Challenges for the Upcoming WTO Negotiations and
Agendas for Future Japanese Trade Policy

May 18, 1999

Keidanren
(Japan Federation of Economic Organizations)

1. Introduction

In this era of globalization, development of an appropriate environment for cross-border expansion of corporate business activities will be vital to the sound development of the world economy. Trade and investment rules in particular are taking on a growing importance in terms of increasing the predictability of companies' foreign business activities.

The Japanese Government must focus its energies on the formation of international rules consistent with industrial interests, removing the trade and investment impediments with which companies are faced. In particular, the Government will need to play a far more active role in the upcoming World Trade Organization (WTO) negotiations, while at the same time, provide concrete support to the development of various types of bilateral agreements. Another urgent task will be to establish an effective domestic regime for trade negotiations.

The Asian currency and financial crisis which was sparked by the crash of the Thai baht in the summer of 1997 led almost instantaneously to a global crisis, leaving many developing countries reeling. It will thus be essential to build into Japan's trade policy an increased sensitivity to the situation in such countries.

2. Expectations of the Upcoming WTO Negotiations

One of the top priorities of Japan's trade policy is strengthening the WTO system, which has played such a central role in maintaining and developing a free, non-discriminatory multilateral international trading order.

The upcoming WTO negotiations must realize a greater degree of liberalization and transparency in member countries' trade and investment systems, as well as constraining protectionist trade measures being taken by some member countries which run contrary to the spirit of the WTO.

We strongly hopes to see the next negotiations produce a conclusion of this nature at the earliest possible point. We also believe that in terms of negotiation areas, in addition to services and agriculture, already part of the built-in agenda, (i) tariff reduction on goods in mining and manufacturing, (ii) stronger rules for anti-dumping measures, (iii) clarification of the treatment of electronic commerce, (iv) enhanced protection of intellectual property rights, (v) the development of international investment rules and (vi) stronger dispute settlement procedures should be addressed as priority issues.

(1) Promotion of Liberalization Negotiations

(a) Importance of Tariff Reduction Negotiations on Goods in Mining and Manufacturing (See, Appendix 1)

We strongly hope to see the next round enter into negotiations on comprehensive tariff reductions for goods in mining and manufacturing. Japan's tariff rates on such goods are among the lowest in the world, and we would urge that other developed countries too cut their tariff levels down to at least the same point.

In addition, many developing countries still have high tariff rates and inadequate binding ratios, and improvement should be sought in these areas.

An effective means of advancing tariff reduction negotiations would be to combine formula cuts, whereby member countries reduce their tariffs on the basis of a set formula, with other approaches such as peak tariff cuts.

However, in the case of tariff reduction for developing countries, consideration should be given to the economic situation and level of development of each, allowing, for example, sufficient timeframes for implementation.

(b) Trade in Services Liberalization Negotiation Issues (See, Appendix 2)

In terms of trade in services, we want to see the next negotiations eliminate limitations on the business activities of foreign companies and institute greater transparency in service-related laws and regulations. Of particular importance will be the relaxation of foreign capital limitations, the elimination of citizenship and residence requirements for company executives and staff, the relaxation of regulations on foreign remittance, the elimination of requirements on technology transfer and domestic procurement requirements, and greater transparency in legal systems and the implementation thereof, with these measures to be taken in the areas of telecommunications, distribution, finance, construction and transportation.

(2) Development of Trade and Investment Rules

(a) Prevention of Protectionist Application of Anti-Dumping Measures (See, Appendix 3)

The application by some member countries of protectionist anti-dumping measures is impeding the stable trade activities of us, Japanese companies. Moreover, even where the decision goes against the complainant, anti-dumping investigations in themselves impose a heavy burden on the companies concerned. At the next negotiations, to strengthen disciplines in regard to dumping margin calculations, the sunset clause, investigation procedures and other aspects of anti-dumping measures employed by member countries, we strongly urge a review of the Anti-Dumping Agreement, particularly in regard to the following points, or the introduction of supplementary regulations in the form of an "Anti-Dumping Understanding", as well as strengthening of the functions of the Anti-Dumping Committee.

(i) Fair price comparisons: Clarification of the unit of price comparison for export prices and domestic prices; enforcement of weighted-average comparisons; enforced inclusion of all negative margins; clarification of deducted items in price comparisons; enforced adjustment for start-up costs, etc.
(ii) Sunset clause: Ensuring implementation of the Anti-Dumping Agreement principle whereby anti-dumping duties are to be terminated no later than five years from their imposition.
(iii) Like products: Early clarification of "like products" falling within the scope of anti-dumping investigations; restraint of unlimited expansion of coverage to include next-generation products and so forth.
(iv) Investigation procedures: Clarification and limitation of the definition of the period subject to investigation, prohibition of arbitrary shortening of investigation duration.

(b) Clarification of Treatment of Electronic Commerce (See, Appendix 4)

In regard to electronic commerce, it will be important to maintain the current practice of not imposing customs duties on Internet transactions of information goods. The classification issue also needs to be clarified and progress made on the development of a framework to support the sound development of electronic commerce, including elements such as privacy protection.

(c) Strengthening Intellectual Property Rights Protection (See, Appendix 5)

The overseas business activities of us, Japanese companies, are being obstructed by rampant counterfeiting in developing countries and patent systems in some member countries which are outside international norms. Important elements in this area will include harmonization of patent systems, especially institution of the first-to-file principle and the early publication system as international rules, as well as development of intellectual property rights protection systems in developing countries.

(d) Development of International Investment Rules (See, Appendix 6)

We strongly urge that international rules on investment be developed within the WTO. It is important that such rules be used to eliminate to the greatest extent possible foreign capital limitations, performance requirements (technology transfer requirements, foreign remittance limitations, export obligations and local employment obligations, etc.), and citizenship restrictions in regard to company executives, etc., also ensuring the transparency of investment-related systems.

(e) Strengthening Dispute Settlement Procedures (See, Appendix 7)

Strengthening dispute settlement procedures will be crucial in ensuring the effectiveness of the WTO Agreement and deterring members from casually resorting to protectionist trade measures.

Important issues will include the introduction of measures whereby companies can seek remedy for unjust injury sustained during the investigation period, elimination of "standard of review" in relation to anti-dumping measures, prevention of expansion of the application of the standard of review to other agreements, and the strengthening of WTO internal structure related to dispute settlement.

(f) Other Issues (Appendix 8)

We also look forward to: (i) improvement of government procurement systems; (ii) harmonization of non-preferential rules of origin; (iii) strengthened examination of regional trade agreements; (iv) improvement of trade facilitation; and to deepening discussions on: (v) trade and competition policy; and (vi) trade and environment.

(3) Promotion of WTO Accession for Non-Members

The WTO should be expanded into a truly worldwide organization through the early accession of countries such as China, Taiwan, Russia, Vietnam, Saudi Arabia and etc.

We are experiencing a number of difficulties in these countries in relation to issues such as high tariffs, inadequate intellectual property rights protection and restrictive foreign investment policies. As these countries accede to the WTO, appropriate negotiations need to be undertaken to resolve such problems and increase the transparency of domestic legal and administrative procedures.

3. Agendas of Japanese Trade Policy

As noted already, playing an active role in maintaining and strengthening the multilateral trading system is an extremely important aspect of Japan's trade policy.

Another central policy issue will be to strengthen Government efforts to develop various bilateral agreements, and continue to promote the expansion of exports to Japan from foreign trading partners. Furthermore, with the next WTO negotiations just around the corner, Japan needs to urgently develop a regime to strengthen its negotiation approach.

(1) Strengthening Bilateral Agreement Efforts

Bilateral investment treaties, tax treaties, pension aggregation agreements, mutual recognition agreements and other such bilateral agreements are extremely important in terms of the foreign business activities of Japanese companies. Japan needs to promote more actively the conclusion of such agreements, and must also review, as appropriate, existing agreements which no longer suit to the reality of business activities.

Bilateral free trade agreements are also important, because: (i) they allow progress with liberalization and rule making on a bilateral level which would be difficult to achieve in multilateral trade negotiations, (ii) they have the potential to strengthen Japan's negotiating power in, for example, the upcoming WTO negotiations. Japan needs to give concrete consideration to pursuing the development of free trade agreements in a WTO-consistent way.

(2) Further Promotion of Imports into Japan

To promote imports into Japan, the Japanese Government must push forward with domestic regulatory reforms and also move actively on issues such as ensuring the international consistency of standards and conformance systems and improving inspection and quarantine systems.

In regard to developing countries in particular, Japan will need to promote technical support for export industries, and particularly product development and development of quarantine systems in line with the Japanese market. Consideration should also be given to improvement of the preferential tariff system.

Continued efforts to further promote imports into Japan will be essential also in terms of Japan playing an active role in the upcoming negotiations.

(3) Development of the Regime toward Trade Negotiations in the Future

Concerning the trade negotiation approach of the Japanese Government, limited inter-ministerial liaison and information exchange, as well as inadequacies in terms of timely and sufficient information disclosure to the private sector have long been pointed out.

Other problems include the lack of two-way information exchange between the Government and the private sector, while, unlike the United States and Europe, Japan has no regime allowing companies to file for trade remedies where they run into trade-related problems abroad.

To resolve these issues and take a more positive stance in regard to the upcoming WTO negotiations, the Government first has to build a cooperative regime which cuts across ministry fences, developing a comprehensive negotiating strategy.

At the same time, closer liaison will be needed between the Government and industry, to which end we propose the following new framework:

(a) Establishment of a new body for Government-Industry Dialogue

In external economic negotiations with foreign governments up until now, exchanges of views and information between the Government and the private sector have been ad-hoc, only limited and generally inadequate. We therefore propose establishing a standing body to exchange views and information between the Japanese Government and industry toward the next WTO negotiations. This new body would be convened as necessary, in line with the state of play in the WTO negotiations.

The following merits would be provided through exchanges of views and information in such a forum: (i) industry would have a continuous and accurate grasp of the latest developments in the negotiations, allowing it to put forward valid proposals at appropriate points in time; and (ii) wide-ranging exchanges of views not just with the competent ministries but also the government officials involved in the negotiations would provide industry with an overall picture of the negotiations, leading to more constructive recommendations. Moreover, giving industry the opportunity to hear government explanations of how proposals from industry were utilized in the negotiations and what kind of discussion took place on these, or the reasons why these proposals were not in fact presented, would certainly increase industry interest in the negotiations.

(b) Establishment of a Complaint Procedure for Foreign Trade Measures

Even where the private sector is injured through trade limitations or actions by foreign governments, we have no clear procedures available whereby the Government can be requested to take up these issues. The United States and Europe have already built such procedures into law_$BM6_(B.S. Trade Act Section 301 in the case of the United States and EC Trade Barrier Regulation in the case of the EU.

The following kind of concrete procedures could be established.
(i) Japanese companies which have been injured by trade impediments created by foreign governments (limited to those which infringe established international rules) would submit written claims to the Japanese Government.
(ii) Based on evidence submitted by these companies, the Government would make a decision to launch investigative procedures within a certain timeframe.
(iii) Investigations would be conducted by a panel of government officials and academic experts, providing a judgment within a certain period of time as to whether or not company claims are appropriate, and simultaneously making recommendations as to what measures the Government should take.
(iv) Based on panel recommendations, the Government would take appropriate trade measures consistent with international rules, appealing, for example, to the WTO agreements.

4. Conclusion

On the verge of the 21st century, Japanese trade policy stands at a major turning point, faced with a number of challenges. Japan must promote strong trade policies, enhancing its response to the WTO and working actively for the development of bilateral agreements, while also providing back-up to the international business expansion of Japanese companies. This will have the effect of contributing to the structural reform of the Japanese economy. Keidanren will actively support the Government's trade negotiations, and further deepen its relationship with industrial groups in Europe, the United States, and other countries.


Appendix 1 Tariff Reductions on Goods in Mining and Manufacturing

1. Developed Country Tariff Cuts for High-Tariff Goods

Japan's tariff rates on goods in mining and manufacturing are extremely low_$BMW_(Birtually zero in the case of machinery, electrical equipment and transport equipment. The United States and EU, on the other hand, continue to impose tariffs in these areas, with, moreover, high tariffs placed on products such as trucks in the case of the United States and some household electrical appliances in the case of EU. Through the upcoming negotiations, it will be important to eliminate tariff barriers in areas such as these, where Japanese industry is highly competitive.

The textile area is still subject to high tariffs in the United States, EU, which also maintain import quantitative quota systems (including chemical synthetic fibres and wool). These import quota systems are based on the "Protocols extending the Arrangement Regarding International Trading Textiles (MFA)" and must be phased out by 2005. However, countries should not wait for 2005, but rather eliminate their quota systems as soon as possible, also reducing high tariffs.

2. Redressing Developing Countries' High Tariff Rates and Improving Binding Ratios

Developing countries still retain high tariffs on a wide range of products, obstructing exports of transport equipment, construction and electrical machinery, iron and steel, chemical products and other goods where Japanese companies are highly competitive. Substantial reductions are needed on these high tariff rates.

Moreover, many countries have relatively low binding ratios, leaving them free to raise tariffs on many products. There are many instances where such sudden tariff raises obstruct Japanese exports. Improvement on binding ratios must be sought on more items of product in order to increase predictability and ensure the facile development of the foreign business of Japanese companies.

At the same time, in reducing and eliminating developing country tariff barriers, some consideration is needed in regard to the economic circumstances and stage of development of individual countries. For example, measures such as providing an adequate time frame for the implementation of tariff cuts should be taken into account.

3. Negotiation Modalities

Reduction or elimination of the high tariffs noted in 1. and 2. above should be sought using modalities such as formula cuts (all countries lower their tariffs based on a set formula), peak tariff cuts (reduction of tariffs over 10% or high tariffs which overshoot average rates) and zero-zero harmonization agreements (across-the-board tariff elimination or reduction to a set rate in areas of concern to major countries).

Another objective which should be established is reducing developing countries' ratio of non-binding items by at least a half.

In addition, consideration should be given to comprehensive elimination of low tariffs of, for example, five percent or less (so-called "nuisance tariffs") on industrial products.


Appendix 2 Issues on Trade in Services Negotiation

1. Basic Concept

(1) The negotiations on services liberalization which will begin in 2000 will be the first major liberalization negotiations targeting all service areas since the entry into force of the 1995 General Agreement on Trade in Services (GATS).

As the services industry assumes an increasingly important position in the Japanese economy, competitive service industries are becoming more interested in expanding their overseas operations. The manufacturing industry too is frequently engaged in the service business outside Japan, establishing a commercial presence such as sales offices, after-sales service centers, etc. However, the liberalization of trade in services lags far behind trade in goods, with Japanese companies currently facing various impediments in conducting service-related business activities abroad. The upcoming negotiations on trade in services will be extremely important to us, Japanese industry, in terms of removing these impediments, and we strongly urge that through these negotiations, countries are brought to (1) eliminate restrictions on the business activities of foreign companies and (2) clarify and increase the transparency of service-related legal and administrative systems.

(2) To this end, the Japanese Government firstly needs to take the opportunity at the upcoming negotiations to seek greater service liberalization commitments by member countries, as well as the full implementation of these. Japanese industry places particular emphasis on liberalization of the establishment of commercial presence, especially in the five areas of telecommunications, distribution, finance, construction and transportation.

Secondly, to increase the transparency of legal and administrative systems in the various service areas, the Government needs to press for greater transparency in countries' service-related laws and regulations, as well as introduction by developing countries of an administrative procedure law approach which exists in Japan (for example, the obligation of prompt initiation into the examination of a submitted application and specification of standard processing time).

2. Itemized Discussion

As noted above, it will be important to use the upcoming negotiations on trade in services to promote liberalization by individual countries and to develop service-related rules, removing impediments to companies' overseas business activities. Based on a recent survey, Keidanren has designed the following basic approach.

(1) Liberalization Negotiations for Trade in Services

A. Horizontal Issues

Impediments faced by us, Japanese companies, in developing service businesses abroad can generally be categorized as follows:

(i) Limitations on foreign capital ratios
(ii) Citizenship and residence requirements for company executives and staff
(iii) Foreign remittance regulations
(iv) Performance requirements (technology transfer requirements, etc.)
(v) Domestic procurement requirements for materials and services
(vi) Legal systems undeveloped, lacking in transparency, and subject to arbitrary operation and sudden changes
(vii) Lack of transparency and abuse of licensing requirements and procedures (including licensing fees)
(viii) Restrictions on real estate acquisition

B. Sector Specific Issues

Points of issue in specific sectors are as follows:

(a) Telecommunications

While we welcome liberalization progress in this area by both developed and developing countries as a result of the basic telecommunications negotiations concluded in February 1997, developing countries need to further reduce their limitations on foreign capital ratios. In addition, those countries which have committed to phased reduction with a long transition period should front-load the implementation of their commitments, while commitments should also be bound by uncommitted countries. In addition, while value-added telecommunications services were not considered in the last negotiations, some developing countries do have barriers to market entry and it will be important to advance liberalization in this area as well.

The introduction of a Reference Paper has resulted in a certain level of commitment in terms of a framework for competition-promoting rules. The next step must be to further clarify the definition of "major suppliers" and other central concepts in this paper (for example, treatment of mobile telecommunications service suppliers). Moreover, in relation to the "public availability of licensing criteria" included in the Reference Paper, principles should be added to avoid restricting entry by new businesses, such as (a) that licensing requirements and procedures should impose no greater burden than necessary to ensure quality, and (b) that licensing procedures themselves should not limit service supply.

It will also be important to clarify definitions of the various services. For example, countries have been left to make own decisions on which services to inscribe in their schedules of commitment. Definitions in relation to both basic and value-added telecommunications services will need to be clarified and transparency increased.

(b) Distribution

Developing countries in particular have numerous regulations on distribution, including prohibition of the establishment of import companies, sales companies and after-sales service businesses by foreign companies and limitations on foreign capital ratios, which are proving to be a major impediment. It will be important to improve such regulations at the upcoming negotiations.

Restrictions on land acquisition by foreign companies also need to be reduced.

(c) Finance

We welcome the overall progress of liberalization resulting from the financial services negotiations.

However, some countries still have the following business impediments, and we hope to see these addressed at the upcoming negotiations.

(i) Limitations on foreign capital ratios
(ii) Restrictions on and prohibition of branch establishment by foreign companies
(iii) Regulations on license issuance, etc.
(iv) Citizenship and residence requirements for company executives
(v) Obligation of reinsurance to state reinsurance companies
(vi) Restrictions on foreign remittance
(vii) Permanent presence obligation in regard to offshore market participation

It has also been pointed out that the legal systems of some developing countries are undeveloped in regard to financial services (particularly bankruptcy law and mortgage execution procedures), that the operation of regulations is lacking in transparency and regulations themselves are subject to sudden changes. Along with progress in liberalization commitments, legal system development and increased operational transparency will also be important.

(d) Construction

Impediments to the expansion of overseas construction services by us, Japanese companies, can be broadly categorized into restrictions on participation in public procurements and restrictions relating to business establishment.

In terms of participation to public procurements, problems include local company prioritization measures, capital-based limitations (automatic exclusion for all companies with under a certain level of capital), the obligation to procure domestic materials and the obligation to acquire special permission.

In terms of restrictions relating to business establishment, problems include limitations on foreign capital ratios, citizenship requirements for company executives and staff, technology transfer and on-the-job training obligations placed on employers. Licensing procedures also lack transparency and take too much time, preventing facile business development.

(e) Transportation

Further liberalization and operational transparency will be important with regards to maritime, air and land transport services.

While participants agreed to continue negotiations on maritime transport after the Uruguay Round, these wound up inconclusively in June 1996, in effect placing this area outside the multilateral discipline imposed by the GATS. At the upcoming negotiations, it will be important to ensure the full application of GATS rules to maritime transport. In addition, the foreign capital ratio limitations and policies favoring domestic companies instituted by certain countries are impeding the business activities of Japanese companies and need to be improved.

In terms of air transport, countries should further liberalize those "soft rights" covered under the GATS (aircraft repair and maintenance, the selling and marketing of air transport services, computer reservation systems).

(2) Improvement of Rules on Trade in Services

Safeguards, government procurement, subsidies, anti-dumping and other trade rules which have been established for trade in goods remain undeveloped for trade in services.

In particular, the government procurement laws and operation in place in some countries are in many cases a major impediment to the development of business activities by Japanese companies, and rules need to be developed toward liberalization in this area. For example, in the area of construction, it will be important to eliminate limitations on foreign participation and domestic procurement obligations placed on main materials, as well as obligations in the transport area to use the services of domestic suppliers.

(3) Improved Access to Schedule

Currently, only countries' schedules of commitment as agreed at the time of the Uruguay Round negotiations are accessible on an electronic basis. The latest versions of schedules should be made available electronically, including changes made in line with later negotiations and amendments to domestic laws.


Appendix 3 Prevention of Protectionist Application of Anti-Dumping Measures

1. Basic Concept

The application of protectionist anti-dumping measures by some WTO member countries is impeding the stability of private sector's trade activities. Because of the amount of work involved simply in responding to anti-dumping investigations, legal costs and other such aspects, companies still shoulder a heavy burden even where a complainant is ruled against. Moreover, anti-dumping claims have the potential to impact heavily on the business of companies being investigated in that they cause concern to the users of the products in question that procurement costs will rise due to anti-dumping measures. Such measures should therefore be taken with the utmost caution.

We strongly urge that the upcoming WTO negotiations review the Anti-Dumping Agreement, or else develop supplementary regulations in the form of an understanding on the Anti-Dumping Agreement, toward strengthening disciplines in regard to members' anti-dumping measures (calculation of dumping margins, investigation procedures, etc.) to prevent the protectionist use of such measures. The inspection and surveillance functions of the WTO Committee on Anti-Dumping should also be strengthened to ensure that members develop and operate domestic laws based on a strict interpretation of the Anti-Dumping Agreement.

In addition, standard of review should be abolished in relation to dispute settlement procedures (Appendix 7, Section 2).

2. Specific Requests

(1) Fair Price Comparison

In anti-dumping investigations, there are instances where the product unit on which the comparison of export prices and the domestic prices of the exporting country will be based is arbitrarily selected by the investigating authorities. For example, there are cases where investigation results went against defendants because dumping margin comparisons were made on the basis of an inclusive "system" of multiple products, whereas below-cost sales were determined on individual products within that system. Such discretionary price comparisons should be forbidden under the Anti-Dumping Agreement.

When calculating dumping margins, fragmentation of the product units on which the price comparison is based results in more negative margin being discarded, producing a greater dumping margin. The Anti-Dumping Agreement should clearly stipulate that dumping margin calculations for each "like product" covered under the Agreement should include all negative margin related to that product, preventing the imposition of excessive anti-dumping duties through artificial margin manipulation.

Because of the ambiguity of Anti-Dumping Agreement provisions, the administration of anti-dumping laws in some member countries sometimes leads to more items being subtracted from domestic sales prices than from export prices, producing much larger dumping margins. The Anti-Dumping Agreement should clearly identify those items to be subtracted in price comparisons, ensuring that items subtracted from export prices are also subtracted from domestic prices.

While the Anti-Dumping Agreement allows adjustment for high start-up costs, this creates problems in the sense that (i) there are no clear modalities for determining when that start-up period begins and ends, resulting in arbitrary operation and (ii) some member countries only recognize start-ups for new facilities and disallow cases where products change due to major modifications to existing factories. These issues too should be clearly prescribed under the Anti-Dumping Agreement.

(2) Clarification of Like Products

There are cases in certain member countries where anti-dumping investigations are limited to certain products only at the final determination because investigations were initiated without a clear definition of product scope. Being unable to predict at the outset of investigations which products will be targeted diminishes the ability of the company subjected to investigation to respond appropriately and imposes an unreasonable burden. The Anti-Dumping Agreement should prescribe that where product scope is ambiguous, product specification procedures must be undertaken early on in the period between claim submission and the initiation of investigations (for example, within three months).

In addition, the scope of products subject to an anti-dumping investigation or anti-dumping duties should have to be consistent with the scope of domestic industry in terms of qualification to file a claim and determination of the extent of damage. Member countries should be prohibited from arbitrary actions such as imposing anti-dumping duties on products not produced domestically.

Along with determination of the appropriate scope for "like products" in the preliminary stages of an investigation, another important issue is the decision as to whether products developed later as a result of technological advancement, etc. (future-generation products), should be included within this scope. In principle, anti-dumping duties should not be levied on future-generation products which are not existing at the time of original investigation, and the Anti-Dumping Agreement should prescribe that new anti-dumping investigations have to be initiated for future-generation products.

There may be exceptional cases, however, where future-generation products could be included within the scope of existing anti-dumping duties without initiating new anti-dumping investigations. The Anti-Dumping Agreement should prescribe the criteria on which to determine whether a future-generation product is a like product of those already under investigation, and introduce procedures for the early determination.

(3) Stricter Adherence to Review Procedures

Use of the method of comparison of normal prices and export prices prescribed in Article 2 of the Anti-Dumping Agreement is not specified in regard to review procedures, leaving considerable scope for arbitrary comparison. Review procedures should be made stricter and more transparent through use of the price comparison method prescribes in Article 2 in regard to determination of dumping, and this should be clearly stated in the Anti-Dumping Agreement itself. For example, while the Anti-Dumping Agreement prescribes that comparisons should be based on a weighted average, review procedures are not always conducted in a manner consistent with this principle. The WTO Anti-Dumping Committee should strengthen its surveillance in order to redress such review procedure conduct and ensure that procedures are conducted consistent with the Anti-Dumping Agreement.

(4) Limitation of Cumulative Assessment of Injury

Article 3.3 of the Anti-Dumping Agreement prescribes that where imports from two or more countries are simultaneously subject to anti-dumping investigations, a cumulative assessment of the effect of these imports "may" be made. However, the domestic law of some member countries obligates investigation authorities to make a cumulative assessment, and there are instances where products in regard to which injury would not be recognized in the case of an individual claim, become subject to anti-dumping duties because of inclusion in a cumulative assessment for no reason other than that the claim was made on the same day. The Anti-Dumping Agreement should be reviewed and cumulative assessment prohibited in principle.

(5) Observance of Sunset Reviews

Article 11.3 of the Anti-Dumping Agreement prescribes in regard to sunset reviews that anti-dumping duties must in principle be automatically terminated no later than five years from their imposition or the most recent review, and Japanese law too limits the imposition of anti-dumping duties to no more than five years. However, there are cases where member countries effectively continue to impose duties even when their domestic laws prescribed this, only terminating duties in exceptional circumstances. It is difficult for companies under investigation to prove that they have not continued to dump or resumed dumping, or that there is no injury from continued or resumed dumping. The WTO Anti-Dumping Committee should conduct examinations as to whether member countries are implementing the Anti-Dumping Agreement which provide termination in principle.

(6) Consideration of Public Benefit and Benefit of Parties Other than Complainants

The laws and regulations of some member countries prescribe consideration of public benefit, including the interests of citizens and consumers, while others do not. The impact of implementing anti-dumping investigations or applying anti-dumping duties does not stop with the industries producing the goods subject to investigation, but also ripples out to consumers and users and to the national economy as a whole. The Anti-Dumping Agreement should prescribe that member countries must incorporate in their anti-dumping laws and regulations a provision obligating consideration of public benefit.

The Agreement should also prescribe that member countries must introduce procedures for reflecting the views of those who will be affected by anti-dumping measures (consumers, defendants, etc.) in the space between submission of an anti-dumping claim and the initiation of investigations. Such procedures are important in preventing the initiation of investigations based on misunderstanding of facts, etc.

(7) Reduction of Anti-Dumping Investigation Burden

Even where a decision is eventually made against a complainant, anti-dumping investigations still impose an enormous administrative burden on companies investigated. To redress the issues listed below, disciplines in the WTO Agreement relating to anti-dumping investigations should be clarified and the examination functions of the Anti-Dumping Committee strengthened to ensure that members comply with existing rules and the spirit of these.

There are cases of unclear and arbitrary definition of the time-span under investigation. For example, both the preliminary and review investigations can impose an enormous administrative burden on the companies under investigation where the sales date for the products in question is defined not as the shipment date but as the order date, requiring companies to submit domestic sales data covering a longer time period. The Anti-Dumping Agreement should clearly define the time-span under investigation.

In some cases, investigation authorities demand submission of documentation on "related" companies in a very broad sense (for example, direct or indirect stockholdings of five percent or more). This creates enormous administrative problems, entailing a massive amount of documentation and, because rival companies and the subsidiaries of other companies are also caught within this broad definition, makes it extremely difficult to comply with investigation requirements. Trading partners which cannot meet with documentation submission requests from companies being investigated should not be included in the definition of "related" companies. Further, because data on related parties with limited production and sales volumes in both export and domestic markets have no effect on dumping margins, submission of the data should be made unnecessary. Clear criteria should be introduced whereby, for example, data submission is not required for companies under investigation which have production and sales volumes of no more than ten percent.

On the other hand, some countries have been known to take procedurally unfair measures, such as arbitrarily shortening the length of investigations, limiting the opportunity for defendants to respond. The Anti-Dumping Agreement should prescribe that member countries institute a fair investigation period and ban the arbitrary shortening of it.

(8) Deterring Abusive Claims

Even for cases that do not go as far as the actual determination of anti-dumping duties, dealing with anti-dumping investigations entails an enormous amount of work in terms of, for example, staffs' work for questionnaires, as well as steep legal fees, markedly impeding company activities. Moreover, there are instances where not only anti-dumping claims themselves but also rumors concerning these impede the business of companies concerned. To prevent abusive claims, consideration should be given to incorporating a stipulation in the Anti-Dumping Agreement requiring the payment of damages by complainants whose claims are rejected.

Further, where anti-dumping investigations have found claims against a certain product to be invalid, it is inappropriate to immediately file claims against the same or similar products. A provision should be included in the Anti-Dumping Agreement to tighten conditions regarding re-filing by defeated plaintiffs, disallowing re-filing on the same or similar products within a certain time-frame.

The Anti-Dumping Agreement does prescribe quantitative criteria for the recognition of claims (Article 2.2), but certain countries do not always comply with these criteria, and there are cases of arbitrary operation such as permitting investigations to be initiated on the basis of official authority alone. To redress these issues, the surveillance functions of the Anti-Dumping Committee need to be strengthened.

(9) Restriction of Anti-Circumvention Measures

Because the Anti-Dumping Agreement has no disciplines on anti-circumvention measures, countries have been free to introduce their own anti-circumvention regulations. Disciplines on anti-circumvention measures should be introduced under the Agreement, recognizing the application of such measures only in true instances of circumvention (genuine cases), and prohibiting anti-circumvention measures initiated as protectionist measures against trade activities which are not true instances of circumvention.

Appendix 4 Clarification of Treatment of Electronic Commerce

1. Basic Approach

Enhancement of multilateral cooperation mechanisms and systemic harmonization will be essential in the sound development of international electronic commerce. This should basically be a private sector-driven endeavor, using means such as voluntary regulations to build an international framework, and we welcome private sector discussion currently being undertaken in this direction. At the same time, it will also be important to supplement such efforts through the creation of electronic commerce frameworks in international institutions such as the World Trade Organization, the Organization for Economic Cooperation and Development (OECD) and the World Intellectual Property Organization (WIPO). In particular, because the WTO has a dispute settlement mechanism which ensures implementation by members, it will be essential to the sound development of electronic commerce that the WTO actively build on the results of considerations in other arenas.

In this sense, the WTO should look not only at tariff issues but also undertake discussion toward the development of an international framework for electronic commerce.

2. Specific Issues

(1) Customs Duties on Information Goods

The current practice of not imposing customs duties to Internet transactions of information goods should be maintained to support the development of electronic commerce.

(2) Issues in Electronic Commerce Classification

Under the WTO, the General Agreement on Trade and Tariffs (GATT) disciplines are applied to trade in goods, GATS disciplines to trade in services. The GATT covers such issues as Most-Favored-Nation (MFN) treatment, national treatment and prohibition of quantitative regulations, where the GATS allows exemptions and deference in regard to these principles.

In terms of electronic commerce, rather than attempting to classify the entire area of transactions into either goods or services, different types of electronic transactions should be compared with conventional transactions and the decision made accordingly whether to treat these as trade in goods or services, and in the case of services, the particular sector or sub-sector of service transaction.

To take the example of transactions of soft music through electronic media, in cases where such transactions are not conducted through an electronic medium, music is sold in the form of CDs, which, as a goods transaction, should be subject to GATT disciplines. On the other hand, transactions such as ticket sales made through electronic media should be categorized as a service transaction.

Categories of electronic commerce should therefore be clarified using this basic approach, whereupon liberalization negotiations should be advanced within the GATT and the GATS respectively. New rules should be considered only for those transactions which fall outside the existing categories.

(3) Development of an Electronic Commerce Framework

An international framework for electronic commerce, which includes means for dispute settlement, should be established by having the WTO agreements incorporate the result of the discussions on electronic commerce in other international institutions, obliging members to observe these. Examples are as follows.

(a) Intellectual property rights: Work is currently being undertaken by WIPO on copyrights and trademark rights, the results of which should be incorporated into the WTO TRIPS Agreement, thus obliging compliance by WTO members.
(b) Protection of privacy: A privacy protection framework needs to be developed within the WTO based on OECD results.


Appendix 5 Strengthening Intellectual Property Rights Protection

The potential value of intellectual property rights will grow in parallel with the globalization of corporate activities, while the need to protect these rights will also be greater than ever.

The fact that the Uruguay Round negotiations resulted in formulation of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), achieving significant progress in harmonization of countries' intellectual property rights systems, can be praised. However, the counterfeit products pervading developing country markets, and the imposition in some countries of patent systems which do not conform with international norms, have left the intellectual property rights of Japanese companies on unstable situation, impeding international business activities. At the next negotiations, the Japanese Government should take the initiative toward the development of intellectual property rights protection systems in developing countries and the international harmonization of patent systems.

1. Development of Intellectual Property Rights Systems in Developing Countries

Under the TRIPS Agreement, developing countries and least-developed countries are obligated to develop intellectual property rights systems after a certain transitional period. To ensure the establishment of appropriate regime, the Japanese Government should actively urge these countries to develop the related legislation and administrative mechanisms, as well as to educate and raise the awareness of the public, while also providing the necessary cooperation for regime building and human resource development. Strengthening intellectual property rights protection in developing countries will also have great merit for developing countries themselves in that it will promote technology transfer from developed countries.

While Article 40 of the TRIPS Agreement allows licensing regulations aimed at preventing the anti-competitive abuse of rights, in order to facilitate investment and technology transfer, developing countries should be requested to amend their technology introduction laws and licensing regulation guidelines to bring these into consistency with the TRIPS.

2. International Harmonization of Patent Systems

Patents are one important pillar of intellectual property rights, making transparent and stable international rules essential. The WTO must work with WIPO on the international harmonization of patent systems.

(1) Adoption of the First-to-File System as the International Standard

The adoption by some countries of the first-to-invent system is impairing the predictability of the patent system. The first-to-file system should be adopted as an international standard so that countries can determine when to file patent applications on the basis of equitable rules.

(2) Introduction of an Early Publication System

As some countries have not yet adopted early publication systems, unintended patent infringements can occur. To prevent such infringements, all countries should introduce early publication systems.

3. Other

Many countries have made little progress in developing the related legislation on trade secrets, and the WTO should consider how to provide the necessary legal protection.


Appendix 6 Development of International Investment Rules

1. Importance of International Investment Rules

With companies facing to various impediments in expanding their foreign direct investment, particularly in developing countries, international investment rules are needed to strengthen investment protection and promote liberalization. The Uruguay Round produced the Agreement on Trade-Related Investment Measures, but this is extremely limited in content, only prohibiting of measures such as local content requirements, trade balancing requirements, foreign exchange restrictions and domestic sales requirements.

Moreover, in terms of legal frameworks protecting investment, where the United States and most European countries have concluded bilateral investment agreements with some dozens of countries, Japan has only made such agreements with five other countries.

We therefore strongly hopes to see international investment rules developed within the WTO. Such an agreement would promote international investment interaction, providing considerable merit for developing countries wishing to encourage greater foreign investment.

In parallel with WTO investment rules, it will also be important to promote efforts toward the development of bilateral agreements.

2. Elements to be included into WTO Investment Agreement

The main issues confronting Japanese companies in terms of foreign investment include (i) foreign capital limitations, (ii) performance requirements, (iii) citizenship restrictions in regard to company executives, etc., and (iv) the instability and lack of transparency of investment-related regime. It will be vital to resolve these issues within any investment agreement.

(a) WTO member countries need to be prohibited in principle to limit foreign capital participation and capitalization ratios, with general exceptions including security-related area, while systemic transparency needs to be secured through the listing of specific reservations for restrictions which countries cannot immediately eliminate.
(b) All performance requirements_$BMO_(Bamely, technology transfer requirements, foreign exchange remittance regulations, export obligations and local employment obligations_$BMT_(Bhould be banned.
(c) In relation to citizenship restrictions on company executives, etc., it will be important to abolish the obligation to appoint nationals as company executives and to ban restrictions on work permits and stay visas for human resources necessary for investment (executives, engineers, etc.).
(d) In the context of transparency, member countries must be obligated to clarify their investment-related law and regulations and permission application procedures. Technical cooperation also needs to be provided to promote developing country development of important investment-related legislation, such as bankruptcy and credit protection laws.

3. Importance of Bilateral Investment Treaties

(1) While multilateral rules on investment are important, because the WTO includes countries at various stages of economic development, it could take some time to reach consensus. Moreover, there is also a concern that agreement will not be reached on high-level rules which go beyond the content of existing investment agreements to include new areas such as the free movement of executives and engineers.

In parallel with the development of WTO investment rules, Japan must therefore conclude high-level investment protection agreements with Asian and Latin American countries, etc., starting from those areas on which consensus can be reached, and using as a base the Multilateral Agreement on Investment discussed in the OECD.

(2) Many companies are experiencing taxation problems in their business with other countries. Tax treaties play an important role in the resolution of such problems. Japan has already concluded tax treaties with 44 countries, but these are for the most part with developed countries or Asian countries, with almost no coverage in Latin America, the Middle East or Africa. Japan must widen the scope of its tax treaty partners, while also reviewing as appropriate those existing treaties which have been outdated through technological advances. For example, consideration should be given to amendments so that withholding tax is not levied on software transactions and neither party levies withholding tax on interest.

(3) Pension aggregation agreements are important in eliminating double social welfare payments by companies. In particular, because of our close economic ties, Japan needs to conclude such an agreement as soon as possible with the United States.


Appendix 7 Strengthening Dispute Settlement Procedures

We commend the fact that the Uruguay Round led to better dispute settlement procedures by, for example, improving the decision-making methods of dispute settlement institutions, clarifying procedural timeframes and establishing an Appellate Body, marking substantial improvement in dispute settlement functions compared to former procedures.

However, a number of issues have arisen in the four or so years during which the dispute settlement mechanism has been in place, such as inadequate remedy for injured companies.

Dispute settlement is an important function in ensuring the effectiveness of the WTO Agreement. As the number of cases increases and the content of these becomes more complex, the dispute settlement mechanism and its functions will need to be further strengthened to allow the early resolution of disputes with as little politicization as possible. Strengthening the dispute settlement mechanism should also deter member countries from initiating protectionist trade measures.

1. Consideration of the Introduction of Remedies

Even where trade measures taken by the defendant country cause injury to complainant country companies during dispute proceeding period, the rules as they stand do not allow relief to be sought for this damage. For example, where another country was to impose unilateral measures as part of a trade dispute with Japan, exports by Japanese companies would be severely damaged over the course of dispute settlement procedures. Consideration should be given to introduction of a system whereby the complainant country companies can seek remedies for the damage sustained from the point of application for panel establishment up until implementation of the recommendations adopted by the Dispute Settlement Body.

Remedies could comprise measures such as retroactive remedies for damages after panel and Appellate Board reports have been adopted (reparation by equivalent) or bringing back to the original state as before the defendant country took the measures in question (restitution in kinds), and provisional suspensionary measures whereby the measures in question would be temporarily suspended at the point when a claim was made to the WTO or on panel establishment.

The introduction of such remedies should prevent countries from jumping to implement protectionist measures. It would also be an incentive for the parties involved to shorten the period of dispute settlement procedure.

2. Elimination of Standards of Review

The standards of review introduced for cases relating to the Anti-Dumping Agreement are creating problems in that they greatly narrow the possibilities of dispute settlement procedure referral. Given the continued protectionist use of anti-dumping measures, the Anti-Dumping Agreement standards of review should be abolished. Also, while some member countries have argued that standards of review should be widened to apply under other agreements, we strongly oppose this on the grounds that such a move would greatly damage the credibility and effectiveness of dispute settlement functions.

3. Organization Expansion

With disputes likely to become more numerous and more complex, the Appellate Body and panels should be reinforced through staff increases and by making positions full-time, also increasing the number of legal staff in the Secretariat.

As factors behind disputes are also becoming more specialized, forward-looking consideration should be given to enhancing the degree of panel specialization and establishing expert review groups to provide panels with specialist advice (Article 13.2, Understanding on Rules and Procedures Governing the Settlement of Disputes).


Appendix 8 Other Issues

1. Improvement of Government Procurement Regime

The Japanese Government needs to promote the participation of as many developing countries as possible in the Agreement on Government Procurement.

There are also many cases where unfair conditions are imposed on government procurement through discriminatory regulations such as the obligation to procure main materials domestically and the addition of a certain percentage on top of the procurement price of reported products at the time of tender. Such discriminatory treatment on the part of governments should be eliminated and the non-discriminatory treatment of all bidding parties ensured.

2. Harmonization of Rules of Origin

We hope to see the work being undertaken between the WTO and the World Customs Organization (WCO) on harmonization of non-preferential rules of origin, lead to the implementation of objective and binding rules of origin which are applied, not arbitrarily for the purpose of specific trade goals, but universally and neutrally in all aspects. These standardized rules of origin should impose a minimal administrative burden and allow easy determination of the country of origin.

3. Regional Trade Agreements

Regional trade agreements such as at EU and NAFTA are creating new impediments for extra-regional countries in the form of higher local procurement rates, arbitrary operation of rules of origin and tariff hikes imposed on new members, and there are cases where this is standing in the way of the activities of Japanese companies. To redress problems caused by such protectionist measures which run counter to WTO spirit, it will be important to improve the effectiveness of regional trade agreement examinations, with a thorough review needed of the examination mechanism.

4. Facilitation of Trade Procedures

Japanese companies operating abroad are experiencing problems due to the complex and protracted customs clearance procedures and unreliable tax refund systems of some WTO members. We ask that simplification, accelerated procedure period and increased transparency of customs and tax refund procedures be addressed as part of the WTO's work on trade facilitation.

5. Trade and Competition Policy

Prohibition of anti-competitive practice in each country is important in ensuring facile trade and investment flows. With many developing countries yet to even develop competition laws, caution will be needed in advancing considerations in this area.

In addition, excessive extra-territorial application of competition law should not be permitted.

Along with consideration of trade-related competition policy, we also hope to see vigorous WTO discussion on the abuse of anti-dumping measures and other trade measures which distort the competition condition.

6. Trade and Environment

Not only do different countries have different environment-related measures and policies, but no international consensus has yet been reached on the impact of trade on the environment or means to verify it. At this point in time, it would therefore be inadequate to bring various ideas on environmental protection to the WTO while these still lack objectivity. Moreover, members should not be permitted to take unilateral trade-restricting measures on the grounds of environment protection concerns such as cross-border pollution and global-scale environmental pollution accompanying production processes.

At the same time, the WTO should recognize clearly trade-restricting measures based on multilateral environment agreements which have international consensus (the Montreal Protocol, the Basel Convention and the Washington Treaty).