The United States’ relationship with Japan is an interesting and complex one—Japan’s culture, large middle class, aging population, and turbulent economic history blend to create an environment that makes exporting to Japan both promising and, in some cases, difficult.
In this article, I’ll look at the history of U.S. trade with Japan; the process of exporting to Japan; understanding cultural complexities; documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Japanese market.
Trade and Exporting to Japan: A Brief Background
Since its defeat in World War II, Japan has recovered and become an economic power and an ally of the US. Economically, Japan experienced three decades of unprecedented growth until a major slowdown began in the 1990s.
In 2011, Japan's strongest-ever earthquake and an accompanying tsunami devastated the country. The catastrophe hobbled the country's economy and its energy infrastructure. Prime Minister Shinzo Abe was reelected to office in December 2012, and has since embarked on ambitious economic and security reforms to improve Japan's economy and bolster the country's international standing. (CIA World Factbook)
As of 2016, Japan was ranked fifth in the world as measured by a Purchasing Power Parity (PPP) basis that adjusts for price differences.
So what does the Japanese trade relationship with the U.S. look like today? In the past several years, Japan has been the single largest source of foreign direct investment into the U.S. market, with an inflow over $31 billion in 2015. These investments, in turn, support U.S. jobs and contribute to U.S. economic output and exports.
Between the U.S. and Japan in 2016, there was:
- Trade in services totaling an estimated $75.3 billion in 2016.
- Services exports of $44.7 billion.
- Services imports of $30.6 billion.
- A trade surplus of $14.1 billion.
Data from the Office of the U.S. Trade Representative shows that U.S. exports to Japan were $63.3 billion in 2016, or 4.4% of total U.S. exports.
Top U.S. Exports to Japan
According to the Office of the U.S. Trade Representative, the top U.S. export categories to Japan in 2016 according to two-digit HS numbers were:
- Aircraft: $7.9 billion
- Optical and medical instruments: $6.9 billion
- Machinery: $6.3 billion
- Electrical machinery: $5 billion
- Pharmaceuticals: $3.8 billion
Exporting to Japan: The Challenges
Fortunately for exporters interested in exporting to Japan, there are very few trade barriers to overcome. Some identified in the Japan Country Commercial Guide include:
- Cultural barriers, including Japanese/English language barriers, expectations for quality and customer service, and relationship issues and expectations among partners and distributors.
- Regulatory barriers, including licensing requirements, restricted goods, certifications, labeling requirements, and more.
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Rules and Regulations in Japan
As previously mentioned, deciphering Japanese rules and regulations for exporting can be frustrating in the least and, at worst, cause issues that force an exporter to stop trade to the country completely. There are ways to combat these issues when exporting to Japan:
- Work closely with your local U.S. Commercial Service office. They will link you to offices in Japan that will help you establish your presence and assist you through difficulties you may face.
- Additionally, the U.S. Department of Commerce's Advocacy Center can help you with early stages of your project.
- Find partners who have experience working with Japan. Your freight forwarder and banker should have documented experience working with the country.
Exporting to Japan: The Opportunities
While the aging Japanese population can be seen by some as a drag on the economy, it presents a great opportunity for U.S. exporters in fields like pharmaceuticals, medical devices and equipment, healthcare facilities and infrastructure, and robotics. Other fast growing markets for export to Japan are advanced manufacturing, cybersecurity, and eCommerce.
A partnership with the U.S. can lead to opportunities in the defense, security, and space industries. According to export.gov, “Japan is a leading importer of U.S. aerospace and defense equipment and, increasingly, an integrated codeveloper. Related growth sectors include defense procurement, advanced manufacturing, and cyber security solutions.”
The best thing about exploring the opportunities to export to Japan is knowing you don’t need to go it alone. You can rely on assistance from your in-country allies, including the U.S. Commercial Service office, trade missions, and chambers of commerce.
One of the first places to consider are your local and in-country Commercial Service offices. The Commercial Service in-country offices offer U.S. exporters business partners in Japan—on the ground in the country—and include representation by an agent, distributors or partners who can provide essential local knowledge and contacts that can be critical for your success.
You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service's In-Country Offices.
DECs across the country can help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth, and create jobs. DEC members also serve as mentors to new exporters and can provide advice to smaller companies.
Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to get introduced to and network with contacts. Check into them.
The ITA is an excellent resource to help you combat problems. Staff at the ITA are resident experts in advocating for U.S. businesses of all sizes, customizing their services to help solve your trade dilemmas as efficiently as possible.
If you find yourself caught in an unfair international trade situation, the ITA is a valuable resource that can expeditiously help you understand and solve your problems. The ITA makes it easy to report a problem, allowing you submit your report online.
U.S.-Japan Chambers of Commerce
Chambers of commerce may be a way to help you when exporting to Japan. You can learn more about various chambers in our article, The Chamber of Commerce Role in Exporting.
Tips for Entering the Japanese Market
The use of the Japanese language is critical to success in Japan. Marketing in Japanese is essential to communicate with local consumers and business customers; labeling requirements for many products are specified by government regulation and must be in Japanese. Japanese business people will appreciate efforts made to communicate in even basic Japanese.
Be respectful of Japanese culture. This is not only useful, it is largely required of those wanting to know how to export to Japan successfully. Japanese society is complex, structured, respectful of age, hierarchical, and group-oriented. Gift-giving is expected in business situations, and it's important to take a long-term approach to business relationships founded on high expectations of excellence in product and service quality. You can learn more about cultural practices when exporting to Japan in this article.
Export Document Requirements for Japan
When exporting to Japan, documentation and procedures are critical. According to export.gov, having a local representative in Japan and/or working with a freight forwarder or customs specialist can be extremely helpful in this regard.
Documents you need to export to Japan will vary depending on your products, but they include:
- Japanese import license for hazardous materials, animals, plants, perishables, and in some cases articles of high value.
- Import Declaration Form (Customs Form C-5020).
- A certificate of origin if the goods are entitled to favorable duty treatment determined by preferential or WTO rates. In practice, shipments from the United States are routinely assessed using WTO or “temporary” rates without a certificate of origin. Any additional documents necessary as proof of compliance with relevant Japanese laws, standards, and regulations at the time of import may also apply.
- Bill of lading
- Commercial invoice
- Packing List
- Sales contract
- Proforma invoice
- AES filing
- Customs declaration
- Insurance policy
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Export Compliance Issues When Exporting to Japan
It’s important to understand the regulations covering exports to Japan. You must be concerned with complying with export regulations no matter where you ship, but, fortunately, understanding regulations is easier to do than, say, if you were exporting to China.
However, this doesn’t mean you can take export compliance lightly. You need to understand what is required of you and what you risk if you don’t do your job in complying with those regulations.
Product Classification for Export Controls
The first step in ensuring export compliance is determining who has jurisdiction over your goods: the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department's Directorate of Defense Trade Controls (DDTC).
If they fall under the jurisdiction of the Commerce Department, which most products do, you must determine if your export requires authorization from the Bureau of Industry and Security (BIS), which is part of the Commerce Department, you need to answer the following questions:
- What is the ECCN of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
To do that, you must know how to determine the correct classification of your item, also known as determining the Export Control Classification Number (ECCN). There are three ways to classify your products for export controls: you can self-classify your products, submit a SNAP-R request for a ruling, or rely on the product vendor. You can learn about that process in our article, 3 Ways to Classify Your Products for Export Controls.
By making sure your product is classified correctly, you’ll be protecting the U.S. from threats abroad and protecting yourself from severe fines, penalties and even jail time.
Export License Determination
There are several reasons the U.S. government prevents certain exports to Japan without an export license. Companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that will use the ECCN code for your product(s) and the destination country and tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before you can export their products.
There are export license exceptions, like low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce and not items that are controlled by the State Department or some other agency.
Surprise! You May Be an Exporter without Even Knowing It! A sometimes overlooked compliance issue for exporting to Japan is deemed exports, or exporting without shipping a product. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR under 734.2(b)(9)), is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, tours of facilities, and other disclosures of information are considered potential exports under the deemed export rule and should be handled accordingly. You can learn about how to apply this principle here.
Restricted Party Screenings
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with.
There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization, they may have a history of corrupt business practices, or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more of the restricted party lists to ensure they are not doing business with a restricted party.
The primary restricted party lists in the United States are published by the Department of Commerce, Department of State, and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
When exporting to Japan, it’s imperative you check every single restricted party list every time you export.
- Fines for export violations can reach up to $1 million per violation in criminal cases. (Bureau of Industry and Security).
- Administrative cases can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction.
- Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
If you’re an exporter who is considering exporting to Japan, consider this: Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Download a free trial version of the Shipping Solutions software to see how it can revolutionize the way you’re currently creating your export paperwork.
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This is the third article in our series investigating exporting to various countries across the globe. We previously featured Exporting to China and Exporting to Canada. In our next installment, we’ll identify what you need to know about exporting to Mexico.