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World Trade Organization |
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WT/TPR/S/175 19 December 2006 | |
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(06-5952) |
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Trade Policy Review Body |
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TRADE POLICY REVIEW Report by the Secretariat JAPAN |
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This report, prepared for the eighth 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/175 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.
CONTENTS
Page
SUMMARY OBSERVATIONS 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 ix
(5) Outlook x
I. Economic environment 1
(1) Main Economic Developments 1
(2) Macroeconomic Policies 4
(i) Monetary and exchange rate policy 4
(ii) Fiscal policy 5
(3) Structural Policies 6
(i) Tax reform 6
(ii) Financial system and corporate reform 7
(iii) Pension reform 9
(iv) Regulatory reform 9
(4) Developments in Trade and Foreign Direct Investment 10
(i) Composition of merchandise trade 10
(ii) Direction of merchandise trade 10
(iii) Composition of trade in services 13
(iv) Foreign direct investment (FDI) 13
(5) Prospects 13
II. trade policy regime: framework and objectives 14
(1) Introduction 14
(2) Trade Policy Objectives 14
(3) Trade Policy Formulation and Evaluation 15
(i) Trade policy formulation and implementation 15
(ii) Trade policy evaluation 17
(4) Trade Agreements and Arrangements 19
(i) WTO 19
(ii) Regional agreements 19
(iii) Other agreements and arrangements 21
(iv) Preferential treatment 25
(5) Foreign Investment Regime 26
(i) Regulatory regime 27
(ii) Investment promotion measures 27
III. trade policies and practices by measure 30
(1) Introduction 30
(2) Measures Directly Affecting Imports 31
(i) Customs clearance procedures 31
(ii) Tariffs 32
Page
(iii) Non-tariff border measures 38
(iv) Contingency measures 39
(v) Government procurement 39
(vi) State trading 42
(vii) Standards, and sanitary and phytosanitary measures 42
(viii) Import promotion measures 46
(ix) Foreign access zones (FAZs) 46
(3) Measures Directly Affecting Exports 47
(i) Procedures 47
(ii) Export taxes, charges, and levies 47
(iii) Export prohibitions, restrictions, and licensing 47
(iv) Export promotion schemes 48
(4) Measures Affecting Production and Trade 48
(i) Taxation and tax-related assistance 48
(ii) Subsidies and other financial assistance 50
(iii) State-owned enterprises, corporatization, and privatization 50
(iv) Trade-related intellectual property rights 50
(v) Regulatory reform 53
(vi) Competition policy 54
(vii) Corporate governance 60
IV. trade policies by sector 62
(1) Introduction 62
(2) Agriculture 62
(i) Overview 62
(ii) Policy developments 63
(3) Manufacturing 69
(4) Energy and Utilities 70
(5) Services 71
(i) Overview 71
(ii) Financial services 71
(iii) Telecommunications 77
(iv) Transport 79
(v) Professional services 82
(vi) Other services 82
REFERENCES 85
APPENDIX TABLES 87
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CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Product composition of merchandise trade, 2003 and 2005 11
I.2 Direction of merchandise trade, 2003 and 2005 12
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Policy evaluation system in Japan, 2006 18
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Share of non-ad valorem duties, by HS section, FY 2006 35
III.2 Simple average applied MFN tariff rates, by HS section, FY 2004 and 2006 36
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Selected macroeconomic indicators, 2001-06 2
I.2 Shares of GDP and employment by sector, 2001-04 3
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Japan's major trade-related laws and regulations, 2006 16
II.2 GSP shares for the ten largest beneficiaries, FY 2004 26
II.3 Measures to promote foreign direct investment into Japan, FY 2006 28
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Structure of MFN tariff, FY 2003-06 33
III.2 Preferential tariff rates, FY 2006 37
III.3 Procurement by product and by origin, 2002 and 2004 41
III.4 Major standards and technical regulations in Japan, 2005 42
III.5 National government tax revenue, FY 2006 48
III.6 Legislation on intellectual property rights, 2006 51
III.7 Suspension of imports likely to infringe intellectual property rights, 2003-05 53
III.8 Exemptions from the Anti-monopoly Act, 2006 56
III.9 Enforcement of competition policy, 2003-06 58
IV. TRADE POLICIES BY SECTOR
IV.1 Applied MFN tariff protection in agriculture, FY 2006 64
IV.2 Special safeguards in agriculture, FY 2004 to 2006 67
IV.3 Procurement prices for all major crops subject to pricing and/or marketing
arrangements/price controls, 2000-05 68
IV.4 Financial institutions in Japan 73
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APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Merchandise exports by group of products, 2001-05 89
AI.2 Merchandise imports by group of products, 2001-05 90
AI.3 Merchandise exports by destination, 2001-05 91
AI.4 Merchandise imports by origin, 2001-05 92
AI.5 Composition of trade in services, 2001-05 93
AI.6 Inward and outward FDI flows by region, FY 2002-05 94
AI.7 Inward and outward FDI flows by industry, FY 2005 96
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
AII.1 Status of selected notifications to the WTO, August 2006 97
AII.2 Disputes to which Japan has been a party, 2005 to August 2006 99
AII.3 Industries requiring prior notification for inward FDI, 2006 101
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Applied tariff escalation and tariff ranges, FY 2004 and FY 2006 103
IV. TRADE POLICIES BY SECTOR
AIV.1 Tariff quota quantity and in-quota imports, FY 2002-04 105
(1) Economic Environment
1. Japan’s economic situation has improved since its previous Trade Policy Review; Japan appears to be extricating itself from deflation. The economy grew by 2.7% in real terms in 2005, and continued to achieve similar rates of growth in the first three quarters of 2006. Both domestic demand, notably private consumption and private non-residential investment, and external demand contributed to this growth. Downward pressure on prices appears to be easing, as year-on-year changes in the consumer price index have turned positive. Growth has helped Japan to move toward solving its structural problems, including non-performing loans.
2. The Bank of Japan ended its "quantitative easing monetary policy" in March 2006, and decided in July 2006 to set the target of around 0.25% for the short-term call rate, compared with the previous target of "effectively zero per cent" since March 2001. Such low interest rates have apparently contributed to “carry trade”, which involves borrowing in yen to invest in higher-yielding assets abroad; the resulting large outflow of yen has contributed to a substantial nominal depreciation of the Japanese currency.
3. Japan's fiscal deficit and public debt are expected to have been in the order of 6% and 172% of GDP, respectively, in 2005. The Government aims to achieve a surplus in the combined primary balance of the central and local governments by FY 2011 (April-March) (compared with a deficit of 2.4% in 2006) and ensure gradual reduction of the ratio of public debt to GDP between the early and mid 2010s.
4. Trade plays an important role in the economy. Although the shares of exports and imports in GDP were around 13% and 11%, respectively, external demand has contributed positively during the past few years, due in part to the openness of the multilateral trading system. Japan's current account surplus has decreased, reflecting a narrowing of the gap between gross national saving and gross domestic investment. The trade surplus and the services account deficit have both declined; the capital and financial account balance turned to a deficit in 2005 (from a surplus in 2004), mainly reflecting a deficit in the financial account.
5. Sustained recovery would appear to hinge on continued structural reform, which the Government continues to emphasize. Progress has been made in particular in the financial and corporate sectors, notably in the disposal of non-performing loans, the decision to privatize Japan Post, deregulation in energy, financial services and legal services, as well as the strengthening of competition policy.
(2) Trade Policy Regime: Framework and Objectives
6. Japan's trade policy regime has remained largely unchanged since its previous Review; the overall aim continues to be to ensure long-term prosperity and growth by promoting business activities in Japan and at the international level. In this regard, Japan has placed strong emphasis on supporting the multilateral trading system, and has been participating actively in the Doha Development Agenda. Japan grants at least MFN treatment to all WTO Members.
7. Concurrently, Japan has been intensifying its pursuit of bilateral/regional trade agreements (RTAs) with some of its trading partners, including in areas like trade facilitation, investment, competition policy, and improvement of business environment. Japan considers that such arrangements complement the multilateral system, and are useful tools for market liberalization and structural reform. Japan has signed bilateral free-trade agreements with Singapore, Mexico, Malaysia, and the Philippines, and is currently negotiating several others. Japan also participates in the Asia-Pacific Economic Cooperation (APEC) forum, and various other regional trade fora, such as the Asia-Europe meeting (ASEM), ASEAN+ 3, and an East Asian summit.
8. During the period under review, Japan granted preferential treatment to products from certain developing countries and provided preferential treatment to additional products from least developed countries under its Generalized System of Preference (GSP) scheme. The main beneficiaries of Japan's GSP include China, Thailand, Malaysia, Indonesia, and the Philippines.
9. Inward FDI in Japan remains substantially lower than outward FDI, and is relatively low compared with that in other large economies. Against this background, Japan has continued to take measures to make itself an attractive investment destination for foreign firms.
(3) Trade Policies and Practices by Measure
10. Since its previous Trade Policy Review, in 2005, Japan has introduced various measures aimed at further liberalizing its trade and investment regimes. Progress has been made in improving the competitive environment, including in financial services. The authorities continue to promote regulatory reform and strengthen competition policy, which could, inter alia, help create more opportunities for domestic and foreign businesses.
11. The tariff is Japan's main trade policy instrument; most imports enter Japan duty free or are subject to low tariff rates. In the fiscal year (FY) 2006, the simple average applied MFN tariff was 6.5%, up from 6.3% in FY 2004, reflecting increases in ad valorem equivalents of non-ad valorem duties. Nearly 99% of tariff lines are bound and most applied rates coincide with bound rates, thereby imparting a high degree of predictability to Japan's tariff. At the same time, non-ad valorem duties are an important feature of the tariff, particularly in agriculture. Such duties, which account for 6.7% of all lines, are indicated clearly in Japan's tariff schedule; they tend to involve relatively high ad valorem equivalents (AVEs). The simple average of all specific rates for which AVEs were available was approximately ten fold the simple average of purely ad valorem tariff rates. Preferential tariff rates are in place under the GSP (including additional preferences for 50 least developed countries) and under bilateral/regional trade agreements. The simple average tariff rates under these preferential arrangements (GSP; LDCs; and RTAs with Singapore, Mexico, and Malaysia) are 5.3%, 3.3%, 4.4%, 4.2% and 3.7%, respectively.
12. Japan has few non-tariff border measures. Those currently applied involve some import prohibitions and quantitative import restrictions, for example, on some fish. Imports of certain goods are subject to licensing requirements in order to ensure national security, safeguard consumer health and well-being, or to preserve domestic plant and animal life and the environment. Japan abolished import quotas on textiles and clothing on 1 January 2005.
13. During the period under review, Japan undertook two anti-dumping measures. It introduced its first ever countervailing measure (against imports of dynamic random access memory chips) in January 2006. Japan has not imposed any safeguard measures since its previous Review.
14. Certain export controls are maintained on the grounds of national security and public safety, and to ensure adequate domestic supplies of certain agricultural and other primary products. Finance, insurance, guarantees, and duty drawback schemes are available for exports.
15. No preferences are granted to domestic suppliers with regard to procurement covered by the Agreement on Government Procurement. The share of foreign suppliers in the total value of government procurement was 3.7% in 2004, the latest year for which such data are available, (down from 4.2% in 2002). The share of procurement of overseas goods and services in total procurement, in terms of value, decreased from 13.8% in 2002 to 9.7% in 2004. The share of selective and single tendering rose to 1.7% and 44.1%, respectively, in 2004 (compared with 1.5% and 35.4% in 2002).
16. About 93% of Japan Industrial Standards (JIS) were aligned to their international counterparts by 2005 (92% in 2004).
17. Various laws on intellectual property rights have been amended since Japan’s previous Review with a view to strengthening protection. Efforts have been made to reduce the time required for patent registration. Japan has continued to participate in multinational and regional discussions on agreements to promote international harmonization of regimes protecting intellectual property rights (IPRs).
18. In March 2006, Japan adopted a revised Three-Year Programme for Promoting Regulatory Reform, which listed 1,349 measures aimed at contributing to creating new opportunities for domestic and foreign businesses. Japan has continued to implement regulatory reforms in selected regions under the scheme of special zones for structural reform; some of these measures have been applied nationwide.
19. The Anti-monopoly Act (AMA) is the main legislation on competition policy. The AMA was amended in 2005 to, inter alia: increase administrative surcharges and penalties; introduce a leniency programme; empower officials of the Japan Fair Trade Commission (JFTC) to conduct compulsory criminal investigations in accordance with the AMA; and expedite JFTC's hearing procedures.
20. There is growing awareness that ineffective corporate governance can contribute to the misallocation and perhaps excessive use of capital and labour in the corporate sector. This has prompted the Government to implement a number of policy measures, such as an amendment to the Commercial Code; the amended law entered into force on 1 May 2006.
(4) Trade Policies by Sector
21. Japan has continued to promote structural reforms since its previous Trade Policy Review, especially those pertaining to energy and services.
22. In agriculture, Japan is planning 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) increased from 17.7% in FY 2004 to 18.8% in FY 2006 reflecting increases in ad valorem equivalents of non-ad valorem duties, none of whose rates were increased. In 2004, Japan's total transfers to agriculture amounted to 1.3% of GDP, which was almost equal to agriculture’s share in GDP (1.4%); this overall level of government assistance for agriculture is well above the OECD average. Labour productivity in agriculture has remained substantially lower than the national average. Food self-sufficiency has been around 40% on a calories-basis since FY 1998; Japan is one of the world’s largest importers of food.
23. Japan’s trade policies related to manufacturing have been largely unchanged since its previous Review; however, Japan has placed more emphasis on the promotion of new industries and development of relatively backward regions of the country. Japanese manufacturing has, by and large, been much more exposed to international competition than agriculture and certain services. Tariffs on industrial products are usually low (averaging 3.6% in FY 2006), non-tariff barriers (e.g. import licensing requirements) are few, and the sector 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 increased slightly from 20.9% in 2003 to 21.0% in 2004 (the latest year for which data are available); the sector employed 16.9% of Japan's total labour force in 2005, down from 17.4% in 2004.
24. One of main objectives of Japan's energy policy has been a stable energy supply, reflecting the fact that about 82% of its primary energy was imported in 2004 (most recent data available). But electricity and gas prices in Japan are relatively high by international standards. Since its previous Review, Japan has further liberalized its electricity sector to promote competition.
25. Regulatory reform in services has continued. 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 sectors of the economy. Besides a substantial reduction of non-performing loans (NPLs) and restructuring of government-affiliated institutions, the Government has placed emphasis on improved transparency in the financial system. Laws on the privatization of Japan Post were adopted in October 2005. The Government's policy framework for telecommunications has remained largely unchanged since the previous Review. In transport, entry regulations in port services have been relaxed, and four public corporations in highway services were privatized in October 2005. In professional services, major reforms included enabling foreign lawyers qualified under Japanese law to employ a Japanese lawyer.
(5) Outlook
26. The Government's official projections, announced in January 2006, forecast that the economy would grow by 1.9% in FY 2006, with the CPI increasing by 0.5%, and unemployment at about 4.1%. The latest quarterly estimates of GDP indicate that in the third quarter of 2006, real GDP grew by 2.7% year on year, led mainly by domestic demand. Compared with 2005 and the first two quarters of 2006, GDP growth in the third quarter relied more on external demand. In view of strong domestic (compared with external) demand, owing to better performance by domestic fixed investment, rising wages and consequent growth in consumer demand, the Government is optimistic about the sustainability of the current recovery. Nonetheless, the strength of the recovery in the more immediate term depends to some extent on external factors, such as the pace of growth in the world economy (including the United States, EC25, and China, Japan's main export markets) and prices of crude oil, as well as on domestic factors, notably interest rate differentials between Japan and abroad, the narrowing of which could lead to a flow-back of yen and appreciation of Japan’s currency, perhaps reducing the competitiveness of its exports. Japan's medium- and long-term growth prospects will depend on its continued efforts to implement an accommodative mix of monetary and fiscal policies together with structural reforms. The latter include reforms in the financial, corporate, and public sectors, strengthening of competition policy, further trade liberalization (particularly in agriculture), measures to increase Japan's attractiveness to inward FDI, and policies to deal with the downside risks arising from its rapidly aging population and the associated decline in the labour force. The Government appears to believe in the need to intensify such reforms, which would contribute to reducing, if not removing, distortions to competition that impair economic efficiency.
