Defiant Japan fights for its
leather industry By Hisane
Masaki
TOKYO - In defiance of mounting
pressure to fully liberalize imports of foreign
leather products, including footwear, Japan is
digging in its heels to safeguard its
internationally uncompetitive industry.
At
first glance, the import restrictions may look
like typical protectionist trade measures that can
be seen elsewhere in the world. But lying beneath
the surface of the current issue is the bitter
legacy of the feudal hierarchy.
With a
make-or-break ministerial meeting of the World
Trade Organization (WTO), the Geneva-based
watchdog on global commerce, drawing near,
international pressure is growing by the day for
Japan to take drastic measures to further
liberalize its
imports of foreign leather
products, as well as agricultural ones. The
meeting, scheduled for December 13-18 in Hong
Kong, will aim to strike a deal on a framework for
further liberalizing trade in goods and services.
Success or failure of the gathering will
very likely determine whether the 148 WTO members
can conclude the current Doha round of
negotiations by the targeted end of next year.
When the new round was launched in November 2001
at the WTO ministerial meeting in Doha, Qatar,
January 2005 was set as the target date for its
conclusion. But the last ministerial meeting, held
in Cancun, Mexico in September 2003, collapsed due
to sharp differences, and the target date was
pushed back until the end of next year.
The biggest sticking point in the Doha
round is agriculture. The WTO members remain
sharply split over how much barriers to the freer
cross-border movement of farm produce, such as
national subsidies for domestic farmers, export
subsidies and high import tariffs, should be
eliminated, especially in richer industrialized
members. This question has also pitted
industrialized WTO members, including the United
States, the European Union and Japan, against each
other.
Japan is on the defensive in the
negotiations on agricultural trade liberalization.
It is vehemently resisting a proposal supported by
many WTO members for setting a ceiling on the
import tariffs for farm products because it wants
to keep those tariffs, especially for rice, as
high as possible to shield weak and
internationally uncompetitive domestic farmers
from a flood of cheaper imports. For Japan, rice
is the most politically sensitive item, and its
growers are heavily protected by a whopping tariff
of 490% slapped on imported rice.
In the
negotiations on market access for non-farm
products, however, Japan is on the offensive. It
is strongly clamoring for a complete elimination
of import tariffs in many areas where Japan has a
competitive advantage, such as automobiles and
consumer electronics.
But even here, there
are a few exceptions. Japan is dead set against
fully liberalizing imports of leather products,
including leather footwear, as well as those of
forestry and marine products, which are being
dealt with in the WTO's negotiating group on
non-agricultural market access.
In the
previous Uruguay round of negotiations, which was
concluded in late 1993, Japan agreed to lower
import tariffs for mining and manufacturing goods
to an average of 1.5%, the lowest level among
major industrialized economies. Leather products
were excluded from the sharp reductions.
Japan's tariff quota
system Japan had maintained the import
quota (IQ) system for foreign leather products
until 1986, when the IQ system was replaced with
the current tariff quota (TQ). A country with a TQ
system imposes a quota on products that can be
shipped into the country either tariff-free or
with relatively low tariffs. Imports that exceed
the quota face much higher - often prohibitively
high - tariffs and, as a result, lose much of
their competitiveness in the country's market.
In the case of the Japanese TQ system,
leather products within the quotas can be imported
into the lucrative market with relatively low
tariff rates of 12 to 24%, but not tariff-free.
Imports that exceed the quotas are subject to a
higher, flat tariff rate of 30%, except leather
shoes.
In the case of the above-quota
imports of leather shoes, Japan is entitled to
apply the higher of the 30% ad valorem rate
or 4,300 yen (US$36) per pair specific rate. Among
other leather products, the quota for dyed bull
and horse leather is set at 1.466 million square
meters and that for leather shoes at 12.019
million pairs for the current fiscal year ending
in March.
In the face of international
pressure, however, the Japanese government has
cautiously but steadily eased its import
restrictions, starting with the 1986 introduction
of the current TQ system to replace the previous
IQ system. The quotas have been increased
gradually, and Japan has also met its Uruguay
round agreements to lower the ad valorem
ceiling rate by 50% and the alternative "per pair"
or specific-rate ceiling by 10%. These
market-opening measures have put many of weak
domestic tanners in dire straits.
Pressure
for further liberalization is also growing outside
the framework of the WTO negotiations. Japan
concluded its first free trade agreement, or FTA,
with Singapore in 2002, and then struck its second
FTA, with Mexico in 2004. Japan has also reached a
basic agreement in the FTA negotiations with
Thailand, the Philippines and Malaysia, and is now
negotiating FTAs with South Korea, Indonesia and
the 10-member Association of Southeast Asian
Nations (ASEAN) as a whole. In the FTA
negotiations with Mexico, Japan refused to fully
liberalize imports of leather products, but made a
major concession. Japan agreed to grant Mexican
products greater market access by introducing a
special and more preferable TQ for them separately
from the already existing TQ system.
Under
the special TQ system for Mexico, which was
introduced in April, certain amounts of Mexican
leather products, including leather footwear, can
be imported tariff-free, and the quotas on such
tariff-free imports will be increased by 20%
annually over five years. In the case of leather
footwear, for example, the zero-tariff quota has
been set at 250,000 pairs for the starting fiscal
year to next March, compared with only 12,000
pairs imported from the Latin American country in
calendar 2003.
Unlike the IQ system, the
TQ system is permitted under WTO rules because it
does not set a ceiling on the import volume
itself. But with the Doha round entering its
crucial stages, international pressure is
intensifying day by day on Japan to do away with
import tariffs for leather products once and for
all. While flatly rejecting the growing
international demand for a total elimination of
import tariffs, some Japanese government officials
acknowledge that the country may be forced to
abolish the nearly 20-year-old TQ system or
significantly lower the still high tariff rates -
for products both within and above the quotas - in
return for many other WTO members dropping their
demand for a complete elimination of tariffs.
Long-standing complaint To be
sure, there are growing calls from many other WTO
members, especially from poor, developing ones,
for Japan, the world's second largest economy
after the US, to fully liberalize its imports of
leather products. But leather is also a
long-standing irritant in Japan's trade relations
with its two major industrialized trading partners
- the 25-nation European Union and the US.
The leather trade row between Japan and
the European Union first surfaced in late 1996,
when the European Commission, the executive arm of
the then still 15-nation EU, began to press Japan
publicly to increase imports from Europe by
modifying the TQ system. The EU made the move,
apparently at the prodding of such major
leather-exporting union members as France, Italy
and Spain.
At the heart of the trade spat
was the existence of a confidential letter written
by Tokyo several years earlier during the Uruguay
round of negotiations. Brussels claimed that Tokyo
had failed to follow through on its promise made
in the letter to increase leather imports by
expanding the quotas.
Brussels claimed
that Japan made the promise in exchange for
Europe's agreement to drop its demand in the round
for sizable reductions in high Japanese import
tariffs for leather products. Government sources
confirmed the existence of the letter at the time,
although they declined to make it clear whether
Tokyo interpreted the document as a promise to
increase imports or as merely expressing
willingness to consider doing so. The letter,
signed by the then deputy trade minister, Noboru
Hatakeyama, has never been made public.
After its request for increased imports
fell on deaf years, the EU took the case to the
WTO in October 1998, insisting that the Japanese
government's subsidies to domestic tanners, as
well as what it viewed as Japan's opaque operation
of the TQ system, could be in violation of WTO
rules. Several weeks later, Tokyo and Brussels
held "bilateral consultations" for the first stage
of the WTO's dispute-settlement procedures.
Under the WTO's dispute-settlement
procedures, the complainant in a trade row can
request the establishment of a neutral panel to
adjudicate the case, within nine months in
principle, if the bilateral consultations fail to
produce a settlement within 60 days of a complaint
being filed. And the losing side can appeal the
panel's ruling to the Appellate Body - the WTO's
highest court - which hands down a final verdict,
within 60 days in principle.
The EU failed
to extract any significant concessions from Japan
through the bilateral consultations. But
strangely, the EU shied away from moving on to the
next stage of dispute-settlement procedures by
asking for the creation of a neutral
dispute-settlement panel. When the EU filed the
WTO complaint, some Japanese officials doubted
from the outset that the EU was determined to
fight an all-out legal battle with Japan at the
WTO. They said at the time that the WTO filing
might be no more than a bluff aimed at putting
pressure on Tokyo to make concessions.
Seven years later, the EU is still
grumbling about the Japanese TQ system. In its
annual wide-ranging proposals for regulatory
reform in Japan, released on October 27, the EU
said, "The EU concerns in the leather sector are
related to undue restrictions under the Japanese
quota system, especially in light of elimination
of textile and clothing quotas in on January 1,
2005 under the WTO agreement."
While
acknowledging that the Japanese TQ system is
"formally in line with the current WTO rules", the
EU said,"It is clear that the spirit of
liberalization would suggest, especially in an
advanced industrialized country as Japan, that the
ultimate aim is to dismantle such tariff quotas."
Noting that the 1998 bilateral
consultations within the framework of the WTO's
dispute-settlement procedures did not lead to a
satisfactory solution, the EU also claimed in the
document that Japan indicated at that time that
"all sectors would be on the table" in the current
Doha round of negotiations "without any a priori
exclusion". The EU also complained that Japan
maintains tariff quotas on leather footwear "at
extremely low levels not corresponding to the
market potential".
The Office of the US
Trade Representative (USTR) for many years has
also harped on how problematic the Japanese
leather import restrictions are. The USTR said in
its 2005 National Trade Estimate Report on Foreign
Trade Barriers, released on March 30, that
above-quota imports of footwear still face market
access barriers. "US industry has expressed
concern that the quota on leather footwear imports
effectively bars US footwear manufacturers and US
brands from the Japanese market, one of the
largest consumer markets in the world," the report
said.
Taboo factor behind the
issue The question of whether to level the
playing field between domestic and foreign makers
of leather products is not a purely economic one.
It is also a highly sensitive political and social
question that involves buraku-min, or
hamlet people.
Even today
buraku-min, the descendants of Japan's
former social outcasts, still face widespread
prejudice and discrimination despite being
ethnically identical to other Japanese. Many
buraku-min earn their living by tanning
leather, some of them still in secluded
buraku - or hamlets - in various parts of
the country, especially in Osaka and surrounding
districts of western Japan.
Leather and
leather goods manufacturing is a traditional
leading industry in buraku. Manufacturers
there are mostly minuscule in scale and
financially weak, and the Japanese government has
tried to keep them afloat with import restrictions
as part of broader efforts to address the touchy
issue of socially disadvantaged people.
News about how Korean residents,
Ainu people - indigenous inhabitants in the
northernmost main Japanese island of Hokkaido -
and Okinawans on the southernmost Japanese island
of Okinawa are heavily discriminated against in
Japan have often grabbed headlines. But even talk
of buraku-min - another group of relentless
segregated people - has traditionally been
considered taboo in Japanese society as a whole -
and even in the major media. So Japanese trade
diplomats seldom touch on the former untouchables
publicly when they make their case against fully
opening the domestic leather market to foreign
competition in bilateral or global trade
liberalization talks.
The oppression of
buraku-min's ancestors, who were branded
eta (very filthy or impure) or hinin
(non-human), began during the Edo period
(1603-1868), when the four social classes -
samurai, farmers, craftsmen and merchants - were
arbitrarily created. In addition to these four
well-known classes, many other social classes
actually existed, and eta or hinin
people were at the bottom of the feudal hierarchy.
Numerous regulations rigidly governed the
occupation, residence, marriage, style of dress
and social behavior of buraku-min, who were
engaged in occupations thought to be undesirable,
including disposal of the dead, collecting
garbage, butchering animals and tanning and
crafting leather. The jobs of handling the flesh
of four-legged animals, such as butchers and
leather artisans, were thought to be something
violating Buddhist strictures against killing.
People who made their living as security guards
and executioners were also shunned.
Official estimates put the current number
of hamlets where buraku-min people are
concentrated at 4,442 across the country and the
number of buraku-min at 1.2 million. But
unofficial figures are much higher - 6,000 hamlets
and 3 million buraku-min, including people
who live outside their hamlets.
Several
years after the 1868 Meiji Restoration, which
restored imperial power, the Japanese caste system
was abolished and the Emancipation Edict was
issued. Article 14 of the post-World War II
constitution also mandates equality before the law
and bans discrimination based on race, creed, sex,
social status or family origin.
More
recently, as a result of tenacious lobbying by the
Buraku Liberation League, Japan's largest
outcast rights group, the government has enacted a
series of laws aimed at improving the living
conditions in buraku-min's hamlets by
upgrading such infrastructure as housing and
roads, and education, as the main pillar of
efforts to promote dowa, or compatriot
reconciliation. The first such law was enacted in
1969. The most recent one, enacted in 1987 with a
five-year life span, expired in 2002 after being
extended for five years twice.
Some of the
government funds provided to buraku-min's
hamlets under these laws were regarded by the EU
in the late 1990s as subsidies to leather tanners.
When the EU filed a WTO complaint over Japan's
leather import restrictions in 1998, a senior
Japanese trade official said,"Even if a WTO panel
is set up at the EU's request, it is inconceivable
that the panel's decision will require Japan to
abolish the tariff-quota system itself. But there
is a possibility that the government subsidies to
domestic tanners will be judged a violation of WTO
subsidy codes, which prohibit any government from
doling out subsidies greater than 5% of the value
of the domestic output of a product in question."
Justice Ministry officials boast that as a
result of government-funded dowa projects,
efforts to develop physical infrastructure of
buraku has achieved steady results and that
the regional disparity with other districts has
become considerably smaller.
To be sure,
the living standards of buraku-min may have
significantly improved. But more than a century
after they were legally liberated under the
Emancipation Edict, buraku-min still endure
psychological pains and suffering due to continued
prejudice and discrimination.
Some people
claim that with rapid demographic changes, many
buraku-min have quietly blended into the
rest of society and that at least in Tokyo,
dwellers harbor little, if any, sense of
discrimination against buraku-min. But the
Buraku Liberation League dismisses the
claim.
Meanwhile, while keeping import
restrictions for leather products with the TQ
system, Japan, bowing to international pressure
for freer trade, has gradually increased imports
by expanding the quotas on low-tariff imports and
lowering tariff rates. As for leather footwear,
China is by far the largest source of imports
under the TQ system. Also outside the framework of
the TQ system, tariff-free and quota-free imports
of cheap leather footwear from such least
developed countries (LDCs) as Bangladesh, Myanmar
and Cambodia are soaring sharply thanks to the
special treatment granted to them under the
so-called Generalized System of Preferences (GSP).
The Tokyo Jinken-ren (Tokyo Human Rights
Federation), which is affiliated with the Zenkoku
Jinken-ren (National Human Rights Federation),
another buraku-min rights group, estimates
that Japan's imports of leather footwear have
risen 80% in the past decade while domestic output
has plunged 40% during that period. Shipments of
leather footwear by business establishments in
Tokyo alone, including the traditional producing
district of Asakusa, have shrunk to 57% of what
they were 10 years ago.
The Tokyo group,
headquartered in Ueno, very close to Asakusa,
warns that Japan's leather-footwear industry is
"in danger of extinction because it is being
effectively liberalized at an accelerated pace".
In its fiscal 2005 campaign policy, the group vows
it is firmly determined to demand continued
protection of Japan's leather-footwear industry,
especially maintaining the TQ system, with the
slogan of "Protect Japan's shoes [in general] and
Asakusa's shoes [in particular]".
Hisane Masaki is a Tokyo-based
journalist, commentator and scholar on
international politics and economy. Masaki's
e-mail address is yiu45535@nifty.com
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