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; how to understand cultural complexities; documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Japanese market.
The Japanese Economy
After World War II, Japan grew into a global economic power with impressive growth in the 1960s through the 1980s. In 1991, an asset price bubble caused by inflated real estate and stock prices burst causing the Japanese economy to stagnate. Modest economic growth continued after 2000, but the economy has fallen into recession four times since 2008.
Japan’s dependence on imported energy and other raw materials was exacerbated in 2011 after an earthquake and tsunami disaster resulted in the complete shutdown of the country’s nuclear reactors.
In October 2019, the United States and Japan signed the U.S.-Japan Trade Agreement and the U.S.-Japan Digital Trade Agreement, both of which entered into force on January 1, 2020. The U.S.-Japan Trade agreement eliminates or reduces tariffs on approximately $7.2 billion in U.S. agricultural exports and the U.S.-Japan Digital Trade Agreement includes high-standard provisions that ensure data can be transferred across borders without restrictions, guarantee consumer privacy protections, promote adherence to common principles for addressing cyber security challenges, support effective use of encryption technologies, and boost digital trade.
In 2020, the global pandemic hit, crippling the Japanese economy. As COVID-19 pandemic restrictions eased, both exports and imports increased versus 2020. In 2021, bilateral U.S.-Japan trade in goods and services was worth $280 billion.
U.S. Trade with Japan
Japan is one of the United State’s most important trade and investment partners, ranking fourth according to the Office of the U.S. Trade Representative. In 2022, exports of goods to Japan were $80.18 billion, while imports were $148.06 billion. (U.S. Census Bureau)
As of 2021, Japan is the largest source of foreign direct investment (FDI) into the United States, with an FDI stock of $721 billion. This investment in the U.S. by Japanese companies is predominantly in manufacturing, particularly of transportation equipment (e.g., autos).
Top U.S. Exports to Japan
According to the U.S. International Trade Administration (ITA), the top U.S. export categories to Japan are:
- Natural gas liquids
- Pharmaceutical preparations
- Meat and poultry
- Industrial machines
- Medicinal equipment
- Civilian aircraft
- Engines and parts
- Corn
Exporting to Japan: The Challenges
Fortunately for exporters interested in exporting to Japan, there are very few trade barriers to overcome. The ITA’s Country Commercial Guide for Japan identifies a few, including:
- Standards unique to Japan (formal, informal, de facto, or otherwise).
- A requirement in some sectors or projects for companies to demonstrate prior experience in Japan, effectively shutting out new entrants.
- Official regulations that favor domestically produced products and discriminate against foreign products.
- Licensing powers in the hands of industry associations with limited membership, strong market influence, and the ability to control information and operate without oversight.
- Cross stock holding and interconnection of business interests among Japanese companies that disadvantage suppliers outside the traditional business group (though not as widespread as in decades past).
- The cultural importance of personal relationships in Japan and the reluctance to break or modify business relationships.
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.
- Japan’s continued dependency on the import of natural resources puts a focus on energy supplies and renewable energy solutions, as well as food and other commodities.
- A strong, enduring U.S.-Japan strategic alliance and deep economic integration with the United States presents opportunities in advanced sectors such as aerospace, defense, safety and security, and cybersecurity.
- Japan’s large, broad-based, and sophisticated consumer economy has consumers with considerable purchasing power who seek high-quality, trend-setting, innovative goods and services.
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.
Export Assistance
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.
U.S. Commercial Service Offices
One of the first places to consider are your local and in-country U.S. Commercial Service offices. The Commercial Service in-country offices offer U.S. exporters business partners in Japan—boots 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.
District Export Councils (DECs)
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.
International Trade Administration (ITA)
The ITA is an excellent resource to help you combat trade problems. ITA staff are resident experts in advocating for U.S. businesses of all sizes. They customize their services to help solve your trade dilemmas as efficiently as possible. The ITA makes it easy to report a problem, allowing you to submit your report online.
Chambers of Commerce
Chambers of commerce may be a resource when exporting to Japan. You can learn more about various chambers and how they can help smooth the way for your export activities 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.
Export Document Requirements for Japan
When exporting to Japan, documentation and procedures are critical. According to the ITA, 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 licenses 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
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.
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 comply 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 under the International Traffic in Arms Regulations (ITAR).
If your goods 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, part of the Commerce Department). To do so you need to answer the following questions:
- What is the Export Control Classification Number (ECCN) of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
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 to provide the information. You can learn about that process in our article, 3 Ways to Classify Your Products for Export Controls.
By classifying your product correctly, you’ll be protecting yourself from potential fines, penalties and even jail time.
Export License Determination
Next, 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. Countries fitting that bill are Cuba, Iran, North Korea 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 uses the ECCN code for your product(s) and the destination country to 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 your 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, not items controlled by the State Department or some other agency.
Deemed Exports
Surprise! You may be an exporter without even knowing it! Deemed exports, or the disclosure of information or services rather than an actual product, is an important issue to pay attention to when exporting. 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, conducting tours of facilities, and other information disclosures are considered potential exports under the deemed export rule and should be handled accordingly. You can learn 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 $250,000 or twice the value of the transaction, whichever is greater.
- 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 considering exporting to Japan, Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Register for a free demo of the Shipping Solutions software to see how it can revolutionize the way you’re currently creating your export paperwork.
This article was first published in October 2017 and has been updated to include current information, links and formatting. It is one in a series of articles exploring exporting to specific countries across the globe—we previously featured exporting to China, Canada, the United Kingdom, Mexico, India, and Brazil.