Japan has been a World Trade Organization (WTO) member since 1995 and a member of the General Agreement on Tariffs and Trade since 1955. Japan has also been a member of the WTO plurilateral agreements, including:
Japan is also a member of:
As of 7 November 2023, Japan has been a member of 20 free trade agreements (FTAs) and economic partnership agreements (EPAs), including:
See 1.2 Free Trade Agreements.
As of 7 November 2023, the following agreements are being negotiated:
Japan is a founding member of the Indo-Pacific Economic Framework (IPFE), negotiation of which started in May 2022 and is still ongoing.
Following the release of the Joint Statement on Electronic Commerce in 2017, Japan, by co-hosting formal and informal meetings with other like-minded countries, has actively been involved in the discussion to create new rules on electronic commerce.
On 13 June 2022, during the 12th WTO Ministerial Conference (MC12), Japan, Australia and Singapore, co-conveners of the WTO Joint Statement Initiative on E-commerce, issued a statement underlining the importance of developing global rules on e-commerce. The co-conveners also announced in the statement that they launched the “E-commerce Capacity Building Framework” to strengthen digital inclusion and to help developing and least-developed countries harness digital trade opportunities. They aim to achieve “substantial conclusion” by the end of 2023, and circulated an updated negotiating text in early August 2023. For more details, please see the WTO website.
Customs Duty Rates
The principal laws governing customs duty rates in Japan are the following:
The Customs Act stipulates general rules applicable to customs administration, including:
Article 3 of the Customs Act prescribes that, in cases where a treaty provides special provisions for customs duties, such special provisions shall apply. Thus, the customs duties prescribed in EPAs directly apply based on this provision.
The Customs Tariff Act mainly covers matters related to customs duty rates, including:
This Act sets forth the general rates of customs duties in its Appended Table.
The Temporary Tariff Measures Act stipulates temporary rates for customs duties as an exception to the Customs Act and Customs Tariff Act, taking into account the surrounding industrial and economic circumstances. For example, Article 8 of the Temporary Tariff Measures Act stipulates a special reduction of customs duties that applies to imports of products produced by processing certain raw materials exported from Japan, if the final product is imported within one year (or a longer period determined by the Director General of the relevant regional customs) from the date of the export permission of the raw materials. In addition, Article 8-2 of the Temporary Tariff Measures Act stipulates the duties under the generalised system of preferences (GSP).
Rules of Origin
The principal laws and regulations governing rules of origin are the following.
Non-preferential rules of origin
Preferential rules of origin (EPA)
The rules of origin described in EPAs directly apply without being converted into domestic rules or regulations, pursuant to Article 3 of the Customs Act.
Preferential rules of origin (GSP)
Customs Classification
When considering customs classification, the Appended Table of the Customs Tariff Act (the “customs tariff schedule”) and notices which prescribe the interpretation of the schedule are generally referenced. The customs tariff schedule and other customs-related regulations, such as the Appended Table 1 of the Temporary Tariff Measures Act, were amended, effective from 1 January 2022, to revise them in accordance with HS 2022.
Customs Valuation
Customs valuation is principally governed by Article 3 of the Customs Act and Articles 3 and 4 through 4-9 of the Customs Tariff Act.
The Customs and Tariff Bureau, which is an internal department of Japan’s Ministry of Finance (MOF), is in charge of matters related to customs laws and regulations. Japan Customs are the local branch offices of the MOF, and the headquarters of regional customs are located in nine locations throughout Japan – ie:
In Japan, there are no legal instruments which are similar in nature to the EU’s Trade Barriers Regulation or to Section 301 of the US Trade Act of 1974.
However, as referential materials, Japan’s Ministry of Economy, Trade and Industry (METI):
Through these publications, the METI identifies trade practices in other jurisdictions which have negative impacts and which are suspected of being inconsistent with trade agreements (WTO, EPA, etc). While these publications are not connected to any legal actions (and are published for policy reasons), they demonstrate that the METI is concerned with such matters.
Moreover, there is a provision which allows Japan to impose retaliatory duties without relying on rules under the WTO. In particular, paragraph 2 of Article 6 of the Customs Tariff Act exceptionally prescribes retaliatory duties on countries which have not ratified the WTO agreement; these are applicable in cases where any goods exported from or through Japan are treated less favourably than goods exported from or through any other country. These retaliatory duties outside the WTO framework have not been applied to any goods since this paragraph was enacted.
The following measures have been introduced recently.
Extension of Reduction in Customs Duty Rates for Goods Manufactured From Raw Materials Previously Exported From Japan
The reduction of customs duties that applies to imports of products produced by processing certain raw materials exported from Japan under certain conditions, as described in 2.1 Authorities Governing Customs, was extended by three years. Previously, this tariff reduction was applicable to cases where the raw materials were exported on or before 31 March 2023. This was extended to cases where the raw materials are exported on or before 31 March 2026.
Expansion of the Scope of Goods That Shall Not Be Imported
Goods that infringe trade mark and other intellectual property rights have been subject to import control under the Customs Act. However, the importation of counterfeit goods intended for personal use did not constitute an infringement of trade mark rights under the Trade Mark Act and of design rights under the Design Act. Therefore, the importation of counterfeit products for personal use was not subject to import control under the Customs Act.
In light of this situation, a foreign operator’s act of having someone bring counterfeit goods into Japan (eg, sending counterfeit goods directly to Japanese domestic consumers by mail) has been included within the scope of infringements of trade mark rights and design rights, effective from 1 October 2022. To align with these amendments, the Customs Act was also amended in order to regulate the relevant goods at the border. Specifically, counterfeit goods sent by a foreign operator in the aforementioned manner were added to the list of goods whose importation is prohibited, also effective from 1 October 2022, so that these goods would be subject to confiscation and destruction pursuant to certain procedures.
Clarification of Who Should Be the Importer
Considering that there have been cases in which import declarations fraudulently indicated low prices of imported goods to evade payment of customs duties, the eligibility standards for “importers” (ie, those who should file import declarations) were amended as of 1 October 2023. After this amendment, an “importer” means:
For instance, if a foreign operator retains a Japanese customs broker to handle the customs procedures with a view to selling the goods in Japan after the import permission, through fulfilment services operated by an e-commerce platform, that foreign operator (rather than the customs broker) must be the importer. In this scenario, the goods are still unsold at the time of the import declaration; therefore, the right to dispose of the goods belongs to the foreign operator.
Considering that there have been many cases in which counterfeit goods or illegal drugs were purchased on e-commerce platforms and imported into Japan, the Order for Enforcement of the Customs Act was amended to require that import declarations include the following information.
These pieces of information would enhance the ability of customs officers to identify the imports of counterfeit goods and illegal drugs. This amendment will enter into effect on 12 October 2025.
Japan does not have a single comprehensive law authorising sanctions; sanctions are implemented through a patchwork of laws and regulations. While the majority of Japan’s economic sanctions programmes are derived from resolutions of the UN Security Council (UNSC), Japan also implements sanctions measures based on international co-operation with other countries, and unilateral sanctions measures against North Korea, which are not derived from UNSC resolutions or international co-operation.
The primary law in this area is the Foreign Exchange and Foreign Trade Act (FEFTA), under which the following types of transactions may be subject to sanctions and permission or approval of the Minister of Finance or the Minister of Economy, Trade and Industry (Minister of METI):
Other acts that implement sanctions include:
Unless otherwise specifically mentioned, the explanations throughout the remainder of 3. Sanctions apply to sanctions regulated by the FEFTA.
As the primary act governing economic sanctions, the FEFTA sets out the types of transactions subject to sanctions, and the conditions under which sanctions may be imposed (see 3.1 Sanctions Regime and 3.3 Government Agencies Enforcing the Sanctions Regime). Further details of the rules are stipulated by subordinate regulations and notices as follows.
Under the FEFTA, the relevant government agencies that impose and enforce sanctions differ depending on the type of subject transactions and the conditions relied on to impose/enforce sanctions.
In particular, sanctions could be imposed/enforced if the Minister of Finance or of METI finds it necessary either:
In this circumstance:
Regarding service transactions, international payments and capital transactions subject to sanctions, either the Minister of Finance or of METI authorises the Minister of Foreign Affairs (MOFA) to designate individuals and entities subject to sanctions.
Sanctions could also be imposed/enforced if the Cabinet decides to take countermeasures necessary to maintain peace and security in Japan (eg, unilateral sanctions). In this circumstance, Cabinet decisions must be approved by the Diet and will be enforced by the Minister of Finance or of METI, depending on the types of subject transactions.
In most cases, the obligation to obtain permission or approval under the FEFTA applies to:
Specifically, the persons below must obtain permission from the competent authorities when conducting a transaction subject to sanctions.
The FEFTA also applies to actions taken in a foreign country by the representative, agent, employee or other worker of:
The MOFA, authorised either by the Minister of Finance or of METI, designates sanctioned individuals and entities under the FEFTA (see 3.2 Legal or Administrative Authorities Imposing Sanctions).
Japan implements a general ban on imports and exports to/from North Korea and self-proclaimed Donetsk and Luhansk “republics”, and a general ban on imports from the Autonomous Republic of Crimea and the city of Sevastopol. Japan also implements a ban on exports of a wide range of products to Russia and Belarus, and on imports of certain products from Russia.
Japan prohibits North Korean nationals, vessels and aircraft from entering Japan, as part of its unilateral sanctions.
Japan does not apply secondary sanctions.
Penalties for violating the FEFTA and relevant regulations with respect to international payments, capital transactions and service transactions are as follows.
Penalties for violating the FEFTA and relevant regulations with respect to trade in goods are as follows.
Please note that penalties will be imposed on a legal entity only if a violation by a natural person is committed in connection with the business or assets of the legal entity.
The FEFTA requires a person to obtain permission or approval for transactions subject to economic sanctions. However, such permission generally will not be granted with certain limited exceptions, such as for humanitarian aid purposes.
Although there are no specific compliance guidelines for sanctions as of 7 November 2023, the MOF provides the guidelines for financial institutions or certain other service providers subject to the FEFTA regarding compliance with the FEFTA and the Act on Prevention of Transfer of Criminal Proceeds. The MOF also conducts foreign exchange inspections to check whether financial institutions and certain other service providers subject to the FEFTA are complying with the related acts.
Effective from 1 April 2024, financial institutions and certain other service providers subject to the FEFTA are obligated to establish an internal system to properly implement asset-freezing measures in accordance with the compliance standards prescribed under the FEFTA (eg, conducting risk assessments for violations of asset freeze measures, maintaining a list of individuals or organisations subject to asset freeze measures, etc).
The Minister of METI also provides compliance guidelines for companies, which stipulate adequate compliance rules for export control.
Moreover, the FEFTA provides for a post-review system, under which the Minister of METI conducts post-reviews to clarify the cause and to prevent recurrence of incidents regarding payments, service transactions and imports/exports subject to sanctions, where it later becomes clear that they were not approved by the Minister METI and thus may violate FEFTA sanctions regulations.
Under the FEFTA, banks, other financial institutions and certain other service providers (eg, fund transfer service providers, crypto-asset exchange service providers) are prohibited from conducting transactions unless they have confirmed that international payments or capital transactions subject to sanctions have been permitted by the relevant ministers.
The Act on Prevention of Transfer of Criminal Proceeds also requires banks, other financial institutions and certain other service providers to notify the government of “suspicious transactions”, including transactions suspected to be related to specific crimes, terrorism, and exports/imports that violate economic sanctions.
Japan does not have any blocking statutes, anti-boycott regulations or other restrictions that prohibit adherence to other jurisdictions’ sanctions.
Since February 2022, various sanctions measures against Russia and Belarus have been implemented by the Japanese government in response to Russia’s invasion of Ukraine, in co-ordination with the USA, the EU and the G7 member states.
In March 2022, the FEFTA was amended to add transactions related to crypto-assets to the list of sanctioned activities by deeming them as capital transactions, and to impose obligations on crypto-asset exchange service providers to confirm whether the parties to transactions are subject to the sanctions that came into effect in May.
In response to the result of the fourth round of multilateral evaluations and analysis of Japan’s compliance with the recommendation of the Financial Action Task Force (FATF), the FEFTA and other related laws were amended in December 2022, with the following changes:
Other than those changes explained in 3.14 Key Developments Regarding Sanctions, as of 7 November 2023 no major changes are planned.
In Japan, the FEFTA provides the legal basis for export controls, as follows.
See 4.1 Export Controls.
When a person/entity intends to export goods or transfer technologies subject to export control, such person/entity is required to obtain a licence from the Minister of METI.
In Japan, there are two main types of export controls for goods and technologies: “list control” and “catch-all control”. Items subject to these export controls, together with the person required to obtain a licence, are as follows.
Export Control on Goods
List control
The specific goods subject to list control are detailed in Appended Table 1 of the ETCO as categories 1 through 15, and correspond to goods regulated under the international regimes of which Japan is a member, such as the Wassenaar Arrangement and the Australia Group. If the goods to be exported qualify as controlled goods, a licence is required for exportation regardless of the destination.
Catch-all control
The goods subject to catch-all control are those that are not subject to list control, and fall within one of the chapters of the Harmonized System (HS) nomenclature specified in Appended Table 1 of the ETCO as category 16. In summary, the catch-all control covers any transaction of these goods when either of the following conditions is met.
Note that the exact conditions listed in the first bullet point differ depending on the destination of goods and whether the concern is related to weapons of mass destruction or conventional weapons. In addition, the catch-all control described above does not apply when the destination of goods is a country listed in Appended Table 3 of the ETCO – so-called group A countries, which used to be known as “white” countries. Korea was removed from the list of group A countries in August 2019, but was re-added to the list in July 2023.
Persons subject to the export licence requirement
Exporters, regardless of their nationality, who plan to export controlled goods should obtain a licence.
Export Control on Technologies
List control
The specific technologies (including programs/software) subject to list control are detailed in the Appended Table of the FEO as categories 1 through 15, and correspond to technologies regulated under the international regimes of which Japan is a member, such as the Wassenaar Arrangement and the Australia Group.
Catch-all control
The technologies subject to catch-all control are those that are not subject to list control, and pertain to the design, production or use of the goods that fall within one of the chapters of the HS nomenclature specified in the Appended Table of the FEO as category 16. In summary, the catch-all control covers any transfer of these technologies when either of the following conditions is met.
Similar to exports of goods, the exact conditions listed in the first bullet point differ depending on:
In addition, the catch-all control described above does not apply when the destination of the technology transfer is any of the group A countries or a non-resident who has nationality in a group A country.
Persons subject to the licence requirement
The following persons who plan to transfer controlled technologies should obtain a licence:
For the definitions of “resident” and “non-resident”, please see 3.4 Persons Subject to Sanctions Laws and Regulations.
The METI compiles a list of foreign end users that may be involved in developing, manufacturing, using or storing weapons of mass destruction (the “Foreign End User List”). Exporters/transferors need to check whether their end users fall within this Foreign End User List in determining whether their exports or technology transfers are subject to catch-all control. If the end user is listed in the Foreign End User List, exporters/transferors need to obtain a licence from the Minister of METI, except where it is obvious that the goods or technologies will not be used to develop, manufacture, use or store weapons of mass destruction.
See 4.4 Persons Subject to Export Controls. As mentioned in 4.1 Export Controls, the ETCO and FEO specify the export controls and contain lists of sensitive exports/technology transfers. The lists are made and updated according to the international export control regimes (the Nuclear Suppliers Group, the Missile Technology Control Regime, the Australia Group, and the Wassenaar Arrangement) and the Chemical Weapons Convention; thus, the controlled items are basically identical to those specified by those regimes. For an exception to this alignment with international regimes, please see 4.12 Key Developments Regarding Exports.
See 4.4 Persons Subject to Export Controls.
There are administrative sanctions and criminal penalties for those who export controlled goods or transfer controlled technologies without obtaining licences.
Specifically, a natural person or legal entity that violates the export control-related provisions of the FEFTA may face administrative sanctions, imposed by the Minister of METI, that prohibit any (or some) exports or technology transfers for a period of up to three years. It is worth noting that administrative sanctions have no statute of limitations, and there have been cases where administrative sanctions were imposed even when criminal penalties were not.
A natural person that violates the export control-related provisions of the FEFTA may face criminal penalties, which include up to seven years (ten years in the case of goods/technologies relating to weapons of mass destruction) of imprisonment and/or a fine of up to JPY20 million (JPY30 million in the case of goods/technologies relating to weapons of mass destruction) or five times the value of the goods/technologies that were exported/transferred, whichever is higher.
When a natural person (ie, representative or employee) commits a violation in connection with a legal entity’s business, the legal entity may also be fined up to JPY700 million (JPY1 billion in the case of goods/technologies relating to weapons of mass destruction) or five times the value of the exported goods or transferred technologies, whichever is higher.
If goods and technologies are subject to export control, they cannot be exported or transferred without obtaining individual licences for each transaction, or bulk licences. There are several types of bulk licences, depending on the specific details of the transactions, including their scheme, the types of goods/technologies covered by the transactions and their destinations.
Under the FEFTA, a party who exports controlled goods or transfers controlled technologies on a regular basis is obliged to comply with legally defined standards (ie, Compliance Standards for Exporters and Persons Conducting Similar Transactions) which set conditions related to in-house compliance mechanisms. Furthermore, as one of the conditions for obtaining certain bulk licences, a party is required to establish and register with the METI an in-house compliance mechanism, in which certain processes specified by the METI must be adopted.
There are several instances where a party is requested/obliged to report to the authority, including the following.
Clarification of the Scope of Deemed Exports
Previously, a transfer of technologies from one resident to another resident within Japan was not considered a transaction for the purpose of transferring a controlled technology to a non-resident, which is subject to Japanese export control (please see 4.4 Restricted Persons). However, as the development of cutting-edge technologies involves rigorous participations of foreign people residing in Japan, concerns have developed about the risk of leakage of sensitive information through a resident who is under the strong influence of a foreign country.
In order to address this risk, the METI’s notification regarding technology transfers was amended to clarify that transfers of a controlled technology from a resident to another resident are deemed to be transactions for the purpose of transferring the technology to a non-resident, when the recipient qualifies under any of the following categories:
This amendment entered into effect on 1 May 2022.
Adoption of Export Control on Advanced Semiconductor-Related Equipment
Effective as of 23 July 2023, the Ministry Order specifying the details of goods and technologies subject to list control was amended, to the effect that certain advanced semiconductor-related equipment, as well as programs designed for the use of those goods and technologies necessary for the design or production of those goods, were added to the scope of list control. This amendment was not made pursuant to the Wassenaar Arrangement, but is understood to be a result of the trilateral consultations between the USA, Japan and the Netherlands (although the Minister of METI explained that this amendment aims to supplement the Wassenaar Arrangement under the current national security circumstances, and does not intend to align with the semiconductor-related export control measures adopted by the USA in October 2022).
The Subcommittee on Security Trade Control, established under the Trade Committee of the Industrial Structure Council of the METI, issued its intermediary report in June 2021 and suspended its meetings. According to the METI’s draft action plan for strengthening the foundation of industries and technologies in relation to economic national security, published in October 2023, the Subcommittee will resume its meetings from autumn 2023. The draft action plan includes further review of how to implement control of technology transfers, particularly those of emerging technologies, in the agenda.
The principal laws governing anti-dumping duties (AD), countervailing duties (CVD) and safeguards (SG) (collectively, “trade remedies”) are the following:
Various government agencies would be involved in the decision-making process, in particular, the Ministers of Finance and METI, and any other minister who is responsible for the specific industry subject to the trade remedies.
In Japan, investigations of trade remedies generally would be initiated at the request of members of domestic industries; however, the relevant laws also allow the investigating authority to self-initiate an investigation.
There has only been one case in which the initiation of the investigation was requested by the relevant minister – namely, the SG case against leeks, raw shiitake mushrooms and tatami mats. This investigation was conducted in 2000–01. For review proceedings, which will be initiated and conducted once trade remedies are imposed, please see 5.9 Frequency of Reviews.
In Japan, there are no time restrictions for initiating investigations (both for initial impositions and for re-impositions) and for the initial imposition of trade remedies, and domestic industries can request initiation of an investigation on an ad hoc basis. However, there is a time restriction on re-imposing SGs.
Specifically, when an SG is re-imposed on products which were subject to a previous SG (ie, an SG that has expired or been terminated), re-imposition of an SG is allowed only after a period of time equivalent to the period during which the previous SG was taken or a period of two years (whichever is longer) has elapsed from the day on which the previous SG expired or was terminated. AD and CVD have no time restrictions for re-imposition.
For review proceedings, which will be conducted once trade remedies are imposed, please see 5.9 Frequency of Reviews.
In Japan, non-domestic companies are allowed to participate in the investigation as relevant parties. For review proceedings which will be conducted once trade remedies are imposed, please see 5.9 Frequency of Reviews.
Process for Imposing AD
The typical steps and timelines for imposing AD are as follows.
Process for Imposing CVD
The typical steps and timelines for imposing CVD are similar to those of AD as explained above.
Process for Imposing SG
The typical steps and timeline for imposing SG are as follows:
The investigating authority publishes the following reports during the investigation of trade remedies.
In addition, when conducting an investigation of AD/CVD, the investigating authority also provides the disclosure of essential facts to the interested parties in writing (see 5.6 Investigation and Imposition of Duties and Safeguards). This finding explains the facts which will be the basis for the final determination.
This matter is not relevant in this jurisdiction.
Review of AD
There are several review processes for AD measures, as detailed below.
Review of CVD
There are several review processes for CVD measures, as detailed below.
Review of SG
Domestic industry members may request initiation of a review, which will examine whether the SG measure should be extended. The investigation should be completed within one year, but can be extended.
See 5.9 Frequency of Reviews.
Preliminary and final determinations for imposing trade remedies are likely capable of being appealed to the district court, but there are no precedents for this in Japan.
This matter is not relevant in this jurisdiction.
In Japan, historically the number of investigations has remained low. However, recently the number of AD investigations has been trending upwards. While there are undoubtedly various reasons which explain this trend, one of the main causes is the investigating authority’s effort to increase awareness and understanding of trade remedies, and the domestic industries’ acknowledgement of AD measures as useful tools to respond to dumped imports.
In addition, considering the lack of CVD cases in Japan during the last decade, the Japanese government has started to examine how it could effectively use CVD.
In Japan, the FEFTA together with its subordinate regulations, the Cabinet Order on Inward Direct Investment and the Order on Inward Direct Investment are the primary legal instruments regarding foreign investment regulation.
In the FEFTA, “foreign investors” making “foreign direct investments” (acquisitions of shares, equity, bonds, etc, of Japanese companies) or “specified acquisitions” (acquisitions of shares or equity in non-listed Japanese companies from another foreign investor) must file either a prior notification (ie, pre-closing notification) or post-investment report, generally depending on whether the investments are made in relation to “designated business sectors”.
See 6.3 Transactions Subject to Investment Security Measures and 6.4 Mandated Filings/Notifications for the definitions of foreign investors, foreign direct investments and designated business sectors.
When a prior notification is filed according to the FEFTA, the MOF and ministers who have jurisdiction over the target business will conduct a review. The standard waiting period is 30 days, which could be shortened to two weeks or extended to up to five months.
Aside from the FEFTA, sector-specific laws and regulations – such as the Civil Aeronautics Act, the Broadcast Act and the Radio Act – also regulate certain foreign investments by limiting the ratio of shareholding by foreign investors.
The MOF is primarily responsible for implementation of the FEFTA. When a prior notification is filed according to the FEFTA, the Minister of Finance and ministers who have jurisdiction over the target business (eg, the Minister of METI) will conduct a review; if they find that the investment is likely to impair national security, etc, they may recommend, and ultimately order, modification or discontinuation of the investment.
In general, if a foreign investor is making a foreign direct investment or specified acquisition, the investor is required to file either a prior notification or post-investment report.
A prior notification is also required if the nationality or country of location of the foreign investor is neither Japan nor a white-listed country. The whitelist comprises 173 countries, including China and Russia, but does not include countries such as North Korea and Somalia. Certain types of transactions that involve parties related to Iran are also subject to a prior notification obligation. However, since investors are usually concerned about regulation regarding a foreign direct investment in the designated business sectors, the following focuses on the regulation of these types of investments.
The term “foreign investor” is defined in Article 26, paragraph 1 of the FEFTA, and includes, but is not limited to, the following persons:
A foreign direct investment includes the following actions:
In general, if a foreign investor is making a foreign direct investment or specified acquisition in relation to designated business sectors, prior notification is required.
Designated business sectors are designated in the relevant public notices as those that are related to national security, the maintenance of public order, and the protection of public safety, etc. More specifically, these designated business sectors are those relating to:
In April 2023, various business sectors were added as designated business sectors. See also 6.8 Key Developments Regarding Investment Security for this change.
With respect to foreign direct investments in non-designated business sectors, in general, post-investment reports are required (for acquisitions of shares, equity, etc, only investments of 10% or greater shareholding require post-investment reports).
The MOF publishes a list that categorises Japanese listed companies into companies engaging in business activities in:
This list was most recently updated as of May 2023, and can be found at the MOF website.
See 6.5 Exemptions for the explanation on core designated business sectors and non-core designated business sectors.
If a foreign investor, except for whom a review is deemed particularly important (eg, government entities and state-owned enterprises without MOF accreditation) acquires shares, equity, voting rights, etc, the prior notification obligation is exempted under the following conditions.
Listed Companies
If the investments are made in listed companies in relation to designated business sectors, a financial institution is exempted from the prior notification requirement if the investment meets the following conditions:
If a foreign financial institution does not file a prior notification in accordance with this exemption, a post-investment report is required when the investor acquires 10% or more of the shareholdings.
If the investor is a general investor (ie, a foreign investor who is not a foreign financial institution), there are two different types of exemption systems for investments made in core designated business sectors and non-core designated business sectors from among the designated business sectors.
Among the designated business sectors, the business sectors that are most likely to affect national security are designated as core designated business sectors. They include all businesses relating to:
They also include a portion of the business relating to:
In April 2023, various business sectors were added to the core designated business sectors. See 6.8 Key Developments Regarding Investment Security for this change.
If a general investor is investing in core designated business sectors, the prior notification exemption applies to investments of less than 10% shareholding, provided that the investment meets exemption conditions (d) and (e) below, as well as conditions (a), (b) and (c) above:
If a general investor is investing in non-core designated business sectors, the prior notification exemption applies if the investment meets the exemption conditions (a), (b), and (c) above.
If a general investor does not file a prior notification in accordance with the exemptions above, the general investor must file a post-investment report when the shareholding ratio reaches 1% and 3% for the first time and when it reaches 10% or more for each transaction.
Non-listed Companies
When investments are made in relation to non-listed companies in non-core designated business sectors, exemption from the prior notification obligation applies if the investment meets conditions (a), (b) and (c) above. There is no exemption system available for investments made in core designated business sectors. Even if an investor does not file a prior notification in accordance with this exemption, the investor must file a post-investment report.
If the MOF and the minister(s) with jurisdiction over the target business find, upon review of the prior notification, that the investment at issue is likely to impair national security, etc, they may recommend, and ultimately order, modification or discontinuation of the investment. However, to date, there has only been one case of such an order being disclosed by the authorities.
Failure to file a prior notification or provision of false information in the prior notification, violation of the waiting period, and failure to comply with the order to modify or discontinue the investment are subject to criminal penalties of up to three years’ imprisonment, a fine of up to three times the value of the investment, or JPY1 million (whichever is higher), or both (FEFTA, Article 70).
Where there has been a failure to file a notification or a filing of a false notification by a foreign investor, and the case is deemed likely to impair national security, etc, the foreign investor may be subject to divestiture or another action order.
There are no fees required for submission of notifications required by the FEFTA.
Effective from 24 April 2023, the scope of core designated business sectors and designated business sectors was modified to include various business sectors, such as those relating to:
The purpose of this amendment is mainly to align with the Japanese government’s initiatives for securing a stable supply of critical commodities under the ESPA. See also 7.1 Subsidy and Incentive Programmes for Domestic Production regarding these initiatives.
As of 7 November 2023, no major changes are planned.
There are no general subsidy programmes in Japan aimed at reducing imports and/or encouraging domestic production. Nevertheless, the Japanese government has adopted some special programmes to counter emergency situations (eg, the 2008 financial crisis, 2010 rare-earth crisis, 2011 Great East Japan Earthquake, and 2019 COVID-19 pandemic) and to deal with national security and environmental issues.
For example, under the ESPA, business operators who are related to the production of critical materials may receive government support (such as long-term, low-interest loans) to maintain a stable supply chain. As of 7 November 2023, 11 materials are designated as critical materials:
There are no standards or other technical requirements in Japan aimed at reducing imports and/or encouraging domestic production. The Japanese government has adopted technical regulations and standards in various fields to ensure the safety and quality of products, including the following:
There are no sanitary or phytosanitary requirements in Japan aimed at reducing imports and/or encouraging domestic production. The Japanese government has adopted various sanitary and phytosanitary requirements to ensure food safety and to prevent incursion of animal and plant illnesses caused by imported products, including the following:
The government of Japan has adopted certain price support measures to support and encourage domestic production of certain agriculture products, including subsidy programmes adopted by the Agriculture & Livestock Industries Corporation (ALIC). ALIC’s programmes apply to products such as beef and veal, pork, milk, vegetables and sugar. Further details are explained in ALIC’s brochure.
There are no state trading, state-owned enterprises or privatisation measures in Japan specifically aimed at reducing imports and/or encouraging domestic production. Nevertheless, the Japanese government has adopted state trading systems for the following products:
Further details on the state trading systems adopted by the Japanese government can be found in the notification made by the Japanese government to the WTO (G/STR/N/18/JPN) – see WTO (state trading).
Since December 1995, the Japanese government has been a member of the Agreement on Government Procurement (GPA), which prohibits discrimination between domestic and imported products of GPA member origin. Moreover, to date the Japanese government has adopted a policy to treat GPA members and non-GPA members equally. As such, in Japan, there are no “buy national/local” requirements applied to government procurement.
There are no geographical indication (GI) protection measures aimed at reducing imports and/or encouraging domestic production. In Japan, GIs are protected under the Act on Protection of the Names of Specific Agricultural, Forestry and Fishery Products and Foodstuffs (the “GI Act”). The number of foreign GIs protected under the GI Act is increasing, reflecting the amendment of the Japan-EU EPA. Explanation of the GI Act and a list of GI products can be found at the Japan Geographical Indications website.
The National Security Strategy approved by the Japanese Cabinet on 16 December 2022 stated that Japan will review the three principles of transfer of defence equipment and technology overseas, and its implementation guidelines, in order to promote defence equipment transfers of security significance and international joint development in a wide range of fields. The government of Japan seems to have been discussing a review of its policy on the operation of defence equipment exports since last year. The points of discussion may include:
In addition, the Act on Strengthening Infrastructure for Development and Production of Equipment Procured by the Ministry of Defence (the “Defence Production Base Strengthening Act”) was enacted in June 2023 and went into effect in October 2023. Under the Act, a system was introduced whereby the government subsidises activities to adjust the specifications and performance of defence equipment for exportation to foreign countries.
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Recent events, including the trade conflict between the USA and China, the COVID-19 pandemic and the Russian invasion of Ukraine, have heightened global interest in international trade and national/economic security.
The following key developments have been implemented in Japan, as further explained in detail below:
The Economic Security Promotion Act
The Economic Security Promotion Act (the “Act”) was enacted during the ordinary session of the Diet on 11 May 2022. The Act consists of the following four “pillars”.
Strengthening of the supply chains of important items and raw materials
In order to mitigate the increasingly serious impact that a potential supply disruption of semiconductors and pharmaceuticals may cause due to the reliance of industrial infrastructures and medical services on digitalisation, and in order to counter a relative decline in Japan’s ability to secure critical supplies in times of supply disruptions of essential items due to the growth of emerging countries and the deepening of global value chains, the following measures are being implemented in accordance with a basic policy that is formulated in greater detail by the national government:
Securing the safety and reliability of key infrastructures
In order to mitigate the risk of cyber-attacks due to the large-scale digitalisation of critical facilities of key infrastructures, a prior assessment system will be applied to the introduction of specified critical facilities for certain key infrastructures, as well as the commission of maintenance and management of such specified critical facilities. Businesses/business operators that will be particularly affected include:
During its pre-assessment of the supply of specified critical facilities and commission of management and maintenance thereof, the Japanese government will ask these companies, including foreign companies, to provide information regarding their sales activities vis-à-vis foreign governments and the nationality of their executives.
Implementing systems to develop and support key technologies by public and private sectors
A framework of government support and co-operation between the public and private sectors for the appropriate management of sensitive information is implemented with respect to advanced technologies critical for the stability of people’s daily lives and economic activities. The framework required for the proper management of the information and the costs associated therewith will be covered by funds which will consist of public contributions. The specified key technologies the funds will be covering include:
Prevention of leakage of sensitive data relating to inventions by non-disclosure of relevant patent information
In order to reinforce measures for the prevention of leakage of sensitive information through patent application procedures pertaining to inventions of which the disclosure may be likely to harm the security of Japanese citizens, the Act introduces a system whereby the Prime Minister is authorised to order that an invention be kept secret, and to withhold the publication of a patent application and the granting of such patent for a period of up to one year, which may be renewed for additional one-year periods.
The Japan Patent Office (JPO) will screen all patent applications and refer to the Prime Minister applications where the inventions fall within one of the specified technological areas. The Prime Minister will issue a secrecy order when the disclosure of an invention is detrimental to national security, and measures to safeguard the information pertaining thereto. The specified technological areas include technologies having both commercial and military applications, some of which are subject to the Act only when the inventions are made for military purposes, or when the inventions are made using government funding.
In addition, the Act prohibits anyone from filing an application for patent in a foreign country for inventions made in Japan and falling within the specified technological areas for the first ten months following the filing for the patent in Japan, or prior to receiving a notification that such patent application is not subject to it being sent to the Prime Minister or having a secrecy order issued, whichever is earlier. Violation of this rule is subject to penalties.
Future prospects
The implementation of these four pillars has already started, set to be fully in effect by May 2024. In addition, the Minister in charge of Economic Security is considering an amendment to the Act that would introduce a clearance system for authorising Japanese companies to access classified information in order to participate in international joint development projects.
Strengthening of Foreign Direct Investment Regulations to Secure Stable Supply Chains
Background
Under the Foreign Exchange and Foreign Trade Act (FEFTA), foreign investors investing in or taking certain measures with respect to Japanese companies that are engaged in designated business sectors, including core business sectors, are subject to prior notification and review by the Japanese government.
Following the designation of specified key items and materials in order to ensure stable supply chains under the Act, the relevant public notices (or kokuji) issued under the FEFTA were amended in order to safeguard the integrity of certain supply chains and to enhance technology leakage risk management, including the risk of the diversion of technology to military use.
Addition of core business sectors
The following business sectors were added to the core business sectors:
In addition, the amendments clarify that aircraft manufacturing, which had already been specified as a core business sector, includes the manufacturing of drones. The manufacturing of antibacterial products and the petroleum refining businesses were also added to the core business sectors. Following the amendments, all of the businesses regarding the specified key items and materials have been classified as core business sectors.
Tightening of Export Regulations on Advanced Semiconductor Manufacturing Equipment
Background
In July 2023, Japan’s Ministry of Economy, Trade, and Industry (METI) implemented new export regulations that could significantly reshape the global semiconductor industry. Under the new regulations, the METI requires exporters of advanced semiconductor manufacturing equipment to be licensed. This development builds on a trend initiated by the USA, which introduced export restrictions on advanced chips and manufacturing equipment to China in October 2022. This regulatory development is crucial because it has potential to redefine the dynamics of international semiconductor trade.
Overview of Japan’s export control system
The new rules operate within Japan’s export control system, which is governed by laws including the FEFTA. The FEFTA requires exporters to obtain an export licence from the METI for certain goods or technologies. Such specified goods or technologies come from the Export Trade Control Order (ETCO) enacted under the mandate of the FEFTA. The recent amendment concerns the Ministerial Ordinance Specifying Goods and Technologies (MOSGT) under the ETCO.
Expansion of regulated semiconductor manufacturing equipment
The amendment to the MOSGT expanded the regulations concerning “equipment for manufacturing or testing of semiconductor devices or materials, or components or accessories therefor”. Prior to the amendment of the MOSGT, the exportation of ten types of semiconductor manufacturing equipment required a licence, whereas the amendment expanded this number to 33.
These newly regulated items include equipment used in the design, front-end and back-end processes of semiconductor manufacturing, in line with Japan’s industrial strengths. The exportation of these items to all countries requires a licence, and transactions involving technology related to the manufacture, development and use of the new items are also regulated pursuant to the Foreign Exchange Order.
Revision of the bulk export licence system
The bulk export license system was also revised. The system allows exporters to cover multiple exports using a single “bulk licence”, instead of requiring individual licences for each export.
Under this system, there are three types of bulk licence:
The exportation of the newly regulated items to “Group i-1 (い①)” countries (including the USA) can be covered by a general bulk licence or a special general bulk licence, reflecting the mutual trust between these countries. For “Group to-2 (と②)” countries, a special general bulk licence will be issued. However, for “Group to-3 (と③)” countries (such as China), only a specific bulk licence will be issued, which is limited to an export to the same counterparty with an ongoing business relationship.
In conclusion, it is crucial for international companies that export or import targeted semiconductor products from Japan to carefully verify the eligibility and procedures for obtaining either bulk or individual export licences. This should take into account factors such as:
Publication of Reference Material on Practical Approaches for Business Enterprises to Respect Human Rights in Responsible Supply Chains
Background
On 4 April 2023, the METI released a document entitled Publication of Reference Material on Practical Approaches for Business Enterprises to Respect Human Rights in Responsible Supply Chains (the “Reference Material”). The Reference Material was drafted with the intention to provide companies doing business in Japan with a greater understanding of the practical matters and considerations they should take into account in order to respect human rights based on the Guidelines on Respect for Human Rights in Responsible Supply Chains released on 13 September 2022.
The Reference Material is not intended to exhaustively cover all aspects in the business and human rights arenas. It focuses on presenting:
Key points for establishing a human rights policy
The Reference Material serves as a useful guidance in the formulation process of a human rights policy, and provides specific examples of items that companies should consider implementing with respect thereto. In particular, these specific examples constitute a good reference point for companies that have just begun their efforts to incorporate human rights into their business processes. Examples of items are as follows:
Process flow for identifying and assessing negative impact on human rights
The Reference Material provides an example of the process flow for identifying and assessing negative impact on human rights, the first step of due diligence:
The Reference Material contains useful examples as to each step set out above. In particular, Attachment 1 includes the respective representative human rights risk faced by various business sectors (provisional translation of Human Rights Issues by Sector in the UNEP FI Human Rights Guidance Tool for the Financial Sector), by product and by region, together with examples of human rights violations. In order to identify business fields which carry material risk, companies can check the representative human rights risk set out in Attachment 1. In addition, companies are strongly advised to assess and identify specific, individual human rights risk applicable to them.
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