Removing Japan's barriers to trade and investment
By Glen S. Fukushima -- Nov 17

The Japanese market is more open than many foreigners claim and more closed than most Japanese believe. This has been the case since the mid-1980s and still holds true today. Foreigners attempting to do business in Japan typically confront governmental, structural and psychological barriers to doing business.

But as Japan renews its engagement with Asia, there are many reasons to expect that the barriers that have kept Japan and its Western trading partners apart will be further reduced.

Governmental barriers include tariffs and various laws and government regulations that impede market access. Many of these have been significantly reduced or eliminated over the past 40 years, thanks in part to bilateral and multilateral trade negotiations. Japan now boasts the world's lowest average level of tariffs on industrial products. Yet it still maintains some of the highest agricultural tariffs in the world, and in services - particularly in financial services - regulations often pose a challenge to doing business for foreign and Japanese companies alike.

Structural or institutional barriers are caused by close relationships between suppliers and buyers, suppliers and subcontractors, suppliers and distributors, regulators and companies, or corporate cross-shareholding that have the effect of vastly advantaging incumbents. Newcomers and outsiders are disadvantaged in most markets, but in Japan this is magnified by the tendency to value stability, continuity, predictability, precedence and long-term relationships. This tendency defies the short-term economic rationality and shareholder value that most Western companies like to believe they adhere to.

The third kind of barrier to foreigners doing business in Japan is psychological. Most Japanese people over the age of 40 still view their country as a small island nation devoid of natural resources that must produce and export to survive. This partly explains why Japan still has some of the lowest levels of manufactured imports and inward foreign direct investment among OECD countries. Many Japanese see trade and investment as a zero-sum game in which increased imports will harm Japanese producers and increased inward investment will displace Japanese companies. Japanese notions of corporate governance are different from the Anglo-American model, which gives primacy to shareholder value, board independence and board diversity. In Japan, the emphasis is on corporate stability, continuity and predictability, and on stakeholder value (that is, the interests of employees, customers, partners and society). Companies that pursue short-term profitability, high share prices and economic rationality as defined by Western economic theory are the exception rather than the norm.

News source: East Asia Forum

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