Bureau Pluralism and Japan's Safeguard System
Director of Research, Senior Fellow, RIETI
The safeguard incident surrounding welsh onions, raw shiitake mushrooms and tatami-omote (rushes for grass mats) was settled in a round of negotiations between Japan and China at the end of last year. It was 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 boosted public interest in the system of safeguard measures, but it is not widely known that from a comparative perspective, Japanese safeguard laws are quite unique. Last spring, when there was strong support for the invocation of safeguard measures, Takeo Hiranuma, Minister for Economy, Trade and Industry, and other interested parties 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, and beyond that, system design is left to the discretion of individual WTO members. In the case of Japan, this discretionary part of the system design appears to be rather peculiar. The operable keyword in this matter is, again, "bureau pluralism."
Peculiarity 1: Available Measures are Limited to Tariffs and Quantitative Restrictions on Imports
In many countries, including Japan, the actual steps taken as safeguard measures lean overwhelmingly toward quantitative restrictions and tariff raises, but according to WTO rules, invocation of other measures, such as granting prohibited subsidies, are not in violation of the WTO agreement. GATT Article XIX permits the WTO member to "suspend the obligation in whole or in part or to withdraw or modify the concession." Also, measures that are not in conflict with WTO rules, such as granting permissible subsidies, are unrelated to the WTO and so imposing such safeguard measures in no way violates the rules. Actually in Section 201 of the U.S. Trade Act of 1974 lists such safeguard measures as employment adjustment subsidies and negotiations with trading partner nations.
Unlike the U.S. law, Japan's safeguard system does not have a diverse policy menu ready as the final outcome of the investigations. Rather, it has the precondition that the only policies included in its arsenal are tariff hikes and quantitative import restrictions. Based on that precondition, the necessary investigative procedures in order to invoke safeguard measures are stipulated in the relevant laws and regulations (Customs Tariff Law, Foreign Exchange and Foreign Trade Control Law and their implementing regulations). For this reason, once a safeguard investigation has begun, anticipation for tariff hikes and import quotas becomes abnormally high, and 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 U.S., 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.
Peculiarity 2: The Legal Basis is Bifurcated
As stated above, 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 and the Ministry of Economy, Trade and Industry administer these two laws respectively, and on the face of it, the two separate systems simply coexist. However, requirements for invocation under the Foreign Trade Law are exactly the same as those the Customs Tariff Law. Furthermore, the Ministry of Finance and the Ministry of Economy, Trade and Industry created 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. If there is no intention to have a recourse to the safeguard system as a trade policy measure then having an incoherent legal system is likely not a problem. However, if the government intends to conduct aggressive safeguard investigations, then the current system can be regarded as problematic, particularly from the perspective of transparency and the effective use of human resources (under the current system, the Customs and Tariff Bureau at the Ministry of Finance and the Trade Control Department at the Ministry of Economy, Trade and Industry are assigning personnel with similar skills and knowledge to do the overlapping work).
Peculiarity 3: Investigation Body is not Independent from the Government Administration 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 (1) Finance Minister (2) Minister for Economy, Trade and Industry and (3) 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 the Ministry of Finance, the Ministry of Economy, Trade and Industry, and the Ministry of Agriculture, Forestry and Fisheries conducted a joint investigation. However, there is no independent administrative body equivalent to the U.S. International Trade Committee (ITC). This as far as I know is a system unique unto Japan. Japan's incongruity particularly stands out in consideration of the fact that even in the Republic of Korea and Chinese Taipei, which have legal systems governing administrative organizations that are quite similar to Japan's for the most part, an international trade commission, which is independent from other administrative bodies, conducts safeguard investigations. The most problematic feature of the Japanese system is that the agencies responsible for industry oversight are involved in the main part of the investigation. This gives an appearance of the situation analogous to having the same individuals serving as both the prosecutor and judge in a courtroom trial and impartiality of the investigations can hardly be expected. Particularly in the case that legislators exert pressure to "make a special case in the investigation" representing the interests of domestic industry, there are no lines of attack to oppose them. Here, I am not suggesting that in reality the authorities at the Ministry of Agriculture, Forestry and Fisheries were engaging in dishonest investigation, or that in reality politicians were exerting pressure unfairly to sway the outcome. All I am saying is that from the appearance of the system these apprehensions cannot be dispelled.
Peculiarity 4: 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 far as WTO rules are concerned, safeguard investigations differ from antidumping investigations and countervailing duty investigations in that a request for invocation from domestic industries is not a precondition. The stipulation of Japanese law only requiring an ex officio action by the government is by no means unique to Japan.
However, aside from particular instances such as the recent U.S. Section 201 investigations on steel, the undertaking of actual safeguard investigations in the U.S. have been based on domestic industry requests. Submission of evidence and structural adjustment plans that the ITC requests of domestic industry is vast in terms of both quality and volume, and it is troublesome to prepare. It is said that in the United States safeguard investigations come with a hefty price tag for the industries involved. It is precisely for this reason that U.S. domestic industries seeking relief from import surges prefer antidumping or countervailing duties to safeguard measures. What about Japan? Have Japan's investigative authorities requested that farming organizations submit this kind of enormous evidence related to the investigation into welsh onions, shiitake mushrooms and tatami-omote? The answer is an obvious "no." So long as investigations are conducted with ex officio as the dominant principle, and as indicated in #3 above, so long as the Ministry of Agriculture, Forestry and Fisheries serves as a part of the investigative body, the officials will undoubtedly freely use regional bureaus and prefectural networks for the collected data they use. It is said that structural adjustment plans have been drawn up in this particular case, but this is likely work led by the Ministry of Agriculture, Forestry and Fisheries and not agricultural groups. With this sort of investigative method, agricultural groups may be grateful, but from the perspective of the allocation of benefit and burden, it is without a doubt problematic.
Peculiarity 5: There Is No Public Hearing in the Investigative Process
Through the process of the Japanese safeguard investigation, relevant sources are tapped through surveys, but no public hearings are held. This is also fairly 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, emphasis added) and so Japan's system is not in violation of the agreement. However, the plain truth of the matter 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. Needless to say, the Ministry of Finance's Customs and Tariff Bureau's desire to preserve the current system was the motivation behind this move.
As we have seen above, Japan's safeguard system is fairly unique on a global level. This is the result of the pursuit of rationalization of the system of division of the respective authority of the Ministry of Finance and the Ministry of the Trade and Industry under the rules of bureau pluralism. The activities of government agencies in the pursuit of their own interests are rational, but the resulting system becomes quite odd. Until recently, even this kind of system did not fall apart and was able to maintain its equilibrium because Japan had no real intention of invoking its safeguard measures.
However, now that an investigation regarding welsh onions, shiitake mushrooms and tatami-omote has actually been conducted, this balance has been upset. How is the equilibrium to be regained?
One possible course is to lead it in the direction of respective administrative agencies well aware of the fragility of their system and lower the level of expectations of industry groups and politicians toward safeguard measures. Saying, "If we get this kind of a severe retaliation over welsh onions, shiitake mushrooms and tatami-omote, what's next," probably has some kind of logical appeal.
On the other hand, agricultural organizations and politicians might think, "The reason that the welsh onions, shiitake mushrooms and tatami-omote did not go well is because they tried to invoke ordinary safeguard measures. In China's WTO accession protocol there is a special rule for a product specific safeguard, and so next time we should try that." We are also told there is a plan in the Finance Ministry to get ready for the special safeguard measures against China through a revision of the Temporary Tariff Measures Law. I wrote my feelings on the special safeguard in a separate column so I will avoid repeating myself, 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 U.S., the Republic of Korea and Chinese Taipei. This is an ambitious operation that would include a review of the ex officio relationship heretofore and it would take enormous courage and decisive action. Moreover, no country in the world offers a perfect safeguard code for Japan to emulate. Even investigations based on Section 201 of the U.S. 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, but the only thing that is apparent is that the status quo is utterly inadequate.
February 13, 2002
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February 13, 2002［Column］