WTO Trade Policy Review of Japan

Statement by United States Ambassador Linnet Deily
Geneva,
January 25, 2005

Thank you, Chair. On behalf of the United States, I welcome this opportunity to participate in the seventh Trade Policy Review of Japan. We are pleased that Director General Ishikawa has come from Tokyo to participate in this review, and also to see my friend and colleague Shotaro Oshima, who has worked very hard for us in his capacity as chairman of the General Council.

The reports prepared for this session give us a good basis for the review. We especially thank the government of Japan for its thorough and thoughtful submission. We also appreciate the Secretariat Report, although it was less detailed than we were expecting, especially given Japan’s status as one of top four trading nations of the world and its importance in the WTO process. Further thanks go to my colleague Tony Miller, who made an excellent and thought-provoking statement as our discussant.

We submitted detailed questions and comments for Japan to consider, and we look forward to receiving responses from its delegation, which will further enhance our understanding of the current state of affairs of Japan’s trade policy. We also look forward to the discussions today, and Thursday, which we anticipate will deepen our understanding of trade policy in Japan, and how it is evolving.

The U.S. and Japanese economies are greatly intertwined. The United States ranks as the top trading partner for Japan – the biggest destination for Japan’s exports, and the second most important origin of Japan’s imports – while Japan is the fourth-largest trading partner of the United States. In 2003, two-way goods trade between our two countries stood at $170 billion, trade in services at around $50 billion, and the accumulated stock of shared foreign direct investment exceeded $200 billion.

It is clear that Japan has made impressive strides since its last review in 2002. On the trade side, customs processing has been streamlined and fees have been significantly reduced. Industrial tariffs remain low overall, making Japan a model in that regard but also exposing and standing in sharp contrast to the high barriers that remain in sectors such as agriculture and footwear, where we note the continuance of a longstanding and prohibitive tariff-rate quota on footwear in which the out-of-quota tariff is more than 4,000 yen, or around $40, per pair.

On structural and regulatory reform, Japan has made progress on many fronts. Broadband utilization in Japan has exploded and can now be enjoyed at some of the fastest speeds and lowest costs in the world. Energy sector reform, for both gas and electricity, is advancing at a good pace. In the financial sector, there has been significant progress in dealing with non-performing loans and deflation, and we welcome the steps that have been taken since 2001 to ease the process by which foreign banks can establish a commercial presence and operate in Japan. And very significantly, Prime Minister Koizumi has established the Special Zones for Structural Reform initiative, which has led to the establishment of hundreds of deregulation zones around Japan that are spurring growth and innovation at the local level. Prime Minister Koizumi also has embarked on an ambitious plan to privatize Japan Post, which we hope can be achieved by ensuring a level playing field for all interested parties.

All of this reform activity has played a crucial role in helping Japan get its economy back on track. We are pleased to see the increase in real GDP growth experienced by Japan in 2003 and the first part of 2004, as outlined in the Secretariat Report, and we are pleased by the role of domestic demand in generating that growth – another indication that structural and regulatory reform is bearing fruit.

If Japan is to sustain this growth, it must hold firm in its determination to continue its bold structural and regulatory reform agenda. We welcome the many initiatives that are currently underway, including the new three-year program for promoting regulatory reform as well as ongoing efforts to elevate the role and authority of the Japan Fair Trade Commission.

Agriculture is, of course, one area where further progress is needed. The Secretariat Report notes that Japanese agriculture policy has remained largely unchanged since the last trade policy review. Tariffs are high and Japanese government support of this sector as a percentage of GDP continues to surpass its contribution to the economy, thereby serving as a drag on Japan’s growth. We are particularly concerned with Japan’s use of non-science-based sanitary and phytosanitary measures that restrict the import of a broad range of agricultural products, such as beef, poultry, and apples. As a global leader in trade, Japan is expected to fulfill its obligations under the SPS Agreement and employ the least trade-restrictive measures to achieve legitimate SPS objectives.

In regard to the Doha Development Agenda, Japan has an important responsibility in the market access agenda. From our vantage point, a defensive posture on agriculture continues to hold Japan back from being a more active player. It is crucial that Japan take a forward-looking stance, expanding market access on agricultural imports, cutting trade-distorting subsidies to farmers, and implementing SPS measures in an appropriate and science-based manner -- for at the end of the day, a serious commitment by Japan to reform its agriculture sector will be essential to successfully concluding the DDA.

In addition to agriculture, another key sector is telecommunications. The Secretariat Report notes the progress Japan has been making to abolish approval requirements for basic telecommunications business entry. While we welcome this effort, the Japanese telecommunications market remains dominated by one major carrier group. Moreover, we are also concerned that efforts to spur competition may be thwarted in the wireline sector by continually increasing interconnection rates. High interconnection rates also hinder competition in the highly concentrated mobile sector as does the failure to license additional operators in a timely and transparent manner. We urge Japan to continue to take steps in this important sector that would promote competition and benefit consumers.

On government procurement, we note the increasing role of single tendering together with the declining participation of foreign suppliers in the Japanese procurement market. The Secretariat Report gives us some useful statistics, and we would welcome more information from the Japanese government on why foreign suppliers have such a small share of Japan’s procurement market.

On preferential trade agreements, the Secretariat Report does a good job of outlining Japan’s pursuit of negotiations and exploratory discussions throughout Asia and the Pacific. The United States recognizes, as many of us have, that FTAs can be a powerful force for trade liberalization. We also believe, however, that to fully capitalize on their potential, and to be fully consistent with the rules of this house, preferential trade agreements should cover substantially all trade, and not exempt large protected sectors of the economy such as agriculture from liberalization. Frankly, Japan’s FTAs to date have raised some questions in this regard, and it is incumbent on Japan, as such a large trading nation, to set a high standard.

To close, Madame Chair, the United States is encouraged by the progress Japan has achieved since its last trade policy review. Japan clearly recognizes the benefits that can be gained through further structural reform, regulatory reform, and liberalization, and it is essential that Japan’s leadership stay the course to ensure sustained and vibrant growth over time. As Japan’s largest trading partner, close friend, and ally, we wish Japan the greatest of success in these efforts. In addition, we look forward to further cooperation with Japan, both in our bilateral relationship and here at the WTO. Thank you.