RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/175 
19 December 2006  
 
(06-5952) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
JAPAN 
 
  
 
This report, prepared for the eighth Tr ade 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/175 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/175 
 Page iii 
 
 
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  ix 
 (5) O UTLOOK  x 
I. ECONOMIC ENVIRONMENT 1 
 (1) M AIN ECONOMIC DEVELOPMENTS  1 
 (2) M ACROECONOMIC POLICIES  4 
 (i) Monetary and exchange rate policy 4 
 (ii) Fiscal policy 5 
 (3) S TRUCTURAL POLICIES  6 
 (i) Tax reform 6 
 (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 (FDI) 13 
 (5) P
ROSPECTS  13 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 14 
 (1) I NTRODUCTION  14 
 (2) T RADE POLICY OBJECTIVES  14 
 (3) T RADE POLICY FORMULATION AND EVALUATION  15 
 (i) Trade policy formulation and implementation 15 
 (ii) Trade policy evaluation 17 
 (4) T RADE AGREEMENTS AND ARRANGEMENTS  19 
 (i) WTO 19 
 (ii) Regional agreements 19  (iii) Other agreements and arrangements 21 
 (iv) Preferential treatment 25 
 (5) F
OREIGN INVESTMENT REGIME  26 
 (i) Regulatory regime 27 
 (ii) Investment promotion measures 27 
III. TRADE POLICIES AND PRACTICES BY MEASURE   30 
 (1) I NTRODUCTION  30 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  31 
 (i) Customs clearance procedures 31 
 (ii) Tariffs 32 WT/TPR/S/175 Trade Policy Review 
Page iv 
 
 
  Page 
 
 (iii) Non-tariff border measures 38 
 (iv) Contingency measures 39  (v) Government procurement 39 
 (vi) State trading 42 
 (vii) Standards, and sanitary and phytosanitary measures 42  (viii) Import promotion measures 46 
 (ix) Foreign access zones (FAZs) 46 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  47 
 (i) Procedures 47 
 (ii) Export taxes, charges, and levies 47 
 (iii) Export prohibitions, re strictions, and licensing 47 
 (iv) Export promotion schemes 48 
 (4) M EASURES AFFECTING PRODUCTION AND TRADE  48 
 (i) Taxation and tax-related assistance 48  (ii) Subsidies and other financial assistance 50 
 (iii) State-owned enterprises, co rporatization, and privatization 50 
 (iv) Trade-related intellectual property rights 50 
 (v) Regulatory reform 53 
 (vi) Competition policy 54  (vii) Corporate governance 60 
IV. TRADE POLICIES BY SECTOR 62 
 (1) I
NTRODUCTION  62 
 (2) A GRICULTURE  62 
 (i) Overview 62 
 (ii) Policy developments 63 
 (3) M ANUFACTURING  69 
 (4) E NERGY AND UTILITIES  70 
 (5) S ERVICES  71 
 (i) Overview 71 
 (ii) Financial services 71 
 (iii) Telecommunications 77  (iv) Transport 79 
 (v) Professional services 82 
 (vi) Other services 82 
REFERENCES   85 
APPENDIX TABLES  87 
 
 
 Japan WT/TPR/S/175 
 Page v 
 
 
  Page 
 
CHARTS 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Product composition of merchandise trade, 2003 and 2005 11 
I.2 Direction of merchandise trade, 2003 and 2005 12  
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
II.1 Policy evaluation system in Japan, 2006 18 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Share of non- ad valorem duties, by HS section, FY 2006 35 
III.2 Simple average applied MFN tariff rates, by HS section, FY 2004 and 2006 36 
 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Selected macroeconomi c indicators, 2001-06 2 
I.2 Shares of GDP and employment by sector, 2001-04 3  
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 II.1 Japan's major trade-related laws and regulations, 2006 16 
II.2 GSP shares for the ten larg est beneficiaries, FY 2004 26 
II.3 Measures to promote foreign direct investment into Japan, FY 2006 28 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE  
III.1 Structure of MFN tariff, FY 2003-06  33 
III.2 Preferential tariff rates, FY 2006 37 III.3 Procurement by product and by origin, 2002 and 2004 41 
III.4 Major standards and technical regulations in Japan, 2005 42 
III.5 National government tax revenue, FY 2006 48 III.6 Legislation on intellectual property rights, 2006 51 
III.7 Suspension of imports likely to infringe intellectual property rights, 2003-05 53 
III.8 Exemptions from the Anti-monopoly Act, 2006 56 III.9 Enforcement of competition policy, 2003-06 58 
 
IV. TRADE POLICIES BY SECTOR  
IV.1 Applied MFN tariff protection in agriculture, FY 2006 64 
IV.2 Special safeguards in agriculture, FY 2004 to 2006 67 IV.3 Procurement prices for all major cr ops subject to pricing and/or marketing 
 arrangements/price controls, 2000-05 68 
IV.4 Financial institutions in Japan 73 
 
  
 
 WT/TPR/S/175 Trade Policy Review 
Page vi 
 
 
  Page 
 
APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Merchandise exports by group of products, 2001-05 89 AI.2 Merchandise imports by group of products, 2001-05 90 
AI.3 Merchandise exports by destination, 2001-05 91 
AI.4 Merchandise imports by origin, 2001-05 92 AI.5 Composition of trade in services, 2001-05 93 
AI.6 Inward and outward FDI flows by region, FY 2002-05 94 
AI.7 Inward and outward FDI flows by industry, FY 2005 96 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 AII.1 Status of selected notifications to the WTO, August 2006 97 
AII.2 Disputes to which Japan has been a party, 2005 to August 2006 99 
AII.3 Industries requiring prior not ification for inward FDI, 2006 101 
 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Applied tariff escalation and tariff ranges, FY 2004 and FY 2006 103 
 
IV. TRADE POLICIES BY SECTOR 
 AIV.1 Tariff quota quantity and in-quota imports, FY 2002-04 105 
 
 
 
 
 Japan WT/TPR/S/175 
 Page vii 
 
 
SUMMARY OBSERVATIONS 
 
(1) ECONOMIC ENVIRONMENT  
1. Japan’s economic situation has 
improved since its previous Trade Policy 
Review;  Japan appears to be extricating itself from deflation.  The economy grew by 2.7% in real terms in 2005, and continued to achieve similar rates of growth in the first three 
quarters of 2006.  Both domestic demand, 
notably private consumption and private non-residential investment, and external demand contributed to this growth.  Downward pressure on prices appears to be easing, as year-on-year changes in the consumer price 
index have turned positive.  Growth has helped 
Japan to move toward solving its structural problems, including non-performing loans. 
2. The Bank of Japan ended its 
"quantitative easing monetary policy" in 
March 2006, and decided in July 2006 to set 
the target of around 0.25% for the short-term call rate, compared with the previous target of "effectively zero per cen t" since March 2001.  
Such low interest rates have apparently contributed to “carry trade”, which involves 
borrowing in yen to invest in higher-yielding 
assets abroad;  the resulting large outflow of yen has contributed to a substantial nominal depreciation of the Japanese currency.   
3. Japan's fiscal deficit and public debt 
are expected to have been  in the order of 6% 
and 172% of GDP, respectively, in 2005.  The Government aims to achieve a surplus in the combined primary balance of the central and local governments by FY 2011 (April-March) 
(compared with a deficit of 2.4% in 2006) and 
ensure gradual reduction of the ratio of public debt to GDP between the early and mid 2010s.   
4. Trade plays an important role in the 
economy.  Although the shares of exports and imports in GDP were around 13% and 11%, 
respectively, external demand has contributed 
positively during the past few years, due in part to the openness of the multilateral trading system.  Japan's current account surplus has decreased, reflecting a narrowing of the gap between gross national saving and gross 
domestic investment.  The trade surplus and the services account deficit have both declined;  the capital and financial account 
balance turned to a deficit in 2005 (from a 
surplus in 2004), mainly reflecting a deficit in the financial account.   
5. Sustained recovery would appear to 
hinge on continued structural reform, which 
the Government continues to emphasize.  
Progress has been made in particular in the financial and corporate sectors, notably in the disposal of non-performing loans, the decision to privatize Japan Post, deregulation in energy, financial services and legal services, 
as well as the strengthening of competition 
policy. 
(2) T
RADE  POLICY  REGIME :  
FRAMEWORK AND OBJECTIVES  
6. Japan's trade policy regime has 
remained largely unchanged since its previous 
Review;  the overall aim continues to be to ensure long-term prosperity and growth by promoting business activities in Japan and at the international level.  In this regard, Japan has placed strong emphasis on supporting the 
multilateral trading system, and has been 
participating actively in the Doha Development Agenda. Japan grants at least MFN treatment to all WTO Members.   
7. Concurrently, Japan has been 
intensifying its pursuit of bilateral/regional 
trade agreements (RTAs) with some of its trading partners, including in areas like trade facilitation, investment, competition policy, and improvement of business environment.  
Japan considers that such arrangements 
complement the multilateral system, and are useful tools for market liberalization and structural reform.  Japan has signed bilateral free-trade agreements with Singapore, Mexico, Malaysia, and the Philippines, and is currently 
negotiating several others.  Japan also 
participates in the Asia-Pacific Economic Cooperation (APEC) forum, and various other regional trade fora, such as the Asia-Europe WT/TPR/S/175 Trade Policy Review 
Page viii 
 
 
meeting (ASEM), ASEAN+ 3, and an East 
Asian summit.  
8. During the period under review,  
Japan granted preferential treatment to 
products from certain developing countries 
and provided preferential treatment to additional products from least developed countries under its Generalized System of Preference (GSP) scheme.  The main 
beneficiaries of Japan's GSP include China, 
Thailand, Malaysia, Indonesia, and the Philippines.   
9. Inward FDI in Japan remains 
substantially lower than outward FDI, and is relatively low compared with that in other 
large economies.  Against this background, 
Japan has continued to take measures to make itself an attractive investment destination for foreign firms. 
(3) T
RADE POLICIES AND PRACTICES BY 
MEASURE  
10. Since its previous Trade Policy 
Review, in 2005, Japan has introduced various measures aimed at further liberalizing its trade and investment regimes.  Progress has been made in improving the competitive 
environment, including in financial services.  
The authorities continue to promote regulatory reform and strengthen competition policy, which could, inter alia, help create more opportunities for domestic and foreign 
businesses.   
11. The tariff is Japan's main trade policy 
instrument;  most imports enter Japan duty free or are subject to lo w tariff rates.  In the 
fiscal year (FY) 2006, the simple average 
applied MFN tariff was 6.5%, up from 6.3% in 
FY 2004, reflecting increases in ad valorem equivalents of non-ad valorem duties.  Nearly 99% of tariff lines are bound and most applied rates coincide with bound rates, thereby imparting a high degree of predictability to 
Japan's tariff.  At the same time, non-ad 
valorem duties are an important feature of the tariff,  particularly in agriculture.  Such duties, which account for 6.7% of all lines, are indicated clearly in Japan's tariff schedule;  
they tend to involve relatively high ad valorem equivalents (AVEs).  The simple average of all specific rates for which AVEs were available 
was approximately ten fold the simple average 
of purely ad valorem tariff rates.  Preferential tariff rates are in place under the GSP (including additional preferences for 50 least developed countries) and under 
bilateral/regional trade agreements.  The 
simple average tariff rates under these preferential arrangements (GSP; LDCs;  and RTAs with Singapore, Mexico, and Malaysia) are 5.3%, 3.3%, 4.4%, 4.2% and 3.7%, respectively.   
12. Japan has few non-tariff border 
measures.  Those currently applied involve some import prohibitions and quantitative import restrictions,  for example,  on some fish.  Imports of certain goods are subject to 
licensing requirements in order to ensure 
national security, safeguard consumer health and well-being, or to preserve domestic plant and animal life and the environment.  Japan abolished import quotas on textiles and clothing on 1 January 2005.     
13. During the period under review, 
Japan undertook two anti-dumping measures. It introduced its first ever countervailing measure (against imports  of dynamic random 
access memory chips) in January 2006.  Japan 
has not imposed any sa feguard measures since 
its previous Review.   
14. Certain export controls are 
maintained on the grounds of national security and public safety, and to ensure adequate 
domestic supplies of certain agricultural and 
other primary products.  Finance, insurance, guarantees, and duty drawback schemes are available for exports.   
15. No preferences are granted to 
domestic suppliers with regard to procurement 
covered by the Agreement on Government 
Procurement.  The share of foreign suppliers in the total value of government procurement was 3.7% in 2004, the latest year for which such data are available, (down from 4.2% in Japan WT/TPR/S/175 
 Page ix 
 
 
2002).  The share of procurement of overseas 
goods and services in total procurement, in terms of value, decreased from 13.8% in 2002 to 9.7% in 2004.  The share of selective and 
single tendering rose to 1.7% and 44.1%, 
respectively, in 2004 (compared with 1.5% and 35.4% in 2002).   
16. About 93% of Japan Industrial 
Standards (JIS) were aligned to their 
international counterparts by 2005 (92% in 
2004). 
17. Various laws on intellectual property 
rights have been amended since Japan’s previous Review with a view to strengthening protection.  Efforts have been made to reduce 
the time required for patent registration.  
Japan has continued to participate in multinational and regional discussions on agreements to promote international harmonization of regimes protecting 
intellectual property rights (IPRs).   
18. In March 2006, Japan adopted a 
revised Three-Year Programme for Promoting Regulatory Reform, which listed 1,349 measures aimed at contributing to 
creating new opportunities for domestic and 
foreign businesses.  Japan has continued to 
implement regulatory reforms in selected regions under the scheme of special zones for structural reform;  some of these measures have been applied nationwide.  
19. The Anti-monopoly Act (AMA) is  the 
main legislation on competition policy.  The AMA was amended in 2005 to, inter alia:  increase administrative surcharges and penalties;  introduce a leniency programme;  
empower officials of the Japan Fair Trade 
Commission (JFTC) to conduct compulsory criminal investigations in accordance with the AMA;  and expedite JFTC's hearing procedures.  
20. There is growing awareness that 
ineffective corporate governance can 
contribute to the misallocation and perhaps excessive use of capital and labour in the corporate sector.  This has prompted the Government to implement a number of policy 
measures, such as an amendment to the Commercial Code;  the amended law entered into force on 1 May 2006. 
(4) T
RADE POLICIES BY SECTOR  
21. Japan has continued to promote 
structural reforms since its previous Trade Policy Review, especially those pertaining to energy and services.   
22. In agriculture, Japan is planning 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) increased from 
17.7% in FY 2004 to 18.8% in FY 2006 
reflecting increases in ad valorem equivalents of non-ad valorem duties, none of whose rates were increased.  In 2004, Japan's total transfers to agriculture amounted to 1.3% of 
GDP, which was almost equal to agriculture’s 
share in GDP (1.4%);  this overall level of government assistance for agriculture is well above the OECD average.  Labour productivity in agriculture has remained substantially lower than the national average.  
Food self-sufficiency has been around 40% on 
a calories-basis since FY 1998;  Japan is one of the world’s largest importers of food. 
23. Japan’s trade policies related to 
manufacturing have been largely unchanged 
since its previous Review;  however, Japan has 
placed more emphasis on the promotion of new industries and development of relatively backward regions of the country.  Japanese manufacturing has, by and large, been much 
more exposed to international competition 
than agriculture and certain services.  Tariffs on industrial products are usually low (averaging 3.6% in FY 2006), non-tariff barriers (e.g. import licensing requirements) are few, and the sector 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 increased slightly from 20.9% in 2003 to WT/TPR/S/175 Trade Policy Review 
Page x 
 
 
21.0% in 2004 (the latest year for which data 
are available);  the sector employed 16.9% of Japan's total labour fo rce in 2005, down from 
17.4% in 2004.   
24. One of main objectives of Japan's 
energy policy has been a stable energy supply, reflecting the fact that about 82% of its primary energy was imported in 2004 (most recent data available).  But electricity and gas 
prices in Japan are relatively high by 
international standards.  Since its previous Review, Japan has further liberalized its electricity sector to promote competition.  
25. Regulatory reform in services has 
continued.  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 competiti veness.  Reforms have 
progressed particularly in financial services, 
which are important for channelling savings 
into profitable investments across various sectors of the economy.  Besides a substantial reduction of non-performing loans (NPLs) and restructuring of government-affiliated institutions, the Government has placed 
emphasis on improved transparency in the 
financial system.  Laws on the privatization of Japan Post were adopted in October 2005.  The Government's policy framework for telecommunications has remained largely 
unchanged since the previous Review.  In 
transport, entry regulations in port services have been relaxed, and four public corporations in highway services were privatized in October 2005.  In professional 
services, major reforms included enabling 
foreign lawyers qualified under Japanese law to employ a Japanese lawyer. 
(5) O
UTLOOK  
26. The Government's official projections, 
announced in January 2006, forecast that the economy would grow by 1.9% in FY 2006, 
with the CPI increasing by 0.5%, and unemployment at about 4.1%.  The latest quarterly estimates of GDP indicate that in the 
third quarter of 2006, real GDP grew by 2.7% 
year on year, led mainly by domestic demand.  Compared with 2005 and the first two quarters of 2006, GDP growth in the third quarter relied more on external demand.  In view of 
strong domestic (compared with external) 
demand, owing to better performance by domestic fixed investment, rising wages and consequent growth in consumer demand, the Government is optimistic about the sustainability of the current recovery.  
Nonetheless, the strength of the recovery in the 
more immediate term depends to some extent on external factors, such as the pace of growth in the world economy (including the United States, EC25, and China, Japan's main export 
markets) and prices of crude oil, as well as on 
domestic factors, notably interest rate differentials between Japan and abroad, the narrowing of which could lead to a flow-back of yen and appreciation of Japan’s currency, perhaps reducing the competitiveness of its 
exports.  Japan's medium- and long-term 
growth prospects will depend on its continued efforts to implement an accommodative mix of monetary and fiscal policies together with structural reforms.  The latter include reforms 
in the financial, corporate, and public sectors, 
strengthening of competition policy, further trade liberalization (particularly in agriculture), measures to increase Japan's attractiveness to inward FDI, and policies to 
deal with the downside risks arising from its 
rapidly aging population and the associated decline in the labour force.  The Government appears to believe in the need to intensify such reforms, which would contribute to reducing, if not removing, distortions to competition that 
impair economic efficiency.