WT/TPR/S/142 Trade Policy Review 
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IV. TRADE POLICIES BY SECTOR  
(1) INTRODUCTION  
1. Since Japan's previous Trade Policy Review, the Government has continued to promote 
structural reforms;  these reforms pertain especially to the energy and services sectors.  The share of  
the services sector in Japan's GDP and employment increased in 2002, while the shares of 
manufacturing, agriculture, forestry and fishing declined.  
2. The average applied MFN tariff for agriculture  (WTO definition) decreased from 20.0% in 
FY 2002 to 17.7% in FY 2004.  In 2002, total government transfers to agriculture amounted to 1.4% 
of GDP, exceeding agriculture's 1.0% share in GDP.  Japan's food self-sufficiency ratio remains at 
around 40% on a calories basis;  Japan continues to be the world's largest net importer of food.   
3. During the period under review, little has change d in the manufacturing sector, which is, by 
and large, more exposed to intern ational competition than agriculture and certain services.  Tariffs on 
industrial products are usually low (averaging 3.8% in FY 2004), non-tariff barriers are few, and the 
sector receives relatively little financial or othe r support from the Government.  Manufacturing's 
contribution to Japan's GDP declined from 20.8% in 2001 to 20.5% in 2002;  the sector employed 
17.7% of Japan's total labour force in 2002, down from 18.4% in 2001. 
4. Achieving a stable supply of energy is one of Japan's major policy objectives;  its energy 
self-sufficiency ratio was about 20% in 2000.  Prices of electricity an d gas in Japan are relatively high 
by international standards.  However, entry into  electricity and gas markets has been partially 
liberalized to encourage competition in the reta il energy sector since the previous Review. 
5. In recognition of the growing importance of services, not just to consumers, but to all kinds of 
businesses for which services are essential inputs and therefore a significant determinant of their 
international competitivene ss, the Government's attention has been  focused increasingly on regulatory 
reform combined with the strengthening of comp etition laws and their enforcement.  Reforms in 
Japan's financial system are especially important because of the system's key role in channelling 
savings into the most profitable investments across various sectors of the economy.  Such reforms 
have focused mainly on the disposal of non-perfor ming loans (NPLs), which have been a hindrance to 
the efficient re-allocation of resources and th us to improved productivity and economic growth.1  
There has also been progress in telecommunication services reform.  In telecommunications, the 
average annual growth rate of total factor pr oductivity (TFP) between 1995 and 2001 was 3.6%, 
substantially higher than the all-sector average, which was 0.2%.  The Basic Telecommunications Law was revised in July 2003 to abolish approval requirements for basic telecommunication 
businesses' entry and exit, and to eliminate classification of Type-I and Type-II categories and 
                                                     
 
1 For example, Ahearne and Shinada (2004) found that productivity growth was low in industries 
reputed to have a heavy concentration of highly inefficient, debt-ridden companies and yet these companies 
increased their market shares.  They also found evidence that poor bank lending practices, notably the continuing supply of loans to low quality borrowers (a practice popularly known as "ever-greening" or 
"forbearance lending"), may have played a role in sustaining this seemingly perverse re-allocation of market 
shares, by preventing more productive companies from gaining market shares.  Such practices thereby stifled a potentially important source of productivity improvement for the economy as a whole.  Similarly, Caballero et 
al. (2003) concluded that, by rolling over loans they knew would never be repaid and keeping highly inefficient, 
debt-ridden companies alive, Japanese banks have deterred market entry by potentially more productive firms.  Industries dominated by highly inefficient, debt-ridden companies exhibit greater excess capacity, lower 
productivity, and more depressed job creation. Japan WT/TPR/S/142 
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regulations on prices for certain services.  As a result of corporatization of the Postal Services, Postal 
Savings, and Postal Life Insurance, Japan Post was established on 1 April 2003. 
(2) AGRICULTURE  
(i) Overview 
6. Since Japan's previous Trade Policy Review, its agriculture policy has remained largely 
unchanged.  The sector continues to receive substa ntial government support;  according to the OECD, 
total transfers to agriculture amounted to 1.4% of  GDP in 2002, while the sector's share of GDP was 
1.0%.2  In 2003, agricultural products amounted to 1.0% of Japan's total merchandise exports, down 
from 1.1% in 2002;  and 15.2% of total imports, compared with 16.3% in 2002. 
7. Data provided by the authorities indicate that  average retail food prices in Tokyo in 2002 
were approximately 90% to 140% of those in other major cities in the world, compared with 
125% to 200% in 2000.  The authorities attribut e the narrowing of the price gap mainly to the 
depreciation of the yen.  According to the authorities , the persistent high food prices in yen terms in 
Tokyo reflect high distribution costs, including transportation, costs associated with responding to 
consumers' buying behaviour, such as a "more-frequent, less-quantity" delivery system, and high land, 
personnel, and energy costs;  high tariffs also undoubtedly contribute to high food prices.  Japan's food self-sufficiency ratio on a calories basis was 40% in 2002;  despite the Government's objective of 
raising it, it has remained almost unchanged since FY 1998.
3 
8. The Basic Law on Food, Agriculture and Rural Areas, and the Basic Plan that implements the 
policy stipulated in the law, have continued to provide the framework and policy direction for 
agriculture in Japan since its previous Trade Policy Review;  one of the basic objectives stipulated in the law is the securing of a stable food supply.
4  Since January 2004, the Council on Food, Agriculture 
and Rural Areas has been reviewing the Basic Plan, which is to be revised in March 2005. The 
Government is also promoting the consolidation of scattered farmland with a view to raising 
productivity.  The Law on Special Zone for Structural Reform, which entered into force in April 2003, 
allowed general corporations such as stock comp anies to lease farmland under certain conditions.5 
9. In April 2004, an amendment to the Law for Stabilization of Supply-Demand and Price of 
Staple Food entered into force;  the law liberalized domestic distribution of rice by, inter alia , 
replacing the previous registration requirements wi th notification requirem ents for wholesale and 
retail distribution of rice in Japan.   
(ii) Policy developments 
10. The average applied MFN tariff for agriculture (WTO definition) is 17.7% (FY 2004)6, 
compared with an overall average of 6.3% (Chapter III(2)(ii));  15.3% of duties applied to agricultural 
                                                      
2 Agriculture's share in Japan's GDP  in 2001 was 1.1%.  It should be noted that total transfers are 
measured on a gross basis, while GDP is on a value-adde d basis.  According to OECD (2004c), the percentages 
of total support estimate (TSE), expressed as share of GDP, were 1.37% in 2001 and 2002, and are provisionally estimated at 1.33% in 2003. 
 
3 The Basic Plan for Food, Agriculture and Rural Areas, decided by the Cabinet in March 2000, 
contains a guideline to achieve a food self-sufficiency ratio of 45% by 2010.   
4 MAFF, "The Basic Law on Food, Agriculture and Rural Areas".  Available at:  
http://www.maff.go.jp/soshiki/kambou/kikaku/NewBLaw/BasicLaw.html.  
5 According to the former Agricultural Land Law, ownership of farmland was limited to individual 
farmers and agricultural production legal persons (e.g. agricultural cooperative farms). 
 6 The average applied MFN tariff for agriculture (HS 1-24) in FY 2004 is 16.1%. WT/TPR/S/142 Trade Policy Review 
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goods are non- ad valorem .  Many agricultural subsectors, such as dairy products, products of the 
milling industry, sugar and sugar products, benefit from relatively high levels of MFN tariff 
protection (Table IV.1);  several of these subsectors are also subject to tariff peaks (defined here as 
tariff rates exceeding three times the simple applied MFN average).  Some of the average tariffs for the subsectors may be underestimated, owing to the lack of estimates for AVEs of some specific duties (which tend to conceal relatively high tariffs).
7  For example, the duty rate payable on out-of-
quota imports of rice is one of the highest rates in Ja pan's customs tariff, as high as 407% in terms of 
ad valorem  equivalent. 
11. Tariff quotas apply mainly to agricultural produc ts, including dairy products, rice, wheat and 
barley, silk-worm cocoons and raw silk, starches, prepared edible fat, corn and ground nuts, dried vegetables;  they cover some 1.6% of all tariff lines (Chapter III(2)(iii)).
8  The extent to which tariff 
quotas are filled varies by product (Table AIV.1).  Eligibility for quota allocations sometimes requires 
prior approval by the MAFF.  The procedure for MAFF approval tends to be intricate;  it may require 
various end-use restrictions, the opinions of other organizations, such as industry associations, and 
many documents, such as accounts and business plan s.  In-quota imports of rice, wheat and barley, 
certain milk products, and raw silk are handled ma inly by state-trading entities;  however, certain 
amounts of all products except raw silk may be imported by private entities (e.g. the simultaneous 
buy-sell system for rice (see below)).9 
12. Imports of rice have been subject to tariff quotas since 1 April 1999;  the applied out-of-quota 
duty on rice in FY 2004 was set at ¥341 per kg.;  the duty is the sum of a specific duty 
(temporary rate) of ¥49 per kg., and a levy of ¥292 per kg. collected by the MAFF.  Imports of in-quota rice were 679,668 tonnes in FY 2001, 679,875 tonnes in FY 2002, and 673,734 tonnes in 
FY 2003;  out-of-quota imports in the same years were 69 tonnes, 202 tonnes, and 217 tonnes.
10  As 
part of Japan's minimum access commitments, a certain amount of rice can be purchased and 
marketed directly under the simultaneous buy-and-se ll (SBS) system;  a total of 50,067 tonnes were 
imported under the SBS in FY 2002, and 100,000 tonnes in FY 2003.  
                                                      
7 In the interests of transparency, the Japanese authorities have provided the Secretariat with AVE 
estimates, where available.  The simple average of all non- ad valorem  tariff rates for which AVEs were 
available was 39.2%, roughly nine times the simple average of purely ad valorem  tariff rates, which was 4.4%. 
8 The latest notifications of tariff quota administration are contained in WTO documents 
G/AG/N/JPN/91 (10 March 2004), and G/AG/N/JPN/100 (13 September 2004). 
9 Rice, wheat, and barley are imported by the Ministry of Agriculture, Forestry and Fisheries;  milk 
products and raw silk by the Agriculture and Livestock Industries Corporation;  and leaf tobacco by Japan 
Tobacco Inc.  
10 The rice import system is described in detail in JETRO (2003).  Under the Uruguay Round 
agricultural negotiations WTO Members would replace the import quota system by bound tariff measures, and 
guarantee minimum access for products with essentially no imports during the reference period (1986-88).  Since 1996, Japan's rice imports have been subject to minimum access commitments defined by the Government 
based on the WTO Agreements. Japan WT/TPR/S/142 
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Table IV.1 
Applied MFN tariff protection in agriculture, FY 2004 
(Per cent) 
HS Chapter/Description Simple 
average 
tariff Maximum 
tariff Tariff peaksa 
(% of lines) Non-
ad valorem 
tariff 
(% of lines) 
01 Live animals 2.0 33.2 2.0 12.0 
02 Meat and edible meat offal 11.2 50.0 18.5 19.5 
03 Fish and crustaceans, molluscs and other aquatic invertebrates 5.5 15.0 0.0 0.0 
04 Dairy produce;  birds' eggs;  natural honey;  edible products of 
animal origin, not elsewhere specified or included 69.6 539.7 89.0 63.0 
05 Products of animal origin, not elsewhere specified or included 0.3 3.5 0.0 0.0 
06 Live trees and other plants;  bulbs, roots and the like;  cut 
flowers and ornamental foliage 0.4 3.0 0.0 0.0 
07 Edible vegetables and certain roots and tubers 11.9 397.3 2.7 8.0 
08 Edible fruit and nuts;  peel of citrus fruit;  melons 7.8 24.0 6.4 0.0 
09 Coffee, tea, maté and spices 3.5 17.0 0.0 0.0 
10 Cereals 36.7 406.6 22.0 31.7 
11 Products of the milling industry;  malt;  starches;  inulin;  wheat 
gluten.   40.3 463.6 50.6 38.0 
12 Oil seeds and oleaginous fruits;  miscellaneous grains, seeds and 
fruit;  industrial or medicinal plants;  straw and fodder 19.0 1,124.1 2.8 5.6 
13 Lac;  gums, resins and other vegetable saps and extracts 3.0 17.0 0.0 4.5 
14 Vegetable plaiting materials;  vegetable products not elsewhere 
specified or included 3.1 8.5 0.0 0.0 
15 Animal or vegetable fats and oils and their cleavage products;  
prepared edible fats;  animal or vegetable waxes 5.5 29.8 3.5 42.4 
16 Preparations of meat, of fish or of crustaceans, molluscs or other  
aquatic invertebrates 13.4 50.0 31.7 3.0 
17 Sugars and sugar confectionery 26.2 107.4 59.6 55.3 
18 Cocoa and cocoa preparations 21.7 69.6 63.0 7.4 
19 Preparations of cereals, flour, starch or milk;  pastrycooks' 
products 28.0 262.5 64.4 26.5 
20 Preparations of vegetables, fruit, nuts or other parts of plants 17.0 46.8 38.4 6.7 
21 Miscellaneous edible preparations 23.7 396.6 49.5 16.1 
22 Beverages, spirits and vinegar 15.1 75.2 33.3 35.2 
23 Residues and waste from the food industries;  prepared animal 
fodder 1.3 22.4 2.4 9.5 
24 Tobacco and manufactured toba cco substitutes 5.1 29.8 9.1 0.0 
1-24 Agriculture 16.1 1,124.1 25.3 15.3 
a Three times the simple average of overall applied MFN rates. 
Note: The simple average applied MFN tariff rate in FY 2004 is calculated by using 2003 AVEs, as available, provided by the Jap anese 
authorities.  When the AVEs are unavailable, the ad valorem  part is used for compound and alternate rates. 
Source:  WTO calculations, based on data provided by the Japanese authorities.  
13. Special safeguard actions (SSG s) were taken during FY 2002-04 for a number of products, 
including rice, small red beans, wheat flour, rice flour, starch, inulin, butter, food preparations of 
flour, meal or starch (Table IV.2).  Both pric e-based and volume-based SSGs have been imposed;  
these are applicable only to above-quota imports.  Japan also invoked separate emergency measures.  
In response to a surge in imports, tariffs on fres h and chilled beef were raised between 1 August 2003 
and 31 March 2004 from 38.5% to 50%, and the gate price levels of pork products were raised 
between 1 August 2002 and 31 March 2003 and be tween 1 August 2003 and 31 March 2004;  for WT/TPR/S/142 Trade Policy Review 
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example, the price for cut meat was raised from ¥524/kg. to ¥653/kg. and for carcasses from ¥393/kg. 
to ¥489/kg.11 
Table IV.2 
Special safeguard (SSG) actions in agriculture, FY 2002-04 
Description Type of action Date or period of application 
FY 2002   
Rice (semi-milled or wholly milled, whether or not 
polished or glazed) Price-based 31 May 2002, 23 August 2002 
Small red (Adzuki) beans Price-based 23 July 2002 
Wheat flour Price-based 1 August 2002, 5 August 2002, 8 October 2002 
Rice flour Price-based 5 September 2002 
Manioc (cassava) starch Price-based 17 October 2002 
Food preparations mostly containing wheat and triticale Price-based 11 November 2002 
Butter (of a fat content, by weight, not exceeding 85%) Price-based 24 January 2003 
Food preparations containing by weight not less than 
30% natural milk constituents on the dry matter Price-based 26 February 2003, 28 February 2003, 31 March 2003 
FY 2003    
Food preparations, containing groats, meal, pellets or 
starch of rice, wheat, triticale, barley, which total weight 
is more than 85% of the articles and mostly containing 
starch Price-based 7 July 2003 
Beans other than beans of species Vigna mungo (L.) 
Hepper or Vigna radiata (L.) Wilczek , small red (Adzuki) 
beans and kidney beans Price-based 11 July 2003 
Other fats and oils derived from milk of a fat content, by 
weight, exceeding 85% Price-based 4 July 2003, 8 October 2003, 26 November 2003 
Wheat flour Price-based 4 September 2003, 24 October 2003, 15 March 2004 
Rice flour Price-based 12 August 2003, 19 September 2003, 26 January 2004, 
29 January 2004 
Manioc (cassava) starch Price-based 5 September 2003, 19 January 2004, 18 February 2004 
Other starches (excluding sago starches) Price-based 12 August 2003, 25 August 2003, 19 December 2003 
Food preparations containing by weight not less than 
30% natural milk constituents on the dry matter Price-based 27 November 2003, 16 March 2004 
Kidney beans, including white pea beans (Phaseolus 
vulgaris), excluding rendered suitable solely for sowing 
by chemical treatment and certified as seeds for sowing, 
vegetables in accordance with the provisions of a Cabinet 
Order, shelled, dried Price-based 11 March 2004 
Milk powder, not containing added sugar or other 
sweetening matter, of a fat content, by weight, exceeding 
5% but not exceeding 30% Price-based 16 January 2004 
Milk and cream, concentrated or containing added sugar 
or other sweetening matter of a fat content, by weight, 
exceeding 8% Price-based 11 March 2004 
Tubers of konnyaku (Amorphophalus), whether or not 
cut, dried or powdered Price-based 17 March 2004 
Food preparations of flour, meal or starch, containing 
one or more of those groats, meal, pellets of rice, wheat, 
triticale, barley or starch, which total weight is more than 85% of the articles and mostly containing starch Volume-based 1 October 2003 to 31 March 2004 
Table IV.2 (cont'd) 
                                                      
11 Under Japan's tariff system on pork imports, an ad valorem  duty is applied if a c.i.f. price is higher 
than the gate price, and a specific duty is applied if the c.i.f. price is lower than the gate price. Japan WT/TPR/S/142 
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Description Type of action Date or period of application 
Butter and other fats and oils derived from milk;  dairy 
spreads Volume-based 1 January 2004 to 31 March 2004 
Inulin Volume-based 1 February 2004 to 31 March 2004 
Maize (corn) starch Volume-based 1 March 2004 to 31 March 2004 
FY 2004   
Inulin Volume-based 1 October 2004 to 31 March 2005 
Source : WTO notifications . 
14. The support received by Japan's farmers and consumer prices of agricultural products remain 
above the OECD average.  Japan's net producer support estimates (PSE) and consumer support 
estimates (CSE) for 2003 have been provisionally estimated at 58% and 53%, while the OECD 
averages are 32% and 24%, respectively.12  In the same year, the producer nominal assistance 
coefficient (NAC) was 2.4, indicating that gross fa rm receipts were 2.4 times the level they would 
have been if generated at world prices without support.  Likewise the consumer NAC was 2.1, 
indicating that consumers continue to be implicitly ta xed, paying on average more than twice as much 
as they would have paid without the support.  On average, the producer and consumer NACs were 
both 1.6 times the respective OECD averages.  In addition, the producer nominal protection 
coefficient (NPC) was 2.3 in 2003, meaning that th e farm gate price received by producers was on 
average 2.3 times higher than the price at the border .  Data provided by the authorities indicate that 
the Aggregate Measures of Support (AMS) on price support declined from ¥3.0 trillion in FY 1997 to 
¥0.5 trillion in FY 2000, while the AMS on direct income support increased from ¥199 billion in 
FY 1997 to ¥297 billion in FY 2000.13  Current price support schemes a nd their levels are tabulated in 
Table IV.3.  According to the OECD, total support to  producers has consisted largely of measures that 
potentially distort production, namely market price support, payments based on output, and input 
subsidies (such as interest, water, fertilizer, and energy subsidies);  the share of such subsidies in 
Japan's total support was 97.4% in 2003, down slightly from 98.1% in 1999.14 
Table IV.3 
Procurement prices for all major crops subject to pricing and/or marketing arrangements/price controls, 2000-03 
(¥) 
 2000 2001 2002 2003 
Rice, official purchase price (unpolished rice, 60 kg.) 15,104 14,708 14,295 13,820 
Wheat, official purchase price (60 kg.) 8,824 8,693 8,693 8,552 
Soybeans, standard price (60 kg.) .. .. .. .. 
Sweet potatoes, trading guideline price (1 tonne) 31,430 31,430 31,310 31,160 
White potatoes, raw material standard price (1 tonne) 13,960 13,960 13,840 13,690 
Sugar beets, lowest producer price (1 tonne) 17,040 17,040 16,930 16,840 
Sugar cane, lowest producer price (1 tonne) 20,370 20,370 20,330 20,300 
Milk for processing, guaranteed price (1 kg.) 72.13 .. .. .. 
Calves for beef, guaranteed standard price (black cattle) (per head) 304,000 304,000 304,000 304,000 
Table IV.3 (cont'd) 
                                                      
12 OECD (2004c) figures for 2003 are provisional.  As noted in WTO (2003), caution is necessary 
when interpreting PSEs, CSEs, and NACs, as changes in exchange rates or world prices may produce significant fluctuations in the three indicators, and border prices may be artificially reduced owning to the presence of 
export subsidies in international agriculture trade.  
13 Details of Japan's domestic support commitment are available at WTO document G/AG/N/JPN/98, 
19 May 2004. 
14 OECD (2004c). WT/TPR/S/142 Trade Policy Review 
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 2000 2001 2002 2003 
Beef, stable standard price (1 kg.) 785 780 780 780 
Pork, stable standard price (1 kg.) 365 365 365 365 
Raw silk, stable standard price (1 kg.) .. .. .. .. 
.. Not available. 
Source : Information provided by the Japanese authorities. 
(3) MANUFACTURING  
15. In 2002, manufacturing accounted for 20.5% of Japan's GDP and 17.7% of employment 
(Table I.2).  Electrical machinery was the larges t subsector in terms of value added, followed by 
transport equipment.  In 2003, manufactured products accounted for 93% of Japan's total merchandise exports and 57% of its total merchandise imports.  Automotive products, office machinery, and 
telecom equipment are Japan's main export items. 
16. The simple average applied MFN tariff for imported industrial products (HS 25-97) is 3.8% in 
FY 2004, compared with 16.1% for agricultural products.
15  Simple average tariffs are considerably 
higher for footwear, headgear, and prepared food th an for other manufactured goods (Chart III.2). 
17. With a view to strengthening Japan's industri al competitiveness, the Law on Special Measures 
for the Revitalization of Industrial Dynamism (Ind ustrial Revitalization Law)  was amended in 2003.  
Measures adopted in the amendment include tax cuts for IT or R&D related investments, extension of 
the loss-carry-forward period to seven years (from five years) for projects approved under the law,  
provision of low-interest loans by the Developm ent Bank of Japan and other government affiliated 
financial institutions, and the promotion of debt-equity swaps.16 
18. In April 2003, the Industrial Revitalization Corporation of Japan (IRCJ) was established 
jointly by the public and private sectors to revita lize Japanese companies with  "excessive" debt;  upon 
request of a company's major creditors, the IRCJ  purchases debts from other creditors of the 
company.17  The debt purchased by the IRCJ must, in principle, be sold within three years of 
purchase.  By the end of September 2004, the IRCJ had decided to support 25 companies.18 
19. Labour productivity in manufacturing increased th e most in export-oriented subsectors.  After 
2002, the capacity utilization ratio increased sharpl y and the excess capacity index in manufacturing 
dropped. 
                                                      
 15 The simple average applied MFN tariff rate in FY 2004 is calculated by using 2003 AVEs, as 
available, provided by the Japanese authorities.  When the AVEs are unavailable, the ad valorem  part is used for 
compound and alternate rates. 
16 The Government also provides sector-specific support.  For example, the International Aircraft 
Development Fund (IADF) of Japan receives grants from the Government and provides financial support, together with loans granted from the Development Bank of Japan, to Japanese companies involved in 
international collaboration for civil aircraft, such as the project between Boeing company and the Japan Aircraft 
Development Corporation (JADC).  The JADC is a consortium of Japanese Aircraft Industries (IADF online information.  Available at:  http://www.iadf.or.jp/8361/h/IADF-HP/iadf-hp_katudou--E.htm;  and JADC online 
information.  Available at:  http://www.jadc.or.jp/outline_jadc_e.htm). 
17 According to the authorities, there is no nationality restriction on companies to be supported by the 
IRCJ. 
18 IRCJ online information.  Available at: http://www.ircj.co.jp/english/press/index.html. Japan WT/TPR/S/142 
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(4) ENERGY AND UTILITIES  
20. A stable energy supply has been one of main objectives of Japan's energy policy, because 
about 80% of its primary energy (e.g. oil, coal, na tural gas, nuclear, hydro, and geothermal energy) 
was imported in 2000.19  Nonetheless, both electricity and gas prices in Japan are relatively high by 
international standards.  According to the authorities, this is due, inter alia,  to Japan's geographical 
location, its high labour and land costs, and its ol igopolistic market structur e for electricity and gas 
supply.  Against this background, more emphasis has been placed on economic efficiency in Japan's 
energy policy, as observed in various deregulation measures implemented since its previous Trade 
Policy Review. 
21. In 2000, the retail electricity market, whic h had consisted of full regional monopolies 
regulated by the then Ministry of International Trade and Industry, was partially liberalized;  
customers consuming over 2,000 kW and taking power at 20,000V or above (mainly enterprise) were 
allowed to buy from sources other than in cumbent regional electric utility companies.20  Under the 
amendment to the Electric Utility Industry Law in  June 2003,  this freedom was extended to 
consumers at or above 500 kW, effective in April 200421;  in April 2005, consumers at or above 
50 kW are to be included.  Data provided by the au thorities indicate that in terms of total electricity 
demand, the share of liberalized market was 26% in 2000 and 40% in 2004.  Like in many other 
countries, electricity prices for industrial use are substantially lower than for household use.22 
22. The Gas Utility Law was also amended in June 2003 and entered into force in April 2004;  
the amendment eliminated certain regulations in the gas industry.  For example, since April 2004, customers consuming over 500,000 cubic meters per year have been allowed to buy from sources other than incumbent regional piped-gas suppliers, and third-party access (TPA) has been allowed to 
all existing pipelines, subject to certain restrictions. 
23. Foreign entities wishing to invest in electric and gas utilities must, under the provisions of the 
Foreign Exchange and Foreign Trade Law, notify their intention to the competent authorities, 
including the METI.  Permission for investment is not denied, except on grounds of national security. 
                                                     
 
 19 Excluding nuclear power, about 96% of its primary fuels were imported.  This is because uranium 
can be utilized for some years after importation.  The Government adopted a Basic Plan for Energy Supply and Demand as a Cabinet decision in October 2003.  According to the Plan, the Government encourages a shift of 
Japan's primary energy sources from petroleum to nuclear power, coal, natural gas, and LPG in order to 
maintain stable energy supply.  Measures adopted to this end include promoting the construction of domestic pipeline networks to increase the use of natural gas.  In FY 2002, 31.2% and 21.6% of Japan's total electricity 
supply were generated by nuclear power and natural gas, respectively.  
20 Price regulation was also relaxed and a set of rules was introduced regarding the use by new entrants 
of existing transmission lines.  Since October 2003, J-Power, the biggest wholesale electricity supplier, has 
apparently been corporatized and subsequently privatized.  J-Power owns and operates 67 power plants and 
transmission lines extending over 2,400 km, accounting for 7% of the total capacity of Japan's generating 
facilities, and sells electricity to Japan's major electric power companies. 
21 The amendment also required the establishment of a Neutral System Organization (NSO), which is to 
issue rules related to construction of network facilities, network access, system operation, and information 
disclosure with a view to improving the transparency of transmission and distribution of electricity. 
22 For example, average electricity prices for household use in 2002 were:  US$0.174/kWh in Japan, 
US$0.136/kWh in Germany, US$0.105/kWh in the United Kingdom, US$0.105/kWh in France, and 
US$0.085/kWh in the United States;  and average electricity prices for industry use were US$0.115/kWh in Japan, US$0.052/kWh in the United Kingdom, US$0.049/kWh in Germany, US$0.048/kWh in the United 
States, and US$0.037/kWh in France (OECD/IEA (2004)). WT/TPR/S/142 Trade Policy Review 
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(5) SERVICES  
(i) Overview 
24. The services sector remains the largest contribu tor to output and employment in Japan, and 
the sector's importance has continued to grow sin ce Japan's previous Trade Policy Review.  In 2002, 
the sector accounted for 71.1% of Japan's GDP, up from 70.6% in 2001, and 69.4% of the total 
employment, up from 68.5%. 
25. Japan's Schedule of Specific Commitments under the General Agreement on Trade in 
Services (GATS) has remained unchanged since 2002;  it covers 121 of the 160-odd sectors.  Japan 
has not taken any MFN exemptions. 
(ii) Financial services 
26. The financial services sector in Japan has been  undergoing significant changes.  A protracted 
period of low growth, after the bursting of the " bubble" in the early 1990s, has substantially reduced 
profitability of financial intermediaries, and tec hnology and deregulation ha ve increasingly blurred 
the traditional distinction betwee n financial products.  Globali zation and competition across the 
border is another force driving the structural change in Japan's financial services sector.  These forces 
have encouraged mergers and acquisitions across diff erent types of financial services firms with a 
view, inter alia,  to realizing economies of sc ale.  Government-led financial restructuring, involving 
reduction of NPLs and privatization of government-a ffiliated financial institutions, has been aimed at  
strengthening Japan's financial system and improving the efficiency of the capital market so that 
savings are channelled into profitable investment;  an  efficient capital market is, thus, an essential 
factor in raising productivity in the economy as a whole.   
27. There have been no major changes in Japan's regulatory environment for financial services 
since 2002.  The Financial Services Agency (FSA) remains responsible for policy planning, 
regulatory control, inspection, and supervision as well as for the resolution of failed banks, and capital 
injections into financial institutions.  The responsibility of the Ministry of Finance is restricted, inter 
alia, to part of financial failure resolution, financial crisis management, management of the Deposit 
Insurance Corporation, and other public insuranc e schemes for deposits and investment, as well as 
exchange rate policies and foreign investment.  The Bank of Japan is responsible for the smooth 
settlement of transactions between banks and other fi nancial institutions with a view to contributing to 
the maintenance of "an orderly financial system".   Under the Foreign Exchange and Foreign Trade 
Law, cross-border capital transact ions are not regulated, and free entry and exit is guaranteed for 
foreign exchange business.  
28. Amendments to the Ordinance of the Insurance Business Law in October 2002 enlarged the 
scope of insurance products that banks can sell over the counter, and revisions of the Securities and 
Exchange Law in May 2003 allowed foreign securities companies to engage in direct transactions 
with Japanese stock exchanges without establishi ng branches in Japan, provided they obtain 
authorization of the Prime Minister. 
29. Both the imports and exports of Japan's financial services sector (except for insurance) 
increased in 2003;  exports increased from ¥393 billion in 2002 to ¥403 billion in 2003, while imports increased from ¥204 billion to ¥252 billion. Japan WT/TPR/S/142 
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(a) Banking 
30. Since Japan's previous Review, reorganization of  the banking sector has continued;  recent 
changes, including several mergers, consolidated Japan's largest banks into five major groups.23  The 
ratio of NPLs to the total lending of all banks decr eased to 5.8% (¥26.6 trillio n) in March 2004 (from 
8.4% in March 2002)  (Chapter I(3)(i)).24  As at end-March 2004, there were 225 banks, among which 
72 were foreign (Table IV.4).  Deposits held by "c ity banks" accounted for 46.5% of total deposits in 
all banks, and loans by city banks amounted to 48.0% of the total.  As well as commercial banks, 
there are Government financial ins titutions, which include Japan Post25, two non-commercial banks26, 
and six finance corporations.  Commer cial bank interest rate spreads have generally remained stable at 
around  1.5 to 2.0  percentage points since 2000 (compared to around 3 percentage points in the 1970s), suggesting a more competitive market re flecting the liberalization of interest rates.
27 
Table IV.4 
Financial institutions in Japan, 2004 
1. Banks 
 (end-March 2004) Number of 
banks Total assets 
(¥ trillion) Related laws 
City banks 6 399.6 Banking Law 
Long-term credit banks 2 11.6 Banking Law 
Trust banks 27 69.4 Banking Law, 
Law on Concurrent Operation of Trust Business by Financial Institutions 
Internet banks 4 1.1 Banking Law 
Regional banks I 64 206 Banking Law 
Regional banks II 50 60 Banking Law 
Foreign banks 72 53.3 Banking Law 
2. Cooperative financial institutions  (end-March 2004) Number of 
organizations Total assets 
(¥ trillion) Related laws 
Shinkin Central Bank 1 27 Credit Association Law 
Shinkin banks (Credit Associations) 306 114 Credit Association Law 
Shinkumi Federation Bank 1 3 Small and Medium Business, etc. 
Cooperatives Law 
Law on Financial Business by Cooperatives 
Credit cooperatives 181 16 Small and Medium Business, etc. 
Cooperatives Law Law on Financial Business by 
Cooperatives 
Mutual Federation of Labour Credit Association 1 4 Labour Credit Association Law 
Labour credit associations 13 14 Labour Credit Association Law 
Shoko-Chukin Bank 1 12 The Shoko Chukin Bank Law 
Norinchukin Bank 1 62 Norinchukin Bank Law 
Prefectural Credit Federation of Agricultural Cooperatives 46 53 Agricultural Cooperatives Law 
Table IV.4 (cont'd) 
                                                      
23 These are Mizuho Financial Group, Sumitomo Mitsui Financial Group, UFJ Holdings, Resona 
Holdings, and Mitsubishi Tokyo Financial Group.  
24 As at end-March 2004, there were 64 banks belonging to the Regional Banks Association of Japan 
(regional banks I) and 50 banks belonging to the Second Association of Regional Banks (regional banks II);  the 
ratio of NPLs to the total lending of regional banks I was about 6.8% and that of regional banks II was about 
7.5%. 
25 The previous Postal Saving System was reorganized into a new state-run public corporation, Japan 
Post, in April 2003. 
26 The Development Bank of Japan and the Japan Bank for International Cooperation.  
27 Mizuho Research Institute (2003).  Interest rates in Japan have been deregulated gradually since 
1979;  currently no interest rate regulations exist, except on current accounts. WT/TPR/S/142 Trade Policy Review 
Page 68 
 
 
Agricultural cooperatives 952 94 Agricultural Cooperatives Law 
Prefectural Credit Federation of Fishery Cooperatives 34 2 Fishing Cooperatives Law 
Fishery cooperatives (including fish processors cooperatives 397 2 Fishing Cooperatives Law 
National Federation of Credit Guarantee Corporations 1 0.08 Credit Guarantee Corporations Law 
Credit guarantee corporations 52 35 Credit Guarantee Corporations Law 
3. Insurance companies  Number of 
companies 
(end-June 
2004) Total assets 
(¥ trillion, 
end-March 
2004)  Related laws  
Life insurance: domestic 23 160 Insurance Business Law 
   foreign 17 24 Insurance Business Law 
Non-life insurance: domestic 25 32 Insurance Business Law 
   foreign 27 0.3 Insurance Business Law 
Mutual fire insurance cooperative associations 45 0.07 Small and Medium Business, etc. 
Cooperatives Law 
Ship owner's mutual insurance associations 2 0.03 Small and Medium Business, etc. 
Cooperatives Law 
4. Non-banks and other 
(end-March 2004)  Number of 
registered 
companies Number of 
reported 
companies Related laws 
Loan companies 23,708 .. Money-Lending Law 
Housing loan companies 1 .. Money-Lending Law 
Money market brokers  (number of designated companies) .. 7 Money-Lending Law and Former 
Investment Law 
Mortgage companies 11 .. Investment Advisory Service Law 
Prepaid voucher issuers 1,465 430 Law on Regulation of Prepaid 
Certificates 
Commodity investment brokers 110 .. Law on Regulation of Commodity 
Investment Business 
Special purpose companies 40 306 Business Asset Securitization Law 
    
Real-estate syndications (as of end-April 2004) 92 6 Real Estate Designated Cooperative 
Projects Law 
Financial futures brokers 55 .. Financial Futures Trading Law 
5. Government's financial institutions 
(end-March 2004)  Aggregated balance of loans 
(¥ trillion)  Related laws  
Development Bank of Japan 14.8 Development Bank of Japan Law 
Japan Bank for International Cooperation 20.4 Japan Bank for International 
Cooperation Law 
National Life Finance Corporation 10.0 National Life Finance Corporation 
Law 
Housing Loan Corporation 60.6 Housing Loan Corporation Law  
Agriculture, Forestry and Fisheries Finance Corporation 3.4 Agriculture, Forestry and Fisheries 
Finance Corporation Law  
Japan Finance Corporation for Small and Medium Enterprise 7.6 Japan Finance Corporation for Small 
and Medium Enterprise Law 
Japan Finance Corporation for Municipal Enterprise 24.9 Japan Finance Corporation for 
Municipal Enterprise Law 
Okinawa Development Finance Corporation 1.5 The Okinawa Development Finance 
Corporation law 
6. Other financial institutions 
(end-March 2004)   Related laws 
Bank of Japan 0.141 Article 38 of the Bank of Japan Law 
Deposit Insurance Corporation .. Deposit Insurance Law 
.. Not available. 
Source: Information provided by the Japanese authorities. Japan WT/TPR/S/142 
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31. The Financial Services Agency (FSA), attach ed to the Cabinet Office (whose head is the 
Prime Minister), is the main authority regulating the banking sector.  The centrepiece of legislation 
governing the operation of banks is the Banking Law;  this Law stipulates that a licence issued by the 
Prime Minister is required to operate a bank in Japan.  Foreign banks may enter the Japanese market by establishing branches, agencies, or subsidiaries  after obtaining a licence.  Under the Banking Law, 
foreign banks with Japanese branches or agencies are subject to regulations no less favourable than 
those applied to domestic banks.
28  The authorities stated that, since 2002, there have been no changes 
in prudential regulations;  they consider that prudential requirements are no more onerous for 
nationally licensed subsidiaries of foreign banks than for domestic banks. 
32. Based on the 2001 Law for Limitations on Shareholdings by Banks (Shareholding Limitation 
Law), a Banks' Shareholdings Purchase Corporation (BSPC) was established in January 2002, with a 
view to supporting the sale of shares held by banks, thereby reducing risks on their balance sheets 
arising from price fluctuation of shares held.  It is not clear whether the BSPC's purchasing activities 
have effectively supported prices of some stocks.29  In December 2002, the Law was amended to 
allow the BSPC to purchase banks' shares held by companies other than banks.  In August 2003, a further amendment increased the BSPC’s purchase li mit of banks' shares held by companies other 
than banks. 
33. In April 2003, a state-run public corporation, Japan Post, was established to take over mail 
delivery, postal savings, and kampo  life insurance services, which had previously been provided by 
the  Postal Services Agency.  At the end of June 2004, deposits in Japan Post's postal savings 
amounted to ¥226 trillion, which is about 16% of Japan's total households financial assets.  About 80% of deposits in postal savings are alloca ted to the purchase of domestic bonds issued, inter alia,  by 
the Government under its Fiscal Loan and Investment Programme and by local governments,  
including fiscal loan deposits;  the remainder is invested in foreign bonds, domestic and foreign 
stocks, and short-term investments, such as call lo ans and certificates of deposit.  The authorities 
stated that the postal savings provide small-scale depositors basic financial services throughout the 
country, including in unprofitable re mote areas.  Postal savings, except for deposits in postal money 
transfer accounts, are subject to a ¥10 million deposit-ceiling per person.  The Government is 
currently discussing when and how to privatize Japan Post.  In September 2004, the Government 
adopted a Basic Policy on the Privatization of Japa n Post, which stipulated that privatization would 
start from April 2007 and would be completed by 2017. 
(b) Insurance 
34. Japan's insurance market comprises three subsectors:  non-life, life, and the "third" sector, 
which includes insurance for accident, medical care, nursing care, and cancer.  There are no state-
owned insurance companies in Japan, other than th e Trade and Investment Insurance operated by the 
Nippon Export and Investment Insurance, whic h was established in 2001, and the postal life 
insurance, operated by Japan Post.  Like banking, the insurance sector in Japan has undergone 
substantial change since 2002;  four merger de als among life insurance companies and four among 
non-life insurance companies have been concluded
30, three new reinsurance companies and one life 
                                                      
28 While the Banking Law (Article 4) includes "reciprocity" provisions with regard to licensing, the 
authorities maintain that these do not apply to WTO Members, given that Japan has made no MFN exemptions 
in its GATS Schedule of Commitments. 
29 According to the authorities, both the purchase and the sale of shares from and to banks by the BSPC 
are at market values. 
30 For life insurance companies, the Yamato Life Insurance merged with the Azami Life Insurance in 
April 2002, the GE Edison Life Insurance merged with the Saison Life Insurance in October 2002, the Tokyo 
Marine Life Insurance merged with the Nichido Life Insurance in October 2003, and the Meiji Life Insurance WT/TPR/S/142 Trade Policy Review 
Page 70 
 
 
insurance company have been established31, and four non-life insurance companies have closed.32  At 
the end of September 2003, assets held by the top five life insurance companies accounted for 66.5% 
of the total assets of all life insurance companie s;  the corresponding ratio for the top five non-life 
insurance companies during the same period was 74.9%. 
35. The Financial Services Agency is the main authority regulating the insurance sector, in 
accordance with the Insurance Business Law.  A licence from the Prime Minister is required to 
conduct insurance business in Japan, and approval  is required both for new insurance products and 
modifications to existing ones, as well as premium rates.  Life and non-life insurance companies may 
enter each other's markets only by means of subsidiaries.  Commercial presence, licensed by the 
Prime Minister, is normally required in order to offer insurance services in Japan, except for cross-
border contracts for reinsurance, commercial av iation insurance, and international marine hull 
insurance.33  The criteria for granting licences and the requirement of solvency margins are the same 
for Japanese and forei gn insurance providers. 
36. The Insurance Business Law and the related regulations of the law have been amended 
several times since 2002.  An amendment in March 2002 included the establishment of a standard timeframe for the approval of simple  and standardized insurance products
34, and the replacement of 
the previous approval requirement with a notification requirement in regard to the sale of home fire 
insurance products.  An amendment in October 2002 en larged the scope of insurance products that 
banks are allowed to sell over the counter.35  Furthermore, an amendment in 2003 allowed life 
insurance companies to alter their contract terms th rough procedures involving their policyholders;  
these alterations may involve the reduction of  returns agreed in existing contracts.  The amendment was introduced with a view to resolving "negative spread", i.e. the aggregate gap between investment 
income earned and investment income originally  expected.  The 2003 amendment also allowed, inter 
alia, insurance companies to work as agents for comp anies that engage in other financial businesses, 
and lifted the limitation on foreign-currency-based asset management for foreign-currency-based 
insurance contracts. 
37. Functions of the Postal Life Insurance System were also taken over by the Japan Post.  The 
authorities maintain that, the postal life insurance ( kampo ) provides basic life insurance services to 
private policyholders with insurance premiums that are as inexpensive as po ssible, at post offices 
established throughout the country.  According to the authorities, while the Postal Life Insurance is 
exempted from corporate taxes and deposit insurance premiums, it faces various constraints, such as limited insurance amount per insured, limited prod uct varieties, and restrictions on investment of 
                                                                                                                                                                    
 
merged with the Yasuda Mutual Life Insurance in January 2004.  For non-life insurance companies, the Yasuda 
Fire & Marine Insurance merged w ith the Dai-ichi Property and Casualty Insurance in April 2002, the 
Nipponkoa Insurance merged with the Taiyo Fire & Marine Insurance in April 2002, the Yasuda Fire & Marine 
Insurance merged with  the Nissan Fire & Marine Insurance in July 2002, an d the Sompo Japan Insurance 
merged with the Taisei Fire & Marine Insurance in December 2002. 
31 The three new reinsurance companies were the Taisei Reinsurance in October 2002, the RGA 
Reinsurance in November 2003, and the Swiss Reinsurance in December 2003.  As regards life insurance, the 
Mitsui Sumitomo CitiInsurance Life Insurance was established in September 2002. 
32 The GAN Incendie Accidents Insurance Company closed in July 2002, the Liberty Mutual Insurance 
Company in March 2003, the Winterthur Swiss Insurance in October 2003, and the Mitsui Seimei General 
Insurance in November 2003. 
33 For other insurance contracts, prior approval from the Prime Minister is required for foreign insurers 
without commercial presence in Japan. 
34 The authorities are required to make a decision with regard to approval within 60-days after the 
request is made.  
35 The products include individual annuities, zaikei savings (i.e. asset formation) insurance, individual 
annuity and accident insurance, and zaikei savings personal accident insurance. Japan WT/TPR/S/142 
 Page 71 
 
 
funds.36  In the context of the Japan–U.S. regulato ry reform dialogues, the Japanese Government 
confirmed that Japan Post had no plans to introduce any new or altered kampo  products.37 
(c) Securities 
38. In accordance with the Securities and Exchange  Law, the Financial Services Agency is the 
main authority regulating the securities industry.  Only joint-stock corporations registered with the 
Prime Minister may engage in se curities business.  Under the Law on Foreign Securities Firms, the 
main office in Japan of a foreign securities firm must  be registered with the Prime Minister to operate 
securities business in Japan;  regist ration is not accepted unless a firm  has engaged in the same type of 
business for no less than three years.  Investment  trust companies require the authorization of the 
Prime Minister.  There is no foreign ownership restriction in the securities subsector;  subsidiaries and 
branches of foreign securities firms are registered  in the same manner as domestic securities firms. 
39. In August 2002, the FSA announced a Programme for Promoting Securities Markets Reform.  
Based on the programme, various measures have been implemented:  since September 2002, banks and securities companies may share common space, and cooperative financial institutions may receive 
written orders, according to FSA's operational guideline s, from investors to buy and sell securities.  A 
"sales agent business for brokerage house" ( Shouken-Chukaigyo ) was introduced to expand sales 
channels;  the accounting and a uditing system was enhanced by reviewing the CPA system and 
increasing the number of qualified CPAs.  The FSA also plans to strengthen functions of Japan's 
security market surveillance system by, inter alia,  introducing a penalty system against insider trading 
and submission of false financial statements in April 2005. 
40. The Securities and Exchange Law was amended in 2003 and 2004.  The 2003 amendment, 
which entered into force in April 2004, allowed fore ign securities companies to engage, if authorized 
by the Prime Minister, in direct transactions with a securities exchange (i.e., without establishing local 
branches in Japan) and  allowed any registered pers on, other than financial institutions, to engage in 
securities business as an intermedia ry.  The 2004 amendment allowed fi nancial institutions to engage 
in securities intermediary services. 
(iii) Telecommunications 
41. Telecommunications charges have declined considerably during the period under Review
38, 
and the number of telecom carriers increased from 10,521 in April 2002 to 12,522 in April 2004.  The authorities state that, the average annual growth rate of total factor productivity (TFP) in telecommunications was 3.6% between 1995 and 2001, while the corresponding rate for all sectors 
was 0.2%.  The higher TFP growth in telecommunicatio n may be attributed to the recent liberalization 
of Japan's telecom sector, which intensified competit ion.  During the same period, the average annual 
growth rate of labour productivity in  telecommuni cations was 8.7%, the highest among all industries.  
Nonetheless, the JFTC continues to maintain that  the Japanese market for telecom services is 
oligopolistic (Chapter III(5)(vi)). 
                                                     
 
36 For example, the Investment Plan for the Postal Life Insurance Service in FY 2003 recommends the 
allocation of 75-95% of investment in domestic bonds.  The Investment Plan needs to be authorized by the 
Government. 
37 MOFA (2004e), p. 36. 
38 Local fixed-line call charges in Japan have declined to levels comparable with those prevailing in 
other OECD member countries, and charges for mobile phone services in the high-volume user category have fallen to the lowest levels among OECD members.  However, with regard to international communication 
charges, Japan was among the highest (OECD, 2003c). WT/TPR/S/142 Trade Policy Review 
Page 72 
 
 
42. Telecommunication services accounted for 1.6%  of Japan's GDP in 2002, compared with 
1.8% in 2001.  With regard to cross-border trade, during 2001-02 exports of telecom services 
increased from ¥87 billion to ¥93 billion, while im ports fell from ¥130 billion to ¥115 billion. 
43. The Ministry of Internal Affairs and Communic ations (MIC) is the main authority regulating 
Japan's telecommunications, and the Telecommunications Business Law (TBL) is the basis for the main regulatory framework in the sector.  Recent re gulatory reform initiativ es, associated with the 
amendment of the TBL in 2003, include the abol ition of Type-I and Type-II classifications of 
telecommunications services.
 39  The permission requirement on Type-I businesses for entry into and 
exit from the market was replaced by a notificatio n and registration requirement.  Contract terms, 
which, inter alia,  define end-user charges, no longer require prior notification except for certain 
specified services that are regarded as having significant influence on consumers, and universal 
telecommunications services.40  In addition, since July 2003, manufacturers of telecommunications 
equipment have been allowed to self-confirm thei r products' conformity with technical regulations, 
provided that notification is submitted to the MIC;  previously, only certain designated agencies were 
allowed to provide conformity assessment. 
44. Ownership restrictions on Nippon Telegraph a nd Telephone (NTT) Corporation's shares are 
stipulated in the NTT Law;  foreign ownership is limited so that the aggregate of the ratios of the 
voting rights must be less than one third.  At least one third of all shares of NTT Corporation must be 
held by the Government.41  As of September 2003, the Government held about 46% of NTT 
Corporation's total shares.42  In accordance with the NTT Law, the NTT Corporation and the two NTT 
regional companies are required to provide universal service.  In accordance with the TBL, 
interconnection rules have been imposed to promot e "fair" competition;  these include requiring the 
regional NTT companies to allow other carriers to access their networks on an unbundled basis.  The 
TBL stipulates prohibited actions for dominant carriers as well as orders to improve business 
activities or modify charges.  There are no fore ign ownership or management restrictions in 
telecommunications services, except in  the case of the NTT Corporation. 
45. In November 2001, the Telecommunications Business Dispute Settlement Commission was 
established under the MIC for the purpose of settling disputes between telecommunications carriers.  
Between November 2001 and June 2004, 35 cases were settled by the Commission;  these cases 
covered mainly issues of interconnection, shared  use, and wholesale telecommunications services, 
including co-location for telecommunications faci lities, charges between IP (Internet protocol) 
telephones and the public service telephone network, and setting ch arges for telephone calls from 
fixed to mobile phones. 
46. In June 2004, the Strategic Headquarters for th e Promotion of an Advanced Information and 
Telecommunications Network Society, which was esta blished within the Cabinet in 2001, adopted an 
"e-Japan Priority Policy Programme 2004".43  The programme includes measures to formulate 
advanced information and communications networ ks, to promote education and human resource 
                                                      
 39 See WTO (2003), Chapter IV(4)(ii), for the TB L classification of Type -I and Type-II services. 
40 Universal telecommunications services are defined in the Telecommunication Business Law as 
telecommunications services that are provided nationwide and are indispensable for peoples' daily lives. 
41 Article 4 of the NTT Law.  In addition, according to Article 10 of the NTT Law, board members and 
auditors of the NTT Corporation and the two NTT regional companies must be of Japanese nationality.  The traffic share of the two regional NTT companies in Japan's local (fixed line) market is about 70% (in 2004). 
42 The NTT Corporation must, at all times, hold all stocks issued by the East and West NTT regional 
companies, according to the NTT Law, Article 5.  The issuance of stocks by the regional companies requires ministerial authorization. 
43 IT Strategic Headquarters (2004). Japan WT/TPR/S/142 
 Page 73 
 
 
development, to facilitate electr onic commerce, to promote the us e of information technology in 
public areas, and to promote resear ch and development activities, par ticularly in seven "leading areas" 
(i.e. medical services, food, lifestyle, SMEs financing, knowledge, employment and labour, and 
public service).  Since 2003, under the IT Investment  Promotion Tax Incentive, companies have been 
allowed to receive either a 10% tax credit of acquired assets as their IT investment for own use, or 
depreciation corresponding to 50% of the value of assets acquired as IT investment. 
(iv) Transport 
(a) Maritime transport  
47. The volume of Japan's seaborne cargo trade increased from 881.7 million tonnes in 2002 to 
916.7 million tonnes in 2003, accounting for 15.7% of the world's total (5.8 billion tonnes). 
48. The authorities state that there have been no changes in legislation related to maritime 
services since the previous Review of Japan.  Th e Maritime Bureau and the Ports and Harbour Bureau 
of the Ministry of Land, Infrastructure and Tran sport (MLIT) are the main authorities regulating 
Japan's maritime transport.  Cabotage restrictions generally allow only Japanese -flag carriers to carry 
cargo and passengers between Japanese ports;  Japa n accords limited access to maritime cabotage 
service to ships flying the flag of particular countrie s, on a reciprocal basis, pursuant to treaties of 
friendship, commerce, and navigation with Japan. 
49. The authorities maintain that there are no discriminatory measures affecting foreign 
participation in international maritime services an d that Japan's bilateral ag reements on passenger or 
cargo shipping provide national treatment to partners  on a reciprocal basis.   Japan has bilateral 
agreements related to maritime transport with:  Argentina, Bulgaria, Chin a, Cuba, Denmark, El 
Salvador, Finland, France, German y, Greece, Haiti, Hungary, Italy, India, Malaysia, the Netherlands, 
Norway, the Philippines, Poland, Portugal, Romania, Russian Federation, Serbia and Montenegro, 
Spain, Sweden, Thailand, Turkey, the United Kingdom, and the United States.  Agreements between 
domestic and foreign operators on freight rates or other conditions of transportation (e.g. routes) are 
exempt from the Anti-monopoly Act provided such agre ements do not involve "unfair transactions" or 
"adversely affect competition". 
50. In order to cope with a decrea se in the number of Japanese -flag carriers, the Government 
provides support for Japanese-flag carriers (the so-ca lled International Ship Regime);  this support has 
been unchanged since Japan's previous Review.  The authorities maintain that the Regime has no 
distortionary effects on trade in maritime transport services;  it aims to increase the competitiveness of 
Japanese vessels against those of other countries that provide preferential tax treatment for their 
registered ships.44 
51. According to the authorities, there are no di scriminatory measures preventing foreign 
participation in the supply of auxiliary services.  The Port Transportation Business Law continues to 
be the regulatory basis for port services in major port s in Japan.  Charges for harbour services in nine 
large harbours are subject to a prior notification requirement45, and there is an approval requirement 
for other harbours.  It is common practice in Japan' s ports for carriers to notify the harbour worker's 
union in advance of any changes (for example, request for stevedore services) that may affect 
                                                      
 44 These measures include tax breaks in respect of shipregistration tax and local property tax.  As to 
ships that are registered as 'international ships', ship-registration tax is 0.2% of the price of the ship and the tax 
base for local property tax is one-fifteenth of the price of the ship. 
45 The nine large harbours are:  Keihin (i.e. Tokyo, Yokohama and Kawasaki), Chiba, Shimizu, 
Nagoya, Yokkaichi, Osaka, Kobe, Kanmon (i.e. Shimonoseki and Kitakyushu), and Hakata. WT/TPR/S/142 Trade Policy Review 
Page 74 
 
 
employment (prior consultations).46  New entrants to harbour services are required to guarantee 
minimum employment of 1.5 times that of existing operators;  the Japanese Harbour Transportation 
Association (JHTA) may be consulted about operations that may reduce employment or adversely 
affect working conditions.47  
(b) Air transport 
52. In FY 2002, Japanese airlines accounted for 37.1% of Japan's scheduled international 
passenger market and 42.7% of international freight market, in terms of passenger numbers and 
tonnes of freight.  Exports of air transport se rvices increased from ¥0.92 trillion in 2001 to 
¥0.98 trillion in 2002, while imports fell slightly to ¥1.4 trillion. 
53. There have been no changes in Japan's international air transport regulations since 2002.  
Japan's international air transportation market is  regulated mainly by the Civil Aeronautics Law 
(CAL) and numerous bilateral agreements.  The Civil Aviation Bureau of the MLIT administers the 
entry, pricing, and routes of airlines, as well as sa fety regulations.  As in most other countries, the 
provision of domestic air services is restricted to Japanese carriers (cabotage restrictions).  An 
ownership restriction prohibits foreign investors from holding more than one third of voting rights in domestic airlines.
48 
54. Since its previous Trade Policy Review, Japa n has concluded one additional air service 
agreement, with Uzbekistan (promulgated on 26 August 2004).  Japan also ratified the 1990 Protocol 
Relating to an Amendment to the Convention on International Civil Aviation (article 50a) in 
June 2003;  the amendment, which concerned the increase in the membership of the International Civil Aviation Organization Council, was promulgated in June 2003.   The Montreal Convention of 
1999 was also promulgated in October 2003.
49  Japan has not accepted "open skies" air service 
agreements.  The authorities believe that such agre ements may entail oligopoly and, as a consequence, 
have adverse effects on competition in Japan's interna tional air services market.  In addition to traffic 
rights, Japan has concluded many bilateral arrange ments allowing code sharing.  These and other 
agreements between airline companies for improving us er convenience on international routes from/to 
Japan are exempted from the Anti-monopoly Act, provided they do not involve "unfair transactions" 
or adversely affect competition.50  There is no requirement for Japanese civil servants to use Japanese 
carriers for official travel. 
55. Landing fees for the two major international ai rports, Narita and Kans ai, are significantly 
higher than those at major airports in other developed countries.51  In April 2004, a fully government-
owned Narita International Airport Corporation was established, as a result of the corporatization of 
the Narita Airport Authority. 
                                                      
46 According to the authorities, this practice is base d on an agreement among private operators, i.e. the 
Japanese Harbour Transportation Association (JHTA), the Japanese Ship-owners' Association, and the Japan Foreign Steamship Association. 
47 OECD (2004b), p. 140. 
48 Foreign investors that intend to invest in the aircraft manufacturing industry must file prior-
notification to the Minister of Finance and the Minister of Economy, Trade and Investment.  
49 Japan ratified the convention, which concerned air carrier liability, on 20 June 2000. 
50 Article 110 of the CAL. 
51 According to the OECD (2004b), airport charges at Narita International Airport are more than twice 
as high as the average of other international airports.  According to the MLIT, the landing fee for a Boeing 747-
400 aircraft is around ¥950,000 at Narita, ¥830,000 at Kansai, ¥389,075 at Chep Lap Kok (Hong Kong, China), 
¥382,369 at JFK (New York), ¥276,046 at Charles de Gaulle (Paris) and ¥133,144 at Bangkok airports.  The authorities consider that landing charges in Narita and Kansai Airports reflect costs associated with 
environmental protection. Japan WT/TPR/S/142 
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56. According to the authorities, Japan's airport slot-allocation system for international civil 
aviation services is based upon  guidelines issued by the IA TA (International Air Transport 
Association).  Japan Airlines is the coordinator for Narita and Kansai international airports (as 
stipulated in the IATA Worldwide Scheduling Guidelines).  The allocation of slots takes place twice annually.  Data provided by the authorities indicate that, as at end-October 2004, 38% of total slots of Narita and Kansai international ai rports are allocated to  Japanese airlines.  In Chubu International 
Airport, which is to commence operations in 2005, th e slot allocation is coordinated by Nagoya Office 
of Civil Aviation Bureau, in acc ordance with IATA guidelines. 
(v) Professional services 
57. In addition to obtaining relevant licences, membership of a professional association is 
compulsory for:  certified public accountants, admi nistrative scriveners, lawyers, judicial scriveners, 
land and house surveyors, licensed tax accountants, pu blic consultants on social and labour insurance, 
and patent attorneys.
52 
(a) Legal services 
58. The Ministry of Justice is the regulatory authorit y for legal services in Japan;  there is also 
self-regulation of legal services by the Japan Fede ration of Bar Associations, as prescribed in the 
Practising Attorney Law.  Foreign participation in th e sector is regulated by this law, and the Special 
Measures Law Concerning the Handling of Legal Business by Foreign Lawyers, which was last 
amended in 2003.  The amendment, which is to enter into force on 1 April 2005, will enable a 
Gaikokuho-Jimu-Bengoshi  (a foreign lawyer qualified unde r Japanese law) to employ a Bengoshi  (a 
lawyer qualified under Japanese law), and a joint enterprise involving the two. 
59. According to the authorities, there have been no changes regarding market access for foreign 
patent lawyers since 2002;  there is no restriction on foreign patent lawyers carrying out their business 
in Japan for their home country clients.  Patent la wyer licences, which are necessary to practice patent 
law in Japan for Japanese clients, can be obtain ed by passing the patent lawyer examination, 
regardless of the applicant's nationality or educational background. 
(b) Accounting services 
60. To qualify as a certified public accountant (CPA) in Japan, accountants must pass the national 
examination and finish a specified number of year s of practical training.  A foreign accountant not 
qualified as a CPA in Japan may provide certain accounting-related services other than the provision of audit services supplied by a CPA qualified in Japa n.  In April 2004, an amendment to the Certified 
Public Accountants Law approved by the Diet (in May 2003) entered into force;  the objectives of the 
amendment were, inter alia,  to stipulate explicitly CPAs' dutie s, increase the number of licences 
issued each year, and enhance the independence of auditors.
53 
61. Accounting standards in Japan are apparently based inter alia  on the Commercial Code, the 
Securities and Exchange Law, and the Corporate Income Tax Law (Chapter III(5)(vii)).  The FSA 
may allow the use of foreign accounting standards in financial statements of companies registered in 
                                                      
52 OECD (2004b).  Regulation in the two latter services used to be among the most restrictive among 
OECD countries. 
53 For example, consecutive provision of audit-related services may not exceed seven accounting 
periods.  Auditors are prohibited from issuing audit reports on clients in which the engagement partners or 
designated partners of the services or their spouses have material interest/relationship.   WT/TPR/S/142 Trade Policy Review 
Page 76 
 
 
Japan, if such use is not considered to undermine the interests of investors.54  The FSA also requires 
financial statements of companies to be issued in specified format in Japanese. 
(vi) Construction 
62. The share in Japan's GDP of the construction industry fell from 7.2% in 2001 to 6.9% in 
2002, and its share in employment also fell slightly from 10% in 2001 to 9.9% in 2002.  These falls 
reflect recent company closures.55  Labour productivity in the construction industry declined by 3.0% 
on average annually during 1991-01, while that for the manufacturing sector as  a whole grew annually 
by 2.4% during the same period.56  Against this background, the Ministry of Land, Infrastructure and 
Transport (MLIT) announced its Ba sic Guidelines for Revitalising the Construction Industry in 
December 2002.  The MLIT also introduced a new co ntract clause in 2003 pr ohibiting bid-rigging;  if 
bid-rigging is found in tenders concerning MLITs projects, the contractors must pay the MLIT 10% of 
the contract value for the damages caused. 
(vii) Education services 
63. Faced with a declining youth population, the Japanese authorities consider that competition 
among universities should be enco uraged by allocating funds to be tter performing universities and by 
corporatizing national universities, as well as by allowing universities more flexibility in 
management.  Against this background, all national universities were corporatized to become national 
university corporations on 1 April 2004.  As a re sult of corporatization, foreigners, who could not 
previously be appointed to certain posts, such as principals of public schools, may now be appointed 
to any post in national university corporations.  The authorities indicate that there are currently no 
restrictions preventing foreigners from being employed in Japan’s private schools (including elementary, secondary, and high schools).  Accord ing to the authorities, there are no restrictions on 
FDI in Japan’s education sector;  domestic and fo reign educational service suppliers face the same 
approval requirements. 
64. Graduates from international secondary schools and high schools not authorized by the 
Ministry of Education, Culture, Sports, Science,  and Technology are usually required to pass certain 
examinations in order to apply for admission  to Japanese high-sc hools and universities. 
                                                     
 
54 The use of foreign accounting standards is determined in accordance with Article 193 of the 
Securities and Exchange Law and Article 127 of the Regulation for Terms, Forms and Creation Methods of 
Financial Statements. 
55 Cabinet Office (2004a), p. 9. 
56 OECD (2004b). Japan WT/TPR/S/142 
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