ARCHIVES HISTORIQUES 
DE LA COMMISSION 
 
 
 
COLLECTION RELIEE DES 
DOCUMENTS "COM" 
 
 
 
 
COM (85) 574 
 
 
 
Vol. 1985/0209 
  
 
Disclaimer  
Conformém ent au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 
concernant l'ouverture au public des archives historiques de la Communauté économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p. 1), tel que modifié par le règlement (CE, Euratom) n° 1700/2003 du 22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
classifiés présents dans ce dossier ont été déclassifiés conformément à l'article 5 dudit 
règlem ent. 
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 
concerning the opening to the public of the historical archives of the European Econom ic 
Communit y and the European Atom ic Energy Communit y (OJ L 43, 15.2.1983, p. 1), as 
amended by Regulation (EC, Euratom) No 1700/2003 of 22 September 2003 (OJ L 243, 
27.9.2003, p. 1), t his file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation.  
In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom  1. 
Februa r 1983 über die Freigabe der historischen Archive der Europäischen  
Wirtschaftsgemeinschaft und der Europäischen Atomgem einschaft (ABI. L 43 vom  15.2.1983,  
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. Septem ber 2003  
(ABI. L 243 v om 27.9.2003, S. 1), ist diese Datei der Öffentlichkeit zugänglich. Soweit  
erforderlich, wurden die Verschlusssachen in dieser Datei in Übereinstimmung mit Artikel 5  
der genannten Verordnung freigegeben.  
COMMISSION OF THE EUROPEAN COMMUNITIES
C0MC85) 574 final  
Brussels, 15 October 1985
COMMISSION COMMUNICATION TO THE COUNCIL  
ANALYSIS OF THE RELATIONS BETWEEN THE COMMUNITY AND JAPANV *
COM(85) 574 final

CONTENTS
INTRODUCTION 1
I. JAPAN'S ECONOMY, ECONOMIC POLICIES AND PLACE IN THE
WORLD ECONOMY 6
Japan's economic performance 6
Balance of payments 7
Structure of the Japanese economy 9
Japan's role in the world economy 12
II. THE COMMUNITY'S ECONOMIC AND TRADE RELATIONS
WITH JAPAN 13
Problems encountered with access to the Japanese market
Tariffs, quotas and taxes 15
Public procurement 16
Standards, testing and certification procedures 17
Import procedures 17
Services 18
Distribution 19
Intellectual property 19
III. MEASURES TAKEN BY THE JAPANESE GOVERNMENT AND THEIR EFFECTS 20
Tariffs and quotas 20
Public contracts and monopolies 21
Standards, testing, certification and import procedures 22
Services 23
Other measures 24
Promotion of imports 25

INTRODUCTION
1. In a statement on EEC-Japan relations adopted on 19 June the Council  
"invited the Commission to prepare a comprehensive review of Community/  
Japan relations with appropriate recommendations for action, as a basis for  
discussion and decision in the autumn of 1985".
2. The Community's economic and trade relations with Japan have been a  
subject of mounting concern ever since a real imbalance became evident  
during the 1970s. An indication of the trend is provided by the  
import/export cover ratio, which has declined from 72.6% in 1970 through  
44% in 1975 to its present level of around 35%.
The Council has been expressing its concern at this apparently  
inexorable trend since 1978.
The Commission, for its part, initiated a process of regular consultations  
with the Japanese authorities as early as 1973, hoping thereby to deal with  
trade problems in general and in particular to improve conditions for  
Community exporters to Japan.
1In March 1978 Japan "foresaw" a substantial rise in its manufactured imports.
Some increase did occur in fact slightly in 1978 and 1979 (to 22.5 %), fell to 19%
in 1980 and rose again to 23.8% in 1984), though the increase fell short of
2what had been hoped.
The Ushiba Declaration of 24 March 1978.p
In 1984 manufactures accounted for 44% of Community imports, yet the  
Community too has to import a substantial proportion of its fuel and raw  
material requirements.

-  2 -
The other side of the equation - the concentration of Japanese exports on
a number of sensitive sectors of Community industry at a time of industrial
1upheaval - has been causing the Council anxiety since 1980. In a  
statement in November that year the Council stressed its "serious concern"  
at the trade situation, deploring the "inadequate penetration" of Community  
goods into the Japanese market and the "concentration" of Japanese exports  
'bn a small number of particularly sensitive sectors".
By this stage the Council was calling for a comprehensive joint strategy on
2Japan. This meant a coordinated approach to the three major topics in our  
relations with that country :  genuine opening up of the Japanese market to  
Community products, "moderation" of Japanese exports of a growing number of  
sensitive products (starting with cars in 1980 and extending by 1982 to  
various electronic goods), and the evolution of balanced industrial, scientific  
and technical cooperation between the Community and Japan. These themes were  
developed not only in bilateral consultations but also in GATT and the Western  
economic summits also addressed the problem.
Since then hardly a year has gone by without expressions of concern on the part  
of the Council and the announcement by Japan of new market liberalization  
measures. Seven liberalization "packages" have been unveiled since  
January 1982, plus the "three-year action programme" announced on 30 July  
this year.
Statement of 25 November 1980.  
Statement of 7 February 1978.

- 3 -
Although the action programme sets out some new principals in relation to  
standards and certification of products, such as the principle that "freedom  
should be the rule and intervention by the authorities the exception", its  
translation into concrete realities at the level of regulations and procedures  
will be phased over three years and for certain areas continues to be
characterised by uncertainty and obscurity. In any case, no amount of tinkering  
with the bureaucratic formalities can produce import growth in short order,  
and it remains to be seen whether Legal or administrative rule changes will  
be accompanied by the necessary changes of attitude and behaviour on the  
part of the officials who have to implement them, or of the Japanese business  
community in general. Finally a certain number of requests put forward by  
the Commission have not been taken into account.
So far there has been no real turnaround in the trade figures. A certain  
moderation of Japanese exports of sensitive products has been observed but  
new products have come on to the market. The volume of Community manufactured  
exports to Japan is still small, though its exports of semi-manufactures  
(non-ferrous metals and chemicals) are on the increase. There has been" some  
moderation of Japan's exports of sensitive products. The rate of growth of  
the Community's trade deficit has slowed but it reached $ 12 billion in 1984.
In these circumstances, even assuming 10 % annual growth in EEC exports and  
no change in Japan's, it would take 13 years to restore the balance.
3. As we hope to make clear, the "Japanese problem" has a number of characteris­
tic features :

- 4 -
the crux of the problem for foreign exporters of manufactured goods to  
Japan is not so much visible import barriers such as tariffs or quantitative  
restrictions, which with a number of exceptions are generally modest, but  
the protracted and unpredictable technical certification and registration  
procedures and above all the habits and attitudes bred of Japan's  
vertically and horizontally integrated industrial, commercial and financial  
groups;
these features of the Japanese system are undoubtedly chanqinq,but progress  
is slow, and in addition the government's macro-economic policy acts as  
a constraint on the growth of domestic demand; this is an area where it is  
difficult, if not counterproductive, for foreign governments to intervene -  
it is up to the Japanese Government and the country's businessmen to  
accelerate the pace of change;
while Japan's various trading partners, whether developed or developing,  
may be more or less competitive among themselves, they all by and large  
face similar difficulties in penetrating the Japanese market. To put  
it another way, the accumulated current account and trade imbalances,  
with no prospect of relief in sight, are dangerous because they threaten  
the whole operation of the multi lateral trade and payments system.
Simply to set the $150 billion estimated US trade deficit for 1985  
against the estimated $40 million Japanese surplus is to measure the almost  
intolerable strains such imbalances impose on the multilateral system.

- 5 -
4. While this Communication is intended to convey a full picture of the  
whole spectrum of EEC-Japanese relations, we feel it appropriate to  
concentrate on the key question of economic and trade relations.
5. As a follow-up to Prime Minister Nakasone's visit to the Commission on
19 July, there are plans for a meeting of a group of Members of the Commission  
and their opposite numbers in the Japanese Government to be held on  
18 November .
The President of the Commission is also intending to pay an official visit  
to Japan in January of next year.
The next Western summit, due to take place in Tokyo next May, will in any  
case provide an opportunity to exert fresh top-level pressure on the  
Japanese Government.
6.  Accordingly, the Commission intends to follow up the present essentially 
analytic Communication with a second Communication containing recommendations  
for action based on the outcome of discussions in the Council and the  
findings reported by Members of the Commission on their return from Tokyo.

-  6 -
I. JAPAN'S ECONOMY, ECONOMIC POLICIES AND PLACE IN THE WORLD ECONOMY
7. In recent years Japan has built up sizeable current account surpluses  
which have been accompanied by large capital outflows. The persistence of  
this trend poses a threat to international monetary and trade balances.
Japan's economic performance
8.  Japan has one of the strongest economic growth records of all OECD  
countries. Real GNP growth ran at 3.4% in 1983 and 5.8% in 1984, compared  
with 0.9% and 2.2% in the Community. The latest forecasts for 1985 point  
to an annual growth figure of the order of 4.7%.
Domestic demand in Japan has been growing since 1983 at an average of around  
4% in real terms, as against 5% in 1983 and 8.7% in 1984 in the United States  
and about 2% in the Community. The external contribution to growth remains  
high (1.6% in 1983, 2% in 1984 and a likely 1% in 1985 and 1986).
9. As a result of certain social characteristics in Japan and the bias
of the fiscal system in favour of savings and against credit expenditure,  
the level of savings is very high compared to that in other major  
industrial countries. However, despite the relatively high growth rate  
in Japan domestic demand has been insufficient to absorb these savings.
The result has been a large trade surplus and growing capital outflows.
These imbalances indicate that there is scope for a higher level of domestic  
demand which would have the effect of reducing both the trade surplus and  
the outflow of capital and contribute to a more balanced international  
trading system.

- 7 -
10. Japan's particularly narrow tax base meant that budget deficits  
grew rapidly during the 1970s, with a corresponding increase in official  
debt, now standing at 67.5% of GNP.
The Japanese Government has set a target date of 1990 for cancelling the  
issue of bonds to cover the current budget deficit, so the policy of  
restrictive budgets is going to continue for several years.
Nevertheless to achieve a better balance between saving and investment,  
either the financial surplus of households must be reduced by an increase  
in consumption or households' savings must be absorbed in greater quantity  
by capital formation in the sectors where there are deficiencies e.g.  
residential buildings and public investment.
11. An advisory committee on external economic issues (the Okita Committee)  
reported on 9 April this year. It stressed the need to stimulate domestic  
demand, and suggested:
- cutting of red tape and regulations;
- extension of the five-day week and reduction of hours worked;
- improvement of infrastructure by infusing public works with private-sector  
dynami sm;
- tax reforms.
So far, the government has not taken any decisions on these recommendations.
In any event it is questionable whether such steps would of themselves be  
sufficient to bring about an appreciable reduction in the disequilibrium  
between savings and investment and to stimulate a durable growth in domestic  
demand.
Balance of payments
12. Japan's current accounts surplus was equal to 1.8% of GNP in 1983  
and 2.6% of GNP in 1984. Reflecting the growing trade imbalance, it  
threatens the stability of the international monetary system. In 1984  
the trade balance was $44 billion in the black thanks to the strong export
Direct and indirect taxes amount to only 20% of GNP in Japan compared  
with over 25% in the United States and the Community.

- 8 -
performance (from 1979 to 1984 exports grew by an average 8.1% in real 
terms) and modest level of imports (which grew by an average of just 
2.4% a year in the same period), particularly of manufactured goods.
Japan's emergence as a major creditor nation makes for further rigidity.
By the end of this year its capital investment will total some $ 100 billion. 
The capital outlfow reached $ 49 billion in 1948 and $ 38 billion in the first 
7 months of 1985. Earnings from capital are now increasingly flowing 
in to swell the current account balance, and these are relatively 
unaffected by cyclical or exchange rate fluctuations. Accordingly, 
much larger changes in the trade balance will be needed to bring about 
a reduction of the current payments surplus, in diametrical opposition 
to the situation facing the debt-burdened developing countries.
13. While the current payments surplus has been growing, the yen has 
consistently been weak, particularly against the dollar. It has 
appreciated considerably against Community currencies, but it is questionable 
whether real exchange rates are a valid measure of the general competitive 
strength of the Japanese economy, especially considering the steady
piling up of Japan's current payments surplus with the Community, whether 
measured in yen or ECU.
14. Net capital outflows are essentially the result of Japan's excess 
of savings and the interest rate differential between yen and dollar 
investments. Though Japanese interest rates are down from their peaks 
of 1981, the monetary authorities have held the Bank of Japan's minimum 
lending rate at 5% since October 1983 in order to prevent any further 
fall in the yen.
15. The value of the yen has also been influenced by the reluctance of 
the Japanese authorities to let their currency play its full part in 
the international monetary system.

- 9 -
Most commercial and virtually all capital market transactions have 
traditionally been denominated in dollars.
More recently, the authorities have embarked on a policy of liberalization, 
and the yen is gradually beginning to be used for external transactions.
16. However, the progress of liberalization has been uneven and somewhat 
lopsided. The dismantling of exchange controls in December 1980 enabled 
residents to undertake transactions abroad, leading to major long-term 
capital outflows, mainly of funds for dollar investments, which weakened 
the yen. The liberalization of inward investment flows, however, has 
been slower and less extensive. Yen investments by non-residents are 
linked to the development of yen financial markets in Japan. While some 
have been liberalized, interest rates on bank deposits are still controlled 
and the markets for short-term instruments are non-existent or rudimentary. 
Foreign investors thus enjoy only limited access. Another consequence
of this state of affairs is that Japanese banks have easier access to 
European markets, particularly the ECU market, while foreign banks face 
considerable problems in trying to establish or expand their activities 
in Japan.
17. So why is Japan, with its enormous productive capacity, modest 
inflation, and slow-growing private consumption, pursuing macro-economic 
policies which stimulate, or at least are not calculated to curb, the 
rise of the current payments surplus?
Structure of the Japanese economy
18. These macro-economic policies are largely explained by the structure 
of the Japanese economy, in which the most dynamic rapid-growth sectors

- 10 -
are found side by side with uncompetitive activities which it is felt 
necessary to preserve on political and social grounds. This situation 
is not unknown elsewhere, but Japan, while carrying out such adjustments 
as are thought inevitable, uses means to prop up this structure which 
are not found in other countries at a comparable level of development.
19. The Japanese economy is heavily dependent on imported energy and 
raw materials (one reason put forward by Japan for its low level of 
manufactured imports).
It should be noted, however, that the policies followed by Japan in order 
to secure its own sources of supply sometimes create problems for its 
partners, including the Community.
In the oil sector, where the authorities exercise strict control over 
imports of refined products (to the point at which importation of certain 
products is for practical purposes prohibited) there may well be a tendecny 
towards a more liberal approach in the near future. In the course of the 
Ministerial meeting of the International Energy Agency on July 9, 1985,
Japan subscribed to a commitment "to seek to set in hand without delay joint 
action to maintain or create the conditions necessary to encourage importation 
of refined products on the basis of undistorted market determined supply and 
demand". The report of the subcommittee of Japan's National Oil Council, which 
has just been submitted to the MITI, looks towards a series of measures in 
that general sense. It would be desirable to ensure that these conclusions 
are given real content in Japan.
Public funds to back mining investments, coupled with supply guarantees, 
active stock management and the import/export pricing policy are designed 
to promote security of raw material supplies while encouraging the 
export of processed products.
20. Despite the scarcity of agricultural land and the small size of 
farms1 Japan pursues a policy of self-sufficiency in this sector, 
achieving an overall self-supply rate of 71% in 1983 (86% for milk 
products, 81% for meat and just 32% for cereals). The rate of agricultural
While Japan's population is 43% that of the Ten, it has only 1/13th 
as much farmland as the Community's. Average farm size is 1.2 hectares, 
compared with 16 hectares in the Community and 160 hectares in the USA.

- 11 -
support is very high, on average twice that of the Community, with, 
in particular, a high level of import protection which holds down 
consumption. The government is aiming to increase self-sufficiency 
in milk products and meat, which will mean a continuation of the policy 
of importing raw materials unavailable locally to be processed by 
farmers themselves or the agri-food industry.
21. Japanese industry is horizontally integrated to a very high degree, 
within large-scale diversified manufacturing groups. Smaller businesses 
often act as sub-contractors to one of the companies within the group.
Declining sectors (e.g. Leather goods or footwear) are protected by 
tariff or non-tariff barriers, or are being restructured under the 
auspices of MITI; legislation adopted in 1983 covers 23 sectors. Import 
penetration in these sectors (with the exception of ferro-silicon and 
aluminium) is low.
Japan's industrial policy aims at the application of new technology, 
particularly information technology, in production processes and the 
telecommunications and consumer goods industries, and the replacement 
of traditional raw materials by new materials, with the help inter alia 
of biotechnology. Although these developments are theoretically left 
largely to private-sector initiative, government support ranges from 
backing for joint research (e.g. on fifth-generation computers) to 
contracts and procurement (e.g. Nippon Telegraph and Telephone), tax 
incentives, subsidies and loans repayable only if and when production 
becomes profitable (semi-conductors and software).
In the growth sectors, Japanese enterprises enjoy considerable cost 
advantages, mainly as a result of their ability to maintain long 
production runs of standardised products. Their commercial strategy 
frequently anticipates price reductions attributable to the creation 
of large scale production capacity.
22. Productivity in the service sector is generally lower in Japan than 
in its main partners.
Source :  Forum for policy innovation, Tokyo

- 12 -
The banking sector, as noted above, has traditionally been regulated in
a way which has made it very difficult for foreign banks to gain access.
Major Japanese banks, often members of one of the industrial groups, have
1
undergone remarkable expansion both at home and overseas. They co-exist 
with less competitive local banks. The insurance business (with the exception 
of re-insurance) is likewise dominated by a handful of big domestic companies.
The distributive sector in Japan is a major employer, providing jobs for
23% of the working population thanks to the large numbers of small shopkeepers
2and multiplicity of wholesale businesses. Various administrative directives 
curb the spread of more modern forms of distribution such as department 
stores, chain stores and supermarkets.
Japan's role in the world economy
23. As well as the macro-economic, monetary and sectoral points noted 
above we should remember that interpenetration of the Japanese economy
and the economies of its overseas partners is a recent phenomenon and again 
a lopsided one, both quantitatively and qualitatively.
24. Direct investment was liberalized (except in a few sectors - agriculture, 
mining, energy, leather goods) as late as 1980. Japanese investment overseas 
has soared, reaching $71.4 billion at 31 March this year, while foreign 
investments in Japan, though on the increase since 1980, totalled only
$5 billion in March 1984.
The total Japanese investments in the ten-member Community stood at $7.7 
(March 1985) billion, but were largely concentrated on the banking and 
commercial sectors. Investment in manufacturing, though on the increase, 
accounted for only 20% of the total. A JETRO study dating from 1983 notes 
that most production units set up in Europe still get a large proportion 
of their equipment and components from Japan.
In 1980 only one Japanese bank was among the top ten world banks, and 
^13 in the top fifty; by 1984 the figures were 5 and 17 respectively. 
Over 60% of retailers employ just one or two people; 75% of wholesalers 
have fewer than 10 employees.

- 13 -
Investment by Community firms in Japan remains on a modest scale:
$650 million at March 1984. It is concentrated essentially on a handful 
of manufacturing sectors (chemicals and pharmaceuticals) and its growth 
has not kept pace with that of US investment.
25. Japan has traditionally been a net importer of technology and still 
gets much of this from the Community. Only recently has the country become 
a significant exporter of technology in fields such as electronics and 
transport equipment. Although there are no formal curbs on the export
of technology, a number of foreign companies have met with reluctance on 
the part of their Japanese opposite numbers to share know-how or participate 
in joint ventures on third markets.
26. In 1984 Japanese aid represented only 0.35% of Japan's GNP compared 
with 0.53% for the Community. However, Japan more than doubled the volume of 
its development aid between 1977 and 1980, and while it will probably fail
to achieve the target of a further doubling between 1981 and 1985, there is no
doubt that its growth in real terms is important. The plan for the period
1986-1992 envisages a further doubling of aid levels by 1992 in comparison
with that achieved in 1985,representi ng an amount of aid of more than $40 billion
over this period.
Only about a third of Japan's bilateral aid is in grant form (compare that with 
the figure of over three-quarters for the Member States), and most of it goes 
to Asian countries.
II.  THE COMMUNITY'S ECONOMIC AND TRADE RELATIONS WITH JAPAN
27. The persistence and largely structural nature of the Community's trade 
deficit with Japan are a continuing source of concern.
The Community's own statistics indicate that the gap has widened still
further in the last two years, from 11.6 billion ECU in 1982 to 13.3 billion ECU
in 1983 and 15.5 billion ECU in 1984, though exports to Japan (up from
6.3 billion ECU in 1982 and 7.3 billion ECU in 1983 to 9 billion ECU in
1984) actually grew slightly faster than imports (up from 18 billion ECU

- 14 -
in 1982 to 20.6 billion ECU in 1983 and 24.5 billion in 1984). Japanese 
statistics, on the other hand, paint a different picture, with the surplus 
on trade with the Community down from $10.4 billion in 1983 to $10.1 billion 
n 1984. However, if imports of non-monetary gold (worth $790 billion 
,ri  1984) are excluded, the surplus was stable at around $10.9 billion in 
oth years.
Hie Japanese figures for the first six months of this year indicate a drop 
; , - i  the surplus on trade with the EEC of the order of 4.8%, but this reflects 
a 9.4% fall in imports as well as a 7% drop in exports.
A further cause for anxiety is the qualitative deterioration in trade, 
with Japan's exports to the Community consisting largely of high added- 
value products, while the only Community exports making inroads on the 
Japanese market are raw materials and semi-manufactures.
28. The 10.4% of Japan's total exports which go to the EEC consist almost 
entirely of manufactured goods, chiefly machinery (electrical, electronic 
and other machinery and appliances, and transport equipment), which accounts 
for around 80% of the total by value.
The Japanese authorities gave the Community assurances that exports of 
about ten products would be "moderated" in 1983, 1984 and 1985, and a fall 
in the volume of exports, has indeed been noted for video recorders, colour 
television tubes and television sets. By contrast in 1984 exports of cars 
and since 1985 exports of numerically-controlled machine tools and machinery 
centres, have increased alarmingly.
Japanese exports of other products have equally achieved impressive growth 
in value terms.1 New products in particular can very quickly succeed in
In 1984, exports of office equipment were up 40% by value, construction 
equipment up 32% and electric generators up 26%.

- 15 -
capturing sizeable market shares. There have been some cases of predatory 
pricing, to which European industry has responded by filing anti-dumping 
complaints.
29. Although up from their 1982-1984 levels, Japan's imports from the 
Community remain on a fairly minor scale, accounting for only 7% of the total.
Most of Japan's imports consist of raw materials and agricultural commodities,
of which the Community is not a major exporter to this country. Japanese imports of
manufactures are increasing slightly, but are still well below those of its
1
main trading partners however they are measured.
The recent trend of Community exports to Japan is worrying; • j n 1984 the only
categories which have progress are meat (with the resumption of Community pork 
exports), non-ferrous metals and plastics.
But Japan's imports from the Community of many processed agricultural products 
(particularly alcohol), office equipment and clothing were down.
This trend continued into the first half of 1985 which saw a 9.$ drop in 
Japanese imports from the Community; only textile raw materials and mineral 
fuels were unaffected.
Problems encountered with access to Japanese market
Tariffs, quotas and taxes
30. With a (significant) number of exceptions, tariffs do not constitute a 
real barrier to penetration of the Japanese market. 1
1
Imports of manufactures (1984)
Japan EEC USA
billions of dollars 32.8 138.0 231.9 
/ of total imports 23.8 44.0 65.7 
% of GNP 2.7 6.3 7.8 
per capita (dollars) 273 507 982

- 16 -
The highest remaining barriers tend to apply to certain agricultural products 
(duties of 25 to 40%, sometimes combined with quantitative restrictions), 
curbing Community exports primarily in the following sectors:
- alcoholic drinks (wine, whisky, brandy, etc.): tariffs are considerably
higher for bottled imports; in addition excise duties penalize high-quality 
products;
- biscuits, chocolate, confectionery (total imports were equivalent to only 
2.5% of Japanese production in 1983 compared to 4% in 1979);
- natural cheese (duty of 30%) and dairy products. (High duties and quotas).
In the industrial sector, high rates of duty still apply to menthol, citric 
acid, certain articles of clothing, leather and footwear (including ski 
boots). Leather goods and leather footwear are also subject to very severe 
quantitative restrictions.
Quantitative restrictions - which also apply to certain meats, canned fruit 
and vegetables, products derived from cereals and fishery products - are 
often administered in a manner lacking in transparency and incompatible with 
the GATT Code on import licencing procedures.
Public procurement
31. The Japanese authorities have only made limited efforts to buy foreign 
products. Most purchases coming under the GATT Code on government procurement 
have involved direct contracts, and import penetration has been low.
Other difficulties derive from tight deadlines for tenders and deliveries, 
complex qualification procedures which vary according to the body concerned, 
deposit requirements, etc. As a result foreign suppliers' access to 
Japanese public contracts has been hampered or discouraged. The Community 
has raised these questions with the Japanese authorities on numerous occasions 
and has made proposals for adoption of a procedure more in line with the 
spirit of the GATT Code.

- 17 -
Standards,, testing and certification procedures
32. Despite Japan being a signatory to the GATT Code on technical barriers 
to trade, foreign exporters have run into a large number of difficulties, in 
particular:
- the development of technical specifications peculiar to the Japanese market 
and the low level of Japanese participation in international standardization 
bodies;
- the lack of transparency and, in some cases, the ambiguity of regulations, 
leaving the public authorities a wide margin of discretion;
- over-meticulous examination and certification procedures;
- delegation of the inspection of certain products to Japanese non­
governmental bodies;
- non-acceptance of tests carried out in exporting countries, so that long 
and costly examinations have to be repeated in Japan (particularly for 
pharmaceutical products);
- a total ban on certain imports on health or plant health grounds.
The Community has submitted to and discussed with the Japanese authorities 
numerous specific requests relating to the following products: 
food products (additives), chemicals, agro-chemicals, 
pharmaceuticals, cosmetics, electrical appliances, telecommunications 
equipment, medical equipment, motor vehicles, flowers and bulbs, fruits. 
Whilst some progress has been achieved in certain of these areas, most problems 
remai n.
Import procedures
33. Japan's adoption of the GATT Code on customs valuation and the 
simplification of customs procedures proper have indubitably improved the 
situation, although disputes regarding classification arise from time to 
time.

- 18 -
However, the application of regulations other than customs regulations proper 
(technical standards, health and veterinary controls, etc.) can involve 
lengthy delays before goods are cleared through customs, since the various 
controls have to be carried out by different administrative services.
Services
34. In the banking sector, the 76 foreign banks represented in Japan in 
1985 (25 from the Community) only accounted for 0.78% of total deposits and 
3.57% of loans (3.50% in 1980) and their profits were down 10% in 1983-84 on 
the preceding year.
Despite undeniable progress made recently, foreign banks' operations in Japan 
are still hampered by the strict control of interest rates, rudimentary 
secondary markets, the need to provide collateral to operate on these markets 
and a series of criteria or qualifications restricting admission to certain 
activities. These official restrictions are compounded by the tendency of 
the big Japanese groups to deal mainly with financial institutions belonging 
to the same group.
35. The insurance sector is also strictly regulated. Admission of new 
companies and permission for established companies to offer new products are 
subject to official authorizations which are difficult to obtain.
36. It is practically impossible for foreign lawyers to set themselves up 
in Japan as consultants, this activity being strictly regulated by the 
Japanese Federation of Bar Associations (Nichihenren).
37. Given that,generally speaking,firms established or wishing to establish 
themselves on a foreign market prefer to rely on the service companies with 
which they deal habitually in their country of origin, the difficulties 
encountered by foreign service companies on the Japanese market affect the 
performance of European industrial and trading firms in that country.

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Distribution
38. Japan's involved and complex distribution system - often directly or 
indirectly controlled by Japanese producers constitutes
an obstacle to the marketing of imported products, particularly of consumer goods.
Studies carried out in Japan by governmental agencies have always concluded 
that there is no particular problem as regards fair competition, though 
vigilance should be maintained. However these studies did not investigate 
the degree of integration of producers and distributors, exclusive purchasing 
obligations, on-discounts and credit terms, etc.
The country's big department stores and supermarkets would seem particularly 
suitable candidates for marketing imported products, but their expansion is 
rigorously limited by the 1974 law on large retail shops and informal 
administrative directives, which were renewed in 1984. Moreover the vast 
majority of supermarkets cannot sell alcohol or tobacco.
Intellectual property
39. Import penetration of the Japanese market is also hampered or delayed 
by problems with intellectual property rights.
The registering of patents and trade marks is extremely slow (six years and 
three to four years respectively) and those wishing to oppose the 
registration of their patents or trade marks by Japanese residents have no 
right of appeal with the Patent Office.
The counterfeiting of European products, particularly luxury goods, continues 
to be a widespread phenomenon owing to a failure to take proceedings or apply 
effectively the sanctions laid down by law.
In addition numerous Japanese products are presented in such a way 
as to suggest European origin (use of names, symbols, flags, etc.)
This phenomenon is particularly prevalent in the wine and alcohol sector 
(labelling of bottles).

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III. MEASURES TAKEN BY THE JAPANESE GOVERNMENT AND THEIR EFFECTS
40. Following numerous requests from its main trading partners (EEC, USA, 
Canada, Australia, Korea and the ASEAN countries) Japan has acted since 1981
to mitigate the damage caused to their economies by its current account surplus 
by announcing seven successive series of measures aimed at opening up its 
market and promoting imports. In addition the country's system of standards 
and certification procedures has undergone revision in the wake of the report 
of an interministerial committee (headed by Mr Gotoda) in March 1983. 
Liberalization of Japanese financial markets has been undertaken following the 
1984 joint "yen/dollar" report by the Japanese Ministry of Finance and the 
American Treasury Department. And lastly the Japanese Government announced 
a three-year Programme of Action on 30 July last.
The Programme is the product of interdepartmental collaboration. Many points 
regarding its substance, implementation and timing remain ambiguous or obscure. 
The Commission is currently seeking clarification from the mi nistries and bodies 
concerned. However, its joint study of the Programme with the Member States 
gives some idea of the results likely to be attained.
Tariffs and quotas
41. The seven series of measures announced since 1981 include numerous 
decisions relating to customs duties. Besides repeatedly accelerating 
implementation of its Tokyo Round concessions (but with a time-lag for 
agricultural products), Japan has reduced or totally suspended a large number
of customs duties. These reductions have affected a number of products of which 
the EEC is an exporter, among which are whisky, cognac, wine, cigarettes, 
confectionery, biscuits, chocolate, menthol, machine tools, cut diamonds, 
electrical and electronic equipment, medical equipment, tractors, parts of 
motor vehicles, clothing and skis...

- 21 -
The Action Programme announced the abolition of certain low
duties and the reduction or total suspension of duties on 1986 for more than
1800 products including wine,(-|), whisky, brandy,preparation for baking, 
menthol, ties, certain car parts, skis and accessories.
Thvse reductions are certainly welcome but as most relate to rates of duty 
which are already comparatively low, the benefits to be expected in terms of 
increased sales will probably not be very considerable. Furthermore, 
those high tariff and excise charges affecting certain products exported by 
the Community have not been subject to significant reductions.
42. Successive packages of measures have made little change in the quotas 
and other quantitative restrictions affecting products exported by the 
Community except in the case of pigmeat and a few processed agricultural 
products(fruit juices, food preparations).
The Action Programme contains nothing of consequence in this area. As 
regards leather and leather shoes, Japan intends replacing quotas with^higher 
rates of duty (these are already very high - between 20 and 27%). The United 
States has indicated that it will invoke Section 301 of the Trade Act if its 
demands are not met by 1 December 1985.
Public contracts and monopolies
43. The Action Programme contains a series of measures aimed at reforming 
procurement procedures to make things easier for foreign suppliers. The 
most important point is the intention to make uniform qualification 
procedures in each Japanese Ministry or agency. The Japanese authorities have 
also promised to review direct-agreement procedures and to extend tendering 
and delivery deadlines as of 1 October 1985. According to information made 
public by the government of Japan .on September 30, the greater part of 
these measures have been put into effect modification of procurement 
procedures of certain Minsiteries will take effect on January 1, 1986. 1
(1) For wines the reductions will not take place until 1987.

- 22 -
44. Despite? itr. privatization on 1 April 1985, Nippon Telegraph and 
lelephone will remain subject to the GATT Code for its purchases of 
consumables and to the provisions of a bilateral agreement with the 
United States (open to all suppliers) on purchases of more sophisticated 
products. It should however be noted that the purchases made by NTT 
abroad to date (mainly in the United States) have been quite insignificant.
The manufactured tobacco monopoly has also been denationalized but the 
marketing of products of foreign origin remains subject to certain 
conditions (registration of prices, limitations on distribution and 
advertising).^
Standards, testing, certification and import procedures
45. In response to pressure from the country's partners and following 
an investigation by an interministerial committee (headed by Mr Gotoda), 
the Japanese authorities in March 1983 announced the amendment of 
eighteeen laws so as to provide foreign producers with non-discriminatory 
access to the Japanese certification systems (which it was required to 
provide anyway under its GATT obligations) and their intention to improve 
transparency, internationalize their standards, promote acceptance of the 
results of tests carried out abroad and simplify their certification 
procedures.
Implementation of these intentions has, however, been stow and has not, 
generally speaking, corresponded to Community expectations. While some 
progress has been made (in particular simplification of the procedure for 
approval of prototypes of motor vehicles), in other areas acceptance of 
international standards (electrical equipment) or of tests carried out 
abroad (pharmaceuticals and agro-chemicals) has been hedged round with 
exceptions or prior conditions which allow serious obstacles to remain.
The new Action Programme features a number of very positive principles: 
the limitation of government intervention (with freedom as the rule and 
restrictions becoming the exception), the reaffirmation of the guidelines 
that emerged from the Gotoda Committee's study (indicating acknowledgement 
of the inadequacy of progress made to date).
The United States recently brought an action under Section 301 against
Japanese practices in the tobacco sector.

- 23 -
An examination of the modifications, sector by sector, indicate a degree of 
progress which could benefit Community exporters, such as a partial liberalisa­
tion of approval procedures for cosmetics further harmonisation of standards for 
electrical appliances to those of international standards, improvement in some 
of the procedures for importing motor vehicles. However, even in those sectors  
mentioned above, the modifications envisaged have not been spelled out in all 
their details and will only be introduced progressively in the course of the 
three year period of the programme. In their sectors, such as the acceptance 
of tests done in Europe for pharmaceutical products, our exporters continue 
to feel uncertainties.
It is also envisaged by the Japanese authorities to set up an administrative 
machinery to monitor implementation of the programme.
Servi ces
46. As regards financial services, the recommendations of the 1983 
"yen/dollar" report have been followed up with measures which can be 
classified in the following three categories:
»
- promotion of the internationalization of the yen through improved access 
to issues of bonds in Euro-yen, and the introduction of new medium-
and long-term instruments in Euro-yen. The latter being reserved mainly 
for non-residents, however, the Euro-yen market remains relatively 
insignificant;
- relaxation of money-market, capital and exchange conditions; liberalization 
of the conditions of issue of deposit certificates, introduction of new 
instruments, creation of a yen bankers acceptance market, forthcoming 
creation of a futures market for bonds, etc.;
- access for certain foreign financial institutions to market segments 
under certain conditions of qualifications; licences to operate on the 
medium- and long-term public bond market, the issue to nine banks (one 
from the EEC) of trust banking licences, an increase from 83 to 93 in 
the number of seats on the Tokyo stock exchange.

- 24 -
1  tic  Action Programme lists a number of fcllow-up measures to this 
progressive liberalization process.
Such liberalization takes considerable account of the' interests of 
the big Japanese finance groups; it is being conducted at a cautious 
pace and the practice of administrative directives will no doubt be 
continued. Foreign banks are still impeded by the operation of interest 
rate ceilings for deposits (1) and by insufficient short-term monetary 
instruments.
47. In the insurance sector, the Action Programme provides for a 
relaxation of the conditions of issue of licences for new instruments or 
servi ces.
The use of small-capacity airplanes and helicopters for short trips will 
be facilitated (but the problem often resides in weak infrastructure).
Lastly, the Government hopes to find a solution to the problem of foreign 
legal consultants but its allusions to the autonomy of the traditionally 
restrictive Japanese Federation of Bar Associations does not augur well 
for substantial progress in this field (the Community wants to see this 
profession put under the control of the Ministry of Justice instead of 
the Japanese Bar).
Other measures
48. The Japanese Government recognizes that the distribution system has 
an important role to play in increasing imports but, apart from relaxation 
of the conditions governing certain promotional sales, it has only 
announced some further fact-finding studies into business practices in 
this sector and into the distribution of imported products.
An "anti-counterfeit squad" is to be set up within the police force. 
However no measures have been announced on misleading labelling or the 
registration and protection of patents and trade marks. 1
(1) In applying the Action Programme, the interest rates for deposits in 
excess of one billion yen have been freed since October 1, 1985 and 
the liberalisation of rates of interest on deposits of more than 
100 million yen is planned for Spring 1987.

- 25 -
Promotion of imports
49. The Japanese authorities have announced various measures to promote 
imports on different occasions.
In 1983 the Import-Export Bank extended the possibility of loans with 
interest-rate subsidies, up to then only available for imports of raw 
materials, to manufactures. Similarly the Japanese Development Bank 
now offers loans at reduced rates of interest to promote direct investment 
in Japan. The Japan External Trade Organization (JETRO) has been 
entrusted with the promotion of imports and investments.
The Prime Minister has personally launched a campaign aimed at promoting 
the buying of foreign products. The Minister of International Trade and 
Industry has requested 134 big Japanese companies (industrial undertakings, 
trading companies, chain stores) to draw up programmes for purchases of 
foreign products and equipment. Various fairs concentrating on imported 
products have been organized with the help of MIPRO (Manufactured Imports 
Promotion Organisation)1; purchasing research and purchasing missions have 
been sent abroad.
It is difficult to measure the impact of the above initiatives which, while 
certainly evidence of good will, sometimes only serve to reinforce the 
"exotic" image of imported products and are rarely followed up by any 
medium- or long-term measures.
These promotional initiatives have not been accompanied by any foreign 
procurement policy on the part of the services or organizations controlled 
by the Government. On the contrary: in certain cases (satellites),
the policy of developing a national industry has been reaffirmed.
*  *
1--------------------------
How
ever there exists certain difficulties for the participation of 
Eurppean industries in certain fairs and specialized exhibitions.
Except for some purchases made by Nippon Telegraph and Telephone (mainly 
in the USA) and a few token orders. " *2

- 26 -
For its part the Commission has pursued its business programme, aimed at 
familiarizing Community executives with the realities of the Japanese 
market; it includes specific operations intended to benefit particular 
sectors as a whole. Given the very encouraging results obtained to date, 
the Commission believes that it is necessary to develop actions in this field.