RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/211 
14 January 2009  
 
(09-0035) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
JAPAN 
 
  
 
This report, prepared for the ninth Trade Policy Review of Japan, has been 
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has, 
as required by the Agreement establishing the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), sought clarification from Ja pan on its trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Masahiro Hayafuji (tel:  022 739 5873). 
 
Document WT/TPR/G/211 contains the policy statement submitted by Japan. 
 
 
 
Note: This report is subject to restricted ci rculation 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/211 
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CONTENTS 
  Page 
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  x 
 (5) O UTLOOK  xi 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AIN ECONOMIC DEVELOPMENTS  1 
 (2) M ACROECONOMIC POLICIES  5 
 (i) Monetary and exchange rate policy 5 
 (ii) Fiscal policy 5 
 (3) S TRUCTURAL POLICIES  6 
 (i) Tax reform 7 
 (ii) Financial system and corporate reform 7  (iii) Pension reform 9 
 (iv) Regulatory reform 9 
 (4) D
EVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT  10 
 (i) Composition of merchandise trade 10 
 (ii) Direction of merchandise trade 10 
 (iii) Composition of trade in services 13  (iv) Foreign direct investment 13 
 (5) P
ROSPECTS  13 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 15 
 (1) I NTRODUCTION  15 
 (2) T RADE POLICY OBJECTIVES  15 
 (3) T RADE POLICY FORMULATION AND EVALUATION  16 
 (i) Trade policy formulation and implementation 16 
 (ii) Trade policy evaluation 18 
 (iii) Transparency 20 
 (4) T RADE AGREEMENTS AND ARRANGEMENTS  21 
 (i) WTO 21  (ii) Regional agreements 21 
 (iii) Other agreements and arrangements 22 
 (iv) Preferential treatment 27 
 (5) F
OREIGN INVESTMENT REGIME  29 
 (i) Regulatory regime 29 
 (ii) Investment promotion measures 30 
 
 WT/TPR/S/211 Trade Policy Review 
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  Page 
III. TRADE POLICIES AND PRACTICES BY MEASURE 32 
 (1) I NTRODUCTION  32 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  33 
 (i) Customs clearance procedures 33 
 (ii) Tariffs 34 
 (iii) Non-tariff border measures 41  (iv) Contingency measures 42 
 (v) Government procurement 43 
 (vi) State trading 46  (vii) Standards, and sanitary and phytosanitary measures 46 
 (viii) Import promotion measures 51 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  51 
 (i) Procedures 51 
 (ii) Export taxes, charges, and levies 52 
 (iii) Export prohibitions, re strictions, and licensing 52 
 (iv) Export cartels 53 
 (v) Export promotion schemes 53 
 (4) MEASURES AFFECTING PRODUCTION AND TRADE  53 
 (i) Taxation and tax-related assistance 53 
 (ii) Subsidies and other financial assistance 56  (iii) State-owned enterprises, co rporatization, and privatization 56 
 (iv) Intellectual property rights 57 
 (v) Regulatory reform 62  (vi) Competition policy 63 
 (vii) Corporate governance 69 
IV. TRADE POLICIES BY SECTOR 70 
 (1) I
NTRODUCTION  70 
 (2) A GRICULTURE  71 
 (i) Overview 71  (ii) Policy developments 72 
 (3) M
ANUFACTURING  78 
 (4) E NERGY AND UTILITIES  79 
 (5) S ERVICES  80 
 (i) Overview 80 
 (ii) Financial services 81  (iii) Telecommunications 88 
 (iv) Transport 90 
 (v) Professional services 93 
 (vi) Other services 94 
REFERENCES   95 
APPENDIX TABLES  97 
 
 Japan WT/TPR/S/211 
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  Page 
 
CHARTS 
I. ECONOMIC ENVIRONMENT 
 I.1 Composition of merchandise trade, 2005 and 2007 11 
I.2 Direction of merchandise trade, 2005 and 2007 12 
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 
 
II.1 Policy evaluation system in Japan, 2008 19 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Share of non- ad valorem  duties, by HS section, FY 2008 37 
III.2 Tariff rate quotas (TRQs) 38 
III.3 Simple average applied MFN tariff rates, by HS section, FY 2006 and 2008 39 
III.4 Import control system 41  
 
TABLES 
I. ECONOMIC ENVIRONMENT 
 
I.1 Selected macroeconomi c indicators, 2002-08 1 
I.2 Shares of GDP and employment by sector, 2003-06 3 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
II.1 Major trade-related laws and regulations, September 2008 17 
II.2 Ten largest GSP beneficiaries, FY2007 29 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Structure of the MFN tariff, 2006-08 35 
III.2 Preferential tariff rates, FY2008 40 
III.3 Procurement by product and by origin, 2005 and 2006 45 III.4 Major standards and technical regulations, 2008 47 
III.5 National government tax revenue, FY2006 and 2007 54 
III.6 Legislation on intellectual property rights, 2008 58 III.7 Suspension of imports likely to infringe intellectual property rights, 2005-07 61 
III.8 Three-Year Regulatory Reform Programme 2007-10 63 
III.9 Exemptions from the Anti-monopoly Act, October 2008 65 III.10 Enforcement of competition policy, 2004-07 68 
IV. TRADE POLICIES BY SECTOR 
 IV.1 Applied MFN tariff protection in agriculture, FY2008 73 
IV.2 Special safeguards in agriculture, FY2006 to 2008 76 
IV.3 Procurement prices for all major crop s subject to pricing and/or marketing  
 arrangements/price controls, 2003-08 78 
IV.4 Financial institutions, 2008 82 
  WT/TPR/S/211 Trade Policy Review 
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  Page 
APPENDIX TABLES 
I. ECONOMIC ENVIRONMENT 
 AI.1 Merchandise exports by group of products, 2003-07 99 
AI.2 Merchandise imports by group of products, 2003-07 101 
AI.3 Merchandise exports by destination, 2003-07 103 AI.4 Merchandise imports by origin, 2003-07 104 
AI.5 Composition of trade in services, 2003-07 105 
AI.6 Inward and outward FDI flows by region, FY2005-07 106 AI.7 Inward and outward FDI flows by industry, FY2007 108 
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 
 AII.1 Status of selected notifica tions to the WTO, July 2008 109 
AII.2 Disputes to which Japan has been a party, 2007 to July 2008 111 
AII.3 Industries requiring prior notif ication for inward FDI, 2008  112 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Applied tariff escalation and tariff ranges, FY2006 and FY2008 115 
IV. TRADE POLICIES BY SECTOR 
 AIV.1 Tariff quota and in-quota imports, FY2005-06 118 Japan WT/TPR/S/211 
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SUMMARY OBSERVATIONS 
 
(1) ECONOMIC ENVIRONMENT  
1. In line with the global economy, 
Japan's economy has slowed down since its 
previous Trade Policy Review in 2007, when real GDP growth was 2.4%.  While the economy continued to grow in the first quarter of 2008, it shrank in the second and 
third quarters.  Growth in 2007 was led by 
external demand for Japan's exports and, to a slightly lesser extent, domestic demand, notably household consumption and private non-residential investment.  Unemployment in Japan has been on a declining trend, reaching 
3.9% in 2007.  Downward pressure on prices 
remained in 2007;  while this pressure appeared to have eased in early 2008, core inflation in October slowed for the second straight month, largely due to falling energy 
prices.  Whether this heralds a return to 
deflation in the near future remains to be seen.  
2. Economy-wide labour productivity in 
Japan lags behind that of other major industrialized countries.  Data provided by the authorities indicate that labour productivity in 
non-manufacturing is stagnant compared with 
manufacturing;  they attribute this to lower total factor productivity (TFP) growth in non-manufacturing.  Nevertheless, Japan's export competitiveness has apparently 
improved, as reflected in a continuing decline 
in unit labour costs, owing to sluggish wages. 
3. Trade and trade-related policies 
continue to be integral to Japan's ongoing structural reform, particularly as trade plays an 
increasingly important role in the economy.  
The shares of exports and imports of goods and services were around 16% and 11% of GDP, respectively, in 2007 (15% and 11% in 2006).  The faster growth in exports than in imports in recent years reflects the positive 
contribution of external demand to Japan's 
economic growth, due in part to the openness of the multilateral trading system.  Japan's current account surplus increased in 2007;  this reflects a widening of the gap between gross 
national saving and gross domestic investment.  By the end of August 2008, Japan's foreign 
exchange reserves had risen to US$997 billion (up from US$879 billion in August 2006), which was equivalent to about 21 months of 
Japan's imports.  
4. Since March 2006, the Bank of Japan 
(BOJ) has continued its policy to "encourage" (e.g. by means of open market operations) the short-term call rate to remain around a 
specified rate;  on 19 December 2008, the 
latter was lowered to 0.1% (following a reduction from 0.5% to 0.3% on 31 October 2008).  It would appear that the recent appreciation of the yen is partly due to the unwinding of the "carry trade", which 
involves borrowing in yen to invest in higher-
yielding assets abroad;  the resulting large outflow of yen had contributed to a substantial nominal depreciation of the Japanese currency.   
5. The fiscal deficit amounted to around 
3.4% of GDP in FY2007 (2.9% in FY2006);  
consequently, public debt continued to increase, reaching about 170% of GDP.  The Government's mid-term target for fiscal consolidation, as announced in July 2006, is, inter alia , to achieve a surplus in the central 
and local governments' combined primary 
balance by FY2011, and thus to ensure gradual reduction of the ratio of public debt to GDP between the early and mid 2010s.  
(2) T
RADE  POLICY  REGIME :  
FRAMEWORK AND OBJECTIVES  
6. The only major change in Japan's 
government ministries and agencies responsible for the formulation, implementation, and evaluation of its trade 
policies since its previous Trade Policy 
Review was the abolition on 28 December 2007 of the Cabinet-level Japan Investment Council, and the establishment of the Expert Committee on FDI Promotion within the Cabinet Office.   
7. Japan's trade policy priorities include 
strengthening the multilateral trading system, as embodied in the WTO.  Nonetheless, Japan is of the view that its regional and bilateral WT/TPR/S/211 Trade Policy Review 
Page viii 
 
 
free-trade agreements complement trade 
liberalization at the multilateral level.  During the period under review, four additional agreements entered into force (with Chile, 
Thailand, Indonesia, and Brunei), and one was 
signed (with ASEAN).  The agreements with countries that are significant exporters of agricultural products tend to exclude many of these products.  They also exclude certain 
industrial goods, such as leather products and 
footwear, which the authorities consider to be highly sensitive.  
8. Japan has been a major participant in 
WTO activities, including negotiations under the Doha Development Agenda (DDA).  It has 
been a party to three disputes since 2007, one 
as a respondent and two as a complainant. 
9. Japan has continued to adopt measures 
to increase the transparency of its trade and trade-related policies, practices, and measures, 
thereby enhancing the Government's 
accountability to the public.  Since March 2007, administrative organs have been required to conduct ex-ante  evaluation of 
regulations.  A procedure for ex-ante  
regulatory impact analys is has been introduced 
since 1 October 2007;  ex post  evaluation is 
required under the Government Policy Evaluation Act of 2001. 
10. Japan grants preferential treatment to 
products from certain developing and least 
developed countries under its Generalized 
System of Preference (GSP) scheme.  On 1 April 2007, Japan expanded the coverage of  the preferential (i.e. tariff-free and quota-free) treatment granted to 49 least developed 
countries, from about 86% to 98% of all tariff 
lines.  The main beneficiaries of Japan's GSP are China, Thailand, Indonesia, the Philippines, and Viet Nam.  The GSP scheme excludes many agricultural products and some industrial products.   
11. Inward FDI in Japan remains 
substantially lower than outward FDI, and is relatively low compared with that in other large OECD economies.  Against this background, Japan has continued to take measures to make itself a more attractive 
investment destination for foreign firms.  On the other hand, for the first time under the current Foreign Exchange and Foreign Trade 
Law, the Government has issued a 
recommendation against an FDI proposal (for an electric utility) on the grounds of "public order, public safety, and national security".  
(3) T
RADE POLICIES AND PRACTICES BY 
MEASURE  
12. Trade and trade-related policies 
continue to be key elements of Japan's ongoing structural reform;  the extent of progress in this regard will determine Japan's success in achieving its economic and social objectives.  
Since its previous Trade Policy Review, Japan 
has introduced measures aimed at further liberalizing its trade and investment regimes.  The authorities continue to promote regulatory reform and strengthen competition policy, 
which could, inter alia , help open Japan's 
economy to more competition and thereby create more opportunities for domestic and foreign businesses.  It would appear that Japan has not introduced new trade measures to protect its market since the onset of the global 
financial crisis in September 2008. 
13. The tariff is Japan's main trade policy 
instrument.  Nonetheless, most imports enter Japan duty free or are subject to low tariff rates.  In fiscal year (April-March) 2008, the 
simple average applied MFN tariff rate was 
6.1%, down from 6.5% in FY2006, reflecting decreases in ad valorem  equivalents of 
non-ad valorem  duties.  Nearly 99% of tariff 
lines are bound and most applied MFN rates 
coincide with bound MFN rates, thereby 
imparting a high degree of predictability to Japan's tariff schedule.  At the same time, non-ad valorem  duties are an important feature 
of the tariff, particularly for agricultural products.  These duties, which account for 
6.7% of all tariff lines, and are indicated in 
Japan's tariff schedule, tend to involve high ad valorem  equivalents.  Preferential tariff 
rates are offered to 141 developing countries and 14 territories under the GSP, including 
additional preferences for 49 LDCs.  Whereas Japan WT/TPR/S/211 
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the simple average tariff  rate under the GSP is 
4.9%, that for LDCs is 0.5% (down from 3.3% in FY2006).  Japan also grants preferential access to imports from Singapore, Mexico, 
Malaysia, Chile, Thailand, Indonesia, and 
Brunei under bilateral free-trade agreements.  The simple average tariff rates under these agreements range from 3.3% (Malaysia) to 3.9% (Brunei). 
14. Japan has few non-tariff border 
measures.  Those currently applied involve some import prohibitions and quantitative import restrictions (for example, on some fish).  In addition, imports of some goods are subject to licensing requirements to ensure 
national security, safeguard consumer health 
and well-being, or preserve domestic plant and animal life and the environment.  Some import prohibitions are in place in accordance with United Nations Security Council resolutions.   
15. Since its previous Review, Japan has 
used two anti-dumping measures.  It has one countervailing measure in place;  the measure was brought to the Dispute Settlement Body and its countervailing duty rate was reduced from 27.2% to 9.1% as of 
1 September 2008 in response to the DSB 
decisions.  It has not imposed any safeguard measures. 
16. Japan maintains certain export 
controls on national security and public safety 
grounds and to ensure adequate domestic 
supplies of certain agricultural and other primary products.  On the other hand, so as not to impede exports, a drawback scheme is used to refund import tariffs levied on inputs used 
in the production of goods for export.  Export 
finance, insurance, and guarantees are also available.  The Government has recently been promoting agricultural exports, mainly by providing information to consumers overseas. 
17. No preferences are granted to 
domestic suppliers with regard to procurement 
covered by the Agreement on Government Procurement.  Nevertheless, the share of foreign suppliers in the total value of government procurement was 3.1% in 2006, the latest year for which data are available,  
down from 3.7% in 2004.  The share of overseas goods and services, supplied by domestic or foreign suppliers, in total 
procurement declined to 8.7% in 2006 (from 
9.7% in 2004) in terms of value.  Open tendering accounted for 65.9% of the total value of procurement in 2006 compared with 60.6% in 2005.  In March 2007, the 
Government adopted the Basic Policy for 
Public Procurement of Information Systems, whose main objective is to increase transparency.  
18. About 96% of Japanese Industrial 
Standards (JIS) were aligned to their 
international counterparts in 2008 (compared 
with 93% in 2005). 
19. Although Japan has relatively high 
statutory rates of both corporate and personal income taxes, the amount of taxes collected in 
relation to GDP is relatively low in 
comparison with other OECD countries.  This suggests a need to broaden the income tax base, which would allow cuts in tax rates, thereby rendering the income tax system more neutral. 
20. Various laws on intellectual property 
rights (IPRs) have been amended since Japan's previous Review to strengthen protection (e.g. by increasing penalties for infringement).  The authorities have continued their efforts to 
reduce the time required for patent 
registration.  Japan remains an active participant in multinational and regional discussions on agreements to promote international harmonization of regimes 
protecting IPRs. 
21. In June 2007, Japan adopted a new 
Three-Year Programme for Promoting Regulatory Reform, which was further revised in March 2008.  The programme aims to, inter alia , strengthen Japan's international 
competitiveness and thereby increase 
economic growth.  Japan has also continued to implement regulatory reforms in selected regions under the scheme of special zones for structural reform. WT/TPR/S/211 Trade Policy Review 
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22. The authorities intend to continue to 
strengthen competition policy.  In this regard, a bill to amend the Anti-monopoly Act (AMA) has been submitted to the Diet.  The bill seeks 
to, inter alia , introduce a surcharge (fine) in 
respect of practices involving exclusionary types of private monopolization, and a 50% increase in the surcharge on businesses that have played a leading role in cartels and 
bid-rigging.  
23. Certain measures aimed at improving 
corporate governance became mandatory  on 
1 April 2008, for example, the implementation of internal control reporting systems and certification of annual reports by management.   
(4) T
RADE POLICIES BY SECTOR  
24. Since its previous Trade Policy 
Review, Japan has continued to promote structural reforms, especially those pertaining to agriculture, energy, financial services, and 
air transport.   
25. In agriculture, Japan has introduced 
measures to move further away from price support towards income support.  However, the sector remains relatively protected from foreign competition.  The average applied 
MFN tariff for agriculture (WTO definition) 
fell from 18.8% in FY2006 to 17.1% in FY2008 reflecting decreases in ad valorem  
equivalents of non- ad valorem  duties.  In 
2007, Japan's total transfers to agriculture 
amounted to 0.9% of GDP compared with 
agriculture's 1.2% share in GDP (in 2006).  As a consequence, the overa ll level of government 
assistance for agriculture (as measured by producer and consumer support estimates, for 
example) is well above the OECD average.  
Despite (or possibly because of) this assistance, labour productivity has remained less than one quarter of the national average.  Food self-sufficiency in FY2006 was around 39% on a calories basis, a decrease of one 
percentage point from FY2005;  thus, Japan is 
one of the world's largest importers of food. 
26. During the review period, the 
authorities placed emphasis on the promotion of selected industries;  for example, additional 
assistance was introduced for the production of aircraft.  Nonetheless, Japanese manufacturing has, by and large, been  much more exposed to 
international competition than agriculture and 
certain services.  Tariffs on industrial products (HS 25-97) are usually low (averaging 3.6% in FY2008), non-tariff barriers (e.g. import licensing requirements) are few, and the 
sector, on average, receives relatively little 
financial support from the Government.  Manufacturing has been the driving force behind Japan's rapid development during the past 60 years.  The sector's contribution to GDP decreased slightly from 21.5% in 2005 to 
21.3% in 2006 (the latest year for which data 
are available);  manufacturing employed 17.4% of Japan's total labour force in 2006, up from 17.3% in 2004, which means that labour productivity in the sector is substantially 
higher than in the rest of the economy.   
27. One of the main objectives of Japan's 
energy policy has been a stable energy supply, reflecting its heavy reliance on imported energy:  about 82.5% of its primary energy was imported in FY2005 (latest data 
available).  Electricity prices in Japan have 
declined and are not necessarily higher than those in other developed countries.  By contrast, gas prices for residential customers have remained relatively high by international 
standards.  Since its previous Review, Japan 
has further liberalized its gas sector to promote competition.  In 2008, the Government recommended against an FDI project in an electric utility company on the grounds of 
"national security, public order, and public 
safety".   
28. Regulatory reform has continued in 
services, where labour productivity is considerably lower than in manufacturing.  This is an important sector, not just for 
consumers, but for all kinds of businesses for 
which services are essential inputs and therefore a significant determinant of their international competitiveness.  Reforms have progressed particularly in financial services, 
which are important for channelling savings 
into profitable investments across various Japan WT/TPR/S/211 
 Page xi 
 
 
sectors of the economy.  Besides a substantial 
reduction of non-performing loans (NPLs), and restructuring of government-affiliated institutions, the Government has targeted 
improved transparency in the financial system 
(through, for example, the adoption of the "no action letter" system).  Privatization of Japan Post commenced in October 2007, and the Japan Post Bank and Japan Post Insurance 
started operations.  The Government's policy 
framework on telecommunications remained largely unchanged during the review period.  In transport, liberalization measures have been introduced in bilateral air traffic with some of Japan's trading partners. 
(5) O
UTLOOK  
29. According to the Government's 
official projections, announced in January 2008, the economy is forecast to grow by 2.0% in FY2008, with the CPI expected to 
increase by 0.3%, and unemployment to be 
about 3.8%.  However, the latest quarterly estimates of GDP indicate that in the third quarter of 2008, real GDP declined by 1.8% quarter on quarter (on an annualized basis).  The Bank of Japan revised its growth forecasts 
for FY2008 from 2.1% projected in 
October 2007 to 1.5% in April 2008, and then to 0.1% in October 2008, against the background of a slowdown in the world economy and downside risks.  The Bank's 
forecast for FY2009 has also been revised 
downward from 1.7% projected in April 2008 to 0.6% forecast in October 2008.   
30. Whether the Japanese economy can 
maintain its recovery in the more immediate 
term depends on external as well as internal 
factors.  External factors include the pace of growth in the world economy (notably the United States, EC, and China, Japan's main export markets) and the prices of energy and raw materials.  As Japan's economic growth in recent years has depended substantially on 
external demand, the recent global economic downturn is likely to reduce Japan's growth rate.  The adverse effects of the global 
slowdown on Japan's exports, and thus 
economic growth, is likely to be exacerbated by the recent appreciation of the exchange rate of the Japanese yen, partly due to the unwinding of yen carry trade.  On the other 
hand, the appreciation of the exchange rate 
would tend to mitigate the effects of any increases in the prices of energy and raw materials on the prices of inputs, including those used for exports.   
31. On the domestic front, Japan's 
medium- and long-term growth prospects will 
depend on its ability to strike a balance between monetary and fiscal policies in tandem with structural reforms.  The latter include reforms geared towards reducing the 
cost of doing business and thereby increasing 
Japan's attractiveness to inward FDI, which should result in increased competition and, consequently, productivity.  Improving productivity is particular ly important due to 
the downside risks from Japan's rapidly aging 
population and the associated decline in the 
labour force.  The Government believes in the need to intensify such structural reforms, which would contribute to reducing, if not removing, distortions to competition that 
impair economic efficiency.  There is a risk of 
firms' misallocating capital due to the comparatively low cost of capital in a low interest rate environment. 
32. At the time of completing this report, 
Japan's economy appeared to be on the brink 
of a recession.  The IMF and the OECD, for example, expect Japan's economy to shrink by 0.2% and 0.1%, respectively, in 2009.  The depth and duration of this looming recession remain to be seen.