Trade policy review report by the secretariat

4.3.2  Subsidies and support

1.1.  Support given to agriculture (section 4.1.2.3), fisheries (section 4.2.3.4), maritime services (section 4.6.1) is detailed in other sections of this report. Support for exports and provided through taxation measures is detailed above.

1.2.  The last notification to the Committee on Subsidies and Countervailing Measures under Article XVI:1 of GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures includes a list of 55 different schemes with another two (for fisheries) in a supplemental notification.¹⁰² The schemes covered by the notification are primarily for small crafts, minerals and fuels, and agriculture and fisheries for the period FY2009-11. For non-agricultural and non fisheries subsidies, subsidies for loans for purchasing petroleum and LPG for stockpiling by private companies accounted for ¥556 billion out of a total of ¥708 billion while minerals-related subsidies accounted for most of the remainder.

1.3.  The FY2014 Subsidy Program for Projects Promoting FDI, Site Location and Regional Development in Japan provides for subsidies for survey design for buildings, facility costs, equipment costs, and facility lease fees. The subsidies rates are up to one-half for SMEs and one-third for other enterprises up to a limit of ¥500 million.¹⁰³

1.4.  Several other programmes also exist to support small and medium enterprises. These programmes were expanded in FY2013 to include, inter alia, projects to support manufacturing (FY2013 budget of ¥11.9 billion), and support for business creation (¥4.8 billion), in addition to existing programmes which included direct support for financing (¥26.5 billion). However, most support in FY2013 was focused on reconstruction after the Great East Japan Earthquake. In addition to direct support, SMEs also qualify for loans from public financial institutions and loan guarantees: at end FY2012, out of a total value of outstanding loans of ¥240 trillion, 9.5% was from public financial institutions and another 13.6% was guaranteed.¹⁰⁴

1.5.  In March 2014, it was reported that METI would start providing subsidies for energy storage systems (lithium-ion batteries). The subsidies would be available for households (up to ¥1 million) and commercial enterprises (up to ¥100 million) with a total budget of ¥10 billion.¹⁰⁵ Another report also stated that the government intended to introduce a subsidy for vehicles powered by fuel cells at ¥2 million per vehicle with further support in some prefectures for local purchases.

4.3.3  State-owned enterprises¹⁰⁶

1.1.  As in other countries, in Japan there are some enterprises which the State or a public authority wholly or partly owns or controls which provide services or goods to businesses or the public. In some cases, these goods or services could be provided by the private sector, but for a variety of reasons, including market failure, the private sector may not offer adequate coverage or may not be involved at all.

1.2.  At the State level, many of these agencies are incorporated administrative agencies. These are agencies established: "for the purpose of efficiently and effectively conducting affairs and businesses that need to be securely implemented from a public viewpoint, such as the stability of the lives of citizens, society and the economy, and that are, among those that do not need to be directly implemented by the State itself, those that may not necessarily be implemented properly if entrusted to private entities or those that need to be conducted monopolistically by a single entity."¹⁰⁷ The system of incorporated administrative agencies was introduced in 2001 as part of the Central Government Reform of Japan to separate the functions of policy and legislation on one side and implementation on the other. Most incorporated administrative agencies were established under the Act on General Rules of Incorporated Administrative Agencies of 1999 plus a law specific to the agency in question (e.g. NEXI) was established under the Act on General Rules for Incorporated Administrative Agencies of 1999 and the Trade Insurance and Investment Act of 1950). In some cases entities equivalent to incorporated administrative agencies have been established under specific laws (e.g. the National University Corporation established under the National University Corporation Act of 2003).

1.3.  As at November 2014, there were 98 incorporated administrative agencies in Japan. Many are engaged in research, and some carry out official functions usually reserved for the State, such as national archives and national statistics. However, some of them appear to be engaged in delivery of goods and services which the authorities believe would not be adequately provided by the private sector. These include some of the functions of NEXI (section 3.2.4), the Agriculture Livestock Industries Corporation (ALIC) (section 4.1.2.3, which has been notified to the WTO as a state trading enterprise), and the Japan Housing Finance Agency (JHF). A full list of incorporated administrative agencies is in Table A3.2.

1.4.  In addition, there are other state-owned agencies which are not classed as incorporated administrative agencies, such as Japan Post Holdings Co. Ltd, and some offices in certain ministries are involved in commercial activities, such as the MAFF which imports rice, wheat, and barley.

1.5.  Japan has notified four entities as state trading enterprises under Article XVII of GATT 1994 and the Understanding on the Interpretation of Article XVII (Table 3.14).¹⁰⁸

Table 3.21 State trading enterprises notified to the WTO under Article XVII

Agency	Role	Trade-related activities
Japan Tobacco Inc.	JT is mainly engaged in the manufacture and sale of tobacco products, prescription drugs, beverages and processed foods. It has a monopoly on tobacco production in Japan.	JT purchases all the leaf tobacco produced by domestic tobacco cultivators who enter into contracted purchase agreement with JT.
Ministry of Health, Labour and Welfare (MHLW)	Supply of opium for medical and scientific purposes, as well as to conduct necessary control over the cultivation of opium poppy, and the transfer, receipt and possession and other relevant activities concerning opium and poppy straw.	MHLW carries out all imports and purchases all domestic production of opium and poppy straw. There are no exports.
Ministry of Agriculture, Forestry and Fisheries (MAFF)	MAFF can import rice, wheat and barley, and can export rice when particular necessity exists, based on the Law for Stabilization of Supply-Demand and Price of Staple Food.	Almost all imports of rice, wheat, and barley are carried out by MAFF. In FY2011-13, MAFF purchased limited quantities of domestic rice production as a public stock against a possible supply shortage and did not purchase domestic production of wheat and barley.
Agriculture and Livestock Industries Corporation (ALIC)	ALIC, as a state trading enterprise, imports designated dairy products to ensure proper and smooth operation of the system to stabilize supply/demand and price of the designated milk products.	ALIC's role as an importer of dairy products declined in the period 2011-13, although it still imported over 25% of whey and butter in 2013 and recommenced imports of SMP. It exported nothing nor bought any domestic production.

Source: WTO document G/STR/N/15/JPN of 11 July 2014.

1.6.  A 2014 report by the OECD defined a state owned enterprise as an autonomous public entity involved in commercial activities and controlled, directly or indirectly, by central government. Based on this definition, the Japanese authorities identified:

• 
  two minority-owned listed entities (Japan Tobacco and Nippon Telegraph and Telephone Corporation) with a combined market value of ¥10,884 billion,
  
• 
  eight majority-owned non-listed enterprises with a combined market value of ¥14,794 billion, and
  
• 
  16 statutory corporations or quasi-corporations with a combined value of ¥12,286 billion.
  

1.7.  Most of these entities are primarily engaged in transportation although the largest, in value terms, was a majority-owned non-listed enterprise in the "other activities" category which was valued at ¥12,448 billion (presumably this is Japan Post Holdings) (Table 3.15).¹⁰⁹

Table 3.22 Aggregate data on State-owned enterprises in Japan

	Minority-owned listed entities		Majority-owned non-listed entities		Statutory corporations and quasi-corporations
	No.	Market value (¥ billion)	No.	Value (¥ billion)	No.	Value (¥ billion)
Total	2	10,884	8	14,794	16	12,286
Primary sectors					1	27
Finance					6	10,293
Telecoms	1	5,432
Transport			5	2,298	9	1,966
Other utilities			1	12,448
Other activities	1	5,452	2	49

Source: OECD (2014), The Size and Sectoral Distribution of SOEs in OECD and Partner Countries, OECD Publishing, p. 40. Viewed at: http://dx.doi.org/10.1787/9789264215610-en [September 2014].

1.8.  In the context of this trade policy review, the authorities indicated that there are six enterprises in Japan that meet the criteria in Table 3.16 for large (i.e. operating revenue greater than ¥100 billion) commercial entities wholly- or partially-owned or controlled by the State or other public authorities. Some of these entities may have been included in the aggregate data on State-owned enterprises in Table 3.15.

Table 3.23 Large state enterprises, FY2013

(¥ billion)

Name/operation	Total asset value	Total operating revenue	Total operating profit before/after tax	Government contribution to revenue and/or equity	State/public authority holding
New Kansai International Airport Company Ltd
Established in 2012 for the operation of Kansai International Airport and Itami Airport	1,985	127	32/24	4	100% shares
Narita International Airport Corporation Ltd
Established in 2004 for the operation of Narita International Airport	859	199	33/20	0	100% shares
Nippon Telegraph and Telephone Corporation
Owns all the shares issued by NTT East, NTT West. Required to ensure proper and stable provision of telecommunications services by these companies throughout Japan, including remote rural areas, as well to conduct research relating to telecommunications technologies.	7,302	431	277/279	0	35.65% shares (36.56% voting)
Japan Post Holdings Co. Ltd
Owns all the shares issued by Japan Post Co. Ltd	9,711	265	122/145	0	100% shares
Japan Finance Corporation
Finance	24,653	788	-36 (excluded from tax)	402	100% shares
Japan Tobacco Inc.
JT is mainly engaged in the manufacture and sale of tobacco products, prescription drugs, beverages and processed foods	4,611	2,400	648	0	33.35% shares

Note:

Enterprises which have commercial operations operate in areas in competition with other privately-owned enterprises, or in areas which could be in competition with privately owned enterprises; and

the State or other public authority may exert some degree of control over these enterprises:

- through the terms of the law establishing the enterprise;

- by owning all or part of the voting shares; or

- by having the right to assign all or part of the voting shares to particular groups or individuals; or

- have a special right or privilege granted by the State, such as exemptions from competition policy, credit or debit guarantees, or direct or indirect subsidies from the State; and

- have an operating revenue greater than ¥100 billion.

Source: Japanese authorities.

1.9.  In addition, there are several other agencies which are involved in commercial activities which are not included in the above list and have operating revenues of over ¥100 billion. These include:

• 
  Tokyo Metro Co. Ltd, which is owned 53.4% by the government and 46.6% by the Tokyo Metropolitan Government, and, in FY2014, had an operating revenue of ¥394 billion and an operating profit of ¥100 billion¹¹⁰;
  
• 
  Japan Petroleum Exploration Co. Ltd (JAPEX) in which METI has 34% of voting rights, had, in FY2014, net sales of ¥277 billion and a net income of ¥29 billion¹¹¹;
  
• 
  INPEX, in which METI has 18.94% of shares, had, in FY2014, net sales of ¥1,335 billion and an operating income of ¥734 billion.¹¹² INPEX also has 4.99% of voting rights shares in JAPEX; and
  
• 
  Japan Railway Construction, Transport and Technology Agency (JRTT) which is wholly-owned by MLIT. In addition to research and promotion of technology relating to transport, JRTT owns JR Hokkaido, JR Shikoku, JR Kyushu, and JR Freight, provides subsidies to some railway and shipping companies, constructs and leases railway lines, and wholly and partly owns shipping vessels. In FY2013 JRTT had gross income of ¥902 billion and net income of ¥19 billion (see also section 4.6.3).¹¹³