RESTRICTED
WORLD TRADE WT/TPR/S/32
5January 1998
ORGANIZATION(98-0005)
TRADE POLICY REVIEW
JAPAN
Report bytheSecretariat
Thisreport, prepared forthefourth Trade Policy Review ofJapan, hasbeendrawn
upbytheWTO Secretariat onitsownresponsibility. TheSecretariat has,asrequired
bytheAgreement Establishing theTrade Policy Review Mechanism (Annex 3ofthe
MarrakeshAgreementEstablishingtheWorldTradeOrganization),soughtclarification
from theGovernment ofJapan onitstrade policies andpractices.
Document WT/TPR/G/32 contains thepolicy statement submitted bytheGovernment
ofJapan.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onJapan.Japan WT/TPR/S/32
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
(1) Introduction x
(2) Institutional andLegal Framework x
(i) WTO Participation x
(ii) Bilateral andRegional Agreements xi
(3) Trade Policy Features andTrends xi
(i) Recent evolution xi
(ii) Type andincidence oftrade policy instruments xi
(iii) Sectoral policies xiii
(4) Trade Policies andForeign Trading Partners xv
I. ECONOMIC ENVIRONMENT 1
(1) Overview 1
(2) Major Features ofJapan 'sEconomy 3
(3) Recent Economic Performance 5
(4) Trade andCurrent Account Situation 6
(i) Composition oftrade 9
(ii) Geographic pattern oftrade 11
(5) Foreign Direct Investment 13
(6) Outlook 16
II. TRADE POLICY OBJECTIVES AND INITIATIVES 17
(1) General Policy Direction 17
(2) Multilateral Policies 18
(i) TheGeneralized System ofPreferences 23
(3) Regional dimensions 24
(i) APEC 25
(ii) ASEM 26WT/TPR/S/32
Page ivTrade Policy Review
Page
(4) Bilateral Issues 26
(i) Japan-US bilateral relationship 26
(ii) Japan-European Union bilateral relationship 29
Annex II.1 Decision-making process inJapan intrade-related policy areas 31
Annex II.2 Trade Disputes andConsultations: cases under GATT orWTO Provisions,
January 1995-July 1997 33
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT 37
(1) Main Features 37
(2) Tariffs andTrade-related Taxes andCharges 37
(i) Tariffs 37
(ii) Trade-related taxes andcharges 44
(3) Other Policies Directly Affecting Trade 46
(i) Customs procedures 46
(ii) Licensing andapproval requirements 48
(iii) Trade controls, prohibitions andsanctions 49
(iv) Trade defence mechanisms 52
(v) Origin criteria andrelated requirements 52
(4) Policies Influencing Investment, Growth andTrade 53
(i) Standards andregulations, sanitary andphytosanitary procedures 53
(ii) Subsidies andother financial assistance 58
(iii) Import andinward investment promotion measures 60
(iv) Government procurement measures 67
(v) Competition policy measures 70
(vi) Distribution measures 78
(vii) Intellectual property 80
IV. TRADE POLICIES BYSECTOR 85
(1) Overview 85
(2) Agriculture, Forestry andFisheries 87
(i) Overview 87
(ii) Uruguay Round implementation 89
(iii) Structural developments 92
(iv) Policy orientation 98
(v) Sectoral issues 99Japan WT/TPR/S/32
Page v
Page
(3) Energy andutilities 102
(i) Overview 102
(ii) Petroleum 103
(iii) Electricity 104
(iv) Gas 105
(4) Industry 105
(i) Overview 105
(ii) Motor vehicles andautomobile parts 110
(iii) Electrical machinery andequipment 115
(iv) Pharmaceuticals andcosmetics 117
(v) Ironandsteel 119
(5) Services 120
(i) Introduction 120
(ii) Construction 122
(iii) Telecommunications services 124
(iv) Financial Services 129
(v) Transportation 139
(vi) Other services 145
REFERENCES 147WT/TPR/S/32
Page viTrade Policy Review
CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Real GDP growth rates, industrial countries, 1990-97 1
I.2 External transactions andtherealeffective exchange rateoftheYen, 1988-96 8
I.3 Product composition ofJapan 'strade, 1993 and1996 10
I.4 Intra-industry trade ofJapan byregion, 1985-96 11
I.5 Merchandise trade bymain origin anddestination, 1993 and1996 12
II. TRADE POLICY OBJECTIVES AND INITIATIVES
AII.1 Annex Chart: Decision-making structure fortrade-related policies 32
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
III.1 Range ofapplied tariffs, FY1997 38
III.2 Tariffs onagricultural products, 1997 and2000 39
III.3 Tariffs onmanufactured products, 1997 and2000 40
IV. TRADE POLICIES BYSECTOR
IV.1 Inter-sectoral comparison oflabour productivity inJapan, 1987-94 86
IV.2 Causes ofthedisparity between domestic andoverseas food prices,
andefforts toward costreduction 96
IV.3 Price differences from world levels forJapanese agricultural
commodities, 1990-96 97
IV.4 Rice stockpiling inJapan, 1990-1996 101
IV.5 Trend inconversion ofurban-area agricultural land, FY1980-95 102
IV.6 Labour productivity inJapanese manufacturing, 1985-1993 109
IV.7 Motor vehicles production andexport trends forJapan, 1989-96 111
IV.8 Overseas production ofJapanese automobiles, 1989-96 111
IV.9 Sales ofimported carsinJapan (passenger carmarket), 1989-95 112Japan WT/TPR/S/32
Page vii
TABLES
Page
I. ECONOMIC ENVIRONMENT
I.1 Major features ofJapan 'seconomy, 1990-96 4
I.2 Japan 'seconomic performance, 1990-96 5
I.3 Current account summary, 1992-96 7
I.4 Foreign direct investment (FDI) bysource anddestination, selected years 14
I.5 Foreign direct investment (FDI) byactivity, selected years 15
II. TRADE POLICY OBJECTIVES AND INITIATIVES
II.1 Principal notifications under WTO Agreements asatOctober 1997 22
II.2 Main beneficiaries ofJapan 'sGSPscheme, 1995-96 24
II.3 Major arrangements between Japan andtheUnited States 27
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
III.1 Systems forreduction, exemption, refund andrepayment ofcustoms duty, April 1996 44
III.2 Revenue from national taxes, FY1996 45
III.3 Revised liquor taxrates, 1997-2001 46
III.4 Import volume offoreign access zones (FAZs), selected years 48
III.5 Import quotas onfisheries products, FY1993-1997 50
III.6 Recent export restraint measures maintained byJapan 51
III.7 Major standards andtechnical regulations inJapan, 1996 55
III.8 Simplification ofimport procedures under theFood Sanitation Law 57
III.9 Subsidies notified under WTO provisions, FY1993-95 59
III.10 Overview ofJapan 'simport promotion policy, 1997 61
III.11 Measures forpromoting foreign direct investment intoJapan, FY1996 64
III.12 Number ofmerger andacquisition notifications, FY1992-95 67
III.13 Procurement composition byproduct andbyorigin, 1995 70
III.14 Enforcement statistics related tocompetition policy, FY1992-96 75
III.15 Industries monitored bytheJFTC withrespect toa"monopolistic situation", 1991-97 76
III.16 Recent government actions regarding intellectual property 82
III.17 Patent, utility model, design andtrademark applications filed andregistered, 1990-95 83
III.18 Suspension ofimports likely toinfringe intellectual property rights, 1990-96 84
IV. TRADE POLICIES BYSECTOR
IV.1 Major indicators forJapanese agriculture, FY1980-95 88
IV.2 Special safeguard (SSG) actions inagriculture byJapan, FY1995-1996 91
IV.3 Changes inaverage farm sizebyfarm activity, FY1980-1995 94
IV.4 Set-aside andsubsidy levels forrice, FY1990-96 99
IV.5 Composition ofJapan 'sprimary energy supply, FY1990-95 103
IV.6 Manufacturing output andshare ofvalue added inJapan, 1990-95 106
IV.7 Employment inmanufacturing, value added peremployee andwages per
employee inJapan, 1990-95 107
IV.8 Share ofimports ofintermediate goods imports inJapan 'sdomestic manufacturing 108
IV.9 Type designation approvals forcarsimported intoJapan, 1987-96 113
IV.10 (a)Designated motor vehicle testing institues, 1997
(b)Establishment offoreign liaison offices 114
IV.11 Financial institutions inJapan, March 1997 130WT/TPR/S/32
Page viiiTrade Policy Review
APPENDIX TABLES
Page
I. ECONOMIC ENVIRONMENT
AI.1 Current account developments, 1992-96 155
AI.2 Imports intoJapan byproduct category, 1985-96 156
AI.3 Exports from Japan byproduct category, 1985-96 157
AI.4(a) Japan 'sintra-industry trade withtheworld, byWTO Tariff Study Categories,1985-96 158
AI.4(b) Japan 'sintra-industry trade withEastAsia, byWTO Tariff Study Categories,1985-96 159
AI.4(c) Japan 'sintra-industry trade withtheEuropean Union (15), byWTO Tariff
Study Categories,1985-96 160
AI.4(d) Japan 'sintra-industry trade withtheCanada andtheUnited States, by
WTO Tariff Study Categories, 1985-96 161
AI.5 Imports intoJapan byorigin, 1985-96 162
AI.6 Exports from Japan bydestination, 1985-96 163
II. TRADE POLICY OBJECTIVES AND INITIATIVES
AII.1 Quota ceilings under Japan 'sGSPscheme, FY1997 164
III. POLICY DEVELOPMENTS AFFECTING TRADE AND INVESTMENT
AIII.1 Tariff escalation andtariff ranges inJapan, FY1997 166
AIII.2 Estimates ofbound andapplied tariffs, FY1996 and2000 169
AIII.3 Non-advalorem tariffs applied byJapan, FY1996 170
AIII.4 Current andminimum access commitments byJapan under theUruguay Round 177
AIII.5 Tariff quotas inJapan, FY1996 and1997 182
AIII.6 Other end-use tariff concessions inJapan, FY1997 184
AIII.7 Countervailing andanti-dumping dutycases 186
AIII.8 Japan 'snotifications under theWTO Agreement onTechnical Barriers toTrade, 1995-97 187
AIII.9 Other laws andregulations related tomandatory technical regulations 189
AIII.10 Japanese Industrial Standards (JIS) established, revised orabolished during FY1996 191
AIII.11 Number ofoverseas JISmark approvals, March 1997 192
AIII.12 Recent trends inimplementation ofJapan Agricultural Standards (JAS) regulations 193
AIII.13 Japan 'sSPSnotifications, 1995-97 194
AIII.14 Animal quarantine arrangements inJapan, 1997 197
AIII.15 Listoftheplants prohibited forimport 198
AIII.16 Sectors ofDesignated Inward Investors, 1997 202
AIII.17 Notifications ofacquisitions, FY1992-95 204
AIII.18 Merger notifications, FY1992-95 205
AIII.19 JFTC surveys andreports related tocompetition policy 206
AIII.20 Revision ofexemptions from application oftheAntimonopoly Act 207
AIII.21 Trends inJPOregular staff, 1990-95 211Japan WT/TPR/S/32
Page ix
Page
IV. TRADE POLICIES BYSECTOR
AIV.1 Access commitments tariffs andimports, FY1995-96 212
AIV.2 Above- quota imports (FY1995) ofproducts subject totariff quotas under
theUruguay Round Agreement onAgriculture 213
AIV.3 Supply anddemand foranimal products, FY1980-1995 214
AIV.4 Changes inagricultural structure, FY1980-1995 215
AIV.5 Changes inincome structure offarm households, FY1980-1995 216
AIV.6 Administered prices setforJapanese agricultural commodities inJapan, FY1990-97 217
AIV.7 Producer andconsumer subsidy equivalents forselected Japanese agricultural
commodities, 1990-96 218
AIV.8 Rice imported under Japan 'sminimum access commitment, FY1995-96 219WT/TPR/S/32
Page xTrade Policy Review
SUMMARY OBSERVATIONS
(1) Introduction
1. Since Japan 'slastTrade Policy Review
inApril 1995, itseconomic situation hasnot
improved. Various packages offiscal and
monetary stimulus during 1995 sustained
moderate economic growth, butledtoa
worsening inpublic finances; theoverall fiscal
deficit ofcentral andlocal government roseto
over5percentandgross government debtto
over100percentofGDP. Apolicy reversal
towards fiscal consolidation from mid-1996
onwards, culminating inanincrease inthe
consumption taxinApril 1997, seriously
dampeneddomesticdemandandfromthesecond
quarter of1997, there hasbeenadownturn in
thedomestic economy, withexport demand the
onlysource ofgrowth.
2. During thesame period, Japan 's
financial sector hasbeenseverely affected both
byinternal structural problems, with the
collapse ofamajor bank, amajor securities
company andemergency mergers ofsome
banking firms, andbytheeconomic crisis since
mid-1997inotherAsianeconomies,particularly
Thailand andKorea which aresubstantial
recipients ofJapanese investment.
3. InNovember 1997, theGovernment
announced anewseries ofproposed measures
aimed atreducing regulatory barriers to
businessandstabilizingfinancialmarkets;these
measures areaimed atproviding aframework
fordomestic-led recovery without significant
negative fiscal implications. Thepackage
included proposals forderegulation inthe
telecommunications,trucking,domesticairlines,
jobplacement andpetrol station sectors;
proposals foranumber ofchanges in
regulations onlanduseanddisposal, including
removal oflimits onprices oflandtransactions,
modification oflanduseregulations inurban
areas, revision ofterms forhousing leases,
conversion ofagricultural landintoother uses,
including residential, and finance for
construction ofsuburban "weekend houses";
andproposals forstabilization offinancial
markets, improved protection ofinvestors and
depositors, andderegulation ofthesecuritiesmarket. TheGovernment alsoannounced that
there would beareview ofJapan 'staxsystem
relating tocorporate, financial andlandtaxes
"from the viewpoints ofcreating an
internationally attractive business environment,
effectivelanduseandfurtherstimulatingprivate
initiatives". Further measures announced in
mid-December included a¥10trillion package
insupport ofthebanking sector andanew
income taxreduction amounting to¥2trillion
forFY1997.
4. Some ofthemeasures proposed are
directly "pump-priming" innature; the
Government hasestimated thatthedirect effect
oftheNovember economic package isexpected
tobesome 6trillion yenperyear (about
1percentofGDP). Others, suchasthetax
policy review, aregeared tothelonger term.
5. Thefinancial andstructural crisis in
other EastAsian economies, expected toreduce
growth intheregion considerably, islikely to
affect Japan more severely thanother major
industrialized countries, because thestructure
ofJapan 'strade andinvestment hasbecome
increasingly concentrated inEast Asia. A
substantial volume ofmanufacturing output by
Japanese-owned firms, destined bothforexport
anddomestic markets, hasbeendelocalized to
other partsofEastAsia, insearch oflower costs
anddynamic markets; EastAsia'sshare of
Japan 'sexports andimports hasthuscontinued
togrow, reaching 43and 36percent
respectively in1996 (compared to30and
28percentin1990).
(2) Institutional andLegal Framework
(i) WTO Participation
6. Japan isanoriginal signatory toallthe
WTO Multilateral Trade Agreements andtothe
Agreement onGovernment Procurement. Japan
applies MFN treatment toallbutsixcountries
andcustoms territories: Albania, Equatorial
Guinea, Lebanon, Nepal, theDemocratic
People 'sRepublic ofKorea andVietNam.Japan WT/TPR/S/32
Page xi
7. Consistency ofdomestic andexternal
policies issought bothattheCabinet leveland
through anumber oforganizations under the
Prime Minister orCabinet. Japan isparty to
theNegotiations onBasic Telecommunications,
theDeclaration onTrade inInformation
Technology Products (the "Information
Technology Agreement") and therecently
completed Financial Services negotiations.
Japan alsoparticipates intheWTO Working
Groups onTrade andInvestment andTrade and
Competition Policy.
8. Japan hasbeenactively involved inthe
WTO dispute settlement provisions, both as
complainant andrespondent. Todate, Japan
hasrequestedconsultationsonfourandreceived
complaints oneight cases, andhasbeen
involved asathird party insixcases. The
rulings ofaPanel onalcoholic beverage
taxation havebeenconfirmed bytheAppellate
Body, andtheauthorities haveindicated their
intention toimplement itsrecommendation.
Consultationsbetweenthepartiesarecontinuing
onother cases.
(ii) Bilateral andRegional Agreements
9. Japan hasanumber ofbilateral
agreements, arrangements orunderstandings,
mainly withtheUnited States, onincreasing
market access orreducing trade barriers; these
cover, interalia,automobiles andautomobile
parts, semiconductors, financial services and
insurance. Japan does notbelong toany
customsunionsorfree-tradeareas;ontheother
hand, itisaleading member oftheAsiaPacific
Economic Cooperation (APEC) and the
Asia-Europe Meeting (ASEM).
(3) Trade Policy Features andTrends
(i) Recent evolution
10. Recent economic policy hasaimed at
further strengthening market mechanisms
throughstructuralreformandderegulation,and
thereorientationoftheeconomytowardsgreater
reliance ondomestic, rather than exportdemand. TheDeregulation Action Program,
firstannounced inMarch 1995 andrevised
annually since, hassought toclarify andreduce
thescope ofgovernment regulations, especially
infinancial services, telecommunications and
domestic transport. Agriculture, construction
andinternational transport have, however,
largely been exempted from these moves to
deregulation. Concerns have, inthislight, been
expressed regarding theprocess ofstructural
reform.
11. Japan added 14former Soviet Union
states tothecoverage ofitsGSP scheme in
1995-1996. Japan hasnever "graduated" any
developing country fromthecoverage ofitsGSP
scheme; however, theTrust Territory ofthe
Pacific Islands wasremoved fromthescheme
in1997 when thetrustended.
(ii) Type andincidence oftrade policy
instruments
Tariffs
12. There havebeennomajor changes in
Japan 'stariff structure since itslastReview.
Thesimple average ratewas9.4percent
in1997; some 60percentoftariff linesare
rated at5percentorbelow. Tariff peaks occur
inagriculture, foodmanufacturing, textiles and
footwear, rising tosome 920percent(thead
valorem equivalent ofaspecific rate)onsome
vegetable products (konnyaku tubers).
Substantial tariffescalation occurs inanumber
ofsectors, mainly between semi-processed and
fully-processed items, particularly infood
manufacturing andpetroleum refining.
13. Thesimple average tariff onindustrial
products (defined asHarmonized System
(HS)Chapters 25to97)was4.9percent
in1997. Various tariff cuts, including the
elimination ofapplied tariffs, weremade either
autonomously orunder existing agreements,
including oncertain chemical products, textiles
and non ferrous metals; inFY1996,
WTO-related reductions inbound tariffs were
implemented ahead ofschedule for697miningWT/TPR/S/32
Page xiiTrade Policy Review
andmanufacturing items under Japan 'sAPEC
commitments. Thetariff quota system on
fattening cattle forbeef,oats,hi-test molasses,
rumandtafia wasabolished. Under the
DeclarationonTradeinInformationTechnology
Products, Japan haspledged toreduce bound
tariffs tozerofor57percentoflinesincluded:
virtually allsuchlinesalready benefit fromduty
freetreatment defacto.
Import procedures
14. Portandcustomsproceduresforimports
havebeenaccelerated, leading toareduction
inclearance times, which nevertheless remain
lengthy bydeveloped-country standards. The
authorities statethattheyareworking towards
further acceleration ofsuchprocedures through
anextension ofcomputerization. Four new
Foreign Access Zones (FAZ), centralized
locations forimport-related operations and
facilities tostreamline thedistribution of
imported cargo, hasbeenapproved.
Import limitations
15. Atotalofabout 120tariff linesatthe
HSnine-digit level, including fishery products,
certain wood products andpetroleum, remain
unboundandimportquotasapplytosomeitems.
Statetrading remains inrice,wheat andbarley,
milkproducts, rawsilk,salt, leaftobacco,
industrial alcohol andopium. Theimport cartel
covering imports ofsilkfrom China was
abolished andreplaced byanimport quota
system in1996; annual consultations areheld
withChina regarding imports ofsilkyarnand
fabrics. Surveillance isalsoinforce onsome
other products, including VERs byChina on
garlic andginger. Japan hasnotified tothe
Textiles Monitoring Body aphase-out
programme foritsprior confirmation and
customs confirmation system onsilkproduct
imports fromtheRepublic ofKorea.
Technical barriers
16. Japan seeks increasingly tocoordinate
domestic technical andsanitary regulations and
standardswithinternationalnorms.ThenumberofJapanese industrial standards (JIS)
corresponding tosuch norms hasgrown
since 1995, withatarget of1,000 standards to
bealigned inthree years, andthescope of
permission forforeign testing, certification, and
factory approval hasalsoincreased somewhat.
Mandatory technical regulations (insomecases
implementingotherwisevoluntarystandards)are
inforce notably onfood, pharmaceuticals,
fertilizers, electrical goods, and products
covered under safety regulations forroad
vehicles, though littleinformation onthetotal
number ofsuchregulations isavailable.
Government procurement
17. In1996, Japan introduced operational
guidelines toapply the1994 Action Plan for
greaterfairnessandtransparencyingovernment
procurement. Inthatyear,theshare ofoverseas
products inprocurement valued above
SDR100,000 was some 18per cent.
Since 1995, theshare ofselective andsingle
tendering hasfallen infavour ofopentendering.
Contingency measures
18. Anti-dumping investigations were
initiated anddefinitive duties wereimposed on
cotton yarnfromPakistan in1995. Following
reviews in1996 and1997, these duties were
reduced oreliminated. Japan hasnever used
countervailing actions orGATT safeguard
measures.
Import andinvestment promotion measures
19. Japan 'simport and investment
promotion programmes include substantial
government incentives, yetitisnotevident that
these programmes fullyaddress theobstacles
encountered; todate, most measures have
focused onassisting withexisting procedures,
rather than attempting major structural
improvements. Import promotion measures,
including taxincentives andfinancial measures,
havebeenextended atleastuntilMarch 1998.
Promotional measures forinward direct
investment, mainly comprising taxincentives,Japan WT/TPR/S/32
Page xiii
financial support andtechnical assistance, were
alsoexpanded.
Export restrictions
20. Under WTO provisions, Japan is
reducing thenumber andscope ofrestrictions
onexports. Theonlyremaining "voluntary"
export restraint isthemonitoring arrangement
oncarexports totheEuropean Union, which
istobeeliminated in1999. Nineof11export
cartels have been abolished since 1995.
Remaining export cartels, related either to
protection ofquality orintellectual property, or
toimport monopolies inpartner countries are
tobeabolished byend-1999.
Measures relating tothedomestic market
21. Changes havetaken place inJapan 's
competition lawunder theAnti-Monopoly Act
(AMA). AMA exemptions allowing retail price
maintenance ondesignated cosmetics and
over-the-counter medicines were revoked
in1997. Thenumber ofpermitted ("exempted")
cartels hasdeclined steadily. Easing of
obstacles tomergers andacquisitions are
regardedasofficialpriorities.Concernremains
about theeffects onforeign access toJapan of
horizontally andvertically integrated groups
(kigyo-shudan andkeiretsu).
Intellectual property
22. Japan isafounding member ofthe
World Intellectual Property Organization
(WIPO), andasignatory tomostmajor treaties
regarding intellectual property rights. Recent
legislative amendments include areduction in
thetimerequired bythepatent office totreat
patents cases andtheintroduction ofapost-
grant opposition system; thus, theaverage
approval time forpatent andutility model
applications wasreduced tounder 24months
byend-1995. Tocombat violations ofindustrial
property rights attheborder, theCopyright Law
wasamended andfinesforinfringement were
tripled in1996.(iii) Sectoral policies
Agriculture
23. Japan'sagriculturalproductivityremains
low, reflecting therapid aging ofthe
agricultural population andtheextremely small
average sizeoffarms. Theagricultural
self-sufficiency ratio fellto42percentin
FY1995, andagriculture accounted forsome
20percentofJapan 'smerchandise imports
in1996. Hightariffpeaks andtariffescalation,
together with substantial end-use tariff
concessions fordomestic processing, are
prevalent andtheoverall level ofsupport to
agriculture remains well above theOECD
average. Thehighcostofagricultural inputs
hasbeenanimportant factor inencouraging
Japan 'sfoodprocessing industries torelocate
offshore.
24. Japan 'simplementation oftariffication
requirements under theWTO resulted ina
significant increase inthenumber ofspecific
rates. Tariffication ofquantitative restrictions
often implies, asinother WTO members,
prohibitive dutylevels. Tariff quotas have
frequently beenunderutilized andthere isno
system forreallocation ofunused quotas. Japan
hastriggeredSpecialSafeguardsundertheWTO
Agreement foranumber ofproducts subject to
tariffication. Riceimports arenotcurrently
subject totariffication; thequestion of
continuation ofspecial treatment agreed inthe
Uruguay Round istobenegotiated inthe
year2000.
25. Thoughsomeprogressin
distributionhasbeenmade,suchastheabolition
in1995 ofthe requirement that all
riceproducersshouldselltheir
output totheGovernment, agriculture has
todatelargelybeenexcludedfrom
Japan 'sderegulation efforts. Over-production
ofrice remains achronic problem and
set-asideprovisionsforricelandhavecontinued
tobetheGovernment 'sprimary response tothe
issue.WT/TPR/S/32
Page xivTrade Policy Review
Energy andutilities
26. More than 90percentofJapan 's
primary fuelsareimported; thus,stable supply
hasbeenthemajor objective ofJapan 'senergy
policyandregulationshavetendedtodiscourage
efficiency. Asaresult, theprice ofenergy has
generally beenhigher thaninother developed
countries. However, therearesignsofachange
inpolicy direction; recent stepstoderegulation
haveincorporatedcertaincompetition-enhancing
measures, including theliberalization of
petroleum product imports inMarch 1996 and
theintroduction ofcompetition inwholesale
salesofelectric power totheutility companies.
Some relaxation inregional monopoly
arrangements forcitygascompanies hasalso
beenintroduced.
Manufacturing
27. Manufacturinggeneratesabout
24percentofJapan 'sGDP, ahigh share
compared tothatofother developed economies.
In1996, exports ofmanufactures were some
7percentlower thanin1995. Japan 'soutward
foreign direct investment inmanufacturing has
alsocontinued toincrease. Tariffs onmost
manufactures aregenerally lowbycomparison
toboth historical andinternational levels;
however,exceptionsincludetextilesandclothing
andleather andleather products.
28. Primarily asaresult ofthe1995
Japan-U.S.AutosandAutoPartsConsultations,
Japan undertook, interalia,toincrease access
andsales opportunities, onanMFN basis, for
competitive foreign autos andautoparts. A
certain number of"critical parts" have been
deregulated inthisconnection. Asnoted above,
voluntary export restrictions remain onJapan 's
carexports totheEuropean Union.
29. Anew consultative framework on
semiconductors between theUnited States has
been established, both atgovernment-to-
government level andintheprivate sector.
After theexpiry ofthe1991 Japan-U.S.
SemiconductorArrangement,thetwoGovernments agreed toestablish theGlobal
Government Forum atthegovernment leveland
theWorld Semiconductor Council atthe
private-sectorlevel;Governmentsandproducers
fromtheEuropean Union andtheRepublic of
Korea arealsoinvolved inthesearrangements.
30. Recent changes inJapan 'spolicy
towards pharmaceuticals andcosmetics include
thereclassification ofcertain vitamins, herbs
andminerals asfoodproducts (easing access
totheseproducts), someorganizational changes
inthereview system fornewdrugapplication,
andrelaxationofregulationsonparallelimports
ofcosmetics. Japan participates inthe
International Conference onHarmonization of
Technical Requirements forRegistration of
Pharmaceuticals forHuman Use(ICH) to
harmonize quality, safety and efficacy
requirements ofpharmaceuticals.
31. Theironandsteelindustry hasbeen
designated asoneofthesectors thatmayapply
forgovernment assistance, suchaslowinterest
loans, loanguarantees andtaxbreaks, inthe
framework oftheLawonTemporary Measures
toFacilitate Business Innovation. The
Government guarantees national treatment in
theapplication ofthelaw.
Services
32. Private services generated some
64percent ofJapan 'sGDP and some
68percentofemployment in1996. Ithasoften
beenpointedoutthatJapan'sservicessectorhas
lower productivity thanmanufacturing; with
services accounting forabout two-thirds of
GDP, itisclear thatproductivity growth in
services isadetermining factor inJapan 'sliving
standards. Thisisparticularly thecasefor
"input" services such asfinancial services,
telecommunications and transport, where
productivity gains cansignificantly cutcostsin
other sectors.
33. Concerns havebeenraised ontheclose
links between complex regulations andlow
productivity inservice sectors. Legislation inJapan WT/TPR/S/32
Page xv
certainareasofthefinancial,
telecommunications, airandmaritime transport
services sectors allows ahigh degree of
discretion totheauthorities. Recent initiatives
showasignofchange inthedirection ofpolicy;
along with general deregulation, Japan is
gradually reducing itstraditional reliance on
government intervention and control, for
example inmoving toward eliminating the
"demand-supply adjustment" provisions that
limitcompetition inmany areas.
34. Recentdevelopmentsinfinancialservices
andtelecommunications,iffullycarriedthrough,
mayenhance theprospects forproductivity
growth inthese sectors. Newamendments to
the Foreign Exchange andForeign Trade
Control Law, announced in1996 aspartof
structuralreformmeasures(theJapaneseversion
ofthe"BigBang") onfinancial services, further
liberalization initiatives intelecommunications,
andother deregulation measures listed inthe
Deregulation Action Program willopen these
services togreater competition. Bilateral
agreements withtheUnited States oninsurance
banking, andother financial services aretobe
applied onanMFN basis toallWTO members;
allthemajor elements ofthese agreements,
together with other concessions relating to
insurance andforeign exchange trading, will
bebound byJapan intheWTO financial
services negotiations. However, unilateral
reform measures taken byJapan intheairandmaritime transport sectors have been mainly
confined todomestic services; protective
policies also remain insome professional
services.
(4) Trade Policies andForeign Trading
Partners
35. Since thelastTrade Policy Review,
Japan hasbeenactive inimplementation ofthe
Uruguay Round Results. Trade liberalization
initiatives taken intheAsiaPacific Economic
Cooperation forum (APEC), arealsotobe
implemented onanMFN basis. However, the
increased concentration oftradeandinvestment
intheAsian region hasmade Japan more
directlyvulnerabletothefinancialandeconomic
crisis intheregion than areother major
industrialized economies.
36. Some steps have been taken towards
greater deregulation andstructural reform in
Japan 'seconomy; however, these arestill
partial inscope andseveral sectors, including
agriculture, construction andcertain services,
especiallyfinancial,remainsubjecttorestrictive
regulations thataffect both foreign market
access and better allocation ofdomestic
resources.Firmcontinuationofthederegulation
process would therefore beanessential element
instimulating thedomestic market, asthe
authorities seek, andencouraging improved
market access.