RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/142 
17 December 2004 
 
 (04-5483) 
Trade Policy Review Body  
 
 
 
 
 
 
 
TRADE POLICY REVIEW 
 
JAPAN 
 
Report by the Secretariat 
 
   
This report, prepared for the seventh Tr ade Policy Review of Japan, has been 
drawn up by the WTO Secretariat on its ow n responsibility.  The Secretariat has, 
as required by the Agreement establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreemen t Establishing the World Trade 
Organization), sought clarif ication from Japan on its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Masahiro Hayafuji (tel:  022 739 5873), Mrs. Zheng Wang 
(tel.:  022 739 5288), Mr. Nirat Supthaweethum (tel.:  022 739 5529) and 
Mr. Michael Daly (tel:  022 739 5077). 
 
Document WT/TPR/G/142 contains the policy statement submitted by Japan. 
 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
 session of the meeting of the Trade Policy Review Body on Japan. Japan WT/TPR/S/142 
 Page iii  
 
 
 CONTENTS 
    P a g e  
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY REGIME :  FRAMEWORK AND OBJECTIVES  vii 
 (3) T RADE POLICIES AND PRACTICES BY MEASURE  viii 
 (4) T RADE POLICIES BY SECTOR  ix 
 (5) O UTLOOK  x 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AIN ECONOMIC DEVELOPMENTS  1 
 (2) M ACROECONOMIC POLICIES  4 
 (i) Monetary and exchange rate policy 4  (ii) Fiscal policy 5 
 (3) S
TRUCTURAL POLICIES  6 
 (i) Financial system and corporate reform 6 
 (ii) Pension reform 8 
 (iii) Regulatory reform 8 
 (4) D EVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT  9 
 (i) Composition of merchandise trade 9 
 (ii) Direction of merchandise trade 9  (iii) Composition of trade in services 9 
  (iv) Foreign direct investment (FDI) 12 
 (5) P
ROSPECTS  12 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 13 
 (1) T RADE POLICY OBJECTIVES  13 
 (2) T RADE POLICY FORMULATION AND EVALUATION  13 
 (i) Trade policy formulation and implementation 13 
 (ii) Trade policy evaluation 16 
 (3) T RADE AGREEMENT AND ARRANGEMENTS  17 
 (i) WTO 17 
 (ii) Regional Agreements 17 
 (iii) Bilateral agreements 19  (iv) Preferential treatment 22 
III. TRADE POLICIES AND PRACTICES BY MEASURE 24 
 (1) I
NTRODUCTION  24 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  25 
 (i) Procedures and valuation 25  (ii) Tariffs 26 
 (iii) Non-tariff border measures 32 
 (iv) Contingency measures 33  (v) Government procurement 34 WT/TPR/S/142 Trade Policy Review 
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 (vi) State trading 36 
 vii) Standards, and sanitary and phytosanitary measures 37 
 (3) I MPORT AND INWARD INVESTMENT PROMOTION MEASURES  40 
 (i) Import promotion 40 
 (ii) Investment regulation and promotion measures 41 
 (iii) Foreign access zones (FAZs) 43 
 (4) M EASURES DIRECTLY AFFECTING EXPORTS  44 
 (i) Export taxes, charges, and levies 44 
 (ii) Export prohibitions, restrictions, and licensing 44  (iii) Export promotion schemes 45 
 (5) M
EASURES  AFFECTING  PRODUCTION AND  TRADE  45 
 (i) Taxation and tax-related assistance 45  (ii) Subsidies and other financial assistance 47 
 (iii) State-owned enterprises, corporatization, and privatization 47 
 (iv) Trade-related intellectual property rights 47  (v) Regulatory reform 50 
 (vi) Competition policy 51 
 (vii) Corporate governance 56 
IV. TRADE POLICIES BY SECTOR 58 
 (1) I
NTRODUCTION  58 
 (2) A GRICULTURE  59 
 (i) Overview 59 
 (ii) Policy developments 59 
 (3) M ANUFACTURING  64 
 (4) E NERGY AND UTILITIES  65 
 (5) S ERVICES  66 
 (i) Overview 66 
 (ii) Financial services 66 
 (iii) Telecommunications 71  (iv) Transport 73 
 (v) Professional services 75 
 (vi) Construction 76  (vii) Education services 76 
REFERENCES   77 
APPENDIX TABLES  81 
 
 
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     P a g e  
CHARTS 
I. ECONOMIC ENVIRONMENT 
I.1 Product composition of mercha ndise trade, 2001 and 2003 10 
I.2 Direction of merchandise trade, 2001 and 2003 11 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES II.1 Policy evaluation system in Japan 16 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Share of non- ad valorem duties, by HS section, FY 2004 29 
III.2 Simple average applied MFN tariff rates, by HS section, FY 2002 and 2004 30 
TABLES 
I. ECONOMIC ENVIRONMENT 
I.1 Selected macroeconomic indicators, 2001-04 1 
I.2 Shares of GDP and employment by sector, 2001-02 4 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES II.1 Japan's major trade-related laws and regulations 14 
II.2 GSP shares for the ten largest beneficiaries 23 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
III.1 Structure of MFN tariff in Japan, 2001-04 27 
III.2 Preferential tariff rates, FY 2004 31 
III.3 Procurement composition by product and by origin, 2002 35 III.4 Major standards and technica l regulations in Japan, 2003 37 
III.5 Total budget for Japan's im port promotion programmes 41 
III.6 Measures to promote foreign direct  investment into Japan, FY 2004 42 
III.7 National government tax revenue, FY 2004 45 
III.8 Stockholding by the Government of Japan, as at October 2004 47 
III.9 Legislation regarding protection of in tellectual property rights in Japan 48 
III.10 Suspension of imports like ly to infringe intellectual property righ ts, 2000-04 49 
III.11 Exemptions from the Anti-monopoly Act, 2003 52 
III.12 Enforcement of comp etition policy, 2000-03 55 
IV. TRADE POLICIES BY SECTOR 
IV.1 Applied MFN tariff protection in agriculture, FY 2004 61 
IV.2 Special safeguard (SSG) actions in agriculture, FY 2002-04 62 
IV.3 Procurement prices for all major crops subject to pricing and/or marketing 
arrangements/price controls, 2000-03 63 
IV.4 Financial institutions in Japan, 2004 67 WT/TPR/S/142 Trade Policy Review 
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APPENDIX TABLES 
I. ECONOMIC ENVIRONMENT 
AI.1 Composition of trade in services, 2001-03 83 
AI.2 Inward and outward FDI flows by source and destination, FY 2001-03 84 
AI.3 Inward and outward FDI flows by activity, FY 2001-03 86 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES AII.1 Status of notifications to the WTO, September 2004 87 
AII.2 Disputes to which Japan has been a party, 2002 to April 2004 90 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
AIII.1 Applied tariff escalation and tariff ranges, FY 2002 and FY 2004 93 IV. TRADE POLICIES BY SECTOR 
AIV.1 Tariff quota quantity and in-quota imports, FY 2001-03 96 
 
 
 Japan WT/TPR/S/142 
 Page vii  
 
 
 SUMMARY OBSERVATIONS 
(1) ECONOMIC ENVIRONMENT  
1. Since its previous Trade Policy 
Review, Japan's economic situation has 
improved, particularly compared with the 
previous decade of  slow growth.  After 
recording negative growth in 2002, Japan's 
economy grew by 2.4% in real terms in 2003, 
and continued to achieve similar rates of growth in the first three quarters of 2004.  Both domestic demand, notably private non-
residential investment and private 
consumption, and external demand 
contributed to this growth.  Unemployment has 
been falling and deflationary pressure on prices appears to be easing.  Growth has helped Japan with its structural problems, 
including non-performing loans (NPLs).  
However, it would appear that growth may 
have slowed in the fourth quarter of 2004;  
thus the sustainability of the recovery remains 
to be seen.  
2. During the period under review 
(2002-04), the Bank of Japan continued to 
relax its monetary policy;  the official discount 
rate and the short-term call rates have been kept at nearly zero, and the monetary base has been increased.  However, with negative rates 
of inflation, real interest rates have tended to 
be higher than nominal interest rates.  This, 
together with remaining problems in the 
banking system, may be an impediment to corporate borrowing and investment.  The 
fiscal deficit and public debt are expected to 
have been in the order of 7% and 163% of 
GDP in 2004, respectively;  the Government 
aims to achieve a surplus at its primary 
balance by the early 2010s (compared with a 
deficit of 5.3% in 2004). 
3. Trade has played an important role in 
the economy.  Although the shares of exports 
and imports are each around 10% of GDP, 
external demand has contributed substantially 
to Japan's economic growth since 2002, due in 
part to the openness of the multilateral trading 
system.  Japan's trade surplus has increased, reflecting an increase in the merchandise 
trade surplus and a decrease in the services 
deficit.  Japan's current account surplus, 
capital and financial account surplus and its foreign exchange reserves  have all increased.   
4. A sustained recovery would appear to 
hinge on continued structural reforms, which 
the Government continues to emphasize.  
Progress has been made in particular in the 
financial and corporate sectors (notably the disposal of NPLs, corporatization of state-
owned enterprises, dere gulation in network 
industries and some professional services, and 
establishment of Special Structural Reform 
Zones).   
(2) T
RADE POLICY REGIME :  
FRAMEWORK AND OBJECTIVES  
5. Japan's trade policy has remained 
largely unchanged since its previous Review;  
the overall aim continues to be to ensure long-term prosperity and growth by promoting business activities in Japan and at the 
international level.  In this regard, Japan has 
placed high emphasis on supporting the 
multilateral trading system, and has been 
participating actively in the Doha Development Agenda. Japan grants at least MFN treatment to all WTO Members. 
6. Concurrently, Japan has been 
intensifying its pursuit of bilateral/regional 
FTAs with some of its trading partners, including in areas like trade facilitation, investment, competition policy, and 
improvement of business environment.  Japan 
considers that regional and bilateral trade 
arrangements complement the multilateral 
system, and are useful tools for market 
liberalization and structural reform.  Japan 
has signed bilateral free-trade agreements 
with Singapore and Mexico, and is currently 
negotiating agreements with the Republic of 
Korea, Thailand, the Philippines, and 
Malaysia, as well as consulting with ASEAN 
as a whole.  Japan also supports the "open 
regionalism" approach of the Asia-Pacific 
Economic Cooperation (APEC) forum, and WT/TPR/S/142 Trade Policy Review 
Page viii 
 
 
__________________________________________________________________________________ participates in various other regional trade 
fora, such as the Asia-Europe meeting (ASEM) 
and  ASEAN+ 3.  
7. During the period under review,  
Japan granted preferential treatment to products from certain developing and least 
developed countries under the Generalized 
System of Preference (GSP) scheme.  The main 
beneficiaries of Japan's GSP include China, 
Thailand, Indonesia, Malaysia, and the Philippines. 
(3) T
RADE POLICIES AND PRACTICES BY 
MEASURE  
8. Since its previous Review, Japan has 
introduced various measures aimed at further liberalizing its trade and investment regimes.  
Progress has been made in improving the 
competitive environment, including in 
telecommunications and financial services;  
however, the use of contingency measures is somewhat more evident than before, and potentially important distortions to 
competition remain in some sectors, 
particularly agriculture.  The authorities 
attach priority to regulatory reform and sound 
competition policy, which could, inter alia, help create more opportunities for domestic and foreign businesses, including those 
entailing inward FDI.   
9. The tariff is Japan's main trade policy 
instrument;  most imports enter Japan duty free or are subject to low tariff rates.  In the fiscal year 2004,  the simple average applied 
MFN tariff was 6.3%.  Nearly 99% of tariff 
lines are bound and most applied rates 
coincide with bound rates, thereby imparting a 
high degree of predictability to Japan's tariff.  
At the same time, non-ad valorem duties are 
an important feature of the tariff,  particularly 
in agriculture.  Such duties, which account for 
6.6% of all lines, are indicated clearly in 
Japan's tariff schedule;  they tend to involve 
high ad valorem equivalents (AVEs).  
Moreover, bound tariff rates that exceed 
applied rates pertain mainly to non-ad 
valorem duties.  The simple average of all specific rates for which AVEs were available 
was approximately ten times the simple 
average of purely ad valorem tariff rates. 
10. Japan has few non-tariff border 
measures.  Those currently applied involve some import prohibitions and quantitative 
import restrictions,  for example,  on certain 
fish and silk items.  Imports of certain goods 
are subject to licensing requirement in order 
to ensure national security, safeguard consumer health and well-being, or preserve 
domestic plant and animal life and the 
environment.  Certain aspects of the import 
quota system can be intricate.   
11. During the period under review, 
Japan used one anti-dumping measure. Recently, Japan began investigating the case 
for countervailing measures against imports of 
dynamic random access memory chips from 
the Republic of Korea.  Japan has not imposed 
any safeguard measures since its previous Review.   
12. Certain export controls are 
maintained on the grounds of national security 
and public safety, and to ensure adequate 
domestic supplies of certain agricultural and other primary products.  Japan has not notified any export subsidies to the WTO, 
thereby indicating the absence of such 
subsidies as defined in the WTO Agreements.  
Finance, insurance, guarantees, and drawback 
schemes are available for exports.   
13. Various forms of assistance are 
provided by central and local governments, 
particularly for agriculture.  The total value of 
assistance to agriculture exceeds the sector's 
contribution to GDP;  most of the assistance 
seems to consist of measures that distort 
production and trade. 
14. No preferences are granted to 
domestic suppliers with regard to government 
procurement covered by the Agreement on Government Procurement.  The share of foreign suppliers in the total value of Japan WT/TPR/S/142 
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 government procurement was 4.2% in 2002 
(down from 6.9% in 2000).   
15. About 92% of Japan Industrial 
Standards (JIS) were aligned to their international counterparts as of March 2004.  Japan has also taken further steps to ensure 
acceptance of foreign test data and conformity 
assessment.   
16. Japan has continued to participate in 
multinational and regional discussions on agreements to promote international 
harmonization of regimes protecting 
intellectual property rights (IPRs). 
17. A growing awareness that ineffective 
corporate governance has contributed to the misallocation and perhaps excessive use of 
capital and labour in the corporate sector has 
prompted the Government to implement a 
number of policy measures, such as an 
amendment to the Commercial Code and the revision of the Certified Public Accountants Law.   
18. In March 2004, Japan adopted the 
new Three-Year Program for Promoting 
Regulatory Reform (TPPRR), which listed 
762 measures envisaged to contribute to creating new opportunities for domestic and 
foreign businesses.  The Council for the 
Promotion of Regulatory Reform (CPRR) was 
established in April 2004, to replace the 
Council for Regulatory Reform (CRR), whose mandate expired on 31 March 2004.  In April 2003,  a scheme of special zones for 
structural reform was adopted;  exceptions to 
particular regulations are granted within 
approved special zones according to the zones' 
specific circumstances.  Moreover, the 
growing importance of deregulation and 
competition in the Ja panese economy has 
increased the status and size of the Japan Fair 
Trade Commission (JFTC), which has hitherto 
been somewhat weak.  To achieve a higher 
degree of independence for the JFTC,  it was 
transferred from the then Ministry of Public 
Management, Home Affairs, Posts and Telecommunications to the Cabinet Office in 
April 2003. 
(4) T
RADE POLICIES BY SECTOR  
19. Since Japan's previous Review, the 
Government has continued to promote 
structural reforms, pertaining especially to the 
energy and services sectors. 
20. During the period under review, the 
Basic Law on Food, Agriculture and Rural Areas and the Basic Plan that implements the policy stipulated in the law continued to 
provide the framework and policy direction for 
agriculture;  one of the main objectives of the  
Basic Law is to secure a stable food supply.  
The Government is also promoting the consolidation of scattered farmland with a 
view to raising productivity.  The Law on 
Special Zones for Structural Reform allowed 
general corporations to lease farmland under 
certain conditions.   The average applied MFN tariff for agriculture (WTO definition) decreased from 20.0% in FY 2002 to 17.7% in 
FY 2004.  Total transfers to agriculture exceed 
the sector's small contribution to GDP.  
Japan's food self-sufficiency ratio has 
remained stable at around 40% since the previous Review, despite efforts to raise it to 45%;  it continues to be the world's largest net 
importer of food. 
21. Japanese manufacturing is more 
exposed to international competition than agriculture and certain services.  Tariffs on industrial products are usually low;  non-tariff 
barriers are few and the sector receives 
relatively little financial or other support from 
the Government.  In 2003 an Industrial 
Revitalization Law was amended to strengthen 
Japan's industrial competitiveness, and the 
Industrial Revitalization Corporation of Japan 
was established to revitalize Japanese 
companies with "excessive" debt.  
Manufacturing's contribution to GDP declined 
from 20.8% of 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. WT/TPR/S/142 Trade Policy Review 
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__________________________________________________________________________________ 22. Japan's energy self-sufficiency ratio 
was about 20% in 2000;  achieving a stable 
supply of energy is one of its major policy 
objectives.  Prices of electricity and gas are 
relatively high by international standards;  however, entry into the electricity and gas 
market has been partially liberalized.   
23. The share of services in Japan's GDP 
has been growing steadily;  services  
accounted for 71.1% of GDP in 2002, up from 70.6% in 2001.  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 competitiveness, the Go vernment's attention 
has been focused increasingly on regulatory 
reform combined with the strengthening of 
competition laws and their enforcement. 
Reforms have continued, especially in 
financial and telecommunications services.   
24. 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.  Reforms in Japan's financial services sector have focused mainly on the disposal of NPLs, which have been a 
hindrance to the efficient re-allocation of 
resources and thus to improved productivity 
and economic growth.  The ratio of NPLs to 
the total lending of all banks decreased from 
8.4% in March 2002 to 5.8% in March 2004. 
25. In telecommunications, the Basic 
Telecommunications Law was revised in 
July 2003 to abolish approval requirements 
for basic telecommunication business entry 
and exit, and to eliminate classification of 
Type-I and Type-II categories and regulations 
on prices for certain services. 26. As a result of corporatization of the 
Postal Services, Postal Savings and Postal  
Life Insurance, Japan Post was established on 
1 April 2003.  A Basic Policy on the Privatization of Japan Post, which was adopted by the Government in 
September 2004, stipulated that privatization 
would start from 2007 and would be 
completed by 2017.  
(5) O
UTLOOK  
27. The Government's official forecast 
predicted further economic recovery in 
FY 2004, with improved labour market 
conditions and an easing of downward 
pressure on prices.  The latest quarterly estimates indicate that real GDP grew by 3.9% year on year in the third quarter of 2004, 
driven largely by domestic demand.  But 
growth may recently have slowed and thus the 
strength of the recovery remains to be seen, 
particularly given persistent deflation and  seemingly fragile business and consumer 
confidence.  The sustai nability of the recovery 
also depends on external factors such as the 
pace of economic growth in the world 
economy, including China, and prices of crude oil.  Medium and long-term downside risks include its rapidly aging population and a 
declining labour force.  Structural reforms, 
including the disposal of NPLs, financial and 
corporate sector reform, pension reform, 
strengthening of competition policy, and trade 
liberalization,  particularly in agriculture, are 
of great importance.  If implemented, these 
reforms would help restore business and 
consumer confidence, contributing to the sustainability of Japan's economic recovery.