VI. TRADE REGULATIONS AND STANDARDS This section is also adapted and abridged from "Destination Japan." A. Tariff and Import Taxes 1. Tariffs According to the Japan Tariff Association, the average applied tariff is now one of the world's lowest at 2.9 percent. However, import duties on some agricultural items and certain manufactured goods remain relatively high. As part of their import incentive program, the Japanese expanded the list of duty-free manufactured products in April 1990 by 1,000 items and reduced the tariff on four more. Consequently, almost all machinery imports are now tariff free. Tariffs are administered by the Customs Bureau of the Ministry of Finance. Japan is a member of the Harmonized System Convention and therefore shares the same trade classification system as the United States up to six digits. Japan's tariff schedule has four columns of applicable rates: general, GATT, preferential, and temporary. Goods from the United States are charged GATT rates unless a lesser "temporary" rate exists. Japan's preferential system of tariffs grants lower or duty-free rates to products imported from developing countries. A simplified tariff system for low-value imported freight worth less than 100,000 yen, such as small packages, simplifies determination of tariff rates, eliminating the extra time necessary to determine the type of product and precise value, and minimizing customs brokers' handling charges. Importers can choose either the normal rate or the simple tariff, which could be higher or lower. There are seven tariff rates for alcohol (ranging from 6 - 220 yen per liter), and five tariff rates for manufactured goods (ranging from 3 - 20 percent). It is possible to obtain an advance ruling on tariff classification and duty rates from Japanese Customs. 2. Import Taxes In addition to the customs duty, a 3 percent consumption tax (general excise tax) is levied on all goods sold in Japan (except for autos, in which case the tax is 4.5 percent) and payment is required at the time of import declaration. The consumption tax is assessed on the CIF value of the product plus the import duty. Duties and consumption tax are payable when making an import declaration at the time of customs clearance by the importer. The Import Declaration Form (Customs Form C 5030) is filled out by the importing company and is used as an import declaration as well as a tax payment declaration form. 3. Tariff Duty- and Import Tax-Free Allowances Packages containing items with a value of 10,000 yen or less are exempt from duty and the consumption tax. For travellers, the duty and tax-free limit is 200,000 yen for accompanied baggage. An oral declaration of personal effects is all that is required unless the arriving passenger comes by ship, has unaccompanied baggage, or brings articles exceeding the duty-free allowance. Submission of a declaration form will exempt unaccompanied luggage from duty. Cigarettes, perfume, and liquor have separate duty-free quantity limits. 4. Government of Japan Tax Incentives for Imports The Japanese Government grants to manufacturers in Japan tax credits of 5 percent of the amount they increased their imports of eligible manufactured products (products that are duty free), and offers importers tax deferral of certain profits. B. Customs Valuation Tariff duties are assessed on the CIF value (cost, insurance, and freight) at ad valorem or specific rates, and, in a few instances, are charged a combination of both. C. Import Licenses Most goods now qualify as "freely importable" and do not require an import license. The only exception is for those commodities falling under import quotas in which case the Japanese importer must apply for license approval. Rice, wheat, beef, and leather products are among the few remaining products subject to import quotas; the allocation of import licenses on these products has been criticized as non-transparent. D. Export Controls Standard U.S. export controls apply to Japan. Japanese export controls are regulated under the Foreign Exchange and Foreign Investment Control Act. E. Import/Export Documentation While customs procedures have been simplified in recent years, a number of documents are still required for clearance. These include: (1) for import quota items, an import license, usually valid for four months from date of issuance; (2) an Import Declaration Form (Customs Form C 5030); (3) shipping documents such as a commercial invoice, packing list, and an original and signed bill of lading, or, if shipped by air, an air waybill; (4) a certificate of origin if the goods are entitled to favorable duty treatment (preferential or GATT rates; in practice, shipments from the United States are routinely assessed using the GATT or "temporary" rates without a certificate or origin); and (5) any additional documents necessary as proof of compliance with relevant Japanese laws and standards regulations, if applicable. F. Temporary Entry Japan is a member of the International Convention to Facilitate the Importation of Commercial Samples and Advertising Materials under the ATA Carnet System. Use of a carnet allows goods such as commercial and exhibition samples, professional equipment, musical instruments, and television cameras to be carried or sent temporarily into a foreign country without paying duties or posting bonds. A carnet should be arranged for in advance by contacting a local office of the United States Council for International Business or its New York office at (212) 354-4480. Fees are based on the value of goods to be shipped. Processing time takes generally five business days. Advertising materials, including brochures, films, and photographs, may enter Japan duty free. A commercial invoice for brochures and literature for free distribution must have either the actual or estimated value of the cost of production. The declaration of "no charge" should not be used. Articles intended for display but not for sale at trade fairs and similar events are also permitted to enter duty free in Japan only when the fair/event is held at a bonded exhibition site. These bonded articles are required to be re-exported after the event, or stored at a bonded facility. All shipments to bonded exhibition areas must also comply with any relevant standards, regulations, or quota requirements. A commercial invoice for these goods should be marked "no commercial value, customs purposes only" and "these goods are for exhibition and are to be returned after conclusion of the exhibition." It is also important to identify the name of the trade show or exhibition site, including exhibition booth number (if known), on shipping documents. G. Labeling, Marking Requirements Straw packing materials are prohibited. The Japanese Measurement Law requires that all imported products and shipping documents show metric weights and measures. There is no law requiring display of the identity of the place of origin. However, if labels indicating origin are determined to be false or misleading, the labels must be removed or corrected. Otherwise the goods will be returned to country of origin. False or misleading labels which display the names of countries, regions, or flags other than the country of origin, and/or names of manufacturers or designers outside the country of origin are not permissible. Items which are required by Japanese law to bear labels cover four product categories: textiles, electrical appliances and apparatuses, plastic products, and miscellaneous household/consumer goods. The Household Goods Quality Labelling Law requires mandatory labeling for many household products (i.e. plastic containers, plastic dishes and wash basins, textile and apparel products, toothbrushes, and laundry/kitchen detergents). Textile and apparel products also fall under the Labeling Requirements for Textile Goods. Labels on electrical appliances and apparatuses fall are under the purview of the Electrical Appliance and Material Control Law and the Quality Control Law for Home Appliances. Because all these regulations apply specifically to individual products, it is important to work with a prospective agent/importer to ensure your product meets requirements, if applicable. For more information, see the section titled "Japanese Regulations, Standards, Quality Marks, and Certification Systems." In general, most labeling laws are not required at the customs clearance stage, but at the point of sale. Consequently, it is most common for Japanese importers to affix a label before or after clearing customs. H. Prohibited Imports Japan strictly prohibits entry of narcotics, obscene materials, counterfeit goods or goods that violate intellectual property rights. The use of chemicals and other additives in foods and cosmetics is severely restricted by regulations that follow a "positive list" approach. Restricted items include certain agricultural and meat products, endangered species and products such as ivory, animal parts and fur whose international trade is banned by international treaty, swords and firearms, and more than 2 months supply of medicines and cosmetics for personal use. I. Standards Product requirements in Japan fall into two categories: regulations (or mandatory standards) and non-mandatory voluntary standards. Compliance with regulations and standards is also governed by a certification system, in which inspection results determine whether approval (certification/quality mark) is to be granted. Generally approval is a requirement to sell or display in a trade show; unapproved medical equipment may be displayed if accompanied by a sign indicated that the product is not yet approved for sale. To affix a mandatory quality mark or a voluntary quality marks requires prior product type approval and possibly factory inspections for quality control assessment. Regulated products must bear the appropriate mandatory mark when shipped to Japan in order to clear Japanese Customs. Regulations may apply not only to the product, but also to packaging, marking or labeling requirements, testing, transportation and storage, and installation. Compliance with "voluntary" standards and obtaining of "voluntary" marks of approval may greatly enhance sales potential and winning Japanese consumer acceptance. Japanese regulations include: the Consumer Product Safety Law "(mandatory S" mark applicable to approximately 10 categories of products including baby cribs and baseball helmets), Electrical Appliance and Material Control Law (mandatory "T" mark), Measurement Law, High Pressure Gas Control Law, Gas Utility Industry Law, Law Concerning the Examination and Control of Manufacture of Chemical Substances, Fertilizer Control Law, Road Transportation Law, Telecommunications Enterprise Law, Radio Law, Plant Protection Law, Pharmaceutical Affairs Law, Food Sanitation Law, and Industrial Safety and Health Law. "Voluntary" standards include: Japanese Industrial Standards (JIS), Japanese Agricultural Standards (JAS), Electronic Devices Industry Association of Japan (EIAJ) standards, Japan Electric Machinery Manufacturers Association (JEM) standards, Japan Automobile Technology Association (JASO) standards, Japan Iron and Steel Federation (JISF) standards, Japan Electronic Parts Dependability Association (RCJS) standards, Japan Consumer Product Safety Association (JCPSA) standards (the "SG" mark) Toy Safety Control Administration ""ST" ("Safety Toy") mark, carried on over 85 percent of toys sold in Japan) and the "ECO" mark which is used to indicate "environmentally friendly" products. While some Japanese standards information is available in the United States in English, it may be difficult to obtain standards information from Japan available only in Japanese. It may be necessary to use a Japanese agent, distributor, consultant or lawyer to obtain the necessary information from a Japanese ministry, testing agency, or bookstore. The "voluntary" JIS mark, administered by MITI, applies to over 1,000 different industrial products and consists of over 8,600 standards, 90 percent of which are available in English. Adherence to JIS is also an important determinant for companies competing on bids in the Japanese government procurement process. Products that comply with these standards will be given preferential treatment in procurement decisions under Article 26 of the Industrial Standardization Law. JIS covers all industrial products except for those products regulated by specific national laws or for which other standard systems apply (i.e. Pharmaceutical Affairs Law, Japan Agricultural Standards). The JAS mark is another "voluntary" but widely used product quality and labeling mark. JAS applies to beverages, processed foods, forest products, agricultural commodities, livestock products, oils and fats, products of the fishing industry, and processed goods made from agricultural, forestry, and fishing industry raw materials. There are approximately 390 JAS standards; English translations are available. Specific JAS marks exist for various types of plywood, paneling, flooring boards, lumber, and timber. The JAS marking system is administered by Japan's Ministry of Agriculture, Forestry and Fisheries (MAFF). Separate mandatory standards for quality labeling of processed foods and beverages are administered by Japan's Ministry of Health and Welfare (MHW). A limited number of testing laboratories in the United States have been designated by Japanese government agencies to test and approve U.S. products for compliance with Japanese mandatory certification systems and laws. Products not covered by these arrangements must be tested and approved by Japanese testing labs before these products can be sold in Japan. J. Free Trade Zones/Warehouses Japan has no free trade zones. There are five kinds of bonded areas: (A) designated bonded areas, (B) bonded sheds, (C) bonded warehouses, (D) bonded factories, and (E) bonded exhibition sites: (A) Designated Bonded Areas: This is public space authorized by Ministry of Finance. In these areas, located near ports of entry, foreign cargo (shipments to be exported, to be imported and in transit) can be unloaded, transported, and stored up to one month. This temporary space is used for customs declaration and handling, and can be used by anybody for a fee. (B) Bonded Shed: This is space authorized by the Director General of Customs Houses and it performs the same function as a designated bonded area. (C) Bonded Warehouses: Foreign cargo can be stored at bonded warehouses for up to 2 years (and longer with special permission). As long as cargo is stored in a bonded warehouse, custom duty is not applied. Bonded warehouses are most often used for cargo to be exported. (D) Bonded Factories: Bonded factories allow manufacturers to produce goods with foreign materials without paying customs duties for those foreign materials. Although there appears to be no prohibition against using such factories to produce goods to import into Japan, most bonded factories in Japan produce items for export only. (E) Bonded Exhibition Sites: This is exhibition space authorized by the Director General of Customs House for an international event. This system is designed to make administration of world-wide expositions and exhibitions by foreign governments easier. Foreign cargo can be exhibited or used with simple declaration. Equipment and materials to be displayed at a bonded exhibition site should be identified as such and arrangements must be made with the freight forwarder prior to shipment. If goods are to be removed from the bonded site during the exhibition, either for sale or display at another location, they must be cleared through Japanese customs before they are removed. U.S. companies interested in utilizing bonded space should contact a freight forwarder with the non-mandatory, but highly recommended, background and experience of doing business in Japan. K. Special Import Provisions 1. Import Promotion Measures Japan's problems with its trading partners are caused by continuing bilateral surpluses Japan continues to amass each year, and by continuing difficulties they have in accessing Japan's market. While Japan's average tariff rates on industrial products are among the world's lowest at 2 percent, high tariffs and import quotas still remain on a number of manufactured and agricultural products of interest to U.S. companies. The import of rice for food is still banned. The Government of Japan has, however, put into place a substantial program to promote imports of manufactured goods into Japan by providing many types of assistance to potential U.S. and other foreign exporters seeking to do business with Japan. Many of these programs are operated and administered by JETRO. The scope of these programs covers tax incentives for import into Japan, financing for exports to Japan, assistance in finding Japanese business partners, market research, export study programs, and the provision of free temporary office space in Tokyo. In JETRO's proposed budget for Japanese fiscal year 1994, JETRO will spend YEN9.1 billion yen (74%) of its YEN12.3 billion ($115 million total budget on import promotion (the rest is for export promotion). JETRO's total budget is, however, down from YEN24.1 billion ($219 billion) last year, with about the same percentage devoted to import promotion. JETRO's import promotion program includes dispatch of long- term senior trade advisers to 18 U.S. states to advise on exporting to Japan; dispatch of short-term experts to identify products with export potential to Japan; seminar tours to Japan for U.S. businesspeople to better understand the Japanese market; establishment of a Business Support Center in Tokyo, and the establishment of local import information centers in all 47 prefectures. This budget has also enabled the Government of Japan to offer enhancements for trade events organized with the U.S. Department of Commerce, to publish market research in English, and to support other activities of the Trade Expansion Cooperation Program of the U.S. Department of Commerce and MITI. On March 23, 1993, JETRO opened its $43 million Business Support Center in downtown Tokyo near the U.S. Embassy and JETRO headquarters to give foreign companies a temporary office for 2 weeks to 2 months while they are looking for permanent office space in Japan. The BSC offers 24 rent-free furnished office partitions, consultants, a library, phone message and answering services, meeting, seminar and exhibition rooms, and a room for receptions. 2. MITI's Business Initiative for Global Partnership In November 1991, MITI established the Business Global Partnership with 40 of Japan's automobile, electronics, machinery, steel, non-ferrous metal, chemical and trading companies. The 40 firms together export $150 billion in goods, amounting to 53% of total Japanese exports, and import $120 billion in goods, amounting to 51% of Japan's imports. Another 160 companies in key industries such as machine tools, semiconductor manufacturing equipment and glass, are participating, and all 200 companies will be expected to draw up and implement voluntary import plans. The Partnership has three goals: (1) import expansion--further expansion of imports of all goods including specific efforts to expand imports of parts, components and capital goods; (2) expansion of procurement from local domestic suppliers by Japanese affiliated companies operating abroad; and (3) promotion of inter-corporate cooperation-- cooperation with foreign firms in establishing themselves in the Japanese market, including through direct investment. L. Membership in Free Trade Arrangements Japan is not a member of any free trade arrangements.