bulbs, roots and the like;  cut
flowers and ornamental foliage0.5 3.0 0.0 0.0
07 Edible vegetables and certain roots and tubers 34.4 875.8 6.3 8.1
08 Edible fruit and nuts;  peel of citrus fruit;  melons 7.7 24.0 6.4 0.0
09 Coffee, tea, maté and spices 3.5 17.0 0.0 0.0
10 Cereals 17.7 134.7 24.4 31.7
Table IV.1 (cont'd)
                                                     
11 In the interests of transparency, the Japanese authorities have provided the Secretariat with AVE
estimates, where available.  The simple average of all specific tariff rates whose AVEs were available was
44.2%, roughly ten times the simple average of purely ad valorem  tariff rates, which was 4.5%.
12 Imports of rice under in-quota duties (and state-trading requirement) were 680,343 tonnes in
FY2000;  457 tonnes were subject to out-of-quota dutie s.  As part of Japan's minimum access commitments, a
certain amount of rice can be purchased and marketed directly under the simultaneous buy-sell (SBS) system.
Details of the SBS system can be found in WTO (2001), Chapter IV(2)(iii).  In FY2000, a total of
119,804 tonnes were imported under SBS.  Data on actual bids can be found in MAFF online information.Available at:  http://www.syokuryo.maff.go.jp/archives/index.htm#class3.
13 Notification of tariff quota administration in FY2001 is available in G/AG/N/JPN/1/Add.1,
G/AG/N/JPN/8/Add.1, G/AG/N/JPN/23/Add.2, and G/AG/N/JPN/57/Add.1, 27 June 2001.
14 Rice, wheat, and barley are imported by the Food Agency attached to the Ministry of Agriculture,
Forestry and Fisheries;  milk products and raw silk by the Agriculture and Livestock Industries Corporation;
leaf tobacco by the Japan Tobacco Inc.Japan WT/TPR/S/107
Page 57
HS Chapter/DescriptionSimple
average
tariffMaximum
tariffTariff peaksa
(% of lines)Non-
ad valorem
tariff
(% of lines)
11 Products of the milling industry;  malt;  starches;  inulin;  wheat
gluten.39.2 640.3 40.5 38.0
12 Oil seeds and oleaginous fruits;  miscellaneous grains, seeds and
fruit;  industrial or medicinal plants;  straw and fodder30.4 819.9 5.6 5.6
13 Lac;  gums, resins and other vegetable saps and extracts 2.9 17.0 0.0 4.5
14 Vegetable plaiting materials;  vegetable products not elsewhere
specified or included3.1 8.5 0.0 0.0
15 Animal or vegetable fats and oils and their cleavage products;
prepared edible fats;  animal or vegetable waxes6.0 29.8 4.7 42.4
16 Preparations of meat, of fish or of crustaceans, molluscs or other
aquatic invertebrates13.5 50.0 27.7 3.0
17 Sugars and sugar confectionery 29.6 137.5 63.8 55.3
18 Cocoa and cocoa preparations 20.3 60.0 63.0 7.4
19 Preparations of cereals, flour, starch or milk;  pastrycooks'
products24.4 343.8 53.8 26.5
20 Preparations of vegetables, fruit, nuts or other parts of plants 17.2 46.8 34.3 6.7
21 Miscellaneous edible preparations 24.7 501.8 48.4 16.1
22 Beverages, spirits and vinegar 18.1 95.9 32.7 38.8
23 Residues and waste from the food industries;  prepared animal
fodder1.4 23.9 2.4 9.5
24 Tobacco and manufactured tobacco substitutes 5.1 29.8 9.1 0.0
1-24 Agriculture 18.6 1,738.7 23.9 15.4
a Three times the simple average of applied MFN rates.
Note: All indicators are based on Japan's MFN applied tariff schedule and AVEs provided by the Japanese authorities for the
year 2000;  the indicators were calculated excluding in-quota tariff lines.
Source: WTO calculations, based on data provided by the Japanese authorities.
10. Special safeguard (SSG) actions were taken during FY2000-02 for a number of products
including butter, wheat flour, inulin, milk and cream, food preparations of flour, meal or starch, and
rice (Table IV.2).15  Both price-based and volume-based SSGs, which are applicable only to above-
quota imports, have been imposed.  Japan also invoked separate emergency measures on pork
products between 1 August 2001 and 31 March 2002, by raising farm gate price levels;  for example,
for cut meat, the farm gate price was raised from ¥524/kg. to ¥653/kg.16
                                                     
15 Japan is among three OECD countries that have notified the use of SSG in 2001.
16 The Government applies higher gate price levels for the a quarter of a fiscal year if imports of pork
and its processed products during the preceeding three quarters exceed 119% of the average quantity of imports
during the corresponding periods in the three preceding years.WT/TPR/S/107 Trade Policy Review
Page 58
Table IV.2
Special safeguard (SSG) actions in agriculture, FY2000-02
Description Type of action Date or period of application
FY2000
Wheat flour Price-based 27 April 2000
Butter (of a fat content, by weight, not exceeding 85%) Price-based 29 May 2000
Wheat flour Price-based 14 June 2000
Inulin Volume-based 1 December 2000 to 31 March 2001
Buttermilk, curdled milk and cream, kephir and other
fermented or acidified milk and cream, sterilized, frozen,
preserved, concentrated or containing added or othersweetening matter, flavoring, fruits or nuts:
Of a fat content, by weight, not exceeding 1.5%.Of a fat content, by weight, exceeding 1.5% but not 
exceeding 26%.
Of a fat content, by weight, exceeding 26%.Volume-based 1 January 2001 to 31 March 2001
FY2001
Food preparations of flour, meal or starch, containing
one or more of those groats, meal, pellets of rice, wheat,triticale, barley, which total weight is not less than 85%
of the articles and mostly containing starch.Volume-based 1 July 2001 to 31 March 2002
Milk and cream, not concentrated nor containing added
sugar or other sweetening matter.
Of a fat content, by weight, exceeding 6%: 
sterilized, frozen or preserved;
Other cream of a fat content, by weight, of 13% or 
more (other than sterilized, frozen or preserved).Volume-based 1 November 2001 to 31 March 2002
Milk and cream, not concentrated not containing added
sugar or other sweetening matter.
Of a fat content, by weight, exceeding 1%, but not 
exceeding 6%: sterilized, frozen or preserved.Volume-based 1 December 2001 to 31 March 2002
Buttermilk, curdled milk and cream, kephir and other
fermented or acidified milk and cream, sterilized, frozen,preserved, concentrated or containing added or other
sweetening matter, flavoring, fruits or nuts:
Of a fat content, by weight, not exceeding 1.5%.
Of a fat content, by weight, exceeding 1.5% 
but not exceeding 26%.
Of a fat content, by weight, exceeding 26%.Volume-based 1 February 2002 to 31 March 2002
FY2002
Rice (semi-milled or wholly milled, whether or not
polished or glazed)Price-based 31 May 2002
Source: WTO notifications.
(iii) Domestic measures and support programmes
11. The support received by farmers and the consumer prices of agricultural products in Japan
remain above the OECD average.   Japan's net producer support estimates (PSE) and consumer
support estimates (CSE) for 2001 have been provisionally estimated at 59% and 53%, against anJapan WT/TPR/S/107
Page 59
OECD average of 31% and 24%.17  In the same year, the producer nominal assistance coefficient
(NAC) of 2.46 indicates that gross farm receipts (including support) were more than twice as high as
they would have been if generated at world prices without support.18  Likewise, the consumer NAC of
2.12, indicates that consumers were implicitly taxed, paying on average more than twice as much as
they would have paid in the absence of market price support to producers (and consumer subsidies).
These producer and consumer NACs were, on average, 1.7 and 1.6 times the respective OECDaverages.
19  Current price support schemes and their magnitudes are tabulated in Table IV.3.
According to the OECD, more than  95% of total support to producers has consisted of measures that
potentially distort production, namely market price support, payments based on output, and input
subsidies (such as interest, water, fertilizer, and energy subsidies);  this has remained the case since
the period 1986-88.20
Table IV.3
Procurement prices for all major crops subject to pricing and/or marketing arrangements/price controls(¥)
1999 2000 2001
Rice, official purchase price (unpolished rice, 60 kg.) 15,528 15,104 14,708
Wheat, official purchase price (60 kg.) 8,893 8,824 8,693
Soybeans, standard price (60 kg.) 14,011 .. ..
Sweet potatoes, trading guideline price (1 tonne) 31,520 31,430 31,430
White potatoes, raw material standard price (1 tonne) 14,050 13,960 13,960
Sugar beets, lowest producer price (1 tonne) 16,960 17,040 17,040
Sugar cane, lowest producer price (1 tonne) 20,490 20,370 20,370
Milk for processing, guaranteed price (1 kg.) 73.36 71.13 ..
Calves for beef, guaranteed standard price (black cattle) (per head) 304,000 304,000 304,000
Beef, stable standard price (1 kg.) 795 785 780
Pork, stable standard price (1 kg.) 370 365 365
Raw silk, stable standard price (1 kg.) .. .. ..
.. Not available.
Source: Information provided by the Japanese authorities.
(3) MANUFACTURING
12. Manufacturing accounted for 21.6% of Japan's GDP in 2000 and 22% of employment in 2000
(Table I.2).  In 2001, manufactured products accounted  for about 93% of Japan's total merchandise
exports and about 57% of its merchandise imports.  Office machinery and telecommunications
equipment, and automotive products are the main export industries;  machinery and transport
equipment account for about half of manufactures.
13. Japan's manufacturing has traditionally been much more exposed to international competition
than agriculture.  The simple average applied MFN tariff for imported industrial products (HS 25-97)was 3.9% in FY2002, compared with 20.1% for agricultural imports (WTO definition).  Simple
                                                     
17 OECD (2002c).
18 Japan's producer nominal protection coefficient was 2.34 in 2001, indicating that average price
received by producers (at farm gate) was 2.34 times higher than the border price.
19 As noted WTO (2001), caution is necessary in interpreting PSEs, CSEs, and NACs as changes in
exchange rate may produce significant fluctuations in th e three indicators, and border prices may be artificially
reduced owing to the presence of export subsidies in international agricultural trade.
20 OECD (2002c).WT/TPR/S/107 Trade Policy Review
Page 60
average tariffs are considerably higher for footwear, headgear, and prepared food than for other
manufactured goods (Chart III.2).
14. The regulatory environment concerning manufacturing in Japan has remained largely
unchanged since its previous Trade Policy Review.
(4) SERVICES
15. The services sector is the largest contributor to output and employment in the Japanese
economy, and the sector's importance has continued to grow recently.  Japan's services sectoraccounted for 70.1% of Japan's GDP in 2000, and for 68.6% of employment in 2000.
16. Japan's Schedule of Specific Commitments under the General Agreement on Trade in
Services (GATS), unchanged since 2000, covers 121 of the 160-odd sectors;   Japan has not taken any
MFN exemptions.
(i) Financial services
17. Trade in financial services (except for insurance) increased in 1999, after two consecutive
years of decline.  In 2001, Japanese banking and securities firms generated cross-border exports of
¥329 billion, up from ¥232 billion in 1999;  imports declined to ¥200 billion in 2001, from
¥309 billion in 1999.
18. Changes in Japan's regulatory framework for financial services since its previous Trade
Policy Review are mainly associated with the establishment of the Financial Services Agency (FSA)
in January 2001.  The FSA is responsible for policy planning, regulatory control, inspection, and
supervision as well as for the resolution of failed banks, and capital injections into financialinstitutions.  By contrast, the responsibility of MOF, which used to be the main regulator for the
sector, is restricted, inter alia, to part of financial failure resolution, financial crisis management,
management of Deposit Insurance Corporation and other public insurance schemes for deposits and
investment, as well as exchange rate policies and foreign investment.  The Bank of Japan has
responsibility for the smooth settlement of transact ions between banks and other financial institutions
with a view to contributing to the maintenance of "an orderly financial system".  Under the Foreign
Exchange and Foreign Trade Law, cross-border capital transactions are not regulated, and free entryand exit is guaranteed for foreign exchange business.
19. Since October 2000, mutual entry between the insurance and banking sectors in the form of
subsidiaries or holding companies has been permitted, completing the Big Bang programme,
announced in November 1996.
21  Since April 2001, over-the-counter sale of some insurance products
by banks has been permitted.22
                                                     
21 For details of measures under the "Big Bang" programme, see FSA online information.  Available at:
http://www.fsa.go.jp/p_mof/english/big-bang/big-bang.htm.  "Subsidiary" means a company in which another
company owns shares, etc. equivalent in number or valu e to more than 50% of its total issued shares, etc.
(Article 2 (8) of the Banking Law);  "branch" means an establishment (a business office) that is subordinate tothe head office, and conducts banking business in its name and on its account (Article 8 (3) of the EnforcementRegulations of the Banking Law);  and "agency" means an office that acts as a proxy of a bank to conduct thewhole or a part of its business by its commission and on its behalf (Article 8 (5) of the Enforcement Regulationsof the Banking Law)".
22 These concern long-term fire insurance, insurance to support debt service payment, and credit life
insurance relating to home mortgage, as well as overseas travellers' personal accident insurance.Japan WT/TPR/S/107
Page 61
(b) Banking
20. The banking sector has undergone a substantial reorganization since Japan's previous Trade
Policy Review.  Five holding companies were established and a merger between two commercial
banks took place, consolidating Japan's largest banks into several major groups.23  As well as
commercial banks, there are Government Financ ial Institutions, which include two non-commercial
banks24and six finance corporations.25
21. The authorities maintain that foreign banks with Japanese branches or agencies are subject to
regulations no less favourable than those applied to domestic banks.26  The requirement that foreign
banks had to obtain a separate licence for each branch or agency was abolished in 2001.27  In addition,
in 2001, Japan abolished prior approval for establis hing branches or agencies, and a "demand-supply"
provision required in licensing;  allowed ordinary banks, long-term credit banks, and the Norinchukinbank to engage in trust business;  lifted the prohibition of business related to financial services (such
as credit card services) by banks' subsidiaries engaging in subordinate business, and vice versa (i.e. a
single bank's subsidiary may now engage in both subordinate business and business related to
financial services).
22. At the same time, Japan tightened control of certain shareholders to prevent inappropriate
management of banks (thereby improving corporate governance).
28  To ensure the soundness of
banks, the Law for Limitations on Shareholding by Banks was enacted in November 2001;  the law
aims, inter alia , to limit the shareholding of banking groups to the amount equal to their "tier 1"
capital, in principle (the limit is to enter into force in September 2004);  the law also stipulates the
establishment of the Banks' Shareholding Purchase Corporation.29  The authorities consider that
prudential requirements are no more onerous for nationally licenced subsidiaries of foreign banks than
for domestic banks.
23. As of  31 March 2002, Japan's Postal Savings System had ¥239.5 trillion in deposits, or about
16.8% of total household financial assets in Japan.30  In April 2001, as a consequence of a major
                                                     
23  These include Mizuho Holdings Inc., Mitsubishi Tokyo Financial Group Inc., UFJ Holdings Inc.,
Daiwa Bank Holdings Inc., Mitsui Trust Holdings Inc., and Sumitomo Mitsui Banking Corporation.
24 The Development Bank of Japan and th e Japan Bank for International Cooperation.
25 Policy-based finance by Government Financial Institutions involves various incentives to induce
private-sector activities;  the main incentive involves the provision of long-term loans, at fixed and low interestrates, directed to, for example, areas characterized by low profitability, high-risk, and long periods for recoveryof investment.
26  While the Banking Law includes "reciprocity" provisions with regard to licensing,  the authorities
maintain that these do not apply to WTO Members, given that Japan has made no MFN exemptions in its GATS
Schedule of Commitments.
27 Moving the location of branches is subject to ex post facto  notification.  Ex post facto  notifications
are also required for Japanese banks to either establish, move or abolish branches or agencies.  Prior approval is
required for Japanese banks to establish subsidiaries.
28 These include the introduction of an approval system for the holding of voting rights for shareholders
with more than 20% of the total shares, and a notification system regarding shareholders with more than 5% of
the total shares.
29 The Banks' Shareholding Purchase Corporation has been established with a view to providing a
safety net to complement market sales of shares by banks.  For more details, see the Financial System Council 'sreport concerning shareholdings of banks, dated 26 June 2001, and press release by the Financial ServicesAgency on 26 June 2001 concerning the establishment of the Banks' Shareholding Purchase Corporation.
30 The authorities maintain that the Postal Savings System fulfils roles that are not met by the market or
by private financial institutions;  it aims to provide financial services throughout Japan, including in unprofitableWT/TPR/S/107 Trade Policy Review
Page 62
reform of the FILP,  the mandatory re-depositing of postal saving funds with the Fiscal Loan Fund of
the Ministry of Finance was terminated;  the Postal Savings System now has full discretion in the
management of its funds.31  The planning and management body of Postal Businesses has been
separated from the operational body since 6 January 2001;  this includes the Postal Savings System,
which is to become a new state-run public corporation in 2003.
(c) Insurance
24. Like banking, Japan's insurance sector has undergone substantial change in the past two years.
Since 2000, five life insurance companies and two non-life insurance companies have become
insolvent, and  four merger deals have been concluded.  At the end of FY2000, assets held by the top
five life insurance companies accounted for about 70% of the total assets of all life insurance
companies;  similarly, the share of net premiums written by the top five non-life insurers accountedfor about 55% of the total net premiums written by all non-life insurers.
25. Changes in the regulatory regime for Japan's in surance sector are mainly associated with the
establishment of the Financial Services Agency.
32
26. Regulatory reform in the Japan's insurance sector since its previous Trade Policy Review
includes an amendment to the Enforcement Regulati on of Insurance Business Law, in March 2002, to
increase the number of insurance products subject to mere notification, instead of prior approval.
Mutual entry into the "third-sector"33 by life and non-life insurance companies has been liberalized
since January 2001, and  banks have been allowed to engage in over-the-counter sales of certain
insurance products since April 2001. Commission charged by agencies for non-life insurance has been
liberalized since April 2001 through the partial abolition of FSA's operational guidelines concerning
agencies' commission.  Obligatory reinsurance by the Government for the compulsory automobile
third-party liability insurance was abolished in April 2002.
27. Responding to recent developments concerning new entrants from other business sectors, the
2001 amendment  of the Insurance Business Law introduced control on certain shareholders to
prevent inappropriate management of insurance companies.34  In 2001, Japan amended certain
                                                                                                                                                                    
remote areas.  Postal savings, except for deposits in postal money transfer accounts, are subject to a ¥10 million
deposit-ceiling per person.
31 The Postal Savings is required by law to establis h an investment plan for postal savings funds, based
on deliberations of the Postal Services Council, and to publicly release the plan.  According to the InvestmentPlan for the Postal Savings Fund in FY2001, a guideline for medium- to long-term asset compositionrecommends the allocation of 80% of funds to domestic bonds, 5% to foreign bonds, 5% to domestic stocks, 5%
to foreign stocks, and 5% to short-term investments.
32 Accordingly, a licence from the FSA is required to conduct insurance business in Japan.  Insurance
policies, both for new products and modifications to existing ones, as well as premium rates, require approval bythe FSA.  Life and non-life insurance companies may enter each other's markets only by means of subsidiariesor holding companies.  Commercial presence, licensed by  FSA, is required in order to offer insurance services
in Japan, except for such cross-border insurance contract s as reinsurance, commercial aviation insurance, and
international marine hull, satellite and overseas travel accident  insurance.  The criteria for granting licences and
the requirement of solvency margins are the same for Japanese and foreign insurance providers.
33 The "third sector" includes insurance for person al accident, liability, sickness, nursing care, and
hospitalization.
34 These include the introduction of an approval system for the holding of voting rights for shareholders
with more than 20% of the total shares, and a notification system regarding shareholders with more than 5% of
the total shares.Japan WT/TPR/S/107
Page 63
enforcement regulations of the Insurance Business Law with a view to introducing more stringent
solvency margin standards and disclosure requirements.35
28. Since October 2001, defined contribution pension schemes have been allowed in Japan;
companies subject to the Employees' Pension Law ma y establish defined contribution (corporate type)
pension plans with the approval of the Minister of Health, Labour and Welfare in order to qualify for
special tax treatment.36  The paid-in funds for an individual are managed separately, enabling pension
portability;  the funds can be invested in savings plans, public corporation bonds, investment trusts,
insurance products, stocks and trusts;  these include financial products of foreign financial institutions
and foreign bonds.  Institutions managing the pension schemes must offer at least three financial
products as essential options to the participants;  "high risk" products may also be offered as
additional options.  Under the defined contribution pension plan, financial products of Japanese orforeign financial institutions, and Japanese or foreign bonds are ranked the same.  National bonds and
bonds of public institutions can be part of the essential options, but bonds of private companies are
classified as "high-risk".
(d) Securities
29. Under the Law on Foreign Securities Firms, a foreign broker-dealer is normally required to
register its main branch in Japan to be allowed to engage in securities transactions with residents in
Japan.  On the other hand, non-registered foreign broker-dealers may engage in securities transaction
if they receive orders from investors in Japan without direct "solicitation".  In response to market
development involving the use of ICT technologies, the FSA decided on a Guideline on Cross-Border
Securities Transaction via Internet by Foreign Securities Firms on 11 December 2000, with a view to
clarifying which types of Internet advertisement constitutes "solicitation" of Japanese investors.
37
(ii) Telecommunications
30. Since its previous Trade Policy Review, Japan has implemented further regulatory reform in
the telecommunications sector with a view to e nhancing competition.  Telecommunications charges
have come down, although the JFTC has indicated that the Japanese market for telecommunications
services remains oligopolistic (Chapter III(5)(vii)).  With regard to cross-border trade in
telecommunication services, during the period 1999-2001 exports decreased slightly from ¥87 billionto ¥86 billion, and imports fell from ¥160 billion to ¥127 billion.
31. In January 2001, the authority and jurisdiction of the Ministry of Posts and
Telecommunications (MPT) was transferred to the new Ministry of Public Management, Home
Affairs, Posts and Telecommunications (MPHPT).
38
                                                     
35 These include (1) the extension of the applica tion of appraised profits and losses to non-listed
equities, domestic bonds, and foreign securities;  (2) the introduction of calculation of risk values based onappraised market prices;  (3) the introduction of price fluctuation risk criteria for bonds;  (4) the introduction ofrestriction on the amount of "future profit";  (5) disallowment of double gearing with banks, etc. in the same
group;  (6) the creation of a new measurement to gauge the status of the basic revenues that provide flow of
insurance companies;  and (7) the introduction of guidance on supporting materials for disclosure documents.
36 For self-employed and employees of corporations that do not establish corporate pension plans,
personal-type defined contribution pension plans have been allowed since January 2002.
 37 FSA Press release dated 11 December 2000, "The Guideline on Cross-Border Securities Transaction
via Internet by Foreign Securities Firms based on Article 3 of the Law on Foreign Securities Firms".
38 Details of Japan's regulatory framework for telecommunications can be found in WTO (2001),
Chapter IV(5)(iii).WT/TPR/S/107 Trade Policy Review
Page 64
32. Recent regulatory reform initiatives, associated with the amendment of the TBL in 200139,
include the introduction of additional asymmetric regulations prohibiting particular types of conduct40
by what the authorities regard as "dominant" telecommunications carriers41, the introduction of
wholesale telecommunications service system, the establishment of the Telecommunications Business
Dispute-Settlement Commission, the establishment of a universal services fund, and the introduction
of legal firewall restrictions between certain telecommunications carriers that have special relations42,
such as parent-subsidiary companies.  To correct violation by carriers possessing regional fixed
system promptly, fines and suspension orders were also introduced under the TBL.  On
30 November 2001, the limit on foreign ownership restrictions of NTT was relaxed from less than
20% to less than one third.  Telephone number portability when changing contracted telephone
carriers was made possible in March 2001, and a dialling parity system was introduced in May 2001.43
33. Permission is required for entry into and exit from Type-I businesses.44  Prior notification is
required for entry into General Type-II businesses and ex-post notification for exit.  Special Type-II
businesses require registration upon entry and ex-post notification upon exit;  registration may be
denied, inter alia , if the MPHPT Minister determines that the applicant does not possess enough
financial and technical capability to conduct the business properly.
34. Prior authorization is required for compiling and changing tariffs that stipulate
interconnection charges and conditions of interconnection, and facility-sharing agreements of
"essential facilities" carriers;  while prior notification is required for formulating and changing
interconnection agreements and facility-sharing agreements of other carriers.  In addition, establishing
and amending end-user charges of all telecommunication services require prior notification.  A price-
cap system is applied to the telephone, ISDN and leased-circuit charges by the essential facilities
carriers;  authorization is required only when these charges exceed the standard charge index.End-user charges of all telecommunication services normally require prior notification;  authorization
is required when the telephone, ISDN or leased ci rcuit charges of essentia l facilities ca rriers exceed
                                                     
39 The TBL classifies telecommunications services in to Type-I and Type-II services;  Type-II services
are further classified into "Special" and "General" subcat egories.  Type-I carriers install and operate their own
telecommunications circuit facilities, and Type-II carriers provide services with the use of circuit facilitiesequipment leased from Type-I carriers.  Special Type -II are defined as carriers offering services to many
unspecified users through the interconnection at both ends of leased circuits with public switched networks, orwith providers of facilities for international communications.  All other Type-II carriers are classified as General
Type-II carriers.
40 These are:  the abuse or provision of proprietary information obtained from competitors through
interconnection for other purposes;  unduly favourable or unfavourable treatment of specifictelecommunications carriers;  and undue compulsion or interference with other carriers, manufacturers/suppliers
of telecommunication equipment or co ntent providers.  Measures, such as orders to suspend or change
behaviour, with a view to enabling prompt correction of violation thereof were introduced under the revised
laws.
41 These are:  a Type I telecommunications carri er that possesses the Category I-designated
telecommunications facilities (regional fixed system),  and a Type I telecommunications carrier that possessesthe Category II-designated telecommunications facilities (mobile system) and that is designated by the MPHPTMinister on account of the carrier’s market shares, the movement of its shares, and other aspects.
42 These include the prohibition of concurrency of board members, and equal treatment on the use of
buildings/facilities and on the provision of information necessary for interconnection.
43 Dialling parity systems involve pre-selection and registration of a telecommunication service
provider that a subscriber wishes to use as the main prov ider (i.e. this provider will be selected each time phone
calls are made if a company-specific prefix is not used before dialling usual phone numbers).
44 The criteria for approving entry include sound and proper financial and technical capability,
predictable and rational business plans, and that commencement of the business is deemed proper for the sound
development of the telecommunications sector.Japan WT/TPR/S/107
Page 65
the standard charge index.  The MPHPT may order Type-I and special Type-II telecommunications
carriers to revise their charges if the charges fall under any of the items of Article 31(2) of
Telecommunications Business Law (e.g. charges include provisions that unfairly discriminate against
any person).  A Type-I telecommunications carrier that holds more than 25% of subscribers in the
mobile market (except for PHS) must compile, notify and publicize its interconnection tariffs.
35. The Government held about 46% of the NTT Corporation's total stock at the end of
March 2002.45  The two local NTT companies have more than 90% of the local communications
market.  In accordance with the NTT Law, the NTT Corporation is required to provide universal
service.46  In February 2001, the MPHPT approved the long-run incremental cost (LRIC)-based
interconnection rate (related to telephone and ISDN services) of NTT East and NTT West from
FY2000 to FY2002.  Data provided by the authorities show that this resulted in a 22.5% reduction for
"group-call" interconnection and a 60.1% reduction for "zone-call" interconnection in April 2002,
compared with FY1998.
36. Ministerial authorization may be required for Type-I and Special Type-II carriers to conclude,
modify or abolish contracts between foreign governments, foreign citizens or foreign corporations.47
There is no foreign ownership or management restriction in telecommunications services, except in
the case of the NTT Corporation.  Along with a series of regulatory reforms (paragraph 32), the TBL
added "promotion of fair competition in the field of telecommunications business" in its purposes.48
37. The Strategic Headquarters for the Promotion of an Advanced Information and
Telecommunications Network Society was established within the Cabinet in January 2001;  the "e-
Japan" Strategy was adopted at its first meeting in January 2001 as a national strategy for information
technology.  Further, the e-Japan Priority Policy Programme49, implementing the e-Japan Strategy,
was adopted in March 2001.  The programme includes measures to formulate advanced informationand communications networks, to promote education and human resource development, to facilitate
electronic commerce, to promote the use of information technology in public areas, and to promote
research and development activities.
(iii) Transport
(a) Maritime transport
38. In 2000, the volume of Japan's seaborne cargo increased by 4.6%, accounting for 16.6% of
the world's total.  Almost all of Japan's internationally traded goods are shipped by maritime transport.
                                                     
45 The NTT Corporation must, at all times, hold all stocks issued by the East and West NTT regional
companies, according to the NTT Law, Article 5.  The issuance of stocks by the regional companies requires
ministerial authorization.
46 Bank of Japan, Monthly Statistics, various issues.
47 This requirement is confined to contracts that include "substantial" provisions, as defined by relevant
Ministerial Orders.
48 The TBL stipulates that Type-I carriers installing "designated telecommunications facilities" must
maintain the accounts of costs associated to interconnection with such facilities, and establish a "modelagreement" that must be authorized by the MPHPT Minister. Designated telecommunication facilities aredefined under TBL  Article 38-2 (and its relevant ordinances) as transmission facilities, held by a carrier, thatexceed half of existing relevant facilities in a prefecture.  The TBL also stipulates a price-cap regulation overcarriers that possess more than a certain fraction of the number of subscriber lines in a region (paragraph 77).
49 Prime Minister of Japan's online information.  Available at:  http://www.kantei.go.jp/foreign/it/
network/priority-all/index.html.WT/TPR/S/107 Trade Policy Review
Page 66
39. Since the restructuring of the central government ministries and agencies in January 2001, the
Maritime Bureau and the Ports and Harbour Bureau  of the Ministry of Land, Infrastructure and
Transport have been the main authorities regulating Japan's maritime transport.  Cabotage restrictions
allow only Japanese-flag carriers to carry cargo and passengers between Japanese ports.
40. The authorities state that there are no monopolies in the maritime services sector;  moreover,
there are no quotas for suppliers or arrangements for cargo allocation.  Agreements between operatorson freight rates or other conditions of transportation (e.g. routes) are exempt from the Anti-Monopoly
Act (AMA) provided such agreements do not involve "unfair transactions" or adversely affect
competition  The authorities maintain that there are no discriminatory measures preventing foreign
participation in international maritime services.  The authorities are of the view that Japan's bilateral
agreements on passenger or cargo shipping provide national treatment to partners on a reciprocalbasis.
50
41. According to the authorities, no exclusive rights or subsidies are given to Japanese-flag
carriers.  Nonetheless, support measures for Japanese-flag carriers (the "International Ship Regime")
have been unchanged since Japan's previous Review.51  According to the authorities, the International
Ship Regime does not distort trade in maritime transport services;  it aims to place Japanese vessels onan equal footing with those of other countries th at provide preferential tax treatment for their
registered ships.
42. According to the authorities, there are no discriminatory measures preventing foreign
participation in auxiliary services.  Japan relaxed requirements concerning entry into the port transport
sector in November 2000, replacing the previous licensing requirements (involving an economic
needs test) with the obligation to seek permission for entry into port transport business in nine major
ports
52;  the fee approval system concerning certain port services was replaced by a registration
system involving prior notification.
43. It is common practice in Japan's ports for carriers to notify the harbour workers' union, in
advance, through the Japan Harbour Transport Association (JHTA), of changes in stevedore works
that may affect employment (prior consultations).53  According to the authorities, the number of
consultations has decreased by more than 80% since 1997.  Unified charges are applied in the majorcontainer terminals.  As a result of an agreement between management and labour on
29 November 2001, 24-hour operation at terminals has been made possible throughout the year
(except for New Year's Day).
(b) Air transport
44. In FY1999, Japanese airlines accounted for 38% of Japan's scheduled international passenger
market and 40% of its international freight market, in terms of number of passengers and tonnes of
                                                     
50 Japan has bilateral agreements related to maritime transport with:  Argentina, Bulgaria, China, Cuba,
Denmark, El Salvador, Finland, France, Germany, Greece, Haiti, Hungary, Italy, India, Malaysia, the
Netherlands, Norway, the Philippines, Poland, Portuga l, Romania, Russian Federation, Spain, Sri Lanka,
Sweden, Thailand, Turkey, the United Kingdom, and the United States.
51 These measures include tax breaks in ship-registration tax and local property tax.
52 These are:  Keihin Ports (Tokyo, Yokohama and Kawasaki Ports), Chiba Port, Shimizu Port, Nagoya
port, Yokkaichi Port, Osaka Port, Kobe Port, Kanmon Ports (Shimonoseki and Kitakyushu Ports), and HakataPort.
53 According to the authorities, this practice is based on an agreement among private operators, i.e. the
JHTA, the Japanese Shipowners' Association, and the Japan Foreign Steamship Association.Japan WT/TPR/S/107
Page 67
freight.  Exports of air transportation services in 2001 were ¥0.92 trillion, 2% higher than in 1999.
Imports in 2001 amounted to ¥1.4 trillion, 14.8% higher than in 1999.
45. There have been no changes in Japan's regulations governing international air transport since
2000.54 Japan's international air transportation market is mainly regulated by its Civil Aeronautics
Law (CAL) and numerous bilateral agreements.  The Civil Aviation Bureau of the MLIT administers
the entry, pricing, and routes of airlines, as well as safety regulations.  As in most other countries, theprovision of domestic air services is restricted to Japanese carriers (cabotage restrictions).  An
ownership restriction prohibits foreign investors from holding more than one third of voting rights in
domestic airlines.
46. Japan has not concluded any air service agreements since 2000;  there were 55 as at
1 January 2002.  Japan has not accepted "open skies" air services agreements.  The authorities believethat such arrangements may entail oligopoly and, as a consequence, have adverse effects on
competition in Japan's international air services market.  In addition to traffic rights, Japan has
concluded bilateral arrangements on code sharing with many countries.  These and other agreements
between airline companies for improving user conven ience on international routes from/to Japan are
exempted from the Anti-Monopoly Act (AMA), provid ed they do not involve "unfair transactions" or
adversely affect competition.  There is no requirement for Japanese civil servants to use Japanese
carriers for official travel.
47. The two major international airports, New Tokyo (Narita) and Kansai, are mainly
government owned.  Narita airport is a government corporation, Kansai airport has a majority
government shareholding, and other major airports are operated through Special Accounts for Airport
Development.  Landing fees are significantly higher than at major airports in other developed
countries.
55
48. According to the authorities, Japan's airport slot-allocation system for international civil
aviation services, including the one applied for the second runway of Narita Airport, is based upon
guidelines issued by the IATA.56  Japan Airlines is the coordinator (as stipulated in the IATA
Worldwide Scheduling Guidelines).  The allocation of slots takes place twice yearly.  As of the fourth
week of October 2002, 37% of slots are to be allocated to Japanese airlines.
(iv) Other services
49. Regulatory reform has also progressed in other services including professional services,
medical services, and education services.
50. In legal services residency and nationality requirements for patent attorneys (Benrishi) were
abolished on 6 January 2001.  Self-regulation by the Japan Patent Attorneys Association on the setting
of patent attorneys' fees and advertisement of their business was also implemented on 6 January 2001.
                                                     
54 See WTO (2001), Chapter IV(5)(iv)(b) for a summary of Japan's regulations concerning international
air transport.
55 According to the Ministry of Transport, the landing fee levied on international air transport for a
B747-400 aircraft, for example, is ¥948,000 for Narita, ¥908,500 for Kansai, ¥389,075 for Hong Kong,¥133,144 for Ba ngkok, ¥276,046 for Charles de Gaulle (Paris) and ¥382,369 for JFK (New York) airports.
56 The IATA guidelines include, inter alia , general criteria for allocating slots, such as the use of
historical precedence, where appropriate, allocation of sl ots to incumbent and new airlines, and reallocation of
unused slots.WT/TPR/S/107 Trade Policy Review
Page 68
A Patent Corporate Body, composed of two or more partners that are qualified as Benrishi, has been
allowed under Japanese law, since 6 January 2002.
51. In medical services, as indicated in the TPPRR, the Government has decided to review the
current restrictions that medical institutions must be "non-profit" organizations, and requirements that
board chairpersons of medical corporations must normally be medical doctors.
52. In education services, the Government has decided to review current regulations concerning
establishment of universities and faculties with  a view to eliminating the prior authorization
requirement for certain items specified in the Univ ersity Establishment Standard and other standards,
including the establishment of sub-faculties. It will also review the current policies restricting the
increase of universities and faculties and the ownership and use of land during FY2002.  Introduction
of an accreditation system by third parties, to partially replace ministerial permission requirements forthe establishment of universities and faculties, will also be considered.  It has also been decided to
consider increasing access for graduates of international schools to higher education.
57
                                                     
57 Currently, graduates of international secondary schools and high schools are usually required to pass
certain examinations in order to apply for Japanese high-schools and universities.Japan WT/TPR/S/107
Page 69
REFERENCES
APEC (2000a), "Joint Statement", Twelfth APEC Ministerial Meeting, Bandar Seri Begawan, Brunei
Darussalam, 12-13 November 2000 [Online].  Av ailable at:  www.mofa.go.jp/policy/economy/apec/
2000/joint.html [16 January 2002].
APEC (2000b), "Leaders' Declaration—Brune i Darussalam" [Online].  Available at:
www.mofa.go.jp/policy/economy/apec/2000/leader.html [16 January 2002].
APEC (2001), "APEC Economic L eaders' Declaration:  Meeting new Challenges in the New
Century", Shanghai, China, 21 October 2001 [Online].  Available at:  www.mofa.go.jp/policy/
economy/apec/2001/dec.html [16 January 2002].
Chan-Lau, Jorge A. (2001), "Corporate Restructuring in Japan:  An Event-Study Analysis", IMF
Working Paper, WP/01/02, Washington D.C.
Fry, James D. (2001), "Struggling to Teethe:  Japan's Antitrust Enforcement Regime", Law and Policy
in International Business,  Vol. 32, pp. 825-857.
Gibson, M. (1998), "Big Bang Deregulation and Japanese Corporate Governance", International
Finance Discussion paper No. 624, Board of Gove rnors of the Federal Reserve, Washington D.C.
Headquarters for the Administrative Reform of the Central Government (2001), Central Government
Reform of Japan , January, Tokyo.
Iyori, H. and A. Uesugi (1994), The Antimonopoly Laws and Policies of Japan,  Federal Legal
Publications, New York.
Japan Center for Economic Research (2001), Kakudai suru Jiyuboeki Kyotei to Nihon no Sentaku
(Proliferating FTAs and Japan's Choice - in Japanese), Tokyo.
Kester, C. (1991), Japanese Takeovers:  The Global Contest for Corporate Control, Harvard
University Press, Boston.
MAFF (2001), Nogyo Hakusho 2000  (White Paper on Agriculture - in Japanese), Ministry of
Agriculture, Forestry and Fisheries, Tokyo.
METI (2000), "On the Inauguration of the Ministry of Economy, Trade and Industry", Speech by
Takeo Hiranuma, Minister of Economy, Trade and Industry [Online], 6 January.  Available at:
http://www.meti.go.jp/english/topic/data/eMETIStarte.html [14 January 2002].
METI (2001), 34th Survey of Trends in Business Activities of Foreign Affiliates,  July.
MOFA (2001), "Myth and Reality:  Why Japan Strives for Multilateralism", Speech by former foreign
Minister Yohei Kono [Online].  Available at:  www.mofa.go.jp/announce/fm/kono/speech0101.html
[17 January 2002].
OECD (2002a), OECD Economic Outlook,  No. 71, Organization for Economic Co-operation and
Development, Paris.WT/TPR/S/107 Trade Policy Review
Page 70
OECD (2002b), "The Size of Government Procurement Markets", Offprint from OECD Journal on
Budgeting , Vol.1, No. 4, Paris.
OECD (2002c), Agricultural Policies in OECD Countries - Monitoring and Evaluation,  Paris.
Shishido, Z. (1999), "Japanese Corporate Governan ce:  the Hidden Problems of Corporate Law and
their Solutions", Working Paper No. 153, the Center for Law and Economic Studies, Columbia Law
School, New York.
UNCTAD (2001), World Investment Report , United Nations Conference on Trade and Development,
Geneva.
WTO (2001), Trade Policy Review - Japan 2000 , World Trade Organization, Geneva.