For many years, export promotion was a large issue in Japanese government policy. Government officials recognized that Japan needed to import to grow and develop, and it needed to generate exports to pay for those imports. After the war, Japan had difficulty exporting enough to pay for its imports until the mid1960s , and resulting deficits were the justification for export promotion programs and import restrictions.
The belief in the need to promote exports is strong and part of Japan's self-image as a "processing nation." A processing nation must import raw materials but is able to pay for the imports by adding value to them and exporting some of the output. Nations grow stronger economically by moving up the industrial ladder to produce products with greater value added to the basic inputs. Rather than letting markets accomplish this movement on their own, the Japanese government feels the economy should be guided in this direction through industrial policy.
Japan's methods of promoting exports has taken two paths. The first was to develop world-class industries that can initially substitute for imports and then compete in international markets. The second was to provide incentives for firms to export.
During the first two decades after World War II, export incentives took the form of a combination of tax relief and government assistance to build export industries. After joining the IMF in 1964, however, Japan had to drop its major export incentive- -the total exemption of export income from taxes--to comply with IMF procedures. It did maintain into the 1970s, however, special tax treatment of costs for market development and export promotion.
Once chronic trade deficits came to an end in the mid-1960s, the need for export promotion policies diminished. Virtually all export tax incentives were eliminated over the course of the 1970s. Even JETRO, whose initial function is to assist smaller firms with overseas marketing, saw its role shift toward import promotion and other activities. In the 1980s, Japan continued to use industrial policy to promote the growth of new, more sophisticated industries, but direct export promotion measures were no longer part of the policy package.
The 1970s and 1980s saw the emergence of policies to restrain exports in certain industries. The great success of some Japanese export industries created a backlash in other countries, either because of their success per se or because of allegations of unfair competitive practices. Under GATT guidelines, nations have been reluctant to raise tariffs or impose import quotas. Quotas violate the guidelines, and raising tariffs goes against the general trend among industrial nations. Instead, they have resorted to convincing the exporting country to "voluntarily" restrain exports of the offending product. In the 1980s, Japan was quite willing to carry out such export restraints. Among Japan's exports to the United States, steel, color television sets, and automobiles all were subject to such restraints at various times.
Data as of January 1994