Foreign trade policies of Japan

From Wikipedia, the free encyclopedia

1 Export policies
2 Import policies
3 See also
4 Reference

[edit] Export policies

For many years, export promotion was a large issue in Japanese government policy. Government officials recognized that Japan needed to import to grow and develop, and it needed to generate exports to pay for those imports. After 1945, Japan had difficulty exporting enough to pay for its imports until the mid-1960s , and resulting deficits were the justification for export promotion programs and import restrictions.

The belief in the need to promote exports is strong and part of Japan's self-image as a "processing nation." A processing nation must import raw materials but is able to pay for the imports by adding value to them and exporting some of the output. Nations grow stronger economically by moving up the industrial ladder to produce products with greater value added to the basic inputs. Rather than letting markets accomplish this movement on their own, the Japanese government felt the economy should be guided in this direction through industrial policy.

Japan's methods of promoting exports has taken two paths. The first was to develop world-class industries that can initially substitute for imports and then compete in international markets. The second was to provide incentives for firms to export.

During the first two decades after World War II, export incentives took the form of a combination of tax relief and government assistance to build export industries. After joining the IMF in 1964, however, Japan had to drop its major export incentive—the total exemption of export income from taxes—to comply with IMF procedures. It did maintain into the 1970s, however, special tax treatment of costs for market development and export promotion.

Once chronic trade deficits came to an end in the mid-1960s, the need for export promotion policies diminished. Virtually all export tax incentives were eliminated over the course of the 1970s. Even JETRO, whose initial function is to assist smaller firms with overseas marketing, saw its role shift toward import promotion and other activities. In the 1980s, Japan continued to use industrial policy to promote the growth of new, more sophisticated industries, but direct export promotion measures were no longer part of the policy package.

The 1970s and 1980s saw the emergence of policies to restrain exports in certain industries. The great success of some Japanese export industries created a backlash in other countries, either because of their success per se or because of allegations of unfair competitive practices. Under GATT guidelines, nations have been reluctant to raise tariffs or impose import quotas. Quotas violate the guidelines, and raising tariffs goes against the general trend among industrial nations. Instead, they have resorted to convincing the exporting country to "voluntarily" restrain exports of the offending product. In the 1980s, Japan was quite willing to carry out such export restraints. Among Japan's exports to the United States, steel, color television sets, and automobiles all were subject to such restraints at various times.

[edit] Import policies

Japan began the postwar period with heavy import barriers. Virtually all products were subject to government quotas, many faced high tariffs, and MITI had authority over the allocation of the foreign exchange that companies needed to pay for any import. These policies were justified at the time by the weakened position of Japanese industry and the country's chronic trade deficits.

By the late 1950s, Japan's international trade had regained its prewar level, and its balance of payments displayed sufficient strength for its rigid protectionism to be increasingly difficult to justify. The IMF and GATT strongly pressured Japan to free its commerce and international payments system. 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.

The main impetus for change throughout has been international obligation, that is, response to foreign, rather than domestic, pressure. The result has been a prolonged, reluctant process of reducing barriers, which has frustrated many of Japan's trading partners.

Japan has been a participant in the major rounds of tariffcutting negotiations under the GATT framework—the Kennedy Round completed in 1967, the Tokyo Round completed in 1979, and the Uruguay Round completed in 1993. As a result of these agreements, tariffs in Japan fell to a low level on average. Upon complete implementation of the Tokyo Round agreement, Japan had the lowest average tariff level among industrial countries—2.5 percent, compared with 4.2 percent for the United States and 4.6 percent for the European Union (known as the European Community before November 1993).

Japan's quotas also dropped. From 490 items under quota in 1962, Japan had only twenty-seven items under quota in the mid-1980s, and that number dropped again late in the decade to twenty-two with further agreements scheduled to come into effect in the early 1990s, which would reduce the number again. But those products still under quota proved to be highly visible and were the object of complaints by exporting countries. The reduction of controlled items in the late 1980s resulted from Japan's loss of a GATT case brought by the United States concerning import restrictions on twelve agricultural products. In addition, heavy pressure from the United States led to an agreement that Japan would end import quotas on beef and citrus fruit in 1991. The one restricted product that continues to prompt objections from other countries is rice, imports of which until 1994 were prohibited. Rice has traditionally been the mainstay of the Japanese diet, and farm organizations played upon the deep cultural importance as a reason for prohibiting imports. Farm organizations also had a disproportionate political voice because of the shift of the population to the cities without any significant redistricting for seats in the Diet. Despite such entrenched political and cultural opposition, foreign rice gradually found its way into Japanese markets and even on to the emperor's dining table by 1994.

Despite Japan's rather good record on tariffs and quotas, it continued to be the target of complaints and pressure from its trading partners during the 1980s. Many complaints revolved around nontariff barriers other than quotas—standards, testing procedures, government procurement, and other policy that could be used to restrain imports. These barriers, by their very nature, were often difficult to document, but complaints were frequent.

In 1984 the United States government initiated intensive talks with Japan on four product areas: forest products, telecommunications equipment and services, electronics, and pharmaceuticals and medical equipment. The Market Oriented Sector Selective (MOSS) talks were aimed at routing out all overt and informal barriers to imports in these areas. The negotiations lasted throughout 1985 and achieved modest success.

Supporting the view that Japanese markets remained difficult to penetrate, statistics showed that the level of manufactured imports in Japan as a share of the gross national product (GNP) was still far below the level in other developed countries during the 1980s. Frustration with the modest results of the MOSS process and similar factors led to provisions in the Omnibus Trade and Competitiveness Act of 1988 aimed at Japan. Under the "Super 301" provision, nations were to be named as unfair trading partners and specific products chosen for negotiation, as appropriate, with retaliation against the exports of these nations should negotiations fail to provide satisfactory results. Japan was named an unfair trading nation in 1989, and negotiations began on forest products, supercomputers, and telecommunications satellites.

By the end of the 1980s, however, some internally generated changes in import policy appeared to be under way in Japan. The rapid appreciation of the yen after 1985, which made imports more attractive, stimulated a domestic debate over nontariff barriers and other structural features of the economy impeding imports. Greater openness in policies and structures began to be sought in response to domestic pressures rather than in response to foreign pressure and international obligation.

External pressure for change also increased when the United States initiated a series of bilateral talks in 1989 parallel to negotiations under the "Super 301" provision. These new talks, known as the Structural Impediments Initiative, focused on structural features in Japan that seemed to impede imports in ways outside the normal scope of trade negotiations. Issues raised in the Structural Impediments Initiative, and by the Japanese themselves in domestic discussions, included the distribution system (in which manufacturers continued to have unusually strong control over wholesalers and retailers handling their products, inhibiting newcomers, especially foreign ones) and investment behavior that made it very difficult for foreign firms to acquire Japanese firms. These discussions highlighted some of the fundamental differences in the Japanese and United States economies.

The collapse of the Japanese asset price bubble in the early 1990s and the following Great Price Fall helped matters. Discount markets opened the distribution chains, and several companies turned to foreign trade and investment to avoid losses and even bankruptcy. Products of Japanese companies that were manufactured in South-Asian countries were reimported at lower prices. The Japanese consumer also changed: Economic problems forced many Japanese to look for cheap prices first and care about national pride or superior quality later.

As of 2005, some trade disputes between the United States and Japan are unresolved again: The ban on U.S. beef, installed after the first cases of BSE, has not been lifted despite heavy pressure from the U.S. side.