RESTRICTED
WORLD TRADE WT/TPR/G/32
5January 1998
ORGANIZATION(98-0001)
Original: English
TRADE POLICY REVIEW
JAPAN
Report bytheGovernment
Pursuant totheAgreement Establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), thepolicy statement bythe
Government ofJapan isattached.
Note:Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onJapan.Japan WT/TPR/G/32
Page 3
TABLE OFCONTENTS
Page
I. JAPAN INTHE MULTILATERAL SYSTEM 5
(1)Progress ofGlobalization andJapan 'sPolicy Efforts 5
(2)Consolidation oftheMultilateral System 5
II. THE TRADE AND ECONOMIC POLICY ENVIRONMENT 7
(1)Japan 'sEconomic Environment 7
(2)Trend inForeign Trade 7
(3)Japan 'sInvestment Trend 8
III. TRADE POLICY DEVELOPMENT 1995-1997 10
(1)TheUruguay Round andWTO Implementation 10
(2)Relations withother countries andregional initiative 11
(a)APEC 11
(b)ASEM 12
(c)Japan-US Trade Relations 12
(d)Economic Relations withEurope 12
(e)Regional Integration 13
(3)Domestic policy developments affecting trade policy 13
(a)Reforms oftheEconomic Structure 13
(b)Fiscal Structural Reform 14
(c)Competition Policy 14
(d)Financial System Reform 16
(e)Current Progress intheDeregulation Process 17
IV. FUTURE POLICY DIRECTIONS 19
Further Development oftheReform Process 19Japan WT/TPR/G/32
Page 5
I. JAPAN INTHE MULTILATERAL SYSTEM
(1) Progress ofGlobalization andJapan'sPolicy Efforts
1. TheGovernment ofJapan has,intensified itspolicy efforts geared toward the21stcentury
byadopting measures forenhancing further harmonization between theJapanese andtheinternational
economy, andresponding actively totheglobalization trend.
2. TheGovernment ofJapan hasimplemented extensive reforms inthedomestic market inorder
torealize aneconomic structure poised totakefulladvantage 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. Intheareaof
deregulation, forexample, Japan formulated in1995aDeregulation Action Program comprising 1,091
items in11areas, andhascontinued toimprove andrevise thisplanin1996byadding 569newitems.
Likewise, efforts havebeenmade toincrease evenmore theleveloffreedom, fairness andglobalization
intheJapanese financial system, and,thus, make theJapanese market comparable tothose ofNew
York andLondon. Thisreform, forexample, would promote access toanduseoftheYenacross
national borders, byallowing smoother fundraising inJapan aswellasfreeruseoftheYenabroad.
(2) Consolidation oftheMultilateral System
3. Formore thanforty years since itsaccession in1955, theGovernment ofJapan hasbeen
committed tomaintaining andstrengthening afreeandnon-discriminatory multilateral trading system
under theframework ofGATT/WTO.
4. 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.
5. Japan hasbeenactively engaged inpromoting further trade andinvestment liberalization in
theWTO asoneofitsmajor members, forexample, bytaking theleadinforming aconsensus atthe
SMC ontheso-called newissues suchastrade andcompetition policy, trade andinvestment, andon
theITA.
6. Particularly withregard toinvestment, Japan actively seeks tocontribute toward asuccessful
accord onOECD 'sproposed Multilateral Agreement onInvestment (MAI), aswellasworking to
examine therelationship between tradeandinvestment through discussions withdeveloping countries
attheWTO.
7. Japan alsobelieves thatitisimportant toencourage thedeveloping andleast-developed countries
aswellastheeconomies intransition toachieve early accession totheWTO, since suchastepwill
facilitate theintegration ofthose economies intothemultilateral trading system, thereby ensuring
universality oftheWTO system. Japan isdetermined tocontinue toplayaleading roleinsupporting
theaccession process ofapplying countries andeconomies.
8. Furthermore, Japan attaches great importance tothemultilateral trading system, theprimacy
ofwhich hasbeenreaffirmed intheSingapore Ministerial Declaration. Itis,therefore, indispensable
toshape regional trade agreements inamanner thattheyarecomplementary toit,andconsistent with
itsrules.WT/TPR/G/32
Page 6Trade Policy Review
9. ThemissionofWTOhasbeeninthepastandwillbeinthefuturetoachievethroughnegotiations
thecontinuing liberalization oftrade within arule-based system. TheGovernment ofJapan, fully
recognizing itsresponsibilities, isprepared toaddress thevarious challenges, which itmayencounter
intheendeavour toward further liberalization.Japan WT/TPR/G/32
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II. THE TRADE AND ECONOMIC POLICY ENVIRONMENT
(1) Japan'sEconomic Environment
10. Four years havepassed since thetrough ofeconomic depression inOctober 1993, andthe
upswing ineconomy isoneofthelongest inthepostwar period. Thetempo oftherecovery is,however,
slow. TheJapanese economy recorded especially uptothemiddle of1995 verysmall growth rates
(nearly zero), andsmall butfrequent adjustments ininventories andproduction. Various economic
measures were thusemployed tobolster economic growth, including significant public investment
spending, andtaxreductions.
11. However, astrengthened cyclical upswing wasseeninFY1996. Adjustments ofinventories,
production andemployment were accelerated. Since mid-95, theexchange ratetrend hasshifted to
thecorrection oftheyenovervaluation which havecontributed topositive external demand contribution,
contributing thustoeconomic growth, andthelevel ofjobuncertainty hasbeenreduced duetothe
improved employment situation. Inspiteoftheincrease inconsumption taxasofApril 1997, thebasic
trendofeconomicrecoverywiththedemandinprivatesectorsastheprimaryfavourablefactorcontinues,
eventhough thepaceofrecovery atthemoment hasbecome gradual, andcircumspect attitudes of
enterprises areobserved inrespect totheirjudgement onbusiness conditions.
12. Financial conditions havebeenthose ofeasymoney already since September 1995, when the
official discount ratewasreduced toa0.5percent level. Long-term interest rateshavebeenbelow
3percent pointsincethemiddle of1996, while short-term lending rateshaveremained about thesame.
Money supply atM2+CD levelhasincreased atanannual rateofabout 3percent. Theeasymonetary
policy hascontributed totheeconomic upswing bystimulating housing construction andinvestment
intoplant andmachinery.
13. Stock prices seem tofollow separate trends. Those ofhighly profitable industries havebeen
steady. Those ofthefinancial andconstruction sectors, ontheother hand, havedecreased.
14. 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 .
(2) Trend inForeign Trade
15. Trade statistics indicate thatJapan'strade surplus expanded fortwostraight years from1991
onwards, due,interalia,toastagnant domestic economy. Atrade surplus value of¥13.48 trillion
wasrecorded in1992, thesecond highest intheperiod after1986. 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 of28.3percent wasrecorded inthefirsthalf
of1997.
16. Although thetotalvalue ofexports decreased by6.5percent in1993, itincreased forthree
straight years from 1994 onwards.
- Thetotalvalue ofexports (1996) ¥44.73 trillion (anincrease of7.7percentasagainst
1995)
- Ayear-to-year increase (thefirsthalfof1997) upby15.1percent(asagainst thefirst
halfof1996)WT/TPR/G/32
Page 8Trade Policy Review
- Increase ofthetotalvalue ofexports in1996 onaregional basis (asagainst 1995)
TheMiddle East upby24.9percent
China upby15.5percent
TheAssociation ofSoutheast Asian Nations (ASEAN) upby9.3percent
TheUnited States upby7.4percent
TheEuropean Union (EU) upby3.7percent
- Thetotalvalueofimportslikewiseincreasedforthreestraightyearsfrom1994onwards.
- Thetotalvalue ofimports (1996) ¥37.99 trillion (anincrease of20.4percent asagainst
1995)
- Ayear-to-year increase (thefirsthalfof1997) upby12.9percent
- Increase ofthetotalvalue imports in1996 onaregional basis (asagainst 1995)
China upby30.1percent
TheMiddle East upby28.8percent
ASEAN upby25.7percent
TheUnited States upby22.0percent
17. Theshare ofmanufactured goods intotalimports hasalsobeenincreasing steadily, reaching
in1996 arecord levelof59.4percent (a28.5percent point increase asagainst 1985).
(3) Japan'sInvestment Trend
18. Japan'soutwardforeigndirectinvestment(FDI)onanMOFreportedbaseamountedto¥5,409.4
billion inFY1996, which represents anincrease of9.1percent asagainst FY1995. Suchincreasing
trend hascontinued forthethird consecutive year. InFY1995 a15.8% increase wasrecorded as
against FY1994.
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 rateoftheflowofFDIintoAsia, however, slowed down witharecorded
annual growth rateof9.7percent (¥1308.3 billion), asthegrowth ratewas18.2percent
inFY1995. Thisslowdown waslargely duetoasharp decline ininvestment inChina,
which hadexperienced arapid increase untiltheprevious FY. Over 70percent of
such investment intoChina wasmade intothemanufacturing industry. Overall
investment intotheAsian manufacturing industry recorded therefore a4.5percent
decline asagainst thepreceding FY,andfellbelow investment levels intoNorth
America. Overall investment levels intoNorth America increased by15.8percent
(¥2593.3 billion) asagainst thepreceding FY. Investment intothemanufacturing
industry continued itsgrowth pattern byanannual increase of36.4percent.
19. FDIflows intoJapan reached ¥770.7 billion, equivalent toa108.5 percent increase asagainst
FY1995, which wascaused bydoubling ofinvestment amounts intoboth manufacturing and
non-manufacturing industries. Thus, theprevious FY'sdecrease reversed intoanincrease inFY1996.Japan WT/TPR/G/32
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Hence, thegapbetween outward andinward FDIflows wasreduced considerably, thatisfroma1:13
ratioinFY1995 toa1:7ratioinFY1996.
Major characteristics ofinward FDIflows inFY1996 were :
(i) Inthemanufacturing industry, alarge increase ininward FDIwasrecorded forthe
machinery andmetal sub-sectors. Inthenon-manufacturing industry, investment into
theservice sector increased withinvestment originating fromSingapore, andinvestment
intothecommerce, tradeandrealestate sectors likewise recorded asignificant increase.
(ii) Investment flows originating fromNorth America, which hasaccounted forthelargest
share, increased evenmore(36.9 percent (¥244.5 billion) asagainst thepreceding FY).
Theshare ofinvestment flows originating fromAsiaincreased from6.7percent (¥24.7
billion) inFY1995to17.8%(¥137.2 billion). Asregards Europe, inward investment
flows originating from major countries, suchastheNetherlands, Germany, andthe
UKincreased. However, theircombined share decreased from34.5percent (¥127.4
billion) inFY1995 to28.6percent (¥220.2 billion). Europe 'sdecreased share was
duetothesignificant growth intheshare ofinward FDIoriginating from Asiaand
LatinAmericancountries.Alargeincreaseininvestmentamountsfromforeignaffiliates
inJapan hasbeenrecorded (¥23.3 billion inFY1985 to¥100.0 billion inFY1996).WT/TPR/G/32
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III. TRADE POLICY DEVELOPMENT 1995-1997
(1) TheUruguay Round andWTO Implementation
20. TheGovernment ofJapan hasfaithfully implemented theresults oftheUruguay Round
negotiations.ThefollowingaresomeoftheexampleswhichdemonstratepolicyeffortsoftheGovernment
inthisregard.
21. Average tariffrateswere, asaresult oftheUruguay Round negotiations, reduced to1.5percent
forindustrial products, 1.0percent forforestry products, 4.1percent forfisheries 'products, and9.3
percent foragricultural products. Theaverage tariffratefornon-agricultural products wasthusreduced
toanoverall 1.7percent level, oneofthelowest intheworld.
22. Japan contributed tothesuccessful conclusion oftheInformation Technology Agreement (ITA)
attheWTO Singapore Ministerial Conference in1996. Japan hasalready implemented inJuly1997
thefirsttariff reductions, andJapan willeliminate customs tariffs onsuchinformation technology
products bytheyear2000. Regarding theTariff Elimination Initiative onpharmaceuticals, Japan
expanded thenumber oftariff linestocover about 400products, inJuly1997 based onthereview
results.
23. Therulescovering special duties (anti-dumping duty, andsoon)wererevised inconformity
withtheUruguay Round agreements.
Japan hastaken thefollowing measures regarding market access intheagricultural field:
a) Since April 1,1995, Japan hasimplemented tariff reductions inlinewithitsschedule
b) Inaccordancewithaccesscommitmentsasspecifiedinitsschedule,Japanhasintroduced
tariff quota andestablished current access opportunities, which aresubject to
tariffication, and
c) JapanhasestablishedminimumaccessopportunitiesforriceinaccordancewithAnnex5
oftheAgreement onAgriculture.
24. Thefollowing amended domestic lawswerepassed inorder toimplement theabove measures:
therevised Customs Tariff Law;theTemporary Tariff Measures Law;theManufacturing MilkProducer
Compensation Temporary Law, andtheCocoon andRawSilkPrice Stabilization Law. Inaddition,
theLawforStabilization ofSupply-Demand andPrice ofStaple Food wasintroduced. Japan'stotal
AMS inthefieldofdomestic support inFY1995 wasbelow thelevelcommitted initsschedule for
FY1995, mainly duetoreductions ofadministered prices andsoon.
25. Since January 1,1995, tariffreductions havebeenimplemented inaccordance withtheschedule
intheareas offorestry andfishery products.
26. Intheareaoftrade 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 andtransport
services.
27. Regarding theongoing negotiations aftertheconclusion oftheUruguay Round, especially the
negotiation onbasic telecommunication services, financial services andmaritime transport services,Japan WT/TPR/G/32
Page 11
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
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.
28. Inthefield ofintellectual property rights, since theconclusion oftheUruguay Round
negotiations, Japan hasamended thelawsandregulations concerned. Patent LawandCopyright Law
havebeenamended inaccordance withtheTRIPS Agreement. Thisamendment includes extension
ofpatent termorexpansion ofneighbouring rights protection toperformances etc.relating toWTO
member countries.
29. SincetheestablishmentoftheWTO,JapanhasformallyraisedundertheWTOdisputesettlement
procedures thefollowing fourmatters withaview toseeking mutually satisfactory agreements; the
unilateral actions bytheUnited States under Section 301and304oftheTrade Actof1974 (related
totheJapan-US automobile andautopartsissue), thecertain automotive investment measures byBrazil,
thecertain measures affecting theautomobile industry byIndonesia, andthemeasures affecting
procurement bytheregional government oftheUnited States. Japan hasalsoparticipated, asathird
party, inthedisputes between other Members regarding theEC'strade description onscallops, the
EC'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.
(2) Relations withother countries andregional initiative
30. Japanasamajortradingcountrymaintainscloserelationswithitsmajortradingpartnersthrough
bilateral consultations, aswellasthrough meetings heldwithin theframework ofregional initiatives
suchasAPEC, andASEM.
31. Japan hasbeeninamutually beneficial relationship withother 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, withthe
IMFplaying acentral roleincoordinating thepackage. Thisisoneoftheexamples which demonstrate
Japan'sreadiness tocooperate withtheAsian neighbours, through various means, toachieve sustainable
development intheregion.
(a) APEC
32. Japan believes thatthepromotion ofcooperative economic relations withtheeconomies in
theAsiaPacific Region through aforum, suchastheAsiaPacific Economic Cooperation (APEC),
willfoster ofanopenregional economic community inthearea. Japan believes thatthiswould stimulate
world trade, andthereby contribute tothedevelopment oftheglobal economy. Theadoption in1996
oftheManila Action PlanforAPEC, which marked anew"Action Phase" inAPEC 'sactivities, was
animportant development. Japan'sIndividual Action Plan(IAP) presents acomprehensive package
ofactions tobetaken based upontheOsaka Action Agenda of1995, which wasformulated toimplement
theBogor Declaration of1994. Japan attaches greatimportance totheIAPprocess, andhasconducted
active consultations withother member economies, theresults ofwhich arereflected intheIAPtoWT/TPR/G/32
Page 12Trade Policy Review
themaximum extent possible. Japan willmake continuous efforts toimprove itsIAPwithaviewto
establishing adynamic andon-going IAPprocess, taking intoaccount theinterests oftheprivate/business
sector, which isthemain beneficiary oftrade andinvestment liberalization, aswellasother member
economies.
(b) ASEM
33. Several measures havebeentaken inthefieldoftrade policy within theframework ofthe
Asia-Europe Meeting (ASEM), since theinaugural meeting washeldinMarch 1996. TheSenior
Official 'sMeeting onTrade andInvestment (SOMTI), andtheMeeting oftheDirectors-General and
Commissioners ofCustoms werebothheldtwice. TheFinance Ministers 'Meeting andtheEconomic
Ministers 'Meeting were heldinSeptember 1997.
34. Member countries endorsed theInvestment Promotion Action Plan(IPAP) andtheframework
fortheTrade Facilitation Action Plan(TFAP) attheEconomic Minister 'sMeeting, bearing inmind
thattheseplans canbeadopted atthesecond ASEM. TheBusiness Forum andtheBusiness Conference
were heldfrom thepoint ofviewofpromoting interaction between business sectors.
(c) Japan -USTrade Relations
35. Trade relations between Japan andtheUnited States haveimproved overthepastthree years
asaresult ofthesignificant decrease intheUnited States 'trade deficit withJapan, which waspartly
aresult ofthegrowth ofUSexports toJapan, andpartly duetothesettlement ofindividual tradedisputes
intheareas ofautomotive andautoparts, semiconductor products andinsurance services. Concern
hasbeenvoiced bytheUnited States about therecent increase inJapan'stradesurplus withtheUnited
States, which hasbeenrecorded since lastOctober, duetothesteadily growing USeconomy andthe
depreciation oftheYen. Itistheview oftheGovernment ofJapan thatbecause ofthecontinuing
structural changes intheJapanese economy, suchastheincrease inimports ofmanufactured products
andintheproportion ofoverseas production byJapanese manufacturers, aside from short-term
fluctuations, Japan'strade balance isunlikely toincrease significantly overthemedium term.
36. Inview oftheimportance ofthetrade balance onaglobal basis, theGovernment ofJapan
iscommitted topromoting further structural reform including deregulation, withaviewtoachieving
economic growth ledbydomestic demand.
37. Sector-specific consultations havebeenheldregarding various issues suchasautomobile and
auto-parts, semiconductors andinsurance. Theresults ofthese consultations havebeenapplied onan
MFN basis.
(d) Economic Relations withEurope
38. Japan andtheEUconduct regular meetings atvarious levels, andexchange views onthe
respective economic situations andonbilateral tradeandinvestment issues. Sector-wise consultations
havetaken place todealwithspecific issues, when necessary. Allresults ofthese consultations have
beenapplied onanMFN basis. Such acooperative approach based onanintensive dialogue has
contributed toprovide some positive trends, suchastheimprovement inrecent years intheJapan-EU
trade imbalance andtheresolution ofvarious bilateral trade disputes inanon-controversial manner.
Japan andtheEUhavealsothevaluable practice ofobjective analysis through thejointstudy ofstatistics
orother objective datawithin theframework oftheEU-Japan Experts Meeting onTrade Statistics and
theEU-Japan Experts Dialogue onDistribution.Japan WT/TPR/G/32
Page 13
39. TheEUhasconcluded Europe Agreements withthose Central andEastern European countries,
which desire accession totheEUinthefuture, andithasalsoextended associate status tosome of
itsMediterranean partners byconcluding "Euro-Mediterranean Agreements". Japan hasexpressed
totheEUitsinterest andconcern inthismatter, since some ofthemeasures taken bytheCentral and
Eastern European countries, which provide preferential treatment totheEU,could haveannegative
impact ontheinterest ofthirdcountries.
40. Japan hasalsoexpressed totheEUitshopethatthewhole process ofadjustment tothethird
stage ofEconomic andMonetary Union (EMU) bepursued inastable manner, taking intoaccount
theessential impact, which theintroduction ofthesingle currency "Euro" willhaveontheworld
economy.
(e) Regional Integration
41. Regional trade agreements (RTAs), which haveincreased inrecent years interms ofboth
numbers andscope, haveapotential tocontribute tothedevelopment oftheoverall global economy.
However, inreality there stillremain doubts about theirconsistency withWTO agreements. Japan
isseriously concerned thatsome RTAs haveraised thebarriers totrade withnon-member countries,
thattheyhaveeffectively weakened thefree,non-discriminatory, andopenmultilateral system formed
under theWTO.
42. Japan believes that,under suchconditions, theWTO should examine strictly theRTAs about
theirconsistency withtheWTO agreements. Japan has,therefore, assumed theinitiative andpresented
proposals totheWTO inorder toimprove theorganization 'scapacity toreview regional trade
agreements, andisactively contributing tothework oftheCommittee onRegional Trade Agreements.
43. Japan hasnotbelonged toanypreferential regional agreements, andoffers nopreferential tariffs
toanycountry orregion, except those extended todeveloping countries under theGeneralized System
ofPreferences (GSP).
(3) Domestic policy developments affecting trade policy
(a) Reforms oftheEconomic Structure
44. TheGovernment formulated inDecember 1995 theSocial andEconomic PlanforStructural
Reforms. Based upon thisplan, ithaspromoted various measures, bearing twoobjectives inmind,
rectification oftheeconomy 'shighcoststructure, anddevelopment oflines-of-industry forwhich high
future growth isprojected. TheEconomic Council, which isanadvisory bodytothePrime Minister,
presented inDecember 1996toaCabinet meeting aprogress report ontheimplementation ofthereforms
identified inthePlan.
45. TheEconomic Council alsostarted inJuly1996 deliberations onhowtopromote structural
reforms, including deregulation measures, insixareas, namely advanced telecommunications, physical
distribution, thefinancial system, landandhousing, employment andlabour andmedical careand
welfare. These sixareaswereselected, because structural reforms intheseareasareconsidered urgent,
andareexpected togenerate significant economic effects. TheCouncil recommended inDecember
1996 tothePrime Minister farreaching reforms inthese areas, which arecompiled inareport titled
"Structural Reform inSixAreas".
46. Prime Minister Hashimoto announced hisdecision inNovember 1996 totakeboldsteps and
anintegrated approach intheimplementation ofsixmajor reforms, oneofwhich isalsothereform
ofeconomic structure. Thisdecision wasmade withaviewtoaddressing problems thathaveemergedWT/TPR/G/32
Page 14Trade Policy Review
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, andinMay1997theAction PlanfortheEconomic Structure Reform. TheAction Planaims
atrevitalizing theJapanese economy, anditstipulates thattheGovernment willtakecomprehensive
measures,whicharegearedatthecreationofanenvironmentthatisfavourabletonewbusinessactivities,
andthatisattractive toJapanese aswellasforeign companies. Thisistobeachieved inparticular
byreducing Japan'shighcoststructure through theimplementation ofcomprehensive deregulation
measures insuchareas asenergy supply, andinformation andtelecommunications, andrestraint of
thepublic burden.
47. TheGovernment revised theDeregulation Action Program further inMarch 1997inlinewith
thesedecisions. Inaddition, theGovernment decided inJulyonPolicy Actions toMarket Access Issues,
inorder totakethenecessary actions forimproving market access, which formpartofthereform of
theeconomic structure.
48. Anestimate bytheEconomic Planning Agency shows theaforementioned economic structural
reforms willleadtotheanannual increase ofrealGDP growth rateby0.9%, andanestimate bythe
Ministry ofInternational Trade andIndustry shows thatGDP in2001 willhaveincreased by6.0%
through deregulation.
(b) Fiscal Structural Reform
49. OnMarch 181997, theCabinet decided, asaninterim target under thefiveprinciples offiscal
structural reform recently presented byPrime Minister, toaimtoachieve thefiscal consolidation target
bringing down thenational andlocalfiscal-deficit-to-GDP ratioto3%orless;eliminating theissuance
ofspecial deficit-financing bonds byFY2003. TheCabinet alsodecided todesignate thethreeremaining
fiscal years ofthiscentury asan"intensive reform period" topromote spending reforms andcutbacks
while allowing nosacred areas. OnJune31997, theGovernment 'sandruling parties 'Conference
onFiscal Structural Reform (chaired bythePrime Minister) issued thereport "thePromotive Measures
forFiscal Structural Reform", andbased onthereport, theconcrete measures andpolicies forreform
andreduction ofexpenditure havebeendecided bytheCabinet.
50. Inparticular, toensure thatgeneral expenditure, (discretionary expenditures) intheFY
1998 budget islower thanthatintheFY1997 budget, thetargets forquantitative reductions inthe
principal areas ofexpenditure asconcluded bytheConference onFiscal Structural Reform willbe
reflected atthestage ofbudget requests forFY1998.
51. Inaddition, efforts willbemade tofurther curbspending depending ontheprogress inreduction
ofthefiscal deficit. Inaccordance withthisdecision, theutmost effort willbedevoted tothebuilding
ofasound fiscal structure, including theresolute execution ofnecessary structural reforms. Anda
billforfiscal structural reform wassubmitted totheDietinthecurrent extraordinary session inthe
fallof1997.
(c) Competition Policy
52. Theorganization andpowers oftheFairTrade Commission were strengthened through the
Antimonopoly Act(AMA) Amendment, which wentintoforce onJune14,1996. Theamendment
isexpected toensure anevenmore vigorous enforcement bytheFTCoftheAntimonopoly Act.Japan WT/TPR/G/32
Page 15
53. Another amendment totheAntimonopoly Actwaspromulgated onJune18,1997.
Bythisamendment:
1) Theexisting banonholding companies willberepealed ataround theendof1997
totheextent thatholding companies donotconstitute excessive concentration of
economic power; and,
2) Theinternational contract notification requirement wasrepealed attheverydayofthe
promulgation.
54. TheFTCpromotes actively competition policy together withderegulation. Relating tothe
review ofAMA exemption systems, forexample, anomnibus billwasapproved bytheDietandit
wentintoforce inJuly1997 withrespect totherepeal andreform ofAMA exemption systems under
individual laws(laws other thantheAntimonopoly ActandtheExemption Act). With regard tothe
review ofGovernment Regulations, theFTCorganized andexperts 'study groups, inorder topropose
thedirection ofthereview fromthestandpoint ofcompetition policy ineachsector. Thestudy groups
have issued various reports, including ontelecommunications (1995), domestic airpassenger
transportation services (1997), electricity sector(1997) andgassector(1997).
55. TheFTCtakesrigorous legalactions against violations oftheAntimonopoly Act.Thenumber
oflegal cases against suchviolations 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).
56. 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:
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.WT/TPR/G/32
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57. Inaddition, theFTCconsiders itparticularly important thatAntimonopoly Actviolations be
eliminated inthose economic sectors where government regulations arerelaxed, because suchviolation
could nullify thebenefits ofderegulation. TheFTChasbeenemploying, 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, theFTC
issued arecommendation decision against suchactivities forviolating theAntimonopoly
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.
58. 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 withgovernmental regulations oradministrative
actions represent ahighproportion. Hence, inorder toprevent suchviolations bytrade associations,
itisnecessary notonlyfortradeassociations themselves butalsoforadministrative authorities totake
appropriate steps. TheFTCisgoing tomake efforts tomake theTrade Association Guidelines and
other guidelines better known among thegeneral public, andalsotomake theadministrative authorities
concerned fullyunderstand theessence oftheAntimonopoly Act.
59. TheFTCalsopublished, in1997, thesurveys ontheactual conditions regarding transactions
ofphotographic filmandpaper among therelevant firms.
60. Inthefieldoftechnical cooperation, theFTChasheldannual training courses oncompetition
policy forparticipants fromdeveloping countries andeconomies intransition. TheFTChaslikewise
heldtrainingcoursesoncompetitionpolicyforparticipantsfromAPECmembercountriesunderAPEC's
technical andeconomic cooperation mechanism of"Partners forProgress".
(d) Financial System Reform
61. 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
thereform istheamendment oftheForeign Exchange andForeign Trade Control Law. Theamendment
passed theDietinMay, andwillcome intoeffect nextApril. Inother areas, reports bytherelevant
councils were published inJune, andputting together theconclusion ofthedeliberations bythose
councils, thecomprehensive reform planwaspublished onJune13th.
Theplanhasbeenformulated onthebasis ofthefollowing concepts;
(i) Clarification ofthetimeschedule inorder topromote thereform coherentlyJapan WT/TPR/G/32
Page 17
(ii) Implementationofallreformmeasuresthatareconsiderednecessaryunderthefollowing
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 mustbenefit theusers, theplancovers allofthefollowing
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.
62. 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 inJapan,
which includes boldderegulation measures andmeasures tosecure transparency andreliability ofthe
market, isexpected tocreate suchasystem where themarket mechanism functions toitsfullextent
andoptimal allocation ofresources isachieved.
63. Through suchefforts toreform, Japan seeks toenhance theleveloffunctioning oftheJapanese
financial market toprevent itspossible hollowing out.Indoing so,status oftheyenasaninternational
currency would bestrengthened.
(e) Current Progress intheDeregulation Process
64. 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) Expandingdomesticdemand,facilitatingimports,andincreasingbusinessopportunities,
andthuscontributing toharmonization withtheinternational environment, and
(iii) Reducing administrative workbyadopting simplified standard requirements, including
theuseofelectronic andpaperless methods.
65. 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.
66. Theprogramwasformulatedthroughatransparentprocess,takingintoaccountofthefollowing:
(i) comments andproposals from foreign governments ontheoccasions ofeconomic
consultations;WT/TPR/G/32
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(ii) written comments andproposals from foreign governments andprivate sector
organizations inJapan andabroad; and
(iii) theopinions received from suchforaastheAdministrative Reform Committee, and
theEconomic Council.
67. Thebasic approach adopted under theprogram includes thepoints listed below :
(i) Inprinciple, economic regulations should ensure aminimum leveloftransaction costs.
Thefundamental principle withregard toregulations thatareofsocial nature istoretain
aminimum regulatory framework consistent withtheneedtoserve 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 onderegulation
received fromdomestic andoverseas interested parties, arerequested toclarify their
reasons fornotresponding.
68. Further deregulation measures areexpected infuture tobepromoted steadily inasimilarly
transparent process.Japan WT/TPR/G/32
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IV. FUTURE POLICY DIRECTIONS
Further Development OfTheReform Process
69. Withtheadvances intelecommunications technology, theworld israpidly becoming oneglobal
community anddramatic changes aretaking place aswemove toanewsociety inwhich people,
products, capital andinformation flowfreely. Atthesame time, Japan faces amyriad ofissues,
including therapid aging ofpopulation, thebudget crisis andthehollowing outofindustry, which,
ifleftunattended, could wellresult inJapan'sbeing leftbehind bytheglobal tide.Inother words,
serious limitation havebeenrevealed intheJapanese socio-economic system, which hassustained the
development ofthecountry overthe50yearpost-war period. Inthisnewerainwhich there hasbeen
adramatic increase incross-border business andnational systems themselves arebecoming amajor
determinant ofindustrial competitiveness, enhancing theeconomy 'soverall efficiency andflexibility
hasbeenapriority fortheJapanese government. Recognizing theurgent needs ofwide-ranging reforms,
theGovernment ofJapan isnowpromoting extensive reforms ashavebeendescribed inthisreport,
soastocreateanewJapanesesocio-economicsystemwhichismorecompatiblewithmarketmechanisms
andthussuitable forthe21stcentury.
70. 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 freetradesystem inclosecooperation withother Members atWTO andwithin
otherframeworkssuchasAPECandASEM,andreiteratesitsreadinesstostriveforactiveandcontinued
leadership infurther liberalization oftrade andinvestment inthenextdecade.