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The
International Trade Regime

After more than
two hundred years of isolation from global trade, Japan re-appeared in
international trade ground, through the almost diplomatic conclusion of a trade
treaty with the United States in 18581. Similar agreements
with other trading powers followed it in successive years. As a result of these
treaties, Yokohama, Kobe and a few more ports were opened.

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Up until around
1900, industrial development took place under an almost neutral trade regime2. This was not
necessarily desired by the Japanese government. It was not allowed to have
independent authority over the formulation of tariffs until 1899. Until that
year, tariff rates, which had been bound by an international treaty, were 5% or
less. Export was also taxed to a similar extent. Quantitative restrictions
played no role until 1931.

The growth of
ocean fleets played an important role in the expansion of trade. The total
tonnage of Japanese ocean convoys was 23,000 in 1872. It jumped to 3.05 million
in 1920 and increased to 6.4 million in 1941, which was the third largest in
the world only after the UK and US.

 

1.6 Foreign
Direct Investment

Before the
Restoration, a few foreign trading companies had some stakes in mining areas3. These foreign
stakes were purchased back by the novel government. Foreign firms resumed
direct investment in Japan only after 1899. Most foreign investments were joint
ventures, and mostly in technology-intensive sectors such as electrical
machinery and automobiles, established through the initiatives of Japanese initiatives
that encountered demand from foreign enterprises for equity participation in
exchanges of technology and equipment4.

 

 The Series of Wars and their Impact
on Industries

 

2.1 Heavy
Industries supported by Military Concerns

Through battles
fought with China (1894-1895) and Russia (1904-1905), trades such as
shipbuilding, steam shipping, and even railway transport got strong government
support for military deliberations. These industries expanded their production
and physical scope of services. Although especially military production sectors
successfully achieved a world-class practical standard5, their
material and equipment base was not stable. Among others, steel manufacture had
been regarded as having main importance as a basis for all heavy industries and
military production. In 1901, the national steel mill at Yahata started
operations with the support of the military. Japanese colonial expansion into
northeastern China (Manchuria), Korea and Taiwan6 assured the
supply of raw materials to those heavy industries7.

During the
First World War Japanese Imperial Forces showed a keen interest in automobiles
and airplanes, which played impressive roles on the European battlefields.
Backed by the soldierly, automobile and aircraft firms emerged as new
industries, yet it took another twenty years for full take-off8.

 

2.2 WWI urged
Self Sufficiency in Strategic Commodities

Until the first
decade of this century, the Japanese economy was involved in international
trade networks to a substantial extent, but the outbreak of the First World War
gave a shock to Japan. There was a sudden supply-cut or shortage of many
commodities which were essential to support industrial production and daily
life in Japan. Both industry and the Government learned a lesson from this
experience.

In reaction to
the situation, the Government launched a series of industrial policies to
assure the domestic supply of these threatened strategic commodities. These
included machine tools, medicine, dyes, fertilizers, soda and foodstuffs. The
Government set legal frameworks to get authorization for adopting
sector-specific direct support to industries by means of R&D subsidies,
special tax exemptions and so on9. Several
national research laboratories were came into existence to promote the
development of indigenous technology resources10. The
formulation of national industrial standards was started in 1921.

After Japan
regained authority over tariff formulation in 1899, it raised tariffs gradually
to increase revenues and to protect domestic industry. During the post-war
global trend towards protectionism, tariffs were raised again and again, with a
stronger emphasis on protection through tariff escalation. The average tariffs
(arithmetic average) were 4% (1893), 20% (1913), 11% (1924) and 30% (1938)11.

Reflecting the
increasing importance of industrial policy, the role of the Ministry of
Agriculture and Commerce was expanded and a new independent ministry, the
Ministry of Commerce and Industry (MCI, the direct precursor of the current
MITI) was formed in 1925. A variety of government / industry interaction
mechanism such as advisory councils to the Minister12, subsidy
schemes and preferential tax relief for business13 was announced
around the same time.

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