I OVERVIEW OF TRADE REMEDIES
'Trade remedies' generally refers to the three remedy tools approved under the WTO Agreements regarding unfair trading, etc., and they are, namely, anti-dumping duty measures, countervailing duty measures and safeguard measures. The aim of these measures is to protect domestic industries and to provide them with remedies against unfair imports from a foreign country or for other special reasons, and they involve designating, inter alia, the product, supplier and supplying country and imposing additional custom duties or restricting the quantity of imports allowed.
In particular, anti-dumping duty measures and countervailing duty measures are established for the purpose of eliminating injury to domestic industry caused by unfair import from a foreign country. To utilise these measures, the domestic producer (companies and organisations, etc.) must file a petition to the Japanese government requesting the imposition of a duty. The government will conduct an inspection based on this petition and if the statutory requirements are satisfied, a custom duty will be imposed pursuant to laws and regulations.
The following sections will describe these three trade remedies as they are applicable to Japan, as well as recent changes to the system.
II LEGAL FRAMEWORK
i Anti-dumping duty measures
Anti-dumping duty measures are special customs duty measures imposed on a certain product when the export price of the product is lower than the price at which it is sold in the exporting country (dumping), and such dumping is causing injury to the domestic industry in the importing country. In order to counter this, a dumping margin is added to the domestic selling price in order to render the dumped price a 'fair' price. The amount of anti-dumping duty cannot exceed the difference between the export price and the domestic selling price of the product.
The anti-dumping duty is a trade relief remedy sanctioned under the WTO Agreements (the General Agreement on Tariffs and Trade (GATT) Anti-Dumping Agreement). In Japan, this remedy is set forth in the Customs Tariff Act and the Cabinet Order regarding Anti-Dumping Duty (the AD Order), among others, and is also subject to WTO Agreements (the GATT Anti-Dumping Agreement) as well as these domestic laws and regulations. In addition, there are the Guidelines for Anti-dumping Duty Proceedings (the AD Proceedings Guidelines) and an 'Anti-dumping Duty Petition Handbook' that exist to supplement domestic laws and regulations.
Anti-dumping duty measures can be invoked when the following requirements apply pursuant to Article 8 of the Customs Tariff Act:
- It must be determined that dumping has occurred (i.e., the product must be imported at a price lower than the normal price in the exporting country).
In principle, the 'normal price' is calculated based on the price at which the product is sold to consumers in the exporting country ('exporting country domestic selling price') (Article 2, paragraph 1 of the AD Order). The exporting country domestic selling price used must be the price used in transactions with individual purchasers.
However, if there exists no exporting country domestic selling price or if it is deemed inappropriate to apply the exporting country domestic selling price, one of the following prices is used (Article 2, paragraphs 1 and 2 of the AD Order):
- the selling price for export of 'like' products that are exported from the supplying country of the relevant product to an appropriate third country ('third country export price'); or
- the production cost of the relevant product plus management fee, sales expenses, general expenses and regular profit for products similar to the relevant product produced in the country of origin (the 'constructed normal price').
In addition, Japan has appointed China (excluding Hong Kong and Macao) and Vietnam as non-market economy nations. If a producer of a product imported from either nation cannot clearly demonstrate that the market economy conditions prevail (in its market), then the normal price may be calculated by using the exporting country domestic selling price, third country export price or the constructed normal price of a same type of product exported from a country that is at a similar stage of economic development comparable to the country of origin of the relevant product (Article 2, paragraph 3 of the AD Order).
- The dumping must be causing or potentially cause material injury to the Japanese industry, or there must exist a fact that the establishment of Japanese industry is materially hindered by the dumping.
'Japanese industry' means Japanese producers that produce at least 50 per cent of Japan's total production of the same type of product deemed as having been dumped (excluding certain producers such as those who have a direct or indirect controlling relationship with the suppliers or producers of the relevant imported product).
- Third, there must be a causal relationship between the dumping and injury caused to the Japanese industry. If the injury to the Japanese industry is caused by factors other than the dumping, such as an increase of imports of a non-dumped product or a decrease in demand, etc., then anti-dumping duty measures cannot be invoked.
- Lastly, the measures must be necessary to protect the Japanese industry. For example, if the exporter makes a promise to revise the export price or the applicant withdraws its petition or other changes in circumstances occur, rendering it unnecessary to protect the Japanese industry after a petition for anti-dumping duty measures has been filed or investigation by an authority is initiated, then anti-dumping duty measures cannot be invoked.
Method of imposing anti-dumping duty measures
A cabinet order is enacted to invoke anti-dumping duty measures in each individual case (Article 8, paragraph 2 of the Customs Tariff Act). The relevant cabinet order designates the product in question, the supplier and supplying country subject to the anti-dumping duty measures and the period for which the duty is imposed.
The anti-dumping duty is imposed on the relevant product, supplier and supplying country designated by the cabinet order for the designated period of time in addition to the tariff rate normally imposed on the relevant product, to the extent that the sum does not exceed the difference between the normal price and the export price to Japan (dumping margin).
Anti-dumping duty measures are implemented for a maximum of five years; however, this period may be extended if reviewed as appropriate during said period (Article 8, paragraphs 1 and 27 of the Customs Tariff Act).
Initiation of investigation, case example of invocation
Compared with other countries, there have not been many anti-dumping investigations in Japan.2
In the past five years, three cases were subject to anti-dumping investigation. Those were: (1) an investigation on carbon steel butt welding fittings originating in Korea and China (invocation date: 31 March 2018); (2) an investigation on polyethylene terephthalate with a high degree of polymerisation originating in China (invocation date: 28 December 2017); and (3) an investigation on potassium hydroxide originating in Korea and China (invocation date: 9 August 2016).
ii Countervailing duty measures
Countervailing duty measures are special duty measures imposed for the purpose of countervailing the effect of subsidy from the exporting country's government where the export of the subsidised product is causing injury to the domestic industry of the importing country.
The countervailing duty system is one of the trade remedies approved under the WTO Agreements (the GATT Agreement on Subsidies and Countervailing Measures). In Japan, investigation proceedings are governed by the Customs Tariff Act (Article 7) and the Cabinet Order on Countervailing Duty (the CVD Order). In addition, the Guidelines for Countervailing Duty Proceedings (the CVD Proceedings Guidelines) exist to supplement the WTO Agreements, domestic laws and regulations and to support the smooth operation of the system.
Countervailing duty measures can be invoked when the following requirements apply pursuant to Article 7 of the Customs Tariff Act:
First, it must be determined that import of the subsidised product has, in fact, occurred.
Subsidies that are subject to the countervailing duties refer to any subsidy that bestows benefits, such as gifts and forgiveness of debts, and has specificity.3
It must be determined that the import of a product that was directly or indirectly subsidised for the production or export thereof in a foreign country caused or could potentially cause material injury to the Japanese industry (limited to the Japanese industry producing the same kind of product as the imported product so subsidised), or the establishment of Japanese industry4 must be materially hindered by such import.
A causal relationship between the import of the subsidised product and the injury to domestic industry must be demonstrated. If the injury is caused by other factors, such as increased import of a non-subsidised product or a decrease in demand as a whole, such factors will be naturally taken into account when accessing the causal relationship between the subsidised import and the material injury to domestic industry.
Lastly, invocation of duty measures must be necessary to protect the Japanese industry.
Method of countervailing duty measures
A cabinet order must be enacted in order to invoke countervailing duty measures in each individual case (Article 8, paragraph 1 of the Customs Tariff Act). The relevant cabinet order designates the product in question, the exporter, producer, exporting country or country of origin of the product and the period for which the duty will be imposed.
The countervailing duty is imposed in addition to any normally imposed tariffs (agreed tariff rate, basic tariff rate, temporary tariff rate or preferential tariff rate) in an amount no more than the amount of the relevant subsidy.
The amount of subsidy is calculated according to the following method:5
The Guidelines for Countervailing Duty Proceedings set out the basic thinking behind the calculation of typical subsidy amounts. Subsidies are calculated from the receiver's point of view, but the calculation method for each subsidy amount is determined appropriately through individual investigation based on the nature and terms and conditions thereof.
Countervailing duty measures are implemented for a maximum of five years; however, this period may be extended if reviewed as appropriate during said period (Article 7, paragraphs 1 and 27 of the Customs Tariff Act).
Initiation of investigation, case example of invocation
In Japan, there has only been one countervailing duty case to date: this was the Hynix DRAM (Korea) case (imposition of countervailing duties was determined on 27 January 2016 at a rate of 27.2 per cent for the period from 27 January 2006 to 31 August 2008, and 9.1 per cent from 1 September 2008 to 23 April 2009, and withdrawn on 23 April 2009).
iii Safeguard measures
'Safeguard measures' generally refers to the imposition of customs duties or restrictions on quantity of imports allowed in order to avoid injury to the importing country's domestic industry caused by a sharp increase in imports of a particular product where such measures are recognised as urgently necessary for the national economy.
Safeguard measures are trade remedies approved under the WTO Agreements (the GATT Agreement on Safeguards). In Japan, quantity restriction measures are regulated under the Foreign Exchange and Foreign Trade Act, the Import Trade Control Order, and the Regulations to Govern Emergency Measures to be taken in Response to an Increase in the Importation of Goods, while customs duty measures are provided for in the Customs Tariff Act (Article 9) and the Cabinet Order Relating to Emergency Duties. These domestic laws and regulations are also supplemented by the 'Establishment of the Guidelines for Procedures relating to Emergency Measures to be taken in response to an Increase in the Importation of Goods' and the 'Guidelines for Procedures relating to Emergency Duty, etc.'.
Requirements for invocation
Emergency duty measures (or safeguard measures) can be invoked when the following conditions apply pursuant to Article 9 of the Customs Tariff Act.
Increase in imports
As the most fundamental requirement for imposition of emergency duty, there must be an increase in the imports of a particular kind of product due to a price decrease in a foreign country or some other unforeseen development of circumstances (Article 9, paragraph 1 of the Customs Tariff Act).
'Unforeseen development of circumstances' is the domestic legislative equivalent of the wording 'a result of unforeseen developments' as used in Article 19 of the GATT 1994, under which it is agreed that 'unforeseen developments' means the development of circumstances arising after negotiation of related tariff concessions which it 'would not be reasonable to expect that the negotiators of the country making the concession could and should have foreseen at the time when the concession was negotiated'.6
The increase in imports may be due to either natural or artificial causes, and may include cases where the absolute import quantity decreases or remains the same but the percentage of imported product increases. However, if, for example, there is a price decrease in a foreign country and the domestic industry takes countermeasures against such low-priced imported product by marking down its own domestic product price, then emergency duty measures cannot be imposed if there is no increase in the absolute quantity or shares of import, as there exists no increase in imports in any sense.
Serious injury to domestic industry or threat thereof
Even if there is an increase in the imports of a particular product, emergency duty measures cannot be imposed if there is no serious injury to Japanese industry.
Similarly to anti-dumping duty and countervailing duty, 'Japanese industry' here means producers that produce a substantial proportion of the total domestic production (roughly at least 50 per cent), as a proportion of either all domestic producers of like products and directly competing products, or those producers of the relevant product itself. The purpose of this requirement is to ensure that emergency duty measures are imposed only when a substantial portion of the relevant industry is injured rather than to protect individual entities that failed to compete with foreign import products.
However, unlike anti-dumping duties and countervailing duties, the scope of 'Japanese industry' is not limited to producers of 'like goods' but extends to 'Japanese industry involved in the production of products which compete directly with such imported product in their uses', and is therefore more broadly defined. This is based on the idea that in the event of unfair conduct such as dumping or subsidy, the scope of 'Japanese industry' must be limited in order to strictly assess the facts regarding unfair conduct; however, in the case of emergency duty measures, which are triggered by injury resulting from fair trade, the requirements regarding the scope of injury needs to be stricter, but once those requirements are met the remedies are more broadly available to domestic industry, including competing industries.
'Serious injury' means a greater level of injury than the 'material injury' required in the case of anti-dumping duty or countervailing measures, and in practice, it is determined on a case-by-case basis. Also, serious injury does not actually need to have been realised; the threat of serious injury can be sufficient if it is clearly imminent.7
Causal relationship between the increase in imports and serious injury to domestic industry
Even if there is an increase in imports of a specific product and serious injury to the domestic industry has been established, emergency duty measures will not be imposed unless a link can be shown between the injury and the increase in imports.
Urgent necessity for the national economy
Another requirement that must be met before emergency duty measures can be invoked is that there must be an urgent necessity for the national economy.
Emergency duty measures, which are taken against fair trade, offer protection to domestic industry, but at the same time they are disadvantageous to domestic consumers of the product. Therefore, before these measures are invoked, it must be carefully assessed from the viewpoint of the national economy whether the protection of the relevant industry is truly necessary based on Japan's industry policies, and whether the invocation of such measures is necessary at that point in time.8
Method of emergency duty measures
A cabinet order must be enacted to invoke emergency duty measures in each individual case. The relevant cabinet order designates the product in question and the period for which the duty will be imposed.
Emergency duty measures are implemented by way of imposition of customs duty or restriction on import volume to the extent necessary to prevent or remedy serious injury and to facilitate adjustment. Emergency duty measures are applied to the entire world indiscriminately. When imposing volume restrictions, the cap must be at least the average import volume for the past three years, in principle.
Emergency duty measures may be imposed on all specified products imported during the specified period of time or on the part of the specified products exceeding a certain quantity or value, in addition to normal customs duty, in an amount equal to or less than the amount corresponding to the difference between the customs value of the products and the appropriate wholesale price in Japan of like products or similar products, minus the amount of normal customs duty. If the specified products are subject to tariff concessions under the WTO Agreements, emergency duty may, by withdrawing such concessions or modifying such concessions within a certain tariff rate, be imposed at a certain tariff rate or the rate so modified with respect to all of the specified products imported during the specified period of time or the part of such specified products exceeding a certain quantity or value.
Emergency duty measures are implemented for a maximum of four years; however, if it is deemed that Japanese industry will continue to suffer serious injury owing to increased imports of the specified product even after the end of such period and it is deemed that the Japanese industry is in the process of structural adjustment, then the implementation period may be extended up to a total of eight years (inclusive of the aforementioned four years)(Article 9, paragraphs 1 and 10 of the Customs Tariff Act).
Initiation of investigation, case example of invocation
In Japan, there has only been one emergency duty measures case to date (a safeguard investigation regarding Welsh onions, shiitake mushrooms and tatami mats).
In the above-mentioned case, an investigation was initiated in December 2000 upon request by the Minister of Agriculture, Forestry and Fisheries. In April 2001, Japan invoked temporary safeguard measures for a period of 200 days setting a tariff quota and imposing additional tariffs on imports of Welsh onions, shiitake mushrooms and tatami mats that exceeded the quota. However, these temporary measures did not lead to the invocation of definite measures, and instead were terminated in November 2001.
III TREATY FRAMEWORK
According to the comments by the Customs and Tariff Bureau of the Ministry Finance, which was released dated as of 1 February 2019, if the Draft Agreement on the withdrawal of the United Kingdom from the EU becomes effective, a transition period will be established after Brexit, and the Agreement between the EU and Japan for an Economic Partnership will apply to the UK until 31 December 2020. Conversely, if the transition period cannot be established in the Draft Agreement, the Agreement between the EU and Japan for an Economic Partnership will not apply to the UK after Brexit, therefore the most-favoured tax rate will apply to transactions between Japan and the United Kingdom. Further, both the Japanese and British prime ministers have indicated that they will conclude a bilateral agreement based on the EPA between Japan and the EU after Brexit.
ii Withdrawal of the US from TPP
After the US left the TPP Agreement, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11), with the remaining 11 member countries, became effective on 30 December 2018. TPP11 is a large-scale agreement for 12 per cent of the world if we add the GDP of the TPP11 member countries even after the withdrawal by the US, it has a level of liberalisation of goods (rate of tariff elimination) in market access for goods higher than those of conventional FTAs and EPAs, and it handles a wide range of content, including the environment, labour, intellectual property, competition and e-commerce.
Japan has now started negotiations with the US for a Trade Agreement on Goods (TAG), and it was confirmed that the US will not invoke additional tariff measures on Japanese automobiles and parts during the negotiations. The US has moved to introduce a restraining provision against the conclusion of any FTA with non-market economies in TAG, and this provision may be a major obstacle to Japan's promotion of mega-FTAs (RCEP, Japan–China–Korea Free Trade Agreement).
iii The Transatlantic Trade and Investment Partnership and the RCEP
The Transatlantic Trade and Investment Partnership (TTIP) was supposed to be the de facto global standard of 21st century trade, however, while the TTIP negotiations have been delayed, Japan made an EPA with the EU in addition to the TPP, despite the US leaving, and the rules set forth in these agreements are considered to have some impact on the TTIP negotiations. The RCEP has been under negotiations since November 2012, and it has been pointed out that progress in negotiations has been delayed, though the Joint Leaders' Statement in 2018 announced that it is in the final stage of negotiations and that they are determined that it will be concluded in 2019. The purpose of the RCEP is to develop trade remedies for participating countries, support the purpose of trade liberalisation of the RCEP, while maintaining the principles under the WTO Agreement.
iv Negotiations of FTAs (such as the EU–Japan Free Trade Agreement)
The EU–Japan EPA came into effect on 1 February 2019. The EU is an important trading partner for Japan, accounting for approximately 11 per cent of exports and 12 per cent of imports. Further, in terms of investment, the EU is the second-largest investment destination after the US and the largest source of investment, and Japan and the EU have a close relationship on trade and investment. TPP11 and the Agreement between the EU and Japan for an Economic Partnership will create a better business environment for companies in countries party to the agreements, and by actively utilising these agreements, it is expected that business opportunities will expand for Japanese companies.
In addition to matters relating to tariffs on industrial products and agriculture, forestry and fishery products, and matters relating to trade in services, investment and e-commerce, the EU–Japan EPA covers state-owned enterprises and subsidies, intellectual property (geographical indication), and matters concerning regulatory cooperation. No agreement was reached on the investment rules concerning investment protection and investment dispute resolution procedures between investors and investment-recipient countries.
IV RECENT CHANGES TO THE REGIME
There have been no major legislative changes recently except for the amendment of the relevant laws discussed in Section V.
V SIGNIFICANT LEGAL AND PRACTICAL DEVELOPMENTS9
i Relaxation of requirements for petitions for anti-dumping duties, etc.
As described below, the requirements for petitions for anti-dumping duties and countervailing duties have been relaxed, and it has become easier to use the system.
The petitioner was previously required to submit a damage assessment of a significant part of the domestic industry (approximately 50 per cent of the total output) at the time of petition. However, by virtue of an amendment to the AD Order and the CVD Order, a petitioner has only to submit a damage assessment to the extent reasonably available.
The petitioner was previously required to confirm at the time of petition that the support for the petition for imposition of duties exceeded the opposition (the requirement at the investigation initiation). However, by virtue of an amendment to the AD Order and the CVD Order, in the case where the same cannot be confirmed at the time of petition, it is now possible for the competent ministry for the relevant industry to confirm with Japanese producers its support for the petition for imposition of duties after the petition.
The determination was previously made at the time of confirmation of the requirements for petition or investigation initiation, including importer-producers (those engaged in both domestic production and import of the goods subject to investigation). However, by virtue of an amendment to the AD Order and the CVD Order, the determination is now made excluding such importer-producers. This amendment entered into force on 1 April 2017.
ii Relaxation of requirements for group petition for anti-dumping duties, etc.
For group petitions for anti-dumping duties and countervailing duties, the petition was previously required to be filed by a group the majority of which were Japanese producers of the product related to the petition. However, by virtue of an amendment to the AD Order and the CVD Order, group petitions for imposition of duties are now possible if at least two members of the petitioning group are Japanese producers of the relevant product. (The amendments were to Articles 5 and 10 of the AD Order and Articles 3 and 7 of the CVD Order.) The amendments came into effect on 1 May 2016.
iii Amendment of the AD Proceedings Guidelines and CVD Proceedings Guidelines
Japanese ministries including the Ministry of Economy, Trade and Industry and the Ministry of Finance reviewed the then current requirements for investigation initiation under the anti-dumping duty system and countervailing duty system, which were stricter than those under international rules, and amended the related guidelines as a result.
Specifically, with regard to the investigation initiation requirement under the anti-dumping duty systems, etc. (status of support), it was required that 'the production of the Japanese producer(s) who support the petition' exceed the total production of 'opposers', 'position unknown' and 'import producers'. However, due to the amendment, which brings Japanese rules into line with international rules, 'position unknown' is now excluded from the calculation of the status of support. (The amendments were to Section 5(3) of the AD Proceedings Guidelines and Section 4(3) of the CVD Proceedings Guidelines.) The amendments came into effect on 1 April 2011.
VI TRADE DISPUTES10
i Anti-dumping measures by Korea on Japanese pneumatic transmission valves
On 15 March 2016, the Japanese government made a request to the World Trade Organization to hold consultations with Korea under the WTO Agreements on grounds that Korea's anti-dumping duty measures on valves for pneumatic transmissions from Japan, imposed by Korea from 19 August 2015, were in breach of the Anti-Dumping Agreement because of flaws in Korea's determination of injury and causal relationship, as well as flaws in its investigation procedures. Despite consultations held on 28 April 2016, Japan and Korea failed to bridge the gap between them. Japan requested WTO adjudication by a panel, and on 4 July a panel was established. On 12 April 2018, following WTO dispute resolution procedures, a panel report was issued finding that the anti-dumping duty measures by Korea were inconsistent with the WTO Agreements and recommending that the measures be modified.11 After the issuance of the report, Japan has requested prompt modification in good faith from Korea.
ii Safeguard measures against steel products in India
Further, on 29 March 2016, based on the final decision that the domestic industry in India had suffered or was likely to suffer significant damage owing to an increase of steel imports, India commenced definitive safeguard measures following the government's provisional safeguard measures, which had been in place since 14 September 2015. The additional tax rate is 20 per cent for the first year and gradually decreases to 18 per cent, 15 per cent and 10 per cent at six-month intervals afterwards.
In December 2016, Japan made a request to India to hold consultations from the position that such safeguard measures were suspected of breaching the WTO Agreement. However, despite bilateral consultations held in February 2017, the two countries did not reach a resolution based on the WTO Agreement, and in March 2017, Japan requested WTO adjudication by a panel, with a panel established in the following April.12 On 6 November 2018, following WTO dispute resolution procedures, a panel report was issued finding that the safeguard measures by India were inconsistent with the WTO Agreements and recommending that, although they had already expired, the measures be modified as long as their effects remain.13 Japan has requested that India accepts in good faith the panel report and refrains from acting in breach of this acknowledgment in the future.
iii Anti-dumping measures by Korea on Japanese stainless steel bars
On 18 June 2018, the Japanese government requested the WTO for consultations with Korea under the WTO Agreements, since it was highly likely that the tax treatment of the anti-dumping duties that Korea has imposed on Japanese stainless steel bars since July 2004 were in violation of the Anti-Dumping Agreement.14 Bilateral consultations were held on 13 August 2018, but the dispute was not settled, and on 13 September 2018, the Japanese government requested the WTO establish a panel. The WTO established the panel (small committee) on 29 October 2018, in accordance with the WTO dispute resolution procedures.15 Japan will seek a resolution of the above issue in accordance with the WTO rules.
Japan, originally acknowledging itself as a trading nation, has been hesitant in utilising anti-dumping and other trade remedy measures; however, with the rise of other Asian nations and the WTO dispute resolution rules becoming well established, the number of investigations and disputes handled has increased. The above three cases are examples of the recent trend.
1 Yuko Nihonmatsu and Fumiko Oikawa are partners at Atsumi & Sakai.
3 A “subsidy that has specificity” means (1) any subsidy where the subject of the subsidy is explicitly limited to specific corporations; and (2) in addition to (1), any subsidy where sufficient grounds exist for believing it is possible to have specificity.
4 'Japanese industry' means Japanese producers that produce at least 50 per cent of Japan's total production of the same type of product as the imported product (excluding certain producers such as those who have control over the suppliers or importers of the relevant imported product) (Article 2, paragraph 1 of the CVD Order).
5 Pages 6–9 of the CVD Proceedings Guidelines.
6 Page 729 of the 'Special Tariff Konmentaru'.
7 Pages 729–730 of the 'Special Tariff Konmentaru'.
8 Page 731 of the 'Special Tariff Konmentaru'.