Japan WT/TPR/S/243/Rev.1 
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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. Since its previous Trade Policy Review, Japan's trade-related structural reform has largely 
stagnated, except for, inter alia , liberalization in air traffic through the pursuit of "open sky" 
agreements.  The privatization of Japan Post, a refo rm that was regarded as a "landmark" when it was 
initiated in 2007, has been under review since 2009 with a view, inter alia,  to introducing measures to 
maintaining the postal network at a certain level.  It  would also appear that state intervention in the 
economy has increased;  for example the Government authorized the rescue of Japan Airlines by the 
Enterprise Turnaround Initiative Corporation of Jap an (ETIC) and Development Bank of Japan.  
Furthermore, the ETIC, established in Octobe r 2009, has also provided support to other entities 
deemed to have revitalization potential. 
2. Labour productivity in manufacturing is higher than in the rest of the economy, while in 
agriculture it is one-fourth of that in the rest of  the economy.  The differences in labour productivity 
can be explained by the relative openness of the r espective sectors.  Japan's manufacturing has been 
much more exposed to international competition th an agriculture and certain services.  However, 
agriculture in Japan is supported through border measures, such as relatively high tariffs compared 
with other sectors, and tariff quotas, as well as domestic measures, such as price support programmes.  Gas prices in Japan remain high by international standards.  Services sectors are subject to various 
domestic regulations, for example licensing and restri ctions on foreign investment;  they are also 
faced with the generally high cost of doing business in  Japan, which has been considered as one of the 
main factors preventing growth in inward  foreign direct investment in services. 
(2) A
GRICULTURE  
(i) Structure 
3. The Basic Law on Food, Agriculture and Rural Ar eas continues to provide the framework and 
policy direction for agriculture;  implementation of  the Law is through the revised Basic Plan for 
Food, Agriculture and Rural Areas, adopted in March 2010.  Salient features of the current plan 
include:  achieving a higher self-sufficiency ra tio;  encouraging consolidation of production, 
processing, and distribution of agricultural produce w ith a view to increasing value-added;  improving 
food safety;  participating in international st andard-setting;  and establishing income support 
regardless of the size of farms.1 
4. Under the Agricultural Management Reinforcemen t Law, "general corporations" (including 
stock companies and non-profit organizati ons) are permitted to lease farmland.2  The number of 
private corporations involved in agriculture grew  from 133 in March 2008 to 414 in September 2009.  
The authorities state that these corporations use farmland productively and help to prevent 
abandonment of farms. 
                                                      
1 Ministry of Agriculture, Forestry and Fisheries (MAFF) online information (in Japanese).  Viewed at:  
http://www.maff.go.jp/j/keikaku/k_aratana/index.html [21.11.2010]. 
2 Before 1 September 2005, only "agricultural pr oduction legal persons" were allowed to lease 
farmland (with a few exceptions), and eligibility requirements had to be fulfilled:  corporations had to be in the 
form of agricultural cooperatives, partnerships or stock companies engaged mainly in agricultural activities and 
with more than 50% of their sales from agriculture;  thre e-quarters of the members had to be farmers;  and the 
majority of directors had to be full-time farmers. WT/TPR/S/243/Rev.1 Trade Policy Review 
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5. For many years, and in common with some ot her countries, Japan's agriculture policy has 
been driven by several factors not directly re lated to improving productivity, such as rural 
development, the environment, higher self-suffici ency, income support, and maintaining the rural 
landscape.  Japan continues to be the world' s largest net food-importing country, and food 
self-sufficiency of calorific intake is appr oximately 40%;  based on the production-value 
methodology, food self-sufficiency is at 70%.3 
6. Agriculture in Japan is charact erized by small fragmented farms and a relatively aged labour 
force.  In 2009, the average farm size was 1.91 h ectares, a slight increase from 2008 (1.87 hectares).  
Nearly half of farm workers are over 65 years old.  The main crops grown in Japan are rice, fruits, and 
vegetables.  Most crops, except rice, are grown on commercial farms by full-time farmers.  Rice 
accounts for approximately 25% of agriculture produc tion and is mainly cultivated by part-time or 
weekend farmers.   
7. The agriculture sector continu es to receive substantial government support, which involves, 
inter alia,  a relatively higher average MFN applied rate  compared with other sectors, tariff quotas, 
income support, and, in some sub-sectors, produc tion controls.  According to the OECD, "total 
support estimates" for agriculture for 2006-08 were 1.1% of GDP, only slightly less than the sector's 
contribution to GDP, which was 1.2% in 2009.4  Support is provided mainly through market price 
support;  in addition, relatively high tariffs and pr oduction restrictions are in place, which lead to 
higher prices.5 
8. Consumer prices of agricultural products in Japan are considerably higher than the OECD 
average.  According to the OECD, total transfer s to agriculture producers arising from Government 
policies (the PSE, or producer support estimate) an d transfers from consumers (the CSE or consumer 
support estimate) for 2008 were provisionally estimated  at 48% and 41% of income from production.  
OECD averages were 21% and 10%, respectively.6  Furthermore, the producer nominal assistance 
coefficient (NAC) was 1.92 (i.e. gross farm receipts we re 1.92 times the level they would have been if 
generated at world prices without support), a nd the consumer NAC was 1.69 (i.e. consumers are 
implicitly taxed, paying on average about 1.69 times as much as they would have paid without 
support) in 2008.  Both the producer and consum er NACs were significantly higher than OECD 
averages.  In addition, the producer nominal protection coefficient (NPC) was 1.81 in 2008, implying that the farm-gate price received by producers was on average 1.81 times higher than the price at the 
border.  According to the latest available data, current total aggregate measurement of support in 
Japan was ¥517.2 billion in 2006. 
                                                     
 
3 The calorie-based self-sufficiency ratio is defined as the domestic supply of calories per person per 
day divided by the supply of calories per person per day.   The value-based ratio is defined as the domestic 
output of food divided by the output of food supplied for domestic consumption. 
4 Total support estimates are defined as the annual monetary value of all gross transfers from taxpayers 
and consumers arising from policy measures that support agriculture, net of the asso ciated budgetary receipts, 
regardless of their objectives and impact on farm production and income or consumption of farm products.  
Total transfers are measured on a gross basi s, while GDP is on a value-added basis. 
5 OECD (2009). 
6 OECD (2009).  Figures for 2008 are provisional.  PSEs are defined as the annual monetary value of 
gross transfers from consumers and taxpayers to agricu ltural producers, measured at the farm-gate level;  PSEs 
include market price support and budgetary payments.  CSEs  are the annual monetary va lue of gross transfers to 
(from) consumers of agricultural commodities, measured at the farm-gate level.  A producer NAC is the ratio between the value of gross farm receipt s, including support, and gross farm r eceipts valued at border prices.  As 
noted in WTO (2007), caution is necessary when interpreting PSEs, CSEs, and NACs, as changes in exchange 
rates or world prices may produce significant fluctuations, and border prices may be artificially reduced owing to the presence of export subsidies in international agriculture trade. Japan WT/TPR/S/243/Rev.1 
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9. The experience of many countries is that m easures to support prices, including border 
protection, tend to delay structural change, a nd hamper the prevalence of scale economies and 
mechanization.  In the case of Japan, for example,  rice has been one of the most highly protected 
crops and rice paddies are characterized by small land holdings involving part-time farmers.  
Therefore, the Government introduced a direct payment scheme in April 2007 for farmers with a 
certain scale.  In 2010, the Government implemented a new single-year pilot direct-payment programme on rice.  The programme provides particip ating farmers with income support to bridge the 
gap between the production cost and the "farm gate" price of rice, irrespective of the size of farm 
scale.  In FY2011, the Government intends to fo rmally introduce a new direct payment system, 
extended also to other crops, based on the results of  the pilot programme.  In addition to the direct 
income support, the Government continues to ma intain the production adjustment programme (see 
below).  Furthermore, in the Basic Policy on Co mprehensive Economic Partnerships announced by 
the Ministerial Committee on Comprehensive Econom ic Partnerships on 6 November 2010, Japan is 
to  "commence consultations with the TPP member  countries", and, at the same time, "promote 
appropriate domestic reforms" in agricultu re with a view to "opening the country".
7   
(ii) Border measures 
10. The average applied MFN tariff for agriculture (WTO definition) is 15.7% (FY2010)8, 
compared with an overall average of 5.8% (Chapter  III(2)(ii)).  In addition to having relatively high 
tariffs on agriculture goods, the rate varies consid erably from chapter to chapter and often from one 
product to another within the same  HS chapter.  Of the applie d MFN tariffs on agricultural goods 
(WTO definition), 17.4% are non- ad valorem .  Many sub-sectors within agriculture are protected by 
relatively higher MFN tariffs than the sectoral average;  these include industrial and medicinal plants, 
dairy products, edible vegetables, sugars, and cereals and products ther eof (Table IV.1).  Additionally, 
several agricultural sub-sectors are also subject to tariff peaks (defined here  as tariff rates exceeding 
three times the simple applied MFN average).  As estimates of AVEs for some specific duties (which 
tend to involve relatively high tariffs)9 were not made available, the average tariffs for the associated 
sub-sector may be underestimated.  In cases where AVEs were available, the simple average for non-
ad valorem  tariff rates for agriculture (WTO definition)  was 57.8%, considerably higher than the 
simple average of purely ad valorem  tariff rates of 9.8%.10  AVEs were not available for 115 tariff 
lines at the HS nine-digit level, which included milk and dairy products, live swine and meat of swine, 
rice and cereals, fruit juices, groundnuts and their o il, and prepared foods.  For example, the rate 
payable on imports of broad beans is among the highest in Japan's customs tariff with an ad valorem  
equivalent of 458% (out-of-quota rate).  Tariffs tend to be particularly high and variable for 
vegetables, cereals, and sugars and sugar confectionery (HS Chapters 7, 10 and 17). 
                                                      
7 MOFA online information.  Viewed at:  http://www.mofa.go.jp/policy/economy/fta/policy2010 
1106.html [22.11.2010]. 
8 The average applied MFN tariff for agri culture (HS 1-24) in FY2010 is 14.7%. 
9 The absence of estimates of AVEs because of no imports may suggest that tariffs for the products 
concerned are prohibitive.  According to the authorities, the lack of estimates may be because world production 
and the international trade volume of certain products ar e very small, and that there is little demand for them in 
Japan. 
10 The simple average of all (i.e. agricultural and non-agricultural products) non- ad valorem  tariff rates 
for which AVEs were available was 32%, approximately seven times the simple average of purely ad valorem  
tariff rates, which was 4.4%.  Non- ad valorem  tariffs for which AVEs were not available concerned 176 tariff 
lines at the HS nine-digit level. WT/TPR/S/243/Rev.1 Trade Policy Review 
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Table IV.1 
Applied MFN tariff protection in agriculture, FY2010 
(%) 
HS Chapter/Description Simple 
average 
tariff Maximum 
tariff Tariff peaksa 
(% of lines) Non-
ad valorem 
tariff 
(% of lines) 
01 Live animals 1.9 38.4 3.8 11.5 
02 Meat and edible meat offal 10.5 50.0 14..2 19.5 
03 Fish and crustaceans, molluscs and othe r aquatic invertebra tes 5.3 15.0 0.0 0.0 
04 Dairy produce;  birds' eggs;  na tural honey;  edible products of 
animal origin, not elsewhere specified or included 53.4 252.4 90.3 63.9 
05 Products of animal origin, not elsewher e specified or included 0.3 3.5 0.0 0.0 
06 Live trees and other plants;  bulbs, roots and the like;  cut 
flowers and ornamental foliage 0.4 3.0 0.0 0.0 
07 Edible vegetables and certain roots and tubers 20.5 458.0 6.1 7.9 
08 Edible fruit and nuts;  peel of citrus fruit;  melons  7.8 24.0 6.4 0.0 
09 Coffee, tea, maté and spices 3.4 17.0 0.0 0.0 
10 Cereals 18.7 263.0 14.6 31.7 
11 Products of the milling industry;  malt;  starches;  inulin;  wheat 
gluten.   30.2 277.7 55.0 37.5 
12 Oil seeds and oleaginous fruits;  miscellaneous grains, seeds and 
fruit;  industrial or medicina l plants;  straw and fodder 8.2 373.1 4.2 5.6 
13 Lac;  gums, resins and other vege table saps and extracts 3.0 17 0.0 4.8 
14 Vegetable plaiting materials;  vegetable products not elsewhere 
specified or included 3.1 8.5 0.0 0.0 
15 Animal or vegetable fats and o ils and their cleavage products;  
prepared edible fats;  animal or vegetable waxes 4.0 29.8 2.3 41.9 
16 Preparations of meat, of fish or  of crustaceans, molluscs or other  
aquatic invertebrates 13.2 50.0 29.3 3.0 
17 Sugars and sugar confec tionery 39.1 208.7 70.8 58.3 
18 Cocoa and cocoa preparations 22.6 124.0 63.0 7.4 
19 Preparations of cereals, flour, starch or milk;  pastry cooks' 
products 23.6 118.0 64.4 26.5 
20 Preparations of vegetables, fruit, nuts or other parts of plants 16.8 46.8 38.6 6.7 
21 Miscellaneous edible preparations 24.3 240.7 51.0 16.0 
22 Beverages, spirits and vinegar 12.9 77.5 30.4 33.9 
23 Residues and waste from the food industries;  prepared animal 
fodder 0.9 12.8 0.0 9.5 
24 Tobacco and manufactured tob acco substitutes 5.1 29.8 9.1 0.0 
1-24 Agriculture 14.7 458.0 25.3 15.3 
a Three times the simple average of overall applied MFN rates. 
Note: The simple average applied MFN tariff rate in FY2010 is calculated by using 2008 AVEs, as available, provided by the Japa nese 
authorities.  When the AVEs are unavailable, the ad valorem  part is used for compound and alternate rates. 
Source:  WTO calculations, based on data provided by the Japanese authorities.  
11. Japan operates 18 tariff quotas, which it has notified to the WTO Committee on Agriculture, 
covering 175 tariff lines, mainly for dair y products and cereals (including rice).11  The average fill 
ratio in 2008 was about 69% but varies from one quot a to another, from a low of 13% for butter and 
butter oil to over 100% for dairy products for genera l use (Table AIV.1).  There have been no changes 
to the administration of TRQs since the last Revi ew of Japan (Chapter III(2)(iv)).  The names of 
                                                      
11 WTO document G/AG/N/JPN/153, 24 February 2010 and information provided by the authorities. Japan WT/TPR/S/243/Rev.1 
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companies or persons that are allocated quotas are posted online by the MAFF releases on the 
Internet;  no information pertaining to quota amounts a llocated to firms or individuals was available.  
In-quota imports of rice, wheat and barley, and certain milk products are handled mainly by 
state-trading entities;  certain amounts of these products may be imported by private entities.12   
12. As part of Japan's tariff quota commitments , a certain amount of imported rice may be 
purchased and marketed directly under the simulta neous buy-and-sell (SBS) system.  During FY2009, 
a total of 100,000 tonnes were imported under the SBS system.   In addition, Japan provides rice as 
food aid.  Japan donated 57,298 tonnes of rice in 2007 and 126,006 tonnes in 2008 as direct transfers (it also donated significant quantities through local and triangular purchase arrangements).
13  In 2006 
and 2007, Japan notified the Committee on Agriculture that it provided US$51.65 million and 
US$76.32 million, respectively, for the purchase of grains as food aid for LDCs and net-food-importing developing countries.
14 
13. Japan undertook a number of special safeguard  (SSG) actions during fiscal years 2008 
and 2009.  Products affected included rice, barley, starches, inulin, milk, butter, yogurt, tubers of konnyaku, flour, and certain food preparations (Tab le IV.2).  Both price-based and volume-based 
SSGs were imposed on various products (not concu rrently);  the remedies apply to out-of-quota 
imports only. 
Table IV.2 
Special safeguards in agr iculture, FY2008 to 2010  
Description Type of action Date or period of application 
FY2008   
Milk powder containing a dded sugar or other sweetening matter, of a 
fat content, by weight, exceeding 5% but not exceeding 30% Price-based 26 May 2008 
Inulin Price-based 21 August 2008, 16 October 2008 
Tubers of konnyaku ( Amorphophalus ), whether or not cut, dried or 
powdered Price-based 29 July 2008 
Food preparations of flour, meal, or starch, containing groats, meal, 
pellets or starch of rice, wheat, triticale, barley, whose total weight is 
more than 85% of the articles, mostly containing starch Price-based 7 April 2008, 15 April 2008, 
21 October 2008, 8 December 2008, 
10 February 2009, 13 February 2009 
Butter and other fats and oils derive d from milk;  dairy spreads Volume-based 1 November 2008 to 31 March 2009 
Yogurt;  frozen, preserved or c ontaining added sugar or other 
sweetening matter, flavouring, fruits or nuts (excluding frozen yogurt)  Volume-based 1 January 2009 to  31 March 2009 
Food preparations of flour, meal, or  starch, containing one or more of 
those, groats, meal, pellets of rice, wheat, triticale, barley or starch, 
which total weight is more than 85%  of the articles, mostly containing 
starch Volume-based 1 February 2009 to 31 March2009 
Tubers of konnyaku  ( Amorphophalus ), whether or not cut, dried or 
powdered  Volume-based 1 February 2009 to 31 March 2009 
Rice (semi-milled or wholly milled rice, whether or not polished or 
glazed) Price-based 11 March 2009 
Food preparations containing by wei ght not less than 30% natural milk 
constituents on the dry matter – more than 30% by weight of milk fat Price-based 19 March 2009, 24 March 2009 
Table IV.2 (cont'd)  
                                                      
12 Rice, wheat, and barley are importe d by the Ministry of Agriculture, Forestry, and Fisheries;  tobacco 
by Japan Tobacco;  and milk products and raw silk by the Agriculture and Livestock Industries Corporation (WTO document G/STR/N/12/JPN, 18 March 2009).   
13 World Food Programme, Food Aid Informa tion System (INTERFAIS) online database:  
http://www.wfp.org/fais/quantity-reporting [August 2010]. 
14 WTO document G/AG/N/JPN/145, 27 March 2009. WT/TPR/S/243/Rev.1 Trade Policy Review 
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Description Type of action Date or period of application 
FY2009   
Yogurt;  frozen, preserved or c ontaining added sugar or other 
sweetening matter, flavouring, fruits or nuts (excluding frozen yogurt)  Price-based 6 April 2009 
Tubers of konnyaku ( Amorphophalus ), whether or not cut, dried or 
powdered Volume-based 1 September 2009 to  31 March 2010 
Yogurt;  frozen, preserved or c ontaining added sugar or other 
sweetening matter, flavouring, fruits or nuts (excluding frozen yogurt)  Volume-based 1 June 2009 to  31 March 2010 
Maize (corn) starch Volume-based 1 December 2009 to  31 March 2010 
Barley flour Price-based 26 February 2010 
Milk powder containing a dded sugar or other sweetening matter, of a 
fat content, by weight, exceeding 5% but not exceeding 30% Price-based 12 November 2009 
Other starches (excluding Sago starches) Price-based 15 June 2009, 1 July 2009,  
9 November 2009, 12 November 2009, 
28 December 2009 
Tubers of konnyaku ( Amorphophalus ), whether or not cut, dried or 
powdered Price-based 5 June 2009 
Food preparations of flour, meal, or starch, containing groats, meal, 
pellets or starch of rice, wheat, triticale, barley, whose total weight is 
more than 85% of the articles,  mostly containing starch Price-based 1 June 2009, 9 June 2009, 23 June 2009, 
30 June 2009, 28 July 2009,  
14 September 2009, 10 November 2009, 
18 November 2009, 5 January 2010,  25 January 2010 
Food preparations containing by wei ght not less than 30% natural milk 
constituents on the dry matter - more than 30% by weight of milk fat Price-based 24 June 2009, 29 March 2010 
FY2010    
Yogurt;  frozen, preserved or c ontaining added sugar or other 
sweetening matter, flavouring, fruits or nuts (excluding frozen yogurt)  Volume-based 1 July 2010 to 31 March 2011 
Tubers of konnyaku ( Amorphophalus ), whether or not cut, dried or 
powdered Volume-based 1 July 2010 to 31 March 2011 
Maize (corn) starch Volume-based 1 August 2010 to 31 March 2011 
Milk and cream, not concentrated nor containing adde d sugar or other 
sweetening matter, Of a fat content, by weight, exceeding 6% 
(Sterilized, frozen or preserved);  other cream of a fat content, by 
weight, of 13% or more (other than  sterilized, frozen or preserved) Volume-based 1 October 2010 to 31 March 2011 
Source: WTO notifications, and informati on provided by the authorities.  
14. Japan maintains a strict sanitary and phytosanitary (SPS) regime.  Members have complained 
that in many cases Japanese SPS regulations are more stringent than internationally established 
guidelines and risk assessment procedures15;  these include maximum residue limits 
(Chapter III(2)(viii)).  No cost-benefit analysis of  these measures or economic justification was made 
available.  However, according to the authorities, these measures are based and justified on scientific 
grounds and the process includes technical consultati ons, consideration of import requirements, and 
the implementation of risk assessment th at takes due account of the OIE code. 
15. During the period under review, Japan did not resort to emergency tariff measures for import 
surges of beef and pork, which are allowed under the Temporary Customs Tariff Measures Law.16  
                                                      
15 Members have complained that Japan's SPS regu lations are in certain cases in excess of OIE 
guidelines and Codex standards. 
16 Emergency tariff measures were triggered on beef in FY2003 and on pork in FY2001 to FY2004.  
The Temporary Customs Tariff Measures Law provides for temporary exceptions to the Customs Tariff Law 
and the Customs Law, and adjustments to customs duty rates on certain goods.  This involves exemptions from 
customs duties, special emergency customs duty, reduction of customs duties, and other preferential duties (for 
example, under Japan FTA/EPAs).  For FY2010, 476 lines (including in-quota rates) at the HS nine-digit level are subject to temporary rates. Japan WT/TPR/S/243/Rev.1 
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The measures involve unilateral increases of cust oms duties to the WTO bound level (50% in case of 
beef) from the level reduced by Japan beyond its commitments (38.5% on beef).   
16. Japan notified to the WTO that no export subsidies were provided in the period 1 April 2009 
to 31 March 2010.17  
17. The Government has started to promote agricultura l and food exports.  It has targeted these to 
reach ¥1 trillion by 2017.  This is to be achieved by  selling niche products in specific markets with the 
emphasis on the perceived higher quality of  Japanese produce such as rice and beef.  
(iii) Domestic measures 
18. The general trend in the Government's agricu lture policy in recent years has been a move 
away from administered prices to direct income support for farmers.  In 2007, the price support 
schemes for wheat, potatoes (for starch use), and suga r beets were converted into a direct payment 
scheme.  This scheme was based on historical refe rence amounts, which were calculated according to 
the farmers' harvested area and normal yield in the region concerned. 
19. Price support through administered prices continue to apply to beef and pork.  The 
Agriculture and Livestock Industries Corporation aims to stabilize beef and pork prices by buying 
from the market when wholesale prices fall below th e "lower stabilization price" and releasing stock 
onto the market when wholesale prices exceed the "upper stabilization price".18  In FY2009, the lower 
stabilization prices were ¥815/kg (US$8.7/kg) for beef and ¥400/kg (US$4.3/kg) for pork.19  I n  
addition, the Government provides calf producers with subsidies on a per head basis if the calf price 
falls below the "guaranteed base price".  In FY2009, the guaranteed base price was ¥310,000 
(US$3,336) per head, unchanged si nce the second quarter of FY2008.20 
20. For rice, the Government implements "s upply-demand adjustment" measures, which inter alia  
set a volume cap for production.21  According to the authorities, the supply-demand adjustment is in 
place to keep domestic prices stable and raise th e food self-sufficiency ratio.  The rice diversion 
programme pays farmers to use rice paddies for purposes other than growing rice for food.  Diversion payments vary according to the crop actually sown  or how the land is used by the farmer.  The 
payments are in addition to other subsidies receive d for crops other than ri ce.  According to some 
estimates, in the absence of the pr oduction adjustment policy, the producer price of rice in Japan 
would be ¥9,500 per 60kg (US$1,704/tonne) compared  with the current price of about ¥14,000 per 
60kg (US$15,067/tonne).
22  The authorities reaffirmed that th e supply-demand adjustment continues 
to be conducted voluntarily by farmers and farmers'  organizations and is based on the Government's 
annual demand estimate.  The annual dema nd estimate in 2009 was 8.15 million tonnes 
                                                      
17 However, Japan continues to provide food aid to LDCs and net-food importing developing countries. 
WTO document G/AG/N/JPN/156, 28 May 2010. 
18 The Government also provides calf producers with subsidies per head if the calf price falls below the 
"guaranteed base price".  In 2007, the guaranteed base  price was ¥304,000 per head;  average actual prices of 
calves were higher than the guaranteed base price. 
19 The stabilization prices were revised upwards in July 2008 from ¥790/kg to ¥815/kg for beef and 
from ¥380/kg to ¥400/kg for pork, and have remained unchanged since then. 
20 The guaranteed price for calves was raised twi ce in 2008, first to ¥305,000 per head and 
subsequently to ¥310,000 per head. 
21 Based on the decision of the Principle and Outline of Rice Policy Reform in 2002 and the entry into 
force of the amendments to the Law for Stabilization of Supply-Demand and Price of Staple Food in 2004, 
domestic distribution of rice was liberalized, and G overnment purchase and selling prices for rice are 
determined by tender. 
22 Yamashita (2008). WT/TPR/S/243/Rev.1 Trade Policy Review 
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(8.19 million tonnes in 2008).  The production contro l (set-aside) levels were 1.15 million hectares in 
2008 and 2009;  the total cost of the subsidy pa yment was ¥153.1 billion in 2008 and ¥146.8 billion in 
2009.23 
21. In FY2010, a ceiling of 1.85 million tonnes (1.9 5 million tonnes in FY2009) was set for milk 
production to be used exclusively in the production of butter and skim milk powder.  The Japan Dairy 
Council (a producer group) has been voluntarily restricting the overall production of raw milk since 
1979, with a production cap of  7.5 million tonnes in 2010. 
22. Subsidies for wheat, barley, and rice tota lled ¥176 billion in FY2006 and ¥177 billion in 
FY2005 (the latest year for which data are available)24;  these continue to be the most heavily 
supported commodities.  Separate amounts for the se commodities were not made available to the 
Secretariat.   
(3) MANUFACTURING  
23. Unlike agriculture, there has b een little government intervention in the manufacturing sector 
until recently.  Manufacturing was responsible for n early 20% of GDP and 18% of total employment 
in 2008, implying that labo ur productivity in the sector is 11% higher than in the rest of the economy.  
This is slightly lower than in 2006, as reported in  the previous review.  This may be linked to the 
slowdown in external demand due to the financia l crisis.  Within manufacturing, the largest 
sub-sectors were electrical machinery, tran sport equipment, and other machinery.   
24. The sector continues to be open, with the simple average MFN tariff for industrial products 
(HS25-97) at 3.4% in FY2010, compared with 14.7% for agricultural products (HS01-24), and an overall simple average MFN rate of 5.8%.  Howeve r, tariff rates for textiles and clothing and for 
leather products are significantly higher (Chapter III(2)(ii)).   
25. In October 2009, the Enterprise Turnaround In itiative Corporation of Japan (ETIC) was 
established in accordance with the Enterp rise Turnaround Initiative Corporation Act 
(Chapter III(4)(iii).  The ETIC is authorized to provide financial support to  companies and businesses 
that are deemed to have revitalization poten tial and are highly indebted, including those in 
manufacturing.  Thus far, the ETIC has provided support to seven companies (as of October 2010).   
26. Sector-specific subsidies, such as those provide d to companies involved in the manufacture of 
civil aircraft, have remained unchanged during the review period.
25  In 2007, ¥122 million were 
provided as a grant to the Japan Aircraft Devel opment Corporation (JADC) for the development of 
next-generation aircraft.  Furthermore, in 2007, ¥1,050 million were also provided in the form of a 
reimbursable grant to JADC and Japan Aero Engi nes Corporation for the development of civil 
aircraft.   
27. There has been no change to the foreign dir ect investment regime with respect to the 
manufacturing sector.  Foreign direct investment in certain manufacturing sub-sectors remains subject to approval (prior-notification);  additionally, investment (domestic  or foreign) in certain sectors 
requires permission or ex post  reporting, as stipulated in various  laws and relevant regulations 
(Chapter II(6)(i)).  For example, investors, domestic or foreign, who intend to invest in aircraft 
                                                     
 
23 The average subsidy payment was ¥133,000/hectare in 2008 and ¥128,000/hectare in 2009. 
24 WTO document G/SCM/N/186/JPN, 25 June 2009.  The Government purchases rice for food 
security purposes (public stockholding).  In addition, subsidies are provided for soybean, sugar, milk and dairy 
products, bovine meat and pig meat, eggs, vegetables, fruits, and cocoons. 
25 WTO document G/SCM/N/186/JPN, 25 June 2009. Japan WT/TPR/S/243/Rev.1 
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manufacturing require approval by the Ministry of Economy, Trade and Industry, in accordance with 
the Law on Aircraft Manufacturing. 
(4) ENERGY AND UTILITIES  
28. Under the provisions of the Foreign Excha nge and Foreign Trade Law, foreign entities 
wishing to invest in electric and gas utilities must notify their intention to the competent authorities, 
including the METI.  According to the authorities,  permission is denied onl y on grounds of national 
security26;  the authorities refused one such request in 2008 concerning electric utilities, on grounds of 
"national security, public order, and public safety" , the first time permission for investment has been 
denied since 1945.  It would appear that there has been little investment in energy and utilities.27 
29. During the period under review, the regulatory fra mework for the electri city and gas markets 
has remained largely unaltered.  With  regard to electricity, the authorities state that further retail sales 
liberalization in the absence of increased competiti on in the generation and wholesale markets would 
not benefit consumers;  the cost of implementing such reforms would outweigh the benefits, implying 
that competition should increase.28  The authorities were of the opinion that the issue of retail market 
liberalization should be revisited in 2013.  
30. The authorities advocate the development of a competitive environment for the electricity 
generation and wholesale markets.  Reforms envisione d in this regard include:  strengthening the 
Japan Electric Power Exchange (JEPX), which is expected to promote wholesale competition and 
efficient and stable electricity supplies;  increasi ng trading options at the JEPX, which would include 
forward transactions and transactions after closure of the day-ahead market;   and improving market 
surveillance.  In November 2009, the JEPX launc hed wholesale trading of "green electric power".  
The authorities intend to reduce charges associated w ith wheeling service (the movement of electricity 
from one system to another over transmission facilities of intervening systems), as present electricity generation companies supply electricity using the transmission and distribution networks of the 
regional general electricity utility companies, wh ich are regional monopolies and impose high charges 
for use of their networks.   
31. Liberalization of the retail gas market in Japan  started in 1995;  the market was further 
liberalized in 2007, and customers consuming a minimum of 100,000 m
3 of gas were allowed to buy 
from all gas suppliers.29  The impact of the liberalization can be gauged by the sharp increase in gas 
sales in a relatively short time span;  data provide d by the authorities show that, since 2008, gas sales 
by general gas utilities have increased 1.66-fold, an d sales to large customers have risen 4.96-fold, 
following a decade of slow sales growth.  Since 2006, there have been no new entrants to the market;  
however, the share of the 28 entrants since 1995 rose from 9.7% of gas supplied in 2006 to 12.2% in 
2008.  Despite the liberalization, gas prices for both residential and industrial use remain high;  for 
                                                      
26 The Minister of Finance and the mi nister in charge of the industry involved may order the suspension 
of a proposed investment if they consider it may "endanger national security, disturb the maintenance of public 
order, or hamper the protection of public safety", or "adversely and seriously affect the smooth management of 
the Japanese economy".  They could also recommend that the parties concerned alter their investment plans. 
27 Ito and Fukao (2003) is one of latest studies that conducted an analysis of inward FDI by more 
detailed sectors, compared with the breakdown in balance-of-payments statistics. 
28 In 2006, the Government analysed the electricity  market under three scenarios:  where the retail 
sector is fully liberalized;  where partial liberali zation is continued and further competition policies are 
introduced in FY2010;  and where the retail sector is fully liberalized and additional competition policies are 
applied from FY2010.  The analysis showed that the greatest welfare was achieved under the second scenario. 
29 The previous threshold was 500,000 m3.  For details see WTO document WT/TPR/S/211, 14 January 
2009. WT/TPR/S/243/Rev.1 Trade Policy Review 
Page 84 
 
 
residential use Japan had the highest tariff from am ong selected Members, and for industrial use, 
Japan had the second highest tariff within the selected group after the Republic of Korea.30  
32. Due to fuel price fluctuations in the interna tional markets since 2007, the authorities decided 
to revise the Fuel Cost Adjustment System to refl ect price changes more quickly.  Under the revision, 
which took place in May 2009, the time-lag involved in passing on international price changes to 
domestic customers, as used in the cost adjustment  system, was reduced from three to two months.  
The gas price is now also adjusted every month (prior to the revision, it was adjusted every 
three months).  
(5) SERVICES  
33. The services sector is the largest contributor to GDP and employment in Japan.  Labour 
productivity growth in services tends to be lower th an in manufacturing in most developed economies, 
but the difference between the two is particularly  large in Japan.  Labour productivity growth in 
services in 2007 was 1.61% compared with 5.55% in manufacturing.31  Furthermore, total factor 
productivity (TFP) growth in most services sectors al so lags that in manufacturing.  The services 
sector in Japan has been protected  from foreign competition.  This protection has been afforded in 
large part through restrictive internal regulations, such as licensing, restrictions on foreign investment, 
and generally the high cost of doing business in Japan. 
34. In its schedule of specific commitments under the GATS, Japan has commitments in 
121 sectors and has not taken any MFN exemptions.32  In June 2005, Japan submitted its revised 
conditional offer on services.33   
(i) Financial services 
35. The financial services sector in Japan is largel y open to foreign participation.  During the 
period under review, trade-related re gulations regarding financial services in Japan have remained 
largely unchanged.   
36. The banking sector is regulated by the Financ ial Services Agency (FSA), which administers 
the Banking Law.  Under the law, all banks n eed to be licensed to conduct business in Japan.34  
Foreign banks may provide banking services through branches and subsidiaries (incorporated in 
Japan).  Under the Banking Law, deposit insurance does not apply to branches of foreign banks not 
incorporated in Japan.  Nationally licensed subsid iaries of foreign banks are subject to the same 
prudential requirements as domestic banks.   
37. To be able to participate in the securities business  in Japan, firms need to be registered joint-
stock companies, and the main office in Japan of a foreign securities firm must be registered.  There 
                                                      
30 Members selected here were Chinese Taipei, Fran ce, Japan, the Republic of Korea, Spain, the 
United Kingdom, and the United States. 
31 2009 International Comparison of Labour Pro ductivity.  Viewed at:  http://www.jpc-net.jp/eng/ 
research/2009_11.html. 
32 WTO documents GATS/SC/46, 15 April 1994, and its supplements. 
33 WTO document TN/S/O/JPN/Rev.1, 24 June 2005. 
34 Banks licensed in Japan may establish agencies, w ith ministerial authorization.  A "bank agent" 
dealing with agency and brokerage businesses, such as deposit, lending, and exchange transactions, also requires a licence.  Bank agents are required to meet various oblig ations, such as segregated custody.  The bank to which 
bank agents belong must give them business advice or take measures to secure sound and appropriate business.  
Bank agents must submit their business reports to the FSA.  The Government makes their reports publicly available;  it also conducts on-site inspections. Japan WT/TPR/S/243/Rev.1 
 Page 85 
 
 
are no foreign ownership restrictions in the sector, and domestic and foreign firms are subject to the 
same registration process.   
38. A ministerial licence is required to conduct insu rance business in Japan;  approval is required 
for new insurance products, for modifications to exis ting products, and for premium rates.  Life and 
non-life insurance companies may enter each other's markets only through subsidiaries.  Commercial 
presence is normally required in order to  offer insurance services in Japan except, inter alia,  for 
certain reinsurance, commercial aviation insura nce, and international marine hull insurance.35  T h e  
criteria for granting licences and the solvency ma rgin requirements are the same for Japanese and 
foreign insurance providers.   
(a) Banking 
39. The structure of the banking sector has remained  largely unchanged during the review period 
(Table IV.3).  The five largest banks accounted fo r over 45% of the deposit base and nearly 46% of 
loans in September 2009, slightly lower than in Fe bruary 2008.  State involvement continues in the 
sector through the Government's interests in, inter alia,  Japan Post Bank, Resona Bank, and the 
Development Bank of Japan.  Reforms regarding the privatization of Japan Post, a landmark reform 
initiated in 2007, have been unde r review since 2009, with a view, inter alia,  to introducing measures 
to maintain a certain postal network level. 
40. It would appear that Japanese banks have emerged relatively unscathed from the global 
economic crisis due to their limited exposure to foreign toxic assets, the regulatory framework in 
Japan36, and the limited role of securitization in the sector.  According to IMF estimates, the Japanese 
financial sector is expected to lose US$149 billion (2% of their outstanding loans and securities), 
compared with US$1.2 trillion in Europe (5% of  outstanding loans and securities), and US$2.7 trillion 
in the United States (10% of outstanding loans and securities), due to the crisis.37  The banking sector 
in Japan was relatively insulated from the crisis  for a number of reasons.  The Japanese banking 
system had already undergone a crisis a decade earlier and banks had reduced non-performing loans 
(NPLs) that they were carrying on their balan ce sheets and had also recapitalized;  thus, the 
book-value of "sub-prime" assets that banks were  carrying on their balance sheets amounted to 
approximately 1% of their tier 1 capital.38  Furthermore, administrative guidelines were issued by the 
FSA regarding loan-to-value ratio, as well as directiv es issued in 2006, which instructed banks to 
ensure proper risk control, pay particular atte ntion to the corporate governance of management 
companies of Real Estate Investment Trusts (REI Ts) and activities of securities companies especially 
their underwriting of REITs and offerings of private real estate funds and their screening processes in 
originating commercial mortgage-backed securities.  Other contributing factors to the soundness of 
the Japanese banking system include:  the relativ ely undeveloped securitized product market;  the 
limited use of the "originate to distribute" m odel;  and the remuneration and corporate governance 
structure in Japan, which does not encourage risk-taking behaviour.39  
41. However, banks in Japan were adversely affect ed by the fluctuations in capital markets, 
declining equity prices, and the contraction in th e real economy, all caused, to some extent, by the 
global economic crisis.  The contraction in the real  economy resulted in increased credit risk as well 
                                                      
35 For other insurance contracts, prior approval is required for foreign insurers without commercial 
presence in Japan. 
36 This included the move to Basel II, which reduced banks' appetite for risk (OECD, 2009). 
37 IMF (2009). 
38 "Sub-prime" loans are a category of consumer loan s with the highest risk and include mortgages, 
auto loans, and credit card debt. 
39 In Japan, 44% of CEO compensation is linked to either corporate performance or stock options, 
compared with 71% and 87% in the euro area and the United States, respectively (OECD, 2009). WT/TPR/S/243/Rev.1 Trade Policy Review 
Page 86 
 
 
as rising NPLs, despite near zero interest rates in  Japan.  The NPL ratio of major banks rose from 
1.5% in September 2008 to 1.8% in  September 2009.  The fall in equity prices resulted in the erosion 
of bank capital. 
Table IV.3 
Financial institutions, 2009 
1.  Banks Number of 
banks 
(end-March 
2009) Total assets 
(¥ trillion) 
(end-March 
2009) Related laws 
City banks 5 426.5 Banking Law 
Trust banks 20 68.5 Banking Law 
Law on Concurrent Operation of Trust 
Business by Financial Institutions 
Other banks 15 31.2 Banking Law 
Regional banks I 65 238.7 Banking Law 
Regional banks II 44 61.2 Banking Law 
Foreign banks 62 36.2 Banking Law 
2.   Cooperative financial institutions Number of 
organizations 
(end-March 
2009) Total assets 
(¥ trillion) 
(end-March 
2009) Related laws 
Shinkin Central Bank 1 27 Credit Association Law 
Shinkin banks (credit associations) 279 123 Credit Association Law 
Shinkumi Federation Bank 1 3 Sm all and Medium Business etc. 
Cooperatives Law 
Law on Financial Business by Cooperatives 
Credit cooperatives 162 17 Small and Medium Business etc. 
Cooperatives Law 
Law on Financial Business by Cooperatives 
Mutual Federation of Labour Credit Association 1 4 Labour Credit Association Law 
Labour Credit associations 13 16 Labour Credit Association Law 
Shoko-Chukin Bank 1 10 Shoko-Chukin Bank Law 
Norinchukin Bank 1 62 Norinchukin Bank Law 
Prefectural Credit Federation of 
Agricultural Cooperatives 36 55 Agricultural Cooperatives Law 
Agricultural Cooperatives 751 101 Agricultural Cooperatives Law 
Prefectural Credit Federation of Fishery 
Cooperatives 31 2 Fishing Cooperatives Law 
Fishery cooperatives (including fish 
processors cooperatives) 168 1 Fishing Cooperatives Law 
3.   Insurance companies Number of 
companies 
(end-March 
2009) Total assets 
(¥ trillion) 
(end-March 
2009) Related laws 
Life insurance: Domestic 42 299 Insurance Business Law 
  Foreign 4 12 Insurance Business Law 
Non-life insurance:  Domestic 30 30 Insurance Business Law 
  Foreign 21 0.4 Insurance Business Law 
Small amount short-term insurance 66 0.03 Insurance Business Law 
Mutual fire insurance cooperative 
associations 43 - Small and Medium Business etc. 
Cooperatives Law 
Table IV.3 (cont'd)
 Japan WT/TPR/S/243/Rev.1 
 Page 87 
 
 
4.   Non-banks and other  Number of 
registered 
companies 
(end-March 
2009) Number of 
reported 
companies 
(end-March 
2009) Related laws 
Loan companies  6,178 .. Money-Lending Law 
Housing loan companies .. .. Money-Lending Law 
Money market brokers  7 Money-Lending Law and Former Investment 
Law 
Mortgage companies  4 .. Inve stment Advisory Service Law 
Prepaid voucher issuers  1,198 531 Law on Regulation of Prepaid Certificates 
Special purpose companies credit 
brokers  4 1,061 Business Asset Securitization Law 
Real-estate syndications 104 5 Real Es tate Designated Cooperative Projects 
Law 
.. Not available. 
Source:  Information provided by the Japanese authorities. 
42. To mitigate the impact of the crisis, the aut horities took a number of measures to ensure the 
smooth flow of credit as well as shoring up banks' balance sheets.  Measures taken by the Bank of Japan include:  an increase in out right purchases of government bonds  and facilitation of bank lending 
to the corporate sector
40;  introduction of a "special funds supplying operation" in January 2009, 
which provided banks with unlimited funds at the policy rate and expanded the range of corporate 
financing instruments that could be used as collate ral for such funds;  resu mption of the purchase of 
equities held by banks by the Bank of Japan in February 200941;  and the provision of subordinated 
loans to banks that were engaged in international operations. 
43. Action taken by the FSA included allowing the Banks Shareholding Purchase Corporation to 
purchase equities held by banks, and raising the upp er limit on such purchases to ¥20 trillion.  This 
measure was expected to improve the capital positi on of the banking sector.  The Act on Special 
Measures for Strengthening Financial Functions w as reactivated and its conditions relaxed in 
December 2008.  The Act provides a framework fo r the injection of public funds in depository 
institutions.  Since the Act's revival, three institu tions have received a total of ¥121 billion under its 
provisions.  Capital adequacy requirements for banks  were also relaxed until March 2012, so that 
large changes in the capital adequacy  ratio do not hamper intermedia tion functions.  In addition, the 
Financial Revival Programme, which started in 2002, has continued to provide support to the financial 
sector through grants for losses, injection of capita l, and purchase of assets.  Japan also adopted 
measures that are deemed to improve the transparen cy and reliability of cr edit ratings and improved 
accounting standards, such as new registration require ments for credit rating agencies, clarification of 
use of valuation techniques, such as model-based t echniques to calculate "fair value", when market 
based transactions are few.42 
(b) Securities 
44. While the global financial crisis had a re latively limited impact on the Japanese capital 
markets, there were some volatilities in share prices, with the equity price index falling by half in a 
                                                      
40 Prior to December 2008, outright  purchases of government bonds we re at ¥14.4 trillion annually;  
this increased to ¥21.6 trillion annually in March 2009. 
41 Between February 2009 and April 2010, the Bank of Japan had bought equities worth ¥387.8 billion 
from banks. 
42 OECD (2009). WT/TPR/S/243/Rev.1 Trade Policy Review 
Page 88 
 
 
few months.43  Certain measures were already in place a nd the FSA initiated new measures to ensure 
the soundness of financial institutions affected by th e decline in the equity market.  Measures included 
firms being allowed to purchase their own equiti es;  facilitating stock purchases by employee stock 
ownership plans;  and strengthe ning regulations and enhancing di sclosure requirements of short 
selling positions.  Restrictions on short selling  included prohibition on shor t selling at prices lower 
than the latest market price, naked short selling44, and the requirement that short selling positions 
taken at or above a certain thres hold must be reported and disclosed.45   
45. Another initiative was taken by the Japanese Securities Dealers Association (JSDA) in 
June 2009.  The JSDA implemented new rules regard ing the "origin and distribution" of securitized 
products.  The measure was aimed at enhancing the traceability of such products and reducing the risk 
associated with them.  The new rules require JSDA members to properly disclose the risks associated 
with the product, including those not reflected in  the credit ratings of the underlying assets of the 
securitized product to investors. 
46. In response to the financial crisis as well as to improve the stability and transparency of the 
financial system and to protect investors, the Act for the Amendment of the Financial Instruments and 
Exchange Act was promulgated in May 2010.  Under the amendment, provisions have been made to 
improve the stability and transparency of over-the -counter (OTC) derivatives transactions settlements, 
including the obligation to use a central counterpart y to clear OTC derivatives.  Other measures taken 
include the improvement of group-wise regulation and supervision of securities companies and other 
measures to protect investors.  
(c) Insurance 
47. Japan's insurance market compri ses three subsectors:  non-life, life, and the "third sector", 
which includes accident and health care insurance.  There have been no significant changes in the 
industry during the period under review.  The Fina ncial Services Agency remains the regulatory 
authority, while the Insurance Business Law (IBL) is the main law governing the sector. The Ministry 
of Finance and the Financial Services Agency are responsible, inter alia , for the management of the 
Deposit Insurance Corporation, and other public insurance schemes for deposits and investment. 
48. During the period under review, the sector appears to have become less concentrated.  As of 
March 2009, the top four life-insurance companie s accounted for 39.5% of total life-insurance 
company assets, compared with 60.6% in September 2007.46  Over the same period, the share of the 
top seven non-life companies declined to 86.5% from 90.3%.   
49. Recent changes undertaken include the revamping of regulations pertaining to the holding of 
concurrent posts at banks, securities firms, and in surance companies;  allowing firms to undertake 
investment advisory business;  allowing firms to enga ge in Islamic finance;  and allowing firms to 
participate in emissions trading business.  Additi onally, an alternative dispute resolution system for 
                                                      
43 The Nikkei 225 index fell from over 14,000 points in June 2008 to approximately 7,000 points in 
October 2008. 
44 Naked short selling is the practice of short-selling a financial instrument without first borrowing the 
security or ensuring that the security can be bo rrowed, as is conventionally done in a short sale. 
45 Holders of a short position that is in excess of 0. 25% of outstanding issued stocks of an entity must 
report changes to their positions to securities firms and exchanges.  The latter are required to publicly disclose 
such information. 
46 The figures for 2007 include those of Japan Po st Insurance Company, wh ich was responsible for 
approximately 34% of all life-insurance company assets. Japan WT/TPR/S/243/Rev.1 
 Page 89 
 
 
insurance issues has been established, as well as a system for managing insurance firms' conflicts of 
interest.  Insurance groups are also now permitted to conduct money broking business. 
(ii) Telecommunications 
50. Foreign investment in NTT is limited to 33%.  There are no other statutory restrictions on 
foreign companies entering the telecommunications sector in Japan. 
51. Under the Telecommunications Business Law, the category I and category II classification 
pertains to facilities (not carriers).  Carriers that  install category I designated telecommunications 
facilities are required to set tariffs only on their above-mentioned facilities.  Not all tariffs on the 
category I designated telecommunications facilities ar e required to undergo public comment.  Carriers 
that install Category II designated telecommunica tions facilities are required to disclose their 
interconnection tariff rates of Category II designat ed telecommunications facilities.  The authorities 
maintain that, during the review period, interconnec tion rates have declined and are comparable with 
those in other OECD countries. 
52. There have been no major changes to Japan's telecommunications regulations or legislation 
during the review period.  The Ministry of Intern al Affairs and Communications continues to be the 
regulatory authority responsible for the sector, while the regulatory framework is provided by the 
Telecommunications Business Law. 
53. NTT, which is partly government owned, conti nues to be the single larg est player in Japan's 
telecommunications sector.47  In 2008, NTT group accounted for 91.2% of "in-prefecture" fixed-line 
call sales and 47.4% of "out-of-prefecture" call sales48;  it was responsible for 77.7% of in-city call 
volume and 54.4% of out-of city volume.  In the mobile market, NTT Docomo had a 49.5% share of 
sales and 50.8% of communications traffic.  The sh are of NTT group in sales has declined since 2006;  
this could partly be due to increased competition in the sector.  There were 
15,250 telecommunications carriers in Japan in April 2010, up from 14,495 in April 2008 and 13,774 in April 2006.  Tariff rat es for all three services (local, long-distance, and mobile) have 
declined over the past few years;  tariffs in Japan  are comparable to those in other OECD countries, 
but are much higher than those prevalent in the region.
49  Increased competition has also resulted in 
significantly higher total factor productivity (TFP) growth in the information and telecommunications 
technology sector.  Data provided by the authoriti es show that between 1995 and 2007, TFP growth in 
the telecoms sector was 2.05%, compared with 0.07% in the economy as a whole.  
54. The Universal Service Fund System (USFS) has been operational since 2006;  it subsidizes 
the costs of telecoms carriers that provide universal  services with respect to both subscriber and public 
telephone services.  Service providers that interc onnect with NTT East and West and have annual 
revenues in excess of ¥1 billion are required to cont ribute to the fund.  Reimbursement for local loop 
access continues to be based on the "benchmark method", whereby the difference between the real 
cost per line and the "benchmark" deducted from the national average cost is reimbursed.   
                                                      
47 According to Article 4 of the NTT Law, the Government must hold at least one third of the shares in 
the NTT Corporation.  At present the Government holds 33.7%.  The authorities maintain that the Government holds the share for public interest and safety reasons. 
48 The NTT group includes NTT East, NTT West and NTT Communications. 
49 Data provided by the authorities indicate that, as of March 2009, the local call rate (weekday noon) 
in Tokyo was ¥8.5/3 minutes compared with ¥8.8/3 minutes in New York, ¥26.3/3 minutes in London, and 
¥17.5/3 minutes in Paris. In Seoul the rate was ¥2.8/3 minutes.  Monthly mobile rates for voice (95 minutes), 
mail (385 mails) and data (16,000 packets) were ¥4,300 in Tokyo, ¥5,800 in New York, ¥1,700 in London, ¥5,500 in Paris and ¥2,100 in Seoul.   WT/TPR/S/243/Rev.1 Trade Policy Review 
Page 90 
 
 
(iii) Transport 
(a) Maritime transport 
55. Japan is especially reliant on maritime transpor t particularly for traded goods, almost all of 
which are shipped by sea.  The sector is regulated by  the Ports and Harbour Bureau of the Ministry of 
Land, Infrastructure, Transport and Tourism (MLIT) and the Maritime Bureau.  Legislation governing 
the sector includes the Ship Law, the Marine Transportation Law, and the Coastal Shipping Law.  
There have been no changes to these during the period  under review.  Foreign investment in the water 
transport industry is subject to the prior notification requirement. 
56. Under cabotage restrictions, as in most countries, only Japanese flag carriers are permitted to 
carry cargo and passengers between Japanese ports.  However, under treaties of friendship, commerce 
and navigation, Japan allows ships to access cabotag e services on a reciprocal basis.  Japan does not 
discriminate against foreign participation in in ternational maritime services and accords national 
treatment.  
57. Entry into the port transport sector requires permission from the MLIT , and port transport 
charges are subject to prior notification procedur es;  licensing requirements and the economic needs 
test have been abolished since 2006.50  Under the Port and Harbour Act of 1950, port development, 
management and operation is entrus ted to local public organizations.51  In October 2008, Japan 
integrated the Nippon Automated Cargo and Port  Consolidated System (NACCS) for customs 
procedures with the Port-Electronic Data Interc hange (Port-EDI) for port -related procedures.  
Furthermore, in October 2009, simplified port-relate d procedures were added to the integrated system. 
58. Under the Super-Hub Port project, which aims to  reduce port-related charges by 30% to the 
level of Busan and Kaohsiung ports, as well as lead tim es to less than 24 hours by FY2010, lead times 
are now approximately one day, and port charg es were reduced by 20% between 2000 and 2008. 
59. The Government continues to provide support to  Japanese flag carriers under the international 
ship regime.52  It also continues to provide a tonnage tax, adopted in 2008, under which a company 
may calculate its corporate tax based on assumed profit per net tonne of vessels flying the Japanese 
flag.  The presumably lower tonnage tax is applicable instead of the corporate tax and is an incentive 
for shipping companies.  An internationally oper ating shipping company must submit a plan that 
ensures stable international mariti me transport to the MLIT;  this must be approved by the Minister 
before the tonnage tax can be applied.  As of Ma rch 2010, 11 companies had been approved by the 
MLIT to apply the tonnage tax. 
(b) Air transport 
60. The Japanese air transport sector is regulated by the Civil Aeronautics Law and the many 
bilateral air agreements that Japan has signed.  Admi nistration of airline entry into the market, pricing, 
route allocation, and safety regulations are the responsibility of the Civil Aviation Bureau of the MLIT.  Cabotage restrictions apply, as in most c ountries, and the provision of domestic air services is 
limited to Japanese air carriers only.  Foreign owners hip continues to be restricted to one-third of 
voting rights in domestic airlines and under the Foreign Exchange and Foreign Trade Laws, prior 
notification is required for FDI in air tr ansport and aircraft using businesses. 
                                                     
 
50 WTO document S/C/N/571, 5 October 2010. 
51 Ports of Singapore Authority has invested in Hibiki port. 
52 For details, see WTO document WT/TPR/S/211/Rev.1, 12 May 2009. Japan WT/TPR/S/243/Rev.1 
 Page 91 
 
 
61. Japan has signed bilateral air service agreements with 58 trading partners;  2 (with Macao, 
China and the Kingdom of Saudi Arabia) were signed during the review period.53  Japan has 
continued to pursue an aviation liberalization policy.   Of the 58 bilateral agreements, 10 are "open 
sky" agreements (with Canada;  Hong Kong, Chin a;  Macao, China;  the Republic of Korea;  
Malaysia;  Singapore;  Sri Lanka;  Thailand;  the United States;  and Viet Nam.  Under the open sky 
arrangements, restrictions are removed, on a recipr ocal basis, on entry points, routes and frequency of 
flights.  Other areas that  open sky agreements address are prices/tariffs, airline capacities.  
Competition should increase as a result of open sky agreements.54   
62. Other changes that have taken place, include  the introduction of scheduled international 
flights from the Tokyo International Airport (Haneda) in October 2010.   
63. Landing and takeoff slot allocation at Narita, Kansai, and Haneda airports is done by the 
Japan Schedule Coordination Office (JSC).  According to the authorities the JSC is completely independent and does not represent any interests.  Slots are allocated according to IATA guidelines.  
At other airports, slot coordination is done by the local airport office of JCAB. 
64. A significant development during the review pe riod was the bankruptcy of Japan Airlines 
(JAL) and its subsequent rescue by the Government.  JAL had reportedly been carrying legacy costs, 
which had resulted in the airline having to ne gotiate three rescue deals with banks and the 
Government since 2001.  The global financial cris is in 2008 resulted in further significant losses for 
JAL.  It had become obvious by the end of 2009 th at unless radical reforms were instituted the airline 
would be bankrupt.   
65. The Government decided to rescue JAL and directed  the airline to submit a restructuring plan.  
However, a change in Government in August 2009 r esulted in the restructuring plan being scrapped.  
Under, a new plan, announced in November 2009,  as a condition of government support, the 
Enterprise Turnaround Initiative Corporation of Japa n (ETIC) would assume control of JAL.  In 
January 2010, JAL made a formal application for support from ETIC and filed a petition for the 
commencement of reorganization pr oceedings under the Corporate Reorganization Law.  It submitted 
a restructuring plan that aims to return the air line to profitability by 2012.  Measures under the plan 
include cutting the workforce by 15,700;  reducing pensions, wages, and lump-sum bonus payments;  
withdrawing from 31 loss-making routes;  retiring le ss fuel-efficient aircraft such as the 747-400 and 
replacing them with newer, more fuel-efficient a nd smaller jets;  and selling non-core subsidiaries, 
such as hotels and the credit card business. 
66. Under the plan, ETIC will inject over ¥300 billi on in equity, and ETIC and the Development 
Bank of Japan will provide lines of credit amounting to  ¥600 billion.  JAL stocks will be de-listed, 
and ETIC will assume control and ownership of the airline.
55  Furthermore, creditors will be required 
to write off loans made to the airline.   
                                                      
53 These are:  Australia;  Austria;  Bahrain;  Banglad esh;  Belgium;  Brazil;  Brunei;  Canada;  China;  
Denmark;  Egypt;  Ethiopia;  Fiji;  Fi nland;  France;  Germany;  Greece;  H ong Kong, China;  Hu ngary;  India;  
Indonesia;  Iraq;  Israel;  Italy;  Jordan;  Kingdom of Saudi Arabia;  Kuwa it;  Lebanon;  Macao SAR;  Malaysia;  
Mexico;  Mongolia;  Myanmar;  Nepal;  the Netherlands;  New Zealand;  Norway;  Oman;  Pakistan;  Papua 
New Guinea;  the Philippines;  Poland;  Qatar;  the Republic of Korea;  the Russian Federation;  Singapore;  
South Africa;  Spain;  Sri Lanka;  Sweden;  Switzerland ;  Thailand;  Turkey;  the United Arab Emirates;  the 
United States;  the United Kingdom;  Uzbekistan;  and Viet Nam. 
54 Preparing ASEAN for Open Sky.  Viewed at:  http://www.aseansec.org/aadcp/repsf/docs/02-008-
ExecutiveSummary.pdf. 
55 ETIC is obliged to sell its shares of JAL wi thin three years of the capital injection. WT/TPR/S/243/Rev.1 Trade Policy Review 
Page 92 
 
 
67. The deadline for submitting a restructuring plan was June 2010.  JAL s ought an extension and 
a new deadline was set for 31 August 2010. 
(iv) Medical services 
68. Japan's healthcare system is considered to be among the best in the world in terms of access 
and effectiveness;  the Japanese population has the hi ghest life expectancy in the OECD and among 
the lowest rates of infant mortality.  However, Japan 's healthcare system is heavily regulated and is 
facing a number of challenges.56  All hospitals and clinics must be "not-for-profit" organizations 
directed by a medical doctor with Japanese medica l qualifications.  Within the nationwide health 
insurance system, the Government sets all prices fo r procedures, drugs, and devices, which apply to 
all physicians and hospitals adopting the system.  The "not-for-profit" nature of hospital and clinics 
effectively prevents equity financing.  Thus, to cover capital costs, which are not covered by the fee 
structure, hospitals have to rely on bank loans or  issue bonds.  Bank financing tends to be difficult as 
hospitals can only offer limited collateral, whereby hospital expansion, which may result in increased 
efficiency is also constrained.  However, most hos pitals run at a loss and their numbers declined by 
6% between 1999-2009.57 
69. An aging population is exerting upward pressure on healthcare spending, which is rising at a 
much faster rate than output.  Data provided by the authorities indicate that insurance premiums and 
public funds are responsible for 86% of health spen ding;  thus the Government is trying to limit 
expenditure on healthcare, especially in light of fiscal difficulties.  With the proportion of the population that is over 65 projected to increase to  27% by 2015 (from 21% in 2006), upward pressure 
on government spending on healthcare is expected to intensify.  The authorities have therefore 
initiated reforms including a new healthcare system for those over 75
58;  reducing the number of 
long-term care beds in hospital (this has recently been suspended);  and an increase of 50% in the 
ceiling number of medical students.  Furthermore, to  encourage health insurers to pay for check-ups, 
the Government has decided to in troduce a reward system that w ill adjust the contribution of the 
insurers to the health care of those over 75.   Other measures taken to reduce health-related 
expenditures include reducing the gap between re tail and wholesale drug prices, encouraging the 
separation of prescribing and dispensing drugs, re ducing medical fees paid to doctors if they 
over-prescribe59, and increasing the use of generic drugs.60 
70. The healthcare system also suffers from various imbalances, such as shortages of emergency 
care and paediatricians, as well as regional dispar ities.  Non-compliance with respect to paying 
insurance premiums and the burden of co-payments are also among challenges the system faces.61  
                                                      
56 OECD (2009). 
57 OECD (2009). 
58 As part of the new system, the Government implemented a new health insurance system in 2008 for 
those over age 75, who account for 9% of the population and 30% of health outlays.  The co-payment rate 
would be kept at 10% and insurance premiums would continue to cover 10% of the total costs of the population 
aged over 75.  The remainder will be covered by insurance premiums from people under 75 (40%) and government subsidies (50%).  However, the Government is presently reviewing this system and envisages a new 
system to be in place by 2013. 
59 Reimbursement is reduced by 10% if more than seven drugs are prescribed. 
60 The Government has targeted an increase in the shar e of generic drugs to at least 30% of the market. 
61 Nonetheless, the authorities cons ider that co-payment is not n ecessarily expensive because it only 
amounts to 10-30% of medical bill, and there is a cap on co-payment in th e "high-cost medical care benefit 
system". Japan WT/TPR/S/243/Rev.1 
 Page 93 
 
 
71. Japan's medical system, despite being among the mo st efficient in the world, could be made 
more efficient through further reforms.  To this  end, the authorities introduced an online payment 
system in 2006, and, in principle, by 2011, all ho spitals and pharmacies will need to submit electronic 
receipts or receipts online to examination and paymen t organizations.  The new system is expected to 
increase efficiency and the quality of healthcare;  elect ronic processing of bills is expected to facilitate 
the review of all reimbursements to weed out fraud and abuse and reduce administrative costs.  At the 
same time, the reform may include the removal of r estrictions on the number of medical students, and 
on foreign workers permitted in the sector, and relax the rules that prevent equity finance to facilitate 
the restructuring of the hospital sector.  This would enable the creation of more efficient hospitals as 
well as M&As of hospitals and clinics.62  In the Basic Policy on Comprehensive Economic 
Partnerships, announced by the Ministerial Committ ee on Comprehensive Economic Partnerships on 
6 November 2010, Japan intends to "consider measur es to address the issues relating to the movement 
of natural persons from abroad, such as nurses and certified care workers" with regard to EPAs.63   
 
                                                      
62 OECD (2009).  
63 MOFA online information.  Viewed at:  h ttp://www.mofa.go.jp/policy /economy/fta/policy2010 
1106.html [22.11.2010]. Japan WT/TPR/S/243/Rev.1 
 Page 95 
 
 
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