JAPAN – CLOSED SYSTEM OF GOVT & TRADE, BUT NOT CONSUMERS.

Aug 3, 1990

JAPAN – CLOSED SYSTEM OF GOVT & TRADE, BUT NOT CONSUMERS.

GENEVA, AUGUST 2 (CHEE YOKE HEONG)— A very low share in world merchandise imports, a trade regime and administration with considerable lack of transparency, and with the government, (and individual government offices within their jurisdiction) enjoying a high degree of discretionary power and with the Cabinet and the ruling party working closely with producers and traders (but with no equivalent voice for consumers).

This is the broad profile of Japan's overall economic and trade policy that comes out of the report of the GATT secretariat and of information provided by Japan itself for the GATT's Trade Policy Review Mechanism (TPRM) in the GATT Council.

Japan ranks the third among the world's trading nations and, though its imports have been expanding rapidly since 1986, at 6-1/2 percent, its share in world imports is still substantially smaller than its share of nine percent in world exports.

As a share in its GDP too, Japan's imports are 7-1/2 percent in 1989 - the lowest among all ICs except for the U.S.

The secretariat report brings out that Japan is not pulling its weight in the world economy, that Japan long a victim of voluntary export restraint measures enforced on it, is now asking Third World countries to restrain their exports in some areas, and as more of the latter become diversified and competitive, the bilateral measures could become common, posing evident dangers for the multilateral trading system.

The secretariat stressed that the economic prosperity of Japan is highly dependent on the world trading system.

Exports of manufactures, which comprised 96% of Japanese exports of merchandise, were the main force behind its rapid economic growth, it added.

During the 1980’s, Japan accumulated huge trade and current account surpluses, which peaked at the world record high in 1987 at USD 96.5 and 87 billion respectively. The secretariat report also noted that Japan continue to enjoy a sharp growth in the value of its exports of merchandise particularly in the first three months of 1990, which saw an increase of about 39% in terms of the yen on annual basis.

The major buyers of its manufactures are the U.S. (34% of the total), Southeast Asia (26.5%) and the EC (17.5%).

In its analysis of Japan's exports, the report pointed out that the most important exports for Japan are no longer from the traditional industries such as steel, textiles and ship but in products such as office and telecommunication equipment, road motor vehicles and machineries.

Changes in its export mix is seen in the corresponding changes on Japan's industrial trade policy in promoting investment away from industries such as steel, textiles, non-ferrous metals, liquid oxygen and cement to other areas, said the report.

Due to its lack of natural raw materials, the Japanese economy is highly import-dependent for many of its needs, the report added. For example, Japan is the biggest net importer of agricultural products in the world.

Import of manufactured goods (40% of total imports in 1989) is increasing rapidly in such items like cars, precious metals, steel, electrical machinery and tobacco products. Japan's main source of imports of merchandise is Southeast Asia (25% of the total in 1989), followed by the U.S. (23%) and the EC (13.5%).

Japanese firms have been actively investing overseas by establishing machinery, electronics and transport equipment plants in North America, Asia and the EC. The rapidly growing foreign direct investment flow will further link Japan to the world economy, the report said.

In its examination of the workings of the Japanese economy to the institutional framework, the secretariat pointed out, with concern the lack of transparency that exist in the Japanese trading regime, which it said create difficulty in accessing the impact of trade-related measures in Japan.

It found that the Japanese Cabinet, who enjoys a high degree of discretionary power in formulating and implementing trade policies, works jointly with the ruling political party on major trade issues.

On the other hand, the government also consults closely on trade matters with the private sectors through a number of advisory bodies, whose members, however, are mainly producers and traders rather than Japanese consumers, the report stressed. Furthermore, it added, most of the interaction between the government and the advisory bodies are conducted informally rather than publicly.

For example, the secretariat found that the retail prices for many food items and certain clothing in Japan is much higher in Japan compared to other developed countries. But due to the non-transparency of its trade measures it is not possible to pin point the causes of the price differentials.

Despite the impressive wealth it has managed to accumulate from participating in the world trading system, Japan's economy is still relative closed to foreign imports.

Though some efforts has been made in improving access to its market, imports of most agriculture products including industrial products of export interest to developing countries, are subjected to a broad range of standards, certification and other import procedures such as health and sanitary regulations.

According to the secretariat, Japan's highly protected agriculture sector received 4 trillion yen in the form of government support in 1989, a decline from 5 trillion yen in 1986. However, the amount still account for over 40% of gross domestic product of agriculture the report said.

The Japanese agriculture sector is protected by a series of import measures such as tariff, the major instrument used to control imports into the country. The level of tariff binding for agricultural goods, however, is relatively lower than for industrial goods.

Foreign agriculture products are subjected to an average 12.1% tariff tax. High tariffs are applied to sugar, beverages and spirits, and dairy products. Other consumer food items where tariffs are imposed include bananas, oranges, grapefruit and beef. Import of rice (the staple diet of the Japanese) is virtually prohibited, said the report.

Other measures employed to regulate imports include import quotas, trade monopolies and non-border measures.

Apart from agriculture products, imports of industrial products are also subjected to import rules and regulations, of which several of the measures have come under criticisms from both local traders and trading partners for stifling their business interests.

According to the Japanese government it has, through its Office of the Trade and Investment (OTO) taken steps to bring Japan's import standards in conformity with international standards. It reported to have handled about two-third of the 400 complaints it received up to February 1990, but said that there is "considerable lack of transparency" in implementing trade-related measures.

Japan still adopt voluntary restrain measures, mainly for certain manufactures exported to the U.S. and the EC including textiles and clothing, cars, etc. Though originally meant to be temporary measures, most of the export restraints are still in force, according to the GATT secretariat findings.

A signatory to the GATT Government Procurement-Code, Japan extends its procedures for procurement under the Code to both Code members and non-members. In 1988, about 15% of 2 billion SDRs were procured from outside Japan.

Japan extends the MFN treatment to all contracting parties to the GATT, except for Botswana and Lesotho. Though Japan accord special preferential tariff treatment to developing countries, the scheme however, does not cover two-thirds of agriculture products, the report said.

In its examination of Japan's trade policy instruments, the secretariat stated that Japan's record with respect to GATT-approved temporary measures is in "striking contrast" to the practices of its major trading partners.

It found that Japan has never taken up any anti-dumping action, neither taken recourse to Article XIX safeguard action and only once initiated a countervailing duty investigation.

However, the secretariat noted with concern that Japan has also resorted to bilateral measures in protecting its own trade interests such as requesting its trading partners to restrain exports to its market to protect Japanese producers. For example, in 1988, an anti-dumping petition was withdrawn when Korea agreed to restrain exports of knitwear to Japan, and similarly China and Pakistan were also asked to restrain their exports of textiles, which they complied.

Fearing that such actions will jeopardise the health of the multilateral trade system, the secretariat urged Japan to make use of the GATT framework to solve its trade problems and to play a more active role in strengthening the world trade system.