Memorandum on United States Tobacco Exports to Japan

October 6, 1986

Memorandum for the United States Trade Representative

Subject: Determination Under Section 301 of the Trade Act of 1974

Pursuant to Section 301 of the Trade Act of 1974, as amended (19 U.S.C. 2411), I have determined that the agreement between the Governments of Japan and the United States of America is an appropriate and feasible response to the policies and practices of the Government of Japan with respect to the manufacture, importation and sale of tobacco products in Japan. These policies and practices have been investigated by the United States Trade Representative in response to his initiation of an investigation on September 16, 1985, at my direction.

I direct you as the United States Trade Representative to notify the Government of Japan of my approval of the agreement and to take any actions necessary to implement and monitor it. Since the Government of Japan must take steps to implement the agreement, I direct that the Section 301 proceeding on Japan's practices with respect to manufactured tobacco products be suspended until the agreement is fully implemented, at which time I direct you to terminate the proceeding.

Reasons for Determination

For years the United States Government has expressed concern about the Government of Japan's trade barriers that have unfairly restricted American cigarette producers' access to the Japanese market. Despite some improvements, the market share of U.S. cigarette exporters in Japan remains less than three percent despite their competitiveness. Looked at as a whole, the Japanese Government's laws, policies and practices insulate an inefficient monopoly from competition and shift to imports and Japanese consumers the costs of maintaining a highly uncompetitive domestic tobacco leaf industry. The specific unfair Japanese Government practices include: (1) the combination of a significant trade barrier (a 20 percent tariff and a high, largely ad valorem, excise tax) and an unreasonable, absolute investment barrier (a manufacturing monopoly), (2) the current discriminatory deferral of excise tax payment favoring the Japanese tobacco monopoly, (3) a price approval system that protects the Japanese tobacco monopoly against foreign competition, and (4) discriminatory or unreasonable practices by the government-controlled distribution instrumentality. All of these unfair practices burden or restrict U.S. commerce.

Representatives of the Governments of Japan and the United States held a series of consultations concerning increased access to the Japanese cigarette market. As a result of these consultations, we reached an agreement regarding actions that Japan will take to improve our firms' access. The Government of Japan will suspend the tariff, reducing it to zero. It also will end the discriminatory deferral of excise tax payment by its tobacco monopoly by April 1, 1987, and modify its price approval system to shorten the application period significantly and to make the process transparent and virtually automatic. In addition, the government-controlled distribution instrumentality has satisfactorily addressed the major existing distribution problems. When implemented, these measures should accomplish our goal of obtaining increased access for U.S. firms to Japan's cigarette market.

This determination shall be published in the Federal Register.

Ronald Reagan

[Filed with the Office of the Federal Register, 11:49 a.m., October 7, 1986]

Note: The memorandum was printed in the ``Federal Register'' of October 8.