Recent changes to the regime
Because of the increasing complexity of international economic concerns and changes in socio-economic structures, the Economic Security Promotion Act (ESPA) was passed by the Diet on 11 May 2022. The ESPA aims at preventing economic and related activities that may harm the security of the nation and its citizens, by formulating a basic policy and establishing the necessary economic systems for comprehensively and effectively promoting economic measures to ensure national security. The law consists of four main components: (1) provisions ensuring a stable supply of critical products; (2) provisions ensuring the stability of essential infrastructure services; (3) provisions enhancing the development of certain critical technologies; and (4) provisions regarding non-disclosure of select patent applications for security-sensitive inventions. On 1 August 2022, the provisions of the ESPA relating to components (1) and (3) above, as well as its general provisions, came into effect. On 23 December 2022, the Cabinet Order Concerning the Enforcement of the ESPA was enacted and certain products such as rare earth elements, permanent magnets and semiconductor devices and integrated circuits were designated as 'specified critical products' for the purposes of component (1).
The ESPA also contains certain provisions related to trade remedy investigations that are ancillary to component (1). Specifically, to secure the stable supply of goods that significantly impact on public welfare, daily life and economic activities, the ESPA provides that the relevant ministers may request the minister in charge of trade remedy investigations to initiate investigations into anti-dumping, countervailing or safeguard duties on the above-mentioned specified critical products, provided that certain prescribed conditions are met. Requests by relevant ministers under this new law could potentially increase the number of trade remedy investigations in Japan.
Significant legal and practical developments
As in some other countries, making proper use of trade remedy measures to address low-priced imports from emerging economies is one of the key interests of Japanese industries and government authorities. In this context, the use of a 'surrogate' normal value in anti-dumping investigations involving imports from 'non-market economies' (NMEs) has been a point of controversy in the past several years.
Specifically, when calculating the dumping margin (i.e., the difference between the normal value and the export price), investigating authorities should normally use the price of the product under investigation in the domestic market of the exporting country as a benchmark (i.e., 'normal') value. However, where the domestic price of the exporting country is distorted because of its NME status, investigating authorities may seek the use of the price from a third country as a surrogate for the in-country benchmark to account for the price distortion properly.
Under the relevant cabinet order and guidelines on anti-dumping investigations, China and Vietnam are currently treated as NMEs unless the producers of the goods establish the fact that the conditions of a market economy prevail with respect to the production and sale of the goods. In this regard, in light of the expiration of Article 15 of China's WTO Accession Protocol in December 2016, the Japanese government amended the guidelines in the same month to clarify its understanding that authorities may continue to treat China as an NME thereafter. The guidelines state that the following facts are relevant to whether the conditions of a market economy prevail:
- the fact that producers' decisions regarding prices, costs, production, sales and investment are based on market principles and that there is no significant intervention by the government in these decisions;
- the fact that the costs of major inputs (e.g., raw materials) reflect market prices;
- the fact that labourers' wages are determined through free negotiations between labourers and management;
- the fact that there is no government ownership or control of the means of production; and
- other facts that the Minister of Finance deems appropriate and are conveyed to the producer at the start of the investigation.
Since the Japanese government has not been very active in initiating trade remedy investigations or imposing trade remedy measures on imports from other countries, there have been only a few past WTO disputes in which Japan's trade remedy measures were challenged before intergovernmental organisations.
In contrast, as a major exporting country, Japan has often been a target of trade remedy measures – especially anti-dumping duties – imposed by foreign governments. Up until the 2000s, US industries often filed petitions to commence anti-dumping investigations against various kinds of products imported from Japan, and the Japanese government challenged several of those anti-dumping measures before WTO panels and the Appellate Body. In particular, Japan – together with some other like-minded WTO Members – rigorously challenged the US Department of Commerce's use of the 'zeroing' methodology in its dumping determinations and successfully established WTO jurisprudence that zeroing is inconsistent with the WTO Anti-Dumping Agreement.
In recent years, the focus of the Japanese government's attention has shifted from trade remedy measures taken by developed countries to those taken by emerging countries. For example, Japanese industries often claim that they are manufacturing and exporting products with higher performance and added value than products manufactured and sold by producers in emerging countries. As such, they often argue that their products are not actually competing with similar domestic products in the market of the importing countries and, therefore, they are not causing material injury to those domestic industries within the meaning of Article 3 of the Anti-Dumping Agreement. Based on this 'differentiation' theory, the Japanese government has been active in recent years in bringing forward WTO disputes against anti-dumping measures taken by emerging countries. These disputes include China – HP-SSST (Japan),2 Korea – Pneumatic Valves,3 and China – Stainless Steel (Japan).4 In China – HP-SSST (Japan), for example, the Appellate Body agreed with Japan that the determination of injury by China's Ministry of Commerce was inconsistent with Article 3.1, 3.2, 3.4 and 3.5 of the Anti-Dumping Agreement, noting that high-performance stainless steel seamless tubes made by Japanese producers were differentiated from (and therefore not competing with) products made by domestic manufacturers in China.
On 10 March 2023, the Japanese government announced its intention to participate in the Multi-Party Interim Appeal Arbitration Arrangement (MPIA). The MPIA was set up in April 2020 by 20 WTO members, including the European Union, as a temporary solution to the paralysis of the Appellate Body, which has ceased to function since December 2019 as a result of the US blockade of the appointment of new Appellate Body members. Under the MPIA, participating members agree to have recourse to arbitration under Article 25 of the Understanding on Rules and Procedures Governing the Settlement of Disputes as an alternative avenue for appellate review, pending the restoration of the fully functioning Appellate Body. In this connection, the panel report in China – AD on Stainless Steel (Japan),5 expected to be issued to the parties in May 2023, may have contributed to Japan's decision to join the MPIA, to avoid having the panel report appealed to the non-functioning Appellate Body.