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RESTRICTED
WORLD TRADE
WT/TPR/S/211
14 January 2009
ORGANIZATION
(09-0035)
Trade Policy Review Body
TRADE POLICY REVIEW
Report by the Secretariat
JAPAN
This report, prepared for the ninth Trade Policy Review of Japan, has been
drawn up by the WTO Secretariat on its own responsibility. The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from Japan on its trade policies and practices.
Any technical questions arising from this report may be addressed to
Mr. Masahiro Hayafuji (tel: 022 739 5873).
Document WT/TPR/G/211 contains the policy statement submitted by Japan.
Note:
This report is subject to restricted circulation and press embargo until the end of the
first session of the meeting of the Trade Policy Review Body on Japan.
Japan
WT/TPR/S/211
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS
I.
II.
vii
(1)
ECONOMIC ENVIRONMENT
vii
(2)
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
vii
(3)
TRADE POLICIES AND PRACTICES BY MEASURE
viii
(4)
TRADE POLICIES BY SECTOR
x
(5)
OUTLOOK
xi
ECONOMIC ENVIRONMENT
1
(1)
MAIN ECONOMIC DEVELOPMENTS
1
(2)
MACROECONOMIC POLICIES
(i)
Monetary and exchange rate policy
(ii)
Fiscal policy
5
5
5
(3)
STRUCTURAL POLICIES
(i)
Tax reform
(ii)
Financial system and corporate reform
(iii)
Pension reform
(iv)
Regulatory reform
6
7
7
9
9
(4)
DEVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT
(i)
Composition of merchandise trade
(ii)
Direction of merchandise trade
(iii)
Composition of trade in services
(iv)
Foreign direct investment
10
10
10
13
13
(5)
PROSPECTS
13
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
15
(1)
INTRODUCTION
15
(2)
TRADE POLICY OBJECTIVES
15
(3)
TRADE POLICY FORMULATION AND EVALUATION
(i)
Trade policy formulation and implementation
(ii)
Trade policy evaluation
(iii)
Transparency
16
16
18
20
(4)
TRADE AGREEMENTS AND ARRANGEMENTS
(i)
WTO
(ii)
Regional agreements
(iii)
Other agreements and arrangements
(iv)
Preferential treatment
21
21
21
22
27
(5)
FOREIGN INVESTMENT REGIME
(i)
Regulatory regime
(ii)
Investment promotion measures
29
29
30
WT/TPR/S/211
Page iv
Trade Policy Review
Page
III.
TRADE POLICIES AND PRACTICES BY MEASURE
32
(1)
INTRODUCTION
32
(2)
MEASURES DIRECTLY AFFECTING IMPORTS
(i)
Customs clearance procedures
(ii)
Tariffs
(iii)
Non-tariff border measures
(iv)
Contingency measures
(v)
Government procurement
(vi)
State trading
(vii)
Standards, and sanitary and phytosanitary measures
(viii)
Import promotion measures
33
33
34
41
42
43
46
46
51
(3)
MEASURES DIRECTLY AFFECTING EXPORTS
(i)
Procedures
(ii)
Export taxes, charges, and levies
(iii)
Export prohibitions, restrictions, and licensing
(iv)
Export cartels
(v)
Export promotion schemes
51
51
52
52
53
53
(4)
MEASURES AFFECTING PRODUCTION AND TRADE
53
53
56
56
57
62
63
69
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
IV.
Taxation and tax-related assistance
Subsidies and other financial assistance
State-owned enterprises, corporatization, and privatization
Intellectual property rights
Regulatory reform
Competition policy
Corporate governance
TRADE POLICIES BY SECTOR
70
(1)
INTRODUCTION
70
(2)
AGRICULTURE
(i)
Overview
(ii)
Policy developments
71
71
72
(3)
MANUFACTURING
78
(4)
ENERGY AND UTILITIES
79
(5)
SERVICES
(i)
Overview
(ii)
Financial services
(iii)
Telecommunications
(iv)
Transport
(v)
Professional services
(vi)
Other services
80
80
81
88
90
93
94
REFERENCES
95
APPENDIX TABLES
97
Japan
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Page
CHARTS
I.
ECONOMIC ENVIRONMENT
I.1
I.2
Composition of merchandise trade, 2005 and 2007
Direction of merchandise trade, 2005 and 2007
II.
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1
Policy evaluation system in Japan, 2008
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
III.4
Share of non-ad valorem duties, by HS section, FY 2008
Tariff rate quotas (TRQs)
Simple average applied MFN tariff rates, by HS section, FY 2006 and 2008
Import control system
11
12
19
37
38
39
41
TABLES
I.
ECONOMIC ENVIRONMENT
I.1
I.2
Selected macroeconomic indicators, 2002-08
Shares of GDP and employment by sector, 2003-06
II.
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1
II.2
Major trade-related laws and regulations, September 2008
Ten largest GSP beneficiaries, FY2007
III.
TRADE POLICIES AND PRACTICES BY MEASURE
III.1
III.2
III.3
III.4
III.5
III.6
III.7
III.8
III.9
III.10
Structure of the MFN tariff, 2006-08
Preferential tariff rates, FY2008
Procurement by product and by origin, 2005 and 2006
Major standards and technical regulations, 2008
National government tax revenue, FY2006 and 2007
Legislation on intellectual property rights, 2008
Suspension of imports likely to infringe intellectual property rights, 2005-07
Three-Year Regulatory Reform Programme 2007-10
Exemptions from the Anti-monopoly Act, October 2008
Enforcement of competition policy, 2004-07
IV.
TRADE POLICIES BY SECTOR
IV.1
IV.2
IV.3
Applied MFN tariff protection in agriculture, FY2008
Special safeguards in agriculture, FY2006 to 2008
Procurement prices for all major crops subject to pricing and/or marketing
arrangements/price controls, 2003-08
Financial institutions, 2008
IV.4
1
3
17
29
35
40
45
47
54
58
61
63
65
68
73
76
78
82
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Trade Policy Review
Page
APPENDIX TABLES
I.
ECONOMIC ENVIRONMENT
AI.1
AI.2
AI.3
AI.4
AI.5
AI.6
AI.7
Merchandise exports by group of products, 2003-07
Merchandise imports by group of products, 2003-07
Merchandise exports by destination, 2003-07
Merchandise imports by origin, 2003-07
Composition of trade in services, 2003-07
Inward and outward FDI flows by region, FY2005-07
Inward and outward FDI flows by industry, FY2007
II.
TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
AII.1
AII.2
AII.3
Status of selected notifications to the WTO, July 2008
Disputes to which Japan has been a party, 2007 to July 2008
Industries requiring prior notification for inward FDI, 2008
III.
TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1
Applied tariff escalation and tariff ranges, FY2006 and FY2008
IV.
TRADE POLICIES BY SECTOR
AIV.1
Tariff quota and in-quota imports, FY2005-06
99
101
103
104
105
106
108
109
111
112
115
118
Japan
WT/TPR/S/211
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SUMMARY OBSERVATIONS
(1)
ECONOMIC ENVIRONMENT
1.
In line with the global economy,
Japan's economy has slowed down since its
previous Trade Policy Review in 2007, when
real GDP growth was 2.4%. While the
economy continued to grow in the first quarter
of 2008, it shrank in the second and
third quarters. Growth in 2007 was led by
external demand for Japan's exports and, to a
slightly lesser extent, domestic demand,
notably household consumption and private
non-residential investment. Unemployment in
Japan has been on a declining trend, reaching
3.9% in 2007. Downward pressure on prices
remained in 2007;
while this pressure
appeared to have eased in early 2008, core
inflation in October slowed for the second
straight month, largely due to falling energy
prices. Whether this heralds a return to
deflation in the near future remains to be seen.
2.
Economy-wide labour productivity in
Japan lags behind that of other major
industrialized countries. Data provided by the
authorities indicate that labour productivity in
non-manufacturing is stagnant compared with
manufacturing; they attribute this to lower
total factor productivity (TFP) growth in
non-manufacturing.
Nevertheless, Japan's
export competitiveness has apparently
improved, as reflected in a continuing decline
in unit labour costs, owing to sluggish wages.
3.
Trade and trade-related policies
continue to be integral to Japan's ongoing
structural reform, particularly as trade plays an
increasingly important role in the economy.
The shares of exports and imports of goods
and services were around 16% and 11% of
GDP, respectively, in 2007 (15% and 11% in
2006). The faster growth in exports than in
imports in recent years reflects the positive
contribution of external demand to Japan's
economic growth, due in part to the openness
of the multilateral trading system. Japan's
current account surplus increased in 2007; this
reflects a widening of the gap between gross
national saving and gross domestic investment.
By the end of August 2008, Japan's foreign
exchange reserves had risen to US$997 billion
(up from US$879 billion in August 2006),
which was equivalent to about 21 months of
Japan's imports.
4.
Since March 2006, the Bank of Japan
(BOJ) has continued its policy to "encourage"
(e.g. by means of open market operations) the
short-term call rate to remain around a
specified rate; on 19 December 2008, the
latter was lowered to 0.1% (following a
reduction from 0.5% to 0.3% on
31 October 2008). It would appear that the
recent appreciation of the yen is partly due to
the unwinding of the "carry trade", which
involves borrowing in yen to invest in higheryielding assets abroad; the resulting large
outflow of yen had contributed to a substantial
nominal depreciation of the Japanese currency.
5.
The fiscal deficit amounted to around
3.4% of GDP in FY2007 (2.9% in FY2006);
consequently, public debt continued to
increase, reaching about 170% of GDP. The
Government's mid-term target for fiscal
consolidation, as announced in July 2006, is,
inter alia, to achieve a surplus in the central
and local governments' combined primary
balance by FY2011, and thus to ensure gradual
reduction of the ratio of public debt to GDP
between the early and mid 2010s.
(2)
TRADE POLICY REGIME:
FRAMEWORK AND OBJECTIVES
6.
The only major change in Japan's
government
ministries
and
agencies
responsible
for
the
formulation,
implementation, and evaluation of its trade
policies since its previous Trade Policy
Review
was
the
abolition
on
28 December 2007 of the Cabinet-level Japan
Investment Council, and the establishment of
the Expert Committee on FDI Promotion
within the Cabinet Office.
7.
Japan's trade policy priorities include
strengthening the multilateral trading system,
as embodied in the WTO. Nonetheless, Japan
is of the view that its regional and bilateral
WT/TPR/S/211
Page viii
free-trade agreements complement trade
liberalization at the multilateral level. During
the period under review, four additional
agreements entered into force (with Chile,
Thailand, Indonesia, and Brunei), and one was
signed (with ASEAN). The agreements with
countries that are significant exporters of
agricultural products tend to exclude many of
these products. They also exclude certain
industrial goods, such as leather products and
footwear, which the authorities consider to be
highly sensitive.
8.
Japan has been a major participant in
WTO activities, including negotiations under
the Doha Development Agenda (DDA). It has
been a party to three disputes since 2007, one
as a respondent and two as a complainant.
9.
Japan has continued to adopt measures
to increase the transparency of its trade and
trade-related policies, practices, and measures,
thereby
enhancing
the
Government's
accountability to the public.
Since
March 2007, administrative organs have been
required to conduct ex-ante evaluation of
regulations.
A procedure for ex-ante
regulatory impact analysis has been introduced
since 1 October 2007; ex post evaluation is
required under the Government Policy
Evaluation Act of 2001.
10.
Japan grants preferential treatment to
products from certain developing and least
developed countries under its Generalized
System of Preference (GSP) scheme. On
1 April 2007, Japan expanded the coverage of
the preferential (i.e. tariff-free and quota-free)
treatment granted to 49 least developed
countries, from about 86% to 98% of all tariff
lines. The main beneficiaries of Japan's GSP
are China, Thailand, Indonesia, the
Philippines, and Viet Nam. The GSP scheme
excludes many agricultural products and some
industrial products.
11.
Inward FDI in Japan remains
substantially lower than outward FDI, and is
relatively low compared with that in other
large OECD economies.
Against this
background, Japan has continued to take
Trade Policy Review
measures to make itself a more attractive
investment destination for foreign firms. On
the other hand, for the first time under the
current Foreign Exchange and Foreign Trade
Law, the Government has issued a
recommendation against an FDI proposal (for
an electric utility) on the grounds of "public
order, public safety, and national security".
(3)
TRADE POLICIES AND PRACTICES BY
MEASURE
12.
Trade and trade-related policies
continue to be key elements of Japan's ongoing
structural reform; the extent of progress in this
regard will determine Japan's success in
achieving its economic and social objectives.
Since its previous Trade Policy Review, Japan
has introduced measures aimed at further
liberalizing its trade and investment regimes.
The authorities continue to promote regulatory
reform and strengthen competition policy,
which could, inter alia, help open Japan's
economy to more competition and thereby
create more opportunities for domestic and
foreign businesses. It would appear that Japan
has not introduced new trade measures to
protect its market since the onset of the global
financial crisis in September 2008.
13.
The tariff is Japan's main trade policy
instrument. Nonetheless, most imports enter
Japan duty free or are subject to low tariff
rates. In fiscal year (April-March) 2008, the
simple average applied MFN tariff rate was
6.1%, down from 6.5% in FY2006, reflecting
decreases in ad valorem equivalents of
non-ad valorem duties. Nearly 99% of tariff
lines are bound and most applied MFN rates
coincide with bound MFN rates, thereby
imparting a high degree of predictability to
Japan's tariff schedule. At the same time,
non-ad valorem duties are an important feature
of the tariff, particularly for agricultural
products. These duties, which account for
6.7% of all tariff lines, and are indicated in
Japan's tariff schedule, tend to involve high
ad valorem equivalents. Preferential tariff
rates are offered to 141 developing countries
and 14 territories under the GSP, including
additional preferences for 49 LDCs. Whereas
Japan
the simple average tariff rate under the GSP is
4.9%, that for LDCs is 0.5% (down from 3.3%
in FY2006). Japan also grants preferential
access to imports from Singapore, Mexico,
Malaysia, Chile, Thailand, Indonesia, and
Brunei under bilateral free-trade agreements.
The simple average tariff rates under these
agreements range from 3.3% (Malaysia) to
3.9% (Brunei).
14.
Japan has few non-tariff border
measures. Those currently applied involve
some import prohibitions and quantitative
import restrictions (for example, on some
fish). In addition, imports of some goods are
subject to licensing requirements to ensure
national security, safeguard consumer health
and well-being, or preserve domestic plant and
animal life and the environment. Some import
prohibitions are in place in accordance with
United Nations Security Council resolutions.
15.
Since its previous Review, Japan has
used two anti-dumping measures. It has
one countervailing measure in place; the
measure was brought to the Dispute Settlement
Body and its countervailing duty rate was
reduced from 27.2% to 9.1% as of
1 September 2008 in response to the DSB
decisions. It has not imposed any safeguard
measures.
16.
Japan maintains certain export
controls on national security and public safety
grounds and to ensure adequate domestic
supplies of certain agricultural and other
primary products. On the other hand, so as not
to impede exports, a drawback scheme is used
to refund import tariffs levied on inputs used
in the production of goods for export. Export
finance, insurance, and guarantees are also
available. The Government has recently been
promoting agricultural exports, mainly by
providing information to consumers overseas.
17.
No preferences are granted to
domestic suppliers with regard to procurement
covered by the Agreement on Government
Procurement.
Nevertheless, the share of
foreign suppliers in the total value of
government procurement was 3.1% in 2006,
WT/TPR/S/211
Page ix
the latest year for which data are available,
down from 3.7% in 2004. The share of
overseas goods and services, supplied by
domestic or foreign suppliers, in total
procurement declined to 8.7% in 2006 (from
9.7% in 2004) in terms of value. Open
tendering accounted for 65.9% of the total
value of procurement in 2006 compared with
60.6% in 2005.
In March 2007, the
Government adopted the Basic Policy for
Public Procurement of Information Systems,
whose main objective is to increase
transparency.
18.
About 96% of Japanese Industrial
Standards (JIS) were aligned to their
international counterparts in 2008 (compared
with 93% in 2005).
19.
Although Japan has relatively high
statutory rates of both corporate and personal
income taxes, the amount of taxes collected in
relation to GDP is relatively low in
comparison with other OECD countries. This
suggests a need to broaden the income tax
base, which would allow cuts in tax rates,
thereby rendering the income tax system more
neutral.
20.
Various laws on intellectual property
rights (IPRs) have been amended since Japan's
previous Review to strengthen protection (e.g.
by increasing penalties for infringement). The
authorities have continued their efforts to
reduce the time required for patent
registration.
Japan remains an active
participant in multinational and regional
discussions on agreements to promote
international harmonization of regimes
protecting IPRs.
21.
In June 2007, Japan adopted a new
Three-Year Programme for Promoting
Regulatory Reform, which was further revised
in March 2008. The programme aims to,
inter alia, strengthen Japan's international
competitiveness
and
thereby
increase
economic growth. Japan has also continued to
implement regulatory reforms in selected
regions under the scheme of special zones for
structural reform.
WT/TPR/S/211
Page x
22.
The authorities intend to continue to
strengthen competition policy. In this regard,
a bill to amend the Anti-monopoly Act (AMA)
has been submitted to the Diet. The bill seeks
to, inter alia, introduce a surcharge (fine) in
respect of practices involving exclusionary
types of private monopolization, and a 50%
increase in the surcharge on businesses that
have played a leading role in cartels and
bid-rigging.
23.
Certain measures aimed at improving
corporate governance became mandatory on
1 April 2008, for example, the implementation
of internal control reporting systems and
certification of annual reports by management.
(4)
TRADE POLICIES BY SECTOR
24.
Since its previous Trade Policy
Review, Japan has continued to promote
structural reforms, especially those pertaining
to agriculture, energy, financial services, and
air transport.
25.
In agriculture, Japan has introduced
measures to move further away from price
support towards income support. However,
the sector remains relatively protected from
foreign competition. The average applied
MFN tariff for agriculture (WTO definition)
fell from 18.8% in FY2006 to 17.1% in
FY2008 reflecting decreases in ad valorem
equivalents of non-ad valorem duties. In
2007, Japan's total transfers to agriculture
amounted to 0.9% of GDP compared with
agriculture's 1.2% share in GDP (in 2006). As
a consequence, the overall level of government
assistance for agriculture (as measured by
producer and consumer support estimates, for
example) is well above the OECD average.
Despite (or possibly because of) this
assistance, labour productivity has remained
less than one quarter of the national average.
Food self-sufficiency in FY2006 was around
39% on a calories basis, a decrease of one
percentage point from FY2005; thus, Japan is
one of the world's largest importers of food.
26.
During the review period, the
authorities placed emphasis on the promotion
Trade Policy Review
of selected industries; for example, additional
assistance was introduced for the production of
aircraft. Nonetheless, Japanese manufacturing
has, by and large, been much more exposed to
international competition than agriculture and
certain services. Tariffs on industrial products
(HS 25-97) are usually low (averaging 3.6% in
FY2008), non-tariff barriers (e.g. import
licensing requirements) are few, and the
sector, on average, receives relatively little
financial support from the Government.
Manufacturing has been the driving force
behind Japan's rapid development during the
past 60 years. The sector's contribution to
GDP decreased slightly from 21.5% in 2005 to
21.3% in 2006 (the latest year for which data
are available);
manufacturing employed
17.4% of Japan's total labour force in 2006, up
from 17.3% in 2004, which means that labour
productivity in the sector is substantially
higher than in the rest of the economy.
27.
One of the main objectives of Japan's
energy policy has been a stable energy supply,
reflecting its heavy reliance on imported
energy: about 82.5% of its primary energy
was imported in FY2005 (latest data
available). Electricity prices in Japan have
declined and are not necessarily higher than
those in other developed countries.
By
contrast, gas prices for residential customers
have remained relatively high by international
standards. Since its previous Review, Japan
has further liberalized its gas sector to promote
competition.
In 2008, the Government
recommended against an FDI project in an
electric utility company on the grounds of
"national security, public order, and public
safety".
28.
Regulatory reform has continued in
services, where labour productivity is
considerably lower than in manufacturing.
This is an important sector, not just for
consumers, but for all kinds of businesses for
which services are essential inputs and
therefore a significant determinant of their
international competitiveness. Reforms have
progressed particularly in financial services,
which are important for channelling savings
into profitable investments across various
Japan
WT/TPR/S/211
Page xi
sectors of the economy. Besides a substantial
reduction of non-performing loans (NPLs),
and restructuring of government-affiliated
institutions, the Government has targeted
improved transparency in the financial system
(through, for example, the adoption of the "no
action letter" system). Privatization of Japan
Post commenced in October 2007, and the
Japan Post Bank and Japan Post Insurance
started operations. The Government's policy
framework on telecommunications remained
largely unchanged during the review period.
In transport, liberalization measures have been
introduced in bilateral air traffic with some of
Japan's trading partners.
(5)
OUTLOOK
29.
According to the Government's
official
projections,
announced
in
January 2008, the economy is forecast to grow
by 2.0% in FY2008, with the CPI expected to
increase by 0.3%, and unemployment to be
about 3.8%. However, the latest quarterly
estimates of GDP indicate that in the third
quarter of 2008, real GDP declined by 1.8%
quarter on quarter (on an annualized basis).
The Bank of Japan revised its growth forecasts
for FY2008 from 2.1% projected in
October 2007 to 1.5% in April 2008, and then
to 0.1% in October 2008, against the
background of a slowdown in the world
economy and downside risks. The Bank's
forecast for FY2009 has also been revised
downward from 1.7% projected in April 2008
to 0.6% forecast in October 2008.
30.
Whether the Japanese economy can
maintain its recovery in the more immediate
term depends on external as well as internal
factors. External factors include the pace of
growth in the world economy (notably the
United States, EC, and China, Japan's main
export markets) and the prices of energy and
raw materials. As Japan's economic growth in
recent years has depended substantially on
external demand, the recent global economic
downturn is likely to reduce Japan's growth
rate.
The adverse effects of the global
slowdown on Japan's exports, and thus
economic growth, is likely to be exacerbated
by the recent appreciation of the exchange rate
of the Japanese yen, partly due to the
unwinding of yen carry trade. On the other
hand, the appreciation of the exchange rate
would tend to mitigate the effects of any
increases in the prices of energy and raw
materials on the prices of inputs, including
those used for exports.
31.
On the domestic front, Japan's
medium- and long-term growth prospects will
depend on its ability to strike a balance
between monetary and fiscal policies in
tandem with structural reforms. The latter
include reforms geared towards reducing the
cost of doing business and thereby increasing
Japan's attractiveness to inward FDI, which
should result in increased competition and,
consequently, productivity.
Improving
productivity is particularly important due to
the downside risks from Japan's rapidly aging
population and the associated decline in the
labour force. The Government believes in the
need to intensify such structural reforms,
which would contribute to reducing, if not
removing, distortions to competition that
impair economic efficiency. There is a risk of
firms' misallocating capital due to the
comparatively low cost of capital in a low
interest rate environment.
32.
At the time of completing this report,
Japan's economy appeared to be on the brink
of a recession. The IMF and the OECD, for
example, expect Japan's economy to shrink by
0.2% and 0.1%, respectively, in 2009. The
depth and duration of this looming recession
remain to be seen.