Commissioned by the Japan-U.S. Business Council

A Japan-U.S. Economic Partnership Agreement:
Impact and Issues

Shujiro URATA, Professor of the Graduate School of Asia-Pacific Studies, Waseda University
Masayoshi HONMA, Professor of the Graduate School of Agriculture and Life Sciences,
University of Tokyo
Ken ITAKURA, Associate Professor, Graduate School of Economics, Nagoya City University

July 2008

Although this report was commissioned by the Japan-U.S. Business Council,
the opinions stated herein are those of the authors and do not necessarilyreflect the official views and positions of the Japan-U.S. Business Council.

Table of Contents
I. Introduction···········································································································3
II. Japan-U.S. Economic Relations: Trade and Investment ··············································5II.1
Trade······································································································5II.2
Foreign Direct Investment·········································································7III. Trade Policies of Japan and the United States··························································9III.1 From Trade Friction to Partnership ····························································9III.2 FTA Strategies of Japan ·········································································· 11
III.3 FTA Strategies of the United States ·························································· 13
IV. Economic Impact of a Japan-U.S. EPA ··································································· 15
IV.1
Analytical Methodology ··········································································· 15
IV.2
Analysis Results ··················································································· 17
IV.3
Summary of Results and Some Remaining Issues ······································· 19
V. Japan-U.S. EPA and Japanese Agriculture ······························································ 19
V.1
Current Conditions in Japan-U.S. Agricultural Tradeand Japanese Tariffs··············································································· 20
V.2
Japanese Agriculture as an Industry ························································· 23
V.3
Japan’s Farm Households and Agricultural Management····························· 26
V.4
Comparison of Agricultural Management in Japanand the United States ············································································· 29
V.5
Treatment of Agriculture in Past FTAs ······················································ 31
V.6
Toward Improving the Efficiency of Japanese Agriculture ···························· 38
V.7
Toward Constructive Debate on a Japan-U.S. EPA ····································· 42
VI. Conclusion········································································································· 45
References ·············································································································· 48

1Charts and Tables
Chart 1
Chart 2
Table 1
Chart 3Chart 4
Table 2
Table 3
Table 4
Table 5
Table 6
Table 7
Table 8
Table 9
Table 10
Table 11
Table 12
Table 13
Table 14
Table 15
Table 16
Table 17
Table 18
Table 19
Table 20
Table 21
Table 22
Appendix:

Japan’s Exports to the United States and China ······································· 49
Japan’s Imports from the United States and China ··································· 50
Structure of Japan-U.S. Trade ································································ 51
Japan’s Foreign Direct Investment in the United States····························· 52
U.S. Foreign Direct Investment in Japan ················································· 53
List of Regions ····················································································· 54
List of Industries ·················································································· 55
Japan and U.S. Tariff Rates by Industry ·················································· 56
Relative TFP Gaps················································································ 57
Economic Welfare ················································································· 58
GDP ··································································································· 59
Exports ······························································································· 60
Imports ······························································································· 61
Investment ·························································································· 62
Output by Industry ··············································································· 63
Exports by Industry ·············································································· 64
Imports by Industry ·············································································· 65
Japan’s Agriculture, Forestry, and Fisheries Exports andImports with World and with U.S.··························································· 66
Basic Indicators of Japanese Agriculture·················································· 67
Structure of Japanese Farm Households ·················································· 68
Farm Households by Agricultural Sales:
Commercial Farm Households································································ 69
Incomes of Farm and Employee Households ·········································· 70
Incomes of Business and Side-Business Farm Households ························ 71
Age Structure of Agricultural Population:
Commercial Farm Households································································ 72
Classification of U.S. Farms and Cash Income from Agriculture ·················· 73
Number and Sales of Large-scale U.S. Farms(sales exceeding 1 million dollars) by Crop ·············································· 74
Structure of Japan-U.S. Trade (SITC 2-digit level) ··································· 75

2

I. Introduction
Free trade agreements (FTAs), which abolish trade barriers among designatedcountries, began to proliferate throughout the world during the 1990s. One ofcontributing factors at the time was the stalemate in the trade liberalization
negotiations in the General Agreement on Tariffs and Trade (GATT) Uruguay
Round, which prompted many countries with an interest in trade liberalization toconclude FTAs with like-minded trading partners. Another factor creating keen
global interest in FTAs and regional integration was the gradual but significant
progress made in European economic integration that had its origins in the 1950s.
The Uruguay Round negotiations were eventually concluded and GATT evolved
into the World Trade Organization (WTO), which was launched in 1995. However,FTA negotiations became more active when the first round of trade liberalization
negotiations under the WTO failed to get underway in a timely manner. Finally,
when Doha Round negotiations were started in 2001, the slow pace of progress
further heightened worldwide interest in FTAs.
As FTAs gradually increased in number, the United States launched its own
FTA-related initiatives in the mid-1980s. In comparison, Japan and the East
Asian countries were late in developing an interest in FTAs and did not become
fully engaged in negotiating FTAs until after the start of the 21st century.
Meanwhile, the United States concluded the North American Free Trade
Agreement (NAFTA) and moved toward regional integration with two major
trading partners: Canada and Mexico. Japan has taken a gradual approach innegotiating and concluding economic partnership agreements (EPAs), mainlywith members of the Association of Southeast Asian Nations (ASEAN). To date,Japan has not concluded FTAs with any major trading partner, such as the UnitedStates, the EU, and China.
Growing interest in negotiating a Japan-U.S. EPA was seen after the mid-1980sin the business community and the media. In part, this interest was focused on
the desire to respond to the Japan-U.S. trade imbalance and related problems oftrade friction.1 However, this interest faded after the collapse of Japan’s bubble
economy in the early 1990s and its prolonged period of economic stagnation. The
start of the 21st century brought renewed interest in a Japan-U.S. EPA as a
growing number of FTAs were concluded throughout the world. Anothercontributing factor has been the economic and political emergence of China, which
has led both Japan and the United States to develop a keener awareness of theimportance of Japan-U.S. cooperation. In recent years, interest in a Japan-U.S.
EPA has been growing rapidly in the Japanese business community.2 One of thereasons for this is the signing of the U.S.-Korea FTA in June 2007. Because theresultant liberalization of U.S.-Korea trade will place Japanese companies at a
1 For example, see Ryozo Hayashi and Ichiro Araki, editors in chief, Nichibei FTA Kenkyukai, ed.

(2007).
2 Examples can be found in the statements made by business leaders in an EPA symposium
organized by the Nippon Keidanren on December 18, 2007:
http://www.keidanren.or.jp/japanese/journal/times/2008/0117/03.html (in Japanese).

3disadvantage in U.S. markets in their competition with Korean companies,
Japanese companies are hoping to even the field through a Japan-U.S. FTA.
Similarly, U.S. companies that feel they have not been able to advance into theJapanese markets as hoped are also showing strong interest in a Japan-U.S.
EPA.3
Unlike in the business community, attitudes toward a Japan-U.S. EPA are morecautious on the government level in both countries. While the Japanese and U.S.
governments have agreed on exchanging information on FTAs that they enter intowith third countries, a Japan-U.S. EPA is not even on the agenda for bilateral
discussions. Within the Japanese government, given the position of the UnitedStates as a major consuming nation, the Ministry of Economy, Trade and Industry
has advocated the importance of entering into an EPA with the United States aspart of Japan’s overall EPA strategies. However, other government ministries
have yet to present any concrete positions on a Japan-U.S. EPA. As for the U.S.
government, while it has shown interest in concluding a Japan-U.S. EPA, thegeneral understanding is that Japan is not prepared to sign the type ofcomprehensive and high-level FTA that the United States hopes for. Consequently,
the current stance of the U.S. government is that EPA negotiations with Japan
will depend on conditions in Japan.4
This report examines the significance and challenges of a Japan-U.S. EPA for theJapanese economy in light of the recently growing interest in a Japan-U.S. EPA
centered on the business community. The report is organized as follows. Section II
provides a survey of Japan-U.S. economic relations. Section III reviews past andpresent developments in the framework for Japan-U.S. economic consultation,and examines the FTA and EPA strategies of Japan and the United States.
Section IV features a simulation analysis of the economic impact of a Japan-U.S.
EPA using economic models. Section V focuses on Japanese agriculture,
presumably the greatest obstacle on the Japanese side to the conclusion of aJapan-U.S. EPA, and analyzes the specific issues that exist in this sector andvarious approaches to overcoming these problems. The conclusions of the reportare presented in Section VI.

3 For example, the strong interest of U.S. companies in a Japan-U.S. EPA is reflected in the press

releases of the American Chamber of Commerce in Japan:
http://www.accj.or.jp/UserFiles/Image/PressReleases2007/020-2007-04-13%20ACCJ%20Welcomes%20the%20U.S.-Korea%20Free%20Trade%20Agreement%20(English)%20.pdf
4 Statement made by Hans Klemm, Minister Counselor for Economic Affairs at the U.S. Embassyin Tokyo, in his speech of April 25, 2007 at the Nippon Keidanren:
http:/www.keidanren.or.jp/japanese/journal/times/2007/0524/06.html (in Japanese). Statement
made by Wendy Cutler, Assistant U.S. Trade Representative, in her speech of October 19, 2007 at
the Japan National Press Club.

4

II. Japan-U.S. Economic Relations: Trade and Investment
In GDP terms, the United States and Japan are the world’s first and second
largest economies, respectively. In 2005, their combined GDPs accounted for 38
percent of global GDP (United States: 28 percent; Japan: 10 percent). However,the share of the two countries is declining due to the fact that China, India andother developing economies are growing at a faster pace than the United States
and Japan. In particular, the share of the Japanese economy in the total global
economy has declined markedly since the 1990s due to Japan’s prolonged
economic stagnation. In light of these economic developments, this section
analyzes Japan-U.S. relations in terms of trade and foreign direct investment, two
factors of special importance in considering a Japan-U.S. EPA.
II.1

Trade

The United States is an important trading partner for Japan, particularly in thearea of exports. While the share of exports to the United States in Japan’s totalexports has been declining, the United States continues to provide the largest
export market for Japanese goods. As shown in Chart 1, in certain periods in thepast, the share of exports to the United States accounted for more than 30 percent
of Japan’s total exports. This share began to decline in 2000 and stood at 22.5
percent as of 2006. On the other hand, the share of exports to fast-growing Asian
economies, and in particular to China, has been increasing. In the early 1990s,
exports to China accounted for about 3 percent of Japan’s total exports. But theratio has climbed to 14.3 percent as of 2006. Although the share of exports to
China has been rising steadily, the United States continues to absorb the highest
share of Japan’s exports. Given the continued high pace of economic growthamong Asian countries, the share of exports to Asia in Japan’s total exports can be
expected to continue increasing in the years ahead. However, this trend will not
detract from the importance of the United States as an export market forJapanese products.
The importance of the United States to Japan is relatively low when viewed interms of imports, and as in the case of exports, has been declining steadily (Chart
2). The share of imports from the Unites States in Japan’s total imports stood at
22.4 percent in 1988 but has continuously dropped to 11.7 percent as of 2006. A
reverse trend is seen in the share of imports from China, which has steadily
increased to reach 20.5 percent as of 2006.
One of the factors contributing to the rapid growth of trade between Japan andthe East Asian countries and China is the emergence of regional manufacturing
networks centered on the machinery industries. Japanese, U.S., and European
multinational corporations have taken advantage of the low-cost and well-trainedlabor resources of the East Asian countries to establish regional manufacturing
networks that boast highly efficient output. These regional manufacturing
networks have contributed to the growth of trade in parts and components among
5

manufacturing centers located throughout the region. This expansion of trade has
led to a high degree of trade interdependence within the East Asian region. The
United States participates in this scheme as an important export destination for
the goods produced in these networks.
East Asia’s regional manufacturing networks are also affecting trade relations
between Japan and the United States as can be seen from the product breakdownof the trade between the two countries (Table 1). Japan’s exports to the UnitedStates are centered on manufactured products with machinery taking the lion’sshare. Thus, in 2006, machinery accounted for more than 75 percent of Japanese
exports to the United States, and within the category of machinery, automotive
products claimed an overwhelming share, as is shown in the Appendix. In fact,motor vehicles account for 40 percent of all Japanese exports to the United States.
The importance of the U.S. market for Japanese automakers is made clear by thefact that the United States absorbs 40 percent of Japan’s total motor vehicle
exports. U.S. markets are also of crucial importance to a number of otherJapanese industries, including pharmaceuticals, general machinery, electronicand electrical machinery, and precision machinery. However, the value of exportsof these industries is far smaller than the value of automotive exports.
Turning to Japan’s imports from the United States, manufactured products andmachinery in particular account for a major share. However, agricultural products
and foodstuff also make up a major part, accounting for 13 percent of Japan’s
imports from the United States. Among all machinery, electronic and electricalmachinery and other transport equipment (aircraft and aircraft engines) holdlarge shares.
In considering a Japan-U.S. EPA, it is important to examine the competitivenessof Japanese industries vis-à-vis their U.S. counterparts. This is because tradeliberalization and facilitation through a Japan-U.S. EPA is likely to result inexport expansion for competitive industries and import expansion for lesscompetitive industries. Estimations based on competitiveness indexes assummarized in Table 1 indicate that Japan holds competitive advantages inmachine products but is less competitive in such areas as agricultural products
and food, and beverages and tobacco.
Analysis of Japan-U.S. trade indicates that the United States is an extremely
important market for Japanese exports of machinery and for motor vehicles inparticular. The analysis also confirms that Japan enjoys extremely significant
competitive advantages in the export of motor vehicles. On the other hand, theanalysis shows that while the importance of the United States as a source ofJapan’s imports has been declining, the United States is competitive in such areas
as agricultural products and food, and beverages and tobacco. These results
indicate that it is highly likely the conclusion of a Japan-U.S. EPA would benefit
Japanese machinery industries and the automotive industry in particular.
Conversely, it can be predicted that producers in agriculture, foodstuff, beverages,
and tobacco will be adversely affected by reduced domestic production, which is
the reason why these industries oppose a Japan-U.S. EPA.
6

II.2 Foreign Direct Investment
A review of outstanding amounts of foreign direct investment shows that theUnited States is not only the leading absorber of Japan’s outward foreign direct
investment but also the leading source of Japan’s inward foreign direct
investment. As of the end of 2006, the outstanding balance of Japanese foreign
direct investment in the United States amounted to 156.4 billion dollars. This
made the United States the largest absorber of Japanese outward foreign direct
investment far ahead of second-place Netherlands with 45.4 billion dollars inoutstanding investments. 5 The outstanding balance of U.S. foreign direct
investment in Japan amounted to 42.0 billion dollars. This put the United Statesin first place and well ahead of second-place Netherlands with 12.2 billion dollars.
The U.S. share in Japan’s total outward and inward foreign direct investment
came to 34.8 percent and 39.0 percent, respectively.
A review of developments since the late 1980s points to the following features. On
a value basis, Japan’s foreign direct investment in the United States has
generally followed the trends in Japan’s total outward foreign direct investment.
Specifically, Japan’s foreign direct investment in the United States peaked at over4 trillion yen at the end of the 1980s and thereafter decreased sharply with thecollapse of the bubble economy in the early 1990s (Chart 3). While there was aperiod of recovery in the second half of the 1990s, Japan’s foreign direct
investment in the United States again decreased sharply after the start of the
century and currently stands at about 20 percent of the peak levels recorded in
the late 1980s. The decline in the number of investments made in the UnitedStates by Japanese companies has been even greater than the decline in value
terms. Thus, while the number of investments exceeded 2,600 in 1989, this had
fallen as far as 191 investments in 2004, following two periods of precipitous
decline in the early 1990s and after the start of the century. Although there has
been some fluctuation from time to time, the share of the United States in Japan’s
total outward foreign direct investment has been gradually declining since theend of the 1980s. In value terms, this share has decreased from nearly 50 percent
in 1989 to only 13 percent in 2004.
Turning next to U.S. foreign direct investment in Japan, on a value basis, suchinvestments have been increasing in recent years (Chart 4). Up to the mid- 1990s,
U.S. foreign direct investment in Japan fluctuated between 100 and 200 billion
yen. But it began to increase after 1998 to reach 2,600 billion yen in 2004. The
figure for 2004 was nearly eight times the figure for the previous year. This
reflected large-scale investments by U.S. financial sector. (See 2005 JETRO White
Paper on International Trade and Foreign Direct Investment, p. 25.) The numberof investments declined during the mid-1990s, but recovered thereafter and has
5 See JETRO website. Data on outward and inward foreign direct investment were obtained fromthe following sites, respectively:
http://www.jetro.go.jp/en/reports/statistics/statistics/iip_2007_1.xls
http://www.jetro.go.jp/en/reports/statistics/statistics/iip_2007_2.xls.

7remained at around 500 cases per year since 2000. In value terms, the U.S. sharein Japan’s total inward foreign direct investment is subject to wide fluctuations
and does not present a clear trend. On the other hand, in terms of number ofinvestments, the U.S. share is now higher than it was before the 1990s. This
stands in clear contrast to the steady decline in the share of the United States inJapan’s total outward foreign direct investment. Since the beginning of the
century, the share of U.S. foreign direct investment in Japan’s total inward
foreign direct investment has remained steady at around 30 percent in terms ofboth value and number of investments, with the exception of a high share in value
terms in 2004. The overall trend indicates the importance of the United States asa source of Japan’s inward foreign direct investment.

8III. Trade Polices of Japan and the United States
Japan-U.S. economic relations are in transition from an earlier period of trade
friction to a period of cooperation and harmonization. However, this does notmean that trade and investment friction has been completely eliminated. While
not as serious as in the past, lingering friction continues to pose problems andissues for both sides. This section provides a review of the trade policies of Japanand the United States. It starts with a survey of trade policies and policy
measures in the two countries and moves from there to an examination of the FTA
strategies of Japan and the United States.6 The general purpose of this analysis is
to identify the various issues and challenges that must be addressed when
considering a Japan-U.S. EPA.
III.1 From Trade Friction to Partnership
The beginnings of Japan-U.S. trade friction in the postwar period can be traced tothe protectionist demands made by U.S. manufacturers in response to the steadypenetration of Japanese manufactured goods into U.S. markets. This friction firststarted in the 1950s with textiles but gradually moved to include other industries
as the Japanese economy developed and shifted to the production of moresophisticated and higher value-added products. Thus, Japan-U.S. trade friction
features such products as color TVs, steel and machine tools in the 1970s, andautomobiles and semiconductors in the 1980s. In many instances, trade friction
involving the export of Japanese products to the United States was finallyresolved through voluntary export restraints adopted by the Japanese side
following extensive bilateral negotiations.
Beginning in the 1980s, the focus of trade friction shifted from the protection of
U.S. markets to the liberalization of Japanese markets. Frustrated by the slow
growth of exports to Japan, it was during this period that the U.S. side began tomake demands for market liberalization. The market-oriented, sector-selective(MOSS) negotiations that were launched in 1985 focused on four sectors(telecommunications, pharmaceuticals and medical equipment, electronics, andforestry products) and aimed at identifying and eliminating trade barriers. The
MOSS negotiations resulted in a 20-percent reduction in tariffs on electronic
products and the complete elimination of tariffs on telecommunication equipment
and computer-related products. In addition to the four sectors taken up in the
MOSS negotiations, the two countries engaged in negotiations for theliberalization of Japanese markets for semiconductors, leather, and otherproducts. In 1989, the MOSS negotiations gave way to the Japan-U.S. Structural
Impediments Initiative (SII), which focused on cross-sectoral structural issues
impeding market liberalization, such as keiretsu transactions and exclusionary
business practices.
6 For example, see Urata, Ishikawa and Mizuno (2007) for the FTA strategies of Japan and theUnited States.

9

U.S. frustration with Japan’s growing trade surplus led to the establishment of
the Japan-U.S. Framework for a New Economic Partnership (Japan-U.S.
Comprehensive Negotiations) in 1993. This framework featured the holding of
two annual bilateral summit meetings and other various meetings for discussions
aimed at reducing Japan’s current account surplus and increasing Japan’s
imports from the United States. The discussions covered a wide range of bilateral
economic issues as well as a number of global issues. The former included
macroeconomic policies, sector-specific negotiations, government procurement,
and regulatory reform, while the latter included the environment, humanresource development, and AIDS. In the area of trade-related issues, the initially
expected results were not achieved because Japan did not accept U.S. demands forunilateral measures and quantitative import targets. On the other hand,continued negotiations were conducted in certain areas, which served to deepen
mutual understanding.
Beginning in 2001, the emergence of China as an economic force and other majorchanges in the economic environment prompted Japan and the United States tomore actively pursue economic cooperation. It was against this backdrop that thecreation of a Japan-U.S. Economic Partnership for Growth was announced in asummit meeting held between Prime Minister Junichiro Koizumi and President
George W. Bush. In addition to the ongoing economic changes in the Asia-Pacificregion, this initiative reflected the continued existence of various bilateral
economic issues, including trade-related problems, macroeconomic policies,
structural and regulatory reforms, corporate and financial institutions reform, thepromotion of foreign direct investment, and market liberalization. In order toengage in bilateral consultation on these problems, a number of specificframeworks were established, such as economic dialogue on the sub-cabinet level,public- and private-sector meetings, initiatives for regulatory reform andcompetition policy, fiscal and monetary dialogue, investment initiative, and tradeforum.
Over the years, Japan and the United States have used a number of frameworks
for consulting on various bilateral problems and issues. Through these
consultations, both sides have accumulated knowledge and information on eachother’s problems and issues. Efforts to conclude a Japan-U.S. EPA can be expected
to encounter the following problems and challenges, among others. 7 On theJapanese side, issues related to market liberalization and regulatory reform
remain in such areas as agriculture, telecommunications, information
technologies, competition policy, medical equipment and pharmaceuticals,
financial services, and distribution and retailing. On the U.S. side, issues to beresolved include market liberalization in such sectors as automobiles, legal
services, and insurance services, and regulatory reform in such areas as
anti-dumping rules, investment-related regulations, government procurement,
and standards and specifications.
These are derived from the Ministry of Foreign Affairs, Sixth Report to the Leaders on theRegulatory Reform and Competition Policy Initiative, June 6, 2007(http:www.mofa.go.jp/mofa/area/usa/keizai/6_houkoku_gai.html) and from past FTA negotiations.
7

Japan-U.S.

10

In the past, many of the trade problems that arose between Japan and the UnitedStates were “resolved” through bilateral consultation without being referred to
the GATT multilateral framework for dispute settlement. However, since theestablishment of the WTO in 1995 and the strengthening of its dispute settlement
mechanism, Japan and the United States have resolved their disputes throughthe WTO dispute settlement system instead of through bilateral negotiations.
However, disputes pertaining to foreign direct investment, regulations, and otherdomestic measures continue to be treated in a bilateral framework because the
WTO does not cover these problems.
III.2 FTA Strategies of Japan
Japan’s first FTA agreement was concluded with Singapore and went into force inNovember 2002. The formal title of this agreement is the “Agreement between
Japan and the Republic of Singapore for a New-Age Economic Partnership,” or the“Japan-Singapore New-Age Economic Partnership Agreement” (JSEPA). JSEPA is
a comprehensive EPA beyond the scope of traditional FTAs that are limited to theelimination of tariff and non-tariff barriers between the signatories. Specifically,
the coverage of JSEPA extends to economic and technical cooperation in a numberof areas, including the liberalization of foreign direct investment, the facilitationof trade and foreign direct investment, human resources development, and thepromotion of small- and medium-sized enterprises. Japan and Singapore deemedsuch an extensive and comprehensive agreement necessary and conducive tomajor economic benefits in a global economic environment where goods, people,
capital, and information are actively and freely moving across national borders.
Japan’s other EPAs currently in force consist of agreements with Mexico (April2005), Malaysia (July 2006), Chile (September 2007), and Thailand (November2007). Agreements have also been signed with the Philippines, Brunei, andIndonesia and await enforcement. Furthermore, an agreement in principle has
been reached with ASEAN, and negotiations are in progress with Australia, India,
Switzerland, Vietnam, and the Gulf Cooperation Council (GCC). Finally, EPA
negotiations with South Korea currently remain suspended. Japan is also
working toward the realization of the Comprehensive Economic Partnership in
East Asia (CEPEA) covering ASEAN, China, South Korea, India, Australia, and
New Zealand. At the present time, a Track Two study is underway among
researchers from EAS countries. Based on Japan’s trade statistics for 2005, 9.5
percent of Japan’s total trade (exports plus imports) was conducted with countries
where EPAs are in force. This ratio rises to 29.7 percent of total trade whencountries with which EPAs have been signed or are being negotiated are included.
Japan pursued trade liberalization within the GATT and WTO frameworks
throughout the entire postwar period and up through the end of the 1990s. FTAs
Japan has been promoting in recent years reflect Japan’s trade policy shift from asingle-tiered approach regarding trade liberalization that is focused exclusively
on the GATT/WTO multilateral framework to a multi-tiered approachencompassing various bilateral and regional initiatives.
11

What are the main features of Japan’s FTA strategies? First, as can be seen fromthe use of the term EPA, Japan is interested in establishing comprehensive
agreements. Second, Japan’s FTA strategies are primarily focused on East Asia.
Japan’s principal motives can be summarized as follows: expanding trade andinvestment opportunities for Japanese companies; stimulating the Japanese
economy through the liberalization of Japanese markets; contributing to East
Asian economic growth through investment and economic cooperation; andensuring access to oil and other natural resources. Another significant
consideration is Japan’s shrinking population and rapidly aging society. If Japan
is to maintain and improve its standard of living under these conditions, thecountry needs to liberalize its markets, promote structural reforms and maintaincloser ties with East Asian economies that have high future potential. FTAs areseen as effective tools for achieving these objectives. Given China’s growing
influence in East Asia, FTAs are also viewed as a means to securing Japanese
influence in the region.
Notwithstanding these advantages, Japan’s FTA negotiations are not making
smooth progress due to strong opposition to FTAs from domestic sectors that will
be adversely affected by trade liberalization and the influx of foreign workers. The
main opponents to trade liberalization are found in Japan’s primary industries,
such as agriculture, fisheries, and forestry. Products that are not competitive are
currently protected by very high tariffs, such as rice (778 percent), sugar (379
percent), and wheat (252 percent). While the United States is a leading trading
partner, due to strong opposition from the domestic agricultural sector, Japan
officially is not even considering an EPA with the United States because of thelatter’s prominence as an agricultural exporter. Furthermore, the level ofagricultural liberalization has been held in check in the various EPAs that Japan
has already concluded.
One of the points of contention in FTAs negotiated with East Asian countries has
been the issue of the movement of workers. The Philippines and Thailand havedemanded that provisions be made for the “export” of nurses, care workers, andother medical care personnel to Japan. Because of the rapid aging of society,Japan is expected to face serious shortages of care workers for the elderly in the
future. These concerns should be enough to justify the acceptance of medical carepersonnel from overseas. However, there is strong opposition to such initiatives
from the domestic medical professions on the grounds that such an influx would
take jobs away from Japanese nurses and care workers.
As previously mentioned, agricultural liberalization will stand as a key obstaclein concluding a Japan-U.S. EPA. However, agriculture will not be the only
obstacle. An EPA involving the world’s largest and second largest economies willcertainly have to go beyond the elimination of border measures and will have to bea high-level agreement that effectively addresses the issues of the harmonization
and unification of domestic policies in such areas as competition policy andtaxation. These points are discussed below.

12III.3 FTA Strategies of the United States
After concluding its first FTA with Israel that came into effect in August 1985, theUnited States steadily expanded the scope of its FTAs. The FTAs with thefollowing countries and regions have already entered into force: Canada (January1989), NAFTA (Canada and Mexico: January 1994), Jordan (December 2001),
Chile (January 2004), Singapore (January 2004), Australia (January 2005),
Morocco (January 2006), CAFTA-DR (Costa Rica, El Salvador, Guatemala,Honduras, Nicaragua, Dominican Republic: 2006–2007), and Bahrain (August2006). As of November 30, 2007, the United States has a total of nine FTAs
(involving 15 countries) in force. In addition to the above, agreements have beensigned with Oman, Peru, Columbia, Panama, and South Korea, and negotiations
are currently in progress with Malaysia. In the past, U.S. FTAs were primarily
focused on Central and South America and the Middle East. However, more
recently, the United States has shown a strong interest in negotiating FTAs with
East Asian countries. Among the various FTAs negotiated by the United States,
some have been suspended or terminated. Most importantly, negotiations on theFree Trade Area of the Americas (FTAA), covering 34 countries of North, Central,and South America with the sole exception of Cuba, have been suspended. In thecase of the United States, the share of trade with countries with which FTAs are
currently in force, have been signed, or are being negotiated, amounts to 42.7
percent of total trade, a figure that is considerably higher than that for Japan.
After the 1930s, the United States consistently promoted free trade based on the
belief that global protectionism worsened the Great Depression, which had begunin the 1920s, and served as one of the causes of World War II by dramaticallyreducing world trade. However, several more recent developments have prompted
the United States to develop a greater interest in bilateral and regional trade
agreements. Contributing factors have included advances in European regional
integration and the slow pace of progress in multilateral trade negotiations under
GATT. At the present time, the United States shows interest in promoting free
trade through the multilateral framework of the WTO, and through bilateral andregional FTAs that are not only consistent with the WTO, but are also high-level
and comprehensive, exceeding the bounds of the WTO. What motivates theUnited States to pursue FTAs? In addition to seeking the economic benefits ofexpanded trade and investment, the United States is also interested in reaping
benefits in the areas of foreign relations and national security. The latter
motivation is apparent in the FTAs concluded with the countries of the Middle
and Near East and in the exclusion of Cuba from the FTAA.
As in the case of Japan’s EPAs, U.S. FTAs go beyond trade in goods, as they tend
to be comprehensive agreements covering such matters as trade in services,foreign direct investment, and trade facilitation. One crucial difference withJapanese EPAs is that U.S. FTAs generally include labor-related provisions, suchas for the protection of the rights of workers. Moreover, the United States iscommitted to concluding high-level FTAs that achieve high levels of tradeliberalization. These features can be clearly seen in the U.S.-Korea FTA concluded
13

in April 2007. Under this agreement, the United States is committed to achieving,
within 10 years, an import liberalization ratio (product basis) of 97.9 percent for
products from Korea. Under NAFTA, the United States was committed to a
10-year import liberalization ratio of 99 percent for products from Mexico.
However, the corresponding figure for the U.S.-Australia FTA is a considerably
lower 85.4 percent. The United States has also extracted similarly high 10-year
import liberalization ratios from its FTA partners. For instance, South Korea
under the U.S.-Korea FTA, Mexico under NAFTA, and Australia under the
U.S.-Australia FTA are committed to achieving 10-year import liberalizations
ratios of 97.4 percent, 99 percent and 99 percent, respectively, for products fromthe United States.
Areas of special interest to the United States include the following: agricultural
products, medical equipment, and pharmaceuticals in the export of goods; andfinancial services, distribution services, and medical services in the export ofservices. On the other hand, strong domestic opposition to trade liberalization canbe seen in the following sectors: textiles, iron and steel, and motor vehicles in theimport of industrial products; and domestic shipping transport.

14

IV. Economic Impact of a Japan-U.S. EPA
The purpose of this section is to estimate the economic impact of a Japan-U.S.
EPA using a computable general equilibrium (CGE) model. Traditional FTAs were
centered on trade-related measures, such as the reduction and elimination oftariffs and export subsidies. In recent years, however, the dominant trend inliberalization negotiations has been to design more comprehensive EPAs that
contain provisions for institutional reform, such as facilitation and improvementsin the general business environment. Any future Japan-U.S. EPA can be expected
to go beyond trade-related measures to address liberalization in a broad range offields.
It is not easy to undertake a quantitative estimation of the economic impact oftrade liberalization and liberalization in a broad range of new fields. Whilevarious difficulties exist, a CGE model is used in this section to estimate andanalyze the economic impact of a Japan-U.S. EPA. This is based on the following
series of assumptions. By facilitating trade and investment, liberalization will
promote positive developments in the business environment and in theinstitutional framework. In turn, this will contribute to a convergence in the
productivity gaps that exist between the industries of the two countries.
IV.1 Analytical Methodology(1) Analytical Model and Data
The CGE model and database used in this section was developed by the Global
Trade Analysis Project (GTAP), which is being carried forward by a network of
researchers and policy designers centered around Purdue University’s Center for
Global Trade Analysis. Details of the multi-regional and multi-sectoral GTAP
model (Hertel, 1997, McDougall, 2000) and the GTAP Database version 6(Dimaranan, 2006) covering 87 regions (countries) and 57 industries (2001 baseyear) can be readily accessed through the Internet. Software needed for runningsimulations is also provided. 8 The GTAP model assumes perfect competition,
production technologies with constant returns to scale, and differentiation of
tradable goods based on place of origin.
Directly using the 87-region and 57-industry GTAP database in runningsimulations on a Japan-U.S. EPA is extremely difficult for computational reasons.
Therefore, through a process of aggregation, the numbers of regions andindustries were reduced from 87 to 12 and from 57 to 20, respectively, while
taking due care not to undermine the purpose of the analysis (Tables 2 and 3). It
should be noted here that simulation results can differ according to the degree of
aggregation.

8 See the GTAP website (www.gtap.agecon.purdue.edu).

15

The aggregated GTAP database was used to compute Japanese and U.S. tariff
rates by industry. This is shown in Table 4. For instance, the table indicates that
the Japanese tariff rate on imports of U.S. rice is approximately 788 percent,while the U.S. tariff rate on imports of Japanese rice is roughly 7 percent.
Japanese tariff rates tend to be relatively high for agriculture and food-relatedindustries (all industries between “Rice” and “Fishery”) as well as for textiles,
apparel and leather products (TexWapLea). On the other hand, the United States
applies relatively high tariff rates to imports of “Chemical,” “Metal,”“Automobile,” and “Machinery” from Japan. The computed tariff rate for all
service industries is zero. However, it is assumed that trade in services is subject
to various obstacles and that liberalization can be expected to lower the level ofthese obstacles.
If the impact of a Japan-U.S. EPA were to be estimated solely on the basis of tariff
rates by industry in Table 2, the obtainable results would be clearly limited. Thisis because barriers to trade in services are not explicitly accounted for andbecause tariffs and subsidies are the only forms of barriers to merchandise tradeconsidered in this analysis. Similarly, no allowance is made for various otherfactors that are commonly discussed in comprehensive trade agreements. These
include the following: the effects of expansion of trade in services resulting from
improvements in the business and legal environment pertaining to investment
and the entry of new enterprises; and the effects of the simplification of customs
clearance and mutual certification procedures on the facilitation of logistics. In
the present analysis, total factor productivity (TFP) gaps are used as a method forfilling in for these missing factors.
(2) TFP Gaps
Jorgenson and Nomura (2007) presents a long-term comparison of TFP levels inJapan and the United States spanning the period between 1960 and 2004. This isused to determine differences in TFP levels between the industries of the twocountries. Among the results of their detailed analysis, this report used relative
TFP gaps that were estimated for 42 industries using U.S. industries as the base.
The estimated relative TFP gaps for the 42 industries were aggregated tocorrespond to the GTAP data. This is shown in Table 5 where the relative TFPlevel of each Japanese industry is computed using U.S. industries as the base (1.0).
The following Japanese industries have higher TFP levels than their U.S.
counterparts: “Chemical,” “Automobile,” “Electronics,” “Communications,
Insurance and Finance”(ComInsFin),
and“Transport.”
Regardingcommunications, insurance and finance, the results derived by Jorgenson andNomura (2007) indicate a higher TFP for U.S. insurance and finance industries.
The results were reversed in the present study due to the aggregation of theseindustries with the communications industry.
In this present analysis, it is assumed that the establishment of a comprehensive
Japan-U.S. EPA will cause the TFP gaps in Table 5 to converge. Specifically, it is16

assumed that productivity levels in Japanese agriculture, forestry andfisheries-related industries and light industries will catch up with U.S.
productivity levels. Conversely, it is assumed that productivity levels in U.S.
chemical, automobile, electronics, communications, insurance, finance, andtransport industries will catch up with Japanese productivity levels.
IV.2 Analysis Results
Simulation exercises for a Japan-U.S. EPA were conducted by applying theelimination of tariffs and subsidies (Table 4) and the convergence of TFP gaps
(Table 5) as external shocks to the GTAP model. Simulations were separately
conducted for TFP gap convergence rates of 10 percent, 25 percent, 50 percent and100 percent.
The impact on economic welfare is summarized in Table 6 in terms of rate ofchange (percent) and amount of change (dollars in millions). A relatively narrow
FTA involving only the elimination of tariffs and subsidies would yield an
economic welfare gain of about 16 billion dollars (0.45 percent) for Japan and again of 2.4 billion dollars (0.03 percent) for the United States. A morecomprehensive FTA involving convergence in TFP gaps would have a greater
positive effect on economic welfare for both countries. This can be interpreted torepresent the benefits gained from wider ranging liberalization that enables bothcountries to increase their output without increasing the input of such factors of
production as land, labor, capital, and natural resources.
The assumption of a total convergence of TFP gaps is unrealistic. However, a 10
percent rate of convergence for both Japanese and U.S. industries can be expected
to yield substantial economic welfare gains of about 69.1 billion dollars for Japanand 31.1 billion dollars for the United States. In this context, it would not be
unrealistic to assume that trade-related measures and improvements in thebusiness environment and systemic reforms could result in an approximately
10-percent convergence in productivity levels.
The results are restated in terms of GDP in Table 7. A narrow FTA would have asmall positive impact on Japan’s GDP and a negative impact on U.S. GDP.
However, both economies would register larger positive changes in GDP as therate of convergence in TFP gaps rose. The combination of an FTA and a 10 percent
convergence rate would add about 67 billion dollars (1.6 percent) to Japan’s GDP
and about 28.3 billion dollars (0.28 percent) to the U.S. GDP.
The simulation results for a narrow FTA give rise to the following question. Why
is a narrow FTA estimated to have a positive impact on U.S. economic welfare(0.03 percent) as shown in Table 2 and a negative impact on U.S. GDP (-0.02
percent)? A review of Table 4 indicates that the negative impact on GDP is theresult of the extremely large increase in U.S. imports. That is, while U.S.
consumption, investment, and exports do increase under a narrow FTA, thesegains are dwarfed by the very large increase in imports.
17

Furthermore, the positive change in U.S. economic welfare can be explained asfollows. Changes in allocative efficiency and changes in terms of trade constitutetwo major determinants of changes in economic welfare. The significant
improvement in U.S. terms of trade following the establishment of an FTA would
explain the increase in imports. On the other hand, allocative efficiency would
deteriorate because products whose output would increase in the United States(particularly rice) would be subject to taxes and subsidies. However, because theimpact of the improvement in terms of trade would be larger than the impact of
this deterioration in allocative efficiency, the United States would register apositive change in economic welfare.
Simulation results for exports under a Japan-U.S. EPA are summarized in Table 8.
In the case of the United States, it is clear that the combination of FTA and higher
TFP gap convergence rates would result in larger export growth. The reverse istrue in the case of Japan where exports would shrink as TFP gap convergence
rates rose. This can be explained as follows. Improved productivity in U.S.
chemical, automobile, electronic, communications, insurance, finance, andtransport industries would enable the United States to export the products ofthese industries at relatively low prices. Increased U.S. exports in what
constitutes Japan’s core export industries would supplant Japanese products inglobal markets. Japanese exports would increase by 4 percent under a narrow
FTA. However, as the United States would catch up at higher rates of convergence,
Japanese exports would begin to shrink at an increasing pace. One of the key
features of shrinking Japanese exports is that this trend contributes to the growthof exports not only from the United States but also from other countries andregions.9
Simulation results for imports are summarized in Table 9. Japanese imports
would increase by 4 percent under a narrow FTA and continue to increase as TFP
gap convergence rates rose. By contrast, the increase in U.S. imports would
remain steady at around 1 percent. Also, the increase in ASEAN imports would
stand in contrast to other countries and regions not member to a Japan-U.S. EPA,
although the magnitude of the increase would be small.
Table 10 shows that Japan’s investment would increase under a Japan-U.S. EPA.
Changes in U.S. investment would be considerably minor, but would shift frompositive to negative range as TFP gap convergence rates rose. This can be
attributed to improved productivity in capital-intensive industries and theresulting decline in the rental costs of capital goods. However, it is difficult tothink that a comprehensive FTA would result in decreased investment under realconditions.
The impact of a Japan-U.S. EPA is summarized for output, exports and imports ofindividual industries in Tables 11, 12 and 13, respectively. These tables present
9 The North American region excluding the United States (NAmerica) consists of Canada, Mexico,and “other North American regions” (Bermudas, Greenland, and Saint Pierre and Miquelon
Islands).

18

results for a narrow FTA and a TFP gap convergence rate of 10 percent. Changes
in output by industry confirm that trade liberalization under an FTA would leadto reduced output in industries protected by relatively high tariff rates. In Japan,
the largest reductions in output would occur in rice, grains, and meat. However, it
should be noted that these products are subject to complex trade measures,
including state trading arrangements. Consequently, the quantification of tradebarriers calculated on the basis of tariff rates will have to be re-examined. The
negative impact on the output of Japan’s electronics industry (-1.14 percent) iscaused by the catch-up in U.S. productivity levels. This was confirmed bydisaggregating total impact (“Total”) into the impacts of tariff elimination (0.93
percent) and TFP gap convergence (-2.07 percent). Output for all other Japaneseindustries would increase.
The impact on Japanese exports by industry would be as follows. Under a narrow
FTA, all industries would register positive change in exports, with the exceptionof “Fishery.” On the other hand, with TFP gap convergence, exports would
decrease over a broad range of manufacturing and service industries. This is dueto the improvement in U.S. productivity.
The impact on Japanese imports by industry shows that imports would increase
in almost all industries. On the other hand, it can be seen that improved
productivity in agriculture and food-related industries would act to suppress theincrease in Japan’s imports of these products. The very large increase in riceimports reflects the very high tariff rates that currently apply to Japan’s riceimports. However, as previously noted, the computation of trade-related measuresapplicable to rice into a tariff rate for inclusion in the database requires further
consideration. Furthermore, it should be noted that it is highly likely the results
overstate the increase in imports because the simulations assume the totalelimination of tariffs.
IV.3 Summary of Results and Some Remaining Issues
The economic impact of a Japan-U.S. EPA was estimated using the GTAP modeland database. In simulations involving a comprehensive EPA, the effects of bothtariff elimination and the convergence of TFP gaps between Japanese and U.S.
industries were taken into account. Benefits accruing to Japan and the UnitedStates from the conclusion of an EPA are presented in terms of macroeconomic
indicators. Sectoral results indicate that the direction of change depends on two
factors: whether an industry is protected, and whether an industry experiences areduction in productivity gap due to productivity catch-up by its counterparty.
Some issues that remain are: examination of trade-related measures quantified interms of tariff rates, and development of methods for expressing exogenously
inserted productivity gaps in the database used for estimations.
V. Japan-U.S. EPA and Japanese Agriculture

19

The processes of internationalization and globalization have forced the Japanese
economy to undergo numerous structural changes, and agriculture is no exception.
Japanese agriculture has remained under protective policies for many years.
These include price support systems for maintaining agricultural income, andprovisions of the Agricultural Land Act designed to restrict entry from otherindustries. These policies have delayed the emergence of a self-reliant
agricultural sector and have added to productivity gaps with other industries.
Fundamental changes must be made in these agricultural policies if Japan is toenter into FTAs with the United States, Australia, and other exporting countriesof agricultural products. Recent developments in Japanese agriculture include thetransition from non-tariff import barriers to tariff measures in 1995 under the
WTO Agriculture Agreement, and participation in agricultural trade negotiations
beginning in 2000. At the same time, Japan has worked toward the conclusion of anumber of free trade agreements beginning with the EPA with Singapore.
However, none of Japan’s past FTAs has comprehensively included agricultural
products. As such, the ongoing negotiations for the Japan-Australia FTA willserve as a test case for Japan’s future FTAs. It should be noted, however, that rice
(Japan’s highest priority item) has been excluded from the Japan-Australia FTA
negotiations. Therefore, the issue of rice importation will have to be thoroughly
discussed when taking concrete steps toward a Japan-U.S. EPA.
It would be incorrect to say that no structural reforms have been undertaken in
Japanese agriculture. In various instances, economic globalization has forcedchanges in Japan’s agricultural policies. For instance, in 1999, the Agricultural
Basic Act was abolished after serving as the core of Japan’s agricultural policies
for 38 years, and the Food, Agriculture and Rural Areas Basic Act was enacted inits place. Under the new law, a basic plan was formulated and launched in 2005,
containing the principle that agricultural policies would thereafter focus
exclusively on persons engaged in agricultural activities. This principle wasapplied to the “Lateral Business Stabilization Measures” introduced in 2007. In
the area of rice production, responsibility for production adjustment measures,first introduced in 1969, were transferred from the government to agriculturalorganizations in 2007. However, are these changes sufficient for promoting FTAs
and responding to developments in the WTO? If progress is to be made toward aJapan-U.S. EPA in the future, there are many issues that Japanese agriculture
will have to cope with. In the remainder of this section, key issues for Japanese
agriculture, some possible solutions, and the future of Japanese agriculture will
be considered from a number of perspectives.
V.1 Current Conditions in Japan-U.S. Agricultural Trade and Japanese Tariffs
As a basis for identifying the problems in agriculture that need to be resolved for a
successful conclusion of a Japan-U.S. EPA, current conditions in Japan-U.S.
agricultural trade are reviewed here. Table 14 summarizes Japan’s exports andimports of agricultural products vis-à-vis the world and the United States inrecent years. In 2006, Japan’s imports of agricultural products amounted to20

5,004.1 billion yen. The addition of forestry and fishery products pushes thisfigure up to 8,085.9 billion yen. Imports of agricultural products from the UnitedStates amounted to 1,517.6 billion yen, or 30.3 percent of total agricultural
imports. Total imports of agricultural, forestry, and fishery products from theUnited States amounted to 1,772.8 billion yen, or 21.9 percent of the total. As such,the United States was Japan’s largest source of these products. China was second
with a 13.3 percent share, followed by the EU (25 countries) with a 13.0 percent
share, Australia with a 9.6 percent share, and Canada with a 6.3 percent share.
In the agricultural, forestry, and fishery sector, the largest single import itemfrom the United States was tobacco, with a value of 335.0 billion yen. Corn wassecond at 289.6 billion yen, followed by pork at 133.7 billion yen, soybeans at
114.0 billion yen, and fresh and dried fruits at 86.7 billion yen (all figures are for2006). The United States supplied 96.3 percent of Japan’s total imports of corn,
34.9 percent of pork, 76.5 percent of soybeans, and 37.2 percent of fresh and dried
fruits. Another important import item from the United States was wheat, with avalue of 80.1 billion yen. This accounted for 53.8 percent of Japan’s total importsof wheat. The United States has traditionally been the leading source of Japan’s
beef imports by value (2003: 128.5 billion yen or 51.9 percent of total beef imports).
However, the importation of U.S. beef was banned in 2003 following the discovery
of bovine spongiform encephalopathy in U.S. cattle. Finally, in 2006, Japan
imported 18.5 billion yen of rice from the United States. This made the UnitedStates the largest supplier of rice to Japan under its minimum accesscommitments with a share of 52.6 percent.
Other import items in which the United States holds a major share are thefollowing. In 2006, the United States was Japan’s leading supplier of logs (70.6
billion yen or 33.1 percent of total) and pet food (32.0 billion yen or 35.4 percent).
Similarly, the United States was Japan’s second largest supplier of fresh
vegetables (13.5 billion yen or 14.0 percent) and frozen vegetables (33.7 billion or
29.0 percent), the largest supplier being China (all figures are for 2006).
Turning next to Japan’s exports of agricultural, forestry, and fishery products,
total exports amounted to 449.0 billion yen in 2006. Exports of these products to
the United States amounted to 78.9 billion yen, equivalent to a 17.6 percent share.
This made the United States the second largest export market for Japan’s
agricultural, forestry, and fishery products, the largest market being Hong Kong.
Japan’s total exports of agricultural products amounted to 235.9 billion yen, of
which 46.2 billion yen went to the United States. This 19.6 percent share put theUnited States in second place following Taiwan. The leading agricultural export
items to the United States included: pearls (8.0 billion yen), scallops (4.5 billionyen), alcoholic beverages (4.2 billion yen), fish-meat sausages and other fish paste
products (2.5 billion yen), and sesame oil (2.0 billion yen). Other leading export
markets for Japan’s agricultural, forestry, and fishery products were thefollowing: Hong Kong (83.6 billion yen), Taiwan (63.7 billion yen), China (59.5
billion yen), and South Korea (51.6 billion yen) (all figures are for 2006).
A Japan-U.S. EPA would be expected to eliminate border measures and tariffs on
21

agricultural, forestry, and fishery products. With this in mind, Japan’s current
tariff levels are reviewed as follows. Starting with tobacco, Japan’s largest single
agricultural import item from the United States, cigarettes are tariff-free under aprovisional arrangement, while cigars are subject to a 16-percent tariff under the
WTO Agreement. Note that under Japan’s Tobacco Business Law, the importationof tobacco products for commercial purposes is subject to registration with the
Minister of Finance as a designated sales business.
The importation of corn, with the exception of seed corn, is subject to a 50-percent
tariff or a 12-yen per kilogram levy, the higher of the two applying. Corn for use incompound and mixed feeds is exempted from the above under certain conditions.
That is, corn used in mixed feeds meeting certain specifications and produced inlicensed factories under the Customs Tariff Law is exempted. Whole kernel corn
supplied to farms for use in feeds (restricted to use in feeds under the supervisionof Customs authorities) and steam-flaking corn used in elemental feeds are also
tariff-free. Furthermore, tariff-free quotas are available for corn used in the
production of cornstarch, ethyl alcohol, etc., up to a certain volume. Similarly,
tariffs do not apply to the importation of soybeans.
Japan’s tariffs on fresh and dried fruits are relatively low, ranging from 2 percent
on papayas to 17 percent on apples and pineapples. The importation of oranges issubject to high seasonal tariff rates. A tariff rate of 16 percent applies between
June 1 and November 30, rising to 32 percent between December 1 and May 31.
This “one product, two tariff rates system” is designed to protect domestic
producers of citrus fruits and grapes: a lower rate applies between harvests inJapan and a higher rate applies during harvest periods. Tariffs on fresh
vegetables are low and generally around 3 percent. The highest rate is the
8.5-percent tariff that applies to onions valued at 67 yen per kilogram and below.
Tariffs on frozen vegetables are also low, ranging from 6 percent on spinach andbroccoli to 12 percent on burdock.
Japan’s tariffs on livestock products are as follows. While the importation of beef
is subject to a 50-percent tariff under the WTO Agreement, a temporary rate of
38.5 percent is currently applied. The importation of pork is subject to adifferential tariff system that operates as follows. When import prices fall withina certain range, a tariff is levied that is equal to the difference between the importprice and a certain base price. Currently, the system applies as follows to theimportation of pork carcasses. For imports falling within a price range of 48.9 yen
per kilogram (floor price for application of specific duty) to 393 yen per kilogram(ceiling price), a tariff amount equivalent to the difference between the importprice and a base price of 410 yen per kilogram is levied. Pork of varying quality,
for example pork imported at 50 yen and 390 yen per kilogram, both have anafter-tariff domestic price of 410 yen per kilogram. As a result of this system,
Japan tends to import premium pork. Note that among other import productswith a high U.S. share mentioned above, no tariffs apply to the importation of logs
and pet foods.
Wheat, rice, and certain other agricultural products are subject to state trading22

arrangements where the following type of tariff-rate quota system applies. A zeroor low primary tariff rate applies to a specified quota of imports, and amounts
exceeding the quota are subject to a higher secondary tariff rate. A levy of 55 yen
per kilogram applies to the direct importation of wheat by non-government
enterprises. In the case of private-sector importation of rice, a tariff equivalent of
341 yen per kilogram applies.
According to the Japanese Tariff Schedule, in the case of rice, the general tariff is
402 yen per kilogram, the WTO tariff is 341 yen per kilogram, and the temporary
tariff is 49 yen per kilogram. The general tariff is a tariff equivalent that was
introduced at the time of the tariffication of rice, and the WTO tariff is 15 percent
below the general tariff as agreed upon in the WTO Agreement. Finally, thetemporary tariff is equal to the difference between the WTO tariff and mark-up
charged by the Ministry of Agriculture, Forestry and Fisheries (MAFF).
The mark-up is charged by MAFF against the imports of minimum-access rice
under state trading arrangements. In the case of private-sector importation of rice,a tariff equivalent (341 yen per kilogram) is levied. Of this amount, a maximum of
292 yen per kilogram goes to MAFF as its mark-up, which is then credited to the
Foodstuff Control Special Account. The remaining 49 yen per kilogram is credited
to the government’s general account and comprises the temporary tariff. The
MAFF mark-up system also applies to wheat. Out of a tariff equivalent of 55 yen
per kilogram, MAFF collects 45.2 yen per kilogram as its mark-up, and theremaining 9.8 yen per kilogram comprises the temporary tariff.
V.2 Japanese Agriculture as an Industry
How will the elimination of tariffs under a Japan-U.S. EPA affect Japanese
agriculture? This discussion needs to be prefaced by a review of the current status
of Japanese agriculture. Japan’s annual agricultural output stands at roughly
8,800 billion yen in terms of shipment value. The sector annually generates about
5,400 billion yen in value-added. This output is supported by 2.93 million farmhouseholds and 2.57 million agricultural workers (all figures are for 2004). The
share of agriculture in the Japanese economy is steadily declining. In 2004,
agriculture accounted for 1.1 percent of Japan’s total value-added and 4.1 percentof the total working population.
This low share of agriculture is not unique to Japan and is common to alladvanced countries. This is because in the process of economic development,
output shifts from agriculture to manufacturing and finally to service industries
in what is referred to as Petty-Clark’s Law. That is, as capital accumulation
proceeds and the manufacturing sector expands, demand for agricultural products
fails to keep pace with income growth as predicted by Engel’s Law. As a result, therelative share of agriculture declines as the manufacturing sector grows.
Parallel to these changes in industrial structure, if the resources invested inagriculture can be smoothly transferred to other industries, the remaining
23

agricultural resources would achieve high levels of marginal productivity. This
would allow agriculture to remunerate its resources at rates commensurate withother industries, opening up the possibilities for creating a self-reliant
agricultural sector. One of the requirements for this process to function properly is
the expansion of the scale of individual production units. However, Japanese
agriculture is land-intensive and the average scale of production remains verysmall. As such, there is an urgent need to nurture large-scale farms throughstructural reform. On average, Japanese farm households hold less than 2
hectares of agricultural land. Considering the physical factor endowments per
farm household, it is difficult to identify areas of comparative advantage that canbe exploited within the framework of Japan’s land-intensive farming. This raises
the following two questions. Is there no way for Japanese agriculture to achieve
larger scales of production? And, is there no way to overcome “resource
constraints” through the development of land-substituting technologies and theaccumulation of human capital?
Table 15 presents a long-term trend of the basic economic indicators of Japanese
agriculture. In 1960, agriculture accounted for 9 percent of GDP and 27 percent ofJapan’s working population. Both declined rapidly to reach below 3 percent and 9
percent in 1980, respectively. Total agricultural output (2000 = 100) rose from 80
in 1960 to a peak of 111 in 1990, but has been steadily declining thereafter.
Conversely, agricultural imports grew dramatically during this period. The total
value of agricultural imports (2000 = 100) increased exponentially from 8 in 1960
to 43 in 1980 and to 102 in 2004. The actual value of imports amounted to 4,800
billion yen in 2005.
Needless to say, rice is the most important product in Japanese agriculture. In
1960, rice accounted for 47 percent of total agricultural output. While this ratio
has declined steadily to 30 percent in 1980 and 23 percent in 2004, it is notablethat rice continues to maintain a substantial share in output. Total area undercultivation has also declined steadily from 6.07 million hectares in 1960 to reach
4.71 million hectares in 2004. The utilization rate of cultivated land (planted area
divided by cultivated area) exceeded 100 percent until 1990, but in recent years
has dropped to about 94 percent. This reflects the increase in abandoned andfallow agricultural land.
In 1960, Japan had a total of 6.06 million farm households. While steadily
declining, Japan continues to have nearly 3 million farm households as of 2004.
Notwithstanding the decline in farm households, due to the drop in total
cultivated area, the average area of land under cultivation per household has only
increased from 1.0 hectare in 1960 to 1.6 hectares in 2005. This means that the
average Japanese farm is only 1/120th the size of the average U.S. farm and1/40th and 1/20th of the average British and French farms, respectively. Whilesome consideration must be given to differences between Japan’s paddy-field
cultivation and dry-land farming in Europe and North America, the obvious
implication here is that Japanese agriculture must come out of its extremely
small scale of operations.

24

Thus far, the term “farm household” has been used here without a clear definition.
From the perspective of economics, a farm household is one in which economic
activities in terms of household expenditure and agricultural management (i.e.,
consumption and production) proceed in parallel. Therefore, it is important toanalyze the economic activities of farm households from a different perspectivefrom that which may apply to the consumption behavior of employee households
and the production activities of companies where they work.
Agricultural management activities are normally supported by household
members working as a unit. On the production side, household members aresuppliers of labor. At the same time, household members are consumers on the
expenditure side. Within the household, agricultural management does not exist
as an independent organization. Rather, it is subordinate to the family and to theeconomy of the family. For this reason, this form of agricultural management,
which is dominant in many countries, is referred to as family farming. Of course,family farming covers many variations ranging from subsistence farming tocorporate-like management that treat family members as employees. In thiscontext, the most important feature of Japanese family farming has been the
rapid spread of part-time agricultural management.
Accelerated economic growth in the postwar period created new employment
opportunities in the rural areas, allowing the members of farm households to findemployment in other industries without moving away from their homes. 10
Furthermore, by reducing the burden of labor in rice cultivation, progress inagricultural technologies and mechanization made it possible for the elderly andfemale members of the household to effectively manage family farms. As more andmore members of the household found employment in other industries, families
became less dependent on agriculture as a source of income. The number of
persons committed full-time to farming became miniscule, and farm households
were essentially transformed into land-owning employee households. In thisscheme, agriculture was no longer a cooperative activity supported by multiple
household members. Instead, agriculture became the occupation of certain
designated members of the farm household.
What is the definition of a farm household? The Census of Agriculture andForestry conducted every five years provides a basis survey of all agricultural
entities. The following definition of farm household was used in the censuses
conducted between 1990 and 2000: “Households that farm on cultivated land of 10
ares and over, or have an income of 150,000 yen or over by selling agricultural
products during the year.”11
The creation of new employment opportunities in the rural areas was not the only factor
promoting stay-at-home, part-time farming. Other contributing factors included the developmentof roads and transportation infrastructure, and the proliferation of private cars and motorcycles
during the high-growth period.
11 This definition was revised significantly at the time of the 1990 Census. Prior to this revision,
the minimum area of cultivated land was 10 ares in eastern Japan and 5 ares in western Japan.
The minimum annual income from agriculture was 100,000 yen in the 1980 and 1985 Censuses.
Furthermore, as explained below, the object of the census was changed from “farming household”
to “agricultural management entities” in the 2005 Census.
1025This definition includes a large number of marginal farm households that derive
most of their income from non-agricultural employment and pensions, and whose
agricultural output is essentially for self-consumption. For this reason, farmhouseholds have been divided into two categories: “non-commercial farmhouseholds” and “commercial farm households.” “Non-commercial farmhouseholds” consist of farms with cultivated land of under 30 ares and an incomeof under 500,000 yen by selling agricultural products during the year. All others
are categorized as “commercial farm households.”
Farm households are also categorized by the type of employment of family
members. “Full-time farm households” are farms that contain no household
members employed full-time in other industries. “Part-time farm households” arefarms that contain one or more household members employed full-time in otherindustries. The latter category is further divided into two sub-categories
consisting of “primary part-time farm households” whose main income is fromfarming, and “secondary part-time farm households” whose main income is notfrom farming.
Based on these categories, Table 16 follows the changes in the structure of Japan’sfarm households between 1990 and 2005. Of the estimated total of 2.84 million
farm households in 2005, more than 30 percent are small-scale non-commercial
farms earning very small amounts of income from sales of agricultural products.
Moreover, the ratio of such farm households has been substantially increasing inrecent years. Even among commercial farm households, only about 15 percent
meet the definition of full-time farm household, and more than 50 percent are
elderly farm households with no male member in the productive age range (15–64
years old). Table 16 points to a declining ratio of part-time farm households. A
closer look shows that this development reflects the movement from primary to
secondary part-time farm households, and from secondary part-time farmhouseholds to non-commercial farm households. In particular, the lattermovement has been accelerated in recent years.
V.3 Japan’s Farm Households and Agricultural Management
As can be surmised from the increase in elderly full-time farm households, theconventional categorization of Japanese agriculture into full-time and part-time
farm households does not necessarily capture the structure of Japanese farmhouseholds. For this reason, the Census of Agriculture and Forestry categorizes
commercial farm households into three sub-categories based on income andnumber of days per year spent on farming. The sub-categories are business,semi-business, and side-business farm households. Business farm households are“farms whose main income is from farming (exceeding 50 percent of total income)with a farmer who is under 65 years old and works on the self-owned farm for 60
days and over during the year.” Semi-business farm households are “farms whose
main income is not from farming with a farmer who is under 65 years old andworks on the self-owned farm for sixty days and over during the year.”26

Side-business farm households are “farms that do not have a farmer who is under
65 years old and works on the self-owned farm for sixty days and over during theyear” (consisting of farm households other than business and semi-business farmhouseholds).
Based on these categories, Table 17 combines the breakdown of 1.95 million
commercial farm households (2005 figure) with the distribution of farmhouseholds by agricultural sales. With a total of 430,000 farm households,
business farm households account for 22 percent of all commercial farmhouseholds. There are a total of 440,000 semi-business farm households,
accounting for 23 percent of all commercial farm households. Finally, theremaining 1.08 million farm households (55 percent) are side-business farmhouseholds. Before considering the agricultural sales of business andsemi-business farm households, a brief review of the distribution of all farmhouseholds by agricultural sales would be helpful. Among all commercial farmhouseholds, some 780,000 (about 40 percent) have less than 500,000 yen in
agricultural sales. Going back to the definition of commercial farm households,
this implies that these 780,000 farms cultivate 30 ares or more but are still
unable to earn 500,000 yen in agricultural sales. Furthermore, nearly 60 percentof commercial farm households report agricultural sales of less than 1 million yen.
Turning next to the distribution of business and semi-business farm households,
there are 135,000 business farm households that earn more than 10 million yen
from agricultural sales. This is equivalent to 7 percent of all commercial farmhouseholds. On the other hand, nearly 50,000 business farm households reportagricultural sales of less than 1 million yen. Nearly 90 percent of allsemi-business farm households, which have full-time farm worker but rely mainly
on non-agricultural income, report less than 3 million yen in agricultural sales. In
other words, semi-business farm households earning above this line are relatively
few in number. Finally, while the majority of side-business farm households earn
less than 500,000 yen from agricultural sales, a total of 6,000 side-business farmhouseholds earn more than 10 million yen.
It should be noted that beginning in the 2005 Census, the object of the census waschanged from “farming households” to “agricultural management entities,” which
are defined as follows. “Those who produce agricultural products or are engaged
in agriculture under a consignment agreement, and its production or size ofoperation falls under either of the following: (1) cultivated land undermanagement is over 30 ares; (2) planted area for agricultural produce, thenumber of feeding livestock or shipped livestock, and scale of other operations
exceed a certain level; and (3) operating under a consignment agreement.”12 The
number of agricultural management entities totaled 2,009,000 in 2005. As mostagricultural management entities are commercial farm households, thedistribution of the former parallels that of the latter.
12 Standards of scale of operations include 15 ares for field-grown vegetables, 350 square meters

for greenhouse vegetables, 1 milking cow, etc. Agricultural management entities used in the 2005
Census is equivalent to the total of commercial farm households, non-farming agricultural entities,
and agricultural services entities as defined in the 1990–2000 Censuses.

27

As shown in Table 17, the scale of Japanese farms is very small and nearly 60
percent of all farm households earn less than 1 million yen from the sales ofagricultural products. However, this does not necessarily mean that farmhouseholds are poor. Table 18 compares the income of farm and employee
households. In 2003, the national average total income for farm households wasapproximately 7.71 million yen. Of this total, only 1.1 million yen, or 14 percent,was from agriculture. In 2003, the total income of farm households exceeded thatof employee households by 23 percent. The same can be said for per capita incomeof household members, with individual members of farm households earning 14
percent more than their counterparts. Throughout the entire period shown in
Table 18, total income of farm households has exceeded that of employee
households. On a per capita basis, farm households overtook employee households
between 1970 and 1980, and have thereafter maintained their lead.
Table 19 presents the income breakdown of business, semi-business, andside-business farm households. The average total income of business farmhouseholds (whose main income is from farming and which contain at least one
farmer who works on the farm for 60 days or more per year) amounts to 7.66
million yen. This is considerably higher than the average income of employee
households. Of this total, 4.74 million yen, or 62 percent, represents income
earned from agriculture. In the case of side-business farm households,
agricultural income accounts for only about 4 percent of total income. In the caseof semi-business farm households, this ratio is only 10 percent. These figuresreflect the fact that secondary part-time farm households rely on agriculture for
only 5 percent of their total income, and effectively cannot be distinguished from
employee households. The fact of the matter is that these farm households
constitute relatively wealthy workers who own land and whose income exceedsthat of average employee households. While these comments are based on average
income amounts, given the fact that secondary part-time farm households accountfor 70 percent of all farm households, it can be safely concluded that a
considerable proportion of all farm households enjoy a standard of living which
exceeds that of the average employee household.
Even in the case of business farm households, agricultural income accounts for
only 62 percent of total income. One of the explanations for this is that manybusiness farm households are actually elderly full-time farm households, which
rely on pensions and other non-agricultural income. As already shown in Table 15,
which divides farm households into full-time and part-time farm households, thetotal number of full-time farm households came to 442,000 households in fiscal
2005. Of this total, 227,000 households, or nearly 60 percent, were elderly
full-time farm households with no male member in the productive age range of 16
to 64.
The aging of farm workers is a problem affecting all of Japanese agriculture.
Table 20 provides a breakdown of agricultural workers in commercial farmhouseholds by age. Workers under the age of 30 account for less than 6 percent of
the total agricultural workforce, while those who are age 65 and above account for28

nearly 60 percent of all workers. While women slightly outnumber men, their age
distribution is similar. These figures indicate that Japan’s agriculture isessentially supported by elderly workers with relatively little time left before
retirement.
The retirement of elderly farm workers signifies a major turning point in Japan’s
agricultural sector. There is no doubt that Japan’s agricultural sector will shrink
and decline if farms with no successors stop farming, or if they abandon their land
without renting it out to others. On the other hand, agricultural output canincrease if the land and other agricultural resources of retiring farmers are takenover by more efficient farmers. The key question here is whether the agricultural
resources held by elderly farmers can be smoothly transferred to other farmers fortheir use. There would be substantial demand for the agricultural resources ofretiring farmers if farming provided opportunities for earning sufficient income
and profits and if agriculture could be structured as an industry wheremanagement efforts are properly remunerated. However, under current
conditions, the agricultural resources of farms that are being closed down are notnecessarily being transferred smoothly. Prices of the agricultural resources ofretiring farmers are being dragged down by numerous regulations that severely
restrict free competition. Demand for agricultural resources will not increase solong as efficient allocation and use are not guaranteed through free competition.
Thus, the numerous regulations put in place to protect agriculture are actuallyobstructing the development of this sector when internal structural conditions are
conducive to change.
V.4 Comparison of Agricultural Management in Japan and the United States
As a country poorly endowed with land resources, it is clear that Japan cannot
effectively develop comparative advantage in land-intensive industries like
agriculture. The problem is that Japanese agriculture has insisted on producing
land-intensive crops, most importantly rice. Moreover, agricultural policies havelong been focused on rice. Japanese agriculture has been able to maintain thissituation thanks to border measures used by the government to restrict andcontrol the importation of rice.
This section compares agricultural structure in Japan and the United States, thelatter having the most marked competitive advantage in agriculture anywhere in
the world, from the perspective of agricultural management.13 While the UnitedStates is the world’s leading exporter of agricultural products, the share of
agriculture in GDP is 1 percent, and agriculture accounts for only about 1.5
percent of total employment. However, per capita value-added is double that ofJapanese agriculture. The U.S. definition of farm, which corresponds to Japan’sfarm household, states that a farm is an entity selling more than 1,000 dollars ofagricultural products per year. While this data is somewhat old, the 1997 Census
of Agriculture indicates that the United States has 1,912,000 farms. Table 21
13 Data on U.S. agriculture appearing in this section is from Hattori (2005).

29

presents the distribution of U.S. farms by income from agriculture.
Farms earning less than 10,000 dollars per year from agriculture account for
one-half of all farms. However, this high figure can be attributed to the overly
expansive definition of farms, which results in the inclusion of hobby farming at
homes by non-agricultural workers and retirees. This parallels the Japanesesituation where farm households selling less than 1 million yen per year accountfor more than half of all farm households.
Small family farms with sales of 10,000 to 40,000 dollars per year and medium
family farms with sales of less than 100,000 dollars need to supplement theirincome from non-agricultural sources. However, farms with sales exceeding
100,000 dollars can be viewed as “full-time farms” as the term is used in Japan.
While these farms account for only 18.1 percent of all U.S. farms, they account for87.4 percent of total agricultural sales. In this context, it is particularlyinteresting to note the contribution of large-scale farms with annual sales
exceeding 1 million dollars. These farms, the total number of which is merely
about 26,000, account for 42 percent of total sales and have an average income ofnearly 800,000 dollars per year.
Large-scale farms in the United States conjure up images of vast farmlands andgiant machines harvesting grain crops. As can be seen in Table 22,
family-operated farms are the norm in this style of grain farming, whether
medium- or large-scale. While there are a total of 10,500 grain farms with sales
exceeding 1 million dollars, the share of these entities in total grain sales stands
at only 10 percent. This leads to the question: In what segments of U.S.
agriculture do small numbers of large-scale farms hold high market shares?
Large-scale farms with sales exceeding 1 million dollars account for an
overwhelming 75 percent share of total sales of vegetables. In horticulture andgreenhouse products, their share is 65 percent. Finally, large-scale farms accountfor more than 50 percent of total sales in such segments as beef cattle, poultry,hogs, and fruit. What this implies is that large-scale farms are the norm in the
production of high value-added agricultural products.
In both Japan and the United States, large-scale farms are the norm in the
livestock segment. However, important differences are seen in their respective
management formats. Because of land constraints in Japan, large-scale livestock
farms using factory-like concentrated breeding/raising methods are mostly
restricted to poultry farms (egg or meat producing farms). In the U.S. case,concentrated breeding/raising frequently refers to cattle farming with a string oflots each containing 100 or so cattle. The scale of operation in this type of feedlot
management can range from several thousand cattle to as many as 100,000 cattle.
This type of business is impossible to operate in Japan, where factory-likelarge-scale production methods are essentially restricted to smaller livestock.
The comparative disadvantage of Japanese agriculture does not derive solely fromthe inferiority of its factor endowments. Japanese production costs are also
pushed up by the high cost of agricultural materials and energy. In the case of30

some materials, Japanese farmers face prices that are 50–100 percent higher thanthe United States. It has been estimated that if materials were available at U.S.
prices, this alone would cut the cost of intermediate inputs by 45 percent andreduce the value of Japan’s agriculture output by 18 percent (Annual Report on
Food, Agriculture and Rural Areas in Japan FY 1996). Japanese agriculture needs
to pursue its areas of comparative advantage based on its factor endowments. At
the same time, effective measures must be introduced to gradually reduce costs.
These would include measures for rationalizing the distribution of production
materials, encouraging the efficient use of such materials, and promoting
deregulation.
V.5 Treatment of Agriculture in Past FTAs
Agriculture presents many difficult problems that have to be dealt with in FTA
negotiations. It should be noted, however, that these problems are not unique toJapan and the United States. The fact of the matter is that it is almost impossible
to find an existing FTA where trade in agricultural products has been treated likeany other product and liberalized without exception. Even in the case of the
U.S.-Australia FTA, concluded between two major exporters of agricultural
products, exceptional treatment has been given to certain agricultural segments
and products. In considering a Japan-U.S. EPA, it is important to examine how
agriculture has been treated in the FTAs that have been concluded by the twocountries in the past. This section reviews the treatment of agriculture in somemajor FTAs.
(1) North American Free Trade Agreement (NAFTA)
NAFTA was launched in 1994 with the participation of the United States, Canada,
and Mexico. The elimination of existing tariffs was scheduled to take place
immediately, within 5 years, within 10 years, and within 15 years from theenforcement of the agreement, depending on the product. In this scheme,
agreements on agricultural products were scheduled to be implemented by 2008.
Under NAFTA, trade liberalization in agricultural products comes under thefollowing three bilateral agreements: the U.S.-Canada Agreement, which
represents a modification of the Canada-U.S. Free Trade Agreement (CUSTA)
that came into force in 1989; a newly-formed U.S.-Mexico Agreement; and a
newly-formed Canada-Mexico Agreement.
Under the U.S.-Canada Agreement, almost all tariffs on agricultural products
were removed by 1998. On the other hand, tariff-rate quotas were applied to thefollowing products that previously were subject to quantitative restrictions: U.S.
exports of dairy products, poultry, eggs, and margarine; and Canadian exports ofdairy products, peanuts and peanut butter, sugar and products containing sugar,
and cotton. Furthermore, the above products have been exempted from tariffelimination. In Canada, provincial marketing boards manage the supply of diary
products, poultry, and eggs and maintain prices by adjusting production. Because31export and import controls are essential to the operation of this system, Canada
could not concede on the liberalization of these products. Following tariffication
under the WTO Agriculture Agreement, Canada adopted relatively high tariff
equivalents. In its first year (1995), the secondary tariff rates were 283.8 percent
for milk, 289 percent for cheddar cheese, 351.4 percent for butter, 192.3 percent
for eggs, and 280.4 percent for poultry. The United States filed an appeal claimingthat these high tariff rates were in violation of NAFTA. The NAFTA disputesettlement panel turned down the appeal on the grounds that the WTO
Agreement took precedence over NAFTA.
In contrast, the U.S.-Mexico Agreement allows for no exceptions and adopts afour-stage schedule for elimination of existing tariffs to take place immediately,
within 5 years, within 10 years, and within 15 years of the enforcement of theagreement, depending on the product. However, NAFTA does contain safeguard
provisions for designated agricultural products whereby short-term protective
measures automatically go into force when imports reach a certain level. The
United States has applied this special safeguards system to the importation of
onions, tomatoes, eggplants, chili peppers, squash, and watermelons. Mexico hasapplied it to the importation of live hogs and almost all pork products, apples, andpotato products. Furthermore, under a supplementary agreement entered into by
the United States and Mexico after the signing of NAFTA, the United States has
applied protective measures to the importation of sugar, orange juice, and freshand frozen vegetables. This agreement has allowed the United States to take thefollowing actions: introduction of safeguard measures on the importation oforange concentrates, more rigorous monitoring of fresh and frozen vegetables
imports, and the addition of high-fructose corn syrup in the calculation of Mexico’s“net surplus production”14 of sugar.
The Canada-Mexico Agreement allows the two countries to maintain tariffs on thefollowing products and exempt them from tariff elimination: dairy products,
poultry, eggs and egg products, and sugar and products containing sugar. The
Canada-Mexico Agreement also includes similar safeguard provisions containedin the U.S.-Mexico Agreement.
While the elimination of import barriers is a fundamental principle in these
agreements, not all agricultural products are subject to tariff elimination. In
particular, many exceptions to tariff elimination are found in the area of livestock
products. Furthermore, it is noteworthy that exceptions vary considerably among
the three bilateral agreements.
(2) U.S.-Australia FTA
14 The United States interprets net surplus production to be (total sugar production) – (total sugar

consumption + total consumption of high-fructose corn syrup). On the other hand, Mexico has not
accepted the inclusion of high-fructose corn syrup in this calculation. Under the agreement,
Mexico can export its net surplus sugar to the United States beginning in 2000 under the following
conditions: such exports can be undertaken only when Mexico is a net surplus producer of sugar,
and exports cannot exceed 250,000 tons per year.

32

Among the various FTAs created in recent years, the U.S.-Australia FTA
concluded in February 2004 attracted special attention. As the signatories wereboth the world’s major exporters of agricultural products, attention was focusedon how agricultural products would be treated in this agreement.
The U.S.-Australia FTA provides for the immediate elimination of all tariffs on
agricultural imports by Australia. On the other hand, the United States wasallowed to maintain protective measures on priority agricultural products.
Specifically, the United States excluded sugar from tariff elimination and adopted
an 18-year schedule for the gradual lowering of tariffs on beef. The United States
immediately eliminated tariffs on only about 66 percent of agricultural products.
Tariffs are scheduled to be eliminated on a further 9 percent (including somepriority products, such as fruit juices and certain types of mutton) within 4 years.
Tariffs on wine are scheduled to be eliminated within 11 years.
Tariff-rate quotas on beef started at 378,000 tons and were to be increased by
15,000 tons within two years of the enforcement of the FTA. Thereafter, additions
to the tariff-rate quota on beef are to be gradually increased to reach 70,000 tons
by the 18th year. In-quota tariffs were immediately eliminated. An over-quota
tariff rate of 26.4 percent is scheduled to be gradually lowered over an 18-year
period following the enforcement of the FTA.
Tariff-rate quotas also apply to various other agricultural products. In the case of
dairy products where quotas existed prior to the FTA, the tariff-rate quota was
tripled in the first year of the agreement, and is thereafter scheduled to increaseat an average annual rate of 5 percent. For other dairy products, newly
established tariff-rate quotas were applied to the following products: European
type cheeses (2,000 tons); milk, ice cream, and cream (total 7.5 million liters); andpowdered whole milk (4,000 tons). New tariff-rate quotas were also established for
avocados (4,000 tons) and peanuts (500 tons). The tariff-rate quota for cotton
products is to be annually increased over 18 years, and in-quota tariffs are to beannually reduced. The tariff-rate quota for sugar, which is treated as an exception
to tariff reduction and elimination, will remain unchanged from the original
87,000 tons per year.
Australia applies particularly strict sanitary and phytosanitary (SPS) measures
to imports of animal and plant products. As a result, imports of U.S. poultry, pork,
and whole grains are banned on the grounds that they do not meet Australian
SPS standards. U.S. agricultural organizations have complained that these
constitute non-tariff barriers, but Australia has refused to take ameliorative
measures on the grounds that its SPS measures under the FTA are backed byscientific evidence.
Thus, the U.S.-Australia FTA contains various exceptions and exemptions in thearea of agricultural products. The fact that the two countries did arrive at anagreement points to their realization that an FTA would generate crucial benefits
in important sectors other than agriculture. Needless to say, the conclusion of this33

comprehensive FTA covering agriculture, industrial products, services,
government procurement, protection of intellectual property, labor, andenvironment is significant in promoting free trade not only for the two signatories
but also for the entire world.
(3) U.S.-Korea FTA
The conclusion of the U.S.-Korea FTA in April 2007 was a shock to Japan.
Negotiations were launched in June 2006 and proceeded at great speed, reaching
fruition within 10 months of their start. While rice was excluded fromliberalization, Korea virtually accepted to restart the importation of U.S. bone-in
beef that had been halted due to BSE. Korea is also committed to eliminating its
40-percent tariff on beef over a 15-year period. Five products are recognized aspriority items, including potatoes, soybeans, powdered skim milk, and powdered
whole milk. These products will remain subject to tariff-rate quotas and current
tariff rates will be maintained. Oranges will remain subject to the current
50-percent tariff rate that applies during the September-February season for
Korean citrus products. A 30-percent tariff will apply during other months of theyear but will be eliminated after 7 years.
The U.S.-Korea FTA also establishes trigger levels for safeguard (emergency
import restriction) measures for a total of 30 major sensitive agricultural products,
including beef and pork. Similar criteria have not been established for otheragricultural products. For such products, the decision to invoke safeguards will bemade when it is deemed that imports have caused serious damage to domestic
industries. Tariffs on a number of products will be immediately eliminated when
the FTA goes into effect. These include orange juice (frozen), flowers, grape juice,coffee, wine, and feed corn. Tariffs will be immediately eliminated on 37.9 percent
of all agricultural items accounting for 55.8 percent of Korea’s total imports ofagricultural products from the United States. Within 5 years, tariff elimination
will extend to about 68 percent of all agricultural products.
As in the case of beef, tariffs will be gradually eliminated on 30 items over a
period of 15 years. These products include pork, corn, garlic, apple, peppers,
onions, ginseng, and barley. When imports of these products exceed a certain level,
Korea is permitted to introduce a tariff surcharge. For beef, the trigger level for
safeguard measures is set at 270,000 tons in the initial year of the FTA.
Thereafter, the level will be raised by 6,000 tons per year to reach 354,000 tons in
the 15th year.
The applicable tariff rate on beef imports will remain unchanged from theeffective rate for the first 5 years of the agreement. Tariffs will be lowered to 75
percent of the effective rate between the 6th and 10th years, and to 60 percent
between the 11th and 15th years. Thus, the current tariff rate will be cut by 40
percent over a 15-year period. For pork, the trigger level for safeguard measures
is set at 8,250 tons in the initial year of the FTA. Thereafter, the level will beraised by 6 percent per year to reach 13,938 tons in the 10th year, at which time34the tariff on pork will be eliminated. If safeguard measures are triggered during
the first 5 years of the FTA, the effective tariff will be applied; if triggered
between the 6th and 10th years, a rate equivalent to between 70 percent and 50
percent of the effective rate will be applied, whereby the rate is reduced by 5
percent per year.
Bilateral negotiations on tariff-rate quotas (TRQ) continued right up to therelease of the text of the agreement. It was finally agreed that a variety ofmethods would be adopted for individual products, such as first-come, first-served
basis, auction system for import rights, and licensing of historical importers.
Oranges will remain subject to the current 50-percent tariff rate that applies
during the September-February season for Korean citrus products. In exchange
for this, a tariff-free quota of 2,500 tons will be introduced and will be increased
annually at a rate of 3 percent.
(4) Japan-Singapore EPA
Japan’s first FTA has entered into force in November 2002 with Singapore. (Moreaccurately, this was an economic partnership agreement or EPA.) Using the WTO
Agreement as a shield, Japan adopted strategies to effectively exclude theagricultural sector from liberalization under this agreement. Specifically, Japanwas ready to eliminate all tariffs that were already effectively at zero (duty free),but, for all other tariffs, refused to make concessions exceeding the commitments
made in the WTO Agriculture Agreement. As a result, out of a total of 2,277
agricultural, forestry, and fishery products, only 486 products were covered in theJapan-Singapore agreement. These consisted of 428 items that were alreadyduty-free under the WTO Agreement, and an additional 58 items with effective
tariff rates (currently applicable tariff rates) of zero. In this manner, Japan wasable to include agricultural products in its agreement with Singapore without
treating the entire sector as an exception. However, in reality, agricultural
products were excluded. This aspect of the agreement should be viewed as ahighly exceptional case, which rested on the fact that Singapore has almost no
domestic agricultural production and therefore did not consider agricultural trade
to be a real issue.
(5) Japan-Mexico EPA
Japan’s second FTA was concluded with Mexico following difficult negotiations.
The negotiations started in November 2002 and reached a peak in October 2003
with the visit of President Fox to Japan. However, negotiations broke down on
tariff-free quotas for pork and orange juice. As a result, an agreement in principle
was not reached until March 2004.
Mexico ranks among countries that have taken a very positive stance on FTAs.
For this reason, Mexico has gained a hub-position in a series of FTAs. Because of
NAFTA and the EU-Mexico FTA, North American and European companies have35

established tariff-free access to Mexican markets. By comparison, Japanesecompanies were at a clear disadvantage. When Japanese manufacturers built
production facilities in Mexico, their competitive position was undermined bytariffs that applied to the importation from Japan of parts and components to be
used in these factories. These adversely affected Japanese companies longed forthe conclusion of a Japan-Mexico EPA.
At the start of negotiations (2002), machinery and equipment accounted for 75
percent of Japan’s exports to Mexico, and it was expected that the elimination oftariffs on these products would boost the export of Japanese industrial products to
Mexico. Similarly, machinery and equipment accounted for 49 percent of Mexico’sexports to Japan. However, many of these products were already being imported
by Japan at a zero percent tariff rate. Therefore, the focus of Mexican negotiators
was turned elsewhere. Specifically, they hoped to increase Mexico’s exports toJapan by reducing the high tariff rates that applied to agricultural and foodproducts, which accounted for 23 percent of its exports to Japan. During thecourse of the negotiations, Japan proposed to eliminate tariffs on approximately
300 agricultural products. However, negotiations became deadlocked on thesubject of pork, Mexico’s leading agricultural export product to Japan.
Japan has adopted a differential tariff system for the importation of pork. For
import prices within a certain price range, a tariff is levied that is equal to thedifference between the import price and a certain base price. For the importationof pork carcasses, this price range is set at between 48.9 yen per kilogram (floor
price for application of specific duty) and 393 yen per kilogram (ceiling price). For
all pork imported in this price range, a tariff is charged that is equivalent to thedifference between the import price and a base price of 410 yen per kilogram.
The bilateral negotiations on pork were eventually settled on terms that closely
approximated the original Japanese proposal. In exchange for this, a tariff-rate
quota for orange juice, which had not been placed on the agenda, was introduced,
and tariff-rate quotas were also established for the first five years of theagreement for beef, poultry, and fresh oranges. Furthermore, items wereidentified for inclusion in immediate tariff elimination, renegotiation, andexclusion. Finally, the agreement contains bilateral safeguard measures whereby
the conceding country can raise tariffs when increased imports are deemed tohave been injurious to domestic producers.15
15 Under the Japan-Mexico EPA, the five agricultural products are treated as follows. Pork: A

preferential tariff quota is established amounting to 38,000 tons in the initial year and increasing
to 80,000 tons in the 5th year. The applicable tariff rate is 50 percent lower than the current advalorem rate. Orange juice: A preferential tariff quota is established amounting to 4,000 tons in
the initial year and increasing to 6,500 tons in the 5th year (concentrate basis). The applicabletariff rate is 50 percent lower than the current rate. Beef: A market development quota (duty-free)of 10 tons is assigned to the initial two years of the agreement, and thereafter increased to 3,000
tons in the 3rd year and 6,000 tons in the 5th year. The applicable tariff rate is to be negotiated in
the 2nd year after the enforcement of the agreement. Poultry: A market development quota(duty-free) of 10 tons is assigned to the initial year of the agreement, and thereafter increased to2,500 tons in the 2nd year and 8,500 tons in the 5th year. The applicable tariff rate is to benegotiated in the initial year of the enforcement of the agreement. Fresh oranges: A market

36(6) Japan’s Other Concluded EPAs
Japan has concluded a number of other EPAs. In its FTA negotiations with thePhilippines, an agreement in principle was reached in November 2004. Hereagain, the treatment of agricultural products remains inadequate in the resulting
Japan-Philippines EPA. Such products as rice, wheat, barley, dairy products(state trading items), beef, pork, raw sugar, starch, and canned pineapple have
either been excluded from the agreement or have been identified as items forrenegotiation. On the subject of bananas, a priority item for the Philippines,
Japan agreed to eliminate its tariffs on dwarf bananas (monkey bananas) over a
period of 10 years. For normal bananas, Japan’s current tariff rates of 10 percent
during the summer season (20 percent during the winter season) will be reduced
to 8 percent (18 percent) over a 10-year period.16
Given that Japan’s domestic production of bananas is very nearly zero, why arebananas subject to an import tariff in the first place, and why does the tariff rate
go up during the winter season? The reason given is that the availability of
inexpensive bananas adversely affects the sales of domestic fruits. In particular
the tariff rate is raised as apples reach the market during the winter. How muchdo bananas substitute apples? This is a rhetorical question that causes consumers
to smile wryly. As long as Japan adheres to these types of policies, there is little
hope for the achievement of true globalization and the adoption of policies that
put the consumer first.
Turning next to the Japan-Malaysia FTA (EPA), an agreement in principle wasreached in May 2005 and the agreement came into force in 2006. Over a 10-year
period after the enforcement of the agreement, tariffs on motor vehicles, steel, andother industrial products will be eliminated, as will tariffs on agricultural,
forestry, and fishery products. In the agricultural sector, tariffs on mangos,
durians, and certain other products have been eliminated immediately. The
agreement provides for an annual 1,000-ton tariff-free quota on bananas. The twocountries did not reach an agreement on plywood, a product of export interest to
Malaysia. The decision was made to hold further negotiations on this item after
development quota (duty-free) of 10 tons is assigned to the initial two years of the agreement, andthereafter increased to 2,000 tons in the 3rd year and 4,000 tons in the 5th year. The applicabletariff rate is to be negotiated in the 2nd year after the enforcement of the agreement. All fiveproducts are to be renegotiated in the 5th year after enforcement.
16 Importation of other agricultural products is treated as follows under the Japan-Philippines
EPA. Sugar: Raw sugar is to be renegotiated in the 4th year after the enforcement of theagreement. Molasses are subject to tariff-rate quota (50 percent of over-quota tariff) amounting to
2,000 tons in the 3rd year and 3,000 tons in the 4th year. Mascobado sugar is subject to tariff-rate
quota (50 percent of over-quota tariff) amounting to 300 tons in the 3rd year and 400 tons in the
4th year. Poultry (excluding thigh meat with bones): Tariff-rate quota is established (in-quota
tariff reduced from 11.9 percent to 8.5 percent) amounting to 3,000 tons in the initial year andincreasing to 7,000 tons in the 5th year. Pineapple (fresh): Tariff-rate quota is established(duty-free) amounting to 1,000 tons in the initial year and increasing to 1,800 tons in the 5th year
for low-weight pineapples.

37the enforcement of the agreement.
In August 2005, an agreement in principle was reached on the conclusion of FTA
with Thailand. A key point in the negotiations was the reduction of tariffs on
motor vehicles. Failing to reach an agreement on this matter, the two countries
decided to hold further negotiations in the future. One of the factors contributing
to the stalemate in motor vehicle negotiations was Japan’s inadequate level ofliberalization in the agricultural sector. Rice was excluded from the liberalization
negotiations from the start, and negotiations on sugar were postponed until alater date. The tariff rate for boneless chicken was reduced from 11.9 percent to
8.5 percent, while the tariff rate for processed chicken meat was reduced from 6
percent to 3 percent. These concessions do not signify a high-quality FTA.
In September 2006, an agreement in principle was reached on the conclusion of
EPA with Chile. However, the following agricultural products were either
excluded from the negotiations or negotiations were postponed until a later date:rice, wheat and barley, dairy products (butter, cheese, powdered skim milk, etc.),oranges, konjac, starch, peanuts, and vegetable oils (rapeseed oil, etc.). Amongother agricultural products, beef, pork, and poultry are subject to tariff-rate
quotas. Tariffs on asparagus and avocados are to be immediately eliminated.
Tariffs on onions and apples are to be eliminated over a 15-year period; tariffs onvegetable juices are to be eliminated over a 7-year period; and tomato puree andtomato paste are subject to tariff-rate quotas. The agreement also provides for theimmediate elimination of tariffs on some agricultural products of export interest
to Japan. Responding to a request that Japan had made to promote the export ofagricultural products, Chile has agreed to the immediate elimination of tariffs onsuch products as Chinese yams, nashi pears, persimmons, green tea, miso, andsoy sauce.
In its EPA negotiations with ASEAN, Japan reached an agreement in principle in
May 2007. Japan is committed to eliminating its tariffs on 92 percent of its
imports (on a value basis) within 10 years, and reducing its tariffs by 5 percent to
50 percent on another 7 percent of its imports. The remaining 1 percent, which
includes rice, is expected to be excluded from liberalization. The negotiations
cover a total of 5,223 items, which includes manufactured products and forestry
and fishery products. This greatly exceeds the 1,332 items covered in the WTO
agricultural negotiations, and a 1-percent exclusion allows the exclusion of 52
items from liberalization negotiations.
V.6 Toward Improving the Efficiency of Japanese Agriculture
Progress toward a Japan-U.S. EPA will promote structural reform in Japanese
agriculture. The age in which agriculture could be left to farmers, farmhouseholds, and farming villages has ended. On various levels agriculture today isladen with potential for the development of business opportunities. In addition to
the conventional agricultural activities of farm households and farmers, now is
the time to develop agricultural activities that respond to the broad range of needs38

of the Japanese people. To achieve this purpose, agriculture must be reshaped as
an industry that is open to the people. The first step in this process would be toensure the freedom of entry and exit. In this context, it should be borne in mind
that many new initiatives in agriculture are already underway in various parts ofthe country.
Diverse groups of farmers and farm households are using the Internet to share
information. In many instances, the Internet is being used for marketing directly
to consumers. Others have created virtual markets and are using these to copewith price fluctuations. Participants in the virtual markets obtain data on
regional excesses and shortages in the supply of agricultural products and use
this information to make and adjust their production plans. Corporate farming is
gaining momentum with the introduction of revisions allowing joint-stockcompanies to engage in agriculture. In many ways, agriculture is now beginning
to provide fertile grounds for venture businesses. Some corporate farms that havesucceeded in expanding and diversifying their agribusinesses listed their sharesfor OTC trading. There are real possibilities for achieving major corporate successbased on agriculture, and various initiatives and approaches are being studied.
These include turning consumers into shareholders and promoting active
personnel exchange between rural and metropolitan areas, recruiting the best
and the brightest employees from affiliated major corporations to participate inagribusinesses, introducing outside director system, and developing verticallyintegrated systems encompassing all aspects of the business from production toretail.
These new initiatives point to the directions that Japanese agriculture must takein the future. To state the conclusion first, from a macro perspective, Japanese
agriculture must rid itself of the illusion of “Fordism”17 that focuses on mass
production and large-scale management. Instead, it must make the transition to“Sloanism” 18 and commit itself to product differentiation supported by thedevelopment of its advantages in capital- and technology-intensive agriculture.
Turning next to the perspective of the individual farming unit, individual farmers
must not be tied down to agricultural production, and must be prepared to be
integrated into other industries through alliances or the investment of larger
volumes of capital and technology.
Some years ago, the Ministry of Agriculture, Forestry and Fisheries (MAFF)
announced its “New Policy” in a report outlining its vision for the future ofJapanese agriculture.19 The New Policy provided the following outlook for ricecultivation. Within a 10-year period, 80 percent of Japan’s rice output would be
produced by about 150,000 “individual management entities” and 20,000 “joint
management entities.” On average, individual management entities would have
17 “Fordism” derives from the name of Henry Ford who made the mass production of automobiles

possible, and is aimed at realizing mass consumption by raising the incomes of workers involved inmass production.
18 “Sloanism” derives from the name of Alfred Sloan, the long-time chairman of General Motors,
and is aimed at boosting competitive strength through model changes and product diversification.
19 The Basic Direction of New Policies for Food, Agriculture and Rural Areas, June 1992.

39

10–20 hectares under cultivation. The management scale of joint management
entities would cover the entire area of one or more villages. MAFF estimated that
this could reduce production costs by 40–50 percent. Individual management
entities would consist of an individual or one farm household, while joint
management entities would comprise several individuals or farm households
working cooperatively or jointly. MAFF estimated that the lifetime income of theprincipal member of participating farm households would equal the average
lifetime income of white-collar employees working in the same region.
However, over the years, no progress has been made in developing such
agricultural management entities. The fact is that the elimination of extremely
small-scale rice cultivation (part-time farming) is unlikely to occur. Expanding thescale of operation in land-intensive rice cultivation requires the purchase orleasing of additional land. However, scale expansion through purchasing is very
difficult to achieve because, with the exception of some parts of Hokkaido andother areas, the price of agricultural land in Japan far exceeds the agricultural
productive value. The leasing of land is similarly difficult because provisions of
the Agricultural Land Act that strongly protect tenant farmers have effectively
restricted the supply of land available for leasing. Various measures have been
introduced to increase the liquidity of agricultural land by bypassing theseprovisions. For instance, municipal and village authorities have been exemptedfrom these provisions when acting collectively to bundle land-use rights and tointermediate in the leasing of agricultural land. However, the actual provisions of
the Agricultural Land Act have remained untouched.
This gives rise to two questions. First, if the Agricultural Land Act restricts thetransfer of agricultural land to other uses, how is it possible for the price ofagricultural land to exceed its productive value? Second, why are landowners
reluctant to lease their land when lease agreements intermediated by municipal
and village authorities make it easy for them to terminate a lease? The sameanswer applies to both questions: Landowners have expectations for transferring
their agricultural land to other uses. The transfer of agricultural land to otheruses is restricted under the Agricultural Land Act. Moreover, such transfers are
forbidden in designated agricultural districts as stipulated under the Act on
Improvement of Agricultural Promotion Areas. However, the fact is that thesetransfer restrictions are not necessarily strictly enforced. Godo (1998) estimatesthe income gained from the transfer of agricultural land in the period between
1988 and 1993. The average of all prefectures excluding Tokyo, Kanagawa, andOsaka indicates that income from the transfer of agricultural land was equal to
0.7–0.9 times total agricultural production. A review of all prefectural averages
during the period between 1975 and 1993 indicates that the transfer ofagricultural land was proceeding at a rate of at least 0.3 percent per year, andthat income gained from the transfer of agricultural land was equal to about 10
percent of total agricultural production. These figures indicate that there is atleast one chance in 30 years to engage in a transfer of land. This is not a low
probability and is high enough to reduce interest in selling agricultural land.
Leasing of agricultural land has its own problems. The landowner is not legallyobligated to compensate the tenant farmer when transferring the leased land to40

non-agricultural use. However, the general practice is to share part of the income
gained from the transfer with the tenant in one way or another. As a result, thispractice effectively reduces the availability and liquidity of land through leasing.
Thus, the market for agricultural land as a factor of production is being distortedby the transfer expectations of owners. As long as this situation persists, there islittle chance for “Fordist” development based on large-scale, land-intensive
farming. Theoretically, it is possible to correct the distortions in the market for
agricultural land by either revising the Agricultural Land Act or by more strictly
enforcing the restrictions on the transfer of agricultural land to other uses.
However, these possibilities are almost nil, considering the fact that legislators
could not even touch the Agricultural Land Act in the course of legislating theFood, Agriculture and Rural Areas Basic Act. Under the current system,
opportunities for achieving large-scale rice farming are very limited. Perhaps
there is some hope in areas with very low expectations for the transfer ofagricultural land to other uses. Farms located in such municipalities and villages
could be organized into single management entities through the securitization ofland or through investment in kind. Non-farming residents and local governmentorganizations could also be invited to invest in these entities to transform theminto agricultural corporations. This is not to say that it would be by any means
easy to gain the approval and participation of all local farm households in such
undertakings.
To survive as an active and efficient industry, Japanese agriculture will have toshift its production toward crops or develop new products in which it hascomparative advantages that match Japan’s factor endowments and technologicalcapabilities. The entry of non-agricultural companies into agricultural production
always involves product differentiation or the targeting of niche markets.
However, their operations are large scale and differ importantly fromconventional farm management. The common factors there are outstanding
capabilities for product development and emphasis on marketing strategies.
So far, Japanese agriculture has been based on the manuals and instructions
developed by MAFF. Farmers produced what they were told was appropriate for
their land and environment. And what they produced was simply handed over tothe local agricultural cooperative for processing and marketing. Farmers did nothave to concern themselves with how their products were processed and who wasultimately consuming their products. A farmer was deemed a good farmer if he or
she had a good understanding of production techniques and technologies. In thisframework, good farmers never had to concern themselves with prices and themarket. However, the forces of globalization and market liberalization are
pushing to cause a fundamental change in this style of agriculture. As the successof non-agricultural companies clearly indicates, the focus of attention must now
be turned to the question of organization and how agricultural activities can beundertaken within an organizational framework. The issue of organization does
not apply only to the front lines of production. Organizational approaches mustalso be implemented in upstream and downstream sectors, and careful thought
must be given to the assignment of personnel to various segments of the supply
41

chain. While these are obvious questions that have been addressed long ago inother industries, Japanese agriculture has yet to come to grips with them.
V.7 Toward Constructive Debate on a Japan-U.S. EPA
Many issues must be resolved before a Japan-U.S. EPA can be concluded.
Needless to say, some of the most serious issues are to be found in the agricultural
sector. All the FTAs that Japan has either concluded or reached an agreement onin the past have excluded Japan’s principal agricultural products. The outcome
has been the creation of a series of low-quality FTAs. But the global network of
FTAs is growing at an accelerated pace, and it is not possible for Japan tocontinue avoiding FTA negotiations with major exporters of agricultural products.
The United States is already a leading supplier of food to Japan. However, once
negotiations start, there is no doubt that the United States will press for further
liberalization of Japan’s priority agricultural products, including rice, beef, andpork. Unlike in past FTA negotiations, it is difficult to believe that Japan would be
able to successfully conclude an agreement with the United States whilesteadfastly refusing to liberalize these markets. The critical issue will be the formof market liberalization that is hammered out between the two countries. As
previously discussed, the United States (much like Japan) cannot and has notbeen able to treat agricultural products in the same way that it treats
manufactured goods. In NAFTA, the United States accepted Canadian demands
for the protection of agriculture. In the U.S.-Australia FTA, the United Statespressed for the adoption of exceptional measures for beef and other products, andexcluded sugar from the agreement.
If these past examples are any indication, various arrangements concerning
agricultural products will have to be made in negotiating a Japan-U.S. EPA.
However, an important thing is to avoid the exclusion of priority agricultural
products from the FTA. Increasing the number of its low-quality FTAs is not thepath that Japan should be pursuing now. What Japan really needs to do is toconclude high-quality FTAs. There are various options that can be considered forthe treatment of agricultural products. That is, agriculture can be placed on its
own track. For instance, different timetables can be negotiated for tariff reductionof manufactured and agricultural products. Alternatively, instead of committing
to tariff elimination within a given timeframe, goals for tariff reduction can be set,
which would be up for renegotiation once the goals have been achieved. It is
desirable for Japan to examine the treatment of agriculture in past FTAs and to
make every effort to conclude high-quality FTAs by rising above past obstacles
and limits.
The full inclusion of agriculture in FTAs will serve the important purpose ofpromoting structural change in Japan’s agricultural sector. In particular, theinclusion of rice will lead to drastic changes in the segment of domestic
agriculture that lags furthest behind in the implementation of structural reforms.
It must be borne in mind that the United States is not alone in its interest in the42

Japanese rice market. China and other Asian countries also have a very keeninterest. A significant number of producers are preparing for the future opening of
the Japanese market by cultivating high-grade Koshihikari and other strains ofJaponica rice. Discussions of rice that will have to take place in negotiating a
Japan-U.S. EPA will provide an excellent opportunity for considering the future ofrice in Japan in the globalizing world.
The steadfast protection of rice has been the hallmark of Japan’s external
agricultural policies and its FTA negotiations. Japan’s advocacy of the“multifunctionality” of agriculture made in the WTO agricultural negotiations ispredicated on paddy-field agriculture. Furthermore, Japan’s request for changing
the base year for the computation of minimum access reflects the need to reduceminimum-access imports as much as possible in an environment of decreasing
rice consumption. Japan’s opposition to increasing the import volumes of priority
products and rejection of tariff ceilings also basically reflects its commitment to
the protection of rice.
The problem with rice is that consumption has dropped by 50 percent compared topast levels and its importance continues to decline from year to year. While ricecertainly remains a staple food, policies that are biased toward rice can leadproducers to misjudge market conditions and trends. Also from the perspective ofeffectively promoting policies that reflect the real needs of the people and of
consumers, the time has come for Japan to move away from rice-centeredagricultural policies.
Generally speaking, agriculture has greater flexibility than other industries.
While demand measured in caloric terms cannot be expected to increase, there isno limit to the diversity of demands. There are an infinite number of foods andingredients that can be developed for everything from diet foods to gourmet
cooking. On the production side, the factors of agricultural production are highly
substitutable and producers can choose from a wide range of technologies tomatch their factor endowments. The importance of land as an essential
production factor in agriculture is frequently emphasized. While there is no doubtthat land is an essential requirement in agriculture, the history of agricultural
technology is the history of constant attempts to overcome this constraint. It issaid that in the age of hunting and gathering, the ecologically balanced global
human population could not have exceeded 10 million. Yet today, the humanpopulation has reached 6.4 billion and continues to grow. This immense
population is supported and fed by agricultural technologies that continue toovercome the land resource constraint.
As a country poorly endowed with natural resources, Japan has focused its
attention on developing and growing as a capital-intensive, technology-oriented
economy. The same basic strategy should apply to Japanese agriculture. The
processes of internationalization and globalization demand that production belocated at the optimal site on a global scale as determined by the principle ofcomparative advantage. It is now time for Japan to move away from its
overemphasis of rice long justified on the grounds that rice is the staple of the43

Japanese diet. Instead, Japan should look toward developing industrial
approaches to agriculture that provide ample opportunities for exploiting Japan’s
technological prowess and are environmentally friendly. In particular, there areexcellent possibilities in the development and use of safer technologies for genetic
modification.
This is not a proposal for all of Japanese agriculture to turn to vegetable andflower factories. There are new entrants who want to experience the “healing
power” of agriculture that allows people to come into contact with plants andanimals, and there are many that find fulfillment in agricultural production.
Therefore, there is no reason to believe that conventional agriculture will
disappear because there is plenty of room for farms that do not pursue “efficiency.”
This in itself is manifestation of the flexibility inherent in agriculture. However, itcertainly would not be appropriate to support such forms of “hobby farming” byburdening taxpayers and consumers with higher taxes and prices. The starting
point of agriculture as an industry is the supplying of consumers with inexpensive
and high-quality food products made possible through efficient production. It does
not make sense to advocate the “multifunctionality” of agriculture while failing to
put this prescription into practice. Japan should make the transition fromdefensive to offensive agriculture while seeking to develop its true comparativeadvantage in agriculture.
This paradigm shift is essential for Japanese agriculture. It will enableagriculture to adopt new objectives in addition to its traditional role of producing
food, and it will encourage the public to join in the search for new opportunities
for utilizing the nation’s agricultural resources. This in turn will create newvalue-added in agriculture and will lead to the realization of a sustainableagriculture that will be able to coexist with a major agricultural exporting country,
such as the United States.

44VI. Conclusion
Interest in FTAs is rapidly growing throughout the world. Against this backdrop,
both Japan and the United States have in recent years become actively engaged
in FTA and EPA negotiations aimed at garnering economic as well as
non-economic benefits. While Japan-U.S. economic relations are vitally importantto both countries, a Japan-U.S. EPA has not even been put on the agenda forgovernment discussion, although it is being studied at the private-sector level.
With this situation in mind, the purpose of this report was to analyze the impact
and obstacles to a Japan-U.S. EPA.
Simulations using a computable general equilibrium model indicated that aJapan-U.S. EPA would yield economic benefits to both countries throughincreased production and consumption. The analysis also pointed to theimportance of formulating a comprehensive and high-level Japan-U.S. EPA thatwould lead to improved efficiency in low-efficiency industries. Specifically, aJapan-U.S. EPA should aim to achieve trade liberalization in all sectors, including
agriculture and services. The agreement should also extend to domestic systems
and institutions and should commit both sides to the reduction and elimination of
economic regulations, the strict enforcement of competition policies, and thedevelopment of efficient economic systems. Today, Japan finds itself in the very
difficult situation of having to achieve economic growth in an environment
marked by declining birthrates and the rapid aging of society coupled withmonumental government debt. In the pursuit of this goal, the conclusion of acomprehensive and high-level Japan-U.S. EPA can yield tremendous benefits toJapan by stimulating and energizing the domestic economy and by delivering real
benefits to consumers.
As the first and second largest economies in the world, any EPA concluded
between Japan and the United States must be one that can serve as a model FTA
for other countries. Here again, there are strong reasons to argue for an EPA thatmeets the criteria of a comprehensive and high-level agreement. The conclusion of
a comprehensive and high-level EPA between Japan and the United States would
expand bilateral trade and investment, which in turn would very probably induce
trade and investment liberalization among other countries of the world. This
would contribute to greater prosperity in the international economy bystrengthening the global trading system and promoting global trade andinvestment.
While a Japan-U.S. EPA would certainly generate economic benefits, opposition tosuch an agreement can be expected from industries and workers who presumably
would be hurt by liberalization. This opposition could create serious obstacles in
the course of the negotiations. On the Japanese side, the single most important
problem would be the liberalization of agricultural trade. Japan has always
maintained a defensive posture in past GATT/WTO and FTA/EPA negotiations for
agricultural trade liberalization. This posture reflects Japan’s policy goals ofsustaining agriculture and maintaining the rate of food self-sufficiency by45

protecting domestic farmers with no comparative advantage from importcompetition. However, protectionist policies have not yielded the expected results.
Contrary to expectations, agricultural output and employment are continuing toshrink and Japan’s self-sufficiency rate is also inching downward. This outcome
can be explained as follows. Government intervention has rendered the pricemechanism dysfunctional and a persistent mismatch between demand and supply
has come into being in the markets. The potential competitive power of Japanese
agriculture cannot be manifested due to excessive government intervention. This
constitutes an extremely serious problem for Japan as well as for Japanese
agriculture. On the other hand, this implies that if government intervention canbe reduced and eliminated in the process of liberalization and structural reform,
the agricultural sector would be empowered to manifest its competitive capacities
and would thereby generate significant benefits to consumers. By committing toliberalization and structural reform, it is possible to create a fully competitive
agricultural sector buttressed by product differentiation in those agriculturalsegments where Japan can exploit its strengths in capital- andtechnology-intensive production, and through integration with other industries
based on cooperation and alliances. Success in this line of action would generatereal opportunities for increasing Japan’s agricultural exports.
The conclusion of a Japan-U.S. EPA is also very likely to reduce domestic output
and employment in some sectors through increased imports. In order to maintainthe momentum for the structural reforms that are so essential to economic
revitalization and economic growth, the government must be prepared to takeswift action on two fronts to minimize the attendant pain. First, it must support
the livelihood of adversely affected workers by providing temporary income
supplementation. Second, it must act to facilitate the movement of affected
workers to more productive jobs by providing necessary education and training.
Another way to reduce the pain would be to liberalize trade in stages covering
longer periods of time. However, even if liberalization is to be stretched out overlonger periods of time, it is absolutely essential to adopt a time schedule and to
make steady progress toward liberalization while implementing structuralreforms.
For more than 50 years in the postwar period, Japan and the United States haveconsistently endeavored to resolve their bilateral economic and trade problems
through the Structural Impediments Initiative and other consultative
frameworks. At the present time, bilateral talks are being held on eight issues
under the “Japan-U.S. Economic Partnership for Growth.” Through these
discussions, both countries have gained a deep understanding of the economic
issues and problems that exist in each other’s country. The purpose of establishinga Japan-U.S. EPA would be to overcome these problems. In its past EPA
negotiations, Japan has always prefaced the negotiating process by creating study
groups drawing on the business, government and academic communities to
examine the anticipated obstacles and issues. However, for a Japan-U.S. EPA,
there is no need to undertake such studies because ample knowledge alreadyexists concerning the obstacles and issues faced by the two countries. The making
of a political decision is all that remains to be done for the start of negotiations for46

a Japan-U.S. EPA.

47

References
Publications in Japanese
Urata, Shujiro, Koichi Ishikawa and Ryo Mizuno, eds. (2007), FTA Guidebook

2007, JETRO.

Godo, Yoshihisa (1998), “Nochi Mondai to Nihon Nogyo” (Agricultural land
problems and Japanese agriculture) in Masahiro Okuno and Masayoshi Honma,ed., Nogyo Mondai no Keizai Bunseki (Economic analysis of agriculturalproblems), Nikkei.
Hattori, Shinji (2005), America 2002 Nogyoho—Kokunai Hogo Zodai to WTO
Nogyo Kosho (The 2002 U.S. Farm Act —Expanded Domestic Protection and theWTO Agricultural Negotiations), Association of Agriculture and Forestry
Statistics.
Hayashi, Ryozo and Ichiro Araki, editors in chief, Nichibei FTA Kenkyukai, ed.
(2007), Nichibei FTA Senryaku (FTA strategies of Japan and the United States),
Diamond.
Publications in English
Dimaranan, Betina V., ed. (2006), Global Trade, Assistance, and Production: The
GTAP Data Base, West Lafayette, Purdue University: Center for Global Trade
Analysis.
Hertel, Thomas W., ed. (1997), Global Trade Analysis: Modeling and Applications,
New York: Cambridge University Press.
Jorgenson, Dale W., and Koji Nomura (2007), “The Industry Origins of the
US-Japan Productivity Gap,” June 2007.
McDougall, Robert A. (2000), “A New Regional Household Demand System for
GTAP,” GTAP Working Paper, No. 14, September 2000.

48

trillion yen

Chart 1: Japan’s Exports to the United States and China

%

18

40
U.S. (left axis)
China (left axis)

16

Share of U.S. in total exports (right axis)

35

Share of China in total exports (right axis)
14
30
12
25
10
20
8
15
6
10
4

5

2

0

0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Ministry of Finance.
49trillion yen

Chart 2: Japan’s Imports from the United States and China

%

16

30
U.S. (left axis)
China (left axis)

14

Share of U.S. in total imports (right axis)

25

Share of China in total imports (right axis)
12

20
10

8

15

6
10
4
5
2

0

0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: Ministry of Finance.

50

Table 1: Structure of Japan-U.S. Trade
Share in trade (%)
Exports from Japan to
U.S. (Xj)

Share of U.S. in
Japan’s total exports(%)

Imports of Japan from
U.S. (Xus)

SITC

2000
2006
2000
2006
2000
Agricultural
0
0.24
0.31
13.86
13.19
19.4
products and foodBeverages and
0.04
0.03
3.82
2.09
7.4
1
tobaccoMineral fuels
0.27
0.78
1.30
1.01
25.9
3
Animal oils
0.02
0.02
0.08
0.11
29.8
4
Chemicals
4.94
5.24
10.03
14.18
20.2
5
Manufactured
goods, chiefly
6
5.35
5.80
5.44
6.40
16.5
classified bymaterials
Machinery and
76.34
75.79
42.70
38.53
33.3
7
transport equipment
Miscellaneous
manufactured
8
8.95
7.55
14.83
15.69
29.8
products
Other commodities
3.68
4.16
2.03
2.76
30.3
9
Total
100.00100.00100.00100.0030.0
Source: Compiled from United Nations Commodity Trade Statistics Database CD-ROM.

51

Competitiveness index(Xj-Xus)/(Xj+Xus)

Intra-industry trade index(1-(|Xj-Xus|/(Xj+Xus))*
100

2006

2000

2006

2000

2006

17.4

-0.93

-0.89

7.29

11.05

6.1

-0.95

-0.92

4.51

7.74

19.5
30.2
13.3

-0.36
-0.39
0.04

0.31
-0.44
-0.05

63.63
60.86
95.85

68.74
56.26
95.36

11.5

0.37

0.38

63.08

61.81

27.1

0.60

0.66

40.45

34.16

21.1

0.14

0.09

85.81

91.45

18.4
22.8

0.60
0.38

0.58
0.42

40.07
62.37

42.32
57.67

Chart 3: Japan’s Foreign Direct Investment in the United States
60.0

5,000
Amount (left axis, billion yen)
4,500

Number of investments (left axis)
Share in total foreign direct investment (right axis, %)

4,000

50.0

Share in total foreign direct investment (right axis, %)
3,500
40.0
3,000

30.0

2,500

2,000
20.0
1,500

1,000
10.0
500

0.0

0
1989

1990

1991

1992

1993

1994

1995

1996

1997

Source: Ministry of Finance.
52

1998

1999

2000

2001

2002

2003

2004

Chart 4: U.S. Foreign Direct Investment in Japan
3000

70.0
Amount (left axis, billion yen)
Number of investments (left axis)

2500

60.0

Share in total foreign direct investment (right axis, %)Share in total foreign direct investment (right axis, %)
50.0

2000
40.0
1500
30.0
1000
20.0

500

10.0

0.0

0
1989

1990

1991

1992

1993

1994

1995

1996

1997

Source: Ministry of Finance.

53

1998

1999

2000

2001

2002

2003

2004

Table 2: List of Regions
12 Regions

GTAP 87 Regions

1
2
3
4
5
6
7
8
9

Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica

10

WEuro

11
12

SAsia
ROW

Japan
United States
China, Hong Kong
Korea
Indonesia, Malaysia, Philippines, Singapore, Thailand, Vietnam, Rest of Southeast Asia
TaiwanCanada, Mexico, Rest of North America
Australia, New Zealand, Rest of Oceania
Colombia, Peru, Venezuela, Rest of Andean Pact, Argentina, Brazil, Chile, Uruguay,
Rest of South America, Central America, Rest of FTAA, Rest of the Caribbean
Austria, Belgium, Denmark, Finland, France, Germany, United Kingdom, Greece,
Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, Switzerland, Rest of EFTA
Bangladesh, India, Sri Lanka, Rest of South Asia
Rest of East Asia, Rest of Europe, Albania, Bulgaria, Croatia, Cyprus, Czech Republic,
Hungary, Malta, Poland, Romania, Slovakia, Slovenia, Estonia, Latvia, Lithuania,
Russian Federation, Rest of Former Soviet Union, Turkey, Rest of Middle East, Morocco,
Tunisia, Rest of North Africa, Botswana, South Africa, Rest of South African CU, Malawi,
Mozambique, Tanzania, Zambia, Zimbabwe, Rest of SADC, Madagascar, Uganda,
Rest of Sub-Saharan Africa

Source: Compiled by authors from GTAP Database version 6.

54

Table 3: List of Industries
20 Industries

GTAP 57 Industries

1
2
3

Rice
Grain
Othcrop

4

Meat

5

Othfood

6
7
8
9
10
11
12
13
14
15
16

Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice

17
18
19
20

Construction
Trade
ComlnsFin
Transport

Paddy rice, Processed rice
Wheat, Cereal grains nec
Vegetables, fruit, nuts, Oil seeds, Sugar cane, sugar beet, Plant-based fibers,
Crops nec, Wool, silk-worm cocoons
Cattle,sheep,goats,horses, Animal products nec, Meat: cattle,sheep,goats,horse,
Meat products nec
Raw milk, Vegetable oils and fats, Dairy products, Sugar, Food products nec,
Beverages and tobacco products
Forestry
Fishing
Coal, Oil, Gas, Minerals nec
Textiles, Wearing apparel, Leather products
Wood products, Paper products, publishing
Petroleum, coal products, Chemical,rubber,plastic prods, Mineral products nec
Ferrous metals, Metals nec, Metal products
Motor vehicles and parts
Transport equipment nec, Machinery and equipment nec, Manufactures nec
Electronic equipment
Electricity, Gas manufacture, distribution, Water, Business services nec,
Recreation and other services, PubAdmin/Defence/Health/Educat, Dwellings
Construction
Trade
Communication, Financial services nec, Insurance
Transport nec, Sea transport, Air transport

Source: Compiled by authors from GTAP Database version 6.

55

Table 4: Japan and U.S. Tariff Rates by Industry (%)
Japan
Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport

788.08
73.88
3.95
50.50
13.35
0.03
5.10
0.0
9.23
0.52
1.20
1.03
0.0
0.27
0
0
0
0
0
0

U.S.
7.45
0.90
0.91
1.03
3.68
0.54
0.19
0.06
8.35
0.23
2.50
2.28
2.39
1.46
0.49
0
0
0
0
0

Source: Compiled by authors from GTAP Database version 6.

56

Table 5: Relative TFP GapsTFP Gap
Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport

0.65
0.62
0.62
0.65
0.68
0.62
0.62
0.57
0.68
0.94
1.2
0.83
1.4
0.89
1.04
0.84
0.82
0.71
1.12
1.21

Source: Compiled by authors from Jorgenson and Nomura (2007).

57

Table 6: Economic Welfare
FTA
10%
Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

0.45
0.03
-0.03
-0.08
-0.05
-0.04
-0.08
-0.08
-0.02
-0.01
-0.02
0.00

Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

16082
2443
-411
-286
-254
-97
-1008
-290
-261
-714
-92
28

+ TFP Gap convergence
25%
50%
100%

(% change)
4.03
7.27
0.78
1.49
-0.09
-0.13
-0.20
-0.31
-0.13
-0.19
-0.13
-0.19
-0.02
0.03
-0.19
-0.28
-0.12
-0.20
-0.09
-0.16
-0.09
-0.16
-0.06
-0.10
(US$, million)
69056
14421726047031163
71626
136573
-677
-1036
-1532
-486
-756
-1150
-470
-735
-1058
-199
-328
-504
-719
-291
410
-478
-726
-1068
-790
-1502
-2523
-3233
-6725
-11942
-276
-535
-932
-464
-1106
-1967
1.93
0.34
-0.06
-0.13
-0.09
-0.08
-0.06
-0.13
-0.06
-0.04
-0.05
-0.02

Source: Compiled from the authors’ simulation results.

58

12.96
2.78
-0.19
-0.47
-0.25
-0.28
0.15
-0.41
-0.33
-0.28
-0.28
-0.15
465058255060
-2251
-1762
-1353
-727
1746
-1538
-4063
-20590-1625-3016

Table 7: GDP
FTA
10%
Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

0.43
-0.02
-0.01
-0.04
-0.01
0.00
0.00
0.00
-0.01
0.00
0.00
-0.01

Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

18042
-2399
-95
-158
-41
-9
-57
-6
-96
99
-2
-119

+ TFP Gap convergence
25%
50%
100%

(% change)
3.27
5.86
0.71
1.40
-0.01
-0.01
-0.08
-0.11
-0.02
-0.02
-0.02
-0.03
-0.02
-0.03
-0.03
-0.06
-0.05
-0.09
-0.04
-0.07
-0.02
-0.05
-0.04
-0.07
(US$, million)
66897
13648824477628272
71577
141012
-107
-118
-117
-231
-331
-476
-68
-103
-151
-25
-49
-84
-151
-280
-467
-61
-138
-251
-343
-684
-1192
-1184
-2975
-5679
-64
-151
-282
-428
-861
-1525
1.60
0.28
-0.01
-0.05
-0.01
-0.01
-0.01
-0.01
-0.02
-0.01
-0.01
-0.02

Source: Compiled from the authors’ simulation results.

59

10.47
2.66
-0.01
-0.16
-0.04
-0.05
-0.06
-0.10
-0.15
-0.12
-0.08
-0.12
437231267919
-72
-700
-217
-143
-759
-433
-2032
-10272-504-2674

Table 8: Exports
FTA+ TFP Gap convergence
25%
50%
100%
(% change)
-1.20
-8.12
-17.71-31.49
1.51
2.44
4.00
7.10
0.30
0.77
1.50
2.85
0.40
0.90
1.67
3.04
0.39
0.87
1.60
2.86
0.24
0.53
1.00
1.87
0.26
0.90
1.86
3.47
0.57
1.30
2.41
4.29
0.65
1.58
3.02
5.49
0.40
0.94
1.76
3.18
0.69
1.62
3.06
5.61
0.39
0.82
1.47
2.59
(US$, million)-5746-38861-84718 -150640
13663
22153
36293
64465
1485
3784
7420
14068
774
1728
3202
5840
1793
4009
7362
13142
330
739
1390
2603
1157
3942
8142
15212
561
1275
2360
4211
1630
3963
7539
13732
11087
26122
49100
88659
635
1497
2834
5189
3129
6627
11945
20996

10%
Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

4.02
0.88
-0.02
0.06
0.05
0.04
-0.19
0.05
-0.01
0.01
0.03
0.08

Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

19218
8001
-106
109
233
50
-834
53
-27
372
25
631

Source: Compiled from the authors’ simulation results.

60

Table 9: Imports
FTA+ TFP Gap convergence
25%
50%
100%
(% change)
6.53
10.30
16.73
29.89
1.17
1.18
1.32
1.86
-0.14
-0.25
-0.36
-0.40
-0.13
-0.23
-0.36
-0.48
0.12
0.31
0.60
1.20
-0.11
-0.19
-0.26
-0.21
-0.42
-0.19
0.15
0.72
-0.70
-1.13
-1.73
-2.62
-0.52
-1.01
-1.72
-2.83
-0.22
-0.45
-0.78
-1.33
-0.42
-0.84
-1.46
-2.47
-0.15
-0.44
-0.87
-1.55
(US$, million)
26987
42551
69105
123473
15252
15387
17144
24175
-569
-974
-1407
-1602
-203
-373
-591
-782
469
1179
2327
4629
-130
-219
-303
-246
-1654
-769
575
2858
-675
-1085
-1663
-2514
-1404
-2715
-4615
-7570
-5988
-12140-21269-36174
-397
-794
-1381
-2335
-1203
-3503
-6899
-12366

10%
Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

4.08
1.19
-0.06
-0.04
0.00
-0.04
-0.57
-0.38
-0.16
-0.06
-0.12
0.06

Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

16843
15437
-221
-58
16
-43
-2273
-367
-437
-1532
-109
475

Source: Compiled from the authors’ simulation results.

61

Table 10: Investment
FTA+ TFP Gap convergence
25%
50%
100%
(% change)
3.94
9.38
17.63
31.79
0.09
0.00
-0.11
-0.24
-0.43
-1.00
-1.87
-3.36
-0.82
-1.81
-3.30
-5.81
-0.88
-1.95
-3.55
-6.20
-0.73
-1.63
-2.98
-5.20
-0.91
-1.81
-3.17
-5.53
-1.05
-2.18
-3.88
-6.74
-1.03
-2.31
-4.26
-7.58
-0.93
-2.11
-3.92
-7.00
-0.67
-1.52
-2.82
-5.07
-0.93
-2.12
-3.93
-7.04
(US$, million)
41785
99381
186859336863
1882
23
-2155
-4764
-1965
-4571
-8532
-15301
-903
-1987
-3625
-6388
-1189
-2636
-4803
-8380
-378
-840
-1535
-2679
-2444
-4830
-8478
-14776
-954
-1981
-3528
-6122
-2731
-6133
-11304-20118-15739-35830-66420 -118736
-902
-2053
-3815
-6859
-4496
-10250-19032-34116

10%
Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

0.08
0.16
-0.02
-0.11
-0.10
-0.08
-0.28
-0.24
-0.11
-0.08
-0.06
-0.08

Japan
USA
China
Korea
ASEAN
TaiwanNAmerica
Oceania
CSAmerica
WEuro
SAsia
ROW

824
3156
-104
-125
-141
-41
-744
-215
-298
-1395
-83
-389

Source: Compiled from the authors’ simulation results.

62

Table 11: Output by Industry
Japan
Total =

Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport-82.14-48.03
3.18-15.44
3.29
4.05
3.99
6.96
4.44
1.04
0.18
1.75
0.69
1.38
-1.14
1.08
3.63
2.67
1.03
0.4

Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport-34621
-524
1196
-5442
8998
325
717
785
4563
1950
817
5597
2091
5703
-4196
25596
23236
25166
4039
1649

U.S.
+ TFP
Total =
FTA
+ TFP
10%
10%
convergence
convergence(% change)-84.172.02
266.86268.21-1.34-54.29
6.26
5.32
5.27
0.04
0.14
3.04
-3.39
-3.13
-0.25
-18.77
3.33
5.43
5.38
0.04
0.97
2.31
0.52
0.41
0.1
0.26
3.79
-0.17
-0.15
-0.02
0.55
3.44
0.09
0.1
-0.01
0.3
6.66
-0.05
-0.16
0.11
1.06
3.38
-0.27
-0.29
0.03
0.13
0.91
0.02
-0.11
0.13
0.61
-0.43
1.1
-0.15
1.26
1.16
0.59
-0.44
-0.62
0.18
3.03
-2.35
0.89
-0.72
1.61
1.96
-0.58
-0.96
-0.81
-0.16
0.93
-2.07
-0.03
-1.1
1.07
0.26
0.82
0.18
-0.02
0.2
0.09
3.54
0.17
0.11
0.06
0.05
2.62
0.28
0.04
0.23
0.03
1
0.63
0
0.63
-0.36
0.77
1.14
0.08
1.06
(US$, million)-35474
853
8127
8169
-41
-593
68
1455
1443
12
53
1144
-2678
-2477
-201
-6615
1173
12113
12015
98
2663
6335
3158
2526
632
21
304
-30
-27
-3
98
619
3
4
0
33
752
-57
-184
126
1092
3471
-722
-791
69
239
1711
102
-708
810
2736
-1920
10903
-1526
12429
3711
1886
-2392
-3388
996
9229
-7139
4137
-3378
7515
8111
-2408
-10056
-8429
-1627
3424
-7620
-94
-3854
3760
6109
19487
11292
-1253
12545
550
22685
2265
1470
795
463
24703
6774
1024
5750
109
3930
11766
-19
11785
-1486
3136
7636
504
7132

FTA

Source: Complied from the authors’ simulation results.

63

Table 12: Exports by Industry

Japan
Total =

Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport

269.06
92.04
59.79
54.29
20.21
18.58
8.6
20.94
13.02
-4.23
-2.83
0.74
-0.73
-0.27
-6.43
-5.79
-1.49
5.58
-6.67
-2.17

Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport

2553
1
125
128
434
1
11
30
1291
-133
-1413
202
-591
-394
-6080
-827
-62
416
-191
-792

FTA

U.S.
+ TFP
Total =
FTA
+ TFP
10%
10%
convergence
convergence(% change)
255.3913.67 1051.13
1056.6
-5.43
72.41
19.63
7.99
7.97
0.01
40.18
19.61
-11
-9.73
-1.27
44.32
9.98
66.4
67.46
-1.06
14.82
5.39
6.97
7.88
-0.91
0.87
17.71
-3.98
-0.86
-3.12
-1.46
10.06
0.32
1.61
-1.29
0.07
20.87
-3.35
-0.17
-3.18
6.79
6.24
0.99
1.86
-0.87
0.79
-5.02
-1.54
-1.07
-0.47
3.76
-6.58
2.69
-0.68
3.37
2.76
-2.02
-2.08
-1.27
-0.81
6.21
-6.94
1.87
-1.2
3.06
4.35
-4.62
-2.34
-1.57
-0.77
1.65
-8.08
0.11
-1.64
1.75
0.37
-6.16
-1.86
-1.09
-0.78
0.17
-1.66
-1.48
-1.11
-0.37
1.77
3.81
-2.32
-1.25
-1.07
0.16
-6.82
0.83
-1.08
1.9
0.75
-2.92
2.27
-0.56
2.83
(US$, million)
2423
130
8003
8045
-41
1
0
767
766
1
84
41
-1788
-1581
-207
105
24
8071
8200
-129
318
116
1415
1601
-185
0
1
-50
-11
-39
-2
13
1
4
-3
0
30
-143
-7
-136
673
618
195
366
-171
25
-158
-432
-301
-132
1878
-3291
3187
-803
3989
755
-553
-698
-426
-272
5016
-5607
1072
-688
1759
6247
-6641
-5493
-3695
-1798
1556
-7635
124
-1834
1958
52
-879
-2435
-1420
-1015
7
-69
-41
-30
-10
132
284
-331
-179
-152
4
-196
202
-264
467
272
-1064
1515
-373
1888

Source: Compiled from the authors’ simulation results.

64

Table 13: Imports by Industry

Japan
Total =

FTA

Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport

2950.74
9.56-11.31
47.29
0.37
-5.6
-2.6
-0.48
0.63
4.58
4.51
2.84
5.84
4.14
5.03
4.28
4.34
0.79
4.63
3.9

Rice
Grain
Othcrop
Meat
Othfood
Forestry
Fishery
MineralTexWapLea
Paperwood
Chemical
Metal
Automobile
Machinery
Electronics
Othservice
Construction
Trade
ComInsFin
Transport

71019
581
-1076
6073
95
-96
-43
-234
214
797
1916
507
559
2438
2839
1482
194
115
326
949

+ TFP
10%
convergence(% change)
2966.06-15.32
7.97
1.59
-7.48
-3.82
47.52
-0.24
0.77
-0.4
-0.1
-5.5
1.44
-4.05
0.6
-1.07
0.76
-0.13
0.3
4.28
0.56
3.95
1.14
1.7
0.24
5.6
0.12
4.02
0.24
4.79
0.03
4.25
-0.09
4.43
-0.32
1.12
0
4.63
-0.07
3.98
(US$, million)
71387
-369
484
96
-712
-364
6103
-30
197
-102
-2
-94
24
-67
293
-526
257
-43
52
745
237
1678
203
304
23
537
72
2366
135
2703
12
1469
-4
198
-47
161
0
326
-18
967

Source: Compiled from the authors’ simulation results.

65

U.S.
Total =

FTA

+ TFP
10%
convergence

55.37
17.74
6.43
6.56
2.14
1.3
1.22
1.82
1.58
1.56
0.02
1.76
0.01
1.9
0.35
1.47
0.97
1.45
0.27
-0.28

55.25
17.36
5.93
5.95
1.51
0.56
0.86
-0.06
0.98
0.95
1.26
0.96
1.85
1.44
0.59
0.66
0.72
0.64
0.62
0.64

0.12
0.39
0.5
0.61
0.63
0.74
0.36
1.88
0.59
0.61
-1.24
0.8
-1.84
0.46
-0.24
0.82
0.25
0.8
-0.34
-0.91

186
149
948
577
650
4
16
1411
1804
992
28
1153
13
5663
598
1109
7
300
47
-172

185
146
875
524
459
2
11
-47
1125
602
1761
628
2883
4300
1021
494
6
133
106
396

0
3
74
54
190
3
5
1459
678
390
-1733
526
-2871
1363
-422
615
2
166
-59
-568

Table 14: Japan’s Agriculture, Forestry and Fisheries Exports and Imports with World and with U.S.2002-2006

Year

2002

2003

2004

2005

2006

Total agriculture, forestry andfisheries (A)350,856

340,234

360,899

400,825

448,961

Total agriculture (B)206,363

195,852

203,814

216,823

235,884

Agriculture, forestry and fisheries
exports to U.S. (C)71,67564,68165,067

71,81378,907

U.S. share in total (%) C/A

20.4

19.0

18.0

17.9

17.6

Agriculture exports to U.S. (D)42,34736,916

38,64440,32546,198

U.S. share in total (%) D/B

20.5

18.8

19.0

18.6

19.6

Total agriculture, forestry andfisheries (E)7,208,498

7,077,515

7,455,450

7,657,413

8,085,915

Total agriculture (F)4,301,128

4,368,078

4,573,929

4,792,187

5,004,148

Agriculture, forestry and fisheries
imports from U.S. (G)1,835,808

1,834,626

1,702,033

1,735,805

1,772,801

25.5

25.9

22.8

22.7

21.9

1,539,124

1,583,691

1,447,444

1,479,247

1,517,610

35.8

36.3

31.6

30.9

30.3

Japan’s exports (million yen):Japan’s imports (million yen):

U.S. share in total (%) G/E
Agriculture imports from U.S. (H)
U.S. share in total (%) H/F

Source: Ministry of Agriculture, Forestry and Fisheries (2007), Exports and Imports of Agricultural, Forestry and Fishery
Products (Trends in Exports and Imports of Principal Products), Final Figures for 2006.

66

Table 15: Basic Indicators of Japanese Agriculture

Year

1960

1970

1980

1990

2000

2005

Total agricultural value-added (billion yen)

1,493

3,131

6,007

7,701

5,522

5,327

9.0

4.2

2.4

1.7

1.1

1.1

Total agricultural employment (10,000)

1,196

811

506

392

288

252

Share in total employment (%)

26.8

15.9

9.1

6.2

4.5

4.0

Index of agricultural production (2000=100)

80.1

100.6

105.0

111.1

100.0

95.3

Index of agricultural import volume(2000=100)

8.0

28.6

43.1

70.1

100.0

102.4

Total agricultural output (billion yen)

1,915

4,664

10,263

11,493

9,130

8,489

47.4

37.9

30.0

27.8

25.4

23.1

607

580

546

524

483

469

134

109

104

102

94

93

Number of farm households (10,000)

606

534

466

384

312

285

Area under cultivation per farm household (ha)

1.00

1.09

1.17

1.36

1.55

1.65

GDP share (%)

Share of rice (%)
Area under cultivation (10,000 ha)
Utilization rate of cultivated land (%)

Note: The 2005 figures for “Total agricultural value-added” and “Index of agricultural import volume” are from 2004.
Source:Ministry of Agriculture, Forestry and Fisheries, Annual Report on Food, Agriculture and Rural Areas in Japan:
Statistical Appendix.

67

Table 16: Structure of Japanese Farm Households (million households, 2005)

Year

Commercial farm households

Full-time farmhouseholds(Of which,elderly full-time
farmhouseholds)

Primary
part-time farmhouseholds

Secondarypart-time farmhouseholds

Noncommercial
farmhouseholds

Total farmhouseholds

1990

473

155

521

1,977

864

3,835

Share (%)

12.3

4.0

13.6

51.6

22.5

100.0

1995

428

188

498

1,725

793

3,444

Share (%)

12.4

5.5

14.5

50.1

23.0

100.0

2000

426

227

350

1,561

783

3,120

Share (%)

13.7

7.3

11.2

50.0

25.1

100.0

2005

442

255

307

1,204

885

2,838

Share (%)

15.6

9.0

10.8

42.4

31.2

100.0

Source: Ministry of Agriculture, Forestry and Fisheries, Annual Report on Food, Agriculture and Rural Areas in Japan:
Statistical Appendix.

68

Table 17: Farm Households by Agricultural Sales: Commercial Farm Households (1,000 households, 2005)
Side-business
Share Total farm Sharefarm(%)
households (%)
households

Businessfarmhouseholds

Share
(%)

Semi-businessfarmhouseholds

Share
(%)

Less than
0.5 million yen

24

1.2

139

7.1

618

31.6

781

40.0

0.5–1 million yen

25

1.3

106

5.4

207

10.6

338

17.3

1–3 million yen

79

4.0

146

7.5

197

10.1

422

21.6

3–5 million yen

63

3.2

32

1.6

37

1.9

132

6.8

5–10 million yen

103

5.3

14

0.7

19

1.0

136

7.0

10–30 million yen

106

5.4

3

0.2

5

0.3

114

5.8

29

1.5

0

0.0

1

0.1

30

1.5

429

22.0

440

22.5

1084

55.5

1953

100.0

More than
30 million yen
Total(1,000 households)
Source:Statistics Department, Ministry of Agriculture, Forestry and Fisheries, Statistics on Agriculture, Forestry and
Fisheries in Japan 2006.

69

Table 18: Incomes of Farm and Employee Households (national average per household, 1,000 yen)

Year

1970

1980

1990

2000

2003

Total income (a)

1,592

5,594

8,399

8,280

7,712

Agricultural income

508

952

1,163

1,084

1,103

(Share of agricultural income)

32

17

14

13

14

Income per household member (b)

326

1,271

1,967

2,080

2,051

1,391

4,257

6,323

6,731

6,295

358

1,111

1,709

1,946

1,804

Total income (a/c)

1.14

1.31

1.33

1.23

1.23

Income per household member (b/d)

0.91

1.14

1.15

1.07

1.14

Farm households:

Employee households:
Total income (c)Income per household member (d)Income ratios (agricultural/employee):

Source: Ministry of Agriculture, Forestry and Fisheries, Annual Report on Food, Agriculture and Rural Areas in Japan:
Statistical Appendix.

70

Table 19: Incomes of Business and Side-Business Farm Households (1,000 yen, 2003)

Business farmhouseholds

Share
(%)

Semi-businessfarmhouseholds

Share
(%)

Side-businessfarmhouseholds

Share
(%)

Agricultural income

4744

62.0

852

10.1

332

4.4

Non-agricultural income

851

11.1

5568

65.8

4773

63.5

Pensions, gifts, etc.

2061

26.9

2042

24.1

2408

32.1

Total income

7656

100.0

8462

100.0

7513

100.0

Source: Ministry of Agriculture, Forestry and Fisheries, Annual Report on Food, Agriculture and Rural Areas in Japan:
Statistical Appendix.

71

Table 20: Age Structure of Agricultural Population: Commercial Farm Households (1,000 households)

Male

Share (%)

FemaleShare (%)

Total

Share (%)

Age 15–29

122

7.8

72

4.0

194

5.8

Age 30–59

343

21.9

500

28.0

843

25.1

Age 60–64

150

9.6

216

12.1

366

10.9

Age 65 and above

950

60.7

1011

56.5

1961

58.5

Total (1,000)

1564

100.0

1788

100.0

3352

100.0

Source:Ministry of Agriculture, Forestry and Fisheries, Statistics on Agriculture, Forestry and Fisheries in Japan 2006.

72

Table 21: Classification of U.S. Farms and Cash Income from Agriculture (1997)
Number of
farms(1,000)Share in total
sales
(%)

Agricultural
income($10,000)

Nonagricultural
income($10,000)

Total income($10,000)

Rural residential Less thanfarms
$10,000

963.0(50.4)

1.5

-1.2

55.5

54.3

Small family
farms$10,000–$40,000

391.2(20.5)

4.1

5.0

44.9

49.9

$40,000–$100,000

211.7(11.1)

7.0

20.4

35.2

55.6

$100,000–$250,000

189.4
(9.9)

15.3

51.3

31.0

82.3

Large family
farms$250,000–$1,000,000

130.6
(6.8)

30.4

128.4

36.8

165.2

Large-scale
farms

More than$1,000,000

25.9
(1.4)

41.7

749.4

48.7

798.1

1911.9
(100)

100

26.7

46.4

73.1

Type of farm

Medium family
farms

Total

Amount of sales

Note: Non-agricultural income by scale of operation were obtained by increasing the 1989 values by 77 percent (equivalent
to the average rate of increase for all farms between 1989 and 1997).
Source: Shinji Hattori, America 2002 Nogyoho (The 2002 U.S. Farm Act), Association of Agriculture and Forestry Statistics,
2005: p. 184.

73

Table 22: Number and Sales of Large-scale U.S. Farms (sales exceeding 1 million dollars) byCrop (1997)

Number of farms

Sales($100 million)

Share (%)

Average sales per
farm ($10,000)

Share oflarge-scale farms
in sales (%)

Grains

10,528

48.0

5.8

46

10

Beef and cattle

11,030

214.9

26.1

195

53

Poultry and eggs

5,433

128.5

15.7

236

58

Fruits and nuts

3,227

74.2

9.0

230

58

Hogs

3,748

71.4

8.7

190

51

Horticulture andgreenhouse

2,412

71.0

8.6

294

65

Dairy

3,390

67.7

8.2

200

36

Vegetables

3,066

63.2

7.7

206

75

Total

25,934

821.1

100

317

42

Source: Shinji Hattori, America 2002 Nogyoho (The 2002 U.S. Farm Act), Association of Agriculture andForestry Statistics, 2005: pp. 187–191.

74

Appendix: Structure of Japan-U.S. Trade (SITC 2-digit level)
Share of product in trade (%)
Japan’s exports to
U.S. (Xj)
SITC

Share of U.S. in Japan’s
total exports (%)

Japan’s imports
from U.S. (Xus)

Competitiveness index(Xj-Xus)/(Xj+Xus)

Intra-industry trade index(1-(|Xj-Xus|/(Xj+Xus))*
100

2000

2006

2000

2006

2000

2006

2000

2006

2000

2006

0

Food and live animals

0.24

0.31

13.86

13.19

19.4

17.4

-0.93

-0.89

7.29

11.05

00

LIVE ANIMALS

0.00

0.00

0.13

0.15

5.5

12.1

-0.99

-0.97

0.99

3.18

01

MEAT, MEAT PREPARATIONS

0.00

0.00

4.39

2.00

5.2

28.2

-1.00

-0.99

0.06

0.62

02

DAIRY PRODUCTS,BIRD EGGS

0.00

0.00

0.17

0.17

16.6

5.1

-0.97

-0.98

3.31

1.84

03

FISH,CRUSTACEANS,MOLLUSC

0.10

0.12

1.77

1.60

17.9

12.8

-0.78

-0.68

21.65

31.53

04

CEREALS,CEREAL PREPRTNS.

0.03

0.03

3.34

5.01

17.7

21.0

-0.97

-0.97

3.46

3.22

05

VEGETABLES AND FRUIT

0.01

0.02

2.21

2.07

24.0

16.6

-0.97

-0.96

2.66

3.92

06

SUGAR,SUGR.PREPTNS,HONEY

0.01

0.01

0.12

0.11

17.1

15.5

-0.77

-0.72

23.36

28.33

07

COFFEE,TEA,COCOA,SPICES

0.01

0.01

0.08

0.12

14.8

17.6

-0.74

-0.59

26.47

41.47

08

ANIMAL FEED STUFF

0.00

0.01

1.19

1.39

7.0

15.2

-0.99

-0.97

1.48

2.55

09

MISC.EDIBLE PRODUCTS ETC

0.08

0.11

0.45

0.56

26.1

27.8

-0.43

-0.35

57.04

64.92

1

Beverages and tobacco

0.04

0.03

3.82

2.09

17.7

12.1

-0.95

-0.92

4.51

7.74

11

BEVERAGES

0.03

0.03

0.31

0.51

26.5

27.4

-0.66

-0.72

34.34

27.97

12

TOBACCO,TOBACCO MANUFACT

0.01

0.00

3.51

1.58

9.5

0.2

-0.99

-1.00

1.38

0.12

2

Crude materials, inedible, except fuels

0.17

0.32

5.90

6.04

7.4

6.1

-0.88

-0.77

11.92

23.38

21

HIDES,SKINS,FURSKINS,RAW

0.00

0.00

0.20

0.15

0.0

0.0

-1.00

-1.00

0.01

0.00

22

OIL SEED,OLEAGINUS FRUIT

0.00

0.00

1.25

1.51

38.4

24.8

-1.00

-1.00

0.07

0.07

23

CRUDE RUBBER

0.09

0.11

0.07

0.18

14.3

11.6

0.47

0.20

52.80

80.00

24

CORK AND WOOD

0.00

0.00

2.03

1.12

3.2

2.8

-1.00

-1.00

0.05

0.16

25

PULP AND WASTE PAPER

0.00

0.00

0.83

0.75

0.1

0.0

-1.00

-1.00

0.04

0.06

26

TEXTILE FIBRES

0.03

0.05

0.29

0.24

4.0

6.7

-0.66

-0.33

34.44

67.33

27

CRUDE FERTILIZER,MINERAL

0.01

0.02

0.45

0.47

11.3

7.0

-0.87

-0.85

13.03

15.31

75

28

METALLIFEROUS ORE,SCRAP

0.02

0.12

0.56

1.43

2.7

4.2

-0.88

-0.66

12.20

33.95

29

CRUDE ANIMAL,VEG.MATERL.

0.02

0.03

0.21

0.19

19.9

22.3

-0.62

-0.42

38.19

58.06

3

Mineral fuels, lubricants, and related materials

0.27

0.78

1.30

1.01

25.9

19.5

-0.36

0.31

63.63

68.74

32

COAL, COKE, BRIQUETTES

0.10

0.10

0.23

0.05

69.0

45.7

-0.05

0.69

95.23

30.81

33

PETROLEUM,PETROL.PRODUCT

0.18

0.68

0.84

0.66

19.7

18.3

-0.36

0.44

63.95

56.41

34

GAS,NATURAL,MANUFACTURED

0.00

0.00

0.23

0.31

0.4

0.2

-1.00

-1.00

0.07

0.22

4

Animal and vegetable oils, fats and waxes

0.02

0.02

0.08

0.11

29.8

30.2

-0.39

-0.44

60.86

56.26

41

ANIMAL OILS AND FATS

0.00

0.00

0.02

0.03

30.9

18.6

-0.33

-0.64

67.05

35.71

42

FIXED VEG. FATS AND OILS

0.01

0.01

0.05

0.06

55.8

52.9

-0.37

-0.32

63.30

68.39

43

ANIMAL,VEG.FATS,OILS,NES

0.00

0.00

0.01

0.01

6.9

8.6

-0.60

-0.59

40.04

41.13

5

Chemicals and related products

4.94

5.24

10.03

14.18

20.2

13.3

0.04

-0.05

95.85

95.36

51

ORGANIC CHEMICALS

1.66

1.69

2.01

2.50

21.3

13.8

0.29

0.25

70.92

74.83

52

INORGANIC CHEMICALS

0.25

0.22

1.87

2.85

17.9

9.9

-0.54

-0.68

45.94

32.39

53

DYES,COLOURING MATERIALS

0.26

0.24

0.29

0.31

14.9

10.9

0.33

0.32

67.15

68.28

54

MEDICINAL,PHARM.PRODUCTS

0.90

0.89

1.63

2.80

47.4

41.2

0.10

-0.12

90.14

88.12

55

ESSENTL.OILS,PERFUME,ETC

0.09

0.11

0.65

0.97

11.1

9.4

-0.52

-0.55

47.73

44.60

56

FERTILIZER,EXCEPT GRP272

0.01

0.01

0.27

0.00

12.5

16.8

-0.88

1.00

12.22

0.00

57

PLASTICS IN PRIMARY FORM

0.52

0.57

1.11

1.81

11.2

8.2

0.01

-0.13

98.53

87.10

58

PLASTIC,NON-PRIMARY FORM

0.41

0.44

0.40

0.40

18.9

8.8

0.39

0.46

61.00

53.82

59

CHEMICAL MATERIALS NES

0.85

1.05

1.81

2.55

21.6

14.6

0.02

0.01

98.41

98.94

6

Manufactured goods, chiefly classified bymaterials

5.35

5.80

5.44

6.40

16.5

11.5

0.37

0.38

63.08

61.81

61

LEATHER, LEATHER GOODS

0.00

0.00

0.08

0.01

0.8

0.6

-0.95

-0.81

4.57

18.53

62

RUBBER MANUFACTURES, NES

1.07

1.34

0.38

0.35

29.5

25.1

0.72

0.81

27.55

19.09

63

CORK, WOOD MANUFACTURES

0.01

0.01

0.21

0.10

17.3

18.4

-0.85

-0.67

15.47

33.39

64

PAPER,PAPERBOARD,ETC.

0.37

0.33

1.23

1.04

21.3

19.9

-0.20

-0.12

79.96

88.26

65

TEXTILE YARN,FABRIC,ETC.

0.40

0.36

0.43

0.48

8.3

7.7

0.35

0.30

64.69

69.63

66

NON-METAL.MINERAL MANFCT

0.85

0.59

1.12

1.06

22.2

11.9

0.25

0.15

74.64

84.62

76

67

IRON AND STEEL

0.98

1.38

0.25

0.21

9.5

6.8

0.80

0.88

20.47

11.79

68

NON-FERROUS METALS

0.41

0.43

1.05

1.96

12.2

6.3

-0.07

-0.30

92.54

70.04

69

METALS MANUFACTURES,NES

1.25

1.35

0.70

1.17

27.7

21.0

0.60

0.48

40.37

52.15

7

Machinery and transport equipment

76.34

75.79

42.70

38.53

33.3

27.1

0.60

0.66

40.45

34.16

71

POWER GENERATNG.MACHINES

5.09

4.91

2.99

3.37

40.1

30.0

0.58

0.56

42.01

43.55

72

SPECIAL.INDUST.MACHINERY

4.05

5.10

3.71

2.57

22.6

19.8

0.41

0.66

58.70

33.96

73

METALWORKING MACHINERY

2.26

2.16

1.03

1.58

34.4

24.2

0.66

0.54

34.27

45.64

74

GENERAL INDUSTL.MACH.NES

4.14

4.94

2.10

2.79

23.4

20.8

0.63

0.63

37.32

37.29

75

OFFICE MACHINES,ADP MACH

9.27

5.37

8.28

3.97

37.9

32.8

0.42

0.54

57.63

46.12

76

TELECOMM.SOUND EQUIP ETC

8.63

5.66

4.58

3.37

40.7

24.8

0.61

0.61

38.75

38.84

77

ELEC MCH APPAR,PARTS,NES

12.07

7.22

10.78

8.08

20.6

12.2

0.42

0.38

57.63

62.39

78

ROAD VEHICLES

29.82

39.30

3.91

2.83

48.6

41.4

0.89

0.94

11.21

5.66

79

OTHR.TRANSPORT EQUIPMENT

1.01

1.11

5.34

9.96

12.0

9.7

-0.41

-0.57

58.96

43.28

8

Miscellaneous manufactured products

8.95

7.55

14.83

15.69

29.8

21.1

0.14

0.09

85.81

91.45

81

PREFAB BUILDGS,FTTNG ETC

0.02

0.03

0.18

0.08

24.4

28.6

-0.57

-0.09

42.63

91.21

82

FURNITURE,BEDDING,ETC.

0.11

0.17

0.34

0.55

34.3

28.6

-0.16

-0.13

84.41

86.60

83

TRAVEL GOODS,HANDBGS ETC

0.01

0.00

0.15

0.29

20.3

8.3

-0.85

-0.96

14.70

3.60

84

CLOTHING AND ACCESSORIES

0.06

0.06

0.71

0.52

17.2

19.0

-0.67

-0.54

33.08

45.95

85

FOOTWEAR

0.00

0.00

0.15

0.05

3.1

2.9

-0.97

-0.90

3.15

9.78

87

SCIENTIFIC EQUIPMENT NES

2.97

2.97

6.37

7.20

28.7

22.1

0.01

0.01

98.63

99.08

88

PHOTO.APPARAT.NES;CLOCKS

2.73

1.93

1.83

1.43

25.1

16.1

0.54

0.54

46.49

46.24

89

MISC MANUFCTRD GOODS NES

3.05

2.38

5.11

5.56

38.2

25.7

0.14

0.03

86.40

97.20

3.68

4.16

2.03

2.76

30.3

18.4

0.60

0.58

40.07

42.32

9
93

SPEC.TRANSACT.NOT CLASSD

3.68

4.16

2.02

2.74

31.5

20.2

0.60

0.58

39.84

42.10

96

COIN NONGOLD NONCURRENT

0.00

0.00

0.00

0.00

77.7

16.3

-0.78

-0.78

21.55

21.75

97

GOLD,NONMONTRY EXCL ORES

0.00

0.00

0.01

0.02

0.3

0.1

-0.69

-0.53

30.70

46.54

100.00100.00100.00100.00

30.0

22.8

0.38

0.42

62.37

57.67

Total

77

Commissioned by the Japan-U.S. Business Council
A Japan-U.S. Economic Partnership Agreement:
Impact and Issues
July 2008
Secretariat, Japan-U.S. Business Council
Tel: +81-3-3216-5823
Fax: +81-3-3284-1576
Email: nichibeikyo@jubc.gr.jp