“2015 Report on Compliance by Major Trading Partners with Trade Agreements –WTO, EPA/FTA, and IIA-”

and “METI Priorities Based on the 2015 Report”

May, 2015

Trade Policy Bureau

Ministry of Economy, Trade and Industry

○ Select priority issues from among measures analyzed in the report. ○ Publish government actions taken for priority issues and their achievements.

○ Experts (“Subcommittee on Unfair Trade Policies and Measures” under the Industrial Structure Council, chaired by Mr. Shujiro URATA, Professor of International Economics, Graduate Schools of Asia-Pacific studies,

Waseda University) analyzed problems with trade policies and measures of major trading partners based on international rules, including WTO agreements. ○ The report has been published every year since 1992. The 2015 report is the 24th edition. ○ The United States and the EU also publish similar annual reports.

Report on Compliance by Major Trading Partners with Trade Agreements

International Economic Dispute Settlement Using the Report on Compliance by Major Trading Partners with Trade Agreements

Industries

Present strategies Report results

Foreign governments

Point out inconsistencies

with the international

rules

Avoid unnecessary trade friction

Promote collaboration between govt. and private sector ・ Investigate consistency with

international rules ・Develop strategies ・ Request the abolishment of

measures through bilateral consultations

・Raise the issues in multilateral forums

・ Utilize dispute settlement mechanisms including WTO

Action taken from METI Priorities

METI Priorities

Provide information Request assistance

1

2015 Report on Compliance by Major Trading Partners with Trade Agreements

2

China

AD Measures on Japanese Optical Fiber Preforms

Banking IT Equipment Security Regulation

Administrative Measures on Cosmetic Labelling

Regulations on Chemicals

Indonesia Regulations on Toy Safety that Function as Entry Barriers for Foreign Companies

Philippines Export Regulations on Unprocessed Ore

Israel Regulations on Tires

Ecuador Regulations on Total Automobile Import

Others (China, Malaysia, etc.) Inconsistency with ITA Concerning Flat Panel Displays

Points out the actual or potential inconsistencies with international rules of 132 policies/measures of 18 countries and territories. 9 policies/measures are newly listed (In the 2014 report: 8 policies/measures).

The following columns are newly featured. Recent Issues Concerning Customs Valuation (Legally analyzes types of recent issues concerning customs valuation,

and presents possible measures.) China Rare Earths dispute and WTO Rules (Explains the rulings contained in the report published by the Appellate

Body in August 2014 as well as background and significance of this issue.) Possibility of Considering Policy Objectives under Agreement on Subsidies (Raises a potential future need to take

into account objectives of subsidies under the WTO Agreement on Subsidies.) Excessive Production Capability in Steel Industry, etc. (Describes current status and problems of excessive

production capability in steel industry, etc. and corresponding measures taken by the Government.)

This issue has been implemented.

METI Priorities (Progress of Main Issues)

1. Issues to be resolved through bilateral/multilateral consultations with possible use of the WTO Dispute Settlement Mechanism Indonesia: ･Elimination of Export Restrictions on Mineral Resources ･Ensuring the Enforcement of the New Trade Act, the New

Industries Act and Other Related Regulations in Conformity with the WTO Agreements

Russia: Violation of Tariff Concessions mainly caused by mixed duties (combination of ad valorem duty and specific duty)

Brazil: Correction of Discriminatory System/Implementation of Industrial Product Tax

2. Issues Already Initiated the WTO Dispute Settlement procedure China: ･ Elimination of Export Restrictions on Raw Materials ･ Elimination of AD Duty Measures on High-Performance

Stainless Steel Seamless Tubes from Japan Argentina: Elimination of Import Restrictions on a Wide

Range of Items Ukraine: Revocation of Safeguard Measures against

Automobiles

3. Issues on which Japan urges prompt implementation of the WTO recommendations United States: Confirming Abolition of Zeroing Canada: Abolition of Local Content Requirements in

Ontario’s Feed-in Tariff Program for Renewable Energy

2014 Priorities

3

1 . Issues to be resolved through bilateral/multilateral consultations with possible use of the WTO Dispute Settlement Mechanism

2. Issues Already Initiated the WTO Dispute Settlement procedure

3. Issues on which Japan Urges Prompt Implementation of the WTO Recommendations

2015 Priorities

Correction of security regulations on IT equipment for banking (New)

Indonesia:

Russia:

Brazil:

- Elimination of Measures for Export Restrictions on Mineral Resources - Ensuring the Enforcement of the New Industries Act, the New Trade Act and Other Related Regulations in Conformity with the WTO Agreements

China:

Violation of Tariff Concessions mainly caused by mixed duties (combination of ad valorem duty and specific duty)

Correction of Discriminatory System/Implementation of Industrial Product Tax

Elimination of AD Duty Measures on High-Performance Stainless Steel Seamless Tubes Originated in Japan

China:

Revocation of Safeguard Measures against Automobiles Ukraine:

Elimination of Export Regulations on Raw Materials (i.e. Rare Earths, etc.)

China:

Confirming Abolition of Zeroing United States:

Elimination of Import Restrictions on a Wide Range of Items

Argentine: etc.

Background

Summary of Measures

In May 2009, the Province of Ontario of Canada enacted the “Green Energy Act,” and thereby established a fixed price purchase system (Feed-in Tariff Program). The system stipulates that electricity to be purchased should be generated by electricity generating facilities with a certain percentage or more of value-added in the Province of Ontario (local content requirements), which may constitute a violation of paragraph 4, Article 3 of the GATT (national treatment) and Article 2 of TRIMs (Agreement on Trade-Related Investment Measures).

September 2010 Consultations under the WTO agreements were requested. Bilateral consultations were held in October. June 2011 Lacking a satisfactory response from Canada, Japan requested the establishment of a panel. The panel was established in July. December 2012 The panel published a report (which supported most of the arguments made by Japan, and recommended correction by Canada). In

February 2013, Canada appealed. In May 2013, The Appellate Body issued its report (which held Panel's rulings and supported the arguments made by Japan). July 2013 Japan and Canada agreed to set the deadline as March 24, 2014. March 2014 Since the revised Electricity Act had been submitted to the Provincial Assembly to eliminate the local content requirements, Japan and

Canada agreed to extend the deadline to June 5, 2014. June 2014 The Provincial Assembly was dissolved before completing the deliberation of the bill for revising the Electricity Act and this bill was

abandoned accordingly. However, Canada declared full compliance unilaterally. July 2014 The bill for revising the Electricity Act was again submitted to the Ontario Provincial Assembly and the revised Electricity Act was enacted.

Canada: Local Content Requirements under Ontario’s Feed-in Tariff Program

4

In spite of the fact that the bill for revising the Electricity Act for eliminating local content requirements did not pass in the Provincial Assembly, Canada unilaterally declared full compliance with the WTO recommendation on June 5 2015. Japan and the EU expressed deep concerns and requested the Canadian government for full compliance. As a result, in July 2014, the revised Electricity Act was enacted in the Ontario Provincial Assembly, and the WTO recommendation was implemented.

Achievements

5

Background

Summary of Measures

On September 3, 2014, the Chinese government (China Banking Regulatory Commission, the National Development and Reform Commission, the Ministry of Science and Technology, and the Ministry of Industry and Information Technology) issued the "Guiding Opinions on the Application of Secure and Controllable Information Technology to Strengthen Banking Industry Network Security and Informatization" (hereinafter referred to as the "Guidance Opinions"), which stipulate (i) the utilization rate of secure and controllable information technologies in the Chinese banking industry shall reach 75% by 2019, and (ii) the network security audit standards for the Chinese banking industry shall be established and the information technologies dedicated to the banking business and the security inspection of products shall be strengthened.

On December 26, 2014, the Chinese government issued the Guidelines as a follow-up to the Guidance Opinions. With respect to products and services related to information and communication technologies used by banks, etc., the Guidelines require the use of products based on intellectual property rights within China, evaluation and certification based on standards unique to China, the introduction of specifications which hinder cross-border data flows, etc.

The Guidance Opinions and the Guidelines most likely amount to technical regulations concerning IT products for the banking industry. However, the guidelines have neither been presented under the TBT Agreement nor subjected to the public comment procedure. Also, the Guidelines have not been widely publicized to the related parties.

If the use of products based on intellectual property rights within China, the acquisition of certification based on standards unique to China, etc. are made obligatory, it may be inconsistent with Article 2.1 of the TBT Agreement which requires that products made abroad should be provided for treatment not less favorable than that for domestic products (principle of non-discriminatory treatment). Furthermore, these obligations may be inconsistent with Article 2.2 of the TBT Agreement if they are more trade-restrictive than necessary to achieve legitimate objectives (the security level required for banking business in China).

On March 3, 2015, five organizations of the information and communication equipment industry in Japan jointly submitted written opinions to the Chinese government to express their concerns about this system.

On March 13, 2015, the Japanese government also made statements to the Chinese government with respect to Japan's concerns about this issue. On March 18, 2015, at the March meeting of the TBT Commission, Japan, the United States, the EU, and Canada jointly expressed their concerns

about this issue.

China: Correction of Banking IT Equipment Security Regulation (Newly listed in 2015)

Japan will scrutinize the details of this regulation and monitor its operation. Through bilateral consultations and at various WTO Committees including TBT Committee, Japan continues to urge China to correct the system.

Priorities

Current Status

Injury and causation The China's AD measure is inconsistent with the Anti-Dumping Agreement, because, in determining the causation between dumping export and injury

to Chinese domestic industries, (i) the investing authority does not sufficiently investigate the price comparability between high-performance stainless steel seamless tubes originated in Japan and equivalent products originating in China and (ii) although there are differences between products imported from Japan and those produced in China with respect to performance, grade, and usage, such differences are not appropriately considered, etc.

Procedures China's AD measure is inconsistent with the AD Agreement in terms of procedures, because disclosure of essential facts, etc. are insufficient. * On the other hand, sections of arguments made by Japan regarding determination of injury and causation were not accepted and some of them were

not ruled on.

China: AD Measure on Japanese High-Performance Stainless Steel Seamless Tubes

September 8 2011 MOFCOM gave public notice of the initiation of AD investigation. November 8 2012 MOFCOM gave public notice of the final determination. December 20 2012 The Japanese government requested consultations with the Chinese government under the WTO Agreement. April 11 2013 The Japanese government requested the establishment of a panel under the WTO Agreement. August 16 2013 EU requested the establishment of a panel and the panel was established in the same month. February 13, 2015 The panel report was distributed to Member countries, recognizing that the China's AD measure is inconsistent with the WTO Anti-Dumping

Agreement with respect to the determination of injury and causation as well as procedures. May 20, 2015 Japan and China appealed different legal points related to the report.

Priorities

6

Japan will request the termination of the measures and corrections through the WTO dispute settlement procedures. In February 2015, the panel report was distributed. On May 20, Japan appealed some legal issues to the Appellate Body.

Current Status

On November 8, 2012, the Chinese Ministry of Commerce (MOFCOM) gave public notice of the final determination to impose the anti-dumping (AD) measure (AD duties to be imposed in the coming 5 years) regarding the AD investigation on Japanese and EU high-performance stainless steel seamless tubes.

The AD measure is highly likely to be inconsistent with the WTO AD Agreement because (i) flaws in the determination of injury and causation; almost all Japanese products are high-grade steel used in ultra supercritical boilers in coal-fired power plants, so injury and causation were determined even though Japanese and Chinese products do not compete, and Japanese imports do not seem to be cause for injury to the Chinese domestic industry for which causation was determined (ii) flaws in investigation procedures such as insufficient disclosure of essential facts.

Background

Summary of Measures

Rulings by the Panel

China introduced quantitative restrictions on the export of rare earths, tungsten and molybdenum, which are significant strategic resources, sequentially since 1999, and imposed export duties since 2006 (at 25% at the largest). In July 2010, the Chinese Ministry of Commerce significantly reduced the export quota for rare earths for the latter half of 2010. Since September of the

same year, export of rare earths from China to Japan has been stagnant. China's introduction of export regulations on rare earths is in violation of the GATT and China's WTO accession protocol.

Since 2010, bilateral diplomatic consultations have been held repeatedly at a ministerial level. In March 2012, Japan requested, together with the United States and the EU, consultations under the WTO Agreements with regard to three items (rare earths,

tungsten and molybdenum). Japan, the U.S. and the EU jointly held WTO consultations with China in April 2012. On March 26, 2014, the panel issued a report that fully supports the arguments by Japan, the United States and the EU, ruling that China’s export regulations are

inconsistent with the GATT and China’s WTO accession protocol. In August 2014, the Appellate Body issued a report that completely affirms the arguments by Japan, the United States, and the EU, ruling that China's export

regulations are inconsistent with the GATT and China's WTO assession protocol. In December 2014, Japan, the United States, and the EU agreed with China to set the deadline for correcting the measures to May 2, 2015. In January 2015, China abolished quantitative restrictions on the export of rare earths, tungsten, and molybdenum. In May 2015, China abolished export duties on the export of rare earths, tungsten, and molybdenum.

China: Export Restrictions on Rare Earths

7

In August 2014, the Appellate Body issued the final report fully supporting the arguments by Japan, the United States, and the EU. China has abolished export quotas and export duties, and Japan will continue to monitor compliance.

Achievements

Summary of Measures

Summary of the Panel Report and Appellate Body Report Export duties Export duties imposed by China violate the prohibition of the imposition of duties on goods by reason of exportation prescribed in Article 11, paragraph (3) of China’s WTO accession protocol. China cannot invoke Article XX of the GATT (grounds for justification) in relation to Article 11, paragraph (3) of China’s WTO accession protocol. Even if invocation is permitted, export duties imposed by China do not fall under the category of measures necessary for preserving the environment as prescribed in (b) of Article XX of the GATT and cannot be justified. Export quotas Export quotas imposed by China violate the prohibition of the imposition of quantitative restrictions prescribed in paragraph (1) of Article XI of the GATT. Said export quotas do not fall under the category of measures pertaining to the preservation of limited natural resources as prescribed in (g) of Article XX of the GATT and cannot be justified. Restrictions on trade rights Restrictions on trade rights, such as requirements for minimum stated capital and export performance, imposed by China violate the prohibition of restrictions on trade rights prescribed in Article 5, paragraph (1) of China’s WTO accession protocol and Articles 83 and 84 of the report of the working group. Said restrictions on trade rights do not fall under the category of measures pertaining to the preservation of limited natural resources as prescribed in (g) of Article XX of the GATT and cannot be justified.

Background

Implementation monitoring

In December 2008, the Indonesian People’s Representative Council passed an amendment to the old Mining Law to establish a New Mining Law. The New Mining Law was promulgated after the President’s signature in January 2009.

1) Requirements for adding high value, as well as domestic concentration and refinement With respect to certain minerals, including nickel and copper, the requirements for domestic concentration and refinement

were introduced. In January 2014, a ban on unprocessed ore export was imposed. 2) Export duties and export licensing system A ban on export of copper concentrate and slime (byproduct) was extended until January 2017 and during that period

Indonesia adopts an export licensing system (which requires fulfilling commitments to build refineries, etc.) and imposes export duties on copper concentrate (to be gradually increased up to 60%).

3) Domestic Sales Requirement Producers are required to allocate a certain minimum percentage of their total production and sales to the domestic market.

A ban on ore export based on the new Mining Law may constitute a violation of Article XI:1 of the GATT (general elimination of quantitative restrictions).

Since 2011, Japan, jointly with the United States and the EU, has continuously requested the Indonesian government to correct the high value-added obligations and a ban on ore export at WTO committees, such as the Council on Trade in Goods and the Committee on Trade-Related Investment Measures (TRIMs), etc.

Through bilateral consultations, including after the new government took office in Indonesia (October 2014), Japan has continuously requested reconsideration of the measures at the summit level, ministerial level in addition to working level.

Measures taken

Japan continues to request improvement through fora such as bilateral consultations and the framework of the WTO. There is concern that this trend of resource nationalism may spill over to other countries in the medium- and long-term.

Current status

Indonesia: Export Restrictions on Mineral Resources Priorities

8

Summary of measures

New Industries Act The Act was approved by the People’s Representative Council in December 2013. It provides for national industrial policies and measures for the development of industrial resources and the promotion of industry etc., with the aim of facilitating efficient use of resources and strengthening the national industrial structure. The Act stipulates bans or restrictions on exports of natural resources as well as measures to ensure their domestic supply, an obligation to use domestic products, financial assistance for domestic industries, etc. New Trade Act The Act was approved by the Diet in February 2014. It comprehensively provides for various trade regulations and strengthens the government's authority on trade. The Act contains provisions with regard to the obligation to use domestic products, obligation to comply with national standards, and criteria for workers' competency, etc. Additionally, the New Trade Act provides for labeling regulations, general import/export licensing systems, a ban or restrictions on import and export (not limited to natural resources), control of the amounts and prices of certain goods, review of international trade agreements and other matters. Both the New Industries Act and the New Trade Act contain clauses that are likely to be inconsistent with the WTO Agreement. Both acts lack the operative details to implementing regulations. Therefore, we need to keep an eye on the establishment of implementing regulations in the future.

Summary of the New Trade Act and New Industries Act

Both the New Trade Act and the New Industries Act lack operative details to implementing regulations. Therefore, Japan will keep an eye on the establishment of implementing regulations, pay attention to existing relating measures, and continue requesting that Indonesia ensure conformity with the WTO Agreements through bilateral consultations and at WTO Committees.

Current Status

Indonesia: New Trade Act and New Industries Act Priorities

9

Local content requirements for shopping centers, etc. ・Require them to ensure that 80% or more of their line of goods are domestic goods Others: Labeling regulations, a ban on import of second-hand goods, a ban on export of mining resources under the new Mining Act, etc.

Existing Measures Inconsistent with the WTO Agreements that may Relate to Both Acts

With respect to the New Industries Act/the New Trade Act, local content requirements for shopping centers, etc., Japan, jointly with the United States and the EU, expressed concerns on several occasions through bilateral consultations as well as at the WTO Council on Trade in Goods, the Committee on Trade-Related Investment Measures (TRIMs), etc.

Measures taken

Background Japan raised this issue at the WTO Council on Trade in Goods and the meeting between chairs of the Trade and Investment

Subcommittee of the Japan-Russia Intergovernmental Committee in April 2013. At the bilateral consultations with Russia in August 2013, the Minister of Economy, Trade and Industry of Japan urged the Russian Minister of Economic Development for immediate correction.

Russia reduced applied rates in September and October 2013 and September 2014, and the damage to industry was mitigated but the measures were still inconsistent with the Article 2 of the GATT in part. In February 2015, the EU requested the establishment of a panel. The panel was established in March of the same year. Japan participated in the panel procedures as a third party.

Russia: Violation of Tariff Concessions mainly caused by mixed duties (combination of ad valorem duty and specific duty)

Priorities

10

Russia acceded to the WTO in August 2012 and internationally committed to tariff concessions (bound rates). Russia’s applied rates for some items (around 200 items, including cheese, pulp, and secondhand cars) exceed bound rates and some Japanese

companies have overpaid duties for specific items. Specifically, Russia's applied rate of the refrigerator (Large refrigerators with capacity exceeding 340 liters)was prescribed as 20%, but not less than 0.24 euro per 1 liter. Therefore, the applied rate exceeds the WTO bound rate when 0.24 euro multiplied by the capacity of the refrigerator exceeds 20% of the value of the item, and importers (Japanese local companies) have suffered significant overpayments.

Although Russia has gradually reduced the applied rate, overpayments are still occurring. Russia imposes tariffs exceeding the bound rates, which may constitute a violation of Article II of the GATT (schedules of tariff concessions).

(e.g.) Large refrigerators with capacity exceeding 340 liters. WTO bound rates and applied rate of Russia

Summary of Measures

Japan will participate in the panel procedures initiated by EU as a third party and request correction.

Current Status

Aug. 2012 - Sep. 2013 - Sep. 2014 - Sep. 2015 - Sep. 2016 –

Bound rates 20% 18.3% 16.7% 15% 13.6%

Applied rates 20% , but not less than 0.24 euro per 1 liter

18.3% , but not less than 0.16 euro per 1 liter(*) (*) Enforced on October 19, 2013, onward

16.7% , but not less than 0.13 euro per 1 liter

Brazil: Discriminatory Implementation of Industrial Product Tax

(Note) Conditions and details of preferential treatments differ according to activities of companies ((1) Manufactures in Brazil, (2) Import sales companies, and (3) companies with investment plans)

In October 2012, the Brazilian government announced the Inovar−Auto which continued the 30% increase of IPI on cars for five years from 2013 to 2017 while making it possible for automobile manufacturers to reduce IPI up to the current limit of 30 percent by using the "IPI credit“ to be given in proportion to the local content usage ratio. To be qualify for IPI credits, automobile manufacturers must meet three requirements: (i) achieve the prescribed fuel efficiency standards, (ii) carry out certain manufacturing processes for car production in Brazil, (iii) invest a certain amount in domestic research and development etc. Manufacturers who meet the requirements are also granted tax reduction on imported cars up to a limit of 4800 cars.

Preferential taxation has been expanded in connection with the local content requirements in broad fields, such as that of information and communication equipment.

The measure stipulates unfavorable treatment towards imported products which do not receive the benefit of tax exemption. Accordingly, it is likely to be inconsistent with Article III (national treatment requirements) of the GATT. Also, it is likely to be inconsistent with Article III of the GATT, Article 2 of TRIMs, and Item (b), Paragraph 1 of Article 3 of the Agreement on Subsidies and Countervailing Measures in encouraging the usage of local content.

1. Grant an exemption of IPI increase for certain time period for cars manufactured in Brazil by participating companies.

2. Allow reduction of IPI increase up to 30% for cars imported by participating companies up to 4,800 cars per year, in proportion to the local content usage etc..

(1) Achieving the prescribed fuel efficiency standards by October 2017(fuel efficiency of new cars in 2017 would improve by 12% compared to that in 2012.)

(2) Carrying out certain manufacturing processes such as assembly and pressing in Brazil.

(3) Investing a certain amount in domestic research and development, or engineering etc.

(4) Participating in vehicle labeling program.

Conditions for participating in the Inovar−Auto Preferential tax treatment to participating companies

Japan, jointly with the United States, the EU, and Australia, expressed concerns at the WTO Council on Trade in Goods, the Committee on Trade-Related Investment Measures (TRIMs), etc. In addition, the Japanese Minister of Economy, Trade and Industry pointed out to the Brazilian Minister of Development, Commerce and Industry the possible infringement of the WTO rules in May and November 2012, respectively. Also, Japan continuously expressed concerns during the Japan-Brazil Joint Committee on Promoting Trade and Investment (in November 2012, October 2013, and September 2014, respectively).

In December 2013, the EU requested bilateral consultations under the WTO dispute settlement procedures (including fields other than automobiles), and in October 2014, it requested the establishment of a panel. The panel was established in December of the same year (where Japan participated as a third party).

Priorities

11

Japan continues to request the elimination of the measures and corrections by utilizing the framework of bilateral consultations and WTO Committees.

Current Status

Background

Summary of Measures

【Number of automobiles sold in Ukraine】 【Number of imported automobiles in Ukraine】

Source: All-Ukrainian Association of Automobile Importers and Dealers

Source: Association of Ukrainian Motor Vehicle Manufacturers and All-Ukrainian Association of Automobile Importers and Dealers

(1,000 vehicles)

376

61.3

106.7

050

100150200250300350400

2008 2009 2010

314.7

60.5 49.6

295.5

114.7 119.9

48.4%

65.5% 70.7%

0%10%20%30%40%50%60%70%80%

0

100

200

300

400

500

600

700

2008 2009 2010

国内生産車 輸入車 輸入車シェア

Ukraine: Imposition of Safeguard Measures against Automobiles Priorities

12

Background (1,000 vehicles) Domestic automobiles

Imported automobiles

Share of imported automobiles October 2011, April 2012 Japan expressed concerns at the WTO SG

Committee (jointly with EU in October, and with EU and Korea in April) June 2012 Director General of METI Manufacturing Industries Bureau sent a letter to Ukrainian Minister of Economic Development and Trade requesting suspension of implementation March 2013 Japan expressed concerns at the WTO Council on Trade in Goods April 2013 Japan requested the consultations with Ukraine under the SG Agreement. Japan expressed concerns at the WTO SG Committee June 2013 Japanese Vice Minister of Economy, Trade and Industry, requests the Ukrainian Minister of Environment and Energy for the elimination of the measures. July 2013 Japan raised the issue at the WTO Council on Trade in Goods. August 2013 Japanese Minister for Foreign Affairs, requests the Ukrainian Minister for Foreign Affairs, for the elimination of the measures. October 2013 Japan requested consultations with Ukraine under the WTO dispute settlement procedures. February 2014 Japan requested the establishment of a WTO panel. March 2014 The WTO panel was established.

In March 2014, The WTO panel was established and the Panel proceedings are ongoing. Current Status

Summary of measures July 2011 : The Ukrainian government initiated the SG investigation on automobiles. April 2012: The Inter-Departmental Commission for International Trade of Ukraine decided to impose the SG measures. - Details of the final decision and the timing of the imposition of the measures were not made public. - Taxation of 6.46% on 1000-1500cc engine cars and 15.1% on 1500-2200cc engine cars. March 2013: The imposition of SG measures was announced. They would take effect after 30 days from the announcement date (March 14, 2013)

(effective for 3 years), with tax rates of 6.46% on cars of 1000-1500cc engines, 12.95% on 1500-2000cc engines. 14 April 2013: The measure was invoked. The number of imported cars in Ukraine decreased drastically between 2008 and 2010 (The number of imported cars from Japan in 2010 did not reach the level of those

compared to in 2008) → The SG measures at issue are highly likely to be inconsistent with the requirements of the SG Agreement - e.g. “increase of import”, causation between “increase

of import” and damage to domestic industry.

Since 2009, requests have been continuously made from senior executive of the government of Japan. Japan continued to express concerns at the Counsel for Trade in Goods and the Committee on Import Licensing.

The EU (in May 2012) , Japan, the United States and Mexico (in August 2012) requested consultations. In December 2012, Japan, jointly with the United States and the EU requested establishment of a panel. In August 2014, the panel issued the final report completely affirming the arguments by Japan, the United States, and the EU. In September 2014, Argentina appealed. In October of the same year, Japan and the EU cross-appealed. In January 2015, the Appellate Body published a report to support the panel's final report, ruling that Argentina's import restriction measures (trade

balancing requirements and prior import declaration requirements) are inconsistent with Article XI:1 of the GATT (general elimination of quantitative restrictions).

Argentina: Import Restriction on a Wide Range of Items

13

In January 2015, the Appellate Body issued the final report completely affirming the arguments by Japan, the United States, and the EU. Japan together with US and EU will request that Argentina comply with the recommendations.

Achievement

Background

After the global financial crisis in 2008, Argentina introduced non-automatic licenses (targeting 400 items on the basis of HS codes). The number of items subject to the system was increased to 600 in February 2011. In many cases, it took 100 days or more to issue an import license,

and as a result, export from Japanese companies to Argentina has been delayed (Export of automobiles, their parts, motorcycles, cell phones, PCs, tires etc. have been affected).

Moreover, trade balancing requirements (requiring dollar-for-dollar import-export balance) and prior import declaration requirements were introduced for importers, with the effect of restricting imports.

Although there has been some limited progress including the abolition of non-automatic import licenses on January 26, 2013 (just before the establishment of the panel), other measures (trade balancing requirements and prior import declaration requirements) are still in place.

Implementation monitoring

Summary of Measures

Trade Balancing Requirements These are non-written measures implemented based on verbal guidance. However, a variety of evidence, such as documents released by the government and affidavits submitted by companies, show that there exist systematic and ongoing measures in which trade balancing requirements are imposed based on Argentina's policies aimed at constraining imports and reducing trade deficits. The requirements are inconsistent with Article XI:1 of the GATT because they constitute import restrictions in that compliance with the trade balancing requirements is a precondition for import and that no written document is available, which leads to a lack of transparency and predictability.

Prior Import Declaration Requirements The requirements are inconsistent with Article XI:1 of the GATT because they constitute import restrictions in that the acquisition of prior import approval is a precondition for import and that the range and criteria of discretionary exercise of authority by the regulatory authorities, which participate in such requirement system and which can stop or delay the approval process, are unclear.

Summary of the Appellate Body Report and the Panel Report

The United States imposes anti-dumping duties by determining dumping exports by foreign companies based on an unjustified calculation method called “zeroing.”

Japanese bearings were charged unjustified AD duties based on zeroing since 1989. For its annual export to the United States of about ¥11.6 billion, it is paying excessive AD duties of about ¥1 (one) billion.

Summary of measures

2. Actions going forward Recently, the United States has been increasingly applying the second sentence of 2.4.2 of the AD Agreement (the so-called targeted dumping clause) based on its own interpretation that zeroing is allowable under the targeted dumping clause, and there are concerns that the United States is utilizing the targeted dumping clause as a substitute to zeroing. South Korea and China argue that the United States applies zeroing in targeted dumping cases and have already presented the U.S. AD measures to the WTO dispute settlement procedures (United States - Anti-dumping and Countervailing Measures on large residential washers from Korea (DS464) and United States – Certain Methodologies and their Application to Anti-Dumping Proceedings involving China (DS471)). Japan participates in these cases as a third party and will continuously monitor possible application of targeted dumping to Japanese products and the consistency of such measures with the WTO Agreements.

1. Background up to the present In November 2004, Japan requested consultations with the United States under the WTO Agreement. In January 2007, the WTO Appellate Body made a determination that zeroing was inconsistent with the WTO agreement, and recommended that

the United States abolish it. In August 2009, the WTO Appellate Body determined that the United States had not implemented the WTO recommendations after their deadline. In February 2012, Japan and the United States agreed on a memorandum for resolution of this dispute. Based on the memorandum, the United

States amended the Department of Commerce regulation for abolition of zeroing.

Background

In February 2012, Japan and the United States agreed on a memorandum. The United States amended the Department of Commerce regulation for abolition of zeroing.

In March 2014, the United States revoked the AD duty order on ball bearings from Japan.

Achievements

United States: Zeroing Priorities

14

15

Customs valuation is a procedure applied to determine the transaction prices of imported goods for the purpose of calculating duties. Recently, new, complicated forms of international transactions have been increasing, such as transactions between

global value chains involving many transaction parties in a multilayered manner and transactions of goods involving licensing of rights. With this trend, it has become more difficult to fairly and objectively assess transaction prices for customs valuations. This column explains the following matters, aiming at analyzing and correcting problems that arise when Japanese

companies are subject to unjustified customs valuation that may be inconsistent with international rules (WTO and WCO).

•Overview of rules for customs valuation under international rules •Types of issues that are increasingly subject to ((i) unreasonable rejection of transaction prices, (ii) treatment of royalties, etc., and (iii) treatment of distributorship fees, sales promotion expenses, etc.) and legal analysis of these issues based on international rules •Measures that can be taken by the Japanese government: (i) bilateral consultations (technical cooperation between customhouses, etc.) (ii) multilateral consultations (raising issues in the Technical Committee on Customs Valuation of the WCO), (iii) the WTO dispute settlement mechanism.

New Column (1): Recent Issues Concerning Customs Valuation

In August 2014, the Appellate Body issued a report that fully affirms the arguments by Japan, the United States, and EU regarding China's measures for export restrictions on rare earths, tungsten, and molybdenum (the imposition of export duties and quantitative restrictions on export), ruling that the China's measures are inconsistent with the WTO Agreements. This case sets a significant precedent where the Appellate Body has ruled that protective measures are inconsistent

with the WTO, specifically, export restrictions for resources, which have recently been spreading among some resource-rich countries, and this is an example of a dispute being resolved between a resource-rich country and importing countries through the WTO dispute settlement mechanism, based on international rules, without overly politicizing the dispute. This column explains the content and implications of the rules clarified by the Appellate Body as well as China's

resource policies behind this case and the economic and social impacts of the measures.

New Column (2): China Rare Earths and WTO Rules

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In the WTO Agreement on Subsidies, there is no specific provision requiring the consideration of "policy objectives" of subsidies. However, such consideration may be necessary in view of the following two points. (1) (Subsidies that are restricted despite having economic rationality) The Agreement on Subsidies restricts subsidies that

affect trade. However, subsidies are provided as a means to achieve various public policy objectives of each country, and thus the subsidy rules would be inappropriate if they automatically prohibit subsidies due only to the fact that such subsidies affect trade.

(2) (Subsidies that are not sufficiently restricted despite the lack of economic rationality) Product subsidies for domestic producers are treated as an exception to the national treatment requirements (Item (b), Paragraph 8 of Article 3 of the GATT). However, the provision of subsidies only to domestic producers is not necessarily rational for some policy objectives such as environmental protection, and thus it is questionable whether such subsidies should escape the national treatment requirements and should be permitted under the Agreement on Subsidies solely on the basis that the subsidies are granted directly to domestic producers.

Regarding (1) and (2) above, the column discusses the issues using specific examples such as research and development subsidies and environment subsidies. It points to a possible need to explore future interpretation of the subsidy rules to this end.

As the growth rate of the world economy slows, serious excessive supply has occurred in some leading industries, particularly in emerging countries, as a result of promoting production capability enhancement without considering economic needs. This has caused sluggish markets and deterioration of earnings, leading to an increase of trade friction around the world. This column gives an overview of the current status and issues surrounding the steel industry which is a most notable

example of an industry confronting excess capacity, and describes the state of discussion and measures taken so far. The column calls attention to the importance of taking actions since the same problem could happen in other industries as well in the future.

•Status of excessive production capacity in the steel industry (Widening of supply/demand gap, rapid increase in production capacity particularly in Asia)

•Impact of excessive production (Increased implementation of trade remedy measures) •Issues and measures under international rules (WTO consistency of steel AD/SG measures, etc., OECD's measures toward the restraint of government support behind excessive capacity)

New Column (4): Excess Production Capacity in Steel Industry, etc.

New Column (3): Possibility of Considering Policy Objectives under Agreement on Subsidies