Japans trade

JAPANS TRADE PATTERN AND TRADE RELATION WITH INDIA SUBMITTED BY DHRUV SINGHAL (053011)

FORE SCHOOL OF MANAGEMENT IMG- V

Abstract During the 1950s, Japanese export products had a reputation for poor quality. However, this image changed dramatically during the 1970s. Japanese steel, ships, watches, television receivers, automobiles, semiconductors, and many other goods developed a reputation for being manufactured to high standards and under strict quality control. Beginning in the 1960s, the government adopted a policy of gradual trade liberalization, easing import quotas, reducing tariff rates, freeing transactions in foreign exchange, and admitting foreign capital into Japanese industries, which continued through the 1980s. Many centuries ago, India and Japan had begun exchange between them, when Buddhism was introduced to Japan via the Korean Peninsula. However, Direct exchange, began only in the Meiji era (1868-1912), when Japan started with its process of modernization. From then on, bilateral relations developed around Japanese purchases of cotton. India's friendship with Japan after the war helped a great deal when Japan returned to the international arena. In December
2006, Prime Minister Manmohan Singh's visit to Japan culminated in the signing of the "Joint Statement towards Japan-India Strategic and Global Partnership".

Economy of Japan The economy of Japan, a free market economy, is the third largest in the world[7] after the United States and the People's Republic of China, and ahead of Germany at 4th. According to the International Monetary Fund, the country's per capita GDPPPP) was at $33,805 or the 24th highest in 2010. For three decades from 1960, Japan experienced rapid economic growth, which was referred to as the Japanese post-war economic miracle. With average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s, Japan was able to establish and maintain itself as the world's second largest economy from 1968 until 2010, when it was supplanted by the People's Republic of China. However, in the second half of the 1980s, rising stock and real estate prices caused the Japanese economy to overheat in what was later to be known as the Japanese asset price bubble. The problems of the 1990s may have been exacerbated by domestic policies intended to wring speculative excesses from the stock and real estate markets. With government efforts to revive economic growth throughout the 1990s unsuccessful, Junichiro Koizumi adopted policies to promote exports, effectively raising GDP on an average of 2.1% annually from 2003 to 2007. In 2010 GDP Growth in the final three months was -2.9% but total GDP Growth for 2010 was 4.0%, one of the highest growth rates for about 20 years. But Japan's economy was disrupted in March 2011 due to the earthquake and the effect of the tsunami. GDP contracted by 3.5% in Q1 of 2011.As Japan's economy has suffered two quarterly contractions in a row, Japan re-entered recession. In 2008-09 the economy had contracted 6.4%. However, output is expected to bounce back in the second half of 2011, as supply constraints ease and reconstruction accelerates2011 GDP is expected to Contract 0.7%, 2012 GDP Growth is expected to be at 2.9%, according to the OECD.

Overview of Japan's Economic Relationships Since Japan's trade policy review in 2009, Japan has taken various measures to promote the international liberalization of trade. Together with utmost efforts to promote the ongoing Doha Round negotiations, Japan has also made forward bilateral negotiations on Economic Partnership Agreements (EPAs), which have made positive steps and complemented the multilateral trading system.

THE MULTILATERAL TRADING SYSTEM

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

 Japan has made various efforts to move forward the Doha Round negotiations and has participated actively in every negotiating process under multiple configurations. As the host Economy of APEC 2010, Japan strongly supported the progress of negotiations through the Ministerial and Official level meetings. Japan also renewed its full commitment to the successful conclusion of the Doha Round negotiations, building on the progress already made. While a rise of protectionism was expected after the economic and financial crisis of 2008, Japan, having undertaken foreign and domestic economic policies for recovery, has made a concerted effort with other countries to resist protectionism. In particular, taking advantage of the APEC process in 2010, Japan has contributed to consistently delivering Leaders' and Ministerial messages to fight against protectionism.

REGIONAL AND BILATERAL TRADE POLICY

Japan is currently a party to eleven Economic Partnership Agreements (EPAs) which include elements of Free Trade Agreements and institution-building covering areas such as investment, competition, intellectual property rights and human resources development. Japan is also involved in several on-going negotiations for EPAs. Japan believes that these agreements will serve as building blocks to reach higher trade liberalization at the multilateral level. At the same time, Japan will actively participate in and make contributions to various studies on possible frameworks for economic partnership in East Asia and the Asia-Pacific region, such as the Comprehensive Economic Partnership in East Asia (CEPEA), the East Asia Free Trade Agreement (EAFTA) and the Free Trade Area of the Asia-Pacific (FTAAP). In doing so, Japan will take into consideration their possible influences on the WTO system and the world economy, as well as the policies of the countries in the region. On 9 November 2010, the Government of Japan adopted a "Basic Policy on Comprehensive Economic Partnerships" by cabinet decision.

Trade policies and practices by measure

Introduction
1. Since its previous Trade Policy Review in 2009, Japan has refrained from introducing new trade barriers; on the other hand, it has introduced few measures aimed at further liberalizing its trade and related regimes. The Government introduced expansionary fiscal measures in FY2009 and in FY2010 in order to recover from the latest recession, but it is ambiguous whether these measures are temporary, and some state-owned bodies were established to inject funds into private companies, perhaps in the context of industrial policies. Although "buy Japanese" programmes are not prevalent, there are some programmes that aim to promote the consumption of domestic goods (timbers). 2. The tariff continues to be Japan's main border restriction. In fiscal year (FY) 2010, the simple average applied MFN tariff rate was 5.8%, down from 6.1% in FY2008, reflecting an average decrease of ad valorem equivalents of non-ad valorem duties. Non-ad valorem duties, which account for 6.6% of Japan's tariff lines, tend to involve high ad valorem

equivalents, and are an important feature of Japan's tariff, particularly for agricultural products. Whereas the simple average tariff rate under the GSP is 4.6% (down from 4.9% in FY2008), that for LDCs is 0.5% (same as in FY2008). Japan's simple average tariff rates under bilateral FTAs range from 2.9% (Malaysia and Thailand) to 3.4% (Brunei). 3. Japan's non-tariff border measures include some import prohibitions and quantitative import restrictions (for example, import quotas on some fish). State trading involves leaf tobacco, opium, rice, wheat and barley, and milk products. 4. Japan makes little use of contingency measures. It has continued to apply two antidumping measures during the review period, but eliminated one countervailing measure; it has not imposed any safeguard measures since 2001, when it applied them on Welsh onions, Shiitake mushrooms, and tatami-omote. 5. No preferences are granted to domestic suppliers with regard to procurement covered by the Agreement on Government Procurement. Nonetheless, it would appear that government procurement is used as an instrument of economic policy, particularly in some sectors (e.g. timber) and for SMEs. The share of foreign suppliers in the total value of government procurement was 3.0% in 2009, down from 3.7% in 2008. The share of procurement of overseas goods and services, supplied by domestic or foreign suppliers, declined to 7.1% in 2008 (from 9.1% in 2007) in terms of value. In 2008, the share of open tendering in total procurement rose to 63.5% compared with 58.6% in 2007. It would appear that Japan will start giving preferences for the use of domestic wood in public procurement. 6. About 46% of Japanese Industrial Standards (JIS) were aligned to international standards in 2009 (unchanged since 2008). Although Japan maintains that its SPS measures are based on scientific grounds to assess risks, it has apparently not conducted cost-benefit analyses to justify such risk factors. 7. Japan maintains certain export controls on national security and public safety grounds and to preserve natural resources. Export finance, insurance, and guarantees are available. Duty drawback schemes are available on selected inputs for certain manufacturing; they do not necessarily refund 100% of duties paid. The Government has recently begun promoting agricultural exports, mainly by providing information to consumers overseas.

TARRIFS
A) Bound tariff

The average bound rate is considerably higher for agricultural products (WTO definition), at 16.0%, than for non-agricultural products, at 3.5%; without further commitments in tariff reduction, this average for agricultural products is expected to remain unchanged, as Japan completed the implementation of its Uruguay Round commitments in 2009.
MFN applied FY2006 1. 2. Bound tariff lines (% of all tariff lines) Simple average rate Agricultural products (HS01-24) Industrial products (HS25-97) WTO agricultural products WTO non-agricultural products Textiles and clothing ISIC 1 - Agriculture, hunting, fishing ISIC 2 - Mining ISIC 3 - Manufacturing Manufacturing excluding food processing First stage of processing Semi-processed products Fully processed products 3. 4. 5. 6. 7. 8. 9. 10. 11. Domestic tariff "peaks" (% of all tariff lines)
f g a

Final FY2010
c

FY2008

bound 98.8 5.9 15.1 3.5 16.0 3.5 6.6 4.3

e

98.8 6.5 17.1 3.7 18.8 3.6 6.6 6.9 0.1 6.5 3.8 9.0 4.8 7.0 6.3 7.5 25.2 3.9 1.7 41.7 6.7 1.5 1.1

98.8 6.1 15.7 3.6 17.1 3.5 6.7 5.0 0.1 6.3 3.7 8.1 4.7 6.6 6.6 7.5 19.9 3.3 1.8 41.4 6.7 1.4 1.3

98.8 5.8 14.7 3.4 15.7 3.5 6.6 4.4 0.1 6.0 3.5 5.7 4.7 6.7 6.6 7.4 16.0 2.7 1.8 41.4 6.6 2.0 1.3

0.1 6.1 3.6 5.7 4.8 6.8 6.7 7.5 16.1 2.7 1.8 40.5 6.4 1.9 1.2

International tariff "peaks" (% of all tariff lines) Overall standard deviation of tariff rates Coefficient of variation of tariff rates Tariff quotas (% of all tariff lines) Duty free tariff lines (% of all tariff lines) Non-ad valorem tariffs (% of all tariff lines)

Non-ad valorem tariffs with no AVEs (% of all tariff lines) Nuisance applied rates (% of all tariff lines)
h

Applied MFN tariff Structure

The structure of Japan's MFN applied tariff has remained largely unchanged since 2008. Of the 8,826 tariff lines, 93.4% involve ad valorem rates, 2.3% are specific, 3.3% alternate, and 0.6% are compound rates; 0.4% of tariff lines have other rates (differential duties and sliding duties). The non-ad valorem rates of duty (6.6% of all tariff lines) apply mainly to fats and oils, footwear, prepared foods, live animals and animal products, textiles and clothing, vegetables, and mineral products (Chart III 1); ad valorem equivalents were provided by the authorities for 408 lines, as a result of Which, the tariff analysis is based on 98.9% of the 8,826 tariff lines. Currently, 155 tariff lines (1.8%) are subject to tariff-rate quotas; for 38 of these lines the out-of-quota rates are ad valorem.

Chart III.1 Share of non-ad valorem duties, by HS section, FY2010

Per cent 45 40 35 30 25 20 15 10 5
(3) (0) (0) (0) (0) (0) (0) (74) (57) (20) (215) (584) (29) (0) (0) (0) (0) (2) (0) (123) (25) (36)

0
Arms & ammunition Live animal & prod. Textiles & articles Transport equipment Misc. manufactures Works of art, etc. Articles of stone Machinery Hides & skins Wood & articles Footwear Base metals & prod. Vegetable products Chemicals & prod. Fats and oils Precision instruments Prepared food, etc. Mineral prod. Plastic & rubber Precious stones, etc. Pulp, paper, etc. Total

Note:

Each bar depicts the percentage of tariff lines within each HS section that carry non-ad valorem duties; the figures in parentheses show the corresponding number of lines. In-quota rates are not included (lines subject to state trading are included). WTO Secretariat estimates, based on data provided by the Japanese authorities.

Source :

Non-tariff border measures

Japan prohibits imports of some products in accordance with Article 69-11 of the Customs Law. Its Foreign Exchange and Foreign Trade Law governs import licensing procedures (Chart III.3). Imports of narcotics, certain weapons, and animals or plants listed in the appendices of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), among others, may be prohibited or subject to import licensing in order to ensure national security, safeguard consumer health and well-being, or to preserve domestic plant and animal life and the environment. Some commodities, including certain fish, are subject to import quotas.
Chart III.3 Import control system, 2010a
Scheme of import control (Foreign Exchange and Foreign Trade Act) Control procedure Law
Article 52 of Act No. 228 and Article 3 of Order No. 414 stipulate that those who plan to import certain goods must obtain approval in advance. The goods subject to approval are listed in METI Public Notice No. 170.

Goods subject to import quotas (IQ)

Goods subject to import approval

Public announcement of IQ

Import announcement
Article 9 of Order No. 414 stipulates that the importers of goods subject to import quotas must obtain quotas from the authorities before applying for import approvals.

IQ application

Reception of IQ application Delivery of certificate

Import approval application

Reception of import approval application Delivery of certificate

Article 4 of Order No. 414 stipulates the procedure for the authority's granting of approval, as required by Article 3 of the Order.

Customs clearing Confirmation by Customs

Article 15 of Order No. 414 and Article 70 of Custom Law stipulate customs procedures after the approval has been granted.

a Note:

Mainly concerning the duties of the Ministry of Economy, Trade and Industry (METI). Act No. 228 of 1 December 1949 (Foreign Exchange and Foreign Trade Law); Cabinet Order No. 414 of 29 December 1949 (Import Trade Control Order); and Public Notice of the Ministry of International Trade and Industry No. 170 of 30 April 1966 (notice on items of goods subject to import quotas, places of origin or places of shipment of goods requiring permission for import, and other necessary matters concerning import of goods).

Source : Information provided by the Japanese authorities.

Import prohibition and licensing

There has been no change in the list of items requiring import approval since the previous Trade Policy Review of Japan. Products currently subject to import approval or prohibition include certain marine products, medicines and chemical products, propellant powders, nuclear goods, weapons, animals and plants, substances that deplete the ozone layer, specified hazardous wastes, waste chemical weapons goods, alcohol, rough diamonds, cultural property illegally removed from Iraq, all goods from North Korea, weapons and other items related to nuclear programmes or ballistic missile programmes from Iran, and weapons and other items from Eritrea. Licenses are issued at no cost.
Import quotas

Japan continues to use quantitative restrictions on imports (import quotas); the authorities maintain that the quotas are based on the WTO Agreements. There has been no change in products
Import surveillance

Since 2009, there has been no change in Japan's system of prior confirmation to collect data on certain imports. The system is intended to ensure that these imports are for specific uses, and to verify documentation and origin requirements. Prior confirmation is required from the Minister of Economy, Trade and Industry, or other relevant minister; some items require confirmation at Customs (customs confirmation).
Export promotion schemes Export subsidies, finance, insurance, and guarantees

The authorities indicate that Japan has no subsidy or tax concession schemes to promote exports. Japan provides medium- and long-term export credits. These are administered by the Japan Bank for International Cooperation (JBIC) (a government-affiliated financial institution), and Nippon Export and Investment Insurance (NEXI) (an independent administrative institution, insuring risks not covered by existing private insurance institutions). The authorities maintain that provision of these credits is based on the terms and conditions of the OECD Arrangement on Officially Supported Export Credits. Standard forms of export credit extended by JBIC include buyer credits and bank-to-bank loans. In FY2008, JBIC's export credits amounted to 27.6 billion and the total amount insured by NEXI stood at 9.7 trillion.
Other export promotion schemes

Export promotion schemes handled by the Japan External Trade Organization (JETRO) include provision of information, market and company studies, and support for participation at international trade fairs. No changes have been introduced during the review period.

 The Ministry of Agriculture, Forestry and Fisheries provides support to agricultural exporters through information-sharing on Japanese agricultural products and foodstuff. Support includes setting up Japanese pavilions at international exhibitions and promotion abroad of Japanese foods including agricultural products. The budget for export promotion was 1.2 billion for FY2010, down from 2.0 billion in FY2009.

Japans trade relations with India

Throughout history, IndiaJapan relations have always been strong. For centuries, India and Japan have engaged in cultural exchanges, primarily as a result of Buddhism which spread indirectly from India to China and then to Japan. During the Second World War, the Japanese Imperial Army employed Netaji Subhash Chandra Bose's Indian National Army in battles against British forces. India is the largest recipient of Japanese ODA. IndiaJapan has stood by each other at critical moments in their history.[Political relations between the two nations have remained warm since India's independence. Japanese companies, such as Sony, Toyota, and Honda, have manufacturing facilities in India, and with the growth of the Indian economy, India is a big market for Japanese firms. Japanese firms were, in fact, some of the first firms to invest in India. The most prominent Japanese company to have an investment in India is automobiles giant Suzuki, which was in partnership with Indian automobiles company Maruti Suzuki, the largest car manufacturer in India.

The Japan-India Joint Declaration of December 10, 2001 has set the ball rolling for things to shape up in Indo-Japanese relationship in the 21st century. To raise the bilateral relationship to a qualitatively new level" is the ultimate of the Joint Declaration. Stronger Indo-Japanese bilateral relations would also mean a more stable and prosperous Asia. Broader and deeper economic relations between the countries would form the cornerstone of this bilateral relationship. Both the countries are strongly committed to an "open and non-discriminatory rule-based multilateral trading system". Indo-Japanese trade relations and economic cooperation is going stronger by the years, though, if compared with neighbouring China's trade with Japan, India's share in Japan's total trade does not give any impressive look. So also in the field of foreign direct investment. Japan, which is the fourth largest investor in India itself, is not happy with this rate. India has to do a lot to create an investor-friendly environment through speedier economic reforms and freeing the country from clutches of deregulation at the earliest. Recently, Indian commerce minister Kamal Nath has pointed out that the emphasis of India-Japan bilateral trade should be foreign direct investment-based and not official development assistance (ODA)-based. He said, "India is one of the largest ODA recipients from Japan. However, in the changed context of our desire for seeking a new economic partnership, it is important that we shift the emphasis of India-Japan relationship from ODA-based to FDI-based," approvals of Japanese FDI in India during the period 1991-2004 have been in the order of $3.2 billion, which was around 4.8 per cent of total Indian approvals for all FDI. But of this, the actual inflow of investment from Japan was around $1.8 billion. He said Japanese investments in India are

very low despite a number of successful Indo-Japan ventures such as Suzuki-Maruti, HeroHonda, and Toyota-Kirloskar. Presently, Japan is the fifth major trading partner of India having a share of 3.1% in India's total exports and imports2003-04 However, the figure is not very encouraging; it was only $4 billion, which was traded between the two nations during 2003-04, a growth of 18 per cent over what it was in 2002-03. There is an immense scope for increasing the trade between the two nations in the coming years.