EMBARGO: NOT FOR PUBLICATION
UNTIL 16:00 GMT 28JANUARY 1998
PRESS/TPRB/69
19January 1998
MORE DEREGULATION AND STRUCTURAL REFORMS
SHOULD HELP JAPAN STIMULATE DOMESTIC DEMAND AND
ENCOURAGE MARKET ACCESS
Japan 'sefforts toderegulate itseconomy should beintensified ifJapan istofurther stimulate
domestic demand andprovide better market access opportunities foritstrading partners. AnewWTO
report onJapan 'strade policies andpractices notes Japan 'sintent tostrengthen market mechanisms
through structural reform andderegulation, andtoreorient itseconomy towards agreater reliance on
domestic, rather than export demand. The report notes, however, that several sectors, including
agriculture, construction andcertain services remain subject torestrictive regulations thataffect both
foreign market access andthebetter allocation ofdomestic resources.
Thereport observes thatJapan 'seconomy hasnotimproved since thelastWTO trade policy
review inApril 1995. Various packages offiscal andmonetary stimulus during 1995 sustained
moderate economic growth, butledtoaworsening ofpublic finances. Since thesecond quarter of
1997, there hasbeen adownturn inthedomestic economy, with export demand theonly significant
source ofgrowth. Thereport alsonotes thatthefinancial crisis inEast Asian economies islikely to
affect Japan more severely than other industrialized countries. This ismainly duetoJapan 'sstrong
trade andinvestment tiesintheregion.
TheWTO Secretariat report andapolicy statement prepared bythegovernment ofJapan, will
provide thebasis forareview ofJapan 'strade policies andpractices on27and28January 1998.
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Deregulation and structural reform arethemain themes ofJapan 'scurrent trade and
investment-related measures, andtheextent towhich significant progress canbemade willaffect its
ability toachieve itseconomic andsocial objectives. Animprovement incustoms clearance times and
sanitary inspection procedures, forexample, areimportant elements ofthereform measures. On
standards andmandatory regulations, comprising both technical andsanitary-related measures, Japan
seeks tocoordinate domestic measures with international norms.
The report notes that Japan 'simport and investment promotion programmes maintain
substantial government incentives; itisnotevident, however, thatthese programmes fully address the
obstacles encountered. The schemes also largely exclude important sectors ofinterest totrading
partners, especially inagriculture andservices, which have notgenerally been exposed tointernational
trade andaresubject toextensive government regulation.
Since thelasttrade policy review inApril 1995, there have been nomajor changes inJapan 's
tariff structure. Thesimple average ratewas9.4percentin1997, with some 60percentoftariff lines
rated at5percentorbelow. High tariff peaks occur inagriculture, food manufacturing, textiles and
footwear, andsubstantial tariff escalation occurs inanumber ofsectors, mainly between semi-
processed andfully-processed items, particularly infood manufacturing andpetroleum refining.
Various tariff cuts, including theelimination ofapplied tariffs, were made either autonomously or
under existing agreements, including oncertain chemical products, textiles andnon-ferrous metals. In
regard toinformation technology products, Japan haspledged toreduce bound tariffs tozero for57
percent ofitstariff lines inthissector. However, tariffs forfishery products, certain wood products
andpetroleum remain unbound andstate trading regulations areinplace forsuch items asrice, barley,
wheat, milk products, rawsilk, saltandleaftobacco.
Japan does notbelong toanycustoms unions orfree-trade areas, although itisaleading
member oftheAsia Pacific Economic Cooperation forum (APEC) andtheAsia-Europe Meeting
(ASEM). Ithasanumber ofbilateral agreements orarrangements, mainly with theUnited States,
covering, inter alia, theautomobile sector, semiconductors, financial services andinsurance. Aspart
ofitsconsultations with theUSin1995, Japan undertook toincrease access andsales opportunities
onamost-favoured-nation basis, forcompetitive foreign autos andauto parts. Japan andtheUnited
States also agreed toestablish theGlobal Government Forum todiscuss issues facing theworld
semiconductor industry, andinvited participation oftheEuropean Union andKorea. Thereport also
notes thattheonly remaining "voluntary" export restraint maintained byJapan isthemonitoring
arrangement oncarexports totheEuropean Union. This arrangement istobeeliminated in1999.
Inlinewith WTO agreements, Japan haschanged itsgovernment procurement policy and
intellectual property legislation. Since 1995 theshare ofselective andsingle tendering ingovernment
procurement hasfallen infavour ofopen tendering. Inorder tocombat violations ofindustrial
property rights attheborder, Japan 'sCopyright Law wasamended andfines forinfringement were
tripled in1996.
Since 1995, Japan hasabolished nine of11export cartels. Remaining cartels, related either
totheprotection ofquality orintellectual property, ortoimport monopolies inpartner countries, are
tobeabolished bytheendof1999. Japan hasmodified itscompetition lawunder theAnti-Monopoly
Act,though concerns remain about theeffects onforeign access toJapan ofhorizontally andvertically
integrated groups. Holding companies, which hadbeen banned previously, arenow permitted toa
certain degree. Liberalization ofJapan 'sLarge Scale Retail Store Law hasresulted inasharp increase
inthenumber ofapplications toopen large stores.
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Concerning agriculture, thereport states thatJapan 'sproductivity remains low. The self-
sufficiency ratio fellto42percentinfinancial year 1995, andagriculture accounted forsome 20per
cent ofJapan 'smerchandise imports in1996. Thereport notes thattheoverall level ofsupport to
agriculture isstillwell above theOECD average andthatagriculture hastodatelargely been excluded
from Japan 'sderegulation efforts. While riceimports arenotcurrently subject totariffication, this
special treatment agreed intheUruguay Round willbereviewed intheyear 2000.
Services generated some 64percent ofJapan 'sGDP andsome 68percent ofemployment
in1996. However, thereport notes thatJapan 'sservices sector hasalower productivity than its
manufacturing sector. Manufacturing generates about 24percent ofJapan 'sGDP, ahigh share
compared tothatofother developed economies. Regarding theservices sectors, thereport notes that
concerns have been raised onthelinks thatexist between complex regulations andlowproductivity.
The report notes that Japan isgradually reducing itstraditional reliance ongovernment
intervention andcontrol intheservices sector. New amendments in1996 ledtoreforms infinancial
services; intheWTO financial services negotiations which successfully concluded inDecember 1997,
Japan submitted arevised offer ofcommitments, including binding ofallthemajor elements ofthe
bilateral measures previously agreed with theUnited States oninsurance, banking andother financial
services. These, along with further liberalization initiatives intelecommunications, and other
deregulation measures willopen services togreater competition. However, unilateral reform measures
taken byJapan inairandmaritime transport have been mainly confined todomestic services.
Protective policies remain insome professional services.
Notes toEditors
TheWTO 'sSecretariat 'sreport, together with areport prepared byJapan willbediscussed
bytheWTO Trade Policy Review Body (TPRB) on27and28January 1997. TheWTO 'sTPRB
conducts acollective evaluation ofthefullrange oftrade policies andpractices ofeach WTO member
atregular periodic intervals andmonitors significant trends anddevelopments which may have an
impact ontheglobal trading system. Thetworeports, together with areport oftheTPRB 'sdiscussion
andoftheChairman 'ssumming up,willbepublished induecourse asthecomplete Trade Policy
Review ofJapan andwillbeavailable from theWTO Secretariat, Centre William Rappard, 154rue
deLausanne, 1211 Geneva 21.
Thereports cover thedevelopment ofallaspects ofJapan 'strade policies, including domestic
laws andregulations, theinstitutional framework, trade policies bymeasure andbysector. Since the
WTO came into force, the"new areas" ofservices trade andtrade-related aspects ofintellectual
property rights arealso covered. Attached arethesummary observations from theSecretariat and
government reports. Fullreports willbeavailable forjournalists from theWTO Secretariat onrequest.
Since December 1989, thefollowing reports have been completed: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Brazil (1992 &
1996), Cameroon (1995), Canada (1990, 1992, 1994 &1996), Chile (1991 &1997), Colombia (1990
&1996), Costa Rica (1995), Côted'Ivoire (1995), Cyprus (1997), theCzech Republic (1996), the
Dominican Republic (1996), Egypt (1992), ElSalvador (1996), theEuropean Communities (1991,
1993, 1995 &1997), Fiji(1997), Finland (1992), Ghana (1992), Hong Kong (1990 &1994), Hungary
(1991), Iceland (1994), India (1993), Indonesia (1991 and1994), Israel (1994), Japan (1990, 1992 &
1995), Kenya (1993), Korea, Rep. of(1992 &1996), Macau (1994), Malaysia (1993 &1997),
Mauritius (1995), Mexico (1993 &1997), Morocco (1989 &1996), New Zealand (1990 &1996),
Nigeria (1991), Norway (1991 &1996), Pakistan (1995), Paraguay (1997), Peru (1994), the
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Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 &1996), Slovak
Republic (1995), South Africa (1993), SriLanka (1995), Sweden (1990 &1994), Switzerland (1991
&1996), Thailand (1991 &1995), Tunisia (1994), Turkey (1994), theUnited States (1989, 1992,
1994 &1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) andZimbabwe
(1994).
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TRADE POLICY REVIEW BODY
JAPAN
Report bytheSecretariat -Summary Observations
Introduction
Since Japan 'slastTrade Policy Review inApril 1995, itseconomic situation hasnotimproved.
Various packages offiscal andmonetary stimulus during 1995 sustained moderate economic growth,
butledtoaworsening inpublic finances; theoverall fiscal deficit ofcentral andlocal government
rose toover 5percent andgross government debt toover 100percent ofGDP. Apolicy reversal
towards fiscal consolidation from mid-1996 onwards, culminating inanincrease intheconsumption
taxinApril 1997, seriously dampened domestic demand andfrom thesecond quarter of1997, there
hasbeen adownturn inthedomestic economy, with export demand theonly source ofgrowth.
During thesame period, Japan 'sfinancial sector hasbeen severely affected both byinternal
structural problems, with thecollapse ofamajor bank, amajor securities company andemergency
mergers ofsome banking firms, andbytheeconomic crisis since mid-1997 inother Asian economies,
particularly Thailand andKorea which aresubstantial recipients ofJapanese investment.
InNovember 1997, theGovernment announced anewseries ofproposed measures aimed at
reducing regulatory barriers tobusiness andstabilizing financial markets; these measures areaimed
atproviding aframework fordomestic-led recovery without significant negative fiscal implications.
The package included proposals forderegulation inthetelecommunications, trucking, domestic
airlines, jobplacement andpetrol station sectors; proposals foranumber ofchanges inregulations
onland useanddisposal, including removal oflimits onprices ofland transactions, modification of
land useregulations inurban areas, revision ofterms forhousing leases, conversion ofagricultural
landintoother uses, including residential, andfinance forconstruction ofsuburban "weekend houses";
andproposals forstabilization offinancial markets, improved protection ofinvestors anddepositors,
andderegulation ofthesecurities market. TheGovernment alsoannounced thatthere would bea
review ofJapan 'staxsystem relating tocorporate, financial andland taxes "from theviewpoints of
creating aninternationally attractive business environment, effective land useandfurther stimulating
private initiatives". Further measures announced inmid-December included a¥10trillion package in
support ofthebanking sector andanewincome taxreduction amounting to¥2trillion forFY1997.
Some ofthemeasures proposed aredirectly "pump-priming" innature; theGovernment has
estimated that thedirect effect oftheNovember economic package isexpected tobesome
6trillion yenperyear (about 1percent ofGDP). Others, such asthetaxpolicy review, aregeared
tothelonger term.
Thefinancial andstructural crisis inother East Asian economies, expected toreduce growth
intheregion considerably, islikely toaffect Japan more severely than other major industrialized
countries, because thestructure ofJapan 'strade andinvestment hasbecome increasingly concentrated
inEast Asia. Asubstantial volume ofmanufacturing output byJapanese-owned firms, destined both
forexport anddomestic markets, hasbeen delocalized toother parts ofEast Asia, insearch oflower
costs anddynamic markets; East Asia'sshare ofJapan 'sexports andimports hasthus continued to
grow, reaching 43and36percent respectively in1996 (compared to30and28percent in1990).
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Institutional andLegal Framework
WTO Participation
Japan isanoriginal signatory toalltheWTO Multilateral Trade Agreements andtothe
Agreement onGovernment Procurement. Japan applies MFN treatment toallbutsixcountries and
customs territories: Albania, Equatorial Guinea, Lebanon, Nepal, theDemocratic People 'sRepublic
ofKorea andViet Nam.
Consistency ofdomestic andexternal policies issought both attheCabinet level andthrough
anumber oforganizations under thePrime Minister orCabinet. Japan isparty totheNegotiations on
Basic Telecommunications, theDeclaration onTrade inInformation Technology Products (the
"Information Technology Agreement") andtherecently completed Financial Services negotiations.
Japan also participates intheWTO Working Groups onTrade andInvestment andTrade and
Competition Policy.
Japan hasbeen actively involved intheWTO dispute settlement provisions, both as
complainant andrespondent. Todate, Japan hasrequested consultations onfour andreceived
complaints oneight cases, andhasbeen involved asathird party insixcases. Therulings ofaPanel
onalcoholic beverage taxation have been confirmed bytheAppellate Body, andtheauthorities have
indicated their intention toimplement itsrecommendation. Consultations between theparties are
continuing onother cases.
Bilateral andRegional Agreements
Japan hasanumber ofbilateral agreements, arrangements orunderstandings, mainly with the
United States, onincreasing market access orreducing trade barriers; these cover, inter alia,
automobiles andautomobile parts, semiconductors, financial services andinsurance. Japan does not
belong toanycustoms unions orfree-trade areas; ontheother hand, itisaleading member ofthe
Asia Pacific Economic Cooperation (APEC) andtheAsia-Europe Meeting (ASEM).
Trade Policy Features andTrends
Recent Evolution
Recent economic policy hasaimed atfurther strengthening market mechanisms through
structural reform andderegulation, andthereorientation oftheeconomy towards greater reliance on
domestic, rather than export demand. The Deregulation Action Program, first announced in
March 1995 andrevised annually since, hassought toclarify andreduce thescope ofgovernment
regulations, especially infinancial services, telecommunications anddomestic transport. Agriculture,
construction andinternational transport have, however, largely been exempted from these moves to
deregulation. Concerns have, inthislight, been expressed regarding theprocess ofstructural reform.
Japan added 14former Soviet Union states tothecoverage ofitsGSP scheme in1995-1996.
Japan hasnever "graduated" anydeveloping country from thecoverage ofitsGSP scheme; however,
theTrust Territory ofthePacific Islands wasremoved from thescheme in1997 when thetrust ended.
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Type andIncidence ofTrade Policy Instruments
Tariffs
There have been nomajor changes inJapan 'stariff structure since itslastReview. Thesimple
average ratewas9.4percent in1997; some 60percent oftariff lines arerated at5percent or
below. Tariff peaks occur inagriculture, food manufacturing, textiles andfootwear, rising tosome
920percent (theadvalorem equivalent ofaspecific rate) onsome vegetable products (konnyaku
tubers). Substantial tariff escalation occurs inanumber ofsectors, mainly between semi-processed
andfully-processed items, particularly infood manufacturing andpetroleum refining.
The simple average tariff onindustrial products (defined asHarmonized System
(HS) Chapters 25to97)was4.9percent in1997. Various tariff cuts, including theelimination of
applied tariffs, were made either autonomously orunder existing agreements, including oncertain
chemical products, textiles andnonferrous metals; inFY1996, WTO-related reductions inbound
tariffs were implemented ahead ofschedule for697mining andmanufacturing items under Japan 's
APEC commitments. Thetariff quota system onfattening cattle forbeef, oats, hi-test molasses, rum
andtafia wasabolished. Under theDeclaration onTrade inInformation Technology Products, Japan
haspledged toreduce bound tariffs tozero for57percentoflines included: virtually allsuch lines
already benefit from duty freetreatment defacto.
Import Procedures
Port andcustoms procedures forimports have been accelerated, leading toareduction in
clearance times, which nevertheless remain lengthy bydeveloped-country standards. Theauthorities
state thatthey areworking towards further acceleration ofsuch procedures through anextension of
computerization. Four new Foreign Access Zones (FAZ), centralized locations forimport-related
operations andfacilities tostreamline thedistribution ofimported cargo, hasbeen approved.
Import Limitations
Atotal ofabout 120tariff lines attheHSnine-digit level, including fishery products, certain
wood products andpetroleum, remain unbound andimport quotas apply tosome items. State trading
remains inrice, wheat andbarley, milk products, rawsilk, salt, leaftobacco, industrial alcohol and
opium. Theimport cartel covering imports ofsilkfrom China wasabolished andreplaced byan
import quota system in1996; annual consultations areheld with China regarding imports ofsilkyarn
andfabrics. Surveillance isalsoinforce onsome other products, including VERs byChina ongarlic
andginger. Japan hasnotified totheTextiles Monitoring Body aphase-out programme foritsprior
confirmation andcustoms confirmation system onsilkproduct imports from theRepublic ofKorea.
Technical Barriers
Japan seeks increasingly tocoordinate domestic technical and sanitary regulations and
standards with international norms. Thenumber ofJapanese industrial standards (JIS) corresponding
tosuch norms hasgrown since 1995, with atarget of1,000 standards tobealigned inthree years,
andthescope ofpermission forforeign testing, certification, andfactory approval hasalsoincreased
somewhat. Mandatory technical regulations (insome cases implementing otherwise voluntary
standards) areinforce notably onfood, pharmaceuticals, fertilizers, electrical goods, andproducts
covered under safety regulations forroad vehicles, though little information onthetotal number of
such regulations isavailable.
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Government Procurement
In1996, Japan introduced operational guidelines toapply the1994 Action Plan forgreater
fairness andtransparency ingovernment procurement. Inthatyear, theshare ofoverseas products in
procurement valued above SDR 100,000 wassome 18percent. Since 1995, theshare ofselective and
single tendering hasfallen infavour ofopen tendering.
Contingency Measures
Anti-dumping investigations were initiated anddefinitive duties were imposed oncotton yarn
from Pakistan in1995. Following reviews in1996 and1997, these duties were reduced oreliminated.
Japan hasnever used countervailing actions orGATT safeguard measures.
Import andInvestment Promotion Measures
Japan 'simport and investment promotion programmes include substantial government
incentives, yetitisnotevident thatthese programmes fully address theobstacles encountered; todate,
most measures have focused onassisting with existing procedures, rather than attempting major
structural improvements. Import promotion measures, including taxincentives andfinancial measures,
have been extended atleast until March 1998. Promotional measures forinward direct investment,
mainly comprising taxincentives, financial support andtechnical assistance, were alsoexpanded.
Export Restrictions
Under WTO provisions, Japan isreducing thenumber andscope ofrestrictions onexports.
Theonly remaining "voluntary" export restraint isthemonitoring arrangement oncarexports tothe
European Union, which istobeeliminated in1999. Nine of11export cartels have been abolished
since 1995. Remaining export cartels, related either toprotection ofquality orintellectual property,
ortoimport monopolies inpartner countries aretobeabolished byend-1999.
Measures Relating totheDomestic Market
Changes have taken place inJapan 'scompetition lawunder theAnti-Monopoly Act(AMA).
AMA exemptions allowing retail price maintenance ondesignated cosmetics andover-the-counter
medicines were revoked in1997. Thenumber ofpermitted ("exempted") cartels hasdeclined steadily.
Easing ofobstacles tomergers andacquisitions areregarded asofficial priorities. Concern remains
about theeffects onforeign access toJapan ofhorizontally andvertically integrated groups (kigyo-
shudan andkeiretsu).
Intellectual Property
Japan isafounding member oftheWorld Intellectual Property Organization (WIPO), anda
signatory tomost major treaties regarding intellectual property rights. Recent legislative amendments
include areduction inthetime required bythepatent office totreat patents cases andtheintroduction
ofapost-grant opposition system; thus, theaverage approval time forpatent andutility model
applications was reduced tounder 24months byend-1995. Tocombat violations ofindustrial
property rights attheborder, theCopyright Law wasamended andfines forinfringement were tripled
in1996.
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Sectoral Policies
Agriculture
Japan 'sagricultural productivity remains low, reflecting therapid aging oftheagricultural
population andtheextremely small average sizeoffarms. Theagricultural self-sufficiency ratio fell
to42percent inFY1995, andagriculture accounted forsome 20percent ofJapan 'smerchandise
imports in1996. High tariff peaks andtariff escalation, together with substantial end-use tariff
concessions fordomestic processing, areprevalent andtheoverall level ofsupport toagriculture
remains well above theOECD average. Thehigh costofagricultural inputs hasbeen animportant
factor inencouraging Japan 'sfood processing industries torelocate offshore.
Japan 'simplementation oftariffication requirements under theWTO resulted inasignificant
increase inthenumber ofspecific rates. Tariffication ofquantitative restrictions often implies, asin
other WTO members, prohibitive duty levels. Tariff quotas have frequently been underutilized and
there isnosystem forreallocation ofunused quotas. Japan hastriggered Special Safeguards under
theWTO Agreement foranumber ofproducts subject totariffication. Rice imports arenotcurrently
subject totariffication; thequestion ofcontinuation ofspecial treatment agreed intheUruguay Round
istobenegotiated intheyear 2000.
Though some progress indistribution hasbeen made, such astheabolition in1995 ofthe
requirement thatallriceproducers should selltheir output totheGovernment, agriculture hastodate
largely been excluded from Japan 'sderegulation efforts. Over-production ofriceremains achronic
problem andset-aside provisions forrice land have continued tobetheGovernment 'sprimary
response totheissue.
Energy andUtilities
More than 90percentofJapan 'sprimary fuels areimported; thus, stable supply hasbeen the
major objective ofJapan 'senergy policy andregulations have tended todiscourage efficiency. Asa
result, theprice ofenergy hasgenerally been higher than inother developed countries. However,
there aresigns ofachange inpolicy direction; recent steps toderegulation have incorporated certain
competition-enhancing measures, including theliberalization ofpetroleum product imports in
March 1996 andtheintroduction ofcompetition inwholesale sales ofelectric power totheutility
companies. Some relaxation inregional monopoly arrangements forcitygascompanies hasalsobeen
introduced.
Manufacturing
Manufacturing generates about 24percentofJapan 'sGDP, ahigh share compared tothatof
other developed economies. In1996, exports ofmanufactures were some 7percent lower than in
1995. Japan 'soutward foreign direct investment inmanufacturing hasalso continued toincrease.
Tariffs onmost manufactures aregenerally lowbycomparison toboth historical andinternational
levels; however, exceptions include textiles andclothing andleather andleather products.
Primarily asaresult ofthe1995 Japan-U.S. Autos andAuto Parts Consultations, Japan
undertook, inter alia, toincrease access andsales opportunities, onanMFN basis, forcompetitive
foreign autos andauto parts. Acertain number of"critical parts" have been deregulated inthis
connection. Asnoted above, voluntary export restrictions remain onJapan 'scarexports tothe
European Union.
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Anew consultative framework onsemiconductors between theUnited States hasbeen
established, both atgovernment-to-government level andintheprivate sector. After theexpiry ofthe
1991 Japan-U.S. Semiconductor Arrangement, thetwoGovernments agreed toestablish theGlobal
Government Forum atthegovernment level andtheWorld Semiconductor Council attheprivate-sector
level; Governments andproducers from theEuropean Union andtheRepublic ofKorea arealso
involved inthese arrangements.
Recent changes inJapan 'spolicy towards pharmaceuticals and cosmetics include the
reclassification ofcertain vitamins, herbs andminerals asfood products (easing access tothese
products), some organizational changes inthereview system fornewdrug application, andrelaxation
ofregulations onparallel imports ofcosmetics. Japan participates intheInternational Conference on
Harmonization ofTechnical Requirements forRegistration ofPharmaceuticals forHuman Use(ICH)
toharmonize quality, safety andefficacy requirements ofpharmaceuticals.
The iron andsteel industry hasbeen designated asoneofthesectors thatmay apply for
government assistance, such aslowinterest loans, loan guarantees andtaxbreaks, intheframework
oftheLaw onTemporary Measures toFacilitate Business Innovation. TheGovernment guarantees
national treatment intheapplication ofthelaw.
Services
Private services generated some 64percent ofJapan 'sGDP and some 68percent of
employment in1996. Ithasoften been pointed outthatJapan 'sservices sector haslower productivity
thanmanufacturing; with services accounting forabout two-thirds ofGDP, itisclear thatproductivity
growth inservices isadetermining factor inJapan 'sliving standards. This isparticularly thecasefor
"input" services such asfinancial services, telecommunications andtransport, where productivity gains
cansignificantly cutcosts inother sectors.
Concerns have been raised ontheclose links between complex regulations and low
productivity inservice sectors. Legislation incertain areas ofthefinancial, telecommunications, air
andmaritime transport services sectors allows ahigh degree ofdiscretion totheauthorities. Recent
initiatives show asign ofchange inthedirection ofpolicy; along with general deregulation, Japan
isgradually reducing itstraditional reliance ongovernment intervention andcontrol, forexample in
moving toward eliminating the"demand-supply adjustment" provisions thatlimit competition inmany
areas.
Recent developments infinancial services andtelecommunications, iffully carried through,
may enhance theprospects forproductivity growth inthese sectors. New amendments totheForeign
Exchange andForeign Trade Control Law, announced in1996 aspartofstructural reform measures
(the Japanese version ofthe"Big Bang") onfinancial services, further liberalization initiatives in
telecommunications, andother deregulation measures listed intheDeregulation Action Program will
open these services togreater competition. Bilateral agreements with theUnited States oninsurance
banking, andother financial services aretobeapplied onanMFN basis toallWTO members; allthe
major elements ofthese agreements, together with other concessions relating toinsurance andforeign
exchange trading, will bebound byJapan intheWTO financial services negotiations. However,
unilateral reform measures taken byJapan intheairandmaritime transport sectors have been mainly
confined todomestic services; protective policies alsoremain insome professional services.
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Trade Policies andForeign Trading Partners
Since thelastTrade Policy Review, Japan hasbeen active inimplementation oftheUruguay
Round Results. Trade liberalization initiatives taken intheAsia Pacific Economic Cooperation forum
(APEC), arealsotobeimplemented onanMFN basis. However, theincreased concentration oftrade
andinvestment intheAsian region hasmade Japan more directly vulnerable tothefinancial and
economic crisis intheregion than areother major industrialized economies.
Some steps have been taken towards greater deregulation andstructural reform inJapan 's
economy; however, these arestill partial inscope and several sectors, including agriculture,
construction andcertain services, especially financial, remain subject torestrictive regulations that
affect both foreign market access andbetter allocation ofdomestic resources. Firm continuation of
thederegulation process would therefore beanessential element instimulating thedomestic market,
astheauthorities seek, andencouraging improved market access.
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TRADE POLICY REVIEW BODY
JAPAN
Report bytheGovernment
Japan intheMultilateral System
Progress ofGlobalization andJapan 'sPolicy Efforts
TheGovernment ofJapan has,intensified itspolicy efforts geared toward the21stcentury by
adopting measures forenhancing further harmonization between theJapanese andtheinternational
economy, andresponding actively totheglobalization trend.
TheGovernment ofJapan hasimplemented extensive reforms inthedomestic market inorder
torealize aneconomic structure poised totake fulladvantage ofmarket forces. Tothisend, the
Government hasendeavoured toimplement areform policy through deregulation andimproved
market-access measures, which increase theefficiency andresilience oftheJapanese economy, and
enhances Japan 'sinternational attractiveness asanarena foreconomic activities. Inthearea of
deregulation, forexample, Japan formulated in1995 aDeregulation Action Program comprising 1,091
items in11areas, andhascontinued toimprove andrevise thisplan in1996 byadding 569newitems.
Likewise, efforts have been made toincrease even more thelevel offreedom, fairness and
globalization intheJapanese financial system, and, thus, make theJapanese market comparable to
those ofNew York andLondon. This reform, forexample, would promote access toanduseofthe
Yen across national borders, byallowing smoother fund raising inJapan aswell asfreer useofthe
Yen abroad.
Consolidation oftheMultilateral System
Formore than forty years since itsaccession in1955, theGovernment ofJapan hasbeen
committed tomaintaining andstrengthening afreeandnon-discriminatory multilateral trading system
under theframework ofGATT/WTO.
Japan hasparticipated actively inthemultilateral trade negotiations, including theKennedy
Round, theTokyo Round, andtheUruguay Round, andJapan hasbenefited toagreat extent from
liberalization ofworld trade within therule-based system. Japan onitsparthascontributed tothe
sustained growth oftheworld economy through itsprogressive liberalization andelimination oftariff
andnon-tariff barriers totrade.
Japan hasbeen actively engaged inpromoting further trade andinvestment liberalization in
theWTO asoneofitsmajor members, forexample, bytaking theleadinforming aconsensus atthe
SMC ontheso-called newissues such astrade andcompetition policy, trade andinvestment, andon
theITA.
Particularly with regard toinvestment, Japan actively seeks tocontribute toward asuccessful
accord onOECD 'sproposed Multilateral Agreement onInvestment (MAI), aswell asworking to
examine therelationship between trade andinvestment through discussions with developing countries
attheWTO.
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Japan also believes that itisimportant toencourage thedeveloping andleast-developed
countries aswell astheeconomies intransition toachieve early accession totheWTO, since such a
step willfacilitate theintegration ofthose economies into themultilateral trading system, thereby
ensuring universality oftheWTO system. Japan isdetermined tocontinue toplay aleading rolein
supporting theaccession process ofapplying countries andeconomies.
Furthermore, Japan attaches great importance tothemultilateral trading system, theprimacy
ofwhich hasbeen reaffirmed intheSingapore Ministerial Declaration. Itis,therefore, indispensable
toshape regional trade agreements inamanner thatthey arecomplementary toit,andconsistent with
itsrules.
The mission ofWTO hasbeen inthepast andwill beinthefuture toachieve through
negotiations thecontinuing liberalization oftrade within arule-based system. TheGovernment of
Japan, fully recognizing itsresponsibilities, isprepared toaddress thevarious challenges, which itmay
encounter intheendeavour toward further liberalization.
TheTrade andEconomic Policy Environment
Japan 'sEconomic Environment
Four years have passed since thetrough ofeconomic depression inOctober 1993, andthe
upswing ineconomy isoneofthelongest inthepostwar period. Thetempo oftherecovery is,
however, slow. TheJapanese economy recorded especially uptothemiddle of1995 very small
growth rates (nearly zero), andsmall butfrequent adjustments ininventories andproduction. Various
economic measures were thus employed tobolster economic growth, including significant public
investment spending, andtaxreductions.
However, astrengthened cyclical upswing wasseen inFY1996. Adjustments ofinventories,
production andemployment were accelerated. Since mid-95, theexchange ratetrend hasshifted tothe
correction oftheyenovervaluation which have contributed topositive external demand contribution,
contributing thus toeconomic growth, andthelevel ofjobuncertainty hasbeen reduced duetothe
improved employment situation. Inspite oftheincrease inconsumption taxasofApril 1997, the
basic trend ofeconomic recovery with thedemand inprivate sectors astheprimary favourable factor
continues, even though thepace ofrecovery atthemoment hasbecome gradual, andcircumspect
attitudes ofenterprises areobserved inrespect totheir judgement onbusiness conditions.
Financial conditions have been those ofeasy money already since September 1995, when the
official discount ratewasreduced toa0.5percent level. Long-term interest rates have been below
3percent point since themiddle of1996, while short-term lending rates have remained about the
same. Money supply atM2+CD level hasincreased atanannual rateofabout 3percent. Theeasy
monetary policy hascontributed totheeconomic upswing bystimulating housing construction and
investment intoplant andmachinery.
Stock prices seem tofollow separate trends. Those ofhighly profitable industries have been
steady. Those ofthefinancial andconstruction sectors, ontheother hand, have decreased.
With respect toexchange ratemovements, thetrend intheYen'sdepreciation hascontinued.
Itisoften argued thatthisexchange ratemovement iscaused byincreasing investment intodollar
dominated securities duetothewidening interest ratedifferential between theUnited States andJapan,
anddecreasing ofthecurrent account surplus.
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Trend inForeign Trade
Trade statistics indicate thatJapan 'strade surplus expanded fortwostraight years from 1991
onwards, due,inter alia,toastagnant domestic economy. Atrade surplus value of¥13.48 trillion was
recorded in1992, thesecond highest intheperiod after 1986. There hasbeen, however, anoverall
andincreasingly steady trend toward acontracting trade surplus down to¥6.74 trillion in1996, even
though ¥3.98 trillion showing ayear-to-year increase of28.3 percent wasrecorded inthefirsthalfof
1997.
Although thetotal value ofexports decreased by6.5percent in1993, itincreased forthree
straight years from 1994 onwards.
- Thetotal value ofexports (1996) ¥44.73 trillion (anincrease of7.7percentasagainst
1995)
- Ayear-to-year increase (thefirsthalfof1997) upby15.1 percent(asagainst thefirst
halfof1996)
- Increase ofthetotal value ofexports in1996 onaregional basis (asagainst 1995)
TheMiddle East upby24.9 percent
China upby15.5 percent
TheAssociation ofSoutheast Asian Nations (ASEAN) upby9.3percent
TheUnited States upby7.4percent
TheEuropean Union (EU) upby3.7percent
- The total value ofimports likewise increased forthree straight years from 1994
onwards.
- The total value ofimports (1996) ¥37.99 trillion (anincrease of20.4 percent as
against 1995)
- Ayear-to-year increase (thefirsthalfof1997) upby12.9 percent
- Increase ofthetotal value imports in1996 onaregional basis (asagainst 1995)
China upby30.1 percent
TheMiddle East upby28.8 percent
ASEAN upby25.7 percent
TheUnited States upby22.0 percent
Theshare ofmanufactured goods intotal imports hasalsobeen increasing steadily, reaching
in1996 arecord level of59.4 percent (a28.5 percent point increase asagainst 1985).
Japan 'sInvestment Trend
Japan 'soutward foreign direct investment (FDI) onanMOF reported base amounted to
¥5,409.4 billion inFY1996, which represents anincrease of9.1percent asagainst FY1995. Such
increasing trend hascontinued forthethird consecutive year. InFY1995 a15.8% increase was
recorded asagainst FY1994.
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Themajor characteristics ofoutward FDIinFY1996 were :
(i) Asharp increase ofFDIinthetransport sector, which wascaused byactive overseas
business operations byautomobile companies, raised investment levels inthe
manufacturing industry toitshistorically highest level.
(ii) Thegrowth rateoftheflow ofFDIintoAsia, however, slowed down with arecorded
annual growth rateof9.7percent (¥1308.3 billion), asthegrowth ratewas18.2
percent inFY1995. This slow down waslargely duetoasharp decline ininvestment
inChina, which hadexperienced arapid increase until theprevious FY. Over 70
percent ofsuch investment into China wasmade into themanufacturing industry.
Overall investment intotheAsian manufacturing industry recorded therefore a4.5
percent decline asagainst thepreceding FY,andfellbelow investment levels into
North America. Overall investment levels into North America increased by15.8
percent (¥2593.3 billion) asagainst thepreceding FY. Investment into the
manufacturing industry continued itsgrowth pattern byanannual increase of36.4
percent.
FDIflows intoJapan reached ¥770.7 billion, equivalent toa108.5 percent increase asagainst
FY1995, which was caused bydoubling ofinvestment amounts into both manufacturing and
non-manufacturing industries. Thus, theprevious FY'sdecrease reversed intoanincrease inFY1996.
Hence, thegapbetween outward andinward FDIflows wasreduced considerably, thatisfrom a1:13
ratio inFY1995 toa1:7ratio inFY1996.
Major characteristics ofinward FDIflows inFY1996 were :
(i) Inthemanufacturing industry, alarge increase ininward FDI wasrecorded forthe
machinery andmetal sub-sectors. Inthenon-manufacturing industry, investment into
theservice sector increased with investment originating from Singapore, and
investment into thecommerce, trade andreal estate sectors likewise recorded a
significant increase.
(ii) Investment flows originating from North America, which hasaccounted forthelargest
share, increased even more (36.9 percent (¥244.5 billion) asagainst thepreceding
FY). Theshare ofinvestment flows originating from Asia increased from 6.7percent
(¥24.7 billion) inFY1995 to17.8%( ¥137.2 billion). Asregards Europe, inward
investment flows originating from major countries, such astheNetherlands, Germany,
andtheUKincreased. However, their combined share decreased from 34.5 percent
(¥127.4 billion) inFY1995 to28.6 percent (¥220.2 billion). Europe 'sdecreased share
wasduetothesignificant growth intheshare ofinward FDI originating from Asia
andLatin American countries. Alarge increase ininvestment amounts from foreign
affiliates inJapan hasbeen recorded (¥23.3 billion inFY1985 to¥100.0 billion inFY
1996).
Trade Policy Development 1995-1997
TheUruguay Round andWTO Implementation
The Government ofJapan hasfaithfully implemented theresults oftheUruguay Round
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negotiations. The following aresome oftheexamples which demonstrate policy efforts ofthe
Government inthisregard.
Average tariff rates were, asaresult oftheUruguay Round negotiations, reduced to1.5
percent forindustrial products, 1.0percent forforestry products, 4.1percent forfisheries 'products,
and9.3percent foragricultural products. Theaverage tariff ratefornon-agricultural products was
thus reduced toanoverall 1.7percent level, oneofthelowest intheworld.
Japan contributed tothesuccessful conclusion oftheInformation Technology Agreement
(ITA) attheWTO Singapore Ministerial Conference in1996. Japan hasalready implemented inJuly
1997 thefirsttariff reductions, andJapan willeliminate customs tariffs onsuch information technology
products bytheyear 2000. Regarding theTariff Elimination Initiative onpharmaceuticals, Japan
expanded thenumber oftariff lines tocover about 400products, inJuly 1997 based onthereview
results.
Therules covering special duties (anti-dumping duty, andsoon)were revised inconformity
with theUruguay Round agreements.
Japan hastaken thefollowing measures regarding market access intheagricultural field :
a) Since April 1,1995, Japan hasimplemented tariff reductions inlinewith itsschedule
b) Inaccordance with access commitments asspecified initsschedule, Japan has
introduced tariff quota andestablished current access opportunities, which aresubject
totariffication, and
c) Japan hasestablished minimum access opportunities forrice inaccordance with
Annex 5oftheAgreement onAgriculture.
Thefollowing amended domestic laws were passed inorder toimplement theabove measures:
therevised Customs Tariff Law; theTemporary Tariff Measures Law; theManufacturing Milk
Producer Compensation Temporary Law, andtheCocoon andRaw SilkPrice Stabilization Law. In
addition, theLaw forStabilization ofSupply-Demand andPrice ofStaple Food was introduced.
Japan 'stotal AMS inthefield ofdomestic support inFY1995 wasbelow thelevel committed inits
schedule forFY1995, mainly duetoreductions ofadministered prices andsoon.
Since January 1,1995, tariff reductions have been implemented inaccordance with the
schedule intheareas offorestry andfishery products.
Inthearea oftrade inservices, thegovernment ofJapan hasplayed animportant roleboth
intheUruguay Round negotiation andongoing negotiations thereafter. Thegovernment ofJapan
submitted ahigh-level offer attheconclusion ofUruguay Round negotiations without anyMFN
exemptions, covering about 100outof155sectors initsschedule ofspecific commitments. Itincludes
important service sectors such as,among others, business services, telecommunication services,
construction andrelated engineering services, distribution services, financial services and transport
services.
Regarding theongoing negotiations after theconclusion oftheUruguay Round, especially the
negotiation onbasic telecommunication services, financial services andmaritime transport services,
thegovernment ofJapan hascontributed significantly tothenegotiations bytabling advanced offers.
Regarding thenegotiation onbasic telecommunication services, thegovernment ofJapan made a
commitment eliminating thelimitation onforeign investment onabroad range andplayed animportant
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roleforthesuccessful conclusion ofthenegotiation. Thegovernment ofJapan isalsomaking serious
efforts forthesuccessful conclusion ofthenegotiation onfinancial services bysubmitting ahigh-level
offer reflecting theamendments totheForeign Exchange andForeign Trade Control Law.
Inthefield ofintellectual property rights, since theconclusion oftheUruguay Round
negotiations, Japan hasamended thelaws andregulations concerned. Patent Law andCopyright Law
have been amended inaccordance with theTRIPS Agreement. This amendment includes extension
ofpatent term orexpansion ofneighbouring rights protection toperformances etc.relating toWTO
member countries.
Since theestablishment oftheWTO, Japan hasformally raised under theWTO dispute
settlement procedures thefollowing four matters with aview toseeking mutually satisfactory
agreements; theunilateral actions bytheUnited States under Section 301and304oftheTrade Act
of1974 (related totheJapan-US automobile andauto parts issue), thecertain automotive investment
measures byBrazil, thecertain measures affecting theautomobile industry byIndonesia, andthe
measures affecting procurement bytheregional government oftheUnited States. Japan hasalso
participated, asathird party, inthedisputes between other Members regarding theEC'strade
description onscallops, theEC'sbanana regime, theexport subsidies inrespect ofagricultural products
byHungary, theUSimport prohibition ofshrimp, theEC'scustom classification ofcertain computer
equipment, theUSmeasures affecting textiles andapparel products, theUSimposition ofADduties
onTVimport from Korea, andtheQuantitative restrictions onimport products byIndia.
Relations with Other Countries andRegional Initiative
Japan asamajor trading country maintains close relations with itsmajor trading partners
through bilateral consultations, aswell asthrough meetings held within theframework ofregional
initiatives such asAPEC, andASEM.
Japan hasbeen inamutually beneficial relationship with other Asian neighbours ineconomic
field. Japan believes thatinorder toensure sustainable growth fordeveloping countries andfurther
liberalization inAsia, itisessential tostrengthen financial andcapital markets, aswellastostrengthen
thebaseforfurther economic growth bymodernizing industrial structure anddeveloping infrastructure.
Fortherecent currency crisis inThailand, Japan promised agreat amount ofexpenditure totherelief
package which wasarranged bysome Asian countries andmultilateral development banks, with the
IMF playing acentral role incoordinating thepackage. This isone oftheexamples which
demonstrate Japan 'sreadiness tocooperate with theAsian neighbours, through various means, to
achieve sustainable development intheregion.
APEC
Japan believes thatthepromotion ofcooperative economic relations with theeconomies inthe
Asia Pacific Region through aforum, such astheAsia Pacific Economic Cooperation (APEC), will
foster ofanopen regional economic community inthearea. Japan believes thatthiswould stimulate
world trade, andthereby contribute tothedevelopment oftheglobal economy. Theadoption in1996
oftheManila Action Plan forAPEC, which marked anew"Action Phase" inAPEC 'sactivities, was
animportant development. Japan 'sIndividual Action Plan (IAP) presents acomprehensive package
ofactions tobetaken based upon theOsaka Action Agenda of1995, which was formulated to
implement theBogor Declaration of1994. Japan attaches great importance totheIAPprocess, and
hasconducted active consultations with other member economies, theresults ofwhich arereflected
intheIAPtothemaximum extent possible. Japan willmake continuous efforts toimprove itsIAP
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with aview toestablishing adynamic andon-going IAPprocess, taking intoaccount theinterests of
theprivate/business sector, which isthemain beneficiary oftrade andinvestment liberalization, aswell
asother member economies.
ASEM
Several measures have been taken inthefield oftrade policy within theframework ofthe
Asia-Europe Meeting (ASEM), since theinaugural meeting washeld inMarch 1996. TheSenior
Official 'sMeeting onTrade andInvestment (SOMTI), andtheMeeting oftheDirectors-General and
Commissioners ofCustoms were both held twice. TheFinance Ministers 'Meeting andtheEconomic
Ministers 'Meeting were held inSeptember 1997.
Member countries endorsed theInvestment Promotion Action Plan (IPAP) andtheframework
fortheTrade Facilitation Action Plan (TFAP) attheEconomic Minister 'sMeeting, bearing inmind
that these plans canbeadopted atthesecond ASEM. The Business Forum andtheBusiness
Conference were held from thepoint ofview ofpromoting interaction between business sectors.
Japan -USTrade Relations
Trade relations between Japan andtheUnited States have improved over thepastthree years
asaresult ofthesignificant decrease intheUnited States 'trade deficit with Japan, which waspartly
aresult ofthegrowth ofUSexports toJapan, andpartly duetothesettlement ofindividual trade
disputes intheareas ofautomotive andauto parts, semiconductor products andinsurance services.
Concern hasbeen voiced bytheUnited States about therecent increase inJapan 'strade surplus with
theUnited States, which hasbeen recorded since lastOctober, duetothesteadily growing US
economy andthedepreciation oftheYen. Itistheview oftheGovernment ofJapan thatbecause of
thecontinuing structural changes intheJapanese economy, such astheincrease inimports of
manufactured products andintheproportion ofoverseas production byJapanese manufacturers, aside
from short-term fluctuations, Japan 'strade balance isunlikely toincrease significantly over the
medium term.
Inview oftheimportance ofthetrade balance onaglobal basis, theGovernment ofJapan is
committed topromoting further structural reform including deregulation, with aview toachieving
economic growth ledbydomestic demand.
Sector-specific consultations have been held regarding various issues such asautomobile and
auto-parts, semiconductors andinsurance. Theresults ofthese consultations have been applied onan
MFN basis.
Economic Relations with Europe
Japan andtheEUconduct regular meetings atvarious levels, andexchange views onthe
respective economic situations andonbilateral trade andinvestment issues. Sector-wise consultations
have taken place todealwith specific issues, when necessary. Allresults ofthese consultations have
been applied onanMFN basis. Such acooperative approach based onanintensive dialogue has
contributed toprovide some positive trends, such astheimprovement inrecent years intheJapan-EU
trade imbalance andtheresolution ofvarious bilateral trade disputes inanon-controversial manner.
Japan andtheEUhave also thevaluable practice ofobjective analysis through thejoint study of
statistics orother objective data within theframework oftheEU-Japan Experts Meeting onTrade
Statistics andtheEU-Japan Experts Dialogue onDistribution.
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TheEUhasconcluded Europe Agreements with those Central andEastern European countries,
which desire accession totheEUinthefuture, andithasalsoextended associate status tosome of
itsMediterranean partners byconcluding "Euro-Mediterranean Agreements". Japan hasexpressed to
theEUitsinterest andconcern inthismatter, since some ofthemeasures taken bytheCentral and
Eastern European countries, which provide preferential treatment totheEU,could have annegative
impact ontheinterest ofthird countries.
Japan hasalsoexpressed totheEUitshope thatthewhole process ofadjustment tothethird
stage ofEconomic andMonetary Union (EMU) bepursued inastable manner, taking intoaccount
theessential impact, which theintroduction ofthesingle currency "Euro" willhave ontheworld
economy.
Regional Integration
Regional trade agreements (RTAs), which have increased inrecent years interms ofboth
numbers andscope, have apotential tocontribute tothedevelopment oftheoverall global economy.
However, inreality there stillremain doubts about their consistency with WTO agreements. Japan
isseriously concerned thatsome RTAs have raised thebarriers totrade with non-member countries,
thattheyhave effectively weakened thefree, non-discriminatory, andopen multilateral system formed
under theWTO.
Japan believes that, under such conditions, theWTO should examine strictly theRTAs about
their consistency with theWTO agreements. Japan has,therefore, assumed theinitiative andpresented
proposals totheWTO inorder toimprove theorganization 'scapacity toreview regional trade
agreements, andisactively contributing tothework oftheCommittee onRegional Trade Agreements.
Japan hasnotbelonged toanypreferential regional agreements, andoffers nopreferential
tariffs toanycountry orregion, except those extended todeveloping countries under theGeneralized
System ofPreferences (GSP).
Domestic Policy Developments Affecting Trade Policy
Reforms oftheEconomic Structure
TheGovernment formulated inDecember 1995 theSocial andEconomic Plan forStructural
Reforms. Based upon thisplan, ithaspromoted various measures, bearing twoobjectives inmind,
rectification oftheeconomy 'shigh coststructure, anddevelopment oflines-of-industry forwhich high
future growth isprojected. TheEconomic Council, which isanadvisory body tothePrime Minister,
presented inDecember 1996 toaCabinet meeting aprogress report ontheimplementation ofthe
reforms identified inthePlan.
TheEconomic Council alsostarted inJuly 1996 deliberations onhow topromote structural
reforms, including deregulation measures, insixareas, namely advanced telecommunications, physical
distribution, thefinancial system, land andhousing, employment andlabour andmedical care and
welfare. These sixareas were selected, because structural reforms inthese areas areconsidered urgent,
andareexpected togenerate significant economic effects. TheCouncil recommended inDecember
1996 tothePrime Minister farreaching reforms inthese areas, which arecompiled inareport titled
"Structural Reform inSixAreas".
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Prime Minister Hashimoto announced hisdecision inNovember 1996 totakebold steps and
anintegrated approach intheimplementation ofsixmajor reforms, oneofwhich isalsothereform
ofeconomic structure. This decision wasmade with aview toaddressing problems thathave emerged
asaresult ofundergoing changes inJapanese industry andtheslow-down ofeconomic growth due
totheprogressive aging ofJapan 'spopulation. Inresponse tothePrime Minister 'sleadership, the
Government adopted asaCabinet Decision inDecember 1996 theProgram forEconomic Structure
Reform, andinMay 1997 theAction Plan fortheEconomic Structure Reform. TheAction Plan aims
atrevitalizing theJapanese economy, anditstipulates thattheGovernment willtake comprehensive
measures, which aregeared atthecreation ofanenvironment thatisfavourable tonew business
activities, andthatisattractive toJapanese aswell asforeign companies. This istobeachieved in
particular byreducing Japan 'shigh cost structure through theimplementation ofcomprehensive
deregulation measures insuch areas asenergy supply, andinformation andtelecommunications, and
restraint ofthepublic burden.
TheGovernment revised theDeregulation Action Program further inMarch 1997 inlinewith
these decisions. Inaddition, theGovernment decided inJuly onPolicy Actions toMarket Access
Issues, inorder totake thenecessary actions forimproving market access, which form partofthe
reform oftheeconomic structure.
Anestimate bytheEconomic Planning Agency shows theaforementioned economic structural
reforms willleadtotheanannual increase ofrealGDP growth rateby0.9%, andanestimate bythe
Ministry ofInternational Trade andIndustry shows thatGDP in2001 willhave increased by6.0%
through deregulation.
Fiscal Structural Reform
OnMarch 181997, theCabinet decided, asaninterim target under thefiveprinciples offiscal
structural reform recently presented byPrime Minister, toaimtoachieve thefiscal consolidation target
bringing down thenational andlocal fiscal-deficit-to-GDP ratio to3%orless; eliminating theissuance
ofspecial deficit-financing bonds byFY2003. The Cabinet also decided todesignate thethree
remaining fiscal years ofthiscentury asan"intensive reform period" topromote spending reforms and
cutbacks while allowing nosacred areas. OnJune 31997, theGovernment 'sandruling parties '
Conference onFiscal Structural Reform (chaired bythePrime Minister) issued thereport "the
Promotive Measures forFiscal Structural Reform", andbased onthereport, theconcrete measures and
policies forreform andreduction ofexpenditure have been decided bytheCabinet.
Inparticular, toensure thatgeneral expenditure, (discretionary expenditures) intheFY
1998 budget islower than thatintheFY1997 budget, thetargets forquantitative reductions inthe
principal areas ofexpenditure asconcluded bytheConference onFiscal Structural Reform willbe
reflected atthestage ofbudget requests forFY1998.
Inaddition, efforts will bemade tofurther curb spending depending ontheprogress in
reduction ofthefiscal deficit. Inaccordance with thisdecision, theutmost effort willbedevoted to
thebuilding ofasound fiscal structure, including theresolute execution ofnecessary structural
reforms. And abillforfiscal structural reform wassubmitted totheDiet inthecurrent extraordinary
session inthefallof1997.
Competition Policy
Theorganization andpowers oftheFair Trade Commission were strengthened through the
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Antimonopoly Act(AMA) Amendment, which went intoforce onJune 14,1996. Theamendment
isexpected toensure aneven more vigorous enforcement bytheFTC oftheAntimonopoly Act.
Another amendment totheAntimonopoly Actwaspromulgated onJune 18,1997.
Bythisamendment:
1) Theexisting banonholding companies willberepealed ataround theendof1997 to
theextent that holding companies donotconstitute excessive concentration of
economic power; and,
2) Theinternational contract notification requirement wasrepealed atthevery dayofthe
promulgation.
TheFTC promotes actively competition policy together with deregulation. Relating tothe
review ofAMA exemption systems, forexample, anomnibus billwasapproved bytheDiet andit
went intoforce inJuly1997 with respect totherepeal andreform ofAMA exemption systems under
individual laws (laws other than theAntimonopoly ActandtheExemption Act). With regard tothe
review ofGovernment Regulations, theFTC organized andexperts 'study groups, inorder topropose
thedirection ofthereview from thestandpoint ofcompetition policy ineach sector. Thestudy groups
have issued various reports, including ontelecommunications (1995), domestic airpassenger
transportation services (1997), electricity sector(1997) andgassector(1997).
TheFTC takes rigorous legal actions against violations oftheAntimonopoly Act. Thenumber
oflegal cases against such violations were 25cases in1995, and30cases in1996. Thebreakdown
ofthese cases isasfollows:
1995 1996
Private Monopolization 0 1
Bid-rigging 14 15
Cartels (excluding bid-rigging) 5 7
Unfair Trade Practices 4 2
Others 2 5
Total Cases 25 30
Thetotalsurcharge payment contained intheorders overthelasttwoyears hasbeenestimated atthe
totalof¥9.5billion (equivalent toabout US$79.0million).
TheFTChasbeenmaking major efforts toeliminate bid-rigging. Bid-rigging cases account
formore thanhalfofthelegalactions. Ofthese cases, theFTCfiledforcriminal accusations with
thePublic Prosecutor General inthefollowing twocases :(1)bid-rigging oftenders forelectrical
facilities 'contracts commissioned bytheJapan Sewage Works Agency (1995), and(2)bid-rigging
ofwater meters ordered bytheTokyo Metropolitan Government (1997). In1990, theFTCadopts
apolicy toactively bring accusations inorder toseekcriminal penalties against violations that
substantially restrain competition inaparticular fieldoftrade, suchaspricecartels, supply restricting
cartels, market allocation agreements, bid-rigging, andboycotts which:
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1) constitute serious violations thatarelikely tohaveawidespread influence onpeople 's
lives; or
2) involve firms orindustries thatareconfirmed offenders, orthatdonotabide bythe
measures toeliminate theviolation, andwhere theadministrative measures oftheFair
Trade Commission arenotconsidered tofulfill theaimsoftheAntimonopoly Act.
Inaddition, theFTCconsiders itparticularly important thatAntimonopoly Actviolations be
eliminated inthose economic sectors where government regulations arerelaxed, because such
violation could nullify thebenefits ofderegulation. TheFTC hasbeen employing, tothisend,
various measures authorized under theAMA.
Forexample:
1) Itwasfound thatthetrade association ofroadhaulage companies decided toincrease
thetransportation feescharged byitsmembers. Theassociation thenletitsmembers
notify theincreases tothegovernment authority incharge. InFebruary 1996, the
FTC issued arecommendation decision against such activities forviolating the
Antimonopoly Act(February 1996, theFTC);
2) TheFTCfound thatapublic testing organization forfoodforpatients inhospitals
andarelated company collaborated tomonopolize themarket. TheFTC issued a
recommendation decision against suchactivities inMay1996; and,
3) TheFTCalsoissued warnings against anti-competitive practices inthefields oftaxi
andairtransport.
Inthefieldofsurveys onbusiness activities andthecurrent economic situation, theFTC, in
1996, published theresults ofthesurvey onactivities ofJapanese trade associations perceived from
theperspective offoreign-owned enterprises. Theresults ofthesurvey indicate thattheopenness,
non-discrimination, andtransparency oftrade associations 'activities havebeenenhanced. However,
certain government agencies tendtousetrade associations toconvey information infacilitating
administrative objectives. Among theAntimonopoly Actviolations bytrade associations established
inindividual industries, those committed inconnection with governmental regulations or
administrative actions represent ahighproportion. Hence, inorder toprevent suchviolations by
tradeassociations, itisnecessary notonlyfortradeassociations themselves butalsoforadministrative
authorities totakeappropriate steps. TheFTCisgoing tomake efforts tomake theTrade Association
Guidelines andother guidelines better known among thegeneral public, andalsotomake the
administrative authorities concerned fullyunderstand theessence oftheAntimonopoly Act.
TheFTCalsopublished, in1997, thesurveys ontheactual conditions regarding transactions
ofphotographic filmandpaper among therelevant firms.
Inthefieldoftechnical cooperation, theFTChasheldannual training courses oncompetition
policy forparticipants fromdeveloping countries andeconomies intransition. TheFTChaslikewise
heldtraining courses oncompetition policy forparticipants from APEC member countries under
APEC 'stechnical andeconomic cooperation mechanism of"Partners forProgress".
Financial System Reform
Thefinancial system reform wasinitiated byPrime Minister Hashimoto inNovember 1996.
Through extensive anddrastic measures, thereform aimstotransform Tokyo intoaninternational
financial market thecaliber ofNewYork andLondon. Among thevarious areas, theforerunner of
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thereform istheamendment oftheForeign Exchange andForeign Trade Control Law. The
amendment passed theDietinMay, andwillcome intoeffect nextApril. Inother areas, reports by
therelevant councils werepublished inJune, andputting together theconclusion ofthedeliberations
bythose councils, thecomprehensive reform planwaspublished onJune13th.
Theplanhasbeenformulated onthebasis ofthefollowing concepts;
(i) Clarification ofthetimeschedule inorder topromote thereform coherently
(ii) Implementation ofallreform measures thatareconsidered necessary under the
following three principles
Free(i.e., aliberal market under market principle);
Fair(i.e., atransparent andreliable market);
Global (i.e., anadvanced andinternational market);
(iii) Creation ofmeasures from theusers'perspective
From thestandpoint thatthereform must benefit theusers, theplancovers allofthe
following fourperspectives;
(i) Expanding thechoices ofmeans forinvestors andborrowers;
(ii) Improving thequality ofintermediaries 'services, andpromoting competition among
them;
(iii) Developing amarket withfurther utility;
(iv) Establishing areliable framework andrules forfairandtransparent transactions.
Financial systems must bereformed soastoensure proper return onthe¥1,200 trillion of
Japanese household financial assets, smooth funding forgrowing industries forthenextgeneration,
andactive capital flowwiththerestoftheworld. Thecomprehensive financial system reform in
Japan, which includes boldderegulation measures andmeasures tosecure transparency andreliability
ofthemarket, isexpected tocreate suchasystem where themarket mechanism functions toitsfull
extent andoptimal allocation ofresources isachieved.
Through such efforts toreform, Japan seeks toenhance thelevel offunctioning ofthe
Japanese financial market toprevent itspossible hollowing out.Indoing so,status oftheyenasan
international currency would bestrengthened.
Current Progress intheDeregulation Process
Since 1993, successive Japanese governments haveattached outstanding importance tothe
deregulation process. TheCabinet decided in1995 ontheThree-year Deregulation Action Program
(FY1995 toFY1997) withaviewto:
(i) Expanding therange ofavailable choices inresponse todiversified consumer needs,
andtoreducing price differentials thenprevailing between Japan andabroad
(ii) Expanding domestic demand, facilitating imports, and increasing business
opportunities, andthus contributing toharmonization with theinternational
environment, and
(iii) Reducing administrative workbyadopting simplified standard requirements, including
theuseofelectronic andpaperless methods.
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Thefinalrevision oftheThree-year Action Program wasdecided forinMarch 1997. This
program shows that1,635 deregulation measures hadbeenimplemented already asofMarch 1997.
About 1,200 items intotal, including 890newmeasures mentioned inthisprogram, intwelve areas
areexpected tobeimplemented inFY1997 andlater.
Theprogram wasformulated through atransparent process, taking intoaccount ofthe
following :
(i) comments andproposals from foreign governments ontheoccasions ofeconomic
consultations;
(ii) written comments andproposals from foreign governments andprivate sector
organizations inJapan andabroad; and
(iii) theopinions received from suchforaastheAdministrative Reform Committee, and
theEconomic Council.
Thebasic approach adopted under theprogram includes thepoints listed below :
(i) Inprinciple, economic regulations should ensure aminimum level oftransaction
costs. Thefundamental principle withregard toregulations thatareofsocial nature
istoretain aminimum regulatory framework consistent withtheneed toserve
legitimate policy objectives
(ii) Theex-ante typeofadministration isreplaced byanex-post facto review system
(iii) Adeadline forconsideration isspecified intheexisting regulation foreachofthe
proposed changes
(iv) Therelevant authorities, which donotrespond torequests andopinions on
deregulation received fromdomestic andoverseas interested parties, arerequested to
clarify theirreasons fornotresponding.
Further deregulation measures areexpected infuture tobepromoted steadily inasimilarly
transparent process.
Future Policy Directions
Further Development OfTheReform Process
With theadvances intelecommunications technology, theworld israpidly becoming one
global community anddramatic changes aretaking place aswemove toanewsociety inwhich
people, products, capital andinformation flowfreely. Atthesame time, Japan faces amyriad of
issues, including therapid aging ofpopulation, thebudget crisis andthehollowing outofindustry,
which, ifleftunattended, could wellresult inJapan'sbeing leftbehind bytheglobal tide.Inother
words, serious limitation have been revealed intheJapanese socio-economic system, which has
sustained thedevelopment ofthecountry overthe50yearpost-war period. Inthisnewerainwhich
there hasbeen adramatic increase incross-border business andnational systems themselves are
becoming amajor determinant ofindustrial competitiveness, enhancing theeconomy 'soverall
efficiency andflexibility hasbeenapriority fortheJapanese government. Recognizing theurgent
needs ofwide-ranging reforms, theGovernment ofJapan isnowpromoting extensive reforms ashave
beendescribed inthisreport, soastocreate anewJapanese socio-economic system which ismore
compatible withmarket mechanisms andthussuitable forthe21stcentury.
MOREPRESS/TPRB/69
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While taking boldstepsindomestic reforms, theGovernment ofJapan hasbeenkeenly aware
ofthebenefits thatithasenjoyed under themultilateral trading system, andtheresponsibility ithas
initsmaintenance andstrengthening. Japan reconfirms itslong-standing commitment tomaintain and
strengthen amultilateral freetrade system inclose cooperation withother Members atWTO and
within other frameworks suchasAPEC andASEM, andreiterates itsreadiness tostrive foractive
andcontinued leadership infurther liberalization oftrade andinvestment inthenextdecade.
END