WT/TPR/S/175 Trade Policy Review 
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II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
(1) INTRODUCTION  
1. Since the previous Trade Policy Review of Japan  in 2005, there has been no major change in 
government ministries and agencies responsible for the planning, implementation, and evaluation of 
its trade policies.  Japan's trade policy priorities include strengthening the multilateral trading system, 
as embodied in the WTO.  Nonetheless, Japan is of  the view that regional and bilateral free-trade 
agreements complement trade liberalization at th e multilateral level.  Af ter having long eschewed 
such agreements, Japan's first b ilateral free-trade agreement (with Singapore) entered into force in 
November 2002.  During the period under revi ew, two further agreements (with Mexico and 
Malaysia) entered into force, and one (with the Ph ilippines) was signed;  several others are being 
negotiated. 
2. Japan has been a major partic ipant in WTO activities, including negotiations under the Doha 
Development Agenda (DDA).  It has provided fi nancial support to the technical assistance and 
training activities organized by the WTO, and to developing countries in building physical and 
institutional infrastructure and promoting the devel opment of human resources.  Japan has used the 
WTO dispute settlement mechanism extensively, ha ving been a party to six disputes, three as a 
respondent and three as a complainant since 2005. 
3. The Government remains committed to the promot ion of regulatory reform and transparency.  
Japan has continued to adopt measures to increase th e level of transparency of its trade and trade-
related policies, practices, and measures, thereb y enhancing the Government's accountability to the 
public.  Since 2002, government ministries and agen cies have been conducting evaluations of their 
policies as stipulated in the Government Policy Ev aluations Act (GPEA).  In 2005, the Government 
revised the Basic Guidelines for Im plementing Policy Evaluation to strengthen the evaluation system;  
the revision (and other relevant administrative decisi ons) stipulated, for example, the introduction of 
ex-ante  regulatory impact analysis.  The Revised Admi nistrative Procedure Law, which entered into 
force in April 2006, requires ministries and agenci es to publish draft regulations for comments from 
the public.   
4. Japan grants preferential treatment to products  from certain developing and least developed 
countries under its Generalized System of Preferen ce (GSP) scheme.  The current GSP scheme, which 
is valid until 2011, is extended to 142 countri es and 15 territories;  50 least-developed countries 
(LDCs) qualify for further preferential treatment (i.e. tariff-free and quota-free treatment).  The main 
beneficiaries of Japan's GSP include China, Tha iland, Malaysia, Indonesia, and the Philippines.  
(2) TRADE POLICY OBJECTIVES  
5. Japan's overall trade policy objective has remained  largely unchanged since its previous Trade 
Policy Review;  it continues to be to ensure long- term prosperity and growth by promoting business 
activities in Japan and at an international level.  Japan wishes to achieve this objective by further 
strengthening the multilateral trading system as em bodied in the WTO, and has been participating 
actively in the DDA negotiations.  Japan is of th e view that the simplicity embodied in the most-
favoured-nation principle provides a predictable an d fair trade regime for all WTO Members, in 
particular developing Members, and maintains that  the WTO plays an essential role in formulating 
trade rules and liberalizing trade globally.  The au thorities state Japan's commitment to the DDA and 
its intention to make every effort toward reachi ng agreement in the negotiations.  With a strong 
preference for multilateral trade liberalization, Japan  grants at least MFN treatment to all countries Japan WT/TPR/S/175 
 Page 15 
 
 
except Andorra, Republic of Equatorial Guinea, Er itrea, Lebanon, North Korea, and Timor-Leste.1  
Although no data were available from the authorities, regarding the share of Japan's imports subject to 
applied MFN tariffs in its total imports, it would app ear that this share is relatively high;  the MFN 
rate is applied to most imports. 
6. Concurrently, Japan has been intensifying its  pursuit of bilateral/regional arrangements 
involving free-trade agreements;  according to the aut horities, this is not just in areas covered by 
existing WTO Agreements, but also in areas like trad e facilitation, investment, movement of natural 
persons, competition policy, and improvement of the business environment.2  The authorities consider 
that Japan's regional and bilateral trade arrange ments complement the multilateral system, and are 
useful tools for market liberalization and structural  reform.  Japan's FTA with Mexico entered into 
force in April 2005, and in December 2005, it signed its third FTA, with Malaysia;  this entered into 
force in July 2006.  Japan also signed an FTA with the Philippines in September 2006;  the authorities state that the text of an FTA with Thailand was fi nalized in June 2006.  Japan is currently negotiating 
FTAs with Brunei, Chile, Indonesia, the Republic of  Korea, as well as with the ASEAN as a whole 
and the Gulf Cooperation Council (B ahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab 
Emirates).  It has also been engaging in preliminary discussions or government-involved joint studies 
on bilateral trade liberalization with Australia, India,  Switzerland, and Viet Nam.  Japan also supports 
the "open regionalism" approach of the Asia -Pacific Economic Cooperation (APEC) forum, and 
participates in various other regional trade fora , such as the Asia-Europe meeting (ASEM), the 
ASEAN+3, and the East Asian Summit (section (4)(ii)). 
(3) T
RADE POLICY FORMULATION AND EVALUATION  
(i) Trade policy formulation and implementation 
7. There has been no substantial change in Japan 's trade-related legal and administrative 
framework since its previous Review in 2005 (T able II.1).  Trade-related issues remain the 
responsibilities of a number of ministries, including Foreign Affairs (MOFA), and Economy, Trade, and Industry (METI).  Other ministries and agencies with responsibility for sectoral issues are also 
involved in trade policy formulation and implementation.
3  The overall coordination of trade policies, 
including ensuring policy coherence and consistenc ies with the WTO Agreements, remains the final 
responsibility of the Cabinet, with input from advi sory councils, such as the Council on Economic and 
Fiscal Policy.  The Council for the Promotion of Regulatory Reform (CPRR), established in 
April 2004, has been designated as the central body to promote regulatory reform, including 
facilitating private participation in sectors in wh ich state-owned enterprises are predominant, 
improving of consumer welfare, a nd revitalizing the economy.  The CPRR is mandated to monitor the 
implementation of the Three-Year Program for the Promotion of Regulatory Reform, and can require 
the heads of relevant governmental organizations  to submit materials, provide explanations, and 
extend cooperation to the CPRR.  Trade and ot her policy issues are also  debated in various 
Committees, including standing committees in the Diet and the Japan Investment Council (JIC).4   
                                                      
1 Japan applies preferential tariff rates to selected products originating in the Republic of Equatorial 
Guinea, Eritorea, Lebanon, and Timor-Leste.   
2 Japan prefers to call  these pref erential agreements Economic Partne rship Agreements (EPAs) rather 
than FTAs.   
3 These include the Ministries of:  Agriculture, Fore stry and Fisheries;  Education, Culture, Sports, 
Science and Technology;  Environment;  Finance;  Health , Labour and Welfare;  Jus tice;  Land, Infrastructure 
and Transport;  and Internal Affairs and Communications;  and the Cabinet Office. 
4 The JIC, established by the Cabinet in July 1994 for the purpose of promoting FDI into Japan, is 
chaired by the Prime Minister.  WT/TPR/S/175 Trade Policy Review 
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Table II.1 
Japan's major trade-related laws and regulations, 2006 
 Most recent amendment 
Foreign trade and exchange restrictions  
 Foreign Exchange and Foreign Trade Law (1949 Law No. 228)  2006 
 Export and Import Transaction Law (1952 Law No. 299)  1997 
 Foreign Exchange Order (1980 Order No. 260)  2006 
 Cabinet Order on Inward Direct Investment (1980 Order No. 261)  2006 
 Export Trade Control Order (1949 Order No. 378)  1999 
 Import Trade Control Order (1949 Order No. 414)  2000 
Customs- and tariff-related regulations  
 Customs Law (1954 Law No. 61)  2006 
 Customs Tariff Law (1910 Law No. 54)  2006 
 Temporary Tariff Measures Law (1960 Law No. 36)  2006 
 Cabinet Order Relating to Counter vailing Duties (1994 Order No. 415)  2004 
 Cabinet Order Relating to Anti-Du mping Duties (1994 Order No. 416)  2004 
 Cabinet Order Relating to Emerge ncy Duties (1994 Order No. 417)  2002 
 Cabinet Order Relating to Retalia tory Duties (1994 Order No. 418)  2000 
 Cabinet Order on Tariff Quotas (1961 Order No. 153)  2006 
Trade promotion  
 International Trade Insurance Law (1993 Law No. 36)  2005 
Services and energy   
 Construction Business Law (1949 Law No. 100)  2006 
 Banking Law (1981 Law No. 59)  2006 
 Insurance Business Law (1995 Law No. 105)  2003 
 Securities and Exchange Law (1948 Law No. 25)  2004 
 Telecommunications Business Law (1984 Law No. 86)  2003 
 Law Concerning the Measures by Large-Scale Reta il Stores for Preservation of Living Environment 
(1998 Law No. 91)  
 Employee's Pension Insurance Law (1954 Law No. 115) 2006 
 Civil Aeronautics Law (1952 Law No. 231)  1999 
 Marine Transportation Law (1949 Law No. 187)  2006 
 Special Measures Law Concerning the Handling of Legal Business by Foreign Lawyers (1986 
Law No. 66)  2003 
 Certified Public Accountants Law (1948 Law No. 103)  2006 
 Certified Tax Accountant Law (1951 Law No. 237)  2006 
 Law for Improvement of International Tourist Hotels (1949 Law No. 279)  1999 
 Travel Agency Law (1952 Law No. 239)  1999 
 Electricity Utilities Industr y Law (1964 Law No. 170)  2006 
 Gas Utility Industry Law (1954 Law No. 51)  2006 
 Petroleum Reserve Law (1975 Law No. 96)  2003 
 Law on the Quality Control of Gasolin e and Other Fuels (1976 Law No. 88)  2005 
Standards and technical regulations  
 Industrial Standardization Law (1949 Law No. 185)  2005 
 Law Concerning Standardization and Proper La belling of Agricultural and Forestry Products 
(JAS Law) (1950 Law No. 175)  2005 
 Pharmaceutical Affairs Law (1960 Law No. 145)  2006 
 Food Sanitation Law (1947 Law No. 233) 2006 
 Quarantine Law (1951 Law No. 201)  2003 
 Plant Protection Law (1950 Law No. 151)  2005 
 Domestic Animal Infectious Diseases Control Law (1951 Law No. 166)  2005 
 Building Standard Law (1950 Law No. 201) 2006 
 Electrical Appliance and Material Control Law (1961 Law No. 234) 2006 
 Consumer Product Safety Law (1973 Law No. 31)  2005 
 High Pressure Gas Safety Law (1951 Law No. 204) 2006 
Table II.1 (cont'd) Japan WT/TPR/S/175 
 Page 17 
 
 
 Most recent amendment 
 Road Vehicle Law (1951 Law No. 185) 2006 
 Rational Use of Energy Law (1979 Law No. 49) 2006 
 Fire Service Law (1948 Law No.186) 2006 
Intellectual property rights  
 Patent Law (1959 Law No. 121)  2006 
 Customs Tariff Law (1910 Law No. 54)  2006 
 Act Against Unjustifiable Premiums and Misleading Representations (1962 Law No. 134)  2005 
 Unfair Competition Prevention Law (1934 Law No. 47)  2006 
 Utility Model Law ( 1959 Law No. 123)  2006 
 Design Law (1959 Law No. 125)  2006 
 Trademark Law (1959 Law No. 127)  2006 
 Copyright Law (1970 Law No. 48)  2005 
 Civil Code (1896 Law No. 89)  2006 
 Penal Code (1907 Law No. 45)  2006 
Agriculture  
 Basic Law on Food, Agriculture and Rural Areas (1999 Law No. 106)  
 Temporary Law for Compensation Price of Milk for Manufacturing Use  (1965 Law No. 112)  2002 
 Raw Silk Import Coordination Law  (1951 Law No. 310)  2002 
Others  
 Law Concerning the Organization of Smal l and Medium Enterprises Organizations 
(1957 Law No. 185)  2006 
 Administrative Procedure Law (1993 Law No. 88)  2005 
 Act Concerning Prohibition of Private Monopo lization and Maintenance of Fair Trade 
(Anti-Monopoly Act) (1947 Law No. 54)  1999 
Source: Information provided by the Japanese authorities.  
(ii) Trade policy evaluation 
8. With a view to improving transparency and thus  public accountability, the Government Policy 
Evaluations Act (GPEA), enacted, in April 2002, requires the Cabinet Office and ministries to 
evaluate their own policies before and after impl ementation and to publish the results of their 
evaluations.  Based on the GPEA, the Basic Guidelines for Implementing Policy Evaluation was 
adopted by the Cabinet in December 2001.  As well as these self-evaluations, the GPEA obliges the 
Ministry of Internal Affairs and Communications (MIC)5 to undertake independent assessments of the 
policies implemented by other ministries (Chart II.1).  Furthermore, the Commission on Policy Evaluation and Evaluation of Incorporated Administ rative Agencies, which consists of independent 
experts, was established to study and deliberate on basic matters concerning policy evaluations.  The 
authorities state that the results of these self-evaluations are reflected in the annual budget formulation 
process;  the Ministry of Finance conducts its own policy evaluation on selected projects in order to reflect its results in the annual budget formulation. 
9. In 2005, the Government conducted a review of its policy evaluation;  as a result, the Basic 
Guidelines for Implementing Policy Evaluation was revi sed and entered into force in December 2005.  
The revised Guidelines and/or other releva nt administrative decisions stipulate, inter alia,  that:  
mandatory ex-ante evaluations of regulations, incl uding regulatory impact analysis (introduced on a 
trial basis since October 2004), must be conducted for "important policies";  important policies 
adopted by the Cabinet should be evaluated in a "timely and appropriate manner";  for selected 
policies involving more than one ministry, the MIC should conduct evaluations;  and the results of 
                                                     
 
5 On 10 September 2004, the English name of the Ministry of Public Management, Home Affairs, Posts 
and Telecommunication (MPHPT) was changed to the Ministry of Internal Affairs and Communications (MIC). WT/TPR/S/175 Trade Policy Review 
Page 18 
 
 
evaluations are to be incorporated into future policy planning and budget requests.  According to the 
authorities, some of these policy evaluations involve the analysis of cost-effectiveness. 
Chart II.1
Policy evaluation system in Japan, 2006
MIC (Administrative Evaluation Bureau)
Promotion of the policy evaluation system (as a ministry responsible for the system)
                  Implementation of evaluations (as the specialized evaluation organization)
                  (1)  Coherence/comprehensiveness-ensuring evaluation
                  (2)  Activities to ensure objectivity in policy evaluationsReport
Cabinet Office and MinistriesDiet
Policy implementation
(DO)Investigation and deliberation
Source :   Information provided by the Japanese authorities.Commission on Policy Evaluation 
and Evaluation of Incorporated 
Administrative AgenciesPrime Minister
Request for advice Submission of opinions
Citizens  Publication
Policy management cyclePlanning
(PLAN)Evaluation 
(SEE)Opinions based on 
evaluation resultsEvaluation documents Liaison/coordination
  Publication
 
 
10. The Revised Administrative Procedure Law, wh ich includes the legislation on the "public 
comment" procedure, was adopted by the Di et on 22 June 2005 and entered into force on 
1 April 2006.  The revised law stipulates that mi nistries and agencies must publish draft regulations 
(including draft cabinet orders or ministerial or ders) and receive comments from the public;  they 
must allow, in principle, at least 30 days to r eceive comments from the date of publication of the 
draft.6  Ministries and agencies are required to consider the comments submitted by the public and 
must publish these comments, as well as the result of th e consideration by the ministries and agencies, 
and the reason for this result. 
                                                      
6 If the authorities decide that comments are required w ithin less than 30 days of publication, they must 
publish the reason for their decision. Japan WT/TPR/S/175 
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(4) TRADE AGREEMENTS AND ARRANGEMENTS  
(i) WTO 
(a) Participation in the WTO 
11. As a strong supporter of the multilateral trading system, Japan has been participating actively 
in the WTO, including in the Doha Development Agenda (DDA).  In its statement at the Hong Kong 
Ministerial Conference in December 2005, Japan of fered to contribute US$10 billion to developing 
countries, especially the LDCs, for building infrastructure for trade, production, and distribution and to provide duty-free and quota-free market access fo r "essentially all" LDC products.  Japan also 
offered to conduct exchanges of 10,000 e xperts and trainees with those Members.
7  In July 2006, the 
Government donated ¥50 million to the Doha Development Agenda Global Trust Fund in order to 
finance technical assistance and training activities organized by the WTO in 2006. 
12. Like all members of the WTO, Japan is require d to notify its laws and measures under various 
WTO Agreements (Table AII.1). 
(b) Disputes 
13. Since 2005, Japan has been invo lved in three disputes as a respondent and three cases as a 
complainant (Table AII.2).  In addition, Japan participated as a third party in nine dispute cases8. 
(ii) Regional agreements 
(a) APEC (Asia-Pacific Economic Cooperation) 
14. In 2005, 66.1% of Japan's merc handise imports were from APEC members, and 76.3% of its 
merchandise exports were to APEC.  In keeping with its policy of supporting multilateral trade and 
investment liberalization, Japan is a strong supporte r of APEC's "open regiona lism" goals.  Like other 
members, Japan submits an annual Individual Acti on Plan (IAP) that provides a roadmap of its 
intended actions in various policy areas with a view to realizing APEC's liberalization goals.  At the 
Twelfth APEC Leaders' Meeting, held in  Santiago in November 2004, Ministers, inter alia,  
reaffirmed the primacy of the rules-based multilatera l trading system;  they also agreed to redouble 
their efforts to provide technical assistance and capac ity building in a "more strategic manner".  At the 
Thirteenth Leaders' Meeting, he ld in Busan, Ministers declared, inter alia,  their support for the DDA 
negotiations to proceed expeditiously with a view  to achieving an ambitious and balanced overall 
outcome.   
15. Japan, in cooperation with other APEC memb ers, organized an APEC Seminar on WTO 
Trade Facilitation in November 2004 in Ba ngkok and an APEC/WTO Roundtable on Trade 
Facilitation in Geneva in Febr uary 2005.  Japan hosted the APEC High Level Conference on 
Structural Reform in September 2004 in Tokyo with  a view to implementing the APEC Structural 
Reform Action Plan, which was adopted in 2003 as  the guiding programme for the promotion of 
structural reform among the APEC members.  Japan also took an initiative by proposing the "Leaders Agenda to Implement Structural Reform"(LAISR), a dopted in 2004, which identified the following as 
priority areas:  regulatory reform, strengthening le gal infrastructure, competition policy, corporate 
governance and public sector manageme nt.  In 2005, Japan took the initiative in addressing structural 
                                                     
 
7 WTO document WT/MIN(05)/ST/13, 14 December 2005. 
8 Cases in which requests for consultations we re made and panels were established between 
January 2005 and August 2006. WT/TPR/S/175 Trade Policy Review 
Page 20 
 
 
reform issues across APEC by contributing to the fo rmulation of the APEC five-year work plan on the 
LAISR, to be completed by 2010 (the target year of the Bogor goals for the industrialized members).9  
Japan, the Republic of Korea, and the United Stat es jointly proposed the "APEC Anti-Counterfeiting 
and Piracy Initiative", which was adopted at the Me eting of APEC Ministers Responsible for Trade 
held in June 2005.10 
(b) ASEM (Asia-Europe Meeting) 
16. The fifth ASEM Leaders meeting was held in Hanoi in October 2004.  The meeting adopted 
the "Hanoi Declaration on Closer ASEM Economic Partnership", which calls for actions to pursue 
closer trade and other economic cooperation between  Asia and Europe.  Be tween September 2002 and 
October 2004, Japan acted as joint Asian ASEM Economic Co-ordinator, with Viet Nam, and 
participated actively in the fifth Leaders meeting.   In May 2005, Japan hosted the seventh Foreign 
Ministers' Meeting (in Kyoto), in which ministers st ressed the importance of political will to conclude 
the Doha Development Agenda negotiations. 
17. ASEM leaders adopted the ASEM Trade Fac ilitation Action Plan (TFAP) at the London 
Summit in April 1998 to reduce non-tariff barriers and to promote trade opportunities between Asia 
and Europe.  For the period 2005-06, TFAP has four priority areas, i.e. customs procedures, standards 
and conformity assessment, intellectual property righ ts and e-commerce.  Since its previous Trade 
Policy Review, Japan has been involved in va rious trade-related activities under TFAP, such as 
participation in the following meetings:  ASEM Seminar on the Protection and Enforcement of Well-
Known Marks in Singapore (February, 2004);  the 10th ASEM Meeting on Standards and Conformity 
Assessment in Brussels (April, 2004);  ASEM  Seminar on Best Regulatory Practice and the 
11th ASEM Meeting on Standards and Conformity A ssessment in Tokyo (February, 2005);  the 
4th ASEM Conference on E-commerce in Lo ndon (February, 2005);  the 8th Meeting of the ASEM 
Customs Procedure Working Group in Singapore (April, 2005);  the 8th Meeting of the ASEM 
Customs Enforcement Working Group in Brussels (May, 2005);  the 6th Customs DG-Commissioner 
Meeting in Scotland (June 2005);  the 9th Customs Enforcement Working Group (EWG) Meeting in 
the Republic of Korea (April 2006);  and the Se minar on Geographical Indications in Thailand 
(June 2006). 
(c) Japan and ASEAN (Association of  South-East Asian Nations) 
18. Although not a member of the ASEAN, Japan along with China and the Republic of Korea 
holds regular meetings with ASEAN under the AS EAN+3 framework of co operation.  High level 
meetings are held annually;  the eighth and ni nth ASEAN+3 summits were held in November 2004 
and December 2005.  An East Asian Summit m eeting was also held in December 2005.  
19. On October 2003, Japan and the ASEAN si gned a "Framework for a Japan–ASEAN 
Comprehensive Economic Partnership (CEP)".  In this connection, an ASEAN–Japan Committee on 
Comprehensive Economic Partnershi p was established in November 200 3 to implement the work set 
out in the Framework.  Japan and ASEAN started negotiations on a Japan–ASEAN CEP in 
April 2005;  the agreement is to encompass the lib eralization and facilitation of trade in goods and 
                                                      
9 The Bogor goals refer to trade liberalization targets agreed by APEC Leaders in 1994;  they made 
commitments to achieve free and open trade and investment in the Asia-Pacific region by 2020 for developing 
economies and by 2010 for the indus trialized economies ("1994 Leaders' Declaration".  Viewed online at:  
http://www.apec.org/apec/leader s__declarations/1994.html). 
10 The initiative proposes work in four area of anti-counterfeiting and piracy:  reducing trade in 
counterfeit and pirated goods;  reducing online piracy; increasing cooperation to stop piracy and counterfeiting;  and increasing capacity building to strengthen  anti-counterfeit and piracy enforcement. Japan WT/TPR/S/175 
 Page 21 
 
 
services, and investment.  In the Joint Announcemen t by the Leaders of ASEAN and Japan, at the 
Summit Meeting in Kuala Lumpur in December 2005, they refer to their commitment to make every 
effort to conclude the negotiati ons on the Japan–ASEAN CEP agreement within two years.  The fifth 
round of negotiations was held in July/August 2006. 
(d) Japan and the GCC (Gulf Cooperation Council) 
20. In May 2006, Japan and the member states of the GCC (Bahrain, Oman, Qatar, Saudi Arabia, 
the United Arab Emirates, and Kuwait) held a prep aratory meeting to launch negotiations on a free-
trade agreement.  The first round of negotiations was held in September 2006. 
(e) Others 
21. It would appear that, since its previous Re view, there has been little progress in Japan's 
trilateral cooperation with China a nd the Republic of Korea in trade and investment, information and 
communication technology industries, environmen tal protection, and financial cooperation.  
22. Japan participates in a number of regional in itiatives, including cooperation in metrology and 
measurement standards through the Asia Pacific Me trology Programme and the Asia Pacific Legal 
Metrology Forum;  it also participates in the Asia Pacific Laboratory Accreditation Cooperation 
(APLAC) with a view to cooperating in the ha rmonization of laboratory accreditation practices. 
(iii) Other agreements and arrangements 
(a) Japan–U.S. bilateral relationship 
23. Japan and the United States have continued their dialogue under the Japan–U.S. Economic 
Partnership for Growth, which was established in June 2001.  The partnership aims to "promote 
sustainable growth by addressing issues such as  sound macroeconomic policies, structural and 
regulatory reform, financial and corporate restructuri ng, foreign direct investment and open markets".  
The partnership also provides a framework for coope ration and engagement on b ilateral, regional, and 
global economic and trade issues.  
24. The partnership provides various fora for trade cooperation:  the U.S.–Japan Subcabinet 
Economic Dialogue;  the Private Sector/Governme nt Commission;  the Regulatory Reform and 
Competition Policy Initiative;  the Investment Initia tive;  the Trade Forum;  and the Financial 
Dialogue.  The U.S.–Japan "Regulatory Reform and Competition Policy Initiative" has provided opportunities for officials of the two countri es to discuss reforms in key areas, including 
telecommunications, information technology, me dical devices and pharmaceuticals, financial 
services, competition policy, transparency and othe r government practices, privatization, commercial 
law revision, distribution, consular affairs, trad e and investment-related measures, and legal services 
and other legal affairs.  The latest report d escribing each party's recommendations for regulatory 
reform in the other party was issued on 29 June 20 06.  Under the Investment Initiative, Japan and the 
United States have addressed cross-border mergers and acquisitions, educatio n, medical services,  
labour legislation, visa issues, and other investment -related issues.  Progress under this initiative is 
reported annually to the leaders of the two countries. 
(b) Japan–EC bilateral relationship 
25. Since its previous Review, Japan has conti nued to pursue bilatera l cooperation with the 
European Communities.  At the Fourteenth Summit held in May 2005 and at the Fifteenth Summit 
held in April 2006, Japan and the European Commun ities reached an agreement "in substance" on the WT/TPR/S/175 Trade Policy Review 
Page 22 
 
 
Customs Cooperation Agreement, which aims to f acilitate mutual assistance in customs matters and 
trade. 
(c) Japan–Singapore Agreement fo r an Economic Partnership11 
26. The Agreement between Japan and the Repub lic of Singapore for a New-Age Economic 
Partnership (JSEPA) entered into force on 30 Nove mber 2002.  The overall simple average applied 
preferential tariff under the JSEPA in FY 2006 is 4.4%.  Japan's average applied MFN tariff in 
FY 2006 is 6.5%.  According to the authorities, th e JSEPA eliminates tariffs on over 98% of the total 
value of bilateral trade (based on data in 2000) .  Nonetheless, the JSEPA excludes 24% of Japan's 
tariff lines from tariff elimination, partly because it is  believed that tariff elimination on these tariffs 
would not lead to significant trade expansion12;  excluded tariff lines included many covering 
agriculture, leather, leather products and footwear.13  In April 2006, the two countries agreed to start 
negotiations for a partial review of the JSEPA. 
27. In 2005, exports from Japan to Singapore increased  by 2.5% (Japan's total exports increased 
by 5.2%), while Japan's imports from Singapore incr eased by 6.4 % (Japan's total imports increased 
by 13.3%);  thus, Japan's bilateral trade with Si ngapore both grew slower than Japan's overall trade 
in 2005. 
(d) Japan–Mexico Agreement for an Economic Partnership 
28. The Agreement between Japan and the United Mexican States for the Strengthening of 
Economic Partnership (JUMSEPA) ente red into force on 1 April 2005.14  The overall simple average 
applied preferential tariff is 4.2%.  Many agricultu ral products and some indus trial products have been 
excluded from the agreement.15  According to the authorities, the JUMSEPA eliminates tariffs on 
some 96% of the total value of bila teral trade, based on 2002 data.   
29. Data provided by the authorities indicate that in the nine months following the entry into force 
of the Japan-Mexico EPA, total exports from Japan to  Mexico increased by 37.8% compared with the 
same period of 2004.  Strong growth was observed pa rticularly in exports of automobiles and auto 
parts.  Total exports from Mexico to Japan increased by 23.4% in the same period.  In 2005, exports 
from Japan to Mexico increased by 33.5%, while Japan's imports from Mexico increased by 16.8%;  
thus, in contrast to the situation regarding Singapor e, Japan's bilateral trade with Mexico grew faster 
than Japan's overall trade in 2005. 
                                                      
 11 Under Japan's three bilateral FTAs (with Singapore, Mexico, and Malaysia), an emergency tariff 
increase may be imposed on items subject to tariff conce ssions in accordance with eac h agreement, as long as 
the resulting tariff rate does not exceed the lesser of:  the applied MFN rate in effect at the time the measure is 
taken, or the applied MFN rate in e ffect on the day immediately preceding th e date of entry into force of each 
agreement. 
12 WTO document WT/REG140/6, 8 December 2004.  Un der the JSEPA, applied tariff rates for 77.9% 
of total tariff lines are either zero or lower than th e corresponding applied MFN rates;  duty-free tariff lines 
account for 77.8% of total lines. 
13 According to the authorities, duties have been eliminated for about 21% of Japan's tariff lines in 
agriculture (WTO document WT/REG140/7, 7 February 2006).  
14 WTO document WT/REG198/N/1, 22 April 2005. 
15 Excluded items include:  dairy products, apples, rice, rice products, wheat, plywood, bluefin tuna, 
leather, leather products, and footwear.  Under the JUMS EPA, applied tariff rates for 86.4% of total tariff lines 
are either zero or lower than the corresponding applied MFN rates;  duty -free tariff lines account for 78.7% of 
all the total lines. Japan WT/TPR/S/175 
 Page 23 
 
 
(e) Japan–Malaysia Agreement for an Economic Partnership 
30. Japan signed an FTA with Malaysia on 13 D ecember 2005;  the Agreement between the 
Government of Japan and the Government of Mala ysia for an Economic Partnership (JMEPA) entered 
into force on 13 July 2006.16  The overall simple average applie d preferential tariff is 3.7%.  Many 
agricultural products and some industrial produc ts have been excluded from the agreement.17  
According to the authorities, the JMEPA eliminates ta riffs on some 97% of the total value of bilateral 
trade, based on 2004 data. 
(f) Japan–Philippines Agreement for an Economic Partnership 
31. In October 2002, Japan and the Philippines agr eed to establish a working group to study the 
possibility of forming a "Japan–Philippines Econ omic Partnership Agreement" (JPEPA);  the 
agreement was envisaged to cover trade in goods a nd services, investment, technical cooperation, and 
capacity building between the two countries.  In February 2004, the two governments began formal 
negotiations.  On 29 November 2004, they announced that agreement "in principle" had been reached 
on all major elements of the JPEPA.  Japan and the Philippines signed the JPEPA on 9 September 2006. 
(g) Japan–Thailand bilateral relationship 
32. Japan and Thailand held working group mee tings between September 2002 and May 2003 
and three task force meetings between July a nd November 2003 concerning the possible formulation 
of a "Japan–Thailand Economic Partnership Agreem ent (JTEPA)".  The agreement was expected to 
cover trade in goods and services, investment, and cooperation in various areas, such as information 
and communication technology.  The first formal ne gotiations for the formulation of a JTEPA began 
in February 2004.  On 1 September 2005, it was announced that agreement in principle had been 
reached on all major elements of the JTEPA.
18  The text of the agreement was finalized in June 2006. 
(h) Japan–Korea bilateral relationship 
33. In March 2002, Japan and the Republic of Korea agreed to launch a joint study group to 
explore the possibility of establishing a "Japan–Kor ea Free Trade Agreement".  A report by the group 
was published in October 2003;  it contained a stud y on possible bilateral arrangement in various 
areas, including liberalization and facilitation of trad e.  In October 2003, the two countries decided to 
start negotiations for a comprehensive FTA with a targ et of finishing the substance of the negotiations 
in 2005.  The first round of negotiations was held in December 2003 and five further rounds were held 
in 2004;  there have been no negotiations since the end of the sixth round, in November 2004.  
According to the Japanese authorities, th ey are open to resuming negotiations. 
(i) Japan's bilateral relationships with I ndonesia, Chile, Brunei, and Viet Nam  
34. In June 2005, the leaders of Japan and Indonesi a agreed to launch negotiations on a bilateral 
free-trade agreement;  the fifth round of negotiatio ns was held in August 2006.  In November 2005, 
                                                      
16 WTO document WT/REG216/N/1, 13 July 2006. 
17 Excluded items include:  dairy products, pineapples, rice, ri ce products, wheat, meat and meat 
products, wood and wood products, fish and fish products, leather, leather products, and footwear.  Under the JMEPA, applied tariff rates for 89.9% of total  tariff lines are either zero or lo wer than the corresponding 
applied MFN rates;  duty-free tariff lines account for 82.7% of all lines. 
18 Joint press statement, "Japan–Thailand Eco nomic Partnership Agreement".  Viewed at:  
http://www.mofa.go.jp/region/asia-paci/thailand/joint0509/index.html. WT/TPR/S/175 Trade Policy Review 
Page 24 
 
 
the leaders of Japan and Chile agreed to launch FT A negotiations;  the fourth round of negotiations 
was held in August/September 2006.  In May 2006, Foreign Ministers of Japan and Brunei agreed to launch FTA negotiations;  the second round of ne gotiations was held in August 2006.  In 
December 2005, the leaders of Japan  and Viet Nam agreed to launch the Joint Study Group with a 
view to starting negotiations for a bilateral free-tr ade agreement;  the first Joint Study Group meeting 
was held in February 2006. 
(j) Other bilateral arrangements 
35. In 2002, Japan and China agreed to estab lish the Japan–China Economic Partnership 
Consultation scheme, with a view to identifying  possible economic disputes at an early stage, 
preventing disputes between the two countries, and further strengthening mutually complementary 
economic relations.  In these consultations, the two countries exchanged opinions on issues including 
IPR, China's commitment under the WTO rules, agri culture and quarantine, and other trade-related 
issues, as well as Japan-China cooperation within the international economy.  There have been nine 
such consultations, including four meetings at de puty-minister level and five meetings at deputy 
director-general level. 
36. The Prime Ministers of Japan and India agreed to launch the Joint Study Group aimed at 
exploring ways to strengthen Japan-India economic re lations, including the possibility of concluding a 
free-trade agreement.  The fourth meeting of  the study group was held in June 2006. 
37. The Prime Ministers of Japan and Australia signed an Australia–Japan Trade and Economic 
Framework in July 2003 to explore options for deep er bilateral economic linkages.  The Framework is 
aimed at working towards the liberalization of trade and investment, through various avenues, 
including a joint study to exam ine the costs and benefits of the balanced and comprehensive 
liberalization of trade in goods and services and inve stment between the two countries.  In April 2005, 
the two countries' leaders decided to launch a new joint governmental study to examine various policy 
options to enhance their economic relationship, including the feasibility of a bilateral free-trade agreement.  The fourth joint stud y meeting was held in July 2006. 
38. In April 2005, the leaders of Japan and Swit zerland agreed to launch a joint governmental 
study on how to strengthen economic relations betw een the two countries.  The first joint study 
meeting was held in October 2005;  the f ourth meeting was held in August 2006. 
39. In November 2005, the Prime Ministers of Japan and Canada signed the Japan–Canada 
Economic Framework, which aims to reinforce economic ties through cooperation in 15 priority 
areas, and joint study on the costs and benefits of further promotion of bilateral trade and other forms 
of bilateral cooperation.
19 
40. Japan has concluded bilateral agreements on soci al security with its trading partners.  These 
agreements, inter alia,  aim to avoid the double payment into two social security systems by people 
working both in Japan and another country in orde r to receive a pension.  An agreement between 
Japan and the Republic of Korea entered into for ce on 1 April 2005, and an agreement between Japan 
and the United States entered into force on 1 Octobe r 2005.  Agreements on social security between 
Japan and France and between Japan and Belgium we re signed in February 2005 and adopted by the 
Diet in July 2005;  an agreement between Japan and Canada was signed in February 2006 and adopted 
                                                      
19 The 15 priority areas are:  soci al security agreement, cooperati on on anti-competitive activities, food 
safety cooperation, customs coopera tion, trade facilitation, transportation, investment, science and technology, 
information and communication technology, electric comme rce, e-government, energy and natural resources, 
climate change, tax convention, and tourism promotion. Japan WT/TPR/S/175 
 Page 25 
 
 
by the Diet in May 2006.  Japan is currently nego tiating bilateral social security agreements with 
Australia and the Netherlands.20 
41. Japan signed a new tax treaty with the United Kingdom on 2 February 2006.21  In addition, it 
signed a protocol amending the current  bilateral tax treaty with India on 24 February 2006.  The treaty 
with India entered into force on 28 June 2006 and the treaty with the United Kingdom on 
12 October 2006.  "Tax sparing" provisions in  the treaty with India were removed by the 
amendment.22 
42. Japan and Canada concluded a bilateral agre ement on cooperation on competition policy in 
September 2005 (Chapter III(4)(vi)). 
43. Japan currently has 11 bilateral investment trea ties with its trading partners (section (5)(i) 
below). 
(iv) Preferential treatment 
44. Japan's Generalized System of Preferences (GSP) scheme grants preferential tariff treatment 
to certain developing countries under the Temporary Tariff Measures Law.  The Government has the 
authority to unilaterally designate, withdraw, suspe nd, and limit beneficiaries or products that receive 
preferential treatment under the GSP scheme.  In 2001, Japan extended its GSP scheme to 
31 March 2011 and introduced various measures, su ch as expanding the product coverage of tariff-
free and quota-free treatment for goods originating in  LDCs.  As a result, all textile and clothing 
products from LDCs enter Japan duty-free and quota-free.  
45. The current GSP scheme grants preferential tari ff treatment to 142 developing countries and 
15 territories for 338 agricultural and fishery products at the HS nine-digit level.  The preferences are 
granted on almost all industrial produc ts, with the exception of 100 items.23  Preferences on 155 items 
are granted only to LDCs. 
46. The depth of tariff cuts varies according to the product;  tariffs on industrial products are zero 
except for sensitive industrial products (1,192 items at  the HS nine-digit level in 78 product groups) to 
which various preferential rates (0%, 20%, 40%, 60%, 80% of MFN rates) apply up to specified 
ceilings.  The ceilings are open for utilization by all be neficiaries.  However, preferential treatment is 
suspended on a monthly basis when ceilings are reac hed.  If preferential imports from one beneficiary 
exceed one-fifth of the total value or volume of the overall ceiling, the preferential treatment for that 
beneficiary is suspended.  Preferential treatment  under the GSP scheme is granted on the condition 
                                                      
20 A bilateral agreement on social security betw een Japan and Germany en tered into force in 
February 2000, and an agreement between Japan and the United Kingdom entered into force in February 2001. 
21 Japan also has tax treaties with Armenia, Aust ralia, Austria, Azerbaijan, Bangladesh, Belarus, 
Belgium, Brazil, Bulg aria, Canada, China, Czech Republic, Denmark,  Egypt, Fiji, Finland, France, Georgia, 
Germany, Hungary, India, In donesia, Ireland, Israel, Italy, Republic of Korea, Kyrgyz Republic, Luxembourg, 
Malaysia, Mexico, Moldova, the Netherlands, New Z ealand, Norway, Pakistan, the Philippines, Poland, 
Romania, Russia, Singapore, Slovak Republic, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, 
Thailand, Turkey, Turkmenistan, Uk raine, the United States, Uzbekistan, Viet Nam, and Zambia.  
22 "Tax sparing" is a means by which the tax system  of a capital-exporting country can be made to 
accommodate the tax incentives of developing countries.  More specifically, in this case, Japan "spares" the tax 
that it would normally impose on the untaxed (or low-taxed) income earned by its investors in India by granting them foreign tax credits equal to, or possibly greater than, the tax they would otherwise have paid in India (in 
the absence of the incentives). 
23 Japan's Generalized System of Preferences .  Viewed online at:  ttp://www.mofa.go.jp/ 
policy/economy/gsp/index.html WT/TPR/S/175 Trade Policy Review 
Page 26 
 
 
that goods fulfil Japan's GSP rules of origin.  The administration of ceilings and maximum country 
volumes are managed on a first-come, first-served basis. 
47. About 500 items at the HS nine-digit level involving agricultural and fishery products 
originating in 50 LDCs are eligible for duty-fr ee and quota-free treatment (i.e. duty-free treatment 
without a ceiling).  In December 2005, Japan announced  in its "Development Initiative for Trade" that 
it would provide duty-free and quota-free market acce ss for "essentially all products" originating from 
all LDCs.24  Japan expressed its commitment to im plement its improved duty-free and quota-free 
treatment for the LDCs as early as FY2007 regard less of the progress of the DDA negotiations.25   
48. In 2006, Japan removed Bahrain from its GSP lis t, and designated three LDCs, i.e. Comoros, 
Djibouti, and Timor-Leste, as new beneficiaries.  China remains the main beneficiary of GSP 
treatment (Table II.2). 
Table II.2 
GSP shares for the ten largest beneficiaries, FY 2004 
(Yen million) 
Beneficiaries Import value of 
preferential treatment Share (%) 
China 1,118,119 58.9 
Thailand 149,590 7.9 
Malaysia 137,020 7.2 
Indonesia 118,894 6.3 
Philippines 104,610 5.5 
Viet Nam 38,223 2.0 
India 31,107 1.6 
Brazil 27,036 1.4 
South Africa 24,536 1.3 
Chile 19,942 1.1 
World 1,898,818 100.0 
Source:  Information provided by the Japanese authorities. 
(5) FOREIGN INVESTMENT REGIME  
49. In FY 2004 foreign affiliated firms accounted for 2.3% of total sales in Japan (2.4% in 
FY 2003), and 1.0% of employment (1.0% in FY 2003).26  Inward FDI in Japan remains substantially 
lower than outward FDI, and is relatively low compared with that in other large economies 
(Chapter I(4)(iv)).  Against this background, Japan has continued to take measures to make itself an 
attractive investment destination for foreign firms,  with a view to doubling cumulative inward FDI 
between  2001 and 2006.27 
50. The authorities consider that FDI brings benef its to Japan by, for example:  creating new 
management resources such as personnel, capita l, and sales networks and bringing in new 
                                                      
24 Japan's New Development Initiative for Trade.  Viewed at:  http://www.mof.go.jp/english/ 
tariff/wto/wto.htm 
25 WTO document WT/COMTD/W/150, 12 June 2006. 
26 METI "Survey of Trends in Business Activities of Foreign Affiliates (FY 2004)" (latest available 
data).  Viewed at:  http://www.meti. go.jp/english/statistics/index.html. 
27 Prime Minister Koizumi's statement, of 31 January 2003, showed Japan's recognition of the 
significance of inward FDI, and demonstrated Japan' s intention to increase inward FDI.  Viewed at:  
http://www.kantei. go.jp/koizumispeech/2 003/01/31sisei.html (in Japanese). Japan WT/TPR/S/175 
 Page 27 
 
 
technologies28;  creating employment opportunities;  and increasing benefits to consumers by 
providing wider choices and be tter quality of goods and services resulting from intensified 
competition introduced by FDI.  
(i) Regulatory regime 
51. Since Japan's previous Trade Policy Review, there has been no change in the regulatory 
regime on inward and outward FDI,  which is governed mainly by the Foreign Exchange and Foreign 
Trade Law, together with relevant cabinet and ministerial ordinances.29  Inward FDI generally 
requires ex post facto reporting, to the Minister of Finance and the Minister in charge of the industry involved, within 15 days of executing a foreign investment in Japan.  Prior notification is required, in 
principle, for inward FDI in industries recognized in the OECD Code of Liberalization of Capital 
Movements, such as agriculture, forestry and fisher ies, petroleum, leather and leather products, and 
air and maritime transport;  in addition, some other sectors require prior notification on the grounds of 
public order and national security (Table AII.3).
30  Besides the notification requirements, various 
other laws stipulate specific restrictions on inward FD I in certain sectors, such as real estate, fisheries, 
financial services, telecommunications, and transport.31  According to the authorities, no notified 
inward FDI project has been rejected by the Government in recent years. 
52. The provisions of bilateral investment treaties (BITs) also regulate investment policy.  In 
December 2004, an additional bilateral investment treat y, with Viet Nam, entered into force, bringing 
Japan's total of BITs to eleven.32    
(ii) Investment promotion measures 
53. No new tax measures aimed specifically at FDI promotion (excluding revisions of tax 
treaties) were introduced in 2004 and 2005.  According to the authorities, no estimates are available 
for tax revenue forgone through measures to promot e FDI, partly because certain tax measures with 
other objectives may also contribute to increasing FDI. 
54. In May 2006, the Law on Extraordinary Measure s for Promotion of Imports and Facilitation 
of Foreign Direct Investment in Japan (and its re lated ordinances and other relevant legislation), 
which stipulated measures for investment promotio n including technical and financial support (such 
as low-interest loans and loan guarantees) was abo lished.  Nonetheless, the general framework of 
Japan's investment promotion measures appears to  have remained unchanged except for certain tax 
measures related to foreign access zones (Table II.3).  According to the authorities, these investment 
promotion measures apply equally to domestic a nd foreign companies registered in Japan.   
                                                      
28 According to the METI’s "Survey of Trends in Bu siness Activities of Foreign Affairs", the profit rate 
on sales in FY 2004 was 5.2% for foreign affiliated co mpanies compared with 4.1% for all companies under the 
survey. 
29 Among the most important ordinances are the Foreign Exchange Order and the Order of Inward 
Foreign Direct Investment. 
30 These include aircraft, arms, explosives, nuclear power, electric utilities, gas utilities, water, heat 
generation, rail transport, passenger transport, tel ecommunications (accompanying certain network facilities), 
television and cable television, and broadcasting sectors. 
31 See WTO (2001) for details of the specific restrictions. 
32 Japan also has BITs with Bangladesh;  China;  Egypt;  Hong Kong, China;  the Republic of Korea, 
Russia;  Sri Lanka;  Turkey;  Mongolia;  and Pakistan. WT/TPR/S/175 Trade Policy Review 
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Table II.3  
Measures to promote foreign dire ct investment into Japan, FY 2006  
I. Loan guarantees through the Industrial  Structural Improvement Fund (ISIF)  
  Relaxation of conditions for obtaining certifi cation as a Designated Inward Investor:  a company that has been operating for le ss 
than eight years (currently five y ears) is eligible for certification.  
  Relaxation of conditions for obtaining loan guarantees from ISIF:  currently, in order to obtain loan guarantees, as a rule, IS IF 
requires the backing of a capitalized enterprise and a legal repr esentative of the borrower as a backer of guarantees.  The con dition 
of requiring a guarantee backer is abolished when the backing of a capitalized enterprise can be obtained.  
II. Provision of low-interest financing from the Development Bank of Japan, etc.  
  Expanding eligible projects:  
   limitation that required establishment in one of six industria l high-tech fields has been eliminated.  Projects establishing 
facilities (including land) for lease by foreign companies and fore ign affiliates with one third foreign ownership or more, or any 
company establishing office buildings in which the ma in tenants are non-Japanese businesses are eligible.  
 Creating new loan programmes: 
  loan programme for promoting market entry of foreign-affiliated firms:  in addition to  the capital investment finance, the new  
programme will finance related working capital needs (e.g . rent for facilities, property tax, insurance premium); 
   loan programme for facilitating internati onal cooperation between enterprises:  if the foreign share in the company exceeds on e 
third of total equity as a result of M& A, the company can obtain JDB loans for capital investment afterward.  Corporate 
alliances involving transfer of operations ar e also eligible for this loan programme;  
  loan programme for supporting environment-friendly manageme nt systems:  if the foreign companies pass the bank's 
evaluating process, they can obtain a low-interest loan and the bank guarantees the company's bonds in order to support the 
projects.  
III. Import promotion measures  
  Loan guarantees and exceptional measures provided by the Small Business Credit Insurance for FAZ -related businesses:  businesse s 
undertaking activities to promote distribution of imported cargo (w holesalers, manufacturers, transporters or retailers dealing  with 
imported goods) within specified zones for congregation in FAZ ar eas designated by the local gove rnments of approved FAZ areas 
can make use of following loan guarantees and ex ceptional measures related to credit insurance:  
   loan guarantees through the (ISIF):  loan guarantees are pr ovided by the Industrial Structure Improvement Fund to aid in 
borrowing necessary funds, including operation funds;  
   exceptional measures provided by Small Business Credit Insura nce:  Exceptional measures are provided by Small Business 
Credit Insurance to small and medium-sized companies.  
  Special financing measures for FAZ-related businesses:  with  regard to the DBJ financing programme for import facilities 
enhancement and the low-interest loans pr ovided by the Japan Finance Corporation for Small Busine ss to facilitate import sales,  
import-related businesses within the FAZ areas are able to receive loans with special conditions:  
   DBJ (Financing Programme for Import Facilities Enhancement):  companies are eligible for this programme regardless of the 
share of imported goods among their handling.  Also, manufacturers and others are able  to receive loans not only when they 
invest in Japan for the first time, but  for second and subs equent investments;  
   Japan Finance Corporation for Small Busi ness (Loans to Facilitate Import Sales):  wholesalers or retailers selling imported 
goods through their own offices in the FAZ facilities or contacts with businesses in the FAZ facilities are able to receive up to 
¥400 million.  
IV. Measures for small and medium-sized enterprises  
  Training for administrative managers of fore ign-affiliated firms:  Institute of the Ja pan Small Business Cor poration offers tra ining 
programmes on personnel management and business practices in Japan, etc. for administrative managers etc;  of small and medium-
sized foreign-affiliated firms.  The participants  are subsidized on two thirds of the training fee.  
V. Venture support measures  
  Loan guarantees for loans using collateral of intellectual property rights for venture enterprises:  the ISIF provides loan gua rantees 
for up to 80% (usually 70%) of business funds, and does not requi re a guarantee backer of a capita lized enterprise if the colla teral of 
the loan is intellectual property rights.  
  Investment for venture enterprises:  in a ddition to a company that has been operating or has submitted an application for a pat ent 
less than five years earlier (currently three years), a company that  establishes know-how in five years is able to take investm ents 
from the New Business Investment Company Limited.  
  Introducing a stock option system:  the Government of Japan ex pands the term of exercise fo r the company's executives or 
employees to accept new stock shares of the company at a lower pr ice, from six months to within ten years, based on the resolut ion 
of a general meeting of stockholders.  
Source: Information provided by the Japanese authorities.  
55. The Government has also continued to impl ement 74 measures under five categories to 
promote FDI and eliminate impediments to inward FDI, as decided by the Japan Investment Council Japan WT/TPR/S/175 
 Page 29 
 
 
(JIC) on 27 March 2003.33  The five categories are:  (1) di sseminating information on investment 
opportunities in Japan;  (2) reviewing administration procedures with a view to making them clearer, 
simpler, and faster by, for example, creating a one-stop service for investment-related information;  (3) creating a favourable employment and livi ng environment (e.g. improving immigration 
procedures);  (4) improving the business environment (e.g. improving corporate governance, 
facilitating cross-border mergers and acquisitions, facilitating new business start-ups by providing tax 
incentives for investment in information technology and research and development)
34;  and 
(5) assisting local governments in attracting foreign in vestment by, for example, facilitating the use of 
the special zones for structural reform.  Since July 2005, the Government has added 13 additional 
measures, including:  cooperation between Japan ese and foreign tax authorities to eliminate 
international double taxation;  and recognition in the Japanese educati onal system of certain academic 
credits obtained in a branch of foreign universiti es established in Japan.  On 9 March 2006, the JIC 
decided to set up a new goal of doubling the share of FDI in GDP by 2010.  With a view to achieving this target, the JIC launched a new programme (Program for the Acceleration of Foreign Direct Investment in Japan) in June 2006.  The programme  focuses on three key issues:  attracting FDI not 
only in the Tokyo Metropolitan areas but through out Japan;  improving further the investment 
environment to sustain Japan's globally competitiv e edge;  and actively promoting and providing 
information regarding Japan's efforts to attract FDI. 
56. Through the "Project to Promote Foreign Direct Investment in Selected Areas", the 
Government supports activities conducted by selected regional governments;  such support measures 
include planning of strategies to attract FDI, public relations, inviting potential investors, and helping 
the start-up process of selected companies.  In FY 20 04, four regions were select ed to be eligible for 
such support measures;  by FY 2006, 14  regions had been selected.   
57. In November 2004, the leaders of China, Japan , and the Republic of Korea decided to conduct 
consultations to explore a possible trilateral le gal framework on investment.  With a view to 
implementing such a decision, the Tripartite Gove rnmental Consultation Mechanism was established 
in May 2005. To date, there have been five m eetings under the mechanism to discuss the scope and 
modality of the possible trilateral investment agreement.   
58. Japan's bilateral "economic pa rtnership agreements" (involvin g free-trade agreements) with 
Singapore, Mexico, and Malaysia include provisions  on investment.  Articles on national treatment 
and prohibition of performance requirements are in cluded in the agreements;  these articles are 
applied to investors and investments as defined in  the agreements, with ex ceptions specified in the 
annexes.  
                                                     
 
33 The Japan Investment Council is a minister ial-level council established in July 1994. 
34 Half of the capital gains obtained by the sale of stocks of qualified ventures are to be taxed.  The 
amount of investment in qualified ventures is deductible from the amount of capital gains of stocks in the same 
taxable year.  The Government is also studying ways to revise tax treatment of mergers and acquisitions, and plans to submit a bill to the Diet in 2005.