(TIỂU LUẬN) TRADE POLICY IN JAPAN AND ITS IMPACT ON TRADE RELATION WITH VIETNAM

HO CHI MINH CITY CAMPUS ---***---MID-TERM ASSIGNMENT Major: International Business Economics Subject: International Trade Policy TRADE POLICY IN JAPAN AND ITS IMPACT ON TRADE RELATION WI

HO CHI MINH CITY CAMPUS

-*** -MID-TERM ASSIGNMENT

Major: International Business Economics Subject: International Trade Policy

TRADE POLICY IN JAPAN AND ITS IMPACT ON

TRADE RELATION WITH VIETNAM

Supervisor:

Class:

Ho Chi Minh, November 2021

HO CHI MINH CITY CAMPUS

-*** -MID-TERM ASSIGNMENT Major: International Business Economics

Subject: International Trade Policy

TRADE POLICY IN JAPAN AND ITS IMPACT ON

TRADE RELATION WITH VIETNAM

TABLE OF CONTENT

TABLE OF CONTENT i

LIST OF ABBREVIATION WORDS iv

LIST OF FIGURES vi

LIST OF TABLES vii

MAIN CONTENT 1

Chapter 1 INTRODUCTION 1

1.1 The rationale of the Research 1

1.2 Aims and Objectives 2

1.2.1 Aims of the research 2

1.2.2 Objectives of the research 2

1.3 Research scope and objects 2

1.3.1 Research scope 2

1.3.2 Research objects 2

1.4 Research questions 3

1.5 Research methods 3

1.6 Structure of the research 3

Chapter 2 OVERVIEW OF JAPAN'S CURRENT ECONOMY AND ITS ECONOMIC RELATION WITH VIETNAM 5

2.1 Fundamentals of trade policy 5

2.1.1 Definition and objectives of trade policy 5

2.1.2 Two tendencies of trade policy 5

2.1.3 Some main instruments of international trade policy 5

2.2 Brief introduction to Japan 6

2.3 Overview of trade relation between Vietnam and Japan 7

Chapter 3 ANALYSIS ON TRADE POLICY IN JAPAN 9

3.1 Overall history of trade policy in Japan from 1945 to 2010 9

3.2 Analysis on trade policy in Japan from 2011 to 2020 10

3.2.1 Tariff 10

3.2.2 Non-tariff measures (NTMs) 13

3.2.2.1 Data on non-tariff measures in Japan 13

3.2.2.2 Details about Japan’s NTMs in each category 16

3.2.3 Comparison with WTO regulations 18

3.3 Impact of trade policy in Japan on trade relations with Vietnam 21

3.3.1 Impact of Japan’s tariff on Vietnam’s export 22

3.3.2 Impact of Japan’s non-tariff measures on Vietnam’s export 23

Chapter 4 FINDINDS and CONCLUSIONS 26

4.1 Opportunities and threats for Vietnam 26

4.1.1 Opportunities 26

4.1.2 Threats 27

4.2 Implications for Vietnamese government and firms 27

REFERENCES 30

APPENDIX 33

LIST OF ABBREVIATION WORDS

Partnership

IWC International Whaling Commission

JAS Japanese Agricultural Standards

JIS Japan Industrial Certification

MOIT Ministry of Industry and Trade

LIST OF FIGURES

Figure 3.1: Weighted Average Tariffs In Japan From 2011 To 2020 10

Figure 3.2: Simple Average Most-Favored Nation Tariff And Effectively Applied Tariff 11

Figure 3.3: Weighted Average Most-Favored Nation Tariff, By Sector 12

Figure 3.4: Japan’s NTMs indicators in importation 13

Figure 3.5: No of NTMs available in Japan 14

Figure 3.6: Indicators of NTMs by type in Japan 15

LIST OF TABLES Table 3.1: Tariffs on Major Vietnamese Exports to Japan in 2020 22 Table 3.2: Vietnam’s exportation and Japan’s importation of some products in HS 2

MAIN CONTENT Chapter 1 INTRODUCTION 1.1 The rationale of the Research

As a developed country with plenty of economic achievements and breakthroughtransformations, Japan has always been standing out as one of the top economies in theworld With free trade and multilateral institutions, Japan is the third-largest economyaccording to nominal GDP and fourth-largest by purchasing power parity nowadays TheJapanese government recognized that trading was a potential factor and an importantissue for economic development

The relationship between Japan and Vietnam has been thriving since 1992, in a hugenumber of fields and an astonishing number of milestones, ranging from economics,politics, cultural exchanges With the unstopping collaborative activities, the strongrelationship was shaped between Japan and Vietnam with knowledge, culturalunderstanding, and support in every field Japan is the leading economic partner ofVietnam Thanks to foreign direct investment from Japan, Vietnam had the base, budget,and foundation to develop the economy from infrastructures, capital, and so on.Moreover, Japan is the largest ODA donor and the fourth-largest trading partner ofVietnam According to Japan, Vietnam is the most ideal and attractive destination forinvestment in ASEAN with plenty of potentials and opportunities The relationshipbetween these two countries is continuously being strengthened and recognized In thisCOVID pandemic, the Japanese government put a large amount of effort to support andassist Vietnam to overcome the alarming and difficult situation, such as one million doses

of the COVID vaccine

With the support from Japan, Vietnam has a lot of potential to develop its economy,however, to strengthen the long-lasting relationship with Japan, understanding the tradepolicy guarantees the relationship between the two countries and maximization of

economic benefits This paper involves the current Japanese economic status, economicrelationship with Vietnam, and mainly discusses trade policy in Japan.

1.2 Aims and Objectives

1.2.1 Aims of the research

This study was first conducted to understand the trade policy in Japan and how itaffects Vietnam trading in general Thanks to having a clear insight into the trade policy

of Japan, this research is made to conclude challenges, opportunities, and implications forVietnam on the way to building and strengthening the long-lasting and sustainablerelationship with Japan At the same time, strongly understanding the trade policy of acountry equips readers with knowledge and preparation in face of changes from externalfactors such as Covid-19

1.2.2 Objectives of the research

While doing this research, we aim to build the theoretical basis and data evidence sothat readers can have a clear insight into the changes and highlights in the trade policy.From that, we have the reflection on the economic status relationship with Vietnam topoint out promising challenges and advantages of Vietnam in the relationship with Japan

1.3 Research scope and objects

1.3.1 Research scope

The study focuses on analyzing the changes in Japan's trade policy in terms of tariffand non-tariff measures from 2011 to 2020 There will also be an insight into thecomparison with WTO regulations The research was conducted in Vietnam, based on thedata and calculation mainly on WITS, UNCTAD and WTO

1.3.2 Research objects

In this study, our team focuses on analyzing the Japanese trade policy throughpublished data and figures, export and import situations Moreover, we also discuss therelationship between Vietnam and Japan Another important factor is the impact of

Japan’s trade policy on the Vietnamese economy, with challenges and opportunities forthe government and firms.

1.4 Research questions

This research follows strictly these questions:

1 How has Japan's tariff profile changed over the past 10 years?

2 What are the most important aspects of a Japanese trade policy?

3 Are there any violations between Japan policy and WTO regulations?

4 How does Japan's trade policy affect the trade relation with Vietnam?

5 What are the threats, opportunities, and implications for Vietnam when tradingwith Japan?

1.5 Research methods

The science methods used in this research:

- Research calculation methodology

- The inherited method in order to achieve information and data from researchdocuments and existing research has been related to this research topic; performdocument review related to policy documents to systematize the issues raised

- Analysis and synthesis method in suitable theory

- Qualitative research methods: gathering and filtering secondary data mainly fromUnited Nations Conference on Trade and Development (UNCTAD), World IntegratedTrade Solution (WIST), and World Trade Organization (WTO)

1.6 Structure of the research

Except for the preface, the references, tables of content, and abbreviated wordspages, the main content is divided into four chapters:

- Chapter 1: INTRODUCTION The first chapter provides a general overview of theresearch work, showing the research direction and research angle such as the object,scope, and sentence ask for research, …

- Chapter 2: OVERVIEW OF JAPAN'S CURRENT ECONOMY AND ITSECONOMIC RELATION WITH VIETNAM The study provides several basictheoretical foundations about trade policy as well as the general profile of Japan'seconomy and its relation with Vietnam related to current economic aspects such aspopulation, GDP, import-export value, …

- Chapter 3: ANALYSIS ON TRADE POLICY IN JAPAN In terms of trade policy,research focuses on analyzing data and information on tariff and non-tariff measures Asfor the comparison with WTO, the paper mainly discusses the exceptions of negotiation

to achieve freer trade in general

- Chapter 4: FINDINGS AND CONCLUSIONS - the last chapter Synthesize theremarkable reviews and evaluations from chapter 3 and give findings and implications

Chapter 2 OVERVIEW OF JAPAN'S CURRENT ECONOMY AND ITS

ECONOMIC RELATION WITH VIETNAM

2.1 Fundamentals of trade policy

2.1.1 Definition and objectives of trade policy

Trade policy is a system of opinions, principles and appropriate methods of acountry which is used to govern international trade activities in a particular period, inorder to achieve the economic goals of that country Trade policy, nowadays, is a toolwhich can facilitate domestic enterprises to enter and expand their business to foreignmarkets On the other hand, trade policy is expected to protect the domestic market andmake use of comparative advantages of the domestic economy Therefore, trade policy isalso considered as the external policy of a country

2.1.2 Two tendencies of trade policy

Since the appearance of Mercantilism, there have been 2 schools of trading: freetrade and protectionism Governments with free trade policy try to reduce theirintervention to trading The free trade school suggests that the government shouldgradually cut down tariff and non-tariff barriers in trading relations with foreigncountries, in order to stimulate international commerce Meanwhile, protectionismencourages governments to require some strict standards such as quality, hygiene, safety,labor or origins and apply high tariffs with some imported goods to protect the samedomestic goods (or services) Trade policy, nowadays, is a term which lies betweenextreme free trade and extreme protectionism Depending on particular goods, services orpartners, a country can choose appropriate trade policies to gain the highest benefits

2.1.3 Some main instruments of international trade policy

In the modern trading model, there are various tools which governments can use tointerfere with imported or exported goods In common sense, they are divided into 2groups: tariff and non-tariff measures

Tariff measures are the lists of all duties and taxes applied for imported goods Onlycustom duties and taxes with equivalent effects can be considered tariffs, because they arelevied on imports but not on domestic products This creates a bias against imports and infavor of locally produced goods and generates revenues for the government However,tariff measures can do harm to local consumers by increasing the domestic prices of theimported goods and eventually they reduce the nation’s real purchasing power.

Non-tariff instruments include all measures other than custom duties such asrequiring strict technical standards about quality, hygiene, safety of imported goods,import quotas and license Unlike custom duties, non-tariff measures do not provideincome for governments; however, they also lead to higher domestic prices that penalizeconsumers and give local producers an advantage Compared to tariffs, non-tariffs arepolitically accepted and the level of protection in this way is very high

2.2 Brief introduction to Japan

Japan is a sovereign island nation in the East Asia region and located in the PacificOcean The five main islands, Honshu, Hokkaido, Kyushu, Shikoku and Okinawa, coverabout 97% of the country's land area, but much of it is just forests and mountains withvery limited mineral resources In November, 2021, Japan's population is estimated at125,9 million people, ranking 11th in the world and it is the second most populous islandnation in the world

The economy of Japan is a highly developed free-market economy It is the largest in the world by nominal GDP and the fourth-largest by purchasing power parity(PPP) Besides, Japan is the world’s second largest developed economy According to theInternational Monetary Fund (IMF), the country’s GDP per capita was $41,637 in 2020.Additionally, it ranks second in the world foreign-exchange reserve, worth $1.3 trillion Itranks 29th on Ease of doing business index and 5th on Global Competitiveness Report.Moreover, it ranks first in the world in the Economic Complexity Index and ranks third inwidth of the consumer market in the world

third-These achievements of Japan’s economy nowadays are the results of “The MiracleGrowth”, which took place from 1952 to 1973 During the decade of 1960s, the economicgrowth of Japan was 10% per year on average due to the “Income Doubling Plan” ofJapan’s Government and many other factors like: strong-willness of the citizens, goodforesight of Japanese corporations and support from America After that, since the 1980s,Japan’s economic growth increased more gradually with only 4% a year Then, the GDP

of the country even dove sharply because of the crisis during the decade of 1990s Since

2000, Japan's economy has continued to develop, however, with a very slow speedcompared to “The Miracle Growth” period Nowadays, Japan is the third largestautomobile producer as well as the largest electronics manufacturing industry in theworld Besides, it is frequently among the world's most advanced countries in terms ofstorage of global patent filings Japan's manufacturing industry today mainly focuses onitems with high technology content and high precision such as optical instruments, hybridcars and robots

According to Trade Map, in 2020, exports of Japan were nearly $641 million.Among these, motor cars and other motor vehicles accounted for the highest proportionwith 12.6% (equivalent to $80.9 million) Ranked second was Japanese specialcommodities with 6.4% while electronic integrated circuits was ranked third with 4.5%.Based on these figures, we can see that Japan specializes in producing capital-intensivegoods and advanced technical machinery

On the other hand, Japan imported a rather huge amount of fuel like petroleum gasand oils These 2 items made up nearly 12.3% of the total products imported by Japan in

2020 With these figures, we can infer that Japan mainly purchases raw materials so as tomanufacture technical products to export

2.3 Overview of trade relation between Vietnam and Japan

Since 2008, ASEAN has signed a Free Trade Area with Japan (AJFTA) A year later,Vietnam officially signed a Free Trade Agreement with this country, marking animportant milestone in the trade relationship between Vietnam and Japan Up to now,

Japan is Vietnam's 4th largest trading partner (after China, Korea and the United States).The import-export turnover in 2020 between the two countries is estimated at nearly $40billion

Import and export turnover between Vietnam and Japan has grown relativelysteadily in the period 2009-2020 Among that, export value increased from $6.3 billion to

$19.3 billion, import value increased from $7.5 billion to $20.3 billion With thesefigures, we can conclude that the trade relationship between Vietnam and Japan isbecoming more and more sustainable and developing well However, net exports werenegative in most of the period, except for the years 2011, 2012, 2013, 2014 and 2019which were positive), which means the balance of trade was still tilted in favor ofimports This creates a trade deficit for the Vietnamese economy

Chapter 3 ANALYSIS ON TRADE POLICY IN JAPAN

3.1 Overall history of trade policy in Japan from 1945 to 2010

For many years in the post-war period, the Japanese government believed that it wasnecessary to increase exports to balance the value of imports used for economic growthand development by imposing heavy import barriers However, this policy was notprofitable for Japan, but led to deficits for export promotion programs and importrestrictions from after 1945 to the 1960s As the long-running trade deficit ended in themid-1960s, export-promoting policies were gradually phased out The government hasrecognized the need for a change in trade policy, which has led to the emergence ofimport promotion policies as well as export restriction policies in certain industries in the1970s and 1980s Agreements signed during this period helped reduce Japanese tariffs to

an average low level among industrial countries - 2.5 percent, compared with 4.2 percentfor the United States and 4.6 percent for the European Union

Nevertheless, there were many complaints from Japan's trading partners throughoutthe 1980s about non-tariff measures and restrictive import policies Many partners agreethat the Japanese market is difficult to penetrate Statistics show that the level of imports

of manufactured goods in Japan as a percentage of gross national product (GNP)remained much lower than in other developed countries in the 1980s With externalpressures in trade negotiations, Japan has later made some internal changes in tradepolicy with greater openness However, openness in Japan's trade policies after 1985 wasbelieved to be in response to domestic pressures rather than international obligations

In general, the trade policy in Japan has undergone many transformations from 1945

to 2010 The policies on export incentive and import restriction by imposing high taxes toachieve the trade balance or export surplus has been removed Instead, there are policiesthat encourage import activities such as tariff reductions and removal of some non-tariffmeasures However, when compared with other developed countries, trade policy in

Japan does not have a good level of openness, causing abundant controversy in tradenegotiations and trade disputes.

3.2 Analysis on trade policy in Japan from 2011 to 2020

3.2.1 Tariff

Basically, Japan's tariffs remained stable in a 10-year period starting from 2011 Thenotable exception is the tax increase for 2019 mainly due to the impact of the US-Chinatrade war

Figure 3.1: Weighted Average Tariffs In Japan From 2011 To 2020

Source: Data, calculation and classification are based on WIST.

The figure demonstrates Japan's tariffs on imports on a weighted average basis.Multilateral liberalization has contributed to the reduction of tariff restrictions over thepast decade Bound Tariff (BND) decreased gradually from 5.18% in 2011 to 2.09% in2018; meanwhile, Effectively Applied Tariff (AHS) remained the level below 2.6% from

2011 to 2018 However, despite the continuing downward trend, the process of tariffliberalization has largely stalled Notably, tariffs in 2019 increased significantly in allthree types of tariffs, especially Most-Favored Nation Tariff (MFN) and EffectivelyApplied Tariff (AHS) with a difference of 3.7 times and 1.4 times compared to 2018respectively The main reason for the sudden climbing in tariffs in Japan and the world is

the consequence of the United States tariffs on China In 2020, under the impact ofCovid-19 and the demand of international trade to recover the country's economy, alltypes of tariffs on Japan have reduced to a relatively low level, with 1.14% for AHS,2.15% for BND and 1.77% for MFN.

The figure illustrates the average MFN and AHS for 2011, 2019 and 2020 in threemain industries Since 2011, tariffs have been reduced to some extent, but mostly on apreferential basis (Effectively Applied Tariff) and there has been no significant change inthe Most-Favored Nation Tariff of industrial and petroleum products The tariffreductions that have taken place since 2011 are the result of preferential liberalization

Figure 3.2: Simple Average Most-Favored Nation Tariff And Effectively Applied Tariff

Source: Data, calculation and classification are based on WIST.

Tariffs on agricultural products were much higher than on other commoditiesthroughout the mentioned period In particular, agricultural products underwent the mostsignificant fluctuations from 2011 to 2020, with the over double value in AHS and MFNtariff rates in 2019 when compared to 2011 After a remarkable increase, in 2020, the

tariff of agricultural products fell to 6.96% for MFN and 5.07% for AHS Similarly, theAHS tariff on production falls at a faster rate than the MFN tariff.

For industrial and petroleum products, the simple average MFN tariff is virtuallyunchanged during the observed period, at close to 2.7% for industrial and 1% forpetroleum On the other hand, preferential tariffs (AHS) have been significantly reduced

It is noticeable that currently the preferential tariffs (AHS) for petroleum in Japan hasbeen reduced to 0% and 1% for industrial products Based on the world trends in tradepolicy, liberalization of both MFN and AHS in natural resource trade has paved the wayfor the continued reduction of the already low tariff level in this sector

Figure 3.3: Weighted Average Most-Favored Nation Tariff, By Sector

Source: Data, calculation and classification are based on WIST.

The figure depicts the weighted average MFN tariffs for all specific productcategories in the comparison between 2011 and 2020 In general, there was a much highertax imposed on international trade in agriculture than that on trade in other sectors

However, it can even be seen that tariffs are still relatively high on several industrialproducts such as leather, footwear, textiles and clothing, which are the main exportindustries of developing countries.

International trade has been liberalized largely thanks to zero MFN tariffs Thetypes of goods that have a near-zero tax rate in Japan are petroleum, transport equipment,non-electric machinery and electric machinery In addition, the tariffs of almost allcategories are generally reduced and maintained at the low level in 2020, except for thefollowing sectors: tobacco, vegetable materials, fish and fish products

3.2.2 Non-tariff measures (NTMs)

3.2.2.1 Data on non-tariff measures in Japan

According to “A Practical Guide to the Economic Analysis of Non-tariff Measures

by UNCTAD (2019 edition)”, two common indicators based on the book are Frequencyindex (provides the share of products affected by one or more NTMs), and Coverage ratio(reports the share of imports affected by one or more NTMs in total imports)

Figure 3.4: Japan’s NTMs indicators in importation

Source: unctad.org

The chart above illustrates the overall effect of NTMs on Japan’s importations Thepercentage of Frequency Index (76.18%) and Coverage ratio (61.2%) implied that a highnumber of the imported products into Japan were affected by non-tariff measures

Moreover, the book gives us the non-tariff measures classification in the Transparency inTrade Initiative (page 24), and in this topic we will focus on import-related measures.This graph below shows the clear number of measures in each type that are imposed onimported products in Japan.

Figure 3.5: No of NTMs available in Japan

Notes: The scope of the data gathering is limited to chapters A–C, E–I.

Source: data collected based on UNCTAD.

The graph above categorizes the identified NTMs by type As expected, Chapter A(SPS measures) and B (TBT) accounted for the most number of NTMs for import inJapan, which had 264 and 722 NTMs respectively Therefore, it could be concluded thatthe quality and safety of the products has been Japan's top concern, and a large number ofSPSs and TBTs were declared based on different types of imported products There aremany issues related to the quality and safety that the Japanese government must evaluate,such as food additives, packaging, labelling, residue level, and other standards toguarantee the safety of the products to protect its citizens and environment These issueswill be discussed in detail later

Figure 3.6: Indicators of NTMs by type in Japan

Data are disaggregated at the six-digit level of the HS classification

Source: unctad.org

The bar chart reports the frequency index and coverage ratio by NTM category.Therefore, TBTs have been the most widely used non-tariff measures, with about 59% ofthe product and about 72% of trade affected by them The large rate of TBTs implies thatthis category has covered almost all types of imported products SPS measures had thepercentages around 12%-16%, which means that although the SPS type had manymeasures, its contribution to products and importation was little Pre-shipmentinspections affected approximately 10% of product and 26% of trade Price-controlmeasures affected a large share of goods and imports, which resulted from anti-dumpingand countervailing duties that we will mention later Finally, quantity controls affected34% of products and 51% of trade These numbers on quantity controls state that theJapanese government put lots of effort into restricting importation, and these measuresunder this category can be licenses, quotas, etc

3.2.2.2 Details about Japan’s NTMs in each category

A- Sanitary and Phytosanitary measures (SPS)

There have been many changes in Japan’s SPS measures every year Statistics fromSPS Vietnam Office, from 2015 until now, there have been more than 82 notices ofregulatory changes SPS from Japan These are some measures related to SPS

in food and beverages sold in Japan

 Maximum residue level (MRL)

Until now, Japan still has maintained burdensome requirements for pesticidemaximum residue level in any food sold for its citizens After a single pesticide MRLviolation, Japan declares its enhanced surveillance of all imports of the same types ofgoods from the exporting country that violates the MRL If a second violation isdiscovered during the surveillance, Japan will detain and impose 100% inspection for allshipments of that product

B- Technical Barriers to Trade (TBT)

 Labelling requirements

Food labels must be printed in Japanese and comply with the laws and regulations

of Japanese regulatory agencies For example, the product label must have someinformation: (1) product name, (2) ingredients, (3) content, (4) expiration date, (5)storage method, (6) country of origin and (7) name and address of importer

 Other standards related to quality

In the Japanese market, quality is the top concern In general, the quality and safetystandards of Japanese goods are higher and stricter than international requirements, andnormally, if exporting countries want to enter the Japanese market, they must at first meetthese standards

Currently, the quality mark system in Japan includes many types of regulations fordifferent goods, of which the two most commonly used quality marks are the JapaneseAgricultural Standards (JAS) mark and Japan Industrial Certification Mark (JIS)

E- Licenses, quotas, prohibitions & other quantity control measures

 Import licensing and quotas

The Minister of Economy, Trade and Industry has the authority to (i) decide whichforeign goods can be imported; and (ii) decide which goods must bear import quotas In

2017, there was a change in the Foreign Exchange and Foreign Trade Control Act, inorder to strengthen penalties for violations of import control regulations Japan alsodeclared a new import licensing requirement for certain mercury and mercury-addedproducts

According to Japan’s trade policy review in 2020, there were no disputes amongMembers in WTO's Committee on Import Licensing over the review period about Japan’simport licensing regime Over the review period, removal was used for some products: (i)whales and their preparations in July 2019, due to the fact that Japan withdrew from theInternational Whaling Commission (IWC); and (ii) weapons and other items from Eritrea

Other measures

 Anti-dumping measures

According to the review in 2020, in 2017, the Cabinet Order and Guidelines, whichwere Japan’s framework for anti-dumping duties, were changed to reduce the burden forapplicants requesting the imposition of an anti-dumping duty by easing the conditions formaking such a request The change was then notified to the WTO

For more about what happened with anti-dumping duties in Japan, at the end ofOctober 2019, there were 7 anti-dumping situations, relating to 4 products with 2 tradingpartners (China and Republic of Korea).

 Countervailing and safeguard measures

During Japan's trade policy review period, Japan did not add or change anycountervailing measures or safeguard measures, and did not initiate any countervailing orsafeguard investigations

To sum up, while pursuing free trade policy, Japan still has effective mechanisms toprotect domestic products Instead of imposing measures in order to ban or limit thequantity or imposing high import tariffs, Japan has used measures with reasonablepurposes such as protecting domestic industry from unhealthy commercial trading,protecting its citizens’ health, controlling the quality of the products, anti-dumping, and

so on

3.2.3 Comparison with WTO regulations

Under current WTO regulations, member countries will conduct periodic reviews oftheir trade policies and trade practices based on their share in world trade, specifically asfollows:

- Group of four biggest traders (currently the US, EU, Japan, China) have a reviewfrequency every two years;

- The next group of 16 countries are examined every four years;

- Other member countries are examined every six years;

- Least Developed Members (LCDs) may be eligible for a longer review period.The WTO agreements cover goods, services and intellectual property Its mainprinciples that every WTO member should follow are:

- Most Favored Nation;

- National Treatment;

- Reciprocity;

- Freer trade;

- Predictability and Transparency;

- Promoting fair competition;

- Special and Differential treatment

Japan has been a member of WTO since January 1st 1995 Its basic policy is thattrade-related disputes should be resolved within the multilateral framework, based onmultilateral rules, under the WTO Most WTO members consider Japan's trade andinvestment policies to be open and transparent Japan is one of the member countries with

an important role in global trade, has been contributing, strongly supporting anddefending the rules-based multilateral trading system, promoting trade liberalization andinvestment, strengthening the role of the WTO The report of the WTO Secretariat andthe statements of WTO members acknowledged that up to now, Japan had continued tomaintain its position as the third largest economy in the world, as well as an importanttrading partner and a source of capital foreign direct investment in many countries Manymembers expressed their appreciation for the necessity and effectiveness of the JapaneseGovernment's technical assistance and capacity building programs and projects fordeveloping and least developed countries In addition, in the context that the whole world

is facing difficulties and challenges of the Covid-19 pandemic, many comments alsohighly appreciated Japan's strong and clear commitments to promote and strengthencooperation, sharing and securing the global supply chain

In Japan, besides the complexity of non-tariff measures, the customs duty rates aremuch more simple and transparent, which are divided into five following categories:

- General rate: applicable to all goods specified in the Tariff Law

- Temporary rate: has priority over the general tariff rate

- WTO rate: Japan is obliged not to increase customs duties beyond the rates in thetariff schedule under the WTO agreement When the WTO-bound tariff rate is lower thanthe general or temporary tariff rate, the WTO-bound tariff rate shall take precedence.

- GSP rate: Preferential Rate, which is applicable for designated developingcountries and is lower than MFN tariff

- LDC: covers a series of country-specific Economic Partnership Agreement Rates

It can be seen that Japan strictly follows the non-discrimination principle of WTOagreements but there are still some exceptions for selected developing countries or least-developing countries to create a favorable and equal trade environment among allcountries, in line with the vision of the WTO In addition, Japan also offers preferentials

to their partners through free trade agreements

As of 2020, Japan has signed 21 FTA/EPA, 18 of which have come into force.Notable agreements include the Japan and the European Union (EU) EPA, which hasentered into force since February 2019 In 2018, Japan and six other countries (Australia,Canada, Mexico, New Zealand, Singapore, Vietnam) signed and ratified theComprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

In general, free trade agreements act as exception in non-discrimination principles

of WTO, allowing Japan and its partner countries to achieve maximum mutual benefits

by offering higher preferentials than commitments under the framework of the WTO.Besides those negotiations that contribute to international trade development, thereare also trade disputes between Japan and other countries which have had manyantecedents recently The case can be seen in the tension between Japan and South Korea.Seoul and Tokyo have been in a state of tension since July 2019, after Japan suddenlyintroduced restrictions on the export of three important industrial materials to SouthKorea, namely pigments, edible gases, dyes and thermoplastic As 2020 began, SouthKorea reopened a complaint filed with the World Trade Organization over Japan’s

tightened controls on technology exports to its companies, blaming Tokyo for an allegedlack of commitment in resolving mutual grievances.

3.3 Impact of trade policy in Japan on trade relations with Vietnam

To begin with, Japanese relations have always had a significant influence onVietnam Free trade agreements with the participation of Vietnam and Japan such asVJEPA and RCEP have opened up many opportunities for Vietnamese exporters One ofthe benefits is that Japan's tax rate applied to Vietnam's exports is greatly reduced Forinstance, in the first year after applying VJEPA, 86% of Vietnam's goods exported to theJapanese market have an interest rate of 0% Along with tax reduction, Japan has createdmore favorable conditions for our agricultural and aquatic products to be exported to thiscountry, by creating conditions for our products to meet the best standards of quality,food hygiene and safety At the same time, consulting organizations between Vietnameseexporting enterprises and Japanese management agencies create favorable conditions forVietnamese goods to easily access the Japanese market

Nevertheless, even if Vietnam is not directly involved in the discussions, as aleading country in the region, Japan can still exert considerable influence on Vietnam'strade In case of the tension between Japan and South Korea, the global technologyequipment supply chain, including Vietnam, is likely to be disrupted In a recentlypublished study by Rong Viet Securities, Vietnam's production, exports and trade balancemay be affected by the strained relationship between Japan and Korea When exports ofthese products are affected, Vietnam's trade balance may decrease as semiconductor anddisplay related products such as computers, phones and cameras account for about 35%

of total exports password; Mobile phone components account for 20%

It is worth mentioning that the influence of Japanese policies on Vietnam's tradeactivities is completely complex However, according to conventional theory, the effects

of Japan's trade policy on Vietnam's trade activities are through two aspects: tariff andnon-tariff measures

3.3.1 Impact of Japan’s tariff on Vietnam’s export

According to data on Trademap, Vietnam's leading export products to Japan aremainly from the industrial sector, such as: electrical machinery, fish products, wood andclothing It is noticeable that there is no occurrence of agricultural products in this filter

Table 3.1: Tariffs on Major Vietnamese Exports to Japan in 2020

and other vests ofcotton, knitted orcrocheted

Preferentialtariff forVietnam

Source: trademap.org and macmap.org

The table 3.1 shows the tariff actually applied on the top 5 Vietnamese exports toJapan It is also easy to understand why these items account for such a large value,

mainly due to the zero applied tariff rate thanks to the MFN tariff and Japan's specialpreferential for Vietnam Zero-MFN tariffs are mainly applied on technology productsand natural resources Meanwhile, the zero preferential tariff that Vietnam negotiates infree trade agreements are mainly on Vietnam's key exporting industries such as textileand clothing.

Although famous as a top 3 rice exporter in the world, Vietnam's export value toJapan is not as expected (about 251 thousand US dollar in 2020) The main limitation can

be the high applied tariff rate to this sector, more than 70% The same situation can beseen for other agricultural products, which is seen as a way to help Japan protectdomestic goods In the case of coffee, with the export value of 148,551 thousand USdollars in 2020 (based on Trademap), despite of zero-MFN tariff, its export figure ismuch smaller than other industrial products, the main cause of this phenomenon maycome from the disqualification of non- tariff measures such as origin or labelling

It can be said that tariffs are one of the trade barriers affecting Vietnam's exports.The higher the tax rate, the lower the export turnover At the same time, tariff is aprotectionist measure that the Japanese government uses to protect domestic goods fromcompetition from external ones However, trade barriers include not only tariffs It meansthat in addition to applying tariffs to limit imports, Japan also applies other measures withthe aim to protect domestic goods and increase the quality standards of products whenentering the Japanese market

3.3.2 Impact of Japan’s non-tariff measures on Vietnam’s export

Table 3.2: Vietnam’s exportation and Japan’s importation of some products in HS 2 digits in 2019

and 2020

Source: trademap.org

Based on some information about Japan’s non-tariff measures in 3.2, Japan is acountry with strict food safety standards, which leads to a strict non-tariff barrier forgoods imported into Japan

The table shows that Japan has a large import demand for agricultural and aquaticproducts, and Vietnam has a great competitive advantage in these products (according toMoIT) However, although Vietnam exports a large number of these products to theworld, the numbers are not significant when exporting to Japan Therefore, it is impliedthat a small number of Vietnamese products can satisfy Japan’s regulations

Table 3.3: Vietnam’s exportation and Japan’s importation of rice in 2019 and 2020

Source: trademap.org

The table above shows Vietnam’s export performance of the group of productshaving HS 4-digit code 1006 (rice) It can be seen that very few amounts of rice can enterthe Japanese market To explain this, Japan imposed many strict measures related to SPS

to assess this product, in order to protect its citizens’ health as its population is aging, soJapanese people tend to consume agricultural products and food that are especially safefor their health, then the price and convenience of the product

Table 3.4: No of NTMs and No of SPS measures in rice’s products

Source: macmap.org

From the table 3.4, each type of rice has approximately 12 measures to evaluatetheir quality, while SPS measures account for the most Therefore, the large number ofSPS for rice make it difficult for Vietnam to satisfy Japan’s regulations Moreover, AnDinh CO LTD, a manufacturer and exporter of high quality rice products in Vietnam,stated that for rice alone, there were approximately 600 indicators in a set of testindicators to evaluate rice quality, focusing mainly on residues of pesticides and fungaltoxins Moreover, every year the set of evaluation criteria continues to be updated oradding new criteria These are the reasons why Vietnam had very few shipments of rice toexport to Japan in recent years

Chapter 4 FINDINDS and CONCLUSIONS

4.1 Opportunities and threats for Vietnam

4.1.1 Opportunities

With regard to Vietnam, Japan has signed 4 FTA from 2008 to 2020 Here is the list

of FTA between the two countries:

The Economic Partnership (VJEPA) between Vietnam and Japan was signed onDecember 25th, 2008 and came into force on October 1st, 2009 This is the very firstbilateral FTA of Vietnam, in which both Vietnam and Japan give the other morepreferences than that agreed under the Agreement for Comprehensive EconomicPartnership ASEAN – Japan (AJCEP) Within 10 years since the implementation of theagreement, Vietnam and Japan committed to liberalizing about 87.66% and 94.53% oftrade turnover In the last year of the tax reduction roadmap (in 2026), Vietnamcommitted to eliminating 92.95% of the tariff lines Vietnam's commitment includes9,390 tariff lines, of which 8,873 lines are included in the reduction roadmap, theremaining lines are automobile CKD (completely knocked down) tax lines and tax linesnot committed to cutting They include the list of tariff elimination (accounting for about91% of the total number of tariff lines), the normally sensitive list (accounting for 0.6%

of the tariff lines), the highly sensitive list (accounting for 0.8% of the tariff lines), the

non-tariff list (accounting for 2% of tariff lines), and the exclusion list (accounting for4.6% of tariff lines)

The RCEP Agreement signed at the time of the Covid-19 pandemic facilitates thegrowth of multilateral trade, investment and strengthens supply chain resilience in therecovery efforts of the economy, including Vietnam and Japan For Japan, joining RCEPand implementing tax cuts on many items will firstly help Japan continue to pursueintegration and free trade policies through boosting exports, increasing and supply chaindiversification established by Japanese companies in Asia, including Vietnam ForVietnam, joining the RCEP Agreement has many important meanings, contributing tostrengthening the strength and competitiveness of the economy, and enhancing thecountry's position in the international arena

Entering the Japanese market is not easy because of the high tax rates on severalselected goods, which are originally key exports in Vietnam and the strict requirements ofnon-tariff measures In addition, competitive pressure on Vietnamese goods and services

is increasing, especially in the context that many regional partners have similar productstructures to Vietnam In addition, production inputs are dependent on certain importsources, limitations in enhancing Vietnam's position in the regional value chains, and theextent of Vietnam's participation in the provision of global trade These are challengesthat Vietnam needs to focus on overcoming in order to make the most of the opportunitiesoffered by Japan's trade policy

4.2 Implications for Vietnamese government and firms

Japan was the country that suffered extreme losses after the second world war,especially the devastation of the two atomic bombs at Hiroshima and Nagasaki, whichturned Japan's economy to the starting point - zero However, the whole world witnessedthe miraculous development of Japan, ranked second in the 1990s and has currently heldthe third position Although nowadays there is some saturation in the Japanese economy,

it cannot be denied Japan's miraculous efforts, in particular, trade policy Japanese policy

has undergone many changes from the period of export-oriented and import restrictionwith high tariff barriers to the stage of openness in trade and import incentive Besidesthe human factor, changes in trade policy suitable for different periods and nationalsituations have helped Japan to get to the current position.

Vietnam and Japan have many similarities in terms of starting point and changes instrategy However, the weakness of Vietnam is that products have not been appreciated interms of domestic product's quality Main export industries are processed products withlow technology content, making it difficult to compete with other countries in bothdomestic and international markets Trade agreements can bring Vietnam moreopportunities but also challenges, requiring the enhancement of Vietnamese products’quality to meet international standards

Thanks to preferential terms in bilateral and multilateral free trade agreements withthe participation of Vietnam and Japan, it has helped to reduce tariffs lower than WTOagreement and remove some non-tariff measures, paving the way for the development intrade relations between the two countries

Regarding tariffs, Japan's trade policy, basically only zero-MFN tariffs are reservedfor some specific items under WTO commitment such as electronic machinery In fact,these items are sometimes not the strength of Vietnam exports, thus leading tonegotiations between the two governments The Vietnamese government's efforts in tradenegotiations have resulted in a lot of preferential treatment in Vietnam’s key industriessuch as textile and clothing, which originally had relatively high tariffs On the otherhand, the Japanese government also has high levels of protection for domesticagricultural products, which is also a common trend of developed countries

The imposition of high tariffs exceeding the provisions of the WTO will causedisadvantages for Japan if detected Therefore, in order to achieve the purpose ofrestricting imports in certain categories, besides imposing taxes, the Japanese governmentalso sets a lot of standards related to non-tariff measures Non-tariff measures are not

simply a barrier to trade, but also a way for the government to control the quality offoreign products entering the domestic market This means that Vietnamese enterprisesneed to pay great attention to improving the quality and value-added content of theirproducts to meet the strict requirements from Japan Non-tariff measures are abundant,complex and often change over the years In addition, non-tariff measures are oftenperceived as less obvious than tariff measures, and cause many disputes in internationaltrade Therefore, Vietnamese exporters need to constantly update the information andmake appropriate adaptations If a conflict arises, the best solution is mediation betweenthe two parties to achieve mutual benefits If it cannot be resolved by mediation,depending on the extent and specific circumstances, higher dispute settlements such asinternational arbitration or tribunal system may be considered.

Under the impact of the Covid-19 pandemic, the global economy has been stagnant,especially in international trade activities Emergency policies in both countries duringthis pandemic mainly focus on medical goods, especially vaccines Post-pandemicpolicies are aimed at economic recovery while having control on the pandemic situation

To achieve the former objectives, opening up import and export activities when domesticproduction is delayed for a long time is necessary Trade policies and free tradeagreements between Vietnam and Japan will serve as a driving force for trading, therebydetermining the speed of economic recovery and development in the near future

In conclusion, in the context of trade liberalization, Japan's trade policy has a higherlevel of openness than in the previous period Since joining the WTO, it can be seen thatJapan is an exemplary member actively participating in many bilateral and multilateralagreements, providing developing countries (including Vietnam) a favourableenvironment for international trading development The current Japanese trade policy,although somewhat geared towards import incentive, is still very wise in the government

in taking measures to limit the spread of foreign goods on the domestic market This isthe point that our government should learn to improve the overall quality of products onthe domestic market,

3 Japan, 2020 Japan: Trade Policy Review: WTO.

4 R.Krugman, P., Obstfeld, M & Melitz, M J., 2018 International Trade - Theoryand Policy 11 ed.:Pearson

5 Shujiro, 2010 Japan's New Trade Policy: URATA

6 UNCTAD, 2012 A Practical Guide to Trade Policy Analysis: WTO

7 UNCTAD, 2019 A Practical Guide to the Economic Analysis of Non-TariffMeasures: WTO

8 UNCTAD, 2020 Key Statistics And Trends in Trade Policy 2020: United Nations

9 UNCTAD, 2020 Non-Tariff Measures in Australia, China, India, Japan, NewZealand and the Republic of Korea: Preliminary Findings: UNCTAD

10 UNCTAD, 2021 World Tariff Profiles 2021: WTO

11 WTO, 2015 Understanding the WTO: WTO

12 WTO Secretariat, 2020 Japan: Trade Policy Review: WTO

13 Yuka, F., 2020 Japan's Trade Policy in the Midst of Uncertainty: Center of AsianStudies

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https://trungtamwto.vn/chuyen-de/4353-tom-tat-cam-ket-cua-viet-nam-trong-hiep-dinh-3 2019 Căng thẳng thương mại Nhật Bản - Hàn Quốc ảnh hưởng thế nào đến ViệtNam? (How does Japan-Korea trade tensions affect Vietnam?) [Online] Available at:

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https://vtv.vn/kinh-te/cang-thang-thuong-mai-nhat-ban-han-quoc-anh-huong-the-nao-den-4 2019 Thông tin về các quy định, tiêu chuẩn và quy chuẩn kỹ thuật đang áp dụngkhi xuất khẩu hàng hóa vào thị trường Nhật Bản (Information on applicable regulations,standards and technical regulations when exporting goods to the Japanese market)

https://trungtamwto.vn/chuyen-de/12647-thong-tin-ve-cac-quy-truong-nhat-ban?

https://www.cia.gov/the-world-factbook/countries/japan/

9 2021 Tổng hợp các FTA của Việt Nam tính đến tháng 05/2021 (Summary of FTAs

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