Japan

Guidelines

Trade Promotion Organizations (TPO) and Trade Support Institutions (TSI) play a critical role in supporting the private and public sector to improve trade and as a result, the overall economy of the country. Their primary role is to be an advocate of the private sector and liaison with the public sector to improve the overall business environment and trade. They also became the center of knowledge with respect to the industry or group of industries they represent; they have a strong database and various statistics about the sector they represent.

There are many types of trade agreements that are recognized by World Trade Organization. Three of the most prominent ones are Regional Trade Agreements, Preferential Trade Arrangement and bi-lateral trade agreement.

Regional Trade Agreement (RTA)

In the WTO, Regional Trade Agreements (RTAs) are defined as reciprocal trade agreements between two or more partners. They include free trade agreements and customs unions.Some of the RTAs are, Global System of Trade Preferences among developing countries (GSTP), European Free Trade Association (EFTA), Gulf Cooperation Council (GCC), and South Asian Free Trade Agreement (SAFTA).

Preferential Trade Arrangement (PTA)

Preferential trade arrangements (PTAs) in the WTO are unilateral trade preferences. They include Generalized System of Preferences schemes (under which developed countries grant preferential tariffs to imports from developing countries), as well as other non-reciprocal preferential schemes granted a waiver by the General Council. PTAs are understood to mean non-reciprocal preferential schemes. They are distinct from regional trade agreements (RTAs).

Bi-Lateral Free Trade Agreement (FTA)

Bilateral free trade agreements (FTAs) are made between two countries. Throughout the world, many governments have signed, are negotiating, or contemplating new bilateral free trade and investment agreements.

Definition

As per World Trade Organization (WTO), “Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports“.

Use of Rules of Origin

Rules of Origin are widely used in international trade for various reasons. Some of them are listed Rules of Origin are widely used in international trade for various reasons. Some of them are listed.

  • To implement measures and instruments of commercial policy such as anti-dumping duties and safeguard measures
  • To determine whether imported products shall receive Most-Favored-Nation (MFN) treatment or preferential treatment
  • For the purpose of trade statistics
  • For the application of labelling and marking requirements; and for government procurement.

Determination of Origin

The origin of a product is determined by two criteria:

  • Wholly Obtained
  • Wholly obtained goods are: goods naturally occurring; or live animals born and raised in a given country; or plants harvested in a given country; or minerals extracted or taken in a single country. The definition of wholly obtained also covers goods produced from wholly obtained goods alone or scrap and waste derived from manufacturing or processing operations or from consumption.

Substantial / sufficient transformationThere are three criteria to determine the transformation;

1. A criterion of a change in tariff classification

A good is considered substantially transformed when the good is classified in a heading or subheading (depending on the exact rule) different from all non-originating materials used.

Ex. Zinc Ore is imported under HS Code 2608, and then classifies as HS Code 7904 which is Zinc bars, rods, profiles and wire.

2. A criterion of value added (ad valorem percentages) 

Regardless a change in its classification, a good is considered substantially transformed when the value added of a good increases up to a specified level expressed by ad valorem percentage. The value added criterion can be expressed in two ways, namely a maximum allowance for non-originating materials or a minimum requirement of domestic content.

Ex. A product imported is classified as transformed if the regional value content is less than 60%.

3. A criterion of manufacturing or processing operations (technical  requirement) 

Regardless a change in its classification, a good is considered substantially transformed when the good has undergone specified manufacturing or processing operations.

Ex. Coal is not considered to be transformed if it was brought in and then packed. It is considered to be transformed if it was imported and used as raw material to create another product.

Types of Rules of Origin

There are two types of Rules of Origin based on which based on which import into a country are determined for tariff calculations and other considerations; Preferential & Non-preferential 

Preferential Rules of Origin

Preferential rules of origin are applied by countries that offer certain trade partners zero-duty or reduced-duty access for their imports as a means of determining the eligibility of products to receive such preferential access. These are based on trade agreement between two countries or regional organizations

Non-Preferential rules of Origin

When there are no trade agreements between two nations, non-preferential rules of origin laws of the import country are applied to calculate or determine import tariffs, anti-dumping duties, safeguard and retaliation measures, quantitative measures etc.

Definition

Trade barriers are restraints placed by governments or public authorities on import goods or services to protect their domestic goods and services from foreign competition. Trade barriers can be duties levied on import goods or a rule, a procedure or law, which increases the cost of importing the specific product. Trade barriers can be classified as two different types: Tariff and Non-Tariff. 

Types of Trade Barriers:

1. Tariff Barriers

Definition

Tariffs, which are also known as custom duties, are used in countries as a barrier for goods or services accessing their markets. Any financial costs which are implemented on an imported goods or services are considered as tariffs.

Types of Tariff Barriers

Most of the tariff barriers come in forms of tax. The types of tariffs vary according to the product or industry.

Some of the major types of tariff barriers are:

Specific Duty

A tariff imposed on imported goods on a quantity basis.

Ex. 5 AED per unit or per item.

Ad valorem Duty

A tariff imposed on imported goods on a value basis.

Ex. 5% tariff on the value of the item.

Combined or Compound Duty

A tariff composed of a combination of both Specific Duty and Ad valorem Duty.

Ex. 5% tariff on the value of the item plus 5 AED per unit or item.

Sliding Scale Duty

A tariff imposed that tends to vary according to the price of the imported goods.

Ex. A commodity like wheat, rice, corn are levied duty based on the price of the commodity in the local country, A price threshold is set to trigger changes in the duties for import. 

Countervailing Duty

A tariff imposed on imported goods that are subsidized by the exporting country’s government.

Ex. The imported good is subsidized by 20%, so a 20% tariff plus the normal duties are imposed on the goods.

Revenue Tariff

A tariff imposed on imported goods as a source of revenue for the government in the importing country. This type of tariff is usually imposed on luxury goods

Ex. 20% tariff is imposed on jewelry 

Anti-Dumping Duty

A tariff imposed on products imported which are deemed to be exported at rock bottom prices.

Ex. The imported good is 50% below the market value, so a 50% tariff plus the normal duties are imposed on the goods

Protective Tariff

A tariff imposed on products imported solely to protect domestic companies.

Ex. 20% tax is imposed on cars imported to protect the national cars produced 

Non-Tariff Barriers

Definition

Non-Tariff Barriers (NTB) are all policy related barriers other than basic customs duty in an import country, which acts as obstacles to goods and services trying to accessing their markets.

Types of Non-Tariff Barriers:

Technical barriers 

Technical barriers (Chapters A, B and C) refer to product-specific properties such as characteristics, technical specifications and production process of a product. It also includes conformity assessment methods, which affirm the compliance of a product to a given requirement. These technical regulations are generally aimed at ensuring quality and food safety, environmental protection and national security, and at protecting animal and plant health. Each chapter under technical barriers is explained below,

Sanitary and Phytosanitary measures (SPS)

Sanitary and phytosanitary (SPS) measures are technical in nature and can include prohibition, measures governing quality and hygenic requirements, production process, and related conformity assessments. SPS measures are generally applied to:

Protect human or animal life from risks arising from additives, contaminants, toxins or disease-causing organisms in their food;
Protect human life from plant- or animal-carried diseases;
Protect animal or plant life from pests, diseases, or disease-causing organisms;
Prevent or limit other damage to a country from the entry, establishment or spread of pests; and to protect bio-diversity. These include measures taken to protect the health of fish and wild fauna, as well as of forests and wild flora.
Measures used for these objectives include import prohibition, authorization, tolerance limits and hygienic requirements, labelling and marking requirements, and conformity assessments such as testing, certification and quarantine requirements.

Examples:

Prohibition on import of poultry from countries affected by avian flu.
Liquid eggs should be pasteurized or otherwise treated to destroy all viable Salmonella microorganisms;
Live animals required to be quarantined for two weeks before entry into the territory                                                                                                                                                  

 Technical barriers to trade (TBT)                                                                                                                                                                                                                       

 TBT measures refer to technical regulations, and procedures for assessment of conformity with technical regulations and standards, excluding measures covered by the SPS Agreement. TBT regulations lay down product characteristics or their related processes and production methods, including the applicable administrative provisions, with which compliance is mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method.

This chapter also covers conformity assessment, i.e. any procedure used, directly or indirectly, to determine that relevant requirements in technical regulations or standards are fulfilled. It may include, inter alia:
Procedures for sampling, testing and inspection;
Evaluation, verification and assurance of conformity;
Registration, accreditation and approval;
Combinations of the above

Examples:

Importers of "sensitive product" such as medicines, drugs, explosives, firearms, alcohol, cigarettes, game machines, etc. may be required to be registered in the importing country;
Refrigerators need to carry a label indicating its size, weight as well as electricity consumption level.
For a product to be identified as “chocolate”, it must contain a minimum of 30% cocoa.                                                                                                                                                      

Pre-shipment inspection and other formalities                                                                                                                                                                                                          

This chapter includes measures that require mandatory quality, quantity and price control of goods prior to shipment from the exporting country. It my also include governments requirement for shipments to arrive directly from the country of origin (without stopping in a third country), or to pass through a designated entry point or to pass through specified port of customs.

Examples:

A pre-shipment inspection of textile imports by a third party is required for verification of colors and types of materials
DVD players need to be cleared at a designated customs office for inspection

Non-Technical barriers

Non-technical measures (Chapters D to O) do not refer to product-specific properties but to trade requirements, such as shipping requirements, custom formalities, trade rules, taxation policies, etc. Each chapter under technical barriers are explained below.

Contingent trade protective measures

These are measures implemented to counteract particular adverse effects of imports in the market of the importing country, including measures aimed at 'unfair' foreign-trade practices, contingent upon the fulfilment of certain procedural and substantive requirements. It includes anti-dumping, countervailing and safeguard measures.

Examples:

Antidumping duty imposed on particular product from certain countries to correct unfair pricing practices.
A countervailing duty of 44.71% imposed by Mexico on imports of 'dynamic random access memory (DRAM) semiconductors' from Country A to offset the subsidies granted by the exporting country on the production or trade of the product

Non-automatic licensing, quotas, prohibitions and quantity-control measures other than for SPS or TBT reasons
These measures are generally aimed at restraining the quantity of goods that can be imported, regardless of whether they come from different sources or one specific supplier. These measures can take the form of non-automatic licensing, fixing of a predetermined quota, or through prohibitions.

Examples:

Imports of textile products are subject to a discretionary license
Import of motor a vehicle with cylinder under 1500cc is not permitted to encourage domestic production
Annual import of fish restricted to 100 tons

Price control measures, including additional taxes and charges

Measures implemented to control or affect the prices of imported goods in order to, inter alia,: support the domestic price of certain products when the import prices of these goods are lower; establish the domestic price of certain products because of price fluctuation in domestic markets, or price instability in a foreign market; or to increase or preserve tax revenue. This category also includes measures, other than tariffs measures, that increase the cost of imports in a similar manner, i.e. by a fixed percentage or by a fixed amount: they are also known as 'para-tariff' measures.

Examples:

A minimum import price is established for fabric and apparel
Excise tax, tax on alcoholic consumption, cigarette tax
CO2 emission charge on motor vehicles 

Financial measures

Financial measures are intended to regulate the access to and cost of foreign exchange for imports and define the terms of payment. They may increase import costs in the same manner as tariff measures. It includes measures such as advance payment requirements, and regulations governing foreign exchange rates.

Examples:

Payment of 50% of the transaction value is required three months before the expected arrival of the goods to the port of entry
Imports of construction materials are allowed only if payments may be made through the foreign direct investment fund


Measures affecting competition

These measures are aimed at granting exclusive or special preferences or privileges to one or more limited group of economic operators. It may include government imposed special import channels or enterprises, and compulsory use of national services.

Examples:

A statutory marketing board with exclusive rights to control imports of certain grains
A canalizing agency with exclusive right to distribute petroleum

Trade-related investment measures

These measures include requirement to use certain minimum levels of locally made components, restricting the level of imported components or measures limiting the purchase or use of imported products by an enterprise to an amount related to the volume or value of local products that it exports.

Examples:

In the production of automobiles, locally-produced components must account for at least 50% of the value of the components used
A company may import materials and other products only up to 80% of its export earnings of the previous year

Distribution restriction

Distribution of goods inside the importing country may be restricted. This may be controlled through additional licence or certification requirements

Examples:

Imported beverages may only be sold in cities that have facility to recycle the containers
Exporters of motor vehicles need to set up their own retail points as existing car dealers in the destination country belong exclusively to car producers in that country

Restriction on post-sales services

Measures restricting producers of exported goods from providing post-sales services in the importing country.

Example:

After-sales servicing on exported TV sets must be provided by local service company of the importing country

Subsidies

Financial contribution by a government or government body to a production structure, being a particular industry or company, such as direct or potential transfer of funds (such as grants, loans and equity infusions), payments to a funding mechanism and income or price support.

Example:

The government provides producers of chemicals a one-time cash grant to replace antiquated production equipment

Government procurement restrictions

Measures controlling the purchase of goods by government agencies, generally by giving preference to national providers

Example:

Government office has a traditional supplier of its office equipment requirement, despite higher prices than similar foreign suppliers

Intellectual property

Measures related to intellectual property rights in trade: intellectual property legislation covers patents, trademarks, industrial designs, lay-out designs of integrated circuits, copyright, geographical indications and trade secrets

Example:

Clothing with unauthorized use of trademark is sold at much lower price than the authentic products

Rules of origin

Rules of origin cover laws, regulations and administrative determinations of general application applied by governments of importing countries to determine the country of origin of goods. Rules of origin are important in implementing such trade policy instruments as anti-dumping and countervailing duties, origin marking, and safeguard measures.

Example:

Machinery products produced in a country is difficult to fulfil the rules of origin to qualify for the reduced tariff rate of the importing country, as the parts and materials originate in different countries

World Trade Organization (WTO) relation with Trade Barriers

According to WTO, “The Technical Barriers to Trade (TBT) Agreement aims to ensure that technical regulations, standards, and conformity assessment procedures are non-discriminatory and do not create unnecessary obstacles to trade. At the same time, it recognizes WTO members’ right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or protection of the environment. The TBT Agreement strongly encourages members to base their measures on international standards as a means to facilitate trade. Through its transparency provisions, it also aims to create a predictable trading environment”.

The WTO TBT agreement core consists of five principles30, which are:

Transparency

Any measure that is to be presented by a WTO member and might have an impact on trade is to inform the WTO. If any comments are provided by other countries regarding the measure introduced, the WTO member is to take it into account

Non-discrimination and national treatment

A measure implemented by a WTO member should not in any way discriminate the importing members and be applied to both imports and related local products 

Proportionality

A measure implemented by a WTO member should not have higher trade restrictions than necessary in order to obtain reasonable goals being followed

Use of international standards

International standards are to be followed by WTO members in terms of technical regulations, if applicable

Equivalence

Technical regulations of other WTO members are to be considered for acceptance by the WTO member if they are similar to their own regulations, and that they are effective of addressing the pursued objective

Definition

Trade remedies are trade policy tools used by governments to take legal actions against importers involved in injuring the material of their local industry.

Types of Trade Remedies

Anti-Dumping Measures

When companies export products at prices much lower than what they are being sold in their country. Those companies sell their products at rock-bottom prices in foreign markets. If the product exported is being sold less than the product price in the importing country is considered to be undercutting, not dumping.

Subsidies and Countervailing Measures

This measure addresses two relative topics; one is disciplining the delivery or use of subsidies, and the second is controlling the actions taken by countries to balance the harm that is instigated by subsidized imports. Subsidies have different reasons of use by governments, and these reasons are like market failure or as an instrument of economic and social policy. Subsides have the power of providing structural competitive inequality in the market where unsubsidized products are impossibly capable to compete with subsidized goods.

Safeguard Measures

This measure is implemented by a country which is referred to as “Safeguard” action, in order to protect a certain industry that may get affected by the increase of imports. Safeguard measures are used by countries as a temporary relief to the domestic industry, allowing them some time to make necessary adjustments. Unlike other measures taken by governments such as anti-dumping and anti-subsidy, they do not concentrate on whether a trade is fair or not. Safeguards measure can be applied on all imports from all countries.

World Trade Organization (WTO) relation with Trade Remedies

Anti-Dumping Measures in WTO

WTO stated that, “Dumping” is defined in both Article VI of the GATT 1994, and in the Anti-Dumping (AD) Agreement, as the sale of an imported product in the importing market at less than its “normal value ". GATT and WTO rules do not any way prohibit “dumping”, they are to set rules that members are to respect when taking actions against dumped imports. The WTO AD agreement is a multilateral agreement that must be accepted as part of the “Single Undertaking” by all WTO current and future members.

The purpose of the AD Agreement is to balance potential conflicts of interest between the importing countries imposing Anti-Dumping measures and the exporting countries that tend to see Anti-Dumping measures as obstacles to fair trade.

Subsidies and Countervailing Measures in WTO

According to WTO, the agreement on Subsidies and Countervailing Measures (SCM) both disciplines the use of subsidies, and regulates the actions countries can take to counter the effects of the subsidies of other countries. Members of the WTO, under the SCM agreement, can use the WTO’s dispute settlement procedure to pursue the removal of the subsidy or the deduction of its contrary effects. The SCM Agreement builds upon the Subsidies Code and the original GATT provisions, and contains a definition of subsidy and introduces the concept of the "specificity" (selective availability) of a subsidy. Only specific subsidies are subject to the disciplines set out in the SCM Agreement. 

The SCM agreement WTO tends to regulate the use of subsidies as they may lead to affecting international markets. 

Safeguard Measures in WTO

According to WTO, A WTO member may take a "safeguard" action in the sense of Article XIX of GATT 1994 and the SG Agreement, such as temporarily suspend multilateral concessions, to protect a specific domestic industry from an increase in imports of any product which may in any way harm the industry. The GATT (Article XIX) always had the Safeguard measures were available. 

In the past, most governments preferred protecting their industries through "grey area" measures as the multilateral rules on those measures were unclear. The Grey area measures included many sorts of measure such as the "voluntary" export restraint arrangements and the minimum pricing arrangements. These measures were mostly implemented on products with prolonged trade resistances (ex. Cars & steel).

After the WTO Safeguards Agreement, “grey area" measures are prohibited and a time limit on all safeguard actions is set.

Types of Tariffs 

Most-Favored Nation Tariffs

Most-Favored Nation Tariffs (MFN) is a guaranteed tariff that WTO members are to impose on imports of other WTO members. The WTO members have a limit (Price ceiling) on how high the tariffs imposed can be set. However, it does not apply to all WTO members as some members have other agreements with one another (ex. Free trade agreements). 

Preferential Tariffs

Almost all countries worldwide have at least one preferential trade agreement with another country. This preferential trade agreement has lower tariffs imposed than MFN rates. Some of the countries have a tariff rate of zero imposed on their goods due to having Free Trade Agreements (Ex. NAFTA) or in a customs union (Ex. European Community). However, different agreements have different benefits; some are with lower tariff rates and some with zero tariff rates on all products or certain products, depending on the agreement. 

Bound Tariffs

It is the maximum amount that an MFN tariff can be given on a commodity line. Such type of tariff has certain obligations that are to be made by individual governments of WTO members. Not all countries set or apply such a tariff on other WTO members, as they have the flexibility to increase or decrease the tariff rate. However, this rate is not to be set higher than the bound tariff set and on a non-discriminatory basis. Any member of the WTO who sets a price higher than the bound tariff set, other WTO members are to take the country for dispute settlement. 

Comparing Types of Tariffs

Effectively Applied Tariff

The MFN tariff is applied by importing countries on products which have failed to meet the country’s rules that define the product’s country of origin. It is recommended by the World Integrated Trade Statistics of World Bank that the preferential tariffs are to be analyzed carefully with the assumptions of which tariff rate is actually applied to a particular import.  

Harmonized System (HS) Codes relation to tariffs

About HS Codes

Definition

The HS code is an internationally used multipurpose terminology that was established by the World Customs Organization (WCO). It consists of 5,000 commodity groups, which each one identified by a six digit code, prepared legally and logically, and a set of distinct rules are supporting in order to reach a undeviating classification.

The HS code is governed by “The International Convention on the Harmonized Commodity Description and Cooling System” and maintenance of the HS is set as a priority of the WCO.

Use of HS Codes

HS codes are used in over 200 countries and economies. It is used for the basis of custom tariffs and the collection of international trade statistics (98% of internationally traded products are classified by HS codes).

Governments, international organizations and private sector use HS codes comprehensively for several reasons such as,

  • Internal taxes
  • Trade policies
  • Monitoring of controlled goods
  • Rules of origin
  • Freight tariffs
  • Transport statistics
  • Price monitoring
  • Quota controls
  • Compilation of national accounts
  • Economic research and analysis

HS Code Tariffs

The WCO published amendments to the HS Nomenclature that are to be effective from 1st January 2017. The amendments consist of 233 sets of amendments,

  • 85 amendments in Agricultural Sector
  • 45 amendments in Chemical Sector
  • 13 amendments in Wood Sector
  • 15 amendments in Textile Sector
  • 6 amendments in Base Metal Sector
  • 25 amendments in Machinery
  • 18 amendments in Transport
  • 26 amendments in Other sectors

Packaging and Labeling Regulations

Packaging is the process of using certain types of materials to wrap the product as it manages to protect and preserve the product. This process is used for products at the stage of transporting, warehousing, logistics or at the stage of selling the product

Labelling

Label is defined as a printed legend that provides all the necessary information about the product. Labels are even used on packages in order to provide information about the product inside

Incoterms overview

Incoterms are provided to set international rules for interpreting commonly used trade terms in international trade.The Incoterm of a shipment must be known and agreed upon before shipment occurs, as it represents the point at which responsibility passes from Dubai exporter to Turkish importer with regard to transport costs, risk, insurance and documentation. 

Key Cost Driver

It is crucial for the trading partners to consider financial factors occurring in the import and export process of goods. The following list provides the key cost drivers in the export process:

  • Export packing costs
  • Marking and labelling costs
  • Export clearance license costs
  • Documentation costs
  • Inland freight to main carrier costs
  • Origin terminal charges 
  • Vessel loading charges
  • Ocean freight costs
  • Nominated export forwarder costs
  • Marine insurance fees
  • Unloading charges
  • Destination terminal charges
  • Customs broker clearance fees
  • Storage costs
  • Duty, customs fees and taxes
  • Cost of delivery to buyer destination
  • Cost of delivery carrier unloading
  • Product approval costs
  • Import license costs
  • Banking costs
  • Labor costs
  • Product Modification costs
  • Administration costs
  • Agency costs
  • Patent and trade mark fees
  • Export financing costs (credit insurance, discount on receivables, currency conversion costs, cost of credit checks, provision for bad credit)
  • Export Pricing tips

Pricing of export products must be developed after adequate and comprehensive research and analysis about the targeted market. The factors that must be considered before the pricing process are among others:

  • Initial price of the product 
  • Set a price which will reflect the brand and product, as it would be difficult to increase the price once the product is established.
  • Before pricing the product ensure that the promotional costs are considered.
  • Before negotiating with the importer analyze the breakeven points and the profit margins.
  • Demand of the products
  • Clear analysis about the demand for product in the market has to be done.
  • This will provide the influence of price sensitivity on the product
  • Competitiveness in the market
  • Study about the competitiveness for the product in the market to understand the market conditions.
  • Positioning the product in the market
  • Study about the market and the product competitiveness
  • Study can provide information on whether to position the product in premium sector or budget sector
  • Understand the culture of the local people
  •  Local people may expect an initial discount or allowances in pricing the product
  • Legalities
  •  Anti-dumping law and other laws must be considered in pricing the product.
  • Ensure that the labelling , packaging and documentation requirements are fulfilled in order to avoid rejections by the customs
  • Other considerations
  • Ensure that the delays in the process of customs do not increase the warehouse or storage charges
  • Get a good advice about the foreign currency exposure and the risks entitled to them

Source: Santander - World Trade Organization

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