The dispute between Japan and China involving welsh onions, raw shiitake mushrooms and tatami-omote (rushes for grass mats) was settled after a round of negotiations at the end of last year. The parties decided that in exchange for an opening of private sector discussions on production volumes, Japan would hold off on a full invocation of measures and China would lift the sanctions. This incident has sparked the public's interest in the system of safeguard measures.
Actually, Japanese safeguard laws are unique. Last spring, when there was strong support for the invocation of safeguard measures, Takeo Hiranuma, Minister for Economy, Trade and Industry (METI) emphasized, "These actions are authorized by the World Trade Organization (WTO), and we will carry them out in line with the WTO rules." Yet, WTO rules relating to safeguard measures only specify the minimum standards that should be abided by national authorities. Beyond that, system design is left to the discretion of individual WTO members. In Japan, this discretionary element appears to be rather peculiar.
First of all, unlike the U.S. law, Japan's safeguard system does not have a diverse policy menu (such as conclusion of a trade agreement or trade adjustment assistance) at its disposal to respond to investigations. The only policies included in its arsenal are tariffs and quantitative import restrictions. For this reason, once a safeguard investigation has begun, anticipation for tariff hikes and import quotas grows, as was seen with welsh onions, shiitake mushrooms and tatami-omote. When the negotiations finally reach a settlement, disappointment needlessly spreads on the side that was pressing for the invocation of measures (in this case the agricultural organizations). If the same thing were to happen in the US, as such a negotiated settlement is one of the anticipated outcomes of Section 201 investigations, it probably would be regarded as a case closed and would not cause much controversy.
Second, Japan's legal basis for safeguards is bifurcated. Japan's instruments for safeguard measures are the Customs Tariff Law and the Foreign Exchange and Foreign Trade Control Law ("Foreign Trade Law"). The Ministry of Finance (MOF) and METI administer these two laws respectively, and on the face of it, the two separate systems simply coexist. Yet, requirements for invocation under the Foreign Trade Law are the same as those the Customs Tariff Law. Furthermore, MOF and METI drafted a memorandum of understanding so that Foreign Trade Law investigations and the Customs Tariff Law investigations shall always be conducted together. Thus drawbacks arising from the duality of the system are minimized. As far as I know, Japan is the only member of the WTO that has this kind of bifurcated legal structure for safeguard measures. Non-WTO member nations often lack a safeguard system in the first place and so Japan's safeguard system can probably be regarded as wholly unique.
Third, the investigation body is not independent from the government and, in fact, includes the involvement of government agencies responsible for overseeing the domestic industry in the investigative process. This also relates to the second point, but in Japan safeguard investigations are conducted through the close cooperation of the MOF Minister, the METI Minister, and other competent Ministers heading agencies responsible for any injured domestic industries. In reality, looking at the case of the welsh onions, shiitake mushrooms and tatami-omote as an example, officials at METI and the Ministry of Agriculture, Forestry and Fisheries (MAFF) conducted a joint investigation. Yet, there is no independent administrative body equivalent to the US International Trade Committee (ITC).
Fourth, the investigative process is carried out by the investigating authorities on an ex officio basis and the domestic industry that has requested the implementation of measures has relatively few burdens. As long as investigations are conducted with ex officio as the dominant principle, as long as MAFF serves as a part of the investigative body, the officials will undoubtedly freely use regional bureaus and prefectural networks for the data collected in investigations. It is said that structural adjustment plans have been drawn up in this particular case regarding mushrooms, onions, and rushes, but this work is likely to be led by MAFF and not agricultural groups. Agricultural groups may be grateful, but from the perspective of the allocation of benefit and burden, it is without a doubt problematic.
Fifth, there is no public hearing in the investigative process. This is also unusual from an international perspective. To be sure, as far as the WTO agreement is concerned, investigative authorities are obliged to set up "public hearings or other appropriate means in which importers, exporters and other interested parties could present evidence and their views" (Article 3.1 of the Safeguards Agreement) and so Japan's system is not in violation of the agreement. But the fact is that the country that pushed the hardest for the "other appropriate means" clause to be inserted into the agreement during the Uruguay Round safeguard negotiations was none other than Japan. The MOF's Customs and Tariff Bureau's desire to preserve the current system was the motivation behind this move.
Japan's distinct safeguard system is the result of MOF and METI vying for authority. This is known as bureau pluralism. That these government agencies pursue of their own interests is rational. But the resulting system is awkward. Until recently, this system was able to remain intact because Japan had no intention of invoking safeguard measures. Now that an investigation has actually been conducted, however, the balance has been upset. What is Japan to do?
One option is for Japan to admit to the fragility of its system and hope that industry groups will lower their expectations for protection. Nevertheless, agricultural organizations and politicians might conclude that this particular case did not go well simply because they tried to invoke ordinary safeguard measures. Next time, these groups might try to use the special rule for product specific safeguards, which was part of China's WTO accession. We are also told there is a plan in MOF to get ready for special safeguard measures against China by revising the Temporary Tariff Measures Law. But I regard this as an extremely dangerous idea.
One other possible course would be to conduct a comprehensive review of the modality of Japan's safeguard system and reestablish a system patterned after the global standard from the example of the US and Korea. This is an ambitious operation that would include a review of the ex officio relationship and it would take enormous courage and decisive action. Moreover no country offers a perfect safeguard model for Japan to emulate. Even investigations based on Section 201 of the US Trade Act of 1974, which in comparison to Japanese law is outstanding in many respects, have been routinely judged by the WTO to be in violation of its trade rules. At any rate, a treacherous road lies ahead for us. The only thing that is certain is that the status quo is utterly inadequate.
Author and Editor-in-Chief, Ichiro Araki
Director of Research
Research Institute of Economy, Trade and Industry (RIETI)
e-mail: araki-ichiro@rieti.go.jp
tel: 03-3501-1362 fax: 03-3501-8391
RIETI invites you to visit its English website
[http://www.rieti.go.jp/en/index.html].
The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).
