RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/76
17 October 2000
(00-4188)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
JAPAN
Report by the Secretariat
This report, prepared for the fifth Trade Policy Review of Japan, has been drawn
up by the WTO Secretariat on its own responsibility.  The Secretariat has, as
required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from  the Government of Japan on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Mr. M. Hayafuji (tel. 739 58 73) or Mr. M. Daly (tel. 739 50 77).
Document WT/TPR/G/76 contains the policy statement submitted by the
Government of Japan.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Japan.Japan WT/TPR/S/76
Page iii
TABLE OF CONTENTS
Page
SUMMARY OBSERVATIONS ix
(1) E CONOMIC ENVIRONMENT ix
(2) T RADE POLICY REGIME :  FRAMEWORK AND OBJECTIVES ix
(3) T RADE POLICIES AND PRACTICES BY MEASURES x
(4) T RADE POLICIES BY SECTOR xii
(5) O UTLOOK xiii
I. ECONOMIC ENVIRONMENT 1
(1) M AIN ECONOMIC DEVELOPMENTS 1
(2) M ACROECONOMIC POLICIES 4
(i) Monetary and exchange rate policies 4(ii) Fiscal policy 7
(3) S
TRUCTURAL POLICIES 7
(i) Corporate restructuring 7
(ii) Restructuring the financial system 9
(iii) Regulatory reform 9(iv) Competition 10(v) Labour market policies 11(vi) Public and private pension reform 11
(4) D
EVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT 11
(i) Composition of merchandise trade 13
(ii) Direction of merchandise trade 14(iii) Composition of trade in services 14(iv) Foreign direct investment (FDI) 14
(5) P
ROSPECTS 18
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 19
(1) I NTRODUCTION 19
(2) D EVELOPMENT AND ADMINISTRATION OF TRADE POLICY 20
(i) Main trade law and regulations 20(ii) Trade policy formulation and implementation 22(iii) Evaluation of trade and trade-related policies 23
(3) T
RADE POLICY OBJECTIVES 24
(4) T RADE AGREEMENTS AND ARRANGEMENTS 24
(i) WTO 24(ii) Other multilateral agreements 28(iii) Regional and inter-regional agreements 28(iv) Preferential arrangements 29
(v) Bilateral agreements 31
III. TRADE POLICIES AND PRACTICES BY MEASURE 35
(1) I
NTRODUCTION 35WT/TPR/S/76 Trade Policy Review
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Page
(2) Measures Directly Affecting Imports 36
(i) Customs valuation and clearance 36(ii) Rules of origin 37(iii) Tariffs 37(iv) Other charges affecting imports 44
(v) Non-tariff border measures 45
(vi) Anti-dumping, countervailing and safeguard measures 49(vii) Government procurement 49(viii) State trading 53(ix) Standards, sanitary and phytosanitary measures 54
(x) Other measures 57
(3) I
MPORT AND INWARD INVESTMENT PROMOTION MEASURES 57
(i) Overview 57(ii) Import promotion 58(iii) Investment regulation and promotion measures 59(iv) Foreign access zones 63
(4) M
EASURES DIRECTLY AFFECTING EXPORTS 64
(i) Export taxes and other charges 64(ii) Export restrictions, licensing, and cartels 64(iii) Export promotion schemes 64
(5) M
EASURES AFFECTING PRODUCTION AND TRADE 65
(i) Taxation and tax-related assistance 65
(ii) Subsidies and other financial assistance 67
(iii) State-owned companies and privatization 67(iv) Trade-related investment measures 67(v) Trade-related intellectual property rights 67(vi) Deregulation and regulatory reform 71
(vii) Competition policy and regulatory issues 72
IV. TRADE POLICIES BY SECTOR 80
(1) I
NTRODUCTION 80
(2) A GRICULTURE 81
(i) Overview 81(ii) Border measures 83
(iii) Domestic measures and support programmes 86
(3) E
NERGY AND UTILITIES 87
(i) Overview 87(ii) Electricity 88(iii) Gas 88
(4) M
ANUFACTURING 89
(i) Overview 89
(ii) Sectoral developments 91Japan WT/TPR/S/76
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(5) SERVICES 93
(i) Overview 93
(ii) Financial services 93(iii) Telecommunications 100(iv) Transportation services 105(v) Other services 110
REFERENCES 115
APPENDIX TABLES 117WT/TPR/S/76 Trade Policy Review
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CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Merchandise trade by product, 1996 and 1999 12
I.2 Intra-industry trade of Japan by region, 1985-99 13I.3 Merchandise trade by country, 1996 and 1999 15I.4. Composition trade in services, 1995-99 16
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Share of non- ad valorem  duties, by HS section, FY2000 40
III.2 Simple average applied MFN tariff rates, by HS section 43III.3 Applied MFN tariff distribution, FY2000 44
IV. TRADE POLICIES BY SECTOR
IV.1 Changes in the Financial Regulatory System 97
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Selected macroeconomic indicators, 1990-99 1
I.2 Shares of GDP and employment by sector, 1990-99 2I.3 Current and capital accounts, 1990-99 5I.4 Inward and outward FDI flows by source and destination FY1995-99 16
I.5 Inward and outward FDI flows by activity, fiscal years 1995-99 17
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Japan's major trade-related laws and regulations 20
II.2 Principal notifications under WTO Agreements, as at 25 April 2000 25
II.3 Main beneficiaries of Japan's GSP scheme, 1997-98 31
II.4 Major arrangements between Japan and the United States 32
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Average time between import declaration and import permission in Japan, 1991-98 37
III.2 Structure of applied MFN tariffs in Japan 38
III.3 Allocation of import quota by item, FY1999 46
III.4 Import quotas on fisheries products,  FY1995-99 47III.5 Procurement composition by product and by origin, 1997 52III.6 Major standards and technical regulations in Japan, March 2000 54III.7 Overview of Japan's import promotion policy, 2000 58
III.8 Total budget for Japan's import promotion programmes and forgone tax revenues, FY1997-2000 59
III.9 Measures for promoting imports and foreign direct investment into Japan, FY2000 61Japan WT/TPR/S/76
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Page
III.10 National government tax revenue, FY1998 66
III.11 Legislation regarding Intellectual Property Rights protection in Japan 68III.12 Patent, utility model, design and trademark applications filed and registered, 1995-98 69III.13 Suspension of imports likely to infringe intellectual property rights, 1990-99 70
III.14 Exemptions of the Anti-Monopoly Act, FY2000 73
III.15 Merger and acquisition notifications, 1995-98 75III.16 Enforcement statistics related to competition policy, 1995-99 76III.17 Industries monitored by the JFTC with respect to a "monopolistic situation", 1995-99 77
IV. TRADE POLICIES BY SECTOR
IV.1 Major indicators for Japanese agriculture, FY1990-98 81
IV.2 Protection in agriculture, FY2000 83IV.3 Special safeguard (SSG) actions in agriculture by Japan, FY 1997-99 85
IV.4 Procurement prices for all major crops subject to pricing and/or marketing
arrangements/price controls 87
IV.5 Manufacturing output and value added in Japan, 1992-98 89IV.6 Employment in manufacturing, value added per employee and wages per employee
in Japan, 1992-98 90
IV.7 Financial institutions in Japan, December 1999 94
APPENDIX TABLES
AI.1 Exports by product groups, 1995-99 119
AI.2 Imports by product groups, 1995-99 120AI.3 Exports by destination, 1995-99 121AI.4 Imports by origin, 1995-99 122
AI.5 Composition of trade in services, 1995-99 123
AIII.1 Non- ad valorem  tariffs applied by Japan, FY2000 124
AIII.2 Current and minimum access commitments by Japan under the Uruguay Round 133AIII.3 Tariff quotas in Japan, FY1997, 1998 and 2000 139
AIII.4 Tariff escalation and tariff ranges in Japan, FY2000 141
AIII.5 Systems for reduction, exemption, refund and repayment of customs duty, May 2000 144AIII.6 Other end-use tariff concessions in Japan, FY2000 145AIII.7 Import approval requirements in Japan, FY1999 147AIII.8 Other laws and regulations relate d to mandatory technical regulations 149
AIII.9 Japan's SPS notifications, 1998-2000 151
AIII.10 Amended plant and animal quarantine regulations since 1997 153
AIII.11 Import volume of foreign accesses zones, 1997 and 2000 155AIII.12 Subsidies notified under WTO provisions, FY1996-99 156AIII.13 Stockholding by the Government of Japan 161AIII.14 Regular staff of the Japanese Patent Office, FY1995-99 162
AIII.15 Merger notifications by sector, FY1994-99 163
AIII.16 Notifications of acquisitions by sector, FY1994-99 164Japan WT/TPR/S/76
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SUMMARY OBSERVATIONS
(1) ECONOMIC ENVIRONMENT
1. Japan appears to be extricating itself
slowly from a severe economic situation;  real
GDP was up by 0.2% in 1999 and showedsigns of further strength in the first half of
2000.  This nascent recovery follows negative
growth of 2.5% in 1998, when Japan was the
only industrialized economy in recession.  The
main factors behind this shrinkage were thesharp drops in business investment and private
consumption, both reflecting dampened
expectations.  The fall-off in business
investment also reflected excess capital,
financed largely by debt, prompting firms torestrain investment as part of their
restructuring efforts.  The drop in private
consumption was also due, inter alia, to
households' almost static disposable income
and uncertainty surrounding the sustainability
of pensions and the social security system.
Government outlays were a positive growthfactor in 1998 as were net exports, due in part
to the openness of the multilateral trading
system.  Growth was stimulated later in 1998
by a rebound in public investment, reflecting
public works projects implemented as a resultof the April 1998 fiscal package;  public works
then surged in 1999 as a consequence of an
additional fiscal package in November 1998.
Having recovered by 0.2% in 1999, real GDP
growth is projected by the Government to bearound 1% in 2000.  Consumer price inflation
has been practically non-existent, at 0.6% in
1998 and -0.3% in 1999.  The unemployment
rate has continued to rise, reaching 4.7% in
1999, the highest level for four decades,although there are signs of improvement.
2. The Government has sought to revive
the economy through expansionary
macroeconomic policies together with
structural reforms.  But in this regard
financial policies may be reaching their limits:
the Bank of Japan, in moving away from azero-interest-rate policy, recently raised one
of its short-term rate by 0.25%;  the fiscal
deficit is approaching 10% of GDP and
government debt is around 130% of GDP.Concurrently the view is taking hold that a
sustained economic recovery can be achieved
only through more aggressive structural
reform that enhances competition.
3. A key element in structural reform is
deregulation, which has the potential toreduce costs and prices to world levels,
thereby stimulating demand and growth.
Economic intervention has been reduced in
several sectors, especially financial services,
telecommunications and retailing.  At the sametime, Japan has had to counter the threat to
economic recovery posed by the fragility of the
financial system.  Another element of
structural reform entails corporate
restructuring aimed at redressing severalimbalances that have eroded corporate
profits; these imbalances involve excess
capital and labour, high levels of long-term
debt, and inadequate funding of company
pensions.  Steps have also been taken by the
Japan Fair Trade Commission (JFTC) to
increase competition.  These elements are inaddition to the stimulus to competition
provided by Japan's further liberalization of
its trade and investment regime, partly in
accordance with WTO commitments.
(2) T
RADE POLICY REGIME :
FRAMEWORK AND OBJECTIVES
4. Since its previous Trade Policy
Review in 1998, Japan has made no major
changes to its trade policy regime except those
pertaining to its regulatory framework forfinancial services.  Japan's trade policy
priorities include strengthening the
multilateral trading system.
5. Japan remains committed to the
promotion of deregulation and improvedtransparency.  Its commitment to the former is
demonstrated by the Cabinet's adoption in
April 2000 of a revised Three-Year Program
for Promoting Deregulation (TYPPD) in
sectors including financial services,
telecommunications, energy, transportation
and distribution.  A July 1999 cabinet decisionon "Ideal Socio-economy and Policies for
Economic Rebirth" calls for the establishmentWT/TPR/S/76 Trade Policy Review
Page x
of fair markets and consumer sovereignty in a
transparent manner.  Recently, steps have also
been taken by a few ministries, notably the
Ministry of Industry and Trade (MITI), to
evaluate the costs and benefits of trade and
trade-related measures, including regulations;these evaluations could contribute to more
informed policy-making and, if published,
would improve public accountability.
6. Japan grants at least MFN treatment
to all WTO Members.  During the periodunder review, Japan has been an active
participant in WTO activities.  It has used
extensively the WTO dispute settlement
mechanism, having been a party to four
disputes, three as plaintiff and one asdefendant.  Japan participates in the Working
Groups on Competition Policy and Investment,
as well as those on Electronic Commerce and
Government Procurement.
7. In a break with the past, regional free-
trade agreements now seem to be attracting
greater interest in Japan;  more specifically,an agreement with Singapore is being studied
jointly by the two Governments, and
government-affiliated institutes in Japan and
Korea are exploring the possibility of a free-
trade agreement between the two countries.According to the authorities, these regional
and bilateral initiatives will not undermine
Japan's commitment to the multilateral trading
system.  Japan has, of course, long had a
strong bilateral relationship with the UnitedStates;  arrangements between the two
countries currently cover several trade and
trade-related areas.  Japan also has bilateral
treaties with several countries on investment,
taxation, and social security, six of which wereconcluded between 1998 and first half of 2000.
8. Japan continues to grant unilateral
preferential market access to products from
certain developing countries under its
Generalized System of Preference (GSP)
scheme.(3) T
RADE POLICIES AND PRACTICES BY
MEASURE
9. Japan has continued to liberalize its
trade and investment regimes, mainly as part
of its broad regulatory  reforms.  However,
measures constituting potentially importantdistortions to competition are still evident in
some sectors, notably agriculture and certain
services.  Recognizing the need to further
promote competition, the authorities attach
high priority to sound competition policy.
10. The tariff is Japan's principal trade
policy instrument.  Most imports to Japan are
either duty free or are subject to low tariff
rates.  In fiscal year (FY) 2000, the simple
average applied MFN tariff rate was 6.5%;the rate is expected to fall to 6.3% once the
Uruguay Round tariff cuts are fully
implemented, by 2009.  Nearly 99% of tariff
lines are bound and most applied tariff rates
coincide with bound rates, thereby imparting a
high degree of predictability to Japan's tariff
schedule.  At the same time, non-ad valoremduties are an important feature of the tariff,
particularly in agriculture;  they accounted for
6.9% of all lines in FY2000.  While such duties
are indicated clearly in Japan's tariff
schedule, they can conceal high ad valoremequivalent (AVE) rates.  In the interests of
transparency, the Japanese authorities have
provided the Secretariat with AVE estimates
for more than two thirds of these duties;  AVEs
for the remaining such duties are not availabledue to the absence of imports, which might
suggest that the rates are prohibitive, and that
the applied MFN tariff average is
underestimated.  Available AVE estimates
show that 90 of the top 100 tariffs entailednon-ad valorem duties whose ad valorem
equivalents (AVEs) ranged from 40.1% to
983.7%.  Japan applies tariff quotas on about
200 agricultural items;  the allocation of these
quotas varies by product and can be complex.
11. Japan has few non-tariff border
measures; those currently applied involvesome import prohibitions, import licensing,
and quantitative import restrictions (on fish
and silk, for example).  Imports of certainJapan WT/TPR/S/76
Page xi
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.  Like tariff quotas, certain
aspects of the import quota system can becomplex.
12. Japan has rarely used contingency
measures, such as countervailing and anti-
dumping duties and emergency safeguards,
although there has been resort to specialsafeguards in agriculture.
13. Japan maintains certain export
controls on grounds of national security and
public safety and to ensure adequate domestic
supplies of certain agricultural and otherprimary products.  Indicating their absence,
Japan has not notified any export subsidies to
the WTO.  Export finance, insurance,
guarantees, and duty drawback schemes are
available.
14. Various forms of assistance are
provided by central and local governments tosome sectors, notably agriculture.  An
interesting anomaly involves assistance, in the
form of tax breaks and low interest loans,
provided for certain types of imports (and
investment).
15. Japan has made several major
changes in its foreign direct investment (FDI)
regime since its previous review.  These
include:  the introduction of ex-post facto
notification for mining (instead of priornotification) and the elimination of reporting
requirements when foreign corporations
change their activities to sectors that do not
require prior notification;  the elimination of
limits on foreign capital participation incertain types of telecommunications carriers,
except for the Nippon Telegraph and
Telephone Corporation (NTT);  and the
abolition in June 1999 of the regulations on
foreign investment, and employment of non-
Japanese officers, in the cable television
industry.  Although a notified inward FDIproject may be rejected by the Government,
the authorities state that this has not been thecase since 1997.  Inflows of FDI into Japan
have risen considerably during the past two
years but are still low by OECD standards;
whereas Japan is the OECD's second largest
economy, it is 19
th with respect to FDI inflows.
This contrasts with Japan's position as one ofthe main sources of FDI.
16. As regards government procurement
covered by the Agreement on Government
Procurement, no preferences are granted to
domestic suppliers.  The share of foreignsuppliers in the total value of government
procurement was 5.7% in 1998 (up from 4.6%
in 1997);  there are indications that this share
is considerably lower in the case of public-
works procurement, which has been a keyfeature of recent fiscal stimulus packages.
17. Japan continues to bring its standards
into line with international standards;  it has
also taken further steps to ensure acceptance
of foreign test data and conformity
assessments.
18. Japan has continued to participate in
multilateral and regional discussions for
agreements to promote international
harmonization of regimes protecting
intellectual property rights (IPRs).
19. The Three-Year Program for
Promoting Deregulation (TYPPD), as revised
in April 2000, is aimed, inter alia, at creating
a "free and fair" Japanese economy fully open
to the international community.  Furthermore,
with a view to increasing transparency ofgovernment policy and related measures, in
March 1999, Japan introduced a notice and
comment ("public comment") system for use
prior to introducing or revising regulations.
The TYPPD also contains measures toincrease competition.  These include the
abolition of a number of exemptions from the
Anti-Monopoly Act (AMA), Japan's principal
competition law;  as a result, the number of
exemptions under the AMA (and other laws)
dropped from 89 in 1996 to 22 in 2000.  At the
same time, following the modest increase in itsbudget and staff, the role of the Japan Fair
Trade Commission (JFTC) has beenWT/TPR/S/76 Trade Policy Review
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strengthened.  Moreover, judging from the
increased number of cases and actions taken,
the JFTC also seems to have become
somewhat more aggressive in addressing
private anti-competitive practices;  a majority
of these cases involve bid-rigging inconnection with tenders for government
procurement contracts.  However, the
operation of the JFTC is perhaps hampered by
its lack of resources and expertise in pursuing
complex cases.
(4) T
RADE POLICIES BY SECTOR
20. Japan is moving from price to income
support for agriculture.  However, the sector
remains relatively well protected from foreign
competition.  The average tariff on imports ofagricultural products remains high, tariff
quotas can be intricate, and a number of these
products receive domestic support.  As a
consequence, the overall level of government
assistance for agriculture (as measured by
producer and consumer support estimates) is
well above the OECD average, and appears tohave risen since 1997.  The average annual
amount of transfers to agriculture during the
1990s has exceeded agriculture's contribution
to GDP, which has averaged roughly 1.5%.
Productivity in Japanese agriculture remainslow by national standards.
21. Japan enacted a new Basic Law for
Food, Agriculture and Rural Areas in July
1999, in order to cope with major economic
and social changes facing agriculture and tolay out the future direction of agricultural
policy.  The new Law is based on four basic
principles:  a stable food supply, fulfilment of
agriculture's multifunctional role, sustainable
development of agriculture, and thedevelopment of rural areas.  With a view to
implementing the policy direction stipulated in
the new Law, a Plan was decided by Cabinet
in March 2000.  It contains various measures,
some of which have already been
implemented; these include the reform of the
price policy for wheat and the introduction ofdirect payments to farmers in hilly and
mountain regions.  The Plan also includes a
guideline for reaching a 45% food self-sufficiency ratio (on a calorie basis) by 2010
(compared with 40% in 1998).
22. Japanese manufacturing has
traditionally been much more exposed to
international competition than other sectors
(except in the cases of prepared food products,tobacco, alcoholic beverages, textiles,
footwear and headgear, and leather and
leather products).  Tariffs on manufactured
goods are usually low, non-tariff barriers are
few, and the sector receives relatively littlefinancial or other assistance from the State.
Nonetheless, manufacturing, unlike
agriculture, has been the driving force behind
Japan's rapid export-led development during
the past 50 years.  This is especially true forautomobiles, robotics, video recorders,
cameras and video games, where the
government has played a very minor role other
than to participate actively in multilateral
trade liberalization.  As in most other
industrialized countries, however,
manufacturing's contribution to Japan's GDPhas declined steadily;  in 1998, it accounted
for 23.5% of GDP compared with 24.4%
in 1997.
23. The share of services in Japan's GDP
has grown to roughly 65%.  Protection forJapanese suppliers from foreign competition
has been provided not so much through border
measures, but more through internal
regulations (including licensing and
restrictions on foreign investment), state-ownership in some instances, and anti-
competitive private practices.  In recognition
of the growing importance of services, both to
consumers and as a determinant of
international competitiveness, Japan'sattention has focused increasingly on
deregulation combined with the strengthening
of competition laws and their enforcement.
The high cost of services and other inputs can
be a factor encouraging Japanese businesses
to relocate abroad.
24. Financial services liberalization is
one of the centrepieces of recent structural
reform efforts; Japan has continued to make
progress in implementing the liberalizationJapan WT/TPR/S/76
Page xiii
agenda that was established in 1997.
Popularly known as the "Big Bang", the
purpose of these reforms is to create a "free,
fair and global" financial system by, inter alia,
allowing firms to provide various types of
financial services beyond existing borders offinancial institutions (that is, banks, insurance
companies, or securities companies), and
opening the door to foreign institutions
wishing to operate in Japan. Entry of foreign
institutions may well have provided a furtherimpetus to financial and corporate
restructuring.  Financial liberalization is also
creating new opportunities for household
savings, such as fast-growing mutual funds,
which are more inclined to invest in new, fastgrowing enterprises.  Financial liberalization
is thus likely to contribute to a more efficient
allocation of savings.
25. At the same time, Japan has had to
grapple with the threat to economic recovery
posed by the fragility of the financial system.
Accordingly, it has taken steps to re-capitalizethe banking system.  More specifically, 1998
legislation provided up to ¥60 trillion (12% of
GDP) to address the problem of non-
performing loans:  some insolvent institutions
have been closed, two large banks weretemporarily nationalized (one of which was
subsequently sold to a foreign bank), and
many others have received large injections of
public capital. Regulatory and supervisory
responsibilities for banks have beentransferred from the Ministry of Finance to a
new agency, the Financial Services Agency
(FSA) and its parent body, the Financial
Reconstruction Commission (FRC).
Provisioning standards have also beentightened.  Whereas Japan appears to have
successfully addressed the banking sector's
problems, some life insurance companies still
face the threat of bankruptcy and are therefore
attracting increased regulatory attention from
the FSA.
26. Japan has also introduced various
measures to promote further deregulation in
the telecommunications sector, including:
elimination of foreign ownership restrictions
for certain types of telecommunicationsservices and cable TV service providers;  the
elimination of the authorization requirement
for end-user charges;  the introduction of a
price-cap regulation for certain end-user
charges; and an amendment in May 2000 to
the Telecommunications Business Law settingup a framework to introduce a long-run
incremental costing (LRIC) system.
Nonetheless, as indicated by the JFTC, the
Japanese telecommunications market remains
monopolistic, and the prices of some servicesare still high by developed-country standards.
For example, Japan's internet-access charges
for 40 off-peak hours in March 2000 were
higher than in most other OECD member
countries;  such high charges tend todiscourage the use of the internet and the
spread of information technology, thereby
hampering the development of electronic
commerce.
27. Concerns have been raised about the
adequacy and effectiveness of competition
policy in relation to other service sectors asderegulation proceeds, notwithstanding the
recent strengthening of competition laws and
their enforcement.  In particular, several
sectors, notably maritime and air transport,
are exempt from the Anti-Monopoly Act.
(5) O
UTLOOK
28. There are signs of recovery in the
Japanese economy.  Led by public investment,
real GDP was up at an annual rate of 4.2% in
the second quarter of 2000.  But afterincreasing strongly in the first quarter of
2000, partly as a result of a rise in corporate
profitability, corporate investment dropped
somewhat in the second quarter despite
increasing profitability.  The recent mixedtrends in private consumption and investment,
together with the present high level of
unemployment (which has contributed to
Japanese consumers' reluctance to spend),
persistent downward pressure on prices, and
declining net exports, provide a rather unclear
picture concerning the strength of the recoveryand its durability.  The strengthening of the
yen, which has appreciated considerably
against the U.S. dollar and the Euro since theWT/TPR/S/76 Trade Policy Review
Page xiv
middle of 1998, could cause net exports to fall
further, possibly weakening the recovery.  The
decision by the Bank of Japan, in August 2000,
to end its "zero-interest-rate" policy has
probably taken into account the likely impact
of that decision, not just on the exchange ratebut also on the financial system and on
consumer spending and investment.
Nevertheless, as a result of continuing doubts
about the strength of the economic recovery,
the Government is reportedly considering yetanother fiscal stimulus package, albeit much
smaller than the two previous ¥18 trillion
packages (in November 1998 and 1999).
29. With economic prospects seemingly
brighter, there is perhaps the danger thatJapan may waver in its resolve to continue to
pursue structural reforms, thereby
jeopardizing a sustained recovery.  Indeed,
there have been some recent signs of "reform
fatigue" (e.g. postponement of the introduction
of consolidated taxation;  delays in pension
reform;  the two-year delay in the plannedabolition  of  bank deposit  safety-net  scheme;and the fact that, as yet, no licences have been
granted to non-financial groups wishing to
engage in banking).  Nonetheless, the
Government seems firm in its intention to
intensify regulatory and other reforms aimed
at removing distortions to competition.  In thisrespect, the Government's recent decision to
abandon plans to bail out a heavily indebted
major retailer constitutes a positive sign.  By
and large, the private sector has urged the
Government to press ahead with reform.
30. While continuing to open its market at
the multilateral level, Japan appears to be
becoming increasingly involved in regional
arrangements, notable the APEC forum, and isdeveloping links with the grouping consisting
of ASEAN, China and Korea (ASEAN+3
(including Japan)).  Japan is also exploring
bilateral free-trade agreements, having
eschewed such arrangements in the past.  It is
important that such regional and bilateral
arrangements do not erode Japan's long-standing attachment to the multilateral trading
system.