Non-tariff barriers to the Japanese market

The non-tariff barriers to the Japanese market

But if Japan is supposedly so accommodating for foreign investment, why is foreign investment in Japan so small? Especially when expressed as a percentage of GDP, foreign investment in Japan is much lower than that of the US, Great Britain or Germany.

The reason, at least according to US business people, is that Japan has very high entry costs. In a survey of American business people in Japan, high fixed costs - that is high real estate prices - and the difficulty of finding good personnel were cited as the two biggest problems they faced when entering the Japanese market.

Thus, the two biggest barriers to entry to the Japanese market have little to do with government restrictions or closed corporate groupings known as keiretsu. In fact, US business people said the keiretsu groupings had little or a slightly positive effect on their business.

Of course, in certain sectors government restrictions and keiretsu relations may have a large effect. For example, Japan still heavily regulates banking, securities, utilities, agriculture, mining, petroleum, aerospace and defense. Also government procurement in the areas of computers and construction was identified as being heavily tilted towards Japanese firms.

There are also several restraints to trade identified by the US government. These include lax enforcement of Japan's Anti-Monopoly law and allowing American firms to lodge and collect heavy damages in suits against those who collude to keep out new entrants. This is because although Japan has stiffened penalties for collusion, the penalties are still small and Japan's Fair Trade Commission is not seen as an active enforcer of the laws.

The US also wants to see the introduction of bulk rates for direct mailings and bulk rates for toll-free telephone usage. This would encourage direct marketing to Japan that would bypass Japan's complex distribution system. Financial deregulation and easing of restrictions on US lawyers practicing in Japan are also sought. Although I can see why the Japanese may want to keep American lawyers out of their country, one positive effect of having more American corporate lawyers in Japan is that it might make it easier for American firms to set up shop over there.