United States Trade Representative
2019 National Trade Estimate Report on Foreign Trade Barriers
The U.S. goods trade deficit with Japan was $67.6 billion in 2018, a 1.8 percent decrease ($1.2 billion) over 2017. U.S. goods exports to Japan were $75.0 billion, up 10.9 percent ($7.4 billion) from the previous year. Corresponding U.S. imports from Japan were $142.6 billion, up 4.5 percent. Japan was the United States' 4th largest goods export market in 2018.
U.S. exports of services to Japan were an estimated $46.4 billion in 2017 (latest data available) and U.S. imports were $33.1 billion. Sales of services in Japan by majority U.S.-owned affiliates were $72.0 billion in 2016 (latest data available), while sales of services in the United States by majority Japan-owned firms were $158.6 billion.
U.S. foreign direct investment (FDI) in Japan (stock) was $129.1 billion in 2017 (latest data available), a 3.6 percent increase from 2016. U.S. direct investment in Japan is led by finance/insurance, manufacturing, and information services.
The U.S. Government continues to engage closely with the Japanese government to urge it to remove a broad range of barriers to U.S. exports, including barriers at the border as well as other barriers to entering and expanding the presence of U.S. products and services in the Japanese market. In September 2018, President Trump and Prime Minister Abe agreed to start negotiations for a U.S.-Japan Trade Agreement, and the Administration notified Congress on October 16, 2018, of its intent to start negotiations following the completion of relevant domestic procedures.
Japan is the third largest single-country market for U.S. agricultural products, with U.S. exports valued at nearly $13 billion in 2018, despite the existence of substantial tariffs and other market access barriers. Tariffs also have a negative impact on a range of industrial goods, such as chemicals, fish, wood products, and jewelry.
Citrus, Dairy, Processed Food, and Other Agricultural Products
Japan maintains high tariffs that hinder U.S. exports of agricultural and other food products to its market. These high tariffs include grains, sugar, citrus, wine, dairy, and a variety of processed foods, and generally apply to food products that Japan produces domestically. Examples of double-digit import tariffs include: tariffs of 32 percent on oranges imported during the period from December to May; 22.4 percent to 40 percent on various types of cheese; 20 percent on dehydrated potato flakes; 17 percent on apples; 21.3 percent on tomato juice (29.8 percent for tomato juice with sugar added); 15 percent on almond flour; 10.6 percent on frozen sweet corn; 20.4 percent on cookies; up to 17 percent on table grapes imported during the period from March to October; and the lesser of 15 percent or 125 yen/liter (minimum of 67 yen/liter) on wine.Fish and Seafood
Total U.S. fish and seafood exports to Japan in 2017 were valued at $860 million. However, tariffs of 3.5 percent to 10 percent on several fish and seafood products, such as pollock, herring, salmon, whiting, cod, and fish oil, remain an impediment to U.S. exports, as well as for Japanese importers who rely on U.S. raw product for their processing operations. Other market access issues include Japan’s import quotas on Alaska pollock, cod, Pacific whiting, mackerel, sardines, squid, Pacific herring, pollock roe, cod roe, and surimi. Although Japan has reduced tariffs, increased import quota volumes, and eased the administrative burdens associated with those quotas, the import quotas continue to present barriers to U.S. exports. The United States has urged Japan to take further action to reduce and eliminate obstacles to U.S. exports of fish and seafood.
Leather and Footwear
Japan maintains high tariffs on leather, footwear, and travel goods, ranging from 3.5 percent to an ad valorem equivalent of approximately 189 percent. In particular, Japan continues to apply TRQs to a limited and tightly controlled volume of leather footwear imports. The tariffs on out-of-quota imports are either 30 percent or 4,300 yen (approximately $39), whichever is higher. These tariffs can double the cost of imports, and negatively affect market access for U.S.-made and U.S.-branded footwear. Japan also applies TRQs on some raw hides and skins. The United States continues to seek improved market access for U.S. exports in this sector.
Rice Import System
Japan’s highly regulated and nontransparent importation and distribution system for rice limits the ability of U.S. exporters to have meaningful access to Japan’s consumers. Japan has established a tariff-rate quota (TRQ) of 682,200 metric tons (milled basis) for imported rice. The Grain Trade and Operations Division of the Ministry of Agriculture, Forestry, and Fisheries’ (MAFF) Crop Production Bureau manages the TRQ through periodic ordinary minimum access (OMA) tenders and through simultaneous-buy-sell (SBS) tenders. Only a small amount of U.S. rice imported into Japan reaches Japanese consumers identified as U.S. rice. Imports of U.S. rice under the OMA tenders are destined almost exclusively for government stocks. The MAFF releases these stocks exclusively for non-table rice uses, such as industrial food processing, animal feed, and re-export as food aid.
U.S. rice exports to Japan in 2017 were valued at $190 million, totaling 302,973 metric tons. Although U.S. rice exports make up only about four percent of all rice consumed in Japan, industry research shows that Japanese consumers might buy more high-quality U.S. rice if it were more readily available. The United States continues to monitor Japan’s rice import system in light of Japan’s WTO import commitments.
Wheat Import System
Japan requires wheat to be imported through the Grain Trade and Operations Division of MAFF’s Crop Production Bureau, which then resells the wheat to Japanese flour millers at prices substantially above import prices. These high prices limit wheat consumption by increasing the cost of wheat-based foods in Japan. The United States continues to monitor carefully the operation of Japan’s state trading entity for wheat and its potential to distort trade.Pork Import Regime
U.S. pork exports to Japan are subject to a trade-distorting “gate price mechanism” that functions in a manner similar to a variable levy. In order to prevent lower-priced imports from competing with Japanese pork, the mechanism levies progressively higher duties on lower-priced imports. For instance, chilled and frozen pork are subject to a specific duty of up to 482 yen/kg (approximately $4.30/kg) based on the difference between the actual import value and a government-established reference price. This duty is in addition to a 4.3 percent ad valorem duty that is charged on all chilled and frozen pork regardless of import value.
In 1995, as part of the results of the Uruguay Round, Japan was allowed to institute a beef special safeguard (SSG) to protect domestic producers in the event of an import surge. The SSG is triggered when both the import volumes of beef from all trading partners and from non-FTA trading partners increase by more than 17 percent from the level of the previous Japanese fiscal year on a cumulative quarterly basis. When triggered, beef tariffs rise from 38.5 percent to 50 percent for the rest of the Japanese fiscal year. There are separate safeguards for fresh/chilled beef and frozen beef. The safeguard for frozen beef was triggered in the first quarter of Japanese fiscal year 2017 (April-June) after an increase in imports to just slightly above the threshold, causing the tariff on all frozen beef from the United States to increase to 50 percent until March 31, 2018.
Customs Barriers and Trade Facilitation
The United States continues to urge Japan to improve the speed of customs processing and to reduce the complexity of customs and border procedures. The United States has encouraged Japan to raise its de minimis threshold for low-value imports from 10,000 yen (approximately $90), which would reduce documentation requirements and help U.S. shipments move more quickly across borders. Expanding Japan’s advance rulings system to address more customs issues would also improve transparency and predictability for U.S. exporters. The United States also has certain concerns about unequal customs treatment between Japan Post and private companies (see the Services Barriers section below for further information).
Wood Products and Building Materials
Japan maintains numerous subsidy programs at the national, prefectural, and municipal levels that may favor domestic wood products over imports. In addition, the Competitiveness Enhancement Program for Plywood, Sawn Wood and Laminated Timber was established as part of a 2017 MAFF supplemental budget, making approximately $360 million available to support up to 50 percent of the expense of building projects to enhance forestry production and logistics systems. The United States is monitoring the disbursement of these funds and other subsidy programs.
TECHNICAL BARRIERS TO TRADE / SANITARY AND PHYTOSANITARY BARRIERS
Technical Barriers to Trade
The Japanese Consumer Affairs Agency (CAA) amended Japan’s Food Labeling Standards on September 1, 2017. This amendment expands country of origin labeling (COOL) requirements to the main ingredients by weight in processed foods manufactured in Japan, with a transition period for compliance with the new requirements until March 2022. For example, a Japanese manufacturer of soy sauce would have to identify on the label the country where the soybeans used in its production were cultivated. While the expanded requirements do not apply to imported processed foods manufactured outside of Japan, they have the potential to adversely affect U.S. exports of food ingredients because processed food manufactured in Japan may be produced with imported ingredients. In such cases, Japanese manufacturers may avoid using ingredients from multiple origins (including the United States) as a way to minimize labeling burdens. Furthermore, the amendment allows for the possibility of incorrect food labeling because Japanese processed food manufacturers may indicate an “intended” or historical source of ingredients when an ingredient is not actually sourced from that country. The United States continued to raise concerns bilaterally with Japan in the WTO Committee on Technical Barriers to Trade in 2018.
Sanitary and Phytosanitary Barriers
Beef and Beef Products
In December 2003, Japan banned U.S. beef and beef products following the detection of an animal positive for bovine spongiform encephalopathy (BSE) in the United States. Following steps taken by Japan in July 2006, February 2013, and January 2015 that expanded U.S. access to the Japanese market for beef and beef products, the United States is currently eligible to export all beef and beef products from cattle less than 30 months of age slaughtered in the United States. The United States continues to urge Japan to fully open its market to U.S. beef and beef products from animals of all ages, consistent with recognition by the World Organization for Animal Health (OIE) that the United States is a country with negligible risk for BSE.
Japan’s regulation of food additives has restricted imports of several U.S. food products, especially processed foods and alcoholic beverages. Japan is an important market for processed food; U.S. exports of processed foods and alcoholic beverages to Japan were valued at $2.8 billion in 2017. Certain additives that are widely used in the United States and other markets are not permitted in Japan, including carmine, a natural red food coloring used in a variety of goods, such as baked, confectionary, ice cream, and yogurt products. In addition, U.S. manufacturers have raised concerns about the length of Japan’s approval process for processing aids, which are substances used in food processing that are no longer present, or present at very low levels, in the final food product. The Japanese government created the Food Additive Designation Consultation Center (FADCC) in July 2014 to assist applicants in preparation of applications for regulatory approval of food additives. The FADCC’s services have not been shown to reduce the time needed for preparing applications.
Pre- and Post-Harvest Fungicides
Japan classifies fungicides applied pre-harvest as pesticides, and fungicides applied post‐harvest as food additives. Japan’s requirement that post-harvest fungicides be classified as food additives does not have a significant impact on domestic producers, as Japanese farmers do not generally apply fungicides after harvest.
Japan previously required separate review processes for the pre-harvest and post-harvest uses of each fungicide. In 2018, Japan registered the first fungicide through a single review process that is intended to lead to more timely reviews. The United States remains concerned that Japan requires products treated with a post-harvest fungicide to be labeled at the point of sale with a statement indicating a list of the chemicals used, which may put U.S. products at a disadvantage relative to Japanese products by dampening demand for U.S. products. The United States will continue to work with Japan on these issues.
Maximum Residue Limits
Japan has historically maintained burdensome application requirements for pesticide maximum residue level (MRL) approvals. The lengthy review process for registration of new pesticides and establishment of MRLs can delay the ability of U.S. growers to use newer and safer crop-protection products on crops to be shipped to Japan. In 2016, the first pesticide application was submitted under Japan’s streamlined application process, which is intended to reduce the time, cost, and duplication of completing separate applications for pre-harvest and post-harvest uses of fungicides. The United States continues to work with Japan to improve the process.
Japan’s procedures for enforcement of MRLs result in uncertainty for shippers, including those who have never violated Japan’s standards. After a single pesticide MRL violation, Japan imposes enhanced surveillance of all imports of the product on which the MRL violation was detected from that particular exporting country. If a second violation is found during the enhanced surveillance period, Japan will detain and test all shipments of that product from the exporting country, holding shipments until residue testing proves compliance.
Japan has made significant progress in establishing science-based MRLs. The establishment of numerous permanent MRLs has resulted in fewer disruptions in trade. The United States continues to work with Japan and U.S. producers to support Japan’s MRL establishment process and to address MRL-related concerns.
In 2017, Japan lifted a ten-year ban on imports of chipping potatoes from Idaho when Japan determined there were no longer phytosanitary concerns. Chipping potatoes from 16 U.S. states are now eligible for importation. However, despite the lack of phytosanitary concerns, shipments continue to be limited to a six-month import window (February to July), and they remain subject to a number of restrictions, including on overland transportation to facilities away from ports. The United States will continue to engage with Japan to further improve access for U.S. chipping potatoes.
Japan is a signatory to the WTO Agreement on Government Procurement (GPA), which obligates Japan to open its government procurement to suppliers from the United States and other GPA members. Japan has also made commitments to the United States under bilateral agreements. During 2018, U.S. industry flagged concerns with Japan’s use of technical specifications. Specifically, U.S. industry has argued that technical specifications were selected to exclude U.S. products and services, or direct procurements towards a specific Japanese company. The United States has raised these cases with Japan and will continue to engage with Japan to ensure all procurements covered under these agreements are conducted consistently with Japan’s procurement obligations.
INTELLECTUAL PROPERTY RIGHTS PROTECTION
Japan generally provides strong intellectual property rights (IPR) protection and enforcement. The United States continues to work with Japan to improve IPR protection and enforcement in specific areas through bilateral consultations and cooperation, as well as in multilateral and regional fora.
The United States has urged Japan to continue to reduce piracy rates, including by adopting methods to protect against piracy in the digital environment. The United States also seeks improvements to Japan’s private use exemption rules to cover all works protected by copyright and related rights. The United States continues to urge Japan to strengthen its laws to provide effective criminal and civil remedies against the unauthorized circumvention of technological protection measures used by rights holders to protect their works, as well as effective criminal and civil remedies against trafficking in tools used to circumvent such technological protection measures.
As of March 2019, under the “Act for Protection of Designated Agricultural, Forestry and Fishery Products and Foodstuff” (GI Act), which took effect in 2015, 72 geographical indications (GIs) for domestic agricultural products, 72 GIs for European agricultural products, and 10 additional applications have been announced on MAFF’s website. In addition, 10 GIs for domestic alcoholic beverages and 146 for foreign alcoholic beverages have been registered by Japan’s National Tax Agency.
On November 29, 2018, the Diet passed revisions to the GI Act that would limit the continued use of protected terms by third parties to a period of up to seven years. On February 1, 2019, 210 EU-proposed GI protections went into effect, including 71 terms for food to be protected under Japan’s GI Act, and 139 alcohol and alcoholic beverage terms to be protected under the Act Concerning Liquor Business Associations and Measures for Securing Revenue from the Liquor Tax.
The United States continues to monitor implementation of Japan’s GI system, as well as implementation of its recent agreement with the European Union with respect to GIs. The United States urges Japan to refrain from measures that would unfairly limit market access for U.S. products and to ensure consistency with core transparency and due process principles, in particular with respect to the protection of existing trademarks, the safeguarding of the use of generic terms, and the effective operation of objection and cancellation procedures.
Express Delivery – Japan Post
In the express delivery service sector, the United States remains concerned by unequal conditions of competition between Japan Post and international express delivery suppliers, including in areas such as quarantine procedures and duty calculation. Private company shipments arriving at airports are required to clear quarantine at the airport, which requires expensive, on-airport facilities. Japan Post packages receive preferential treatment in that they can be taken from the airport to be checked at international distribution centers. Further, in the past year, several companies have also reported that Japan customs employees are not applying Japan’s de minimis laws consistently to Japan Post Express Mail Service (EMS) shipments when performing inspections and duty tax calculations for lower-value shipments on behalf of EMS.
The United States continues to urge Japan to take action to enhance fair competition by leveling the playing field, including by equalizing customs procedures and requirements and prohibiting the subsidization of Japan Post’s international express service with revenue from non-competitive (monopoly) postal services.
The United States also continues to urge the Japanese government to ensure that the postal reform process, including implementation of revisions to the Postal Privatization Law, is fully transparent, including by providing full and meaningful use of public comment procedures and opportunities for interested parties to express views to government officials and advisory bodies before decisions are made. Timely and accurate disclosure of financial statements and related notes is a key element in the postal reform process, as is the continued public release of meeting agendas, meeting minutes, and other relevant documents. The United States will continue to monitor the Japanese government’s postal reform efforts carefully to ensure that all necessary measures are taken to achieve a level playing field between the Japan Post and private sector participants in Japan’s express delivery markets.
Japan’s insurance market is the third largest in the world, after that of the United States and China, with a premium volume of $422.1 billion in 2017 (latest data available). In addition to the offerings of Japanese and foreign private insurers, insurance cooperatives (kyōsai) and Japan Post (JP) Insurance, a majority government-owned entity of JP Holdings, also provide substantial amounts of insurance to consumers. Given the size and importance of Japan’s private insurance market, the United States continues to place a high priority on ensuring that the Japanese government’s regulatory framework fosters an open and competitive insurance market.
Japan’s postal life insurance system retains a substantial share of Japan’s insurance market. The United States has longstanding concerns about the postal insurance company’s negative impact on competition in Japan’s insurance market and continues to monitor closely the implementation of reforms. The United States has long urged Japan to take steps to address a range of level playing field concerns with regard to Japan Post in the insurance sector.
The United States continues to urge Japan not to allow the JP Group to expand the scope of operations for its financial services companies before a level playing field is established. Restraints on the scope of JP Group operations – including the cap on the amount of insurance coverage and limits on the types of financial activities and products JP entities can offer – have helped to limit the extent to which the uneven playing field harms private insurance companies. In 2016, the Japanese government revised a ministerial ordinance to raise the per-customer deposit cap of JP Bank from 10 million yen to 13 million yen, and to raise the per-policyholder insurance coverage cap of JP Insurance from 13 million yen to 20 million yen. In December 2018, the government’s committee on postal privatization proposed doubling the deposit cap to 26 million yen. The committee states that this should be accompanied by a reduction in the government’s ownership of JP Bank, but has not committed to any specific date by which the majority government-owned JP Holdings must sell JP Bank shares. As such increases do not require any legislative change, extra caution should be exercised in the process, so that the level playing field issue is properly addressed.
Japan continues to honor the statement by Deputy Prime Minister Taro Aso in 2013, that the Japanese government will refrain from approving new or modified cancer insurance or stand-alone medical products of JP Insurance until it determines that equivalent conditions of competition with private sector insurance suppliers have been established, and that JP Insurance has a properly functioning business management system in place. In addition, before final decisions are made, it is vital that Japan’s process for approving new products be transparent and open to all parties, including active solicitation and consideration of private sector views, along with careful analysis and full consideration of actual competitive conditions in the market.
Insurance businesses run by cooperatives (kyōsai) hold a substantial share of the insurance business in Japan. Some kyōsai are regulated by their respective agencies of jurisdiction (e.g., MAFF or the Ministry of Health, Labor and Welfare (MHLW)) instead of by the Financial Services Agency (FSA), which regulates all private sector insurance and financial services companies. These separate regulatory schemes create a nontransparent regulatory environment and afford kyōsai critical business, regulatory, and other advantages over their private sector competitors. The United States remains concerned about limited FSA supervisory authority over kyōsai.
Bank Sales of Insurance
Banks have become an important distribution channel for the sale of insurance products. In 2007, the Japanese government fully liberalized the range of insurance products eligible for sale through banks. However, limits remain on the sales of some products, different rules exist for the treatment of customer data in some cases, and sales restrictions on insurance are applied to certain categories of customers (for example, customers who work for small- or medium-sized corporate borrowers). The United States continues to call on the Japanese government to conduct in the near term a fact-based and transparent review of the bank sales channel that includes meaningful opportunities for input from interested stakeholders and that takes into account global best practices to further enhance policyholder protection and improve consumer choice.
The United States continues to urge reforms in Japan’s financial services sector to expand options for defined contribution pensions and promote sustainable lending practices that rely less on family guarantees. The FSA continues to enhance its engagement and outreach with both domestic and foreign financial firms operating in Japan, and reorganized its bureaus in 2018 in order to further improve its ability to respond to a fast-changing industry. The United States also recommends a continued focus on transparent practices, such as providing written interpretations of Japan’s financial laws.
Japan imposes cumbersome and time-consuming procedures for the registration of foreign lawyers to provide international legal services in Japan, and prohibits foreign lawyers from establishing branch offices in Japan (except for one type of firm, which is first required to corporatize locally). The United States continues to urge Japan to further liberalize the legal services market. For example, the United States urges Japan to eliminate the requirement that two years of post-admission practice of home country law take place outside Japan; ensure that legal or bar association rules do not impede Japanese lawyers from becoming members of international legal partnerships; and significantly simplify and accelerate the registration process for new foreign legal consultants.
In October 2018, the Ministry of Justice (MOJ) drafted an amendment to the Foreign Lawyers Act addressing certain concerns. The amendment includes proposals such as reducing the requirement for post-admission practice of home country law from two years to one year and permitting foreign lawyers to establish branches with Japanese lawyers. However, the draft amendment has not been submitted to the Diet. The United States will monitor progress with respect to the amendment.
The United States continues to urge the Japanese government to work with foreign universities to find a nationwide solution that grants tax benefits to foreign universities operating in Japan comparable to those provided to Japanese schools and allows foreign universities to continue providing their unique contributions to Japan’s educational environment.
American universities have reported success in being recognized as educational institutions eligible for issuance of visas to foreign students to study at their campuses in Japan. However, despite extensive consultations with authorities, no American university has been able to satisfy all the legal requirements to be granted “educational corporation” (gakkō hōjin) status, which would confer the same tax benefits enjoyed by Japanese universities. The requirement that such corporations be “independently administered” (i.e., not subject to direct administration by the parent university in the home country) is a particularly difficult legal hurdle to overcome. Lack of gakkō hōjinstatus means foreign satellite universities are also excluded from participation in new Japanese government grant programs that promote international exchange and provide financial support for students wishing to study abroad.
The United States continues to focus on ensuring fair market opportunities for emerging technologies and business models in Japan, ensuring a regulatory framework appropriate for addressing converged and Internet-enabled services, and maintaining competitive safeguards on dominant carriers.
Dominant Carrier Regulation
The Nippon Telegraph and Telephone Corporation (NTT) continues to dominate Japan’s fixed-line market through its control over almost all “last-mile” connections. Although NTT’s market share has been declining for the last seven years and declined by 0.5 percent from 2017 to 2018, it still holds a 67.8 percent share as of June 2018, including wholesale services in the fiber-to-the-home market. NTT’s authority to bundle its fixed-line services with mobile phone operator NTT Docomo’s mobile service is also of concern, as it appears to undermine the rationale for structurally separating the companies.
Unlike most advanced economies, Japan does not use auctions to allocate spectrum for commercial mobile services, and the factors the Ministry of Internal Affairs and Communication (MIC) uses to determine how to evaluate applications have raised questions about the fairness of the allocation process. Several current spectrum allocations create bands unique to Japan (e.g., for self-driving vehicles) that prevent U.S. company technologies from functioning in Japan. In 2017, the Cabinet established MIC’s Discussion Panel on Growth Strategy for Effective Use of Radio Frequencies and associated expert working group, charged with examining ways to use spectrum more effectively. However, the panel’s August 2018 final report recommended only that international trends should continue to be monitored. The panel also recommended that MIC disclose information about frequencies allocated to government bodies, as is done in the United States.
In December 2018, following a one-month public comment period, MIC finalized new guidelines on spectrum allocation for 5G mobile telecommunications. MIC is allocating spectrum based on a series of two-stage screening criteria set forth in the guidelines: absolute screening criteria (minimum threshold requirements that all applicants must satisfy) and comparative screening criteria (which still allows MIC discretion to evaluate and choose among applicants). Applications from prospective 5G mobile operators were accepted in January and February 2019, followed by final frequency allocations in March 2019. Given anticipated spectrum needs for the launch of next-generation “5G” services, reforming Japan’s system for assigning and allocation spectrum should remain a priority.
MIC’s January 2017 “Guideline for Improvement on Handset Subsidies for Smartphones” significantly limits mobile service supplier subsidies on the sale of new mobile handsets. Though ostensibly intended to reduce overall mobile service charges (which presumably reflect such subsidies), there is no evidence that this policy has had that effect. In fact, it could hurt both handset manufacturers that frequently introduce new models and operators that seek to compete for customers through handset promotions.
The Cabinet Secretariat (CAS) is pushing mobile phone carriers to lower their prices, arguing mobile fees can be reduced by 40 percent based on the higher prices in Japan as compared with other countries. MIC is thus considering further intervention in the market both through further restrictions on mobile handset subsidies and ongoing monitoring of mobile communication prices.
Imports for Testing and Demonstration Purposes
Unlike the United States, Japan does not allow for the importation of any devices for the purposes of testing or demonstration that do not already hold regulatory authorizations. This restriction gives Japanese companies an advantage in the market, because foreign companies face delays in testing devices on local carrier networks before product launch. These restrictions also make it difficult for foreign companies to collaborate with their local engineers on design, development, accessories, and compatibility with other devices, and prevent foreign companies from obtaining local customer feedback during the development process.
Health Information Technology
The United States has urged Japan to improve the quality and efficiency of health care by rapidly implementing health information technology (IT) that is based on international standards, promotes technology neutrality and interoperability, and allows patients greater access to their own health records. Engagement between U.S. and Japanese government health IT experts continues to address health IT issues of mutual interest.
Renewable Energy Services
U.S. companies attempting to sell renewable
energy to Japan have reported being denied grid access because the grid is
“full”. Legacy utility companies control both transmission and generation in
Japan, which reportedly allows them to overstate actual grid usage, and
understate capabilities, to prevent competition. As part of Japan’s energy
reform process, laws that will unbundle the transmission and generation
companies will take effect in 2020. The United States will closely monitor this
process. In addition, Japan’s technical and safety standards do not appear to
reflect international standards, and complicated codes and slow approval
processes for new energy technology benefit incumbents.
BARRIERS TO DIGITAL TRADE AND ELECTRONIC COMMERCE
Based on the amended Act on Protection of Personal Information (APPI), the new Personal Information Protection Commission (PPC) issued new orders and guidelines in October and November 2016, respectively. The new guidelines recognize the APEC Cross Border Privacy Rules (CBPR) system as a mechanism that companies can avail themselves of to demonstrate compliance with Japanese requirements for transferring data outside Japan. APPI took full effect in May 2017. The United States will continue to monitor its implementation.
In July 2018, Japan and the European Union concluded negotiations on a reciprocal finding of an adequate level of data protection, thereby agreeing to recognize each other’s data protection systems as “essentially equivalent.” On January 23, 2019, Japan and the European Union mutually recognized each other’s data protection laws as providing an adequate level of protection of personal data, allowing personal data to flow freely between the two jurisdictions. As part of the agreement, Japan put in place additional requirements regarding EU data, including supplementary rules regarding the transfer of EU data from Japan to another third country. Japan’s PPC is currently drafting implementing guidance for the supplementary rules. The United States will closely monitor this process to determine whether it may cause any disruptions in the transfer of EU data from Japan to the United States.
Digital Platform Regulation
In December 2018, METI, MIC, and the Japan Fair Trade Commission jointly issued a policy paper identifying certain principles and initiating a study on the need to regulate digital platforms, ostensibly to address competition-related issues. Any proposed regulations will warrant close monitoring to ensure that they do not curtail innovation or disrupt healthy market competition.
Japan continues to have the lowest inward foreign direct investment (FDI) as a proportion of total output of any major OECD country. According to OECD statistics, the inward FDI stock at the end of 2017 (latest data available) was only 4.1 percent of GDP in Japan. Inward foreign merger and acquisition (M&A) activity, which accounts for a large portion of FDI in other OECD countries, also lags in Japan.
While the Japanese government recognizes the importance of FDI to revitalizing the country’s economy, its performance in implementing domestic regulatory reforms to encourage a sustained increase in FDI has been uneven. In June 2013 the government of Prime Minister Abe announced its goal of doubling Japan’s inward 2012 year-end FDI stock by 2020, and it confirmed this commitment in its 2018 growth strategy. The government is pursuing a range of policies intended to promote this target.
The number of annual inbound M&A deals has
remained relatively low for an economy the size of Japan, raising questions
about the adequacy of the government’s measures if its 2020 target is to be
achieved. A variety of factors make inbound M&A difficult in Japan, including
attitudes toward outside investors, inadequate corporate governance mechanisms
that protect entrenched management over the interests of shareholders,
cross-shareholdings, aspects of Japan’s commercial law regime (see the Other
Sectoral and Cross Sectoral Barriers section below for further information), and
a relative lack of financial transparency and disclosure.
Improving Anti-Monopoly Compliance and Deterrence
Japan’s Anti-Monopoly Act (AMA) provides for both administrative and criminal sanctions against cartels and administrative sanctions for non-cartel conduct. Criminal prosecutions, which have the strongest deterrent effect against anticompetitive behavior in other countries, have been few, and penalties against convicted company officials have been weak, although the Japan Fair Trade Commission (JFTC) has routinely imposed sizable civil “surcharges” against cartelists. The United States has continued to urge Japan to take steps to maximize the effectiveness of enforcement against cartel and bid-rigging violations of the AMA in order to ensure open and competitive markets.
U.S. stakeholders in Japan have expressed continued concern regarding JFTC investigations under the “unfair trade practices” clause of the AMA, in particular the implementation of its prohibition against “abuse of superior bargaining position” and related administrative guidance. They assert that vague and ambiguous standards for liability in this area provide the JFTC with broad enforcement discretion and may make good faith efforts to comply with the AMA difficult. In an attempt to address some of these concerns, in June 2017, the JFTC released revised AMA guidelines on distribution and business practices, based on a report compiled by an advisory body. The JFTC stated in its 2017 annual report that the guidelines provide clearer thresholds for judging the legality or illegality of “vertical restriction on competition” or “the fear of impeding fair competition.”
Improving Fairness and Transparency of JFTC Procedures
In 2015, the JFTC implemented revised procedures for JFTC hearings and appeals from JFTC orders to address concerns as to whether the preexisting system provided sufficient due process protections. The Diet enacted a partial amendment to the AMA in an omnibus CPTPP bill on June 30, 2018. The amendment, which took effect on December 30, 2018, includes adoption of a commitment system pursuant to which the JFTC may terminate an investigation based on a party’s commitment to undertake specified actions to remedy the alleged violations of the AMA.
U.S. stakeholders in Japan continue to express concern regarding the lack of recognition of attorney-client privilege and severe limitations on witnesses’ access to counsel during investigational interviews. In early 2019, reports indicated that the JFTC is considering a limited recognition of the privilege in connection with investigations of unreasonable restraints of trade pursuant to Article 3 of the AMA. The United States will continue to monitor developments and advocate for fuller recognition of attorney-client privilege by the JFTC.
In November 2018, the JFTC, along with the
Ministry of Internal Affairs and Communications and the Ministry of Economy,
Trade, and Industry issued a draft interim report of their joint study on the
possible monopoly of data by mega IT companies and its possible impact on
mergers and acquisitions. The draft report mentions possible measures to be
taken on completion of the survey, such as supplementing the AMA with additional
regulations on trade practice or changes to other laws. The study group intends
to seek opinions from industry through interviews and public comments, but
company representatives were not part of the study group.
OTHER SECTORAL AND CROSS-SECTORAL BARRIERS
Advisory councils and other government-commissioned study groups are accorded a significant role in the development of regulations and policies in Japan. However, the process of forming these groups can be opaque, and often non-members are not offered meaningful opportunities to provide input into these groups’ deliberations. The United States continues to urge Japan to ensure transparency with respect to the formation and operation of advisory councils and other groups convened by the government by adopting new requirements to ensure that ample and meaningful opportunities are provided for all interested parties, as appropriate, to participate in, and directly provide input to, these councils and groups.
Public Comment Procedure
Many U.S. companies remain concerned by inadequate implementation of the public comment procedure by Japanese ministries and agencies. For example, in some cases, comment periods appear unnecessarily short, and comments do not appear to have been adequately considered given the brief time between the end of the comment period and the issuance of a final rule or policy. The United States has stressed the need for Japan to make revisions to improve the system, such as lengthening the standard public comment period for rulemaking.
Foreign investment into Japan remains constrained by a range of issues, including: conditions for using tax-advantaged merger tools for inward-bound investment in Japan; securities law and capital market issues inherent in cross-border stock-for-stock transactions; and corporate governance systems that have not adequately reflected the interests of shareholders. The United States continues to urge Japan to: identify and eliminate impediments to cross-border mergers and acquisitions; ensure the availability of reasonable and clear incentives for many such transactions; and take measures to ensure that shareholder interests are adequately protected when Japanese companies adopt anti-takeover measures or engage in cross-shareholding arrangements. The United States welcomed steps taken in the 2015 revised Companies Act and Corporate Governance Code to increase management accountability and corporate transparency, and continues to urge Japan to further improve its commercial law and corporate governance systems in order to promote efficient business practices, capital markets development, and shareholder rights in accordance with international standards. Areas ripe for improvement include facilitating and encouraging active and appropriate proxy voting and strengthening protection of minority shareholders by clarifying fiduciary duties of directors and controlling shareholders.
The United States has expressed strong concerns with the overall lack of access to Japan’s automotive market for U.S. automotive companies. A variety of nontariff barriers impede access to Japan’s automotive market, and overall sales of U.S.-made vehicles and automotive parts in Japan remain low.
Nontariff barriers include certain issues relating to unique standards and testing protocols; an insufficient level of transparency, including the lack of sufficient opportunities for input by interested persons throughout the process of developing regulations; and hindrances to the development of distribution and service networks. These barriers, together with other past and current policies and practices, have had the long-term effect of excluding and disadvantaging U.S. manufacturers in the Japanese market.
Medical Devices and Pharmaceuticals
According to figures from MHLW, imported U.S. medical devices held a 26 percent market share in Japan in 2016 and were valued at $6.9 billion (latest data available). The U.S. market share of medical devices increases to 60 percent when local production in Japan by U.S. companies is included. U.S. imports of pharmaceuticals comprised 7 percent, or $6.3 billion, of the overall Japanese market in 2016 (latest data available). The total market share of U.S.-origin pharmaceuticals in Japan is estimated to be approximately 20 percent if local production by U.S. firms and compounds licensed to Japanese manufacturers are included.
Over the last decade, the government of Japan has increased the appeal of Japan’s pharmaceutical and medical device markets by reducing regulatory approval timelines and by improving the predictability of the reimbursement pricing system. However, regulatory changes in 2018 threaten to erode this progress.
For example, the pilot introduction of the Price Maintenance Premium (PMP) rule in 2010, which rewards innovation and allows for pricing stability throughout the patent life of a medicine, has significantly reduced the drug lag and accelerated patient access to innovative pharmaceutical products. However, in 2018, Japan made changes to its reimbursement system that may reverse this recent trend. The number of products that can qualify for the PMP has been reduced, and fewer companies have received the full benefit of the PMP due to newly established requirements. Several factors taken into consideration in PMP calculations, such as the number of local clinical trials and product launches, appear to make it easier for Japanese companies to qualify for the premium, and reimbursement outcomes suggest that U.S. companies, especially small and medium-sized enterprises, are at a disadvantage compared to Japanese companies.
In addition, U.S. stakeholders are concerned that Japan’s proposed move from the current biennial price revision to an annual price revision and its implementation of a new Health Technology Assessment (HTA) will create significant uncertainty about prices for advanced medical devices and innovative pharmaceuticals, undermining investment planning for capital-intensive product developments in Japan. U.S. stakeholders have also expressed strong concerns about a lack of transparency and stakeholder consultation in the development of these pricing reform initiatives.
The United States continues to urge Japan to implement predictable and stable reimbursement policies that reward innovation; to solicit and consider the input of all stakeholders, including U.S. stakeholders, when developing any measures related to these policies; and to follow transparent processes in the present and future development of any new policies and measures. The United States also encourages Japan to continue working with U.S. industry in its efforts to improve the regulatory environment, and continues to urge Japanto move towards international harmonization of its regulations in clinical development, multiregional clinical trials, and risk management.
In Japan, nutritional supplements are regulated as a part of a loosely defined “health food” subcategory of foodstuffs, unlike in the United States, where nutritional supplements are regulated independently. Japan has taken steps to streamline import procedures and to improve access in this market. However, many significant market access barriers remain, including a 12.5 percent tariff on vitamin imports.
Japan’s Consumer Affairs Agency (CAA) started implementing a new system for Food with Functional Claims (FFC) as of April 1, 2015. The FFC system is a third food-related category under the Food with Health Claims system, parallel to two other premarket government approval systems, Foods for Specified Health Uses (FOSHU) and Foods with Nutrient Function Claims (FNFC). These processes apply to both imported and domestic products. Producers of most nutritional supplements are generally unable to obtain FOSHU approval or FNFC designation due to FOSHU’s costly and time-consuming approval process and FNFC’s standards and specifications, which limit the range of nutritional ingredients such as vitamins and minerals that can qualify for FNFC. Vitamin and mineral products designated under the FNFC system are excluded from the FFC system. In 2016, a CAA expert panel considered including such products in the FFC but ultimately elected against inclusion, in part due to strong opposition from consumer groups. U.S. industry remains concerned that the 2015 FFC regulations on health food and dietary supplements are not in line with global best practices.
Cosmetics and Quasi-Drugs
Japan’s market for personal care and cosmetics products was approximately $16.3 billion in total sales in 2017 (latest data available), making Japan one of the world’s five largest markets for these goods. The United States is consistently the second or third largest source of cosmetics imported into Japan, consisting of skincare, haircare, makeup preparations, fragrance, and toiletry goods such as pre- and after-shaving products, oral care, and bath preparations. In 2017 (latest data available), the U.S. exported $382.1 million, representing 15 percent of total cosmetics imports to Japan.
Advances in market registration for quasi-drugs and particularly cosmetics products that are classified as “medicated cosmetics” or quasi-drugs under Japan’s Pharmaceutical and Medical Devices Act (formerly known as the Pharmaceutical Affairs Law) continued to be delayed. As a result, common products with decades of established consumer use that contain active ingredients, such as anti-dandruff shampoos and conditioners, can face delays of six months or more before entering the market. The quasi-drug approval process for these common products, ingredients, and supporting claims includes requirements that are burdensome and lack transparency, and that do not appear to enhance product safety, quality, or efficacy. MHLW has made some progress towards creating a monograph system, known as besshi kikakushu or “Quasi Drug Additives Spec Codex,” which lists previously reviewed ingredients outside the compendiumand would speed up the approval of products that use previously reviewed active ingredients and claims, similar to the system used by the U.S. Food and Drug Administration. However, due to concerns over protections for proprietary formulations, companies have been reluctant to submit their ingredient information to the list.
As a pilot to assist MHLW in moving towards formalizing a monograph system, U.S. and local industries worked with MHLW to develop product approval guidance for medicated hair products in May 2014 and for anti-bacterial soaps in May 2018. These provide industry with certainty as to MHLW’s requirements, while also improving timelines for product approvals, as local prefectural governments can use the standards to approve products. Industry is calling on MHLW to develop similar standards for other medicated cosmetics. These reforms, if implemented, could help create a more open and competitive market. The United States will closely monitor developments.
The government of Japan has emphasized the importance of encouraging the growth and competitiveness of domestically-produced defense products, but continues to look for partnerships or imported solutions should domestic producers be unable meet performance, cost, schedule or technical requirements. Japan acquires more than 90 percent of its defense imports from the United States and has shown a growing interest in interoperable technology with advanced capabilities. U.S. military sales have increased significantly every year since 2012, while growth of U.S.-licensed military products produced in Japan have remained relatively flat. Japan has issued a 5-year defense procurement plan to expand its defense spending through fiscal 2023 in response to regional security challenges. The United States will continue to monitor progress in this area, as Japan’s direct purchase of U.S. military systems is expected to continue to grow.
Japan is an important U.S. Open Skies partner in the Asia-Pacific region. While the United States and Japan enjoy an Open Skies relationship, Tokyo’s Haneda airport is operationally constrained, and access to the airport for international operations continues to be limited. The United States continues to monitor this situation, as Haneda is expected to open additional slot pairs for international service by 2020, some of which should be available to U.S. carriers.