Japan WT/TPR/S/32
Page 37
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
(1) Main Features
1. Deregulation andstructural 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;
procedures, however, continue tobetime-consuming, although some progress hasbeenmade. On
(mandatory) regulations and(voluntary) standards, comprising bothtechnical andsanitary-related
measures, Japan seeks tocoordinate domestic measures withinternational norms.
2. Japan'simport andinvestment promotion programmes havesubstantial government incentives,
yetitisnotevident thatthese programmes fully address theobstacles encountered (forexample,
counterproductive regulations, logistical aspects ofcustoms clearance); todate,mostmeasures have
focused onassisting withexisting procedures, rather thanattempting major structural improvements.
Theschemes alsolargely exclude important sectors ofinterest totrading partners, especially in
agriculture andservices, where Japan isnotuniformly internationally competitive. Intheareaof
government procurement, Japan'scommitments typically indicate apolicy ofcarefully balancing its
ownefforts withtheoffers oftrading partners, rather thansignificant unilateral initiatives formarket
liberalization.
3. Deregulation measures andcompetition policy inJapan arelinked, astheelimination or
relaxation ofregulatory controls correspondingly increases theimportance ofeffective competition
policy enforcement. Japan'sDeregulation Action Programs include acommitment toactively
implement competition policies; inaddition theJapan FairTrade Commission (JFTC) hasbecome
increasingly assertive, issuing alarge number ofguidelines andstudies onspecific industries. Major
trading partners, however, continue topress Japan forstricter competition policy enforcement,
including higher penalties forviolations andmore criminal prosecutions. Onintellectual property
rights, substantial progress hasbeenmade inreducing examination times which, nonetheless, remain
lengthy. Further progress isexpected asaresult ofcontinued improvements.
(2) Tariffs andTrade-related Taxes andCharges
(i) Tariffs
(a) Main features
4. Current applied tariffs inJapan reflect thescheduled tariff reductions agreed upon under the
Uruguay Round negotiations, aswellasthetariffication ofprevious agricultural quotas andother
non-tariff measures (section (d)). Asaresult, over35percentofJapan'stariff lines infiscal
year1997 bearazerorate,withanadditional 25percentofapplied tariffs at5percentorbelow
(Chart III.1).1Theoverall simple applied tariff average is9.4percent, when theadvalorem
equivalents (AVEs) ofspecific tariff rates areincluded, themost recent AVEs available from the
Japanese Government were forFY1995).2Formanufactures, applied tariffs average 4.9percent,
1WTO Secretariat estimates based ontheJapanese Customs Tariffs Schedule 1997.
2Specific rates apply toover6percentofalltariff lines, attheHSnine-digit level. TheFY1994 simple
applied tariff average (with FY1993 advalorem equivalents) was7percent(GATT, 1995, Vol. I,p.38).WT/TPR/S/32 Trade Policy Review
Page 38
withapeakof251percent; asaconsequence oftariffication, applied tariffs inagriculture average
26.0percent, withapeakof923percent. Harmonized System (HS) categories withthehighest
simple tariff averages inFY1997aredairy produce, miscellaneous edible preparations andfootwear
(Charts III.2andIII.3). Tariff escalation isevident inanumber ofsectors, most notably between
semi-processed andfully-processed items, andparticularly infood manufacturing andpetroleum
refining (Table AIII.1).
Japan WT/TPR/S/32
Page 39
Japan WT/TPR/S/32
Page 41
5. Japan willreduce agricultural tariffs by36percentonaverage over sixyears, witha
minimum reduction of15percent.3Inmanufacturing andmining, bound tariffs willfallbya
trade-weighted average of56percent.4Fortextiles, clothing, leather products, paper products,
chemicals, rubber products andironandsteel, finaltariffs, in1999, under theUruguay Round have
beenbound atlevels significantly below currently applied rates. Effects onapplied tariffs inJapan
oftherecent Information Technology Agreement (ITA) areexpected tobeminor, asnearly allofthe
items concerned already aredutyfreeorcarry lowtariffs. Government estimates ofJapan'sbound
andapplied tariff ratesfortheyear2000, assubmitted toAPEC inOctober 1996, arepresented in
Table AIII.2.5
(b) Tariff structure
6. There arefourtypes ofrates intheJapanese tariff schedule: statutory rates, WTO bound
rates, temporary ratesandpreferential (GSP) rates. Atemporary ratetakes priority overtheWTO
andstatutory rates, except intheraresituation where theWTO bound rateisbelow thetemporary
rate.6Anumber of"sensitive" items inJapan'sschedule, totalling about 120tariff lines atthe
HSnine-digit level, remain unbound, notably fisheries products including seaweed, certain wood
products andpetroleum.
7. Inaddition toadvalorem rates, Japan'stariff schedule includes asignificant number of
specific duties, sliding duties, differential duties andalternative duties (aswellassome seasonal
duties), primarily forthepurpose ofoffering aconsistent levelofprotection todomestic agricultural
products inthefaceofinternational price fluctuations orsudden surges inlow-price imports
(Table AIII.3).7Among theconsequences ofJapan'sacceptance oftheWTO Agreement on
Agriculture wasasizeable increase inthenumber ofspecific rates, from about 1toover6percent
ofalllines. Overall, however, rates formost ofJapan'snon-advalorem duties willbereduced
significantly from current applied levels asaresult ofitsUruguay Round undertakings.
3Based onthedefinitions usedforagriculture intheUruguay Round, theshare ofbound duty-free lines in
agriculture willrisefrom 23to27percent. With certain exceptions, Japan 'sagricultural tariff reductions are
tobecompleted oversixyears (byApril 2000) andindustrial tariff reductions overfiveyears (January 1999).
4Under the"Quad Agreement" ofJuly1993, asincorporated intotheresults oftheUruguay Round, tariffs
willbeeliminated onallpharmaceuticals, construction equipment, medical equipment andbeer. With significant
exceptions, tariffs willalsobeeliminated onsteel, distilled spirits, furniture, agricultural equipment, paper and
pulp, andtoys.
5Forboth 1996 and2000, simple average applied tariff rates arehigher thanbound tariff rates fortwo
categories (fish andfishproducts, andpetroleum oils)(Table AIII.2).
6Asalsonoted intheprevious Secretariat Report (GATT (1995) themajority ofrecent changes toJapan 's
tariff schedule have been made through temporary, asopposed tostatutory, tariff rates. Inaddition togreater
legislative flexibility, theuseofannual revisions intemporary rates permits changes tobephased ingradually.
7According totheMinistry ofFinance, forexample, "Advantages ofspecific dutyaretheeasewithwhich
thedutyvalue canbecomputed, thesame dutycanbeapplied to[the] same types andqualities ofcargoes, and
itsdomestic industry protection isstrong compared toadvalorem duty" (MOF, 1996, p.28).WT/TPR/S/32 Trade Policy Review
Page 42
(c) Tariff adjustments
8. Asobserved byJapan'sMinistry ofFinance (MOF), "Customs tariff policy isclosely related
toindustrial policy. Therefore, theviews ofother concerned Ministries, suchastheMinistry of
International Trade andIndustry, andtheMinistry ofAgriculture, Forestry andFisheries, aretaken
intofullconsideration incarrying outrevisions ofCustoms dutyrates andother related work."8
Annual procedures fortariff revisions begin inJuly, when MOF requests theMinistries concerned
toinitiate studies ofdesired changes; thisisfollowed byindividual negotiations inlateSeptember
between MOF andeachMinistry.9Proposed changes arereviewed byanadvisory council, after
which MOF prepares legislation forDietapproval. Recent changes inapplied rateshaveincluded
reductions forbeefandpork, fisheries products, andGSPratesontropical products andother items.10
9. Non-Uruguay Round related tariff changes implemented byJapan inFY1995 included the
elimination ofapplied tariffs oncertain chemical compounds, rawfurskins, textile products usedin
motor vehicles, inwrought aluminum andinwrought magnesium, withthelatter tworevisions ona
tentative basis intheevent thatdomestic production isresumed. InFY1996, aspartofJapan's
APEC commitments, WTO-related reductions inbound tariffs wereimplemented approximately two
years ahead ofschedule for697mining andmanufacturing items; theaverage rateforthese items
wasreduced by0.67percent. Applied tariffs were eliminated onin-quota imports ofsilkworm
cocoons, rawsilkandsilkyarn11;onfabrics forautomotive seatbelts; andonpreservatives used
infisheries products. Thetariff lineforunprepared instant coffee wasreclassified asaresult ofthe
HSrevision, andduty-free access under GSPwaseliminated. InFY1997, applied tariffs were
eliminated onlinoleum andjuteyarn, asdomestic production isunlikely toberesumed, andreduced
forrawsugar andcertain sparkling beverages. Changes were alsomade inbothFY1995 and1996
intariff quotas andend-use provisions, asdescribed below.
(d) Tariff quotas
10. In1995, Japan introduced agricultural tariff quotas on20groups ofproducts, aspartofits
commitment under theWTO Agreement onAgriculture totariffy quantitative import restrictions
(Table AIII.4).12Inlieuoffixing import tariffs forrice,Japan undertook toexpand itsminimum
access levels; riceimports willrisefrom 4to8percentofdomestic consumption overthesix-year
implementation period. Thematter ofthecontinuation ofspecial treatment forriceistobefurther
negotiated withJapan'spartners intheyear2000.
8MOF (1996), p.24.
9According totheMOF, "each ministry, which hasbeen approached bytheMinistry ofFinance, conducts
astudy, refers totheviews ofindustrial circles andinforms theCustoms andTariff Bureau oftheir request for
ratereviews" (MOF, 1996, p.25).
10Changes resulting from Japan 'sadoption ofthe1996 HSrevisions areofatechnical nature, according to
theauthorities, andhave nosignificant effect ontariff levels.
11However, volume-based special safeguards were invoked forrawsilkinbothFY1995 and1996.
12Actual imports under Japan 'scurrent andminimum access commitments forFY1995 and1996 are
reported inTable AIV.2.Japan WT/TPR/S/32
Page 43
11. Japan haslonghadasystem ofautonomous tariff quotas, primarily forthepurpose of
providing low-cost inputs forindustrial purposes (Table AIII.5).13Recent revisions include the
abolition ofthetariff quotas forfattening cattle forbeef, oats,hi-test molasses, rumandtafia. The
quota forcornwasexpanded, andanewquota wasadded foralcohol ofover90percent. Many of
thetariff quotas withend-use provisions areagriculture-related, while tariff quotas forleather are
linked toregional andsocial policies. Quota allocations arefreely given, according totheauthorities,
provided thattheend-user concerned demonstrates possession ofthenecessary facilities.
(e) Tariff concessions andexemptions
12. According totheCustoms andTariff Bureau oftheMinistry ofFinance, "The purposes for
reduction orexemption ofCustoms dutyaretodevelop andprotect domestic industries, topromote
trade andscience, tomeetrequirements associated withsocial welfare, toeliminate double taxation,
etc."(Table III.1).14Customs dutyreductions andexemptions forFY1994wereabout ¥41.3 billion
(equivalent tosome US$400 million); atotalof228factories asofJanuary 1996wereusing materials
thathadbeenimported withreduced orexempted tariffs, onthecondition thattheywere usedfor
specified purposes; factories included were those intheaircraft andspace sectors andfoodand
pesticide production.15Many end-use tariff concessions areagriculture-related (Table AIII.6).16
Changes since 1995 include adjustments resulting from theUruguay Round Agreement on
Agriculture, aswell astheelimination ofanumber ofpetroleum-related measures. Japan's
GSP-related measures aredescribed inChapter II(2)(i).
13Other end-use provisions, alsointended primarily toprovide reduced-cost inputs forindustrial purposes,
asdescribed below insection (2)(i)(e).
14MOF (1996), p.34.
15MOF (1996), p.p.35and152.
16Additional end-use provisions arepresented inTable AIII.5 concerning tariff quotas. Japan 'sagricultural
policies aredescribed inChapter IV(2).WT/TPR/S/32 Trade Policy Review
Page 44
Table III.1
Systems forreduction, exemption, refund andrepayment ofcustoms duty, April 1996
Customs Tariff Law
Unconditional reduction ofand
exemption from customs dutyReduction fordeterioration anddamage (Art. 10)
Reduction andexemption forcommodities, pork, sugar, etc.(Art. 12)
Unconditional exemption (inanarrow sense) (Art. 14,1-8,16-18)
Reduction andexemption forre-importation
Reduction forgoods exported forprocessing orrepair (Art. 11)
Exemption forre-importation (Art. 14,9-11, 13and14)
Reduction forre-importation (Art. 14-2)
Reduction andexemption formarine products, etc.collected orcaught inforeign
countries (Art. 14-3)
Exemption forgoods etc.fordiplomats (excluding automobiles, liquors andtobacco)
(Art. 16)
Exemption forexportation ofgoods manufactured from duty-paid rawmaterials
(Art. 19-2)
Conditional reduction ofandexemption
from customs duty(general)Exemption forspecial uses(Art. 15)
Exemption ongoods fordiplomats (automobiles, liquors, tobacco) (Art. 16)
Reduction andexemption forre-exportation
Exemption forre-exportation (Art. 17)
Reduction forre-exportation (Art. 18)
Conditional reduction ofandexemption
from customs duty(restrictive)Reduction andexemption onrawmaterials foruseinmanufacturing (Art. 13)
Reduction andexemption onrawmaterials foruseinproduction ofexport goods
(Art. 19)
Refund ofduty Refund ondisasters, etc.(Art. 10)
Refund onrawmaterials formanufacturing export goods (Art. 19)
Refund when products manufactured bydutypaidmaterials areexported (Art. 19-2)
Refund ongoods tobeexported without anychange inthenature andform atthetimeof
theirimportation (Art. 19-3)
Refund forclaimed merchandise (Art. 20)
Temporary Tariff Measures Law
Unconditional reduction ofand
exemption from customs dutyReduction forproducts manufactured from goods exported forprocessing orassembling
(Art. 8)
Conditional reduction ofandexemption
from customs duty(restrictive)Exemption foraircraft andparts thereof, etc.(Art. 4)
Exemption forgoods forspace development, etc.(Art. 5)
Exemption forpetroleum spirits formanufacture ofpetrochemical products (Art. 6)
Reduction orexemption forrawmaterials formanufacture (Art. 7-2)
Repayment ofduty Repayment forpetroleum spirits formanufacture ofpetrochemical products (Art. 6)
Repayment forincreased production onmiddle distributors ofpetroleum products, etc.
(Art. 7)
Note: Inaddition totheabove-mentioned systems forreduction andexemption, there aresystems forreduction andexemption under
theLawConcerning Special Measures fortheReturn ofOkinawa andunder certain international conventions andagreements.
Source: Information provided bytheJapanese authorities.
(ii) Trade-related taxes andcharges
13. Indirect taxes accounted forabout 35percentofcentral government revenue inFY1996, of
which theconsumption (value-added) taxhadthelargest share, atnear11percent(Table III.2).17
Theconsumption taxratewasraised from 3to5percent, effective April 1997.18Special measures
regarding theconsumption taxareinplace toassist small andmedium-sized businesses, including a
two-year exemption formost companies with capital of¥10million orbelow andsimplified
procedures forbusinesses withannual taxable turnover of¥200 million orless.
17Theshare ofcustoms duties intotalFY1996 revenue isestimated tohave been 1.9percent.
18Thenational consumption taxwasraised from 3to4percent, andalocal consumption taxequivalent to
andadditional 1percentwasalsointroduced.Japan WT/TPR/S/32
Page 45
Table III.2
Revenue from national taxes, FY1996
(¥100million)
1996
TaxItem Amount Percentage
Direct taxes (total) 360,453 65.3
Income Tax 189,649 34.3
Corporation Tax 144,833 26.2
Inheritance Tax 24,199 4.4
Land Value Tax 1,772 0.3
Indirect taxes, etc.(total) 191,807 34.7
Consumption Tax 60,568 11.0
Liquor Tax 20,707 3.7
Tobacco Excise Tax 10,798 2.0
Gasoline Tax 19,152 3.5
Aviation FuelTax 878 0.2
Petroleum Tax 5,252 1.0
Bourse Tax 420 0.1
Securities Transaction Tax 3,915 0.7
Motor Vehicle Tonnage Tax 8,261 1.5
Customs Duty 10,240 1.9
Stamp Revenue 19,693 3.6
(Special taxes)
Consumption Taxa,b15,142 2.7
Local Road Taxa,b2,724 0.5
Motor Vehicle Tonnage Taxa,b2,754 0.5
Customs Duty onOila853 0.2
Promotion ofPower Resources Development Taxa3,464 0.6
Gasoline Taxa6,304 1.1
Total 552,261 100.0
a Taxes whose revenues aredistributed tospecial accounts.
b Taxes whose revenues aredistributed tolocal governments.
Note: Taxes withzeroorminimal revenue inFY1996 arenotlisted.
Source: Information provided bytheJapanese authorities.
14. Excise andrelated taxes, applied mainly toliquor, tobacco andgasoline, alsoaccount fora
significant share ofindirect taxrevenues (Table III.2). Asaresult ofJapan'simplementation ofthe
outcome oftheWTO dispute settlement procedures concerning liquor taxation (Chapter II-
Annex II.2), Japan willsubstantially decrease taxation levels onwhisky andbrandy, while raising
taxes onshochu andother products, withtheobjective ofequalizing taxratesperdegree ofalcohol
(Table III.3).19
19Taxrates formost liquor products, except whisky andbrandy, were previously increased inMay 1994.WT/TPR/S/32 Trade Policy Review
Page 46
Table III.3
Revised liquor taxrates, 1997-2001
(¥perkilolitre)
Revised rates
Categories/
Alcohol content Current rates1Oct.1997 to
30Sep.19981Oct.1998 to
30Sep.2001 1Oct.2001
Shochu A
25degrees(¥6,228)
¥155,700(¥8,076)
¥201,900(¥9,924)
¥248,100unchanged
Shochu B
25degrees(¥4,084)
¥102,100(¥6,028)
¥150,700(¥7,976)
¥199,400(¥9,924)
¥248,100
Whiskies
40degrees(¥24,558)
¥982,300(¥13,775)
¥551,000(¥10,225)
¥409,000unchanged
Spirits
37degrees(¥9,927)
¥367,300(¥9,924)
¥367,188(unchanged) unchanged
Liqueurs
12degrees(¥8,217)
¥98,600(¥9,924)
¥119,088(unchanged) unchanged
Note: Theratesinbrackets aretaxratesperkilolitre perdegree ofalcohol.
Source: Information provided bytheJapanese authorities.
(3) Other Policies Directly Affecting Trade
(i) Customs procedures
15. Theimportance ofreduced customs clearance times, forbothforeign suppliers anddomestic
importers, hasincreasingly beenrecognized byboththeJapanese Government andJapan'strading
partners.20Although clearance times inJapan havefallen overrecent years, theyremain quite high
bydeveloped-country standards, withthemain problem apparently notofficial clearance procedures
perse,butrather suchlogistical issues aspre-processing andwarehousing. Japan hasincreased its
resource allocations tocombat theproblem; therapid riseinimport levels, however, hasonly
intensified thesituation.21
16. Inthecaseofseacargo, average timebetween cargo arrival andrelease hasbeenshortened,
from 4.8daysin1993 to4.0daysbyearly 1996.22Inthecaseofaircargo, however, theaverage
timelengthened slightly, from 43.7to46.3hours, asaresult oftheincreased volume ofimport
declarations. Themajority ofthetimerequired forbothcargo types isactually inthestage before
customs declarations arefiled: clearance times fallto0.4daysforseacargo and1.8hours forair
cargo oncethisstage iscompleted.23According totheauthorities, there aretimes when importers
20TheGovernment, forexample, states thatdemand forrapid customs clearance procedures isincreasing,
duetothegrowing internationalization oftheJapanese economy. According totheAmerican Chamber of
Commerce inJapan, "Efficient international airtransport andfreight services arecrucial tothebusiness and
economic lifeofmodern nations, including Japan" (ACCJ, 1997, p.22).
21Between 1990 and1996, according togovernment figures, thenumber ofimport permissions increased
by80percent, while staffing levels increased by5percent.
22The1995 Secretariat Report noted thattheaverage time between cargo arrival andrelease hasbeen
shortened from 2.2and6.2days forairandseacargo in1992 to1.9and4.8days in1993 (GATT, 1995).
Issues related toportandcargo-handling procedures aredetailed inChapter IV(5).
23Once declarations were filed, theclearance times noted for1993 were 1.6hours foraircargo and
13.1 hours forseacargo; thefigure forseacargo hasimproved while thatforaircargo hasdeclined somewhat.Japan WT/TPR/S/32
Page 47
prefer toleave goods temporarily inthecustoms area, thereby increasing theaverage timebetween
cargo arrival andrelease.
17. Asnoted intheSecretariat Report forthe1995 Trade Policy Review ofJapan, customs
clearance-related improvements havefocused onincreased computerization, together withplanned
improvements inbothfacilities andprocedures.24Since April andNovember 1995, respectively,
improved procedures forcustoms processing ofseaandaircargo havebeenineffect and,aspartof
theDeregulation Action Program (DAP), Japan implemented inApril 1996 animmediate release
system foraircargo.25Under the1997 revisions oftheDAP, theGovernment stated that"import
procedures willbefurther simplified andexpedited".26Thespecific measures tobeimplemented
include thesimplification ofdocuments forexport orimport declaration, theabolition oftheprior
notification system fortheentry ofcargo intoHozei Areas, andtheabolition ofapermission feefor
theentry ofcargo outside customs hours. Within APEC, Japan ispursuing thesimplification and
harmonization ofcustoms procedures. Anewsystem wasintroduced inearly 1997 toenable
declarations related totheMinistries ofHealth andWelfare, andAgriculture, Forestry andFisheries
tobefiledfrom Ministry ofFinance terminals.27
18. ByJanuary 1997, Japan hadapproved atotalof22foreign access zones (FAZs), with11such
zones already inoperation. Thezones areamajor component ofJapan'simport andinvestment
promotion schemes (section (4)(iii)), andareintended toserve ascentralized locations forimport-
related operations andfacilities, aswellastostreamline thedistribution ofimported cargo. Although
nocost/benefit studies havebeenconducted oftheFAZprogramme, localgovernments havepredicted
large increases inairandseacargo volume byFY2000 attheFAZsites(Table III.4). Funding for
theFAZ isprovided mainly bylocal governments andlocal enterprises, andpartly bythe
Government.
19. Among theobjectives oftheFAZ programme isthestreamlining ofthedistribution system
forimports inlocalareas.28TheGovernment offers financial assistance fortheestablishment ofa
24In1996, anewcargo building wasopened attheNarita Airport near Tokyo. Computerization has
primarily involved thedevelopment andupgrading ofcomputer systems forhandling aircargo (Air-NACCS)
andformaritime cargo (Sea-NACCS) (MOF, 1996, p.16). According totheACCJ, however, theNACCS
system isan"expensive andoutdated proprietary clearance system" andmodernization efforts have made little
progress todate(ACCJ, 1997, p.22). Thisclaim isdisputed bytheGovernment.
25Theshare ofimports using thepre-arrival examination system in1996 wasmore than10percentforair
cargo andlessthan10percentformaritime cargo.
26Government ofJapan (1997), p.5.
27TheMinistry ofFinance receives about 8million customs clearance application annually, ofwhich about
1million areaffected bytheFood Sanitation Law orthePlant Protection Law orboth (Nikkei Net,
21February 1997).
28According toMITI, "Japan 'strade-related distribution hasdeveloped mainly inthemetropolitan areas,
including thethree major portareas, duetotheinsufficiency oftrade-related infrastructure inthelocal areas.
Asaresult, themetropolitan areas areovercrowded withimported cargoes, while inthelocal areas small and
medium-sized enterprises orconsumers havedifficulty deriving thebenefits ofimported goods in[the]Japanese
market" (MITI, 1996b).WT/TPR/S/32 Trade Policy Review
Page 48
FAZ, primarily through theprovision offinancing andtaxincentives tojointgovernment-private
sector entities. AsofJanuary 1996, however, only3ofthe22designated FAZs atthetimehadbeen
granted integrated Hozei status.29
Table III.4
Import volume offoreign access zones (FAZs), selected years
(Tonnes)
Area 1992 1995 2000 (est.)
Approved asFAZ inFY1992
Kansai International Airport - 199,292 314,000
Osaka Port 16.79 million 23.83 million 24million
Kobe Port 23.71 million 15.87 million 39.88 million
Matsuyama Port 0.75million 643,422 1.32million
Kitakyushu Port 22.99 million 25.27 million 29.28 million
Nagasaki Airport 167 340 3,900
Approved asFAZ inFY1993
Yokohama Port 33.84 million 43.50 million 43.95 million
OitaPort 26.92 million 28.58 million 36.86 million
Kawasaki Port 52.01 million 51.24 million 50.33 million
Shimonoseki Port 1.50million 1.44million 3.50million
Shinchitose Airport 1,932 3,840 10,000
Hiroshima Airport 237 1,372 4,200
Approved asFAZ inFY1994
Shiogama Port 6.87million 6.99million 9.56million
Sendai Airport 565 2,603 5,000
Komatsu Airport 74 5,718 8,500
Maizuru Port 859,663 908,903 1.81million
Sakai Port 1.10million 1.17million 1.76million
Kochi Port 219,135 192,325 491,000
Kumamoto Port - 2,348 170,000
Approved asFAZ inFY1995
Hachinohe Port 5.61million 6.62million 7.29million
Niigata Port 11.13 million 11.94 million 15.10 million
Shimizu Port 6.67million 7.47million 8.88million
Approved asFAZ inFY1996
Okayama Airport 16 244 3,600
Note: Projections takeintoaccount existing harbour andairport improvement plans.
Source: Information provided bytheJapanese authorities.
(ii) Licensing andapproval requirements
20. Import andexport licensing procedures inJapan aregoverned bytheForeign Exchange and
Foreign Trade Control Law, primarily forthepurpose ofenforcing health, public security or
environmental measures, butalsotoimplement tariff concessions, border protection schemes for
29Integrated Hozei areas comprise land, buildings, orother facilities approved forstorage offoreign goods
orgoods tobeexported, orwhere manufacturing, processing andexhibition offoreign goods canbemade.
According totheauthorities, foreign goods cannot inprinciple bestored atplaces other thanHozei areas. As
ofJanuary 1996, there were atotalof73designated Hozei areas (MOF, 1996, p.p.150,152 and154).Japan WT/TPR/S/32
Page 49
agriculture andother policy measures.30Since January 1995, changes intheitems requiring import
approval include theremoval ofrestrictions onrawsilk.31Onimport confirmation regulations, beans
forvegetable culture, seeds, coal,silkcocoons suitable forreeling cargoes fromSerbia-Montenegro,
Croatia andBosnia-Herzegovina were removed from thedesignated list.
21. Regarding export approvals, theGovernment 'sPetroleum Council Subcommittee wasto
decide byJune1997 whether toeliminate most oftheapproval requirements forpetroleum product
exports, withadoption ofthenewmeasures within thefirsthalfofFY1997. Theexport approval
system forpetroleum wasabolished on1July1997. There havebeennoother changes inexport
approval orexport confirmation requirements since 1995.
(iii) Trade controls, prohibitions andsanctions
(a) Import-related measures
22. Prohibited imports areclassified intheCustoms Tariff Lawunder fivecategories: narcotics;
revolvers andpistols; imitation currencies; books andother articles considered contrary topublic
security ormorality; andarticles which infringe patents orother intellectual property rights. Import
prohibitions foritems listed intheConvention onInternational Trade inEndangered Species ofWild
Fauna andFlora (CITES) arespecified intheImport Control Order.
23. Other thanthose related tohealth, public security orenvironmental safety, changes since1995
inthelistofitems subject toimport quotas involved elimination andtariffication ofquotas ona
number ofagricultural products inconnection with theWTO Agreement onAgriculture. The
authorities statethatnoimport quotas arecurrently applied tomanufactured products, other thanthose
necessary forhealth, public security orenvironmental safety. Infisheries, mostoftheimport quotas
maintained byJapan haveshown littlechange overthepastseveral years (Table III.5). According
totheauthorities, ifJapan permitted unlimited access toitsfishery market itmight trigger anincrease
inthefisheries catch targeting theJapanese market, thereby jeopardizing thesustainable utilization
offisheries resources.32
24. Japan abolished in1996 itsonlyremaining authorized import cartel, forsilkproduct imports
from China; Japan nowemploys animport quota system forsuch imports. TheJapanese and
Chinese Governments have heldannual consultations since 1976 concerning trade levels forsilk
products; for1997 anunderstanding wasreached onthefollowing import levels: silkyarn, etc.
30Japan notified itsimport licensing procedures, aswellastheproducts concerned, inWTO document
G/LIC/N/3/JPN, 20November 1996.
31Import approvals need tobeobtained from theMinister ofInternational Trade andIndustry forspecific
goods.
32According totheauthorities, import quota levels aresetconsidering domestic supply anddemand.
Changes under theDeregulation Action Program for1997 include improving thetransparency oftheimport
quota system (ITR 19March 1997, p.502).WT/TPR/S/32 Trade Policy Review
Page 50
984tonnes; andsilkfabrics, 7.15million square metres.33Inregard tothebilateral consultations
between Japan andtheRepublic ofKorea onsilk,aten-year phase-out programme hasbeennotified
totheWTO Textiles Monitoring Body.34
Table III.5
Import quotas onfisheries products, FY1993-97
(US$, volume)
Commodity Unit 1993 1994 1995 1996 1997
Fishandshellfish
(actual imports)US$million 408.2
(293.1)367.0
(298.7)362.0
(285.2)362.0
(...)237a
(...)
Herring
(actual imports)TMT 118.0
(63.5)118.0
(81.7)118.0
(64.5)118.0
(...)...
(...)
Pollack products
(actual imports)TMT 1,092.0
(846.2)1,027.0
(647.6)1,027.0
(513.5)1,027.0
(...)760a
(...)
Squid andcuttlefish
(actual imports)TMT 53.0
(47.2)55.1
(48.5)55.1
(35.0)55.1
(...)20.5a
(...)
Dried squid andcuttlefish
(actual imports)TMT 4.5
(3.6)4.5
(3.4)4.5
(1.8)4.5
(...)4.5
(...)
Codandpollack roes
(actual imports)TMT 46.6
(44.8)48.6
(46.3)48.6
(46.2)55.4
(...)29.7a
(...)
Dried laver
(actual imports)million sheets 270
(0)270
(12)250
(7)250
(...)250
(...)
Edible seaweed
(actual imports)TMT 2.9
(2.3)2.9
(1.8)2.9
(2.1)2.9
(...)...
(...)
... Notavailable.
a FirsthalfofFY1997.
Note: TMT =Thousand metric tons.
Figures foractual imports based onreports ofimport quota holders asatDecember 1996.
Source: Dataprovided bytheJapanese authorities.
25. InAugust 1995 Japan'sMinistry ofAgriculture, Forestry andFisheries (MAFF) reportedly
requested theChinese Government tointroduce voluntary export restraints (VERs) onexports oftwo
agricultural products, garlic andginger.35Asanalternative, theMinistry wasconsidering invoking
domestic emergency measures toreduce imports. Therequest followed double-digit increases in
imports forboth1995 and1996; inthecaseofginger, theimports arepriced atabout onesixth of
thedomestic level.
(b) Export-related measures
26. Prohibited exports include endangered animals andplants specified ininternational treaties;
narcotics; falsecurrencies andother products involving criminal offenses inJapan; anddesignated
33For1994, theallowable import levels were rawsilk,1,140 tonnes; silkyarn, etc.840tonnes; andsilk
fabrics, 7.15 million square metres. Theactual import levels were rawsilk,1,200 tonnes; silkyarn, etc.,
840tonnes; andsilkfabrics, 6.93million square metres. Theconsultation between Japan andChina ontrade
forrawsilkhasnotbeen heldsince 1994.
34WTO documents G/TMB/N/82, 28April 1995 andG/TMB/N/82/Add.1, 15February 1996. Asimilar
phase-out programme concerning Japan andChina istobepresented once China hasacceded totheWTO.
35Nikkei Weekly, 19August 1996.Japan WT/TPR/S/32
Page 51
artworks. Export controls aremaintained forsecurity reasons, public safety andtoensure adequate
domestic supplies ofcertain agricultural andother primary products.36Asnoted above, the
Government wasstrongly considering elimination ofrestrictions onpetroleum product exports, other
thanstatistical reporting requirements, except under emergency conditions.
27. Asnoted inthe1995 Secretariat Report onJapan, theEuropean Union "grandfathered" the
voluntary export restraint (VER) regarding Japan'scarexports (Table III.6). Japan hadalso
announced thatitwould eliminate itsother remaining VERs within thefour-year period, from1995,
allowed under theUruguay Round Agreement onSafeguards forphasing-out grey-area measures.
Table III.6
Recent export restraint measures maintained byJapan
Products Measures DurationCurrent annual
restriction 1997Previous
restrictions
1996Previous
restrictions
1995
United States
Textiles andclothing
(now terminated)Export approval under
theExport Control Order1992-December 1996 n.a. 152,000
sq.m.143,397
sq.m.
European Union
Passenger carsandlight
commercial vehicles
(upto5tonnes)Monitoring byMITI
(administration guidance
forunilateral export
moderation)January 1993-
December 19991,092,000
units1,079,000
units1,071,000
units
Woven fabrics of
synthetic filament
yarnetc.
(now terminated)Export approval under
theExport Trade
Control Order1978-December 1996 n.a. 212,922
sq.m.200,570
sq.m.
n.a. Notapplicable.
Source: Information provided bytheJapanese authorities.
28. AspartofJapan'sderegulation measures, theGovernment announced thatthelegal
mechanisms underlying allremaining export cartels would bereviewed, withtheaimofeliminating
them within fiveyears.37Asaresult, only2ofthe11cartels mentioned inthe1995 Secretariat
Report remain; these concern pottery andpearls, andarescheduled tobeabolished byend-1999.38
Thepurpose ofthecartels are,respectively, toprevent theinfringement ofdesigns (both domestic
andforeign); toprevent exports oflower-quality goods; andtoactasacounterpoint toimport
36Under theForeign Exchange andForeign Trade Control Law, export controls maybeimposed oncertain
goods byMITI intheinterest ofmaintaining international peace andsecurity orforpromoting thesound
development offoreign trade andthenational economy.
37Export cartels, ifformed inaccordance withtheExport andImport Transaction Lawforthepurposes of
preventing unfair export practices orestablishing order inexport practices, may beexempt from the
Antimonopoly Lawprovided MITI isnotified inadvance.
38The1995 Secretariat Report noted that17other previous cartels hadbeenabolished (GATT, 1995, Vol. I,
p.83). Therecently abolished cartels, andthedateoftheir elimination, are: articles ofartificial pearls
(February 1995); fertilizer (June 1995); filament ofviscose rayon (December 1995); staple fibres ofviscose
rayon (December 1996); woven fabrics ofsynthetic long filament (December 1996); cotton fabrics
(December 1996); woven fabrics ofsynthetic staple fibre (December 1996); cigarette lighters andparts
(March 1997); andstaple fibres ofpolyester andacrylic (June 1997).WT/TPR/S/32 Trade Policy Review
Page 52
monopolies inother countries. Thecartel forpottery exports isadministered bytheJapan Pottery
Exporters 'Association, which granted 8.695 licences inFY1996; thecartel forpearl exports is
administered bytheJapan Pearl Exporter 'sAssociation, which granted 9,062 licences inFY1996.
(iv) Trade defence mechanisms
29. Japan'scurrent measures regarding theuseofanti-dumping andsafeguard measures arebased
ontheSpecial Duty System oftheCustoms Tariff Lawandtherelevant Cabinet Orders, which were
revised inDecember 1994 toimplement theprovisions oftheUruguay Round Agreements on
Subsidies andCountervailing Measures andonSafeguards.39Revisions inDecember 1994 in
connection withUruguay Round implementation included setting ceilings fortaxation periods andthe
clarification ofprocedures. Since thenthere havebeennomajor changes inthese measures northeir
implementation procedures.
(a) Anti-dumping andcountervailing dutyactions
30. InFebruary 1993, Japan imposed anti-dumping duties forthefirsttime, onimports of
ferro-silico-manganese (used inmaking steel) fromChina (Table AIII.7). Anti-dumping investigations
were initiated oncotton yarnfrom Pakistan inFebruary 1994, withdefinitive duties imposed in
August 1995. Review investigations were conducted inMarch andMay1996 fornewsuppliers of
imports ofcertain Pakistan cotton yarn, withdefinitive duties again imposed inSeptember and
July1996, respectively.40Todate, Japan hasnever taken countervailing actions.
(b) Safeguard measures
31. Japan hasnothadanycases requiring investigation and/or implementation ofsafeguard
measures.41Theauthorities statethatitisimportant toavoid theabuse andarbitrary implementation
ofsafeguard measures; implementation should bebased onboth international agreements and
domestic legislation, taking intoaccount theinternational economic environment relative toJapan.
(v) Origin criteria andrelated requirements
32. Country oforigin labelling, authorized under theLawConcerning Standardization andProper
Labelling ofAgriculture andForestry Products (JAS Law), came intoeffect inSeptember 1996 for
fivetypes ofimported vegetables, i.e.broccoli, garlic, ginger, shiitake mushrooms andtaro. For
domestic products, prefecture oforigin labelling isrequired. According totheauthorities, the
39Thespecial duty system includes countervailing duties, anti-dumping duties, emergency duties and
retaliatory duties. Todate, investigations havebeen initiated regarding countervailing andanti-dumping duties
only (MOF, 1996, p.51). Inthecontext oftheWTO, anumber oftrading partners have made enquiries
regarding Japan 'slegislation asnotified totheCommittee onAnti-Dumping Practices andtheCommittee on
Subsidies andCountervailing Measures.
40WTO document G/ADP/N/22/JPN, 19February 1997.
41InFebruary 1995, twomanufacturers 'associations asked MITI tolimit textile imports from China; MITI
conducted twoinvestigations, butnofinal decision hasyetbeen taken.Japan WT/TPR/S/32
Page 53
labelling wasdemanded byconsumers inorder toassist theminselecting products.42Asnoted above,
(section (3)(iii)(a)), theMAFF reportedly hadasked China forVERs ontwoofthese products, ginger
andgarlic. TheMinistry states thatfurther labelling requirements could beimposed inthefuture,
foritems withhighconsumer demand. Japan usesthePrior Confirmation System (PCS) andthe
Custom 'sConfirmation System (CCS) toconfirm thevalidity ofplace-of-origin declarations forsilk
products, withtheformer usedincases where fraudulent declarations havebeenfound orarelikely
tobefound.43
(4) Policies Influencing Investment, Growth andTrade
(i) Standards andregulations, sanitary andphytosanitary procedures
(a) General policy orientation
33. Theareaofstandards, government regulations andrelated measures remains oneofsome
disagreement between Japan anditstrading partners.44AspartofitsDeregulation Action Program
(DAP) andother deregulation measures, Japan ismaking greater efforts tomove toward increased
international harmonization andtheadoption ofmutual recognition arrangements.45IntheSEPAction
Planforstandards andcertification, forexample, theGovernment states that: "Inprinciple, we
should accept foreign data, introduce mutual recognition systems, andmake thetransition to
self-certification forappropriate items".46A1997amendment oftheJapan Industrial Standardization
Lawincludes introduction of"certification bodies intheprivate sectors (both domestic andinforeign
countries) forissuing JISMark License".
34. Inregard tomutual recognition agreements (MRAs), nocomprehensive measures arecurrently
inplace. Japan hasbeenholding consultations onsuchagreements withtheEuropean Union and
Australia, andwiththeUnited States inregard tomedical devices, pharmaceutical products and
42Thestandards were notified totheWTO under theprovisions oftheAgreement onTechnical Barriers to
Trade.
43WTO document G/TMB/N/82/Add.1, 15February 1996. Japan requires thePCSforallcountries except
China, Chinese Taipei, theEuropean Union, Korea, Norway, Switzerland andtheUnited States; theCCS is
required forChinese Taipei, theEuropean Union, Korea, Norway, Switzerland andtheUnited States; andthe
import quota system isapplied toChina.
44From Japan 'sperspective, "Japanese standards andcertification systems were nowcomparable withthose
ofother countries interms oftransparency andconformity withinternational standards". From theperspective
ofsome trading partners, however, "access tothemarket continued tobehindered byexclusionary business
practices andvarious non-tariff measures. These included burdensome testing, inspection andcustoms clearance
procedures, theuseofcomplex standards anddifficulties ofaccess todistribution networks" (GATT, 1995).
45Government ofJapan (1997), p.5.According totheSocial andEconomic PlanforStructural Reforms
Towards aVital Economy andSecure Life(SEP), forexample, Japan "must bring standards andcertification
procedures intoharmony withinternational norms andconsult onabilateral andregional basis onthepossibility
ofsetting upmutual recognition systems" (EPA, 1995a, p.42).
46EPA (1995a), p.p.116-117. TheAction Plan observes, "There arecases inwhich imports ofnew
products from overseas areheldupbecause there arenoappropriate standards"; and"There arecases inwhich
thetesting methods required byJapan areunclear toother countries orinwhich little progress hasbeen made
towards accepting testdatafrom other countries".WT/TPR/S/32 Trade Policy Review
Page 54
building standards. However, Japan doesnotfavour unilateral recognition ofthestandards and
procedures ofother countries.47Concerning theacceptance offoreign certifications andtestresults,
despite some progress, anumber ofdifficulties remain.48Noamendments wererequired toJapanese
domestic lawstoimplement either theWTO Agreement onTechnical Barriers toTrade (TBT) oron
theApplication ofSanitary andPhytosanitary Measures (SPS).
35. Japan isamember oftheInternational Organization forStandardization (ISO) andthe
International Electrotechnical Commission (IEC).49Within APEC, Japan chairs thePacific Area
Standards Congress (PASC) Standing Committee, aregional professional body, andhaspromoted the
"Partnership-for-Progress" initiatives toassist infrastructural development ofstandards and
conformance. Among theAPEC/PASC activities wasareport presenting fourcasestudies onthe
issueofalignment ofnational withinternational standards. Japan alsounilaterally provides technical
cooperation todeveloping countries, including training programmes forofficials anddispatching
Japanese experts on-site.50
(b) Mandatory technical regulations
36. Japan'smandatory technical regulations, voluntary standards andsanitary/phytosanitary
regulations aresummarized inTable III.7(totheextent thatGovernment information isavailable),51
andrecent notifications under theWTO TBTAgreement arepresented inTable AIII.8. Under the
Consumer Products Safety Lawandother lawsandregulations, otherwise-voluntary standards arealso
applied asmandatory regulations.52Other lawsandregulations related tomandatory regulations are
indicated inTable AIII.9.53Changes inmandatory technical regulations since 1995 include the
reclassification of117electrical appliance items fromCategory A(requiring government certification)
toCategory B(allowing self-certification). These included several types ofelectrical appliances
47According totheauthorities, "Japan believes thatinorder formutual recognition tohave themaximum
effect, itshould beimplemented inamultilateral format withparticipation bythelargest number ofcountries
possible, orbilateral formats, rather thanforittobeundertaken asaunilateral measure".
48According toa1996 report oftheOffice oftheTrade andInvestment Ombudsman, "The system for
accepting foreign inspection data, even ifitexists, israrely utilized inpractice because only afewforeign
inspection institutions areauthorized and/or there exist thedifferences intesting methods" and"Itisessential
toreduce notonlyadministrative involvement through deregulation butalsolimit administrative discretion in
order toensure transparency" (OTO, 1996, p.p.2-3).
49Japan hasassumed thesecretariat roleforatotalof42committees inISOandIEC.
50AIST (1996), p.p.2-22.
51Japan 'sManagement andCoordination Agency, which isunder theOffice ofthePrime Minister, isthe
entity responsible forcollecting information regarding government regulations. Notices ofproposed technical
regulation, standards andconformity assessment procedures arenormally published in"Tsusho-Koho" (JETRO
Daily) (WTO document G/TBT/2/Add.10, 11June 1996).
52The1995 Secretariat Report noted thatthenumber ofJapan Industrial Standards (JIS) applied as
mandatory under such circumstances wasnotknown. According totheauthorities, about 870Japanese
Industrial Standards arequoted in31technical regulations.
53According totheauthorities, therecent adoption ofaproduct liability lawinJapan willnotreplace product
safety regulations, butisinstead complementary tothem.Japan WT/TPR/S/32
Page 55
(July 1995), gasequipment andappliances (May 1996), liquified petroleum gasequipment and
appliances (May 1996), andconsumer products (August 1996). Technical studies aretobemade on
thefeasibility ofadopting about 300IECstandards affecting about 500items, concerning electrical
wiring, lightbulbs andother electrical goods, asmandatory technical regulations under theElectrical
Appliance andMaterial Control Lawby1999. There have been noother significant changes to
mandatory technical regulations since 1995.
Table III.7
Major standards andtechnical regulations inJapan, 1996
Number of
standards or
regulationsPercentage
"corresponding
to"international
standardsaPercentage
equivalent to
international
standardsPercentage
acceptance
ofoverseas
certificationbPercentage
acceptance
ofoverseas
testdatab
A.Mandatory technical
regulations
Pharmaceuticals Affairs Law 2,014 ... ... ... ...
Food Sanitation Law 377 ... ... ... ...
Electrical Appliance andMaterials
Control law498 60 ... ... 100
Consumer Product Safety Law 6 0 ... ... 100
High Pressure GasControl Law 2 50 ... ... 100
Building Standard Lawc... ... ... ... ...
Safety Regulations forRoad
Vehicles274 11 0 14 11
LawConcerning theSafety
Assurance andQuality Improvement
ofFeed150 n.a. n.a. n.a. 100
LawConcerning Screening of
Chemical Substances and
Regulation oftheirManufacture... ... ... ... ...
Radio Law ... ... ... ... ...
Fertilizer Control Law 126 n.a. n.a. n.a. 100
B.Voluntary standards
Japan Industrial Standards (JIS) 8,161 20 25 ... ...
Japan Agricultural Standards (JAS) 416 ... ... n.a. 39d
Total ... ... ... ... ...
... Notavailable.
n.a. Notapplicable.
a Defined as"primary aspects sharing acommon scope".
b Where applicable.
c Building ActCode.
d Fumigation standards, etc.
Source: Information provided bytheJapanese authorities.WT/TPR/S/32 Trade Policy Review
Page 56
(c) Technical standards
37. Standards inJapan arecomposed oftheJapan Industrial Standards (JIS) andtheJapan
Agricultural Standards (JAS), ofwhich there areabout 8,100 and400,respectively (Table III.7).54
Athree-year planforJISalignment, based ontheDeregulation Action Program andother measures,
wasinitiated in1995, targeting about 1,000 JIStobealigned withinternational standards. Asecond
three-year programme wasinitiated inFY1997 toalign 1,000 more JIS,inaneffort toincrease the
level ofinternational harmonization. According totheauthorities, theremaining 6,000 JISdonot
havecorresponding international standards.55Another recent initiative, commencing in1996, was
thepreparation ofdraftJISbased onISO14000; JISidentical totheISO9000 series wereestablished
in1991.56
38. Within theapproximately 8,100 JIS,about 800products arecovered bytheJISMarking
System. Among theobjectives oftheGovernment 'sEighth Long-term Standardization Plan, which
commenced inApril 1996 (theplans arerevised every fiveyears), istogreatly increase thenumber
of"Designated Inspection Bodies" -including foreign testing bodies -forgranting theJISMark (there
were17inMarch 1997), andtorevise examination methods.57About 16,000 domestic factories and
300foreign factories arelicensed fortheJISMark (Table AIII.11), andabout 300foreign factories
havebeen approved under theJASLaw(Table AIII.12). Adecision toexpand cooperation with
foreign testing institutions wasalsoamong theAPEC-related measures adopted byJapan toimprove
standards andcertification procedures.58
(d) Initiatives forenvironmental reasons59
39. AsofApril 1997, therecycling ofglass containers andpolyethylene terephthalate (PET)
bottles bymanufacturers hasbeenmade mandatory under theLawforPromotion ofSorted Collection
andRecycling ofContainers andPackaging. Inregard toeco-labelling schemes, theBasic
Environment Plan adopted in1994 called fortheGovernment toappropriately guide activities
associated witheco-labelling; asofJuly31,1997, thenumber ofproduct categories was71andthat
ofapproved product items was2,045. In1993, theEnvironment Control Standard Commission was
54Changes inJISstandards during FY1996 areindicated inTable AIII.10. JISareestablished orrevised
bythecompetent Minister under theIndustrial Standardization Law after consultation with theJapanese
Industrial Standards Committee (JISC). Publication anddistribution ofJIS,isundertaken bytheJapan
Standards Association, anon-profit organization established in1945. Publication anddistribution ofJAS
information andother activities ofJASdissemination areundertaken byJapan Association ofAgricultural
Standards, anon-profit organization.
55Ofatotal of93TBT andSPSnotifications made byJapan between January 1995 andMarch 1997,
however, onlyonewasforthestated purpose ofharmonizing standards withinternational standards, namely,
arevision ofsafety regulations forroadvehicles forthepurpose ofimproving market access.
56AIST (1996), p.p.15-16.
57According totheAIST, "The current factory inspection system fortheapproval ofJISmarking by
factories, especially those located abroad withminimal exports toJapan, isexceedingly burdensome", AIST
(1996), p.31. According totheauthorities, however, asystem ofthird party certification bodies was
introduced inDecember 1996; theIndustrial Standardization Law wasamended in1997, with aview to
lightening theburden fortheapproval ofJISmarking.
58EPA (1995a), p.117.
59Details ofJapan 'scountry oforigin labelling requirements arepresented insection (3)(v) above.Japan WT/TPR/S/32
Page 57
established under MITI'sJapan Industrial Standards Committee. Incooperation withtheUnited
States, the"Energy Star" programme wasintroduced inOctober 1995, involving alogowhich todate
hasbeenintroduced forfiveproduct categories, namely, computers, displays, printers, facsimiles and
copymachines, toindicate compliance withjointly developed standards forenergy conservation.
(e) Sanitary andphytosanitary regulations
40. Regulatory adjustment tointernational standards wasamong thereasons citedfortherecent
revisions totheFood Sanitation Law, which went intoeffect inMay1996. Changes included the
establishment of"maximum residue limits" (MRLs) foragricultural chemicals infoods; the
introduction ofthe"hazard analysis critical control point" (HACCP) system forfoodproduction and
processing; acceptance ofimport documents inelectronic format; andmeasures toimprove the
efficiency ofinspection procedures. Japan'sSPSnotifications since 1995 aresummarized in
Table AIII.13.60
41. Measures tosimplify andaccelerate import procedures, oneofthebenefits ofrecent
deregulation measures, arepartially summarized inTable III.8. InFebruary 1996, theFood
Automated Import Notification andInspection System (FAINS) became operational, withtheobject
ofexpediting import notifications filedwiththe32quarantine stations located around thecountry.
InFebruary 1997, theterminals usedforcustoms procedures wereupgraded tolinkwiththeFAINS
system. Among theAPEC-related measures adopted byJapan toimprove standards andcertification
procedures istheprovision ofadditional holding areas inquarantine facilities.
Table III.8
Simplification ofimport procedures under theFood Sanitation Law
Systems Description
Exemption from import notification Import notifications arenotrequired forcertain processed foodmaterials suchasanimal
orvegetable crude fatsandoils,malt, hops, etc.
Prior notification Forallfoods, etc.import notifications arereceived seven daysbefore theestimated
dateofcargo arrival. Copies ofaccepted import notifications areissued before the
arrival ofcargo orimmediately afterthecargo isbrought intothebonded area(except
when items must beinspected).
Planned import When certain kinds offoods, etc.arerepeatedly imported, ifimporters submit their
import planontheoccasion oftheinitial import, andnoproblem isfound, the
importers maybeexempted from import notifications ateachsubsequent caseof
importation within acertain period oftime.
Acceptance ofinspection results prepared
byforeign official laboratoriesWhen cargo hasbeeninspected byanofficial laboratory intheexporting country and
theinspection results areattached totheimport notification, thecargo willbeexempt
from corresponding inspections atthequarantine station. However, suchinspection
items onwhich sanitary conditions maybesubject tochanges during transportation
(bacteria, mycotoxin, etc.)areexcluded.
Continuous import ofthesame foods, etc. When certain foods, etc.arerepeatedly imported, ifphysical andchemical inspection
results arepresented ontheoccasion oftheinitial import andnoproblem isfound,
corresponding inspections ateachsubsequent import willbewaived within acertain
period oftime.
Advance confirmation Prior toimporting, food, etc.anditsmanufacturers mayberegistered, provided that
thefood, etc.isconfirmed previously tobeinconformance withtheprovision ofthe
law. Import notifications forregistered food, etc.arepromptly accepted via
examination ofdocuments.
Source: Information provided bytheJapanese authorities.
60Japan 'sregulatory framework forSPSmeasures isdescribed inGATT document TBT/Notif.94.490,
16December 1994 andWTO documents G/SPS/W26, 5July1995; G/SPS/N/JPN/9, 12January 1996; and
G/SPS/N/JPN/13, 11April 1996.WT/TPR/S/32 Trade Policy Review
Page 58
42. Japan'scurrent animal andplant quarantine arrangements aresummarized inTables AIII.14
andAIII.15. Since FY1995, Japan hasbeenconducting athree-year study onthedevelopment of
methods forQuantitative RiskAssessment, based onguidelines oftheInternational Organization for
Epizootics; thestudy concerns thepossible introduction intoJapan ofspecific diseases inconnection
withanimal imports. Thecurrent goalistoassess theriskoffootandmouth disease entering Japan
bymeans ofbeefimports.
43. Recent changes inplantquarantine arrangements include thelifting oftheprevious import ban
onCanadian tomatoes inSeptember 1996, followed bythelifting ofthebanonU.S. tomatoes in
April 1997. InSeptember 1996, theUnited States hadalsorequested thatJapan justify thepractice
oflimiting SPSprotocols tospecific varieties offruit; theUnited States saidthatapple imports into
Japan wereunreasonably blocked.61InApril 1997; theUnited States requested bilateral consultations
pursuant toGATT Article XXIII (onnullification orimpairement).62
(f) Office ofTrade andInvestment Ombudsman (OTO)
44. Inrecent years, Japan'sOffice ofTrade andInvestment Ombudsman (OTO) hasplayed an
important roleinbringing attention tooutstanding issues, particularly through publication ofthe
Market Access Ombudsman Council (MAOC) report entitled "Recommendation onMarket Access
Issues asconcerns Standards, Certifications andothers".63TheMarch 1995 Report, forexample,
gave recommendations for19items, most ofwhich were included intheDeregulation Action
Program. Overall, through FY1996, theOTO received atotalof555individual complaints, and
processed 538. Thisrepresents anincrease of51complaints overthelevel ofOctober 1993, as
recorded intheprevious Secretariat Report. Many ofthecomplaints concern theFood Sanitation
Law, which isunder theAuthority oftheMinistry ofHealth andWelfare.
(ii) Subsidies andother financial assistance
45. Japan'ssubsidies notification inSeptember 1996totheWTO lists27programmes, withthose
foragriculture, coalandsmall andmedium-sized enterprise (SME) accounting forthegreat majority
(Table III.9).64Alarge share ofthesubsidies aregranted intheform oftaxcredits ortaxdeferrals.
Forexample, taxrevenue forgone inFY1997 wasestimated atsome ¥7billion forthespecial
depreciation allowance oncertain machinery usedforhigh-technology industries indesignated high-
technology industrial development areas. Trading partners made asubstantial number ofenquiries
regarding thenotification, some ofwhich wereanswered orally inameeting oftheWTO Committee
onSubsidies andCountervailing Measures; other questions await written response. Thenature ofthe
61WTO document G/SPS/R/6, 14November 1996. TheUnited States hasalsoasserted thatJapan refuses
toaccept apple imports treated inthesame wayasapples imported from New Zealand (ITR, 2October 1996,
p.p.1526-7).
62WTO document WT/DS76/1, 9April 1997. Bilateral consultations were heldinGeneva on5June, 1997.
63TheReport, published annually since March 1994, alsoincludes the"Policy Actions onMarket Access
Issues asconcerns Standards, Certifications andothers" oftheOffice Market Access asafollow-up tothe
MAOC recommendations. Details oftheOTO, thetypes ofcomplaints received andtheir resolution are
presented inGATT (1995), VolI,p.p.64-68.
64WTO document G/SCM/N/16/JPN,19 September 1996. Asupplementary notification wasWTO document
G/SCM/N/16/JPN/Suppl.1, 26May 1997.Japan WT/TPR/S/32
Page 59
enquiries implies thatnotallsubsidies havebeennotified, withonlythose atthenational, rather than
regional, levelincluded.65
Table III.9
Subsidies notified under WTO provisions, FY1993-95
(¥million)
Subsidy amount
1993 1994 1995a
Coal andother energy-related
Grants formodernizing coalpits 2,864 2,796 3,615
Grants forsecurity ofmines 2,902 2,533 4,016
Grants forpromoting coalmining companies 'diversification ofmanagement and
developing newbusiness frontiers 604 1,185 1,585
Grants forstabilizing coalindustry 4,290 3,486 3,743
Special deduction forexpenditure onprospecting fordomestic oroverseas mineral
deposits n.a.cn.a.cn.a.c
Industry
Subsidy fortherationalization ofpetroleum refinery 1,063 982 1,155
Subsidy forpromotion oftextile andapparel industry ... ... 143
Loan guarantee forpromotion oftextile &apparel industry ... ... 243b
Additional depreciation onmachinery (inrelation tothelawontemporary measures to
facilitate business innovation) n.a.cn.a.cn.a.c
Special depreciation onmachinery (inrelation toSMEs) n.a.cn.a.cn.a.c
Special depreciation onmachinery (inrelation tothelawontemporary measures to
facilitate business innovation) n.a.cn.a.cn.a.c
Agriculture andfisheries
Measures forrice,wheat andbarley ... 190,900 183,900
Measures forsoyabean andrapeseed ... 134 1,700
Measures forsugar ... 16,187 17,400
Measures formilkanddairy products ... 38,393 37,400
Measures forbovine meat andpigmeat ... 69,444 83,500
Measures foreggs ... 1,236 1,200
Measures forvegetables ... 7,682 8,100
Measures forfruits ... 765 2,600
Resource propagation programme forsalmon ... 469 469
Additional depreciation onfishing boats n.a.cn.a.cn.a.c
Special depreciation onfacilities (agricultural processing industries) n.a.cn.a.cn.a.c
Taxmeasures tostrengthen themanagement ofsmall andmedium-sized corporations
(inrelation totheLawonTemporary Measures forImprovement ofAgricultural
Processing Industry) n.a.cn.a.cn.a.c
Additional depreciation onmachinery bycorporations which carry outplans for
improvement ofagricultural management (timber industry) n.a.cn.a.cn.a.c
Research anddevelopment, environmental protection
Special depreciation oncertain machinery usedforhigh-technology industries inthe
designated high-technology industrial development areas ("Technopolis") n.a.cn.a.cn.a.c
Grant forpromotion ofresearch anddevelopment offuture ships 862 873 839
Reserve forpromoting theuseofrecycled resources n.a.cn.a.cn.a.c
... Notavailable.
n.a. Notapplicable.
a Budgeted amount.
b Total newloanguarantees.
c Taxcredit and/or taxdeferral.
Source: Information provided bytheJapanese authorities.
65WTO documents G/SCM/Q2/JPN/1-10.WT/TPR/S/32 Trade Policy Review
Page 60
(iii) Import andinward investment promotion measures
46. Although Japan'simport andinvestment promotion efforts areprimarily aimed atimproving
market access fortrading partners, thepotential benefits forthedomestic economy -andtheoverall
complexity oftheissue -areincreasingly being recognized, asnoted intheGovernment 'sSocial and
Economic PlanforStructural Reforms Towards aVital Economy andSecure Life(SEP).66Todate,
promotion programmes havebeenmore concerned about assisting withexisting procedures thanwith
removing major obstacles; perhaps offering incentives mayhave been politically easier than
implementing reforms. However, thismaybechanging astheGovernment gives greater emphasis
toderegulation. Among themain issues tobeconsidered iswhether theconsiderable restrictions
imposed onthesectors andproducts eligible forincentives sharply limitthepotential benefits forthe
Japanese economy asawhole.67
(a) Import promotion
47. TheImport Board, which includes participation byforeign andforeign-affiliated companies
andisunder theauthority oftheTrade Conference, hasplayed animportant roleintheformulation
ofJapan'srecent import promotion policy (Chapter II).68Thecurrent measures, firstannounced in
October 1993, havebeenrenewed forFY1997(Table III.10).69Budgetary costsinFY1995to1997,
forJapan External Trade Organization (JETRO) import promotion andFAZ-related activities, were
¥6.7, 7.3and7.0billion, respectively. Costestimates interms offorgone taxrevenue havebeen
estimated at¥1.9billion inFY1995and¥3.1billion forFY1996. According toMITI data,thetotal
levelofsubsidized loans affiliated withimport-promotion financing measures wasabout ¥142.1 billion
inFY1994, withmost programmes showing asteady decline inrecent years.70
66TheSEP states, "The promotion ofimports andtheexpansion ofincoming direct investments will
encourage competition. Steps tobetaken from thisperspective include market-opening measures andthe
creation ofimport-promotion zones, enhancement ofimport-related infrastructure, andprovision ofimport
incentives intaxation andfinancial assistance areas. Along with this, wemust rectify theimpediments to
incoming direct investments (high landprices, etc.) andtheimpediments toimports (anticompetitive business
practices, etc.)" (EPA, 1995a, p.39).
67Forexample, the1995 Secretariat Report noted thatimport promotion measures, when usedonaselective
basis, mayintroduce additional economic distortions andarelikely tobequestionable onresource-efficiency
grounds. Inaddition, import promotion measures canbecounterproductive totheyextent theydistract from,
orsubstitute for,deregulation andtrade liberalization (GATT, 1995), Vol. I,p.75.
68During Japan 's1995 Trade Policy Review, however, oneofJapan 'strading partners complained that
experiences withsubmissions totheImport Board were "disappointing" (GATT document C/RM/M/57/Add.1.,
p.27).
69Asignificant exception istheFAZ Law, which wasextended fortenyears, until 2005.
70Inthecase oftheFinancing Program forManufactured Imports, loans levels were ¥189.2 billion in
FY1992, ¥151.1 billion inFY1993, ¥127.6 billion inFY1994 and¥87.3 billion inFY1995.Japan WT/TPR/S/32
Page 61
Table III.10
Overview ofJapan 'simport promotion policy, 1997
I. System oftaxincentives formanufactured imports
a. Reserve Fund forWholesalers andRetailers (eliminated on31March 1997)
b. TaxCredits andSpecial Depreciation forManufacturers
II. Policy financing measures forthepromotion ofimports
a. Financing Program forImport Facilities Enhancement (Japan Development Bank)
b. Financing Program forManufactured Imports (Export-Import Bank ofJapan)
c. Loans toFacilitate Import Sales (Small Business Finance Corporation, People 'sFinance Corporation)
d. Prepayment Import Insurance
III. JETRO 'simport promotion activities
a. Senior Trade Advisor
b. Import Product Specialist
c. Inviting Business People toJapan
d. Program toProvide Local Training toForeign Business People
e. Business Support Center
f. Local (Integrated) Import Promotion Center
g. Export-to-Japan Campaigns Support Program
h. Regional Import Promotion Activities
i. Program toPromote Housing Imports
j. Program toPromote Imports ofAutomobiles andAutomotive Parts
k. Survey ontheActual Conditions Regarding Access toJapan
IV. Establishment offoreign access zones (FAZs)
V. Import Board
a. Vision ofImprovements inAccessing theJapanese Market
VI. Office ofTrade andInvestment Ombudsman (OTO)
a. Market Access Ombudsman Council
VII. Government procurement offoreign products
a. Action Programme forGovernment Procurement
Source: Information provided bytheJapanese authorities.
48. Themain objectives ofJapan'simport promotion measures, according totheauthorities, are
bothtoencourage domestic producers anddistributors toswitch toimported products, bytemporarily
subsidizing transition costs, andtoencourage foreign exporters andinvestors toincrease their
presence inJapan bytemporarily subsidizing entry costs.71Inthecaseoftaxincentives, only
manufactured products (listed inSITC Sections 5to8)withanexisting zerotariff rateareeligible;
financing measures, bycontrast, canbeapplied tomanufactured products which donotenter duty
free. Although MITI hasstated thattheprogrammes "demonstrate effective results when viewed
comprehensively", nocost-benefit analysis hasapparently beenattempted. DatafromMITI, however,
doindicate thatimports ofmanufactured goods eligible fortaxincentives, which areequivalent to
about 25percentoftotalimports byvalue, haveincreased onlysomewhat faster thanimports overall.
49. Among thedevelopments inJapan'simport promotion activities sincetheprevious Secretariat
Report aretheopening ofnumerous Foreign Access Zones (section (3)(i)); initiation oftheJETRO
Survey ontheActual Conditions Regarding Access toJapan; initiation ofJETRO Imported Housing
Material Centers inTokyo andOsaka; andanumber ofchanges ineligibility criteria fortax
incentives andfinancing programmes. JETRO surveys onhousing andmedical equipment were
published inMarch 1996, andadditional surveys were inpreparation regarding processed foods,
petrochemicals andcosmetics. Modifications intaxincentives forFY1997 include theextension of
mostcredits andspecial depreciation measures foranadditional year, andabolishion ofreserve fund
71GATT (1995), Vol. I,p.73.WT/TPR/S/32 Trade Policy Review
Page 62
provisions forwholesalers andretailers; onfinancing programmes, mostlowinterest rateloans were
extended foranadditional year, andcertain eligibility criteria forforeign-affiliated firms havebeen
eased.
(b) Investment promotion
50. InFY1995, foreign-affiliated firms accounted for1.5percentoftotal sales inJapan,
0.5percentofemployment and12.1percentoftotalimports (about 3.4percentifpetroleum-related
imports areexcluded). Thepercapita inward investment level in1994 wasUS$154 forJapan,
compared toUS$775 forGermany, US$2,172 forFrance andUS$2,889 fortheUnited States
(all1993).72According totheAdministrative Reform Committee (ARC), "The striking dearth of
direct foreign investment inJapan attests toJapan'slackofappeal asanarena foreconomic
activities".73Recently, however, itmight beargued thattheenvironment forinward foreign direct
investment (FDI) hasimproved. According tooneEuropean commentator, forexample, technical
advantages arepresent overJapanese competitors, consumers havecome toquestion highprices, costs
have been falling, more staffareavailable, domestic companies aremore favourable toforeign
cooperation, theeconomic cycle offers advantages andother constraints haveloosened.74
51. TheJapan Investment Council (JIC), created bytheGovernment inJuly1994 asoneofthe
measures topromote inward FDI, released astatement inJune1995 onthebenefits ofinward FDI
forJapan: "Increased foreign direct investment inJapan contributes tostructural reform ofJapanese
economy, suchasenhancement ofJapanese economic vitalization, creation ofnewbusiness, reduction
ofthedisparities between international anddomestic prices, [and] import expansion, through
introduction ofthenewtechnology, management know-how andvarious kinds ofcompetition among
domestic andforeign firms. Also itwillbenefit Japanese consumers, bringing asupply ofless
expensive andbetter goods andservices andgreater selection."75
52. Inward andoutward FDIisgoverned bythe1949 Foreign Exchange andForeign Trade
Control Law(asamended in1980), andissupplemented byCabinet andministerial orders. There
arealsospecific regulations forsuch sectors astransportation andcommunications, including
shareholding restrictions (Chapter IV(4)(iii) and(v)). Asexceptions toitsparticipation intheOECD
Code ofLiberalisation ofCapital Movements, Japan hasreserved thefollowing sectors inregard to
inward FDI: primary industry related toagriculture, forestry andfisheries; mining; oil;leather and
leather products manufacturing; airtransport; maritime transport; andinvestment trust
72MITI (1995), p.62.Data oninward andoutward foreign direct investment forJapan arepresented in
Chapter I.
73ARC (1996), p.2.
74Also, "The oldstructures applying toFDIhave weakened: thenetwork linking politicians, bureaucrats
andbusiness executives isweakening, long-term business relationships between suppliers anddistributors are
notasexclusive andstrong asbefore andtheideaoflifetime employment with acompany isnolonger a
predominant concept. Inaddition, pressure from overseas andrecent deregulations haveweakened thekeiretsu
system" (Yoshitomi andGraham, 1996, p.209).
75JIC(1996), p.52.The1995 Secretariat Report noted that,according totheauthorities, theaimofJapan 's
promotion policy forinward FDIwasshifting from a"balanced interaction" toagenuine pursuit ofbenefits,
including innovative managerial skills andincreased domestic competition.Japan WT/TPR/S/32
Page 63
management.76Inaddition, theaircraft, arms, explosives, nuclear power, space, electric utilities, gas
utilities, vaccine, security guard services, telecommunications, radio, television andcable television,
andbroadcasting sectors havebeenexempted onthegrounds ofpublic order andsecurity. According
totheauthorities, however, nonotified investment requests since 1980 have been rejected.
InFY1996, themost recent yearforwhich dataoninvestment inreserved sectors areavailable,
36firms notified investments inthepetroleum sector, three inairtransport, andtwoinleather and
leather products manufacturing.
53. TheLawonExtraordinary Measures forthePromotion ofImports andFacilitation ofInward
Investment, originally scheduled toexpire inMay 1996, wasextended until 2006. Promotional
measures, comprising mainly taxincentives, financial support andtechnical assistance, were also
expanded (Table III.11). Estimates ofthetotalbudgetary costofJapan'sinvestment promotion
programmes, including forgone taxrevenues, areunavailable according totheauthorities. According
totheauthorities, thecostofJETRO promotional programmes wasabout ¥575 million inFY1996,
while theauthorized level oflow-interest loans was¥114 billion. Actual loandisbursement in
FY1996, however, was¥9.1billion. Loan guarantees tosmall andmedium-sized firms totalled
¥1.7billion (13cases) intheperiod FY1993-96.
54. According totheJIC,promotion measures focus on"theinitial stages ofinvestments".77Less
emphasis isplaced onexpanding existing investments, partly duetothefactthatprofit levels forsuch
foreign-affiliated firms arealready generally higher thantheirJapanese counterparts.78Among the
various eligibility criteria formost incentives istherequirement thatparticipants becertified asa
"Designated Inward Investor".79Atotalof151economic sectors areopen toDesignated Inward
Investors, including some services asrecent additions. Many sectors areexcluded, however,
including agriculture, leather footwear andmany other low-productivity sectors (Table AIII.16).80
76OECD (1995a), p.73.Inward direct investment ininvestment trustmanagement isnotsubject toprior
notification.
77JIC(1996), p.2.
78According toR.Neumann, "The truevalue oftheactions taken bytheJapanese government toimprove
thesituation isexaggerated, partially because these measures areaimed atnewcomers instead ofcompanies
currently interacting within themarket" (Yoshitomi andGraham, 1996, p.204).
79Parties desiring tobeeligible forpreferential treatment must becertified asaDesignated Inward Investor,
withcertification valid foroneyearonly; MITI (1995a), p.12.Standard processing timeisonemonth orless
(JIC, 1996, p.65).
80MITI (1995a), p.110. According totheauthorities, eligibility forpromoted sectors isaccording tothe
following criteria: (i)"toachieve thesound development ofthenational economy inharmony withinternational
economic development, thesaidinward investment activity must berecognized asanactivity forwhich support
isnecessary andappropriate"; (ii)"conduct ofsaidinward investment activity isrecognized ascontributing to
thebetterment ofthelifeofJapanese consumers through theimprovement ofquality andother aspects ofgoods
andservices."; and(iii)"conduct ofsaidinward investment activity isrecognized ascontributing tothe
advancement ofinterntional economic exchanges intheareaofthesaidactivity through exchanges oftechnology
andknowledge withJapanese companies".WT/TPR/S/32 Trade Policy Review
Page 64
Table III.11
Measures forpromoting foreign direct investment intoJapan, FY1996
I. Taxincentives -extension oflosscarry-over period
Designated Inward Investors cancarry overtheiroperating losses foruptotenyears inthose accounting years ending no
laterthanfiveyears (currently three years) aftertheenterprise 'sfounding.
II. Loan guarantees through theIndustrial Structural Improvement Fund (ISIF)
(a)Relaxation ofconditions forobtaining certification asaDesignated Inward Investor: Acompany which hasbeen
operating forlessthaneight years (currently fiveyears) iseligible forcertification.
(b)Relaxation ofconditions forobtaining loanguarantees from ISIF: Currently, inorder toobtain loanguarantees, asa
rule,ISIFrequires thebacking ofacapitalized enterprise andalegal representative oftheborrower asabacker of
guarantees. Thecondition ofrequiring aguarantee backer isabolished when thebacking ofcapitalized enterprise can
beobtained.
III. Provision oflow-interest financing from theJapan Development Bank (JDB), etc.
(a)Expanding eligible projects.
Former limitation thatrequired establishment inoneofsixindustrial high-tech fields hasbeeneliminated. Those
projects establishing facilities (including land) forlease usedbyforeign companies andforeign affiliates with
50percentforeign ownership ormore, oranycompany establishing office buildings inwhich themain tenants are
non-Japanese businesses areeligible.
(b)Creating newloanprogrammes.
-Loan programme forpromoting market entry offoreign-affiliated firms: Inaddition tothecapital investment
finance, thenewprogramme willfinance related working capital needs (e.g. rentforfacilities, property tax,
insurance premium).
-Loan programme forfacilitating international cooperation between enterprises: Iftheforeign share inthe
company exceeds 1/3oftotalequity asaresult ofM&A, thecompany canobtain JDBloans forcapital investment
afterward.
IV. Import promotion measures
(a)Taxreductions, applied tonational andlocal taxes, forForeign Access Zone (FAZ) related businesses. Businesses
undertaking activities topromote distribution ofimported cargo (wholesalers, manufacturers, transporters orretailers
dealing withimported goods) within specified zones forcongregation inFAZ areas designated bythelocal governments
ofapproved FAZ areas canmake useoffollowing taxreduction measures:
-Reduction ofnational taxes (TaxIncentives forthePromotion ofBusiness Congregation within theFAZ Areas):
Businesses conducting activities topromote distribution ofimported cargo areallowed aspecial depreciation with
regard tocertain machinery, facilities, buildings, etc.which havebeenacquired fortheirbusiness use. (Therate
ofspecial depreciation: 25percentformachinery andfacilities; 12percentforbuildings.)
-Reduction oflocal taxes: Businesses conducting activities topromote distribution ofimported cargo areexempted
from special landholding taxonthelandforthefacilities. Also, businesses conducting activities topromote
distribution ofimported cargoes willbeeligible forareduction orexemption from therealestate acquisition tax
andfixed assets tax.
(b)Loan guarantees andexceptional measures provided bytheSmall Business Credit Insurance forFAZ-related businesses:
Businesses undertaking activities topromote distribution ofimported cargo (wholesalers, manufacturers, transporters or
retailers dealing withimported goods) within specified zones forcongregation inFAZ areas designated bythelocal
governments ofapproved FAZ areas canmake useoffollowing loanguarantees andexceptional measures related to
credit insurance:
-Loan guarantees through the(ISIF): Loan guarantees areprovided bytheIndustrial Structure Improvement Fund
tobusinesses conducting activities topromote distribution ofimported cargo toaidinborrowing necessary funds,
including operation funds.
-Exceptional measures provided bySmall Business Credit Insurance: Exceptional measures areprovided bySmall
Business Credit Insurance tosmall andmedium-sized companies conducting activities topromote distribution of
imported cargo.
Table III.11 (cont'd)Japan WT/TPR/S/32
Page 65
(c)Special financing measures forFAZ-related businesses: With regard totheJDBfinancing programme forimport
facilities enhancement andtheSmall Business Finance Corporation 'sLoans toFacilitate Import Sales, import-related
businesses within theFAZ areas areabletoreceive loans withspecial conditions:
-JDB(Financing Programme forImport Facilities Enhancement): Theeligibility requirement forwholesalers,
retailers, service businesses andothers thatimported goods account formore than50percentofalltheirhandlings
iseliminated (i.e.these businesses areeligible forthisprogramme regardless oftheshare ofimported goods among
theirhandling). Also, manufacturers andothers areabletoreceive loans notonlywhen theyinvest inJapan for
thefirsttime, butevenforsecond andsubsequent investments.
-Small Business Finance Corporation (Loans toFacilitate Import Sales): Wholesalers orretailers selling imported
goods through theirownoffices intheFAZ facilities orcontacts withbusinesses intheFAZ facilities areableto
receive upto¥400 million (usually ¥270 million).
V. Measures forsmall andmedium-sized enterprises
(a)Training foradministrative managers offoreign-affiliated firms: Institute oftheJapan Small Business Corporation
offers training programmes onpersonnel management andbusiness practices inJapan, etc.foradministrative managers
etc;ofsmall andmedium-sized foreign-affiliated firms. Theparticipants aresubsidized ontwothirds ofthetraining
fee.
VI. Venture support measures
(a)Loan guarantees forloans using collateral ofintellectual property rights forventure enterprises: theISIFprovides loan
guarantees forupto80percent(usually 70percent) ofbusiness funds, anddoesnotrequire aguarantee backer ofa
capitalized enterprise ifthecollateral oftheloanisintellectual property rights.
(b)Investment forventure enterprises: Inaddition toacompany which hasbeenoperating orhassubmitted anapplication
forapatent lessthanfiveyears earlier (currently three years), acompany which establishes know-how infiveyears is
abletotakeinvestments from theNewBusiness Investment Company Limited.
(c)Introducing astock option system: TheGovernment ofJapan expands thetermofexercise forthecompany 's
executives oremployees toaccept newstock shares ofthecompany atlower price thanothers based ontheresolution
ofageneral meeting ofstockholders from sixmonths towithin tenyears.
Source: Information provided bytheJapanese authorities.
55. Lowproductivity levels inseveral sub-sectors oftheJapanese economy, including agriculture
andcommerce (Chapter IV(1)) would seem toindicate extensive opportunities forforeign (aswellas
domestic) investors.81Ontheother hand, therelatively lowinvestment levels insuchsectors -i.e.
relative tocapital availability -mayindicate constraints forbothdomestic andforeign potential
investors. According totheJIC,"The levelofforeign direct investment inJapan remains lowasa
whole, andalsolessthanthatforJapanese direct investment abroad, which, inturn, hascreated a
large inward-outward investment imbalance. This isduetoeconomic factors such asthe
macroeconomic climate, including theappreciation oftheyen,andhighbusiness related costs in
Japan, including landprices aswellastoinstitutional factors suchasregulations based onlawsor
administrative guidance".82Theimportance ofremoving regulatory obstacles inpromoting FDIinto
Japan hasalsobeendocumented within anacademic context (Box III.1).
81Asnoted inanearlier study bytheMcKinsey Institute, "Perhaps themost important wayinwhich
productivity canbeincreased, especially inanindustry where productivity islagging, isthrough theentry of
transplants managed bycompanies thathave bestpractice methods" (McKinsey, 1993, Ch.3,p.25). Inthis
context, thelimitations imposed byJapan onthesectors available forinvestment incentives mayimpose a
serious constraint.
82JIC(1996), p.52.Asstated byW.Attridge, "Regulation hasseveral negative effects onanewbusiness:
itslows down theactions ofacompany doing something new, itaddstothecostofopening anoffice; itadds
complexity thatrequires additional expert staffing; anditincreases distribution costs" (Yoshitomi andGraham,
1996, p.212).WT/TPR/S/32 Trade Policy Review
Page 66
BoxIII.1 Policy Implications ofInvestment Promotion
"Supply ofsuperior goods andservices offoreign firms through FDI isdesirable toaccomplish
competition andefficient resource allocation inthemarket. Therefore, theremoval ofobstacles toFDI
andtheaccomplishment ofequivalent market conditions forJapanese andforeign firms arenecessary to
increase thewelfare oftheJapanese economy. Thelowlevel ofFDIinJapan hasbasically been caused
byinstitutional factors oftheJapanese market such asgovernment regulations andbusiness practices,
market conditions such astheexchange ratechanges andthedifference inwage rateandrental ofland
orhousing, andthemanagerial resources offirms. Thus itisdifficult toattract FDIonlybyproviding
policy incentives.
Some policy interventions which areaimed toremove theobstacles inthemarket arerational, butother
policies toartificially increase FDIinJapan areirrational since theycostmuch anddistort themarket.
Thenegative effect ofthestringent control ofthepastisstillareason forthelowlevel ofFDIinJapan.
There remains avariety ofregulations onbusiness activities inJapan thatdeter FDI, even though the
direct regulations onFDIhave been removed. Those regulations bring additional costs toforeign firms
which arealready disadvantaged intheir knowledge oftheJapanese market andbecome anentry barrier
forforeign firms, even iftheregulations areapplied equivalently. Expenditure oncollecting information
andmarketing issunk asafixed cost. Restrictive business practices among Japanese firms themselves
raise theentry costofforeign firms. What isrequired most now isapolicy toremove theexisting
government regulations which aredisadvantageous tonewentrants, foreign firms inparticular, andto
correct anti-competitive business practices inJapan. Government policy which focuses onsubsidies and
assistance toforeign firms without removing government regulations andanti-competitive business
practices willnotbeeffective inpromoting thepenetration offoreign firms intotheJapanese market."
Source: Ryuhei Wakasugi, "Why foreign firms'entry hasbeen lowinJapan", inYoshitomi andGraham
(1996), p.p.131-132.
56. TheJICinApril 1996 released astatement onthebenefits ofmergers andacquisitions
(M&A) fortheJapanese economy, stating "itisexpected thattheM&A would haveapositive and
stimulating effect on[the]increase offoreign direct investment andvitalization ofindustrial activity
inJapan".83Although lowinabsolute terms, mergers andacquisitions have beenaccelerating in
recent years, influenced strongly byrecent economic trends (Tables III.12, AIII.17 andAIII.18).84
However, according totheJIC,procedures asawhole formergers andacquisitions ofbusiness are
complex andtime-consuming. Other problems arealackofrelevant information andresistance by
clients andemployees toM&A (especially byforeigners), aswellasextremely highacquisition prices
andbusiness costs.85Asaresult, anAction PlanonM&A hasbeen developed toaddress these
issues. Legal procedures under Commercial LawandtheSecurities andExchange Lawhaverecently
been revised togivestockholders more rights, boost auditing function, improve disclosure of
83JIC(1996). TheJIC,states "M&A, which allows effective useofexisting business resources, iscommon
practice around theworld asaform ofdirect investment. Itwillrejuvenate theJapanese economy, create
employment, andinternationalize economic society bytransferring business resources andintroducing new
technology andsystems".
84According totheauthorities, separate M&A statistics concerning foreign-affiliated firms arenotavailable.
85JIC(1996), p.p.55-56. According totheEuropean Union, themost serious difficulties faced byforeign
firms attempting toacquire Japanese firms are: cross-shareholdings andtheresulting lowlevels of
publicly-traded stock; mistrust offoreign ownership; unwillingness ofKeiretsu members tohave another
member under foreign control; complex legal provisions; andalackoftransparency inaccounting practices
(EU, 1997, p.7).Japan WT/TPR/S/32
Page 67
corporate financial information andopen anover-the-counter market forspecial ruleissues.86
In1997, theCommercial Code wasrevised tosimplify theprocedure forthemerger ofcompanies
andtoenhance disclosure regarding information onmergers.
Table III.12
Number ofmerger andacquisition notifications, FY1992-95a
1992 1993 1994 1995
Mergers 2,002 1,917 2,000 2,520
Acquisitions ofbusiness, etc. 1,079 1,153 1,255 1,467
(No.including foreign affiliates)
Total 3,081 3,070 3,255 3,987
a Databeyond FY1995 were notavailable
Source: Information provided bytheJapanese authorities.
(iv) Government procurement measures
57. TheWTO Agreement onGovernment Procurement (GPA) entered intoeffect inJanuary 1996,
withJapan asoneoftheinitial eight signatories. Toimplement theAgreement inJapan, revisions
were required toanumber ofCabinet Orders, ministerial ordinances andother procurement-related
regulations, together withsimilar changes attheprefectural andlocallevels.87Threshold levels set
byJapan under theGPA fortheprocurement ofgoods andservices other thanconstruction are
generally equivalent orbelow those ofother signatories, while thelevelforconstruction services is
inmost cases considerably higher.88According totheauthorities, Japan'sintention insetting the
higher levelforconstruction services wastocarefully match theestimated value oftheprocurement
opportunities offered byother signatories. Thisintention, however, maybeinconflict withanother
stated government objective, inthecontext ofJapan'simport promotion programmes, ofincreasing
imports offoreign-made products andservices.
58. Inaddition tomost central government entities, and84government-related entities, suchas
theHousing Loan Corporation, Japan included initsGPA coverage all47prefectures and
all"designated cities", i.e.12cities withpopulations over500,000. Coverage forservices includes
most public works, telecommunications, airtransport, computer andvehicle repair. Exceptions to
GPA coverage include theNational Space Development Agency (NASDA) and, atthecentral
86JIC(1996), p.57.
87Thelegal structure governing Japan 'sprocurement system consists oftheAccounts Law, Cabinet Orders,
ministerial ordinances andinternal circulars (Grier, 1996, p.626). Among theCabinet Orders revised were
theCabinet Order Stipulating Special Procedures forGovernment Procurement ofGoods andSpecified Services
andtheCabinet Order Stipulating Special Procedures forLocal Public Body Procurement ofGoods and
Specified Services (Prime Minister 'sOffice, 1997, p.707).
88Thethreshold level inthecaseofcentral government entities forconstruction services, atSDR4.5million,
islower thanthose ofother signatories, while forsub-central andallother specified entities thelevel isSDR
15million, compared totheSDR 5million ofmost other signatories. Theapplied threshold levels forgoods
andsome services aretypically below thelevels under theGPA.WT/TPR/S/32 Trade Policy Review
Page 68
government level, contracts awarded tocooperatives orassociations.89According totheauthorities,
Japan decided nottoinclude NASDA initsGPA coverage because noequivalent coverage was
offered byanymajor trading partner. Other exclusions include allprocurement related toelectricity
generation anddistribution, onthegrounds thattheGovernment cannot ensure compliance byprivate
enterprises; alsoexcluded istheprocurement ofpublic electrical telecommunications equipment by
Nippon Telephone andTelegraph (NTT), onthegrounds thatnoequivalent coverage insuchanarea
wasoffered byother negotiating parties.90
59. With thegeneral exception ofcertain services andlocal government procurement, most of
Japan'scommitments wereimplemented inadvance ofJanuary 1996, when theWTO GPAcame into
effect; early implementation resulted from theGovernment 'sAction Programme onGovernment
Procurement Procedures andtheAction PlanonReform oftheBidding andContracting Procedures
forPublic Works. Thefirstprogramme ispartofgeneral measures toimprove market access, which
were firstinitiated in1985. InNovember 1991, measures were introduced toinclude goods
procurement above athreshold levelofSDR 100,000.91InOctober 1994, thenumber ofprocuring
entities wasincreased to114. Other Action Programme measures arethestandardization ofnotices
forinvitations totender, theestablishment ofanelectronic database accessible through theInternet,
andtheinitiation ofgovernment seminars onprocurement.92Public procurement procedures have
beenamajor aspect ofrecent U.S.-Japan bilateral agreements (Chapter II(4)(i)).
60. Theinitial 1994Action PlanonReform oftheBidding andContracting Procedures forPublic
Works isintended topromote greater fairness, transparency andcompetition intheprocurement of
construction services, andincludes measures topromote "open competitive tendering" andgreatly
reduce thepreviously pervasive practice ofselective tendering.93ThePlan applies tocentral
government projects withacontract value overSDR 4.5million andquasi-governmental projects over
SDR 15million, thesame asthecurrent GPA levels, butincludes acommitment formost central
89Theobjective oftheexclusions forcooperatives andassociations, according totheauthorities, isto
promote small businesses andtheirassociations. According totheUnited States Trade Representative (USTR),
quasi-governmental entities andthird sector projects (Japanese Government andprivate-sector jointventures)
arenotcovered byJapan 'sWTO Procurement Code commitments orAction Plans, buttheyincreasingly
purchase services andgoods thatformerly were theresponsibility ofnational andlocal governments. Official
dataindicate thatthere are6,659 quasi-government entities withmore than25percentlocal government equity
(USTR, 1996).
90Despite privatization, theGovernment hasreserved atleast twothirds ofNTT shares forgovernment
ownership. NTT procurement ofpublic electrical telecommunications equipment iscovered, however, onan
MFN basis byJapan 'sbilateral arrangement onNTT withtheUnited States.
91Theprogramme wasfurther expanded inJanuary 1996 toinclude services procurement, other than
construction services.
92Prime Minister 'sOffice (1997), p.709. JETRO introduced anInternet-accessible procurement database
in1995 (WTO documents GPA/IC/M/4 andGPA/IC/W/7/Add.1, 27July1995 and28October 1994). Some
ministries andagencies arealsoconsidering electronic databases andtendering facilities (WTO documents
GPA/M/2 andGPA/W/15, 23July1996 and10May 1996).
93Bidding forindividual projects isopentofirms thathavepreviously completed registration procedures with
thespecific entity concerned (MOC, 1995, p.10).According totheauthorities, noforeign suppliers haveever
been denied listing. In1995, 1,751 foreign suppliers -only 0.6percentofthetotal number -were listed
(Prime Minister 'sOffice, 1997, p.p.700-701).Japan WT/TPR/S/32
Page 69
government andgovernment-related entities topublish atthebeginning ofeachfiscal yeartheirannual
planned procurement above thethreshold levels.94InJune1996, theGovernment introduced the
Operational Guidelines withRespect totheAction PlanonReform oftheBidding andContracting
Procedures forPublic Works, asafollow-up tothe1994 Action Plan. TheGuidelines stipulate the
criteria forqualifications toparticipate inacompetitive bidandsimplify certain tendering procedures
fordesign andconsulting services. Preventive measures against bid-rigging were alsoincluded.
61. Forprocurement above thethreshold levelofSDR 100,000 bythe114entities specified under
theAction Program, thelevelofopen contracting in1995 increased toslightly over76percentof
thetotalprocurement value of¥845 billion, withtheprocurement ofoverseas products accounting
for18.4percentofthetotal(Table III.13).95Theshare ofselective tendering fellto4.2percent,
andthatofsingle tendering to19.7percent.96Data provided bytheMOC indicate that, of
13,700 construction projects commissioned bytheMinistry inFY1994, 112projects wereabove the
GPA threshold; forFY1995, thelevel was199ofatotal18,500 construction projects. Further
procurement information since 1994, forexample ofthetypepreviously provided byJapan under the
Tokyo Round GPA wasnotavailable, according totheauthorities.97
62. TheOffice ofGovernment Procurement Review (OGPR), which isunder thejurisdiction of
thePrime Minister 'sOffice, began processing complaints inJanuary 1996. Complaint review
procedures arespecified inWTO document GPA/IC/W/37, together with13applicable administrative
measures (subsequently increased to15measures). TheCabinet hasinstructed theOGPR "toenhance
thetransparency, fairness andcompetitiveness" oftheprocurement system.98TheGPA complaint
mechanism forJapan isvery similar tothemechanisms established under previous bilateral
agreements andtheAction Plans (especially the1994 Plan). Theauthorities have confirmed,
however, thatintheevent thattheOGPR procedures conflict withthecomplaint procedures inthe
bilateral agreements covering supercomputers, non-R&D satellites orcomputers, thelatter willapply
toanysupplier onanon-discriminatory basis.99
94According totheauthorities, therelevant entities have "thoroughly implemented" thiscommitment.
95Oftheshare ofoverseas products, about 62percentoriginated intheUnited States and25percentinthe
European Union. Overall, about 75percentoftotalprocurement in1995 under theAction Programme was
accounted forbyfive entities: Ministry ofEducation (28.4 percent), Ministry ofPosts and
Telecommunications, NTT, Ministry ofTransport, andtheMinistry ofHealth andWelfare (Prime Minister 's
Office, 1997, p.p.699and703).
96Prime Minister 'sOffice, (1997), p.677.
97Asnoted bytheauthorities, Japan wasamong thefewmembers oftheTokyo Round Agreement on
Government Procurement tosupply statistics for1993 procurement. Japan iscurrently preparing procurement
statistics for1996, inconformity withtherequirements oftheWTO GPA.
98WTO document GPA/IC/W/37, 27January 1997.
99SeealsoGrier (1996), p.647.WT/TPR/S/32 Trade Policy Review
Page 70
Table III.13
Procurement composition byproduct andbyorigin, 1995
(¥100 million, percent)
Category Products Total valueShare
Domestic Foreign
1 Products from agriculture, andfrom agricultural andfoodprocessing
industries3.5 14.6 85.4
2 Mineral products 121.9 5.7 94.3
3 Products ofthechemical andallied industries 32.1 69.8 30.2
4 Medicinal andpharmaceutical products 242.0 69.6 30.4
5 Artificial resins andplastic materials, cellulose esters andethers, andarticles
thereof; rubber, synthetic rubber, factice, andarticles thereof; rawhides
andskins, leather, furskins andarticles thereof, other thanarticles of
apparel andclothing accessories ofleather, saddlery andharness, articles of
animal gut41.2 97.9 2.1
6 Wood andarticles ofwood; wood charcoal; corkandarticles ofcork; paper
making material; paper andpaperboard andarticles thereof; manufactures
ofstraw ofesparto andofother planting materials, basketwork and
wickerwork321.7 84.9 15.1
7 Textiles andtextile articles, footwear, headgear, umbrellas; sunshades;
walking sticks, whips, riding crops andparts thereof; travel goods;
hand-bags andsimilar containers; articles ofapparel andclothing
accessories, ofleather orcomposition leather105.9 97.5 2.5
8 Articles ofstone, plaster, asbestos, mica andsimilar materials; ceramic
products, other thansanitary fixtures; glass andglassware, other than
illuminating andsignalling glassware andoptical elements ofglass, not
optically worked norofoptical glass1.7 100.0 0.0
9 Ironandsteelandarticles thereof, other thanboilers andradiators for
central heating, airheaters andhotairdistributors notelectronically heated158.4 99.2 0.8
10 Non-ferrous metals andarticles, other thanlamp andlighting fittings 100.6 96.6 3.4
11 Power generating machinery andequipment 157.0 84.7 15.3
12 Machinery specialized forparticular industries 74.8 87.8 12.2
13 General industrial machinery andequipment, andmachine parts 76.2 72.7 27.3
14 Office machines andautomatic dataprocessing equipment 2,523.8 88.1 11.9
15 Telecommunications andsound recording andreproducing apparatus
andequipment1,296.1 86.0 14.0
16 Electrical machinery, apparatus andappliances, andelectrical parts thereof 254.4 91.6 8.4
17 Road vehicles 331.0 98.2 1.8
18 Railway vehicles andassociated equipment 31.7 69.7 30.3
19 Aircraft andassociated equipment 92.5 20.4 79.6
20 Ships, boats andfloating structures 153.3 99.8 0.2
21 Sanitary, plumbing, heating andveterinary equipment 7.3 53.1 46.9
22 Medical, dental, surgical andveterinary equipment 581.0 61.5 38.5
23 Furniture andparts thereof 66.8 100.0 0
24 Professional, scientific andcontrolling instruments andapparatus 1,304.5 70.8 29.2
25 Photographic apparatus, equipment andoptional goods; watches andclocks 68.8 76.0 24.0
26 Miscellaneous articles 310.1 90.4 9.6
Total 8,451.8 81.6 18.4
Source: Information provided bytheJapanese authorities.
(v) Competition policy measures
(a) Recent developments
63. Asnoted intheSecretariat Report forthe1995 Review ofJapan, several aspects ofJapan's
competition policies -mostnotably enforcement issues -continue tobeofmajor concern fortradingJapan WT/TPR/S/32
Page 71
partners.100TheGovernment hasacknowledged thisconcern, stating that"theeffective and
appropriate enforcement oftheAntimonopoly Actisbecoming increasingly essential tothepromotion
offairandfreecompetition between bothdomestic andforeign firms".101Under theDeregulation
Action Program, theGovernment hascommitted toactively implement competition policies and,in
March 1995, theJapan FairTrade Commission (JFTC) issued apolicy statement entitled, Regarding
theActive Implementation ofCompetition Policies ontheOccasion oftheEstablishment ofthe
Deregulation Action Program. Inthelatter statement, theJFTC saiditwillstrictly enforce theAMA
inderegulated sectors.102Other JFTC activities include awiderange ofsectoral surveys andreports,
aswellastheestablishment ofspecific guidelines forcompetition policy enforcement (Table AIII.19).
64. Japan inNovember 1996 included amore active implementation ofcompetition policy,
together withtechnical cooperation activities, aspartofits"Individual Action Plan" under APEC.103
Japan isalsoanactive participant inOECD discussions andforums regarding increased cooperation
incompetition policy. Todate, Japan hasnotentered intoanybilateral cooperation agreements in
theareaofcompetition policy, norareanysuchagreements currently under consideration. Inregard
totheissueof"positive comity", Japan'sposition isthatithasnoobjections totheOECD Ministerial
recommendations thatmember countries mayrequest consultations, andthatmembers receiving
requests should givethem fullandsympathetic consideration.104
65. Legal provisions forexemptions from theAMA prohibition ofcartels, inaddition towithin
theAMA itself, were previously incorporated intoindividual lawssuchastheLaws Relating tothe
Organization ofSmall andMedium-Sized Business Associations andtheExport/Import Trading Law.
Inrecent years, theGovernment hassteadily reduced thenumber ofauthorized cartels, mostofwhich
arefound intheservices andnon-traded goods sectors.105Revisions totheDeregulation Action
100GATT (1995), Vol.I,p.74.Competition policy inJapan isbased primarily upon theActConcerning
Prohibition ofPrivate Monopoly andMaintenance ofFairTrade (Antimonopoly ActorAMA) (Government
ofJapan, CLP, 1995, p.7).Background information ontheAMA anditsmajor provisions ispresented in
GATT (1995).
101GATT (1995), Vol.II,p.25.According toJiroTamura, "Therefore, indescribing the'unfair 'market
entry aspects ofJapan, theheart oftheproblem liesinthemarket structures thatdeveloped after years of
protection. Thesolution liesin,among other things, amore stringent application ofantimonopoly law"
(Tamura, 1994, p.112). Itisuseful tonotethat, asderegulation proceeds, JFTC jurisdiction isexpanded
(Uesugi, 1994, p.p.35-36).
102JFTC, No.21,p.35.Specific details oftheprogramme were announced bytheJFTC inMarch 1996.
103Under theAPEC Partnership forProgress project, annual training programmes fordeveloping experts
oncompetition laws andpolicies arescheduled from 1996-2000, with Japan andThailand asthemain
organizers.
104I.e.where acompetition agency inonecountry canaskanother toopen aproceeding ifinterests ofthe
firstcountry areaffected (OECD, 1996a, p.7).
105Authorization fortheexempted cartels isrequired byJFTC ortherelevant ministries. InFY1996,
29exempted cartels were eliminated, leaving 12exempted cartels reviewed byJFTC through theprocedures
under therelevant laws asofend-FY 1996. TheJFTC states that, historically, theexemptions hadbeen
introduced since latethe1940's,with such objectives asindustry development, stability ofcorporate
management andmaintaining employment. According totheauthorities, JFTC isonlyaware oftheexemptions
forwhich therelevant laws stipulate theneed forauthorization bytheJFTC.WT/TPR/S/32 Trade Policy Review
Page 72
Program (DAP) for1995 included thedecision toabolish 33of47remaining authorized cartels by
theendofFY1998, toreduce thescope ofanother fourcartels, andtocontinue revising the
tenremaining cartels (Table AIII.20).106TheGovernment alsoreviewed theexemption systems under
various lawsbased ontheDAP for1995, which ledtotheenactment inJune1997 oftheOmnibus
ActtoRepeal andReform Cartels andother Systems Exempted from theApplication ofthe
Antimonopoly Actunder Various Laws. TheActabolished 29exemption systems.
66. Onresale price maintenance (RPM), theremaining exemptions ondesignated cosmetics and
over-the-counter medicines were initially toberevoked byend-1998; inconnection withtheDAP,
theywererevoked fromApril 1997.107Oncopyrighted works, theJFTC hasstated thatexemptions
willbelimited andclarified bytheendofFY1997.
67. InJune1994, theJFTC setmore specific interpretations foradministrative guidance under
the"Interpretations Concerning Administrative Guidance under theAntimonomopoly Act". The
revised interpretations clearly statethatanti-competitive actions taken inthecontext ofadministrative
guidance willnotbeexempted fromtheAMA108,andgivespecific examples ofactions likely topose
problems.109Aslaterstated bytheJFTC, "administrative guidance isexercised torespond quickly
todemands foradministrative action, toensure administrative flexibility, andtoachieve administrative
objectives smoothly. Ontheother hand, theAdministrative Procedures Act(Law No.88of1995)
wasenacted toensure thefairness andincrease thetransparency ofadministrative operations".110
68. InOctober 1995, inconnection withgovernment deregulation efforts, theJFTC published
updated guidelines concerning trade association activities, namely, the"Guidelines forCompany
Associations under theAnti-Monopoly Law," replacing theprevious oneissued in1979.111The
revised guidelines mention specific instances oftrade association conduct that,based onpastJFTC
106JFTC, No.24,p.60.Asnoted bytheEconomic Planning Agency, "One major reason fortheslowpace
ofefficiency andproductivity improvements inthenon-manufacturing sector isthelackofatruly competitive
climate. Unlike themanufacturing sector, thenon-manufacturing sector isnotconducive tointernational trade
andissubject toagreat dealofgovernment regulation" (EPA, 1995b, p.216).
107Effective April 1993, thenumber ofproducts designated asexempt from AMA prohibitions wasreduced
to14cosmetic products (with aretail price of¥1,030 orless) and14non-prescription drugs.
108"Ifafirmoratrade association carriers outanactivity oractivities incompliance withadministrative
guidance which arequestionable under theAntimonopoly Act,itwillbedirectly heldlegally responsible for
thatconduct" (JFTC, No.20,p.7).
109Asnoted bytheJFTC, "There issome administrative guidance, which isgiven toprevent excessive
competition, toadjust supply anddemand, tokeepprices from declining, toadjust advantages anddisadvantages
among firms, ortomaintain order inindustrial circles, andthese have adirect impact onthemarket
mechanism" (JFTC, No.20,p.11).
110JFTC, No.20,p.6.TheDAP alsostated thatministries andgovernment agencies concerned will,
bearing inmind theintent oftheInterpretations, enter intoconsultation inadvance, when necessary, withthe
JFTC, toensure thatgovernment regulations arenotreplaced byanti-competitive administrative guidance after
deregulation.
111JFTC, No.24,p.p.23-25. According totheJFTC, "there isanurgent need fortrade associations to
exert allpossible efforts tothoroughly prevent violations oftheAntimonopoly Actandtodirect theiractivities
soastopromote competition".Japan WT/TPR/S/32
Page 73
rulings, constitute aviolation oftheAMA. Among therevisions aregreater delineation ofthe
guidelines inregard to:conduct relating togovernment regulations andadministration112;conduct
restricting market entry; andtheadoption ofself-regulation codes orstandards.113According to1996
JFTC survey, foreign access toJapanese business andindustry associations hassignificantly
improved. Atthesame time, theJFTC states that,"onthepartofgovernment agencies, there isa
tendency tousetrade associations asaneasywaytoconvey information forthepurpose ofachieving
administrative objectives".114
69. InMarch 1995, theJFTC created theTaskForce onImport Restrictions andInternal-External
Price Gaps within theInvestigation Bureau. Todate,legalmeasures havebeentaken inthefollowing
cases: automobile gasandpropane gasretail price cartels; hindering ofparallel imports oftableware
andpianos; foreign-book importer cartel; cartels controlling themanufacture andsaleofnitrous
oxide formedical use;andresale price restriction andobstruction ofparallel imports oficecream.115
Inconnection withtheGovernment 'sJune 1995 policies to"urgently cope withandstrengthen
measures related toyenappreciation andtheeconomy", theJFTC alsoconducted fact-finding surveys
concerning thecauses ofinternal-external price differentials inregard todistribution andtrade
practices forsoftdrinks, processed meat andwomen 'sclothing. Foreachofthese products, the
JFTC found many cases inwhich themanufacturers andothers were involved indeciding retail
prices, including demanding thatretailers limittheirdiscounting.116According totheJFTC, surveys
areconducted ofmajor industries fromtheperspective ofpossible exclusive orclosed trade practices
thatmayhinder competition. Inregard tothecurrent survey ofthecolour photographic filmand
photographic paper markets, these products were selected because oftheirlong-term, oligopolistic
business structures andtherecent attention given bothdomestically andinternationally.
70. TheJFTC conducts reviews from amedium- tolong-term perspective ofgovernment
regulations affecting competition policy; itfirstreported ontheneedforderegulation in1982.117In
aNovember 1995 report onIssues Relating toCompetition Policy intheTelecommunications
112TheJFTC states, "Inrecent years, many oftheactivities thathave been judged tobeviolations ofthe
Antimonopoly Acthave been undertaken inrelation togovernment activities oragainst abackdrop of
government regulations. Asderegulation continues, trade associations must notbeallowed toreplace former
government regulations withprivate business practices thatrestrain competition" (JFTC, No.24,p.p.38).
113JFTC, No.24,p.p.38-39. Asofend-August 1997, 48faircompetition codes relating topremiuns and
68relating torepresentations hadbeen approved.
114Government ofJapan, CLP (1996), p.16.
115TheTask Force wasestablished onMarch 1995 specifically tobeincharge ofinvestigating import
restrictions andprice differentials between domestic andoverseas markets.
116Aseparate survey wasalsoconducted forhousing materials, specifically aluminum sashes, tiles, system
kitchens andsanitary ware, butnomajor problems were found from theperspective ofcompetition policy.
117Government ofJapan, CLP (1994), p.32. Asstated bytheJFTC,"Generally speaking, artificial
intervention inthemarket with government regulations distorts industrial structures, hinders theoptimum
allocation ofresources through market mechanisms and, atthesame time, reduces efforts toincrease the
efficiency ofbusiness management. Market entry regulations, inparticular, often result intheobstruction of
newentries aiming atthesupply ofnewservices which maymeet theneeds ofconsumers offirms, andthese
regulations mayimpede therestructuring efforts offirms aswell. Meanwhile, thepresence ofmarket entry
regulations tends toinduce existing firms torelycomfortably ontheregulatory system anddiscourages
rationalization efforts, technological innovations and creativity, thereby inhibiting thedisplay of
entrepreneurship"; JFTC, No.18,p.9.WT/TPR/S/32 Trade Policy Review
Page 74
Industry, theJFTC stated that"Many enterprises havenewly entered thetelecommunications industry
since thetelecommunications industry system wasreformed in1985. However, particularly inthe
local telecommunications market, competition isnotyetfunctioning satisfactorily."118Arecent
revision oftheTelecommunications Business Laweliminated the"demand-supply adjustment" clause
andestablished interconnection rules. Fordomestic airpassenger service, aJFTC study group
proposed thefurther relaxation ofregulations inareport released inMarch 1997, including abolishing
theclause fordemand andsupply control. Additional reports werereleased inApril 1997 regarding
competition policy intheelectricity andgassectors; theformer recommended introduction ofa
wholesale bidding system andencouraging self-generation from theviewpoint ofpromoting
competition atthegeneration andretail stages, andthelatter suggested revision ofapproval
procedures forlarge scale suppliers.
(b) Enforcement
71. Asameasure toensure transparency andenhance deterrence, theJFTC makes public all
formal actions, including recommendations andsurcharge payment orders. TheJFTC hasalso
initiated anumber ofvoluntary AMA compliance programmes toassist firms.119InJune1996, the
AMA wasamended toupgrade andstrengthen theorganizational structure oftheJFTC, including
establishment ofaTrade Practices Division andaSpecial Investigation Department. Budgetary
allocations wereincreased along withariseinthenumber ofinvestigation-department personnel from
220inFY1995 to248inFY1997; since FY1989, thenumber ofinvestigators hasincreased by
over80percent.
72. TheJFTC investigated 210cases ofalleged AMA violations inFY1994 and198cases in
FY1995.120Ofthe140completed cases inFY1994, 24orders andrecommendations tocease and
desist illegal practices were issued, together with12warnings ofsuspected violations. Forthe
130completed cases inFY1995, 31orders andrecommendations, and13warnings were issued
Table III.14).121Surcharge payments of¥5.7billion, for26cases involving 512firms, wereordered
bytheJFTC inFY1994. ForFY1995, surcharge orders involved 741firms in24cases, totalling
¥6.4billion.122Criminal charges werefiledwiththePublic Prosecutor General bytheJFTC in1995
against nineelectrical equipment manufacturers and18individuals inconnection withbid-rigging.
InMay 1996, theTokyo High Court issued ajudgement against thecompanies andindividuals
118JFTC, No.24,p.60.
119Government ofJapan, CLP(1994), p.p.3and6.Asnoted above, theJFTC haspublished asignificant
number ofcompetition policy guidelines inrecent years (Table AIII.19).
120According totheauthorities, thenumber oftotalcases investigated bytheJFTC (Table III.14, Part(C))
hasbeen declining inrecent years, despite theincreases ininvestigation-department personnel, mainly because
recent cases arebecoming more complicated, requiring more time toinvestigate.
121Ofthe24legal measures taken inFY1994, 19cases involved bid-rigging and1case involved
price-fixing. In14ofthecases, theviolations involved trade associations (Table III.14). InFY1995, 20cases
involved bid-rigging andfourinvolved price-fixing; trade associations were involved infiveofthecases. In
FY1996, fivecases involved bid-rigging andteninvolved price-fixing; trade associations were involved inten
ofthecases.
122InJuly1991, themaximum surcharges forillegal cartels wasincreased from 1.5to6percentofsales
revenue (GATT, 1995), Vol. I,p.87.Japan WT/TPR/S/32
Page 75
concerned, withtotalfines imposed of¥460 million.123TheJFTC filedacriminal accusation on
4February 1997 against 25water-meter manufacturers andtheir 34subcontractors tothePublic
Prosecutor General forbidrigging, asalleged violations oftheAMA.
Table III.14
Enforcement statistics related tocompetition policy, FY1992-96
(A) Cases inwhich legal measures were taken against actsprohibited bytheAnti-monopoly Act
Details Fiscal Year
1992 1993 1994 1995 1996
Number oflegal measures 34 31 24 31 21
Private monopoly 0 0 0 0 1
Cartels 30 24 21 24 15
Price cartels 9 9 1 4 10
Collusive tendering 20 14 19 20 5
Other types ofcartelsa1 1 1 0 0
Unfair trading practices 4 5 1 4 2
Othersb0 2 2 3 3
a Other types ofcartels include restrictions onsales volume andrestrictions onbusiness clients.
b Others include restrictions onthefunctional activities ofitsconstituent business operators bytrade assocations.
(B) Surcharge payment orders
(¥billion)
Fiscal Year
1992 1993 1994 1995 1996
Payment order
Number ofcases 17 21 26 24 14
Number ofenterprise operators 135 406 512 741 368
Surcharge amount 2.68 3.55 5.67 6.45 7.49
Decision toinitiate hearings 0 2 2 0 2
(C) Recently processed investigation cases
Process detailsFiscal Year
1992 1993 1994 1995 1996
Cases investigated
Carry-over from theprevious fiscal year 87 53 72 70 68
Newcases begun during thecurrent fiscal
year136 168 138 128 112
Total 223 221 210 198 180
Processed Cases
Legal measures
Recommendation
(Decision tocomence hearing)a34 31
(3)21
(2)26
(2)19
(2)
Surcharge Payment Orderb
(Decision toinitiate hearing)a0 0 3
(1)5 2
Sub-total 34 31 24 31 21
Others
Warnings 21 25 12 13 17
Cautions 73 79 86 60 61
Discontinuedc42 14 18 26 11
Sub-total 136 118 116 99 89
Total 170 149 140 130 110
Carry-over tothenextfiscal year 53 72 70 68 70
Reportsd1 0 1 0(1) 1
a Figures in()arecases inwhich thedecision tocommence withhearing procedures havebeenmade.
b Cases inwhich surcharge payment orders were given without arecommendation.
c Discontinued arecases which havehadtheinvestigation discontinued duetolackofevidence ofwrong doing.
d Figures in()inReports arecases ofadditional reports.
Source: Information provided bytheJapanese authorities.
123Government ofJapan, CLP (1996), p.9.WT/TPR/S/32 Trade Policy Review
Page 76
73. Cease anddesist orders bytheJFTC regarding misleading representations were given
in13cases inFY1994, andwarnings issued in738cases; inFY1995, cease anddesist orders were
made inthree cases and612warnings were issued.124InFY1996, sixcease anddesist orders and
529warnings wereissued. InApril 1996, theJFTC implemented revisions tothegeneral regulations
regarding premium offers, involving araising ofpremium limits andthesimplification of
classifications.
74. Under Section 8-4oftheAMA concerning measures against amonopolistic situation, the
JFTC monitors highly oligopolistic markets, andmayorder measures torestore competition inthe
event of"undesirable market performance".125TheAMA defines amonopolistic situation asamarket
share inexcess of50percentforasingle firm, or75percentfortwofirms, andwhere saleslevels
areinexcess of¥100 billion; undesirable market performance includes suchfactors asbarriers to
market entry, extraordinary price increases orextremely highprofit rates.126In1997, atotalof
25industries werebeing monitored bytheJFTC inrespect tothepresence ofamonopolistic situation
(Table III.15).
Table III.15
Industries monitored bytheJFTC withrespect toa"monopolistic situation", 1991-97
Industry byproduct orserviceYear
1991 1993 1995 1997
Chemical seasonings X
Chewing gum X X X X
Beer X X X X
Whisky X X X X
Brandy X X
Instant coffee X X
Tobacco X X X X
Household synthetic detergent X X X
Toothpaste X
Photographic colour film X X X X
Photographic paper X X X
Tyres andinner tubes forautomobiles X
Sheet glass X X X X
Glass bulbs forcathode-ray tubes X X X X
Fluorescent lamp X
Tincans X X X X
Shutters X X X
Closed electric power distribution panels X X
Charging generators X X
Ventilator manufacturing X X
Incandescent lightfeatures forautomobiles X X X
Touch-tone phones X X X X
Medical X-ray equipment X X
Table III.15 (cont'd)
124InFY1996, theJFTC alsoordered 1,441 companies tocease illegal practices towards subcontractors,
such asunilateral reductions insubcontracting payments.
125TheJFTC haspublished the"Guidelines Concerning Particular Fields ofBusiness Among theProvisions
oftheDefinition ofMonopolistic Situations" inorder toimplement theregulations. Nomeasures have been
ordered bytheJFTC torestore competition under Section 8-4oftheAMA.
126OECD (1996a), Japan Annex, p.7.Japan WT/TPR/S/32
Page 77
Industry byproduct orserviceYear
1991 1993 1995 1997
Transfer equipment X X
Video discplayers X
Magnetic heads foraudiovisual aids X
Automobiles X
Motorcycles X X X X
Gasoline engines formotor vehicles X X X
Radiators X X X
Clutch devices X
Air-conditioners fortransportation machines X X X
Pianos X
Scheduled domestic passenger flights X X X X
Scheduled domestic cargo flights X
Domestic basic telecommunications X X X X
International basic telecommunications X X X X
Dustcontrol X X
Elevator maintenance X
Plasterboard X
Cranes forconstruction 0
Note: On23July1993, theminimum gross domestic supply requirement forinclusion wasincreased from¥50billion to¥100 billion.
Source: Information provided bytheJapanese authorities.
(c) Keiretsu127
75. TheJFTC regularly conducts studies ofthesixmajor corporate groupings, namely theMitsui,
Mitsubishi, Sumitomo, Fuyo, Sanwa andDai-ichi Kangyo groups, with themost recent report
published inJuly1994.128According totheJFTC, over90percentoftransactions bythese six
groups arewithcompanies notbelonging tothesame group. Inaddition, "itisobserved thattheratio
ofintra-group transactions isdeclining, soitcanhardly beassumed thatthesixmajor corporate
groups areengaged inexclusive andclosed trade practices".129Overall, thelevel ofconcentration
inJapan -i.e.theshare ofthelargest 100non-financial corporations intotalassets -hasbeen
declining, andissignificantly lower thaninsuchtrading partners astheUnited States.130
76. Atthesame time, however, theJFTC notes, "thepositions heldbythese sixmajor corporate
groups intheJapanese economy remain substantial and,asthegroups have influential member
companies intheirrespective sectors, theirimpact ontheJapanese economy would become toogreat
toignore iftheir intra-group transactions become exclusive andclosed andaconcentration of
127Asnoted inthe1995 Secretariat Report, Keiretsu (meaning "grouping" or"affiliation") generally refers
tothree main types ofcorporate linkages: horizontal corporate groupings (kigyo-shudan ),vertical supplier
affiliations (seidan-keiretsu )andvertical distribution affiliations (ryutsu-keiretsu ).Background information on
thethree groupings isprovided inGATT (1995), Vol. I,p.91.
128JFTC, No.20,p.25.
129Government ofJapan, CLP (1994), p.38.
130Tsuru (1995), p.109.WT/TPR/S/32 Trade Policy Review
Page 78
economic power occurs duetotightened social andcapital tieswithin eachgroup".131Companies of
thesixmajor enterprise groups continue toaccount forabout onefourth oftheshares ofthefirms
listed ontheTokyo andOsaka stock exchanges; inaddition, thetopninegeneral trading companies
aresaidtohandle about 47percentofJapan'sexports, 65percentofimports and18percentof
domestic wholesale sales.132
77. Cross-shareholdings ofstock havetraditionally beenanimportant mechanism formaintaining
thecohesiveness ofakeiretsu .TheOECD notes that: "Despite some stock sales, there isnofirm
evidence ofadramatic shiftinthenature ofstable orcross-shareholding intheperiod ofrecent
economic slowdown" inJapan.133According toIto,cross-holdings actasapotential disciplining
device inacooperative long-term relationship; theoriginal motivation forcross-holding, todefend
against hostile takeovers, seems tohavereappeared inrecent years. InApril 1995, thethreshold
levels were raised inregard tothedefinition of"large-scale companies" subject toshare-holding
limitations under theAntimonopoly Act,from over¥10billion toover¥35billion forcapital, and
fromover¥30billion toover¥140 billion fornetassets. InJune1997, legislation wasapproved by
theDietandpromulgated topermit holding companies "which donotconstitute anexcessive
concentration ofeconomic power". Theamended Actwilltakeeffect within sixmonths fromtheday
ofpromulgation. Forfinancial holding companies thedateofenforcement istobedecided byother
laws.
(d) Exclusivity arrangements
78. InAugust 1995, Japan notified theWTO concerning theactivities ofsixstate-trading
organizations: Japan Tobacco, Inc.(leaftobacco, salt); Ministry ofHealth andWelfare (opium);
Ministry ofInternational Trade andIndustry (alcohol -90percentorhigher byvolume); Food
Agency (rice, wheat andbarley); Livestock Industry Promotion Corporation (milk products -
skimmed milkpowder, whole milkpowder, condensed milk, buttermilk powder, whey andmodified
whey, butter andbutter oil); andtheRawSilkandSugar Price Stabilization Agency (rawsilk).134
TheLivestock Industry Promotion Corporation andtheRawSilkandSugar Price Stabilization Agency
weresubsequently merged, effective October 1996, toformtheAgriculture andLivestock Industries
Corporation.
(vi) Distribution measures
79. Japan'sdistribution sector practices andregulations havelongbeenasource ofcomplaints
from trading partners.135Inrecent years, however, evidence hasbegun toemerge thatsignificant
changes maybeunder way: since mid-1994, thesector hasbeencharacterized byfalling prices,
131JFTC, No.20,p.45.
132Ito(1992), p.p.188-192.
133OECD (1996d), p.155.
134WTO document G/STR/N/1/JPN, 22August 1995.
135According totheUSTR, forexample, "Japan 'smulti-tiered andhighly regulated distribution system
serves asasignificant barrier toincreasing imports andinvestment inJapan" (USTR, 1996).Japan WT/TPR/S/32
Page 79
increased competition andreduced costs.136Thenumber oflarger andmore efficient stores hasrisen
duetotherelaxation ofentry barriers, andthere issome evidence thatconsumers havebecome more
price sensitive.137Inaddition, restructuring hasledtoincreased productivity andlower distribution
costs.138Forsupermarket chains, development ofindependent procurement channels ispressuring
manufacturers toreduce thenumber oflevels inthewholesale system. Pressure isalsoincreasing
formajor manufacturers toswitch toanopenpricing system, i.e.notattempting tostandardize prices
across allstores.
80. Distribution continues tobeoneofthelowest-productivity sectors inJapan, andthe
Government hasrecognized theneedforreform. Thus, according tothe1995 Social andEconomic
PlanforStructural Reforms Towards aVital Economy andSecure Life(SEP): "Deregulation will
rectify anticompetitive private-sector practices andwillcreate anenvironment conducive tomore
price-elastic consumer behaviour."139Claiming thatthesector doesnotlenditself forinternational
comparison, theGovernment nonetheless acknowledges thatvalue added peremployee, atonly
60percentofthelevel found inmanufacturing, islowincomparison withother industrialized
countries, andthatthegapshows nosigns ofdecreasing.140SEPgoals fortheindustry include raising
labour productivity andthedevelopment ofmore varied forms ofdistribution; specific programmes
andpolicies include deregulation, therectification ofbusiness practices, reduction ofphysical
distribution costs andgreater useofcomputerization.141
81. InFebruary 1995, theJFTC published aSurvey concerning Transactions between Large-scale
Retailers andSuppliers. While transactions between retailers andsuppliers were formed tobe
improving from thecompetition policy perspective, remaining problems included thecoercion of
purchases, return ofunsold goods, requests forthedispatch ofsales person toshops, request for
136Wholesale price declines haveapparently occurred onlyinsectors withrising import penetration (OECD,
1995b, p.p.102-3). According toJ.Tamura, "asignificant change isoccurring asaresult oftheemergence
ofdiscounters attheretail level. Ineffect, theJapanese distribution system thatusedtoplayaroleinblocking
foreign market entry iscollapsing under itsowninefficiency" (Tamura, 1994, p.114).
137OECD (1995b), p.p.82,91.
138Economic slowdown andcurrency appreciation, however, have been themain factors influencing price
deflation. Imports account foronlyabout 8percentoftotaldemand. Together withoffsetting effects ofimport
price increases, yenappreciation onlyreduced theprice level byabout 2percentbetween 1993-95 (OECD,
1995b, p.p.101-107).
139EPA (1995a), p.38.According totheSEP,"While business practices inthesector have developed out
ofacertain rationality, theyarealsolikely tohave damaging side-effects intheform ofprice rigidity and
barriers tonewentrants. Insome cases, theyalsoweaken theindustry 'sincentive toseekgreater efficiency"
(EPA, 1995a, p.94).
140EPA (1995a). Asnoted bytheMcKinsey Institute: "Some industries andplants located inJapan with
relatively lowlabour productivity areprotected tosome degree bythedistribution system. Forexample,
wholesalers often have established relationships with oneormore existing manufacturers. Anewentrant
wishing toproduce andsellincompetition withthese companies mayfindthatdistributors willnotcarry its
products forfearofbeing cutofffrom theestablished suppliers" (McKinsey, 1993, Ch.3-31).
141InDecember 1995 theGovernment prepared the"Action PlanforRectifying High-cost Structures and
Promoting Dynamic" fortenfields including physical distribution (JIC, 1996, p.78). Earlier deregulation
measures inthedistribution sector associated with administrative reform (48intotal), have already been
implemented; GATT (1995), Vol. I,p.94.WT/TPR/S/32 Trade Policy Review
Page 80
cooperative payments andrequests forbearing thecostconcerning frequent delivery insmall lots.
TheJFTC alsoissued in,June1995, areport onthe"Study Group onGovernment Regulations and
Competition Policy", which indicated thatregulations intheLSRS Lawmight infringe uponconsumer
benefits suchasthediversity ofproducts andimprovement ofservice. Thereport alsosaidtheLSRS
Lawneeded tobeurgently reviewed.
82. Asobserved bytheOECD, liberalization ofJapan'sLarge Scale Retail Store (LSRS) Law,
hasresulted inasharp increase inthenumber ofapplications toopen large stores, andinoverall
gains estimated atasmuch asUS$45 billion.142Changes inmarket structure aremostsignificant in
theareaofmen'sclothing. However, more liberal LSRS regulations havenotbeencrucial inthe
development ofdiscount stores, mostofwhich areunder 500square metres andtherefore notaffected
bythelaw.143Between FY1992 and1995, thenumber ofLSRS-related opening notifications
increased from 1,692 to2,206. According toMITI, onlyabout 20percentofapplications required
adownward adjustment inplanned store sizeduring thisperiod, withtheaverage rateofreduction
slightly lessthan25percent.144
(vii) Intellectual property
83. Japan isafounding member oftheWorld Intellectual Property Organization (WIPO), anda
signatory tomost major treaties regarding intellectual property rights (IPRs).145Administrative
responsibility forpatents, trademarks andindustrial designs inJapan iswiththeJapan Patent Office
(JPO), which isunder theauthority ofMITI, while copyright andrelated rights aretheresponsibility
oftheAgency forCultural Affairs. Themain goals oftheJPO,asstated forFY1996, aretoprocess
examinations promptly, promote bilateral andmultilateral harmonization, cooperate withdeveloping
countries anddisseminate patent andother information. Related objectives oftheInformation
Committee, aJPOadvisory body, aretomake patent information available aswidely aspossible
throughout Japan, andtobethecentral institution topublish national patent information andtocollect
foreign patent information.146
84. Recent changes inJapan regarding intellectual property aresummarized inTable III.16. The
Patent, Trademark andCopyright Laws wereallrevised inthecontext ofJapan'sWTO commitments,
142OECD (1995b), p.103.
143TheOECD notes thattheLSRS Lawapparently hadasignificant impact during the1980s, butlessthan
sucheconomic factors ashighstorage costs forfamilies. Factors specific toJapan, including regulation, are
estimated tohave raised store density levels byonlyabout 10percent(OECD, 1995b, p.p.93and96-98).
144According totheUSTR, however: "Despite improvements, theLarge Scale Retail Store (LSRS) Law,
which protects small, inefficient retailers, remains amajor impediment toconsumer imports" (USTR, 1996).
Data from MITI indicate thattheshare oftotal retail sales bylarge-scale retail stores expanded onlyslightly
between FY1985 and94,from 27.9 to29.4 percent.
145Japan 'smajor IPR-related lawshave been notified totheWTO. According totheauthorities, theIPR
treaties thatJapan hasnotsigned areminor orlessimportant treaties thathave been signed byonlyasmall
number ofcountries.
146JPO(1996). CD-ROM publications ofunexamined patent applications have been issued bytheJPO
since 1993, aspartofitsinformation dissemination activities. Contents ofpatents arepublished inJapan
18months after filing (JIC, 1996, p.85).Japan WT/TPR/S/32
Page 81
together withother changes made inthecontext ofbilateral arrangements.147ForthePatent Law, the
specifications requirement wasmade internationally compatible, andtransition tothepost-patent
opposition system (from thepre-grant opposition system) wasimplemented. JPOguidelines regarding
thescope ofpatent claims were alsorevised inMay 1995 tobroaden thedefinition ofclaimed
inventions, andimplementing guidelines forexamination ofcomputer software related inventions and
biological inventions werepublished inFebruary 1997. Trademark legislation wasrevised toratify
theWIPO Trademark LawTreaty andtoenhance theprotection ofwell-known trademarks in1996.
Amendment oftheCopyright Lawentered intoforce inJanuary 1996 andincluded theincorporation
ofworks, performances, phonograms andbroadcasts from other WTO members intothescope of
protection. Reviews ofJapan'smajor intellectual property legislation were alsoconducted inthe
context oftheWTO Council forTrade-Related Aspects ofIntellectual Property Rights (TRIPS).148
85. Japan'sparticipation ininternational harmonization efforts intheintellectual property field
include theWIPO Trademark LawTreaty; discussions onthePatent LawTreaty; efforts toconclude
theNewActoftheHague Agreement concerning industrial designs; andcooperation withU.S.and
EUpatent authorities.149InJuly1995, English-language initial applications werepermitted, provided
theywerefollowed byatranslated application within twomonths. Revisions totheCivil Procedures
Actregarding trade secrets, scheduled totakeeffect before June1998, include provisions toprevent
trade secrets included incourt records from being leaked. APEC 'sOsaka Action Agenda includes
IPRmeasures under Japan'sfacilitation initiatives; forexample, theJPOplans toaccept about
1,000 trainees from both thepublic andprivate sectors by2000. Inthisregard, theJPOin
January 1997 assisted WIPO inholding anAsian Regional Round Table onimplementation ofthe
WTO Agreement onTrade-Related Aspects ofIntellectual Property Rights (TRIPS).
86. Recent trends inpatent, design andtrademark applications arepresented inTable III.17, and
changes inJPOstaffing levels inTable AIII.21. InAugust 1994, Japan andtheUnited States
exchanged letters onpatents, inwhich Japan agreed tospeed upitspatent approval process. By
end-1995, average approval timeforpatent andutility model applications wasreduced tounder
24months. Fortrademarks anddesigns, average approval times hadfallen to26and15months,
respectively.150Further reductions inpatent approval times areexpected asaresult ofthe
January 1996introduction ofapost-grant opposition system, aswellasanewsystem foraccelerating
examination ofapplications filedinmore thanonecountry.151TheJPOisstudying measures such
asintroducing anelectronic application system tospeed upexaminations ofdesigns andtrademarks;
fortrademarks, theintroduction ofanon-line retrieval system, andanincreasing inthenumber of
examiners arealsobeing considered.
147Inthe1996 Japan Investment Council Yearbook, therevisions ofthePatent andTrademark Laws were
listed under Japan 'simport promotion measures forFY1996 (JIC, 1996, p.62).
148See, forexample, WTO document IP/C/W/46, 8November 1996.
149JPO(1996). Japan amended itsTrademark Law inJune 1996 inconnection withtheWIPO treaty.
150Average examination times forpatents andutility models have fallen significantly from anaverage of
32months in1990. Fortrademarks anddesigns, the1990 levels were 31and24months, respectively.
151JPO(1996). According totheGovernment: "The Japanese Patent Office hasbeen making efforts to
expedite theexamination process inevery design fieldandhassetagoaltotheeffect thatbytheyear2000 the
firstaction istobecommunicated within 12months" (WTO document IP/C/W/46, 8November 1996).WT/TPR/S/32 Trade Policy Review
Page 82
Table III.16
Recent government actions regarding intellectual property
Reduction oftimerequired bypatent office
Recognizing thatprompt andadequate granting isthemostimportant aspect regarding industrial property rights, theJapanese Patent
Office (JPO) hasmade aneffort toreduce thetimerequired. Duetovarious measures, including theincrease inthenumber of
examiners, promotion ofthePaperless Project, consignment ofprior artsearches tonon-governmental services, andcareful
screening ofrequests forapplications, theJPOhadreduced theaverage examination period from more thanthree years attheend
of1988 totwoyears attheendof1995.
Review oftherequirement forspecifications
ThePatent Lawrevision in1994 (enacted inJuly1995) made thespecifications requirement internationally compatible. The
revision made itsufficient tostateclaims clearly andconcisely. Since thisrevision makes more liberal claims expressly possible, it
allows expressions thatcanmost accurately protect thedevelopment results ofvarious technologies.
Post-grant opposition system
Thepre-grant opposition system employed intheJapanese patent legislation hadbeensignificant inthatithelped toprovide stable
andfaultless rights. Under thissystem, patent rights were notgranted untilacertain opposition filing period hadelapsed. When
multiple oppositions were filed, adelay could beincurred forthegranting ofpatent rights. Toaddress these problems, theJPO
decided toshifttoapost-grant opposition system inAugust 1994 based ondiscussions under theJapan-U.S. Framework Talks.
Therevised lawwasenacted inJanuary 1996.
Enhanced protection offamous trademarks
Inaccordance withtheprovision oftheParis Convention, Japan hasclearly stipulated initsTrademark Lawtheprotection of
well-known trademarks inlinewiththetrademark examination guidelines thatdefine examination practice. Legislation wasalso
revised toboost theprotection offoreign well-known trademarks byclarifying therejection ofapplications filled forunfair
purposes.
Scope ofpatent claims
Theinterpretation ofclaims ininfringement suits hasbeen discussed, including theintroduction ofanexpress provision ofthe
equality theory, oneoftheinterpretation techniques. Thematter wasalsodiscussed bytheIndustrial Property Council. However,
duetothefollowing reasons, itwasnotthought appropriate tointroduce anexpress provision, andthematter istobefully
deliberated asamedium-term issue: (1)thecurrent lawdoesnotexclude theapplication oftheequality theory; (2)there isalsoa
lotofdiscussion intheUnited States; and(3)whether thelegislation oftheequality theory should bemade theruleorthe
exception, andduetotherelationship ofprotest against publicly known technology.
Collection ofevidence ontheactivities ofpatent infringers
Although Japan doesnothavetheevidence disclosure system thattheUnited Kingdom andtheUnited States have, provisions for
submitting theevidence necessary forthecourt incivilproceedings arestipulated bylaw. Inaddition, thePatent Law also
stipulates theorder forsubmitting thedocuments necessary forcalculating theamount ofdamages inaninfringement ofapatent.
ANewCivil Proceedings Acthasbeensubmitted tothisordinary session oftheDiet. Consequently, thesystem isbeing prepared
forthepatentee toactually collect theevidence necessary forthecourt inanactual litigation (e.g.reinforcement oftheobligation to
submit documents).
More efficient protection oftrade secrets
Considering theimportance ofprotection oftrade secrets andinternational harmonization, theUnfair Competition Prevention Law
wasrevised in1990 tosupplement theprior redress byaclaim fordamages after theincident, bypermitting thedemand for
stopping theillicit acquisition, use,ordisclosure oftrade secrets toprovide amore practical means ofprotection.
Ontheprotection oftrade secrets inlitigation, abillofanewCivil Proceedings Act,thatincludes aprovision that,asapartofan
overall review ofthecivilproceedings, limits totheparties ofthelitigation those whomayreview orcopy theparts where trade
secrets being recorded forlitigation arestated orrecorded, passed theDietinJune1996.
Article 82oftheconstitution provides anextremely strict stipulation onthecases when atrialcanbeconducted privately asan
exception totheruleofpublic trials. TheArticle states thatatrialmaybeconducted privately onlywhere acourt unanimously
determines publicity tobedangerous topublic order ormorals. Even insuch acase, iftherights ofpeople asguaranteed in
Chapter IIIoftheConstitution, forexample, areinquestion, thetrialmust beconducted publicly. Based onthisstipulation, the
authorities consider itdifficult tointerpret theConstitution asallowing aprivate trialtoprotect corporate secrets ortechnical
information ortoamend thelawtothatend.
Exchange ofopinions withforeign organizations
TheJPOhasheldforums regularly forvarious organizations, including AIPLA (American Intellectual Property LawAssociation),
PIPA (Pacific Intellectual Property Association), andFICPI (Federation ofAgents ofInternational Intellectual Property) inorder to
exchange opinions ontheJapanese patent system withpatent attorneys andenterprises fromEurope ortheUnited States. Reflecting
their opinions intherevision ofthelawandpractices, theJPOhastaken measures including theintroduction ofanEnglish-
language patent application system, post-grant opposition filing system, andasystem forrestoring expired patents. TheJPO
intends tocontinue toprovide opportunities todiscuss with foreign companies andreflect their opinions andrequests inits
activities, thereby contributing totheinternational harmonization ofthepatent system.
Table III.16 (cont'd)Japan WT/TPR/S/32
Page 83
Review oftheprovisions concerning compulsory patent licence
TheParis Accord andtheWTO Agreement onTrade-Related Aspects ofIntellectual Property Rights (TRIPS) have provided
stipulations oncompulsory patent licences; theauthorities feeltheyshould beauthorized under certain conditions. Thelawwas
amended concerning thetransfer andcancellation ofthecompulsory patent licence according totheMarrakesh Agreement
ratification. Soastomatch thestipulations oftheTRIPS Agreement, theamended lawwasenacted inJuly1995.
Publication ofpatent applications eighteen months after filing
InJapan, thecontents ofpatents arepublished eighteen months afterfiling. Thismeans thatafterthefixed period oftime, the
contents ofthepatent application aremade public regardless ofthestage oftheexamination. Thissystem aimstoprevent unstable
corporate activity, andtoavoid duplicated research orinvestment asaresult ofunpublished status ofapplications foralongperiod
oftimeduetoadelay intheexamination. From theviewpoint ofprotecting right holders, theJapanese Patent Lawallows an
applicant toclaim foraroyalty under certain conditions, inorder tocompensate thelosstotheapplicant caused byathirdparty's
exploitation oftheinvention.
Disclosure ofevidence onthepatent infringer
Asdescribed above, asystem isinplace forthepatentee tocollect theevidence necessary forlitigation. Inaddition, incaseofa
manufacturing process patent ofanewarticle, there isaprovision thatassumes thatasimilar article wasproduced bythesame
manufacturing process asameasure forreducing thepatentee 'sburden ofproof.
Introduction ofEnglish-language patent application system
Thelawwasamended topermit apatent application inEnglish asofJuly1995, provided atranslated application issubmitted
within twomonths.
Source: Japan Investment Council (1996), Information provided bytheJapanese authorities.
Table III.17
Patent, utility model, design andtrademark applications filedandregistered, 1990-95
PatentCategory
Trademark Total
Utility model Design
Applications filed
1990 367,590
(34,360)138,294
(1,255)44,290
(1,962)171,726
(19,791)721,900
(57,368)
1991 369,396
(33,463)114,687
(1,347)40,134
(1,648)167,906
(18,743)692,123
(55,201)
1992 371,894
(33,875)94,601
(1,284)39,170
(1,492)311,011
(22,654)816,676
(59,305)
1993 366,486
(34,141)77,101
(1,182)40,759
(1,571)174,585
(19,811)658,931
(56,705)
1994 353,301
(33,363)17,531
(1,032)40,534
(1,815)172,859
(20,151)584,225
(56,361)
1995 369,215
(34,603)14,886
(1,201)40,067
(1,810)179,689
(22,899)603,857
(60,513)
Registrations
1990 59,401
(9,031)43,300
(367)33,773
(905)117,219
(9,867)253,693
(20,170)
1991 36,100
(5,647)36,500
(357)28,854
(979)95,329
(8,098)196,783
(15,081)
1992 92,100
(13,107)65,200
(556)38,004
(1,385)156,040
(14,568)351,344
(29,615)
1993 88,400
(11,089)53,400
(371)38,708
(1,267)158,685
(13,456)339,193
(26,183)
1994 82,400
(9,643)53,885
(799)34,948
(1,299)147,191
(11,289)318,424
(23,030)
1995 109,100
(14,296)63,966
(1,472)34,887
(1,325)144,911
(8,028)352,864
(25,121)
Note: Figures inparentheses indicate thenumber ofregistrations granted toforeigners.
Source: Information provided bytheJapanese authorities.WT/TPR/S/32 Trade Policy Review
Page 84
87. Statistics detailing Japan'sefforts since 1990 incombatting violations ofindustrial property
rights attheborder aregiven inTable III.18.152According totheauthorities, reasons forthe
increased number oftrademark infringement cases include theresurgent popularity oftop-level
branded goods andincreased shipments ofsmall-scale packages. Inconnection withamendment of
theCopyright Lawin1996, fines forinfringement were tripled, andanewsystem wasintroduced
toenable courts toorder defendents toprepare andsubmit allnecessary information anddocuments
toidentify theamount ofdamage. Inresponse toaquestion intheWTO Council forTrade-Related
Aspects ofIntellectual Property Rights oncivil penalties todeter copyright infringement, the
Government stated thattheconcept ofcivilpenalties doesnotexistinJapanese legislation.153
Table III.18
Suspension ofimports likely toinfringe intellectual property rights, 1990-96
(1,000 units)
(A)Products concerned
Category Main Items 1990 1991 1992 1993 1994 1995 1996
Shoes Sports shoes (tennis
shoes, sneakers)21 17 22 13 5 0.2 12
Bags Handbags, purses 29 38 58 304 245 309 161
Clothing T-shirts, sweatshirts,
raincoats, scarfs140 110 91 211 445 290 359
Sports equipment Golfequipment, ski
equipment6 21 2 0 22 8 0
Watches Wristwatches, pocket
watches62 7 10 1 5 44 3
Smoking equipment Lighters 28 10 3 0.05 0.3 8 6
Toys Stuffed animals, mini-cars 366 175 108 48 80 122 10
Others Household goods, key
holders, cosmetics652 400 147 110 389 372 366
Total
(number ofcases)1,305
(6,114)779
(1,274)441
(767)687
(676)1,191
(826)1,153
(1,550)917
(3,996)
Note: Cases involving hand baggage andunaccompanied baggage areexcluded.
(B)Types ofviolation concerned
(Number ofcases)
1990 1991 1992 1993 1994 1995 1996
Patent rights 2 1 4 9 9 4
Utility rights 7 2 18 52 29 22
Design rights 35 77 117 196 194 107
Trademark rigths 1,154 618 390 445 1,114 3,240
Copyright 76 64 123 125 73 113
Total 1,274 762 652 827 1,419 3,486
Notes: Cases involving hand baggage andunaccompanied baggage areexcluded.
Each violation iscounted forcases violating more thanoneintellectual property right.
Source: Information provided bytheJapanese authorities.
152Details ofJapan 'sjudicial measures regarding IPRenforcement areprovided inWTO document
IP/N/6/JPN/1, 18February 1997.
153WTO document IP/Q/JPN/1, 24October 1996. InFebruary 1996, theUnited States initiated proceedings
under theWTO dispute settlement mechanism regarding theprotection ofsound recording rights which were
later joined bytheEuropean Union. TheU.S. dispute later settled bilaterally without involving panel
proceedings, while theEuropean Union wascontinuing tostudy theissue (Chapter II,Annex II.2).