WT/TPR/S/310 • Japan
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TRADE POLICY REVIEW
REPORT BY THE SECRETARIAT
Japan
This report, prepared for the twelfth 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 Ricardo Barba Viniegra (tel.:0227395088) and John Finn (tel.: 022 739 5081).
Document WT/TPR/G/310 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. This report was drafted in English.
CONTENTS
SUMMARY 8
1 ECONOMIC ENVIRONMENT 11
1.1 Recent Economic Developments 11
1.2 Trade Performance and FDI 14
1.2.1 Trade in goods and services 14
1.2.2 Foreign direct investment 16
1.3 Outlook 17
2 TRADE AND INVESTMENT REGIME 19
2.1 General Framework 19
2.2 Trade Policy Objectives 21
2.3 Trade Agreements and Arrangements 21
2.3.1 WTO 21
2.3.2 Regional and preferential agreements 21
2.3.3 Other agreements and arrangements 22
2.4 Investment Regime 23
3 TRADE POLICIES AND PRACTICES BY MEASURE 26
3.1 Measures Directly Affecting Imports 26
3.1.1 Customs procedures and requirements 26
3.1.2 Customs valuation 26
3.1.3 Rules of origin 27
3.1.4 Tariffs 27
3.1.4.1 MFN applied tariff 27
3.1.4.2 Bound tariff 31
3.1.4.3 Preferential tariff 31
3.1.5 Import prohibitions, restrictions, licensing, and quotas 32
3.1.6 Contingency trade measures 33
3.1.7 Standards and other technical requirements 33
3.1.8 Sanitary and phytosanitary measures 38
3.1.9 Labelling and packaging requirements 40
3.1.10 Government procurement 41
3.2 Measures Directly Affecting Exports 43
3.2.1 Export procedures and requirements 43
3.2.2 Export taxes, charges, and levies 44
3.2.3 Export prohibitions, restrictions, and licensing 44
3.2.4 Export support and promotion 46
3.3 Measures Affecting Production and Trade 47
3.3.1 Taxes 47
3.3.1.1 Income tax 48
3.3.1.2 Corporation tax 49
3.3.1.3 Corporation tax-based incentives 49
3.3.1.4 Consumption tax 50
3.3.1.5 Local taxes 50
3.3.1.6 Excise duties 51
3.3.1.7 Tax treaties 52
3.3.2 Subsidies and support 52
3.3.3 State-owned enterprises 53
3.3.4 Competition policy 56
3.3.4.1 Recent developments 56
3.3.4.2 Exemptions from prohibition of cartels 56
3.3.4.3 Holding companies, and mergers and acquisitions 57
3.3.4.4 International arrangements 57
3.3.4.5 Enforcement 57
3.3.5 Intellectual property rights (IPRs) 58
3.3.5.1 Overview 58
3.3.5.2 Patents 60
3.3.5.3 Utility models (UMs) 63
3.3.5.4 Designs 63
3.3.5.5 Trademarks 64
3.3.5.6 Geographical indications (GIs) 65
3.3.5.7 Copyright 65
3.3.5.8 Enforcement 65
4 TRADE POLICIES IN SELECTED SECTORS 68
4.1 Agriculture 68
4.1.1 Trade 70
4.1.2 Agricultural policies 71
4.1.2.1 Legal and institutional framework 71
4.1.2.2 Trade policies 73
4.1.2.3 Domestic support 74
4.1.2.3.1 General support programmes 74
4.1.2.3.2 Rice 75
4.1.2.3.3 Other cereals, sugar beet and starch potatoes 75
4.1.2.3.4 Fruits and vegetables 76
4.1.2.3.5 Tobacco 76
4.1.2.3.6 Livestock products 77
4.1.2.3.7 Dairy 77
4.1.2.4 Support levels 78
4.1.2.4.1 WTO notifications 78
4.1.2.4.2 OECD indicators 79
4.2 Fisheries 82
4.2.1 Features 82
4.2.2 Trade 84
4.2.3 Policy 85
4.2.3.1 Reconstruction 87
4.2.3.2 Stock management 87
4.2.3.3 International agreements 88
4.2.3.4 Support for fisheries 88
4.3 Energy 89
4.3.1 Features 89
4.3.2 Electricity 90
4.3.2.1 Features 90
4.3.2.2 Policy and legislation 92
4.4 Finance 93
4.4.1 Features 93
4.4.2 Banking 95
4.4.3 Insurance 96
4.4.4 Securities 97
4.4.5 Pension and mutual funds 99
4.5 Telecommunications 100
4.5.1 Features 100
4.5.2 Policy and legislation 100
4.6 Transport 103
4.6.1 Maritime transport 103
4.6.2 Air transport 106
4.6.3 Rail transport 109
REFERENCES 112
5 APPENDIX TABLES 116
CHARTS
Chart 1.1 Product composition of merchandise trade, 2011 and 2013 15
Chart 1.2 Direction of merchandise trade, 2011 and 2013 16
Chart 3.1 Tariff distribution by type of duty, FY2014 29
Chart 3.2 Share of non-ad valorem duties, by HS section, FY2014 29
Chart 3.3 Simple average applied MFN tariff rates, by HS section, FY2012 and FY2014 30
Chart 3.4 Flowchart of JIS developing process 37
Chart 3.5 Flowchart of JAS developing bodies 37
Chart 3.6 Structure of IPR administration and enforcement 59
Chart 3.7 Flowchart for patent applications 61
Chart 3.8 Procedure for registering a trademark 64
Chart 4.1 Trade in agriculture, 2004-13 70
Chart 4.2 Support notified to the WTO Committee on Agriculture, FY2003-12 78
Chart 4.3 Green Box support, FY2003-12 79
Chart 4.4 Amber Box support, FY2003-12 80
Chart 4.5 Value of production and support to agriculture, 2001-13 81
Chart 4.6 Electricity regions, peak demand and interconnections, 2012 91
TABLES
Table 1.1 Selected macroeconomic indicators, 2009-13 12
Table 1.2 Balance of payments, 2009-13 13
Table 1.3 Foreign direct investment, 2009-13 17
Table 2.1 Major trade-related laws and regulations, October 2014 19
Table 2.2 Trade agreements concluded by, not yet in force and under negotiation 22
Table 2.3 Bilateral investment treaties in force 24
Table 2.4 Tax conventions 24
Table 3.1 Structure of MFN tariffs, FY2010, FY2012 and FY2014 28
Table 3.2 Summary analysis of Japan's preferential tariffs, FY2014 31
Table 3.3 Main laws on standards and technical regulations 34
Table 3.4 JIS established, revised, and withdrawn, April 2013-March 2014 36
Table 3.5 Principal laws on SPS measures 39
Table 3.6 Procurement by product and by origin, 2011 and 2012 43
Table 3.7 Principal legislation affecting exports 44
Table 3.8 NEXI insurance activity, FY2009-13 46
Table 3.9 JBIC lending and investments, FY2009-13 47
Table 3.10 JBIC funding sources, FY2009-12 47
Table 3.11 Tax revenue, FY2009-13 48
Table 3.12 Maximum rates of enterprise taxes 51
Table 3.13 Excise duties 51
Table 3.14 State trading enterprises notified to the WTO under Article XVII 54
Table 3.15 Aggregate data on State-owned enterprises in Japan 54
Table 3.16 Large state enterprises, FY2013 55
Table 3.17 Exemptions under the Anti-Monopoly Act and individual laws 56
Table 3.18 Enforcement of competition policy, 2009-13 58
Table 3.19 Principal legislation relating to IPRs 59
Table 3.20 Patent applications and patents granted, 2005-13 62
Table 3.21 Utility models applications and registrations, 2005-13 63
Table 3.22 Design applications and registrations, 2005-13 63
Table 3.23 Trademark applications and registrations, 2005-13 65
Table 3.24 Seizure of imports, 2009-13 66
Table 4.1 Agriculture in the economy, 2004-12 68
Table 4.2 Farm households and average farm size, 2010-13 69
Table 4.3 Total agricultural production and production of selected products, 2003-12 69
Table 4.4 Imports of agricultural products, 2006-13 70
Table 4.5 Exports of agricultural products, 2006-13 71
Table 4.6 Imports under the SBS system, FY2009-11 74
Table 4.7 Payment rates for other cereals, sugar beet, and starch potatoes 76
Table 4.8 Administered prices for calves, beef, and pig meat, FY2014 77
Table 4.9 Total producer support estimate and single commodity transfer values for selected commodities, 2004-13 81
Table 4.10 Fish in the economy, 2005-13 82
Table 4.11 Fisheries production, 2004-12 83
Table 4.12 Fisheries landings in Japan, 2005-12 84
Table 4.13 Aquatic mammals taken by Japan, 2005-12 84
Table 4.14 Structure of fisheries, 2004-12 84
Table 4.15 Imports of fish products, 2006-13 85
Table 4.16 Exports of fish products, 2006-13 85
Table 4.17 Government transfers to fishing, 2005-11 88
Table 4.18 Total primary energy supply, 2005-12 90
Table 4.19 Production and consumption of electricity, 2005-12 90
Table 4.20 Power production in Japan in FY1994 and FY2012 91
Table 4.21 Maritime transport, main economic indicators, June 2012 103
Table 4.22 Trade-related maritime transport policies 105
Table 4.23 Bilateral air transport agreements, 2014 108
Table 4.24 Railway transport in Japan, FY2011 109
Table 4.25 JR Group, FY2013 110
BOXES
Box 3.1 Agencies in charge of TBT issues 35
Box 3.2 Key agencies responsible for SPS measures 39
Box 4.1 Market and regulatory regime for financial services, general overview 94
Box 4.2 Market and regulatory regime for banking 95
Box 4.3 Market and regulatory regime for insurance 97
Box 4.4 Market and regulatory regime for securities 98
Box 4.5 Market and regulatory regime for pension funds and mutual funds 99
Box 4.6 Market structure and regulatory regime for telecommunications sector, 2013 101
Box 4.7 Japan's market and regulatory regime for air transport subsectors, 2014 107
Box 4.8 Regulatory framework for railway transport in Japan, 2012 111
APPENDIX TABLES
Table A1. 1 Merchandise exports by product groups, 2009-13 116
Table A1. 2 Merchandise imports by product groups, 2009-13 117
Table A1. 3 Merchandise exports by destination, 2009-13 118
Table A1. 4 Merchandise imports by origin, 2009-13 119
Table A2. 1 WTO dispute settlement cases active 1 January 2011–31December 2014 120
Table A2. 2 Selected notifications under WTO Agreements (1January2012-7October2014) 123
Table A3. 1 Japan's tariff summary, FY2014 125
Table A3. 2 Incorporated administrative agencies by government office 126
Table A4. 1 Special safeguard, FY2011 to 2013 128
SUMMARY
- Since December 2012, Japan has been implementing an ambitious reform programme to overcome deflation and revitalize its economy after more than a decade of sluggish performance. The programme consists of a "three arrows strategy": monetary easing (2% inflation target to be achieved at the earliest possible time mainly through the expansion of the monetary base); fiscal stimulus (about US$100 billion in January 2013 and an extra US$53 billion in December 2013 in an attempt to boost growth); and structural reforms in areas such as agriculture, energy and healthcare which will take longer to be implemented, not least because the reforms require legislative and administrative changes that take time to prepare.
- The expansionary monetary and fiscal policy measures adopted since the last review have supported Japan's economy but have been insufficient to achieve strong economic growth. Indeed, Japan's real GDP growth is estimated at 0.9% for 2014 (down from 1.5% both in 2012 and 2013). The authorities recognize that far-reaching structural reforms are necessary to address longstanding structural problems and achieve sustainable growth in the future. While some steps have been taken in this regard, more is needed including further trade and investment liberalization measures so as to encourage private investment, increase productivity, and enhance competitiveness.
- Since 2011, Japan has had a persistent trade deficit, the longest since comparable records began. In 2013, Japan had its biggest annual trade deficit (US$118 billion), although exports increased in U.S. dollar terms while imports grew to their highest-ever level. Increased imports of fossil fuels were a major factor in the rise in imports as they replaced energy from nuclear power following the accident at the Fukushima nuclear plant in 2011 and the subsequent shut-down of other nuclear power plants.
- Japan's FDI inflows continue to be lower than in other major developed economies and the Japan Revitalization Strategy sets a target of doubling FDI by 2020. To achieve this, Japan is to expand the use of public-private partnerships, while private finance initiatives in infrastructure projects are envisaged over the next ten years. Japan is the second-largest outward direct investor in the world, particularly in certain ASEAN countries where subsidiaries ofJapanese companies often play a leading role in sectors such as autos and electronics.
- Japan's current network of 13 regional trade agreements (RTAs) in force is the same as at the time of its previous review. Under these agreements, Japan has excluded some sensitive agricultural and related products, notably certain tariff lines for meat and meat products, fish and fish products, dairy products, rice, products of the milling industry, plywood, leather and products thereof, and footwear. Some of these products are also excluded from Japan's Generalized System of Preferences (GSP) scheme.
- During the review period, an RTA with Australia was signed, and another was reached in principle with Mongolia. In addition, Japan is in negotiations with: Canada; Colombia; China; the European Union; the Gulf Cooperation Council (GCC); the Republic of Korea; and Turkey. Moreover, Japan is part of the Trans-Pacific Partnership (TPP) negotiations and the Comprehensive Regional Economic Partnership Agreement. Japan aims to increase its trade under RTAs from around 19% in 2013 to 70% by 2018.
- In general, Japan's trade policies during the review period have remained relatively stable while it has been actively negotiating RTAs, pursuing domestic reforms to improve its competitiveness, and participating in work in the WTO.
- Japan's overall simple average applied MFN tariff rate declined from 6.3% in FY2012 to5.8% in FY2014 due to higher unit prices for many agricultural products which reduced the advalorem equivalents (AVEs). Thus, the simple average for agriculture (WTO definition) is 14.9% (down from 17.5% in FY2012), and 3.7% for non-agricultural products (the same as in FY2012).
- Japan has bound 98.3% of its tariff (159 lines are unbound). The difference between the average bound MFN tariff (5.9%) and the average applied MFN tariff (5.8%) in FY2014 was negligible, which reflects a high degree of predictability in the tariff. However, the average bound rate remains considerably higher for agricultural products (15.2%) than for non-agricultural products (3.7%).
- Japan makes relatively little use of contingency trade remedies. It applied neither countervailing or safeguard measures during the review period and has only one anti-dumping duty in force on electrolytic manganese dioxide originating from China, South Africa, and Spain. The period of imposition was extended by five years and will expire on 5 March 2019. In 2014, Japan initiated an anti-dumping investigation on toluenediisocyanate fromChina.
- For a variety of reasons, Japan's SPS and TBT requirements are often more strict than international standards and the cost of meeting its quality and safety standards can be high. As at 31 March 2014, there were 10,525 Japanese Industrial Standards (JIS), 5,823 of which correspond with international standards, and 97% of JIS had been harmonized with identical or modified international standards. Japan currently imposes import prohibitions on beef and poultry from various countries to prevent the spread of some animal diseases, including BSE and avian flu.
- Japan made some changes to its government procurement framework, basically to preclude from participation in open tendering parties who, inter alia, intentionally execute construction works or services with poor workmanship, or overcharge by false reporting contracts. Japan also recently lowered some of its thresholds for goods and services under the GPA.
- The Anti-Monopoly Act was amended in December 2013, inter alia, to abolish the hearing procedure of the Japan Fair Trade Commission (JFTC) for administrative appeals. Once the Act comes into force, any appeal regarding decisions of the JFTC will be subject to the exclusive jurisdiction of the Tokyo District Court with a view to ensuring expertise and enhancing procedural fairness.
- The main developments regarding Japan's Intellectual Property Rights (IPR) framework were the strengthening of copyright protection in the digital environment, introducing trademark protection for nontraditional marks, improving the efficiency of the patent system, and an important judicial decision on the protection of standard essential patents. Japan remains an active participant in multilateral fora regarding harmonization of regimes protecting IPRs.
- Despite changes in agricultural programmes over the past few years, support and protection given to agriculture in Japan remains high compared to other countries and is provided by a comprehensive set of policies. While the government has continued to move toward income support, market price support is the main component and it, along with other transfers based on output and inputs, is potentially one of the most production and trade-distorting forms of support.
- As one of the biggest consumers of fish and seafood in the world, Japan provides a range of support measures to fisheries. The budget support to the sector increased after the extensive damage caused by the 2011 tsunami with the aim of completing the recovery of fishing port facilities by end-FY2015. Although the average applied MFN tariff on fish and fish products was 6.2% in FY2014 (same as in FY2012), import quotas apply to several species of fish.
- The shutdown of nuclear power plants following the accident in Fukushima in 2011 has provoked a major reconstruction programme. Although the electricity sector has been gradually reformed over the past twenty years, the regional utilities are still the main producers, transmitters, distributors, and retailers, while interchange between some of the regions remains limited. Recent amendments to the Electricity Business Act aim to secure a stable supply of electricity, suppressing electricity rates to the maximum extent possible, and expanding consumer choice and business opportunities.
- In the financial services sector, the Financial Services Agency (FSA) of Japan has amended rules on large exposures in line with international standards, with effect from December 2014. Through supervisory guidelines and related measures, the FSA revised the minimum capital requirements for internationally active banks and intends to introduce other capital buffers and liquidity measures in accordance with Basel III. On telecommunications and transport sectors, Japan's legislation and policies have remained largely unchanged.
- Overall, despite a long period of relatively weak economic performance and some severe shocks to the economy over the past few years, Japan remains an open transparent economy – although support and protection in some areas, particularly agriculture, remain high. Japan has many unique characteristics, some of which have helped it become the third richest country in the world, but others add to the cost of importing, exporting, investing, and doing business. Addressing many of these impediments to growth is the target of the third arrow of the current reform programme and necessary if growth is to accelerate to a higher and sustainable level.
WT/TPR/S/310 • Japan