1.    Overview of Japan’s Economic Relationships

1.                   Since the last trade policy review of Japan took place in 2005, there has not been any significant change on Japan’s basic trade policy. While Japan considers the highest priority on the multilateral trading system as the centerpiece of its trade policy, positive steps have been taken for the negotiations for economic partnership agreements. On the domestic economic front, the Japanese economy continues to recover from the beginning of 2002 with a steady progress of the structural reform initiated by the Koizumi Cabinet (the Koizumi reforms) and continued by the current Abe Cabinet.

(1)        The Multilateral Trade System

2.                   As one of the largest trading economies in the world, and as a firm supporter of free trade system for the growth of the world economy and the benefit of developing countries, Japan maintains its strong support for the non-discriminatory and rule based multilateral trading system under the WTO. Japan has joined others in lowering trade barriers, which has led to expanding world trade and has created opportunities for all countries to enjoy the fruits of international trade.

3.                   The suspension of the negotiations is an unfavourable result not only for Japan but for all Members who support and reap the benefits of the multilateral trading system. It is a serious blow for developing countries, considering the current Round’s strong emphasis on development.

4.                   Japan will provide its utmost actions towards the early resumption of negotiations, and is committed to setting the negotiations back on track to realize the early conclusion of the Round. On the other hand, the significance of development through trade does not dwindle as a result of the suspension. Regardless of the state of the suspension, Japan will steadily implement its Development Initiative for Trade that it announced on the occasion of the WTO Hong Kong Ministerial Conference in 2005.

(2)            Regional and Bilateral Trade Policy

5.                   Japan is currently party to three economic partnership agreements (EPAs) which include elements of free trade agreements and institution-building such as human resource development, and is now involved in several negotiations of free trade agreements and economic partnership agreements (FTA/EPAs). Japan believes that these agreements will serve as building blocks to higher trade liberalization at the multilateral level. Institution-building aspects of Japan’s bilateral initiatives cover areas such as investment, competition, and intellectual property rights.  

2.         Trade and Economic Policy Environment

(1) Japan's Economic Environment

6.                   The current economic recovery, which began in early 2002, is now in its fifth year. The condition of the Japanese economy shows that the foundation for economic recovery is now firmly in place, with the corporate sector, the household sector and the overseas sector having recovered in a balanced manner. With this background, the structural problem, namely the corporate sector’s excesses in employment, equipment and debts, that had been putting downward pressure on the economy, has been eliminated, and the economy is overcoming the deflation that has started since late 1990s. On the policy front, fiscal deficits have been decreasing thanks to the spending reform, centered on fiscal structural reform, in addition to the economic recovery. As for monetary policy, the Bank of Japan, in March 2006, lifted the quantitative easing policy that had been in place since March 2001, and in July 2006, brought the zero interest rate environment to an end.

(2)   Trend in Foreign Trade

7.                   Trade statistics show that Japan’s trade surplus increased for three straight years from 2002 and decreased in 2005. In 2004, Japan’s exports increased due to the world economic recovery and expansion pulled by the U.S. and Asia, whereas imports increased due to domestic economic recovery, thus expanding the trade surplus to \11.95 trillion. In 2005, Japan’s exports increased due to the world economic recovery and expansion pulled by the U.S. and Asia, whereas imports greatly increased due to a rise in prices of crude oil. As a result, the total trade surplus decreased to \8.71 trillion (a decrease of \3.25 trillion from 2004). We thus have a decrease for the first time in four years in Japan’s total trade surplus.

8.                   In 2005, the total value of exports from Japan increased, mainly due to the world economic recovery and expansion pulled by the U.S. and Asia.

-      The total value of exports from Japan in 2005 amounted to \65.66 trillion (an increase of 7.3 percent from 2004)

Regional trends in total value of exports in 2005 (compared to 2004):

       -      China                                                 up by 10.5 percent

       -      NIEs (inc. Korea, Singapore, Hong Kong and Taiwan)  up by 5.7 percent

       -       European Union (EU)                                up by 0.3 percent

       -       Association of South East Asian Nations                     up by 5.7 percent

       -      Middle East                                    up by 16.5 percent

       -      United States                                        up by 7.8 percent

9.                   The share of manufactured goods out of the total amount of exports decreased to 97.7 percent in 2005 (0.6 percent lower than in 1990).

10.               In 2005, the total value of imports to Japan largely increased, mainly due to rise in prices of crude oil.

-      The total value of imports to Japan in 2005 amounted to \56.95 trillion (an increase of 15.7 percent from 2004)

Regional trends in total value of imports in 2005 (compared to 2004):

       -      China                                                 up by 17.4 percent

- Middle East                                    up by 42.5 percent

       -       Association of South East Asian Nations                     up by 9.8 percent

       -       European Union (EU)                                up by 3.4 percent

- NIEs (inc. Korea, Singapore, Hong Kong and Taiwan)  up by 11.1 percent

- United States                                        up by 4.6 percent

11.               The share of manufactured goods out of the total amount of imports increased to 58.5 percent in 2005 (8.1 percent higher than in 1990).

(3)   Trend in Foreign Direct Investment

2004 Outward FDI

12.               According to a Ministry of Finance report, Japan’s outflow of foreign direct investment(FDI) (Outward FDI) has decreased to \3,821.0 billion in FY2004,which represents a decrease of 6.3% from FY2003.The major characteristics of Japan’s outward FDI in FY2004 were as follows:

13.               Industry            In FY2004, FDI in the manufacturing industry decreased to \1,478.0 billion, (i.e.19.5% less than in the previous fiscal year). Sector-wise, transport and metal sectors increased. On the other hand, electrical, chemical sectors decreased sharply. However, FDI in the non-manufacturing industry increased to \2,258.3 billion (i.e. by 1.9%). Sector-wise, trade and real estate sections decreased while finance & insurance and transportation increased.

14.               Region              In FY2004, the total FDI from Japan to North America decreased sharply, to \519.8 billion (i.e. by 56.9%), whereas FDI from Japan to Asia increased to \1,009.1billion (i.e. by 39.5%).

2004 Inward FDI

15.               In FY2004, the FDI flow to Japan (Inward FDI) has increased to \4026.5billion, which represents an increase of 90.3% from FY2003. Moreover, it is the first time that the Inward FDI exceeded the Outward FDI. The major characteristics of inward FDI to Japan in FY2004 were as follows:

16.               Industry            In FY2004, Inward FDI in the manufacturing industry decreased sharply, to \102.3 billion (i.e. by 79.0%).Only petroleum and textile sectors increased, while other sectors decreased sharply. Inward FDI in the non-manufacturing industry increased sharply, to \3,924.2 billion (i.e. by 140.9%). Finance & insurance which occupied the largest share increased sharply which was also the case of telecommunication and transportation. But Trading and Real Estate decreased; on the whole, it increased.

17.               Region              In FY2004 the amount of inward FDI from North America and foreign-owned companies in Japan increased sharply, on the other hand, Latin America and Asia decreased.

*Source:  Outward and Inward Foreign Direct Investment(FDI)

*The value is calculated on ex post facto report or prior notice basis.

3.         Japan in the Doha Development Agenda

18.               In the DDA negotiations, Government of Japan has the following views in the several issues:

(1)        NAMA Negotiations

19.               The Doha Round's NAMA market access negotiations need to deliver commercially meaningful market access gains for all Members for the sake of sound development of the developing countries. To achieve this objective, Japan will continue to contribute actively to these negotiations and is engaged in providing its utmost actions toward the early resumption of the Round.

(2)            Agriculture

20.               Japan, as the world’s largest net importer of agricultural products, is committed to an ambitious and balanced outcome in the agricultural negotiations.  To achieve this, Japan considers it necessary that difference in tariff structures, multifunctionality of agriculture, and food security are taken into account. In particular, it regards export subsidies and domestic support for export bound products to be most trade distorting, and welcomes abolishment and sharp reduction of such measures. Japan places great importance and has strong sympathy for proposals of countries that it considers should be the true beneficiaries of the Development Round such as the market access proposal of the ACP and the food aid proposal of the African/LDC Group.

(3)            Service

21.               Japan remains strongly committed to liberalisation in trade in services and believes that its firm commitment to the DDA negotiations has been demonstrated in various forms on a number of occasions.  Most notably, Japan played a leading role in introducing the plurilateral approach which was subsequently adopted at the Hong Kong Ministerial Meeting in December 2005 and significantly accelerated the negotiation process.  In implementing this newly introduced approach, Japan has also chaired a couple of plurilateral meetings and participated in all plurilateral meetings either as a requesting Member or a requested Member.

22.               As one of the major exporters of trade in services, Japan regards the sectors with comparative advantage, i.e., telecommunications, distribution, construction, maritime, financial and computer related services sectors, to be of primary importance to its export interest due to their relevance to the establishment of the effective supply chain of the Japanese products and services as well as the smooth functioning thereof.  These sectors are also highly relevant to Japanese overseas investment.  Japan therefore targets further liberalisation of these sectors, particularly in Mode 3, in order to facilitate the commercial activities carried out by Japanese investors, service suppliers and manufacturers.

23.               The basic principle of Japan is that the achievement of comprehensive liberalisation in trade in services is of benefit to all the Members including developing countries, by attracting further investment on the one hand and resulting in their increased competitiveness, production capacity, export and employment opportunity on the other hand.  Mindful of the fact that the scheduled commitments provide legal certainty and predictability, Japan continues to attach importance to the improvement to the level of, as well as the achievement of higher degree of transparency and clarity of, the scheduled commitments of the Members.

24.               Based on these principles, Japan:

            -           has submitted the first revised offer in June 2005, taking fully into account the interests of  the developing countries and without any a priori exclusion of specific sectors or modes of supply.  In particular, Japan enhanced both liberalisation and comparability in its first revised offer of the scheduled commitments regarding the entry and temporary stay of the natural persons in Mode 4.

            -           has contributed, and continues to contribute, to the development of the text on the domestic regulations.

(4)        Rules Negotiation

25.               Japan has been actively participating in the negotiations on rules. In the negotiations on anti-dumping, Japan, as a core member of the so-called "Friends of Anti-Dumping", has been contributing to discussions by submitting proposals on issues such as zeroing, lesser duty rule and review procedures. With regard to the negotiations on fisheries subsidies, Japan, Korea and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu submitted a joint proposal on the legal draft in April, and its revision in June, with a view to contributing to the resolution of the issue of over fishing capacity.

(5)        Trade Facilitation

26.               The expansion of world trade more than ever necessitates a smooth, fair, transparent and efficient cross border procedure for movement of goods to strengthen the multilateral trading system. In this regard, Japan had been vigorously engaged in negotiations by submitting many proposals to promote discussion and holding many seminars and workshops to enhance the understanding of rules discussed under trade facilitation negotiation. Japan will continue to constructively contribute to the negotiations for its successful conclusion and also continue to actively provide technical assistance for capacity building in this area in the belief that trade facilitation plays an important role in promoting international trade, thereby benefiting all trading parties, including the private and government sectors of developed and developing countries.

(6)        TRIPS

27.               Japan has participated actively in the discussions of the TRIPS Council, recognizing the importance of the development dimension and the role of intellectual property protection. Japan believes that a global regime for the adequate and effective protection of intellectual property will benefit all countries by fostering an environment conducive to technological innovation. Regarding the negotiation of the establishment of a multilateral system of notification and registration of geographical indications for wines and spirits, Japan seeks the establishment of a multilateral system of notifications and registration of geographical indications for wines and spirits that would not impose excessive burdens upon Members. Japan will continue to engage in the discussion in a constructive way to establish a multilateral system acceptable to all Members.

(7)            Environment

28.               With a view to enhancing the mutual supportiveness of trade and environment, Japan has participated actively in the negotiations. In the negotiations in CTESS, Japan has been committed to revising Japan’s list of environmental goods.

(8)        DSU

29.               Japan continues to seek improvements and clarifications of the DSU which will serve Members’ shared interests in enhancing compliance with trade rules and ensuring the integrity and credibility of the rule-based trade system.  Japan attaches importance to the achievement of a successful outcome of the DSU negotiations, and it has actively contributed to the negotiations with a view to accomplishing such an outcome.

(9)            Development

30.               The DDA should contribute to facilitate developing countries' integration into the multilateral trading system by effectively responding to interest and concerns of developing countries, inter alia, paying special attention to LDCs. Recognizing that developing countries, especially LDCs, have been facing various difficulties in complying with WTO rules as well as in participating in the DDA, Japan has been actively implementing TRTA (Trade related assistance schemes) through multilateral, bilateral and regional frameworks in order to enable them to further enjoy benefits from the multilateral trading system. Japan has contributed 4.88 million CHF to the DDA Global Trust Fund since its foundation in 2002.

31.               Furthermore, Japan believes that it is essential for the developing and the least-developed countries, as well as the economies in transition, to share the benefits of the results of the negotiations. In this regard, an early conclusion of the accession negotiations by such applicants, in accordance with the WTO rules, is important in order to facilitate their integration into the multilateral trading system.  Japan shall continue to play a leading role in supporting the accession process of such future members of the WTO.

*See also para. 90-94 for Japanese "Development Initiatives for Trade".

4.            Japan’s Multilateral Activities

(1)            Generalized System of Preferences (GSP)

32.               In order to improve market access for developing countries, Japan has granted preferential tariff treatment under the GSP scheme since the 1st of August, 1971. The scheme has been vastly improved for the last several years, especially in 2001 and 2003. On  1 April 2006, 3 remaining LDCs which had yet to be covered under the scheme were designated as beneficiaries. Consequently, 142 developing countries and 15 territories, including all LDCs, enjoy benefits of the scheme.

33.               Japan grants special preferential treatment to LDCs under the GSP scheme, including additional products for which preferences are granted only to LDCs. On 1 April 2003, the number of agricultural and fishery products originating from LDCs, which receive duty-free and quota-free preferential treatment, was increased from 298 to 496 items, and treatment coverage rose from previous 83% to 93% in terms of total import value from LDCs.

34.               Moreover, in the comprehensive "Development Initiative for Trade" launched in December 2005, Japan expressed its commitment to provide duty-free and quota-free market access for essentially all products originating from all LDCs. The Government of Japan has already begun preparation necessary for the domestic procedures to start the improved duty-free and quota-free treatment in as early as 2007 Japanese Fiscal Year, which ultimately needs approval of the Diet (the Japanese Parliament) and other consultative bodies. As a part of the procedures, Japan provided the opportunity to hear the interests and needs of LDCs through diplomatic channel in July, 2006.

35.               Japan is fully committed to implement the above initiative, regardless of the progress of the Doha Round negotiations, and to comply with the decision adopted in the Hong Kong Ministerial Declaration in order to achieve a real improvement in market access and to support actions of the developing countries to expand their trade.

(2)        OECD

36.               Over the last few years, Japan has been playing major roles in terms of both intellectual and organisational contributions to various OECD activities.

37.               Intellectual input to each Committee is an important pillar of Japan’s proactive participation in the OECD. Recognising the significance of cross-border investment flows as a tool to solve economic imbalances in the global community, Japan proposed in the Ministerial Council 2003 a new project on ‘Investment for Development’, which seeks ambitious outputs ranging from policy recommendations on the improvement of investment environments (Policy Framework for Investment : PFI), analyses on synergies between FDI and ODA, peer review among developing nations. Japan played a role as a co-chair of the Task Force responsible for making the PFI. After OECD Ministers have released the PFI on 24 May 2006, Japan supported the OECD Tokyo Centre to organize seminars in Tokyo and Hoi An, Vietnam.

5.            Japan’s Regional Activities

38.               As East Asia has been enjoying rapid economic growth and increasing interdependence, momentum has become ever stronger for countries in the region to advance cooperation in economic fields among themselves in addition to those conducted in multilateral fora.  Japan is endeavouring for the development of all regional cooperative frameworks, including ASEAN Plus Three (China, Japan, Republic of Korea), ASEAN-Japan, China-Japan-Korea tripartite cooperation and the newly established East Asia Summit (EAS) along with wider structures such as APEC and ASEM.  Japan has consistently called upon the states in the region to reaffirm their commitment to universally recognized rules and global norms, including market economy principles and the WTO Agreement, in the course of advancing regional cooperation.

(1)            Asia-Pacific Economic Cooperation (APEC)

39.               Japan believes that the promotion of co-operative economic relations among economies in the Asia-Pacific Region through APEC will enable the creation of an open economic community in the region and will stimulate world trade, thereby contributing to the development of the global economy. Japan shall continue to make its actions towards realizing such visions by cooperating closely with other member economies.

40.               Japan remains actively engaged in trade and investment liberalization and facilitation, one of main areas of APEC. In this regard, Japan will host APEC in 2010, the deadline for developed economies to achieve the Bogor Goals, which aim at free and open trade and investment. While APEC drew up a roadmap towards the goals (Busan Roadmap) in 2005, some members including Japan are now forging an action plan aimed at implementing the roadmap (Hanoi Action Plan).

41.               In recognizing the importance of trade facilitation, Japan, in cooperation with other economies, organized APEC-WTO Trade Facilitation Roundtable in Geneva on Feb. 10, 2005, which provided an opportunity to share APEC’s trade facilitation expertise with non-APEC economies and helped spur the WTO negotiations. Moreover, In Mid-term Stocktake of Progress Towards the Bogor Goals, a report issued in November 2005, APEC places high priority on behind-the-border issues. Japan makes a significant contribution in the field of structural reform based on the recognition that it is important for the sustainable economic growth in the Asia-Pacific region. Japan proposed Leaders’ Agenda to Implement Structural Reform(LAISR) and LAISR towards 2010, in accordance with which APEC is supposed to promote structural reform. In 2007, Japan plans to hold a seminar on competition policy, which is specified as one of the five areas APEC will focus on in LAISR.

(2)            Asia-Europe Meeting (ASEM)

42.               Japan believes that the enhanced economic dialogue and cooperation between Asia and Europe through ASEM will promote better mutual understandings between the two regions on various economic issues, which could lead to increased trade and investment between Asia and Europe, as well as to better coordinate world economic issues of mutual concern such as WTO, RTA/FTA, IPR etc, thereby contributing to the development of global economy.

43.               Japan attaches great importance to ASEM Trade Facilitation Action Plan (TFAP).

44.               Japan has been an Asian Facilitator of TFAP customs procedure working group. It also has a strong interest in the fields of standard and conformity assessment, customs procedures, e-commerce and intellectual property rights enforcement, and made various contributions at the TFAP meetings in these areas.

45.               Japan hosted the Seventh ASEM Foreign Ministers’ Meeting (FMM7) in May 2005. At the meeting, the importance of a successful conclusion of the WTO Doha Development Agenda was emphasized. Japan also hosted the ASEM Seminar on Energy in January 2006 and ASEM Workshop on Community level Actions for Global Environmental Agenda in February and March 2006.

(3)            ASEAN+3

46.               The Final Report of the East Asian Study Group, endorsed by the Leaders at the 6th ASEAN Plus Three Summit on 4 November 2002 with a view to promoting and developing regional cooperation in East Asia, contains 17 short-term measures and 9 mid- and long-term measures, several of which recommend more liberalization of trade and investment in East Asia.  Japan has been actively implementing some of these measures, which include the improvement of duty-free and quota-free treatment to LDCs and establishment of attractive investment environment under bilateral investment or economic partnership agreements.  Please refer to the respective related sections for details.

(4)        East Asia Summit

47.               The inaugural EAS was held on 14 December 2005, where the Leaders of 16 East Asian countries discussed basic principles of regional cooperation and raised a number of areas for cooperation to be prioritized at this juncture for sustainable growth in the region.  Japan will continue to make contribution towards the consolidation of this newborn framework and its development into an open, transparent and inclusive forum for regional initiatives towards further growth.

(5)        Japan, China, Korea

48.               The heads of the government of Japan, the People’s Republic of China and the Republic of Korea reached an agreement to launch a joint research on economic cooperation among three countries at the ASEAN+3 Summit held in Manila, the Philippines in November 1999. Based on this agreement, the institutes representing the three countries, the National Institute for Research Advancement (NIRA) for Japan, the Development Research Centre of the State Council (DRC) for China and the Korean Institute for International Economic Policy (KIEP) for Korea, have undertaken the Trilateral Joint Research Project since 2001 to provide policy recommendations to the three governments.

49.               Up to present, the three institutes have jointly formulated five sets of policy recommendations concerning the promotion of trade and direct investment in the region. From 2001 to 2004, the recommendations were submitted to the heads of the governments of three countries at trilateral summit meetings held during ASEAN+3 summit meetings. In 2005, the policy recommendation was submitted to the heads of the governments through the institutes of each country.

50.               The heads of the three countries issued the "Joint Declaration on the Promotion of Tripartite Cooperation among Japan, the People’s Republic of China and the Republic of Korea" in October 2003 and approved the "Action Strategy on Trilateral Cooperation among Japan, the People’s Republic of China and the Republic of Korea" in November 2004.

6.    Japan’s Bilateral Activities

(1)       FTA/EPAs

51.               Maintaining and strengthening the multilateral trading system under the WTO has been the main pillar of Japan’s external economic policy. At the same time, Japan has recently come to place more emphasis than before on its regional and bilateral trade policies, and particularly on economic partnership agreements including elements of free trade agreements and institution-building, as a means of complementing the multilateral trading system.

(i)    Singapore

52.               The Japan-Singapore Agreement for a New Age Economic Partnership (JSEPA), which entered into force on November 30, 2002, aims at, not only further liberalizing and stimulating bilateral trade and investment, but also further strengthening bilateral economic ties between Japan and Singapore in the variety of fields. Since the JSEPA came into effect in 2002, the trade amount between Japan and Singapore has increased substantially. The total amount increased by 5.7% from 2004 to 2005. Especially beer from Japan to Singapore and petroleum from Singapore to Japan showed substantial increase.

53.               In April 2006, Japan and Singapore held the 2nd JSEPA Supervisory Committee and agreed to start negotiation for possible partial amendment of the agreement on the issues such as trade in goods (market access and rules of origin), financial services, and customs procedures.

(ii)   Mexico

54.               The Agreement Between Japan and The United Mexican States for the Strengthening of the Economic Partnership which entered into force on April 1, 2005, aims to strengthen the economic relations between Japan and Mexico, through liberalizing and facilitating trade in goods and services, increasing investment opportunities and strengthening protection for investments and investment activities, and establishing a framework for further bilateral cooperation and improvement of business environment.

55.               After the Agreement came into effect, the amount of trade has increased by 38.4% and investments of Japanese companies for Mexico have also increased. In addition, the Joint Committee and sub-committees for effective implementation and operation of the Agreement and the Committee for the improvement of the Business Environment have been held several times successfully.

(iii)  Malaysia

56.               The Agreement between the Government of Japan and the Government of Malaysia for an Economic Partnership was signed by the Prime Minister Koizumi of Japan and the Prime Minister Abdullah of Malaysia on 13 December 2005. The Agreement entered into force on July 13, 2006 after the completion of the necessary legal procedures of the respective countries. 

57.               The first meeting of the Joint Committee, held on the same day, made decisions necessary for the implementation of this Agreement, including the adoption of the Operational Procedures referred to in Chapter 3 (Rules of Origin) and the decision on the Implementation of Tariff Rate Quota.

58.               The Agreement will contribute toward enhancing the cross-border flow of goods, persons, investment and services between Japan and Malaysia, as well as bilateral cooperation in fields of mutual interest.

(iv)  The Philippines

59.               At the Japan-Philippines Summit Meeting in December 2003, held in Tokyo, the Leaders decided that they would begin the negotiations for the conclusion of the Japan-Philippines Economic Partnership Agreement in early 2004 aiming to conclude it within a reasonable period of time. In September 2006, the Leaders of Japan and the Philippines signed JPEPA.

(v)   Thailand

60.               At the Japan-Thailand Summit Meeting in September 2005, the Leaders confirmed that agreement in principle had been reached on major elements of the Japan-Thailand Economic Partnership Agreement (JTEPA).

61.               The two sides have already completed the drafting of the text of the JTEPA.

(vi)  Indonesia

62.               At the Japan-Indonesia Summit Meeting in June 2005, held in Tokyo, the Leaders decided that they would begin the negotiations for the conclusions of the Japan-Indonesia Economic Partnership Agreement in July 2005, aiming to conclude it within a reasonable period of time. The sixth round of the negotiations was held in October 2006, in Tokyo.

(vii) Brunei

63.               At the Japan-Brunei Summit Meeting in December 2005, held in Kuala Lumpur, the leaders decided that they would begin scoping consultations towards the launch of negotiations for bilateral Economic Partnership Agreement (EPA). After two rounds of consultations (February and April 2006), Foreign Ministers of both countries decided that they would formally start the EPA negotiations at their meeting in Doha in May 2006. The first round of negotiations was held in June 2006, in Tokyo, the second round was held in August 2006, in Brunei Darussalam and the third round was held in October and November 2006 in Tokyo.

(viii)       ASEAN

64.               Following the agreement set by the Leaders at the Japan-ASEAN Summit Meeting held in November 2004, Japan and ASEAN commenced the negotiation on the Japan-ASEAN Comprehensive Economic Partnership Agreement (AJCEP) in April 2005. Since then, as of November 15, 2006, Japan and ASEAN have had five rounds of negotiation ,and  Japan and ASEAN decided to adopt on the basic principles of "common list, common schedule of concessions and common rules of origin."

65.               The main objectives of the AJCEP Agreement are to strengthen economic integration between Japan and ASEAN and to enhance the competitiveness of Japan and ASEAN in the world market through strengthened partnership and linkages. Therefore the AJCEP agreement focuses not only the liberalization of trade in goods but also encompasses other areas such as investment, services, facilitation and cooperation.

66.               The AJCEP Agreement will be legally consistent with and mutually complementary to bilateral EPAs between Japan and ASEAN countries.

(ix)  The Republic of Korea

67.               At the Japan-ROK Summit Meeting held in Bangkok in October, 2003, the leaders decided to begin negotiations in 2003 for concluding a comprehensive FTA.

(x)   Chile

68.               At the Japan-Chile Summit Meeting in November 2005, the Leaders of both countries decided to begin the negotiations for the conclusion of Japan – Chile Economic Partnership Agreement. The first round of the negotiation was held in February 2006, in Tokyo.  In September 2006, the Leaders of Japan and Chile confirmed that the agreement in principle had been reached on major elements of the Japan-Chile Economic Partnership Agreement.

(xi)  GCC

69.               Japan and the GCC states decided early this year to launch negotiations on an FTA covering trade in goods and services. After holding a preliminary meeting held in May 2006 in Riyadh, the first round of the negotiations was held in September 2006 in Tokyo.

(2)   Japan’s Bilateral Activities besides FTAs

70.               Besides negotiations on FTAs, Japan is involved in economic initiatives with several countries. Through such bilateral frameworks, Japan aims to deepen the understanding of each others trade and economic policies, to prepare a channel which will help to remedy trade problems beforehand, to stimulate deregulation and liberalization both ways, and to create the political momentum to liberalize trade which will help in complementing and reinforcing the multilateral trading system.

(i)    Relations with the United States

71.               Under the "Japan-U.S. Economic Partnership for Growth" (hereinafter "Partnership"), established by Prime Minister Koizumi and President Bush in June 2001, Japan and the United States have been engaging in comprehensive and constructive dialogues. The Partnership comprises of six fora: Subcabinet Economic Dialogue; Private Sector/Government Commission; Regulatory Reform and Competition Policy Initiative (hereinafter "Reform Initiative"); Financial Dialogue; Investment Initiative; and Trade Forum. Under these frameworks, a number of meetings have been convened to address a wide variety of issues that contribute to promoting sustainable growth of not only the two countries but also the entire world economy.

72.               Under the Reform Initiative, in particular, the Governments of Japan and the United States have compiled and publicized five extensive reports to the two leaders, the latest of which was submitted to the leaders on 29 June, 2006. The Reform Initiative covers telecommunications, information technology, medical devices and pharmaceuticals, financial services, energy, competition policy, transparency and other government practices, legal system reform, commercial law revision, distribution, consular affairs, and trade and investment-related measures. The Investment Initiative covers investment promotion, restriction measures and investment related measures such as education, medical services, labour system, visas, cargo security etc. These reports are the most tangible results of Japan-U.S. bilateral economic consultations, which include a number of measures taken by the two governments that facilitate two-way trade and investment.

73.               During the 2004-2005 period, Japan and the United States concluded two epoch-making bilateral agreements that further promote two-way investment by reducing costs incurred.

74.               One is the revised Japan-U.S. Tax Convention (new Tax Treaty), which mainly exempts from taxation (a) dividends paid by U.S./Japanese subsidiaries in which the Japanese/U.S. parent firm has a stake of more than 50 percent, (b) interest paid to financial institutions, and (c) royalties, for all of which 10 percent tax was/is imposed. The new Tax Treaty was being applied to withhold tax from the 1 July 2004, and the other taxes from the 1 January 2005.

75.               The second is Agreement between Japan and the United States of America on Social Security Agreement signed on 19 February 2004, which covers the prevention of the double payment of pensions and health insurance premiums as well as adding up the periods for which a person has paid social security contributions in both countries in order for the person to be entitled to pensions in one or both countries.  The Agreement passed the Diet on 3 June 2004, and came into effect on 1 October 2005.

76.               On 29 June 2006, Prime Minister Koizumi and President Bush together heralded a new Japan-U.S. Alliance of Global Cooperation for the 21^st Century. The two leaders agreed to explore ways to further deepen the mutually-beneficial bilateral economic relationship as well as to enhance cooperation on regional and global economic issues. Such an expanded partnership would include: promoting growth and economic reform; promoting and maintaining open markets; ensuring efficient movement of legitimate goods, services, people, and investments, while tackling threats from terrorism; strengthening intellectual property rights protection and enforcement; enhancing global energy security; and fostering transparent and favourable business climates in both countries.  

(ii)   Europe

77.               With regard to the economic relations between Japan and the EU, the 14th and 15th Japan-EU Summit Meetings were held respectively on 2 May 2005 and on 24 April 2006. At these Summit Meetings, Japan and the EU recognized the importance of continuing cooperation on investment, regulatory reform, better enforcement of intellectual property rights in Asia, etc. At the 15th Summit Meeting, Japan and the EU welcomed the agreement in substance on the Japan-EC Customs Cooperation Agreement which will facilitate mutual assistance in customs matters and trade. On various occasions including the annual Japan-EU Regulatory Reform Dialogues, with a view to improving business environment and promoting bilateral trade and investment, both sides conducted consultations on wide-ranging economic issues. The 41st Japan-EU High-level Consultations were held on 18 January 2006, to exchange views on the progress of cooperation and dialogue in wide-ranging economic areas. Furthermore, based on the "Japan-EU Joint Initiative for the Enforcement of Intellectual Property Rights in Asia" (2004), Japan, the EU and China co-held a seminar on intellectual property rights in Beijing in October 2004. Japan and the EU have also been holding regular meetings of Japan-EU Dialogue on Intellectual Property since 2004 (most recently in February 2006).

78.               There has also been some development on the bilateral economic front with individual European countries. Firstly, the Government of Japan signed Agreement between Japan and the Kingdom of Belgium on Social Security and Agreement between the government of Japan and the government of French Republic on Social Security respectively on 23 and 25 February 2005 to resolve the double payment of social security contributions and totalize the periods of coverage completed in both countries to establish entitlement to pension benefits. Secondly, the Government of Japan has entered into negotiations to conclude an agreement on social security   with the Netherlands since October 2005.  The new Japan-UK tax treaty entered into force on 12 October 2006. Furthermore, the Government of Japan and the Government of French republic reached an  agreement in principal on the protocol for amending the existing tax treaty and it is announced on July 2006. Besides, the Government of Japan held bilateral economic and trade consultations with Finland in February 2005 and with Switzerland in July 2005, aiming at discussing the economic situations in the respective countries and bilateral economic relations.

(iii)  China

79.               At the summit meeting held between Japanese Prime Minister Koizumi and Chinese Premier Zhu Rongji on the occasion of the Boao Forum for Asia in April 2002, the two leaders agreed to establish the Japan-China Economic Partnership Consultation for the purpose of identifying possible economic disputes at an early stage and preventing disputes between the two countries, as well as further strengthening mutually complementary bilateral economic relations.

80.               The Japan-China Economic Partnership Consultation has been held until now as follows.

High level (Deputy Minister) Meetings

       15 October 2002, 31 October 2003, 21 December 2004, 2 December 2005

Official level (Deputy Director General) Meetings

       11 March 2004, 28 June 2004,  20 December 2004, 1 December 2005,  13 July 2006

81.               In these Consultations, Japan and China actively exchanged opinions regarding concerns such as the issues of intellectual property rights (including damages resulting from counterfeit goods), China’s commitments under the WTO rules in the field of different services (telecommunication, construction, financial service, legal service, etc), trade-related issues, agriculture and quarantine. Japan-China co-operation in the international economy was also discussed in the meetings.

82.               In recent Consultations, Japan and China confirmed the importance and the effectiveness of the Partnership Consultation for the development of economic relations between Japan and China and they agreed on the continuation of the Consultation in a constructive manner.

(iv)  Australia

83.               Japan and Australia enjoy one of the most successful economic partnerships in the Asia-Pacific region. A complementary trade relationship exists between the two countries, in which Japan exports industrial products and imports primary products such as mineral resources and agricultural products.

84.               Recognizing the economic relationship, the two governments conducted under the Australia-Japan Trade and Economic Framework concluded in July 2003 a joint study which examined the costs and benefits of the liberalisation of trade in goods and services and investment.  The joint study finished in March 2005.

85.               In order to further develop and deepen the bilateral economic partnership between Australia and Japan, both counries started another joint study which is intended to study various policy options to enchance the economic relationship, including the feasibility or pros and cons of a bilateral FTA, as decided by Prime Minister Koizumi and Prime Minister Howard in April 2005.

86.               Japan has reached agreement with Australia in principle in the negotiation on a security agreement in July 2006 and has been working towards concluding the agreement.

(v)   Africa

87.               Japan has long been committed to promoting trade and investment in Africa through the Tokyo International Conference on African Development (TICAD) process. Since the TICAD Asia-Africa Trade and Investment Conference (AATIC) in 2004, "Team All Japan", comprised of Ministry of Foreign Affairs, Ministry of Finance, Ministry of Economy, Trade and Industry and other public institutions, has implemented various measures as a follow-up to the AATIC under the concept of "poverty reduction through economic growth."

88.               In this context it is also noteworthy that Japan is implementing a wide range of cooperation for Africa under the "Development Initiative for Trade", announced by Prime Minister Koizumi on the occasion of the WTO Hong Kong Ministerial Conference in December 2005, including support for the "One Village One Product (OVOP)" movement (see para. 94).

(vi)       MERCOSUR

89.               In order to strengthen the Japan-MERCOSUR economic relationship and also to ensure its future development, the 6th Japan-MERCOSUR Senior Official Meeting was held in Japan in June 2004 and the 7th in Argentina in April 2006. During these meetings, various views were exchanged on trade and investment promotion, and economic and technical cooperation.

7.    Japan’s Trade Related Assistance Schemes - TRTA -

90.               In order for the developing countries including the LDCs to reap further the benefits of the multilateral trading system, the trade liberalization alone is not enough. Supply side assistance is definitely indispensable. For many years, Japan has been making an important contribution in this area, providing technical and financial assistance in the production sector and the economic infrastructure & service sector.[1]

(1)       Development Initiative for Trade

91.               As a response to the much discussed issue of the "Aid for Trade", Japan launched the "Development Initiative for Trade," prior to the WTO Ministerial Conference in Hong Kong December 2005. This initiative, based on the Japan’s experience and knowledge in this field, intends to provide an effective assistance in a comprehensive manner, combining all the necessary and available measures. 

92.               In this Initiative, Japan divides trade into three different stages: "Produce", "Sell" and "Buy". When we think about trade, first it is necessary to "Produce" goods.  Next, the goods need to be delivered to ports and markets. This is the "Sell" stage.  Finally, the goods will be purchased by consumers in other countries. This is the "Buy" stage.  In order to facilitate every one of these three stages, Japan provides assistance through every available measures, namely "knowledge and technology", "people", "financial assistance" and "system", so that the chain of commerce can function well in developing countries.

93.               Japan is implementing this initiative, regardless of the progress of the round negotiation. We have instructed our overseas offices in developing countries to search and identify promising products and suitable projects to be developed under this initiative, and we are receiving good responses from many countries. We have also initiated internal procedures to implement duty-free and quota free treatment for LDCs (see page 10).

(2)       Assistance to the One Village One Product Movement

94.               The One Village One Product (OVOP) is one of the typical approaches under the Initiative. The OVOP is a movement which intends to promote local economy through the development, improvement and promotion of local products with participation of the local people. This movement was first initiated in a southern prefecture in Japan in the late 70’s and spread to the other prefectures later on. It has been introduced and has contributed to the development of local economy in other Asian countries. Now the government of Japan is supporting these movements not only in Asia but also other regions including Africa, through the different measures such as technical cooperation including dispatch of experts and training programs for the improvement of product quality, productivity and packaging, as well as exhibits, trade fairs and OVOP markets in the major airports in Japan.

8.    Japan’s Domestic Policies

(1)   Koizumi Reforms – No Gains Without Reforms -

95.               The Government of Japan has carried out structural reforms in various fields, such as regulation, financial system, tax system, government expenditures, under the principles of "No growth without reforms," "From public sector to private sector," and "From the state to the regions".

96.               Through these actions toward structural reform, the non-performing loan problem among major banks had been normalized by the end of FY2004, and three excesses(employment, capital stock and debt) in the corporate sector had been eliminated, and supply and demand had returned in equilibrium by the late FY2005. Regarding the public finance aggregate, the deficit in the primary balance of the central and local governments combined deteriorated to the level a little less than 6% of GDP in FY2002, but it has decreased by half and is expected to fall below 3% in FY2006.

97.               Based on these accomplishments, the "Basic Policies for Economic and Fiscal Management and Structural Reform 2006" (Cabinet Decision July 7, 2006), decided to address three priority issues, i.e., "Enhancing the growth potential and international competitiveness", "Advancing fiscal consolidation", "Achieving a safe, secure, flexible and accommodating society," in order to pass on an affluent and secure Japan to the future generation . The Government of Japan will make further actions to promote structural reform in line with the "Basic policy 2006".

(2)       Regulatory Reform

98.               To enhance regulatory reform further, the Council for the Promotion of Regulatory Reform (CPRR), which was established in April 2004 as a formation with an initiative by private-sector, took requests and opinions from the public into consideration and issued the reports to Prime Minister from 2004 to 2006 under the close relationship with the Headquarters for the Promotion of Regulatory Reform (Head of Headquarters: Prime Minister). The Government of Japan (GOJ) respected for the report, revised the "Three-year Plan for the Promotion of Regulatory Reform" at respective year-end, and exercised relevant reforms based on the plan.

99.               In FY2005, CPRR made public the "Second Report on the Promotion of Regulatory Reform and the Opening Up of Government-driven Markets for Entry into the Private Sector’’ in December 21, 2005, which included immediate, full-scale introduction of market testing, establishing regulatory review criteria such as Regulatory Impact Analysis (RIA) and so on. Subsequently, the "Three-year Plan for the Promotion of Regulatory Reform (Further Revised Version)" was decided by the Cabinet on March 31, 2006 to reflect the requests and opinions from the public (including from abroad) as well as the results of the Second Report.

100.            In July 31, 2006, CPRR compiled "Interim Report on issues intensively to be considered for the Promotion of Regulatory Reform and the Opening Up of Government-driven Markets for Entry into the Private Sector".  The report recommended the promotion of regulatory reform in the six areas of broadcasting & communication, education, childcare service, immigration control, financial services, regulatory review criteria. In December, 2006, the final report including various things other than the six areas is going to be issued.

101.            Since FY2006 is statutorily the final year for CPRR, sunset clause based organization, GOJ will consider a succeeding promotion system for overall regulatory reform and compile a definitive plan by the end of the financial year.

(3)   FDI into Japan

102.            Japan’s ratio of inward Foreign Direct Investment (FDI) stock to nominal GDP is at a lower level than those of US and European countries. According to IMF statistics, the ratio in 2004 was only 2.0% in Japan, while it was 13.0% in the US, 33.0% in the UK, and 22.4% in Germany.

103.            In the General Policy Speech of January 2003, Prime Minister Junichiro Koizumi outlined the Government of Japan’s plan to increase inward FDI. In March 2003, the Japan Investment Council (JIC), which is chaired by the Prime Minister, announced "the Program for the Promotion of Foreign Direct Investment into Japan".  The effective implementation of the Program has resulted in a solid increase in FDI to Japan; the inwards FDI stock rose to JPY 11.9 trillion at the end of 2005, 1.8 times the 2001 level.

104.            Drawing on this positive trend, Prime Minister Koizumi emphasized in his General Policy Speech of January 2006 that the current plan to double the amount of foreign investment to Japan by 2006 is being steadily advanced, and also announced that "The Government intends to promote further investment with even grander targets."

105.            Following up on the above statement, in March 2006, the Japan Investment Council (JIC), reaffirmed the importance of inwards FDI and set a new goal to double the ratio of inwards FDI stock to GDP by 2010, namely to raise it to a level of around 5%. To achieve this new target, in June 2006, the JIC launched a new program called the "Program for the Acceleration of Foreign Direct Investment in Japan" which focuses on 3 key issues: (1) Regional centers for economic growth and improved quality of life; (2) Improvement of an investment environment capable of overcoming global competition; (3) Domestic and international public information activities.

(4)       Intellectual Property Right (IPR)

106.            On 4 February 2002, Prime Minister Koizumi expressed his determination to establish IP strategy in his general policy speech at the Diet. Based on this initiative, the Strategic Council on Intellectual Property was inaugurated in March 2002. In July 2002, it adopted the Intellectual Property Policy Outline in which the basic principles and policies were articulated including a recommendation for a new legislation focused on IP.

107.            The Basic Law on Intellectual Property, based on the Intellectual Property Policy Outline, was enacted in November 2002. Under this law, the Intellectual Property Strategy Headquarters was established in the Cabinet in March 2003. The Headquarters decided on the strategic Program for the Creation, Protection and Exploitation of Intellectual Property in July 2003, which consists of about 270 items of measures to be implemented by ministries and agencies concerned under the idea of promptly creating an internationally viable system.

108.            In 2004, 2005 and 2006, the Headquarters established the "Intellectual Property Strategic Program" which added new measures and challenges to the previous program. These Programs include such as Amendment of the Customs Tariff Law to strengthen measures against Counterfeits and Pirated Copies, Amendment of the Unfair Competition Prevention Law to protect Trade Secret criminally, the Law for Establishment of Intellectual Property High Court to handle IP-related cases specially and Amendment of the Patent Law for the Promotion of Expeditious Patent Examination.

(5)   Financial Reform

109.            In the insurance sector, Japan has implemented regulatory reform measures to promote sound competition and to create new business opportunities through the broadening of sales channels. These measures include the removal of the ban on securities intermediary services by insurance companies, and the broadening of the scope of insurance products that banks are allowed to sell.

110.            In the banking sector, Japan had set a target in the Program for Financial Revival (October 2002) for the major banks to reduce their non-performing loan (NPL) ratio, which had reached a peak of 8.4% of total credit in March 2002, by about half by March 2005. The ratio fell to 1.8% in March 2006. Moreover, in accordance with the Program for Further Financial Reform (December 2004), Japan promotes competition in the financial system, as well as encourages improvements in risk management and core profitability at banks.

111.            In the securities sector, Japan continues to promote structural reform of the capital markets. The Financial Instruments and Exchange Law, passed in the Diet in June 2006, enhances investor protection, financial innovation, and market function to improve reliance on the market system, and responds to globalization of financial and capital markets. The legislation provides measures to establish cross-sectoral framework for a wide range of financial instruments and services, improve disclosure of listed companies, increases penalties against various market frauds, and strengthens the independence of self-regulatory functions of financial instruments exchanges.

(6)       Agricultural Reform

112.            To advance the structural reform in the agricultural sector in response to changes in the situation surrounding food, agriculture and rural areas in Japan, a new Basic Plan for Food, Agriculture and Rural Areas was decided by the Cabinet in March 2005. The new Basic Plan identifies key issues as a policy guideline to implement specific measures over the coming decade, notably: 1) To raise the self-sufficiency rate; 2) To ensure food safety and security, and to gain consumer confidence; 3) To concentrate government’s support on principal farmers; i.e., to introduce the farm management stabilization programs targeted on principal farmers and focused on their overall farm management, and to promote the consolidation of farmland use to principal farmers; 4) To develop policies from a more "aggressive" viewpoint such as to promote exports of high-quality Japanese agricultural products. The Ministry of Agriculture, Forestry and Fisheries (MAFF) clarifies the process towards achievement of the Basic Plan and reviews its progress regularly.

113.            In April 2006, the Headquarters on the Promotion of Policies for Food, Agriculture and Rural Areas headed by the Prime Minister Junichiro Koizumi adopted a goal-oriented policy package with a view to materializing the Basic Plan in a timely manner. Corresponding to the direction articulated in the Basic Plan, the package lists concrete actions and measures that should be implemented by priority and intensively, with clear goals, mostly numerical. Not only MAFF but also the Government of Japan as a whole strongly promotes following initiatives so that it ensures sustainable development of agriculture and a stable supply of food:

1)         International strategies: to actively participate in WTO agricultural negotiations in order to establish balanced trade rules, as well as in EPA negotiations with east Asian and other countries; to cultivate foreign markets for high-quality Japanese agricultural food and products; to better protect and utilize intellectual property etc.

2)         Domestic strategies to invigorate Japanese agriculture: to accelerate policies focused on principal farmers; to encourage new entry including companies in this sector; to reduce costs in the entire food system etc.

            3)         As the common backbone to enhance the effect of the above-mentioned strategies: to promote education on food; to make more use of new technologies, IPRs and biomass resources for new possibilities of agriculture etc.

(7)       Competition Policy

114.            Amendment of the Antimonopoly Act (AMA) passed the Diet on 20 April 2005 and went into effect on 4 January, 2006. The amended AMA includes revision of the system such as increase in the rate of surcharge, introduction of a leniency program, introduction of compulsory measures for criminal investigations and revision of hearing procedures. With the amendment of the AMA, the relevant Cabinet Orders and Fair Trade Commission Rules were developed.

115.            The JFTC has been taking rigorous legal actions against violations of the AMA. The number of legal cases regarding such violations was 36 in 2004 and 20 in 2005. Details of these cases can be found below.

116.            The amount of the surcharge payment orders issued by the JFTC has been estimated at a total amount of around ¥10,490.45 million in 2005 and ¥7,751.34 million in 2004. Of that amount, some cases, totalling ¥495.06 million in 2005 and ¥4,310.65 million in 2004, were nullified due to the initiation of hearing procedures.

117.            The JFTC has adopted an active policy on filing criminal accusation to seek criminal penalties against violation of the AMA. In 2005, the JFTC filed accusations in two cases.

118.            In order to reinforce the JFTC’s role as a guardian of the market, the number of personnel in the JFTC has increased to 706 in 2005, being assigned mainly to the investigation section.

119.            With regard to international cooperation activities, the Government of Japan and the Government of Canada signed the "Agreement between the Government of Japan and the Government of Canada Concerning Cooperation on Anticompetitive Activities" on 6 September 2005 and the agreement came into effect on 6 October 2005. It prescribes notification, cooperation, coordination, request for enforcement activities and consideration of important interests of the other party as the contents of cooperation on enforcement activities between the competition authorities.

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