Tax & Accounting Blog

Domestic Regulation Enhancement Related to the TPP

Blog, Global Trade, ONESOURCE April 8, 2016

Japan’s government situation for the TPP entered into force

Both Japan’s ruling parties (Liberal Democratic Party and Komeito) have discussed and have approved a draft of the TPP regulations and 11 bill[1]. Both ruling parties will cabinet decision and submit a bill to the Diet on March 8, 2016. The details of the 11 bill are as follows:

Committees area: Cabinet Secretarial (http://www.cas.go.jp/index.html )

  1. EPA declaration Origin Product Act
  2. Safe Guard Act
  3. Temporary Tariff Measures Law
  4. Copyright
  5. Patent Right
  6. Trade Mark Act
  7. Efficacy and Safety for Medicine and Medical Equipment
  8. Antimonopoly Act
  9. Animal Product
  10. Sugar and Starch
  11. Certain Agriculture Product

7 Bill – Change to the domestic system

To change the domestic system, amendments to the Copyright Act and Patent Law have been enhanced, such as above items 1 to 7.  The change also includes exemption of import duties other than the TPP and reinforcement of the control of origin information.

Examples of changes:

  • Exempt import duty if goods return to Japan from the TPP member’s country for repair. There is an existing similar regulation that requires a complex process and documentation. This enhancement will simplify the process and provide greater benefits to many industries. Also this enhancement will define the period of time which goods should be returned back: within 1 year from date of exported from Japan.
  • Enhancement: quick confirmation of origin for exporter (import from the TPP 11 members).
  • Existing direct or indirect audits to the importer/exporter of domestic or international transactions. However, it generally takes several months for approval from the overseas government. This enhancement will simplify the process and procedures of conducting audits between Japan authorities and the overseas authorities. This enhancement will also provide common recognition within the TPP countries.

4 Bill – Protecting industries affected by import duty reduction on the TPP

There are four bills that address items 8 to 11 above that are focused on protecting Agriculture, Forestry and Fisheries industries. The 4 Bill was designed to help farmers affected by the duty reductions under the TPP.

Examples of changes:

  • The deficit ratio will be raised if income falls below the cost of production in the following areas.
  • This is a big issue for the Japan Agriculture industry in the areas of Rice, Meat, Wheat and Milk. Currently when importing these products from overseas, the import imposes a high import duty or quota (limitations on volume) to protect the domestic industries. Under the TPP, the price competition will become fierce and the domestic industries are concerned they will lose business due to the low price of goods from overseas.
  • Collection adjustment fee from the importer.
  • Sugar, Cocoa and related goods, Starch – For example, when sugar is imported under the TPP, imported sugar will increase in volume. The domestic sugar industry sees this as an enormous negative impact to their current market share.

Schedule moving forward

March 8, 2016 – Cabinet decision in both ruling parties (Liberal Democratic Party and Komeito)

April 2016 – Submission and discussion in the Diet for final approval from other parties

Both ruling parties are targeting approvals for the TPP agreement including these 11 laws during the Diet in April. However, it is expected there will be opposition from some of the parties according to sources in the agriculture industry.  This group has voiced concerns for loss of business on import duty exemptions, even though both ruling parties are stating they will provide protecting regulations for this industry.

An added consideration for the timeline puts a focus on the U.S.  The Japanese government believes that the U.S. will want conclusion for the agreement before the upcoming presidential elections on November 8, 2016.

Japan Government expectations from implementing the TPP

The Japanese government is targeting an increase of exports more than imports to raise the country’s export revenue and GDP.  The assumptions are that this will increase the populations’ incentives through services and investments and not just a focus on the elimination of import duty. However, the elimination of import duty will best benefit companies who have already, or will have factory/plant and sales office overseas. Japan is also looking to greater market opportunities and business volume increase with the U.S. and Canada once the TPP is implemented.

An element in the TPP provides an added benefit to Japan with the expected increase in Southeast Asia through banking and convenience stores, industries today that are blocked to Japan in these countries due to the current strict regulations.

World Bank calculated increased export and GDP compare to 2014 and 2030

The World Bank is forecasting that the TPP will raise the 12 members’ GDP by an additional 1.1% on average.   The World Bank ranks Japan ranks as sixth among the 12 countries with a GDP growth of 2.7%, estimated at 13 trillion yen ($108 billion).

The World Bank is forecasting an increase in exports of 12%, with Japan gaining 23.2.  The World Bank expects Japan to benefit significantly from the TPP as advances in deregulation in Southeast Asia will expand business opportunities for Japanese companies.  On the surface, it seems that the TPP will be a big benefit for Japanese companies.  Companies will need to prepare for the TPP, and determine how to navigate the changes from the current FTA’s.  Companies clearly are watching the dates for the TPP approval.

To learn more about TPP, visit our Trans-Pacific Partnership Agreement page.

 Sources

http://www.nikkei.com/article/DGXLASFS29H3X_Z20C16A2PP8000/

http://www.cas.go.jp/index.html

http://asia.nikkei.com/Politics-Economy/International-Relations/World-Bank-says-Japan-Vietnam-to-gain-significantly

[1] Japan’s government initiated efforts for legislative ratification of the Trans-Pacific Partnership (TPP). The announcement came through adoption of a cabinet resolution that says the Japanese government will submit 11 bills to the Japanese Parliament, known as the Diet, aiming at ratifying TPP and enacting the bills required for approval of TPP. http://www.world-grain.com/articles/news_home/World_Grain_News/2016/03/Japan_initiates_TPP_ratificati.aspx?ID=%7B69708F01-0BBA-42B0-81BE-A634F93F3BCF%7D&cck=1