Trading with Japan – Overview
Trading with Japan, it is the high-tech powerhouse economy of Asia. Last year, it made up just over 4% of the World’s Gross Domestic Product (GDP) (source: Global Economy). It is ranked as the 3rd largest economy in the world (source: the World Bank). Japan has a stable government, strong rules of law, and an effective regulatory system. Japan has a population of 125 million people. However, it has an ageing population, with nearly 30% of its people over 65.
The Japanese market is characterised by consumers with high disposable income levels and companies with a strong global orientation and willingness to invest in sustainable, long-term products and services.
Japans Business culture
The only official language in Japan is Japanese. A growing number of the younger population speaks English. However, many Japanese are sometimes too polite to inform you that they don’t fully understand what you are saying in English. It is advisable to have a translator accompany you to business meetings.
Business etiquette and practices in Japan are essential. The Japanese are incredibly polite and value respect and social rank. It is advisable to start a business meeting with ‘small talk’ to help start the meeting, as the Japanese equate being indirect with being polite.
The Japanese culture of avoiding conflict can frustrate to many foreign business people. During a meeting the Japanese side may agree to an offer that they have no intention of accepting. The main purpose of agreement is to avoid a direct conflict during the meeting.
**Tip** Write up a clear memo outlining the situation and obligations from the meeting. Present it to the Japanese side to review, respond to, and sign. This approach will allow you to understand their true position fully.
As is customary in most Asian countries, nighttime dinners and drinks are often the place where most open business discussions take place.
Seating arrangements are important in Japan. The most important guest sits furthest from the door and the host sits closest to the door. If in doubt, wait to be seated.
Other details which can have a positive impact:
- Be Punctual – arrive at a meeting at least 10 minutes before the appointed time
- Give out and accept business cards with both hands. Keep the card visible during the meeting.
- Supply hard copies of your company literature.
- Accept social invitations
- Professionally wrap gifts
Setting up in Japan
The Japanese External Trade Organisation (JETRO) provides an overview of the laws, regulations and procedures related to setting up a business in Japan. It provides an easy-to-follow flowchart which outlines the basic steps and costs of setting up in Japan.
Companies considering entry into the Japanese market have a variety of options, including:
- Establishing a representative office, Japan branch office, Japanese subsidiary or Limited liability partnership (LLP).
- Entering into a joint venture or strategic alliance with an existing Japanese business.
- Buying an existing Japanese business.
Setting up a company in Japan in just 14 days is possible!
Banking and Finance
The unit of legal tender in Japan is the Japanese Yen (JPY).
Japan has a well-developed and sophisticated banking and financial system.
Japan has three megabanks: Mizuno FG, Mitsubishi UFJ, and Sumitomo Mitsui. It also has more than 100 local banks, and most major foreign banks operate in Japan.
Foreign exchange regulations have little impact on everyday business transactions in Japan.
Trading with Japan – Tariffs and Non-Tariff Barriers
Tariff
Japan has trade agreements with many countries, which may mean that tariffs on some goods and services may be eliminated, with additional tariff reductions on others. You should research this through your local government trade support office.
Tariffs and duty rates are constantly revised and subject to change without notice. Therefore, it is worth visiting the Japanese Customs Service to determine any customs or import taxes on your goods or services in Japan.
Non-tariff barriers
Japan imposes restrictions on the sale or use of certain products, including:
- Agricultural products.
- Chemical products.
- Meat products.
- Medical products,
- Pharmaceuticals products.
Please click on the link to find a list of items which are prohibited from being imported into Japan.
Product labelling, certification and packaging
Trading with Japan – Labeling for most imported products is not required at the customs clearance stage, however it is required at the point of sale. It is common practice for Japanese importers to affix a label to an imported product after it has been cleared by customs.
If the exporter is putting on labels prior to export, they must be aware that food and consumer products are subject to very specific labelling requirements, and importers should always be consulted on proposed labelling.
Special labelling regulations apply to:
- Aluminium foil and plastic film.
- Certain furniture.
- Cleaning materials.
- Electrical appliances.
- Hot water bottles.
- Some kitchen utensils.
- Toilet and bath fittings.
(Note that the metric system is used in Japan.)
More information on Trading with Japan labelling regulations can be found on the JETRO Website.
Certification
- Animals, plants and their by-products require health certificates issued by an approved authority in the country of origin.
- Frozen fruit & vegetables may require a certificate of condition.
- Meat for human consumption requires an additional certificate issued by an approved authority in the country of origin, stating that the animals were free from designated infectious diseases before slaughtering and that subsequent processing was under hygienic conditions.
- Food importers require a food import permit, which the Ministry of Health and Welfare issues.
- Electrical appliances must conform to the Electric Appliance Control Law, with certain goods requiring type approval before being permitted to be sold in Japan.
- Machine tools which are less than a year old must be accompanied by a certificate of date of manufacture.
Packing
Japan prohibits the use of straw packing materials. Additionally, consult importers about the proposed packaging, as they have specific preferences. Mark goods according to normal commercial practice.
Methods of quoting and payment
An irrevocable letter of credit (L/C) payable at sight is the most popular method of settling international transactions. An L/C offers protection to both the exporter and the importer.
It is equally important to agree on payment terms in advance. Agree on payment terms clearly, ensure all parties understand them, and have your client, representative, or contact sign a mutually approved document.
It is best practice for sellers dealing with new customers to use secured payment terms such as 100% payment before shipping, letters of credit, sight drafts or bills of exchange.
Trading with Japan – Documentary & Clearance Requirements
Documentation required:
Importers must submit a Customs form (C-5020) to Japanese customs along with the following documents:
- Invoice
- Bill of lading or Air Waybill.
- Any Customs duty payment slips.
- A Certificate of Origin.
- Detailed statement on reductions of, or exemption from, Customs duty and excise tax.
- Generalized system of preferences and certificates of origin (Form A).
- Laws and regulations, other than the Customs Law, require licenses and certificates.
- Packing lists, freight accounts, insurance certificates, etc.
Trading with Japan – Customs process:
Exporters to Japan can find information about Japan’s import requirements from the Japanese Customs website.
Moreover any person wishing to import goods must declare themselves to the Director-General of Customs and obtain an import permit after necessary examination of the goods concerned.
The formalities start with the lodging of an import declaration and moreover end with issuance of an import permit after the necessary examination and payment of Customs duty and excise tax.
Business Risks
Companies wishing to operate in Japan should commit to the highest level of corporate behavior and, therefore, familiarize themselves with the country’s laws and the penalties for bribing foreign officials.
Intellectual Property Protection
Trading with Japan—Japan has IP laws that cover the registration and protection of patents, utility models, trademarks, and copyrights. Japanese trademark laws equally protect Japanese and foreign nationals.
Japan operates a ‘first-to-file’ system. The protection period for trademarks is 10 years, and for patents, it is 20 years.
You can find details on the registration procedures and fees on the JPO website.
Dispute resolution
Japan has an established legal system. Correspondingly, hiring a local legal representative is standard practice.
Trading with Japan -Web Resources
Japanese External Trade Organization
A Ministry of Economy, Trade and Industry
Ministry of Finance
A Ministry of Foreign Affairs
Ministry of Internal Affairs and Communications
Japanese Patent Office
Japanese Customs
Credit Rating Agencies
Consumer Affairs Agency
About the Author
Aidan Conaty is the founder of Goodada & TCI China. Aidan is a qualified Management Accountant and has a background in Supply Chain Consultancy.