WTO and Japan

WTO and Japan Trading Policy For University College of Northwood University Tarek Abdulhalim Jaber ECN 400 International Trade May 15, 2002

WTO and Japan

According to the modern trade theory, increased barriers to trade reduce world welfare, and increased openness to trade improve world welfare pp. 25-53). (Carbaugh, 2000,

After the Second World War, the alliance

nations recognized the need to govern international trade to boost trade liberalization and correct protectionist measures. For that, twenty-three countries started tariff

negotiations and created the General Agreement on Tariffs and Trade (GATT) on October 30, 1947 1-2). (Bahandari, 1998, pp

Since then, the world experienced exceptional growth Exports grew by an average of 6% annually,

in world trade.

and total trade in 2000 was 22 times higher than it was in 1950 (WTO in Brief, 2002). GATT and WTO helped create a

strong and prosperous trading system that contributes to unprecedented growth. Perhaps one of the most important member of the WTO, out of the current 144, is Japan. Being the second largest

economy of the world and one of the biggest trading nations in the world, Japan is indeed a very important economic part of the world (Trade Policy Review, 2000). As a leading

economy and a major beneficiary of the open trading system, Japan promote strengthening of the WTO thought more and more trade liberalization.

WTO and Japan This essay will provide a brief overview of the WTO, its current status, and Japans current economy and trade policy. In 1946, 23 countries started tariff negotiations, which ended with the existence of the General Agreement on Tariffs and Trade (GATT) on October 30, 1947. As a mean

for communication, the GATT developed a serious of trade negotiation rounds, The first dealt mainly with tariff reductions but later negotiations included other areas such as antidumping and non-tariff measures 1-3) Members of GATT focused on negotiating tariffs reductions in goods only. GATT members identified that the (Bahandra, 1998, pp

increasing complexity of the international economy necessitated a more formal, powerful international trade regime. So, during the Uruguay Round, from 1986 to 1994,

member states completed negotiations that led to the creation of The World Trade Organization (WTO) on January 1, 2002 (Jakson, 2000, pp 68-70) WTO agreements covered trade in goods, services, inventions, creations, and design. The WTO system as it

has emerged from the Uruguay Round now consists of: multilateral Agreement on Trade in Goods including the General Agreement on Tariffs and Trade (GATT); General

WTO and Japan Agreement on Trade in Services (GATS); and Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) (Trading into the Future, 1999).

The WTO agreements are complex because they are legal texts covering a wide range of activities. They deal with:

agriculture, textile, banking, telecommunications, government purchases, industrial standards, food sanitation regulations, intellectual property, and much more (Business Guide to, 1999, p 4). In 2000, new talks started on agriculture and services. These have now been incorporated into broader

agenda at the fourth WTO Ministerial Conference in Doha, Qatar in November 2001 (Drache, Ostry, 2002). Perhaps the

first major success of the conference was the completion of the Ministerial Declaration on TRIPs and Public Health that were impossible to settle in Geneva, which raised economic and humanitarian issues of the highest importance Ostry, 2002). Agreements (Drache,

included the right to grant

compulsory licenses and to determine the grounds upon which they should be granted, and the right to establish national regimes for the exhaustion of intellectual property rights. The declaration removed a critical point of discord between developed and developing countries, and it has been welcomed

WTO and Japan by governments, by public health lobbies and by the pharmaceutical industry (Moore, 2001). The WTO agenda added negotiations and other work on nonagricultural tariffs, trade and environment, tariff and

non-tariff barriers, investments, competition policy, trade facilitation, transparency in government procurement, intellectual property, and a range of issues raised by developing countries as difficulties they face in implementing the present WTO agreements (Moore, 2001). The declaration set January 1, 2005 as the date for completing all but two of the negotiations. Negotiations

on the Dispute Settlement Understanding are to end in May 2003; and those on a multilateral register of geographical indications for wines and spirits, by the next Ministerial Conference in 2003. Progress is to be reviewed at the Fifth (Negotiations,

Ministerial Conference in 2003 in Mexico 2002).

Today, WTO has 144 members, accounting for over 98% of world trade. There are about 30 other countries that are

still negotiating members (WTO in brief, 2002). Japan is the second largest economy of the world after the United States. At the same time it is one of the

world's biggest trading nations (Trade Policy Review, 2000).

WTO and Japan In 2000 Japan's gross domestic product (GDP) was $4.84 trillion, compared to $9.84 trillion for the United States (Japan 2000, 2001). Japan also has one of the world's Japan's per capita GDP rose from By 1992 per

highest living standards. 21% of the U.S.

level in 1955 to 56% in 1970.

capita GDP had reached $19,920, 86% of the U.S. level (Kats, 2001). Despite the overall strength of the Japanese

economy, in the late 1990s Japan was mired in its longest recession since World War II. GDP, which had grown slowly

in the early 1990s, fell 0.4% in 1997 and another 2.8% in 1998 (Kats, 2000). The government and industry cooperation, strong work ethics, mastery of high technology, and small defense allocation have helped Japan advance with extraordinary powerful economy (2001 country report, 2002). services make up the largest part of Japan's economy. In 1999 services such as trade, government, and real estate accounted for 66 percent of Japan's GDP, while industry such as mining, manufacturing, and construction made up 32 percent, and agriculture contributed 1 percent (2001 country report, 2002). The WTO Trade Policy Review of Japan Report in 2000. provides numerous examples of structural characteristics of the Japanese economy which restrict access for foreign goods and services and discourage foreign investment.

WTO and Japan The report notes that Japan's market remains monopolistic, afflicting Japan with rates for telephone and internet services well above developed-country standards (Trade Policy review, 2000). In sector after sector, ranging from telecommunications to energy to flat glass, foreign suppliers are faced with countless examples of barriers impeding access to the Japanese market that are attributable in part to the lack of effective enforcement of national laws which in many countries operate in tandem with WTO commitments (Trade Policy review, 2000). With high average tariff rates on agriculture imports and considerable domestic support for the industry the sector remains insulated from foreign competition Policy review, 2000). (Trade

The WTO Agreement on Agriculture

helped established the necessary conditions for long term agricultural reform but it is important to build upon the foundation by accelerating the process of reducing trade distortions. The WTO negotiations on agriculture under the

built-in agenda offer an opportunity to lower tariffs and bind them and substantially reduce trade-distorting domestic supports (Trade Policy review, 2000). Japan is ranked 19th among OECD countries with respect to foreign direct investment (FDI) inflows, even

WTO and Japan though it is the OECD's second largest economy. These

persistently low levels of FDI reveal the obstacles that present formidable barriers to foreign firms wishing to gain access to Japan's economy. Even though FDI into Japan Japan's stock of

increased by 79% from 1998 to 1999 alone,

inward foreign direct investment seems small relative to the size of its overall economy (Trading Into, 1999).

Foreign suppliers continue to face a series of barriers, including a lack of transparency, questionable standards and technical specifications in favor of domestic firms, and excessive use of single tendering. As the

Secretariat's report notes, public works procurement is of particular concern. From July 1998 to July 1999, for the

second year in a row, foreign design and construction firms won only $50 million of Japan's $250 billion Japanese public works market (Japan: a country, 2000). Japanese suppliers

of services are considerably protected from foreign competition through internal regulations, state-ownership, and the government tolerance of anticompetitive private practices. The various barriers that inhibit foreign

penetration into this sector carry a heavy cost, particularly given the increasing importance of this sector as a contributor to output and employment in the Japanese and the world economy. point. Distribution services are a case in

As the report notes, Japan's inefficient

WTO and Japan distribution system drives up the prices for consumer goods, including agriculture, and may be a factor leading Japanese businesses to relocate abroad. The General Agreement on Trade in Services provides a framework for addressing barriers to services (Trading Into, 1999). The WTO built in agenda talks on services offer an

opportunity to liberalize a broad range of service sectors. The Japanese government need to support proposals in the services talks to reduce current restrictions and to improve regulatory practices across industries to ensure that domestic regulations do not undermine efforts to increase market access. In conclusion, it is clear that there have been significant positive changes in the Japanese economy since the trade policy review in 1998. However, whether these mark the beginning of a series of broad and fundamental changes that will have a genuine and lasting effect on the Japanese economy remains to be seen. Japan needs to put as a top

priority the pursuit of a more aggressive deregulation and structural reform program that opens its markets to foreign competition across a wide range of industrial, agricultural, and service sectors. By promoting sweeping deregulation,

further opening its markets, enacting a healthy dose of corporate reform, and strengthening its competition policy

WTO and Japan laws, activities, and enforcement efforts, we are confident that the Japanese government will be successful in securing a sustained economic recovery. There is no doubt that Japan

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benefited from the multilateral trading system and that it has a responsibility to maintain and strengthen the system.

WTO and Japan References

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2001 Country Report on Economic Policy and Trade Pratcices. (2002). Bureau of Economic and Business Affairs. U.S.

Department of state: USA. Bahandari, Surendra. (1998). World Trade Organization and

Development Countries. Delhi.

Deep and Deep Publication: New

Business Guide to the world Trading System. (1999). International Trade Center UNCTAD/WTO. Secretariat: Geneva. Drache, D., Ostry, Sylvia. (2002). From Doha to Kananaskis: Commonwealth

The Future of the World Trading System and the Crisis of Governance. Trade Policy review of Japan. (2000). Trade Policy Review

Body, World Trade Organization. Retrieved May 2, 2002 from the world wide web: http://www.wto.org Brief. (2002). World Trade Organization. WTO in

Retrieved

April 26, 2002 from the world wide web: http://www.wto.org Trading Into the Future. (1999). World Trade Organization.

Retrieved May 1, 2002 from the world wide web: http://www.wto.org

WTO and Japan Jakson, John. (2000). Dispute Settlement and the WTO From GATT to the WTO. Kluwer Law

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Emerging Problems.

International: Netherlands. Japan: a Country Study. (2000). Library of Congress.

Retrieved May 23, 2002 from the world wide web: http://memory.loc.gov/frd/cs/jptoc.html Japan Economy 2000. (2001). Photius. Retrieved May 9, 2002

from the world wide web: http://www.photis.com/wfb2000/ countries/japan/japan_economy.html. Katz, Richard. (2001). http://encarta.com Moore, Mike. (2001). WTO and the New Round of Trade Talks. Japan. Encarta Online.

World Trade Organization. Retrieved May 12, 2002 from the world wide web: http://www.wto.org/wto/english/news_e/spmm_e/spmm73_e.ht m Negotiations, Implementations, and Development: The Doha Agenda. (2002). World Trade Organization. Retrieved May 14, 2002 from the world wide web: http;//www.wto.org/wto/english/tratop_e/dda_e/dda_e.htm