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GENEVA (Kyodo) Opening the Japanese economy to international competition would improve productivity and much needed growth prospects, World Trade Organization Director General Pascal Lamy said Tuesday.

“The example of Japan shows that when your economy is open, you have high productivity, and when your economy is closed, you have low productivity,” Lamy told the Japanese media prior to the day’s release of the WTO’s review of Japan’s trade policies.

“In Japan, as compared to other countries, the difference in productivity between industry, agriculture and services is extremely important,” he said, referring to the openness of the former to international competition compared with the latter two.

“In industry, it is hyper. In agriculture, it is under. And in services, it is more on the under side.”

A trade policy review has been described as a biennial “checkup” by the WTO secretariat of the profile and changes in a country’s trade policies, complemented by two days of questions from any of the trade body’s 153 members.

Lamy said that so far some 600 questions had been submitted for Japan’s review, with more expected — compared with 1,500 for China and 1,200 for the U.S., both last year.

The 116-page report said that since the previous review in 2009, “Japan has refrained from introducing new trade barriers” while “it has introduced few measures aimed at further liberalizing its trade and trade-related regime.”

It highlighted the need to increase domestic demand to combat Japan’s high debt levels and addressing its aging population.

“To achieve this, the Japanese economy will need to undergo structural reforms . . . to improve productivity in the services sector, reform the labor market, and reform taxation,” it said, adding that trade liberalization will need to be an “integral” part of any reform.

The recommendations come one day after China officially surpassed Japan as the world’s second-largest economy, with continued criticism of the inability of politicians, including Prime Minister Naoto Kan, to address two decades of stagnation.

One of the report’s key recommendations was increasing productivity in the services sector, which accounts for 80 percent of the country’s gross domestic product and 78 percent of its workforce.

“The key element to boosting productivity in services is raising competition, which would involve further deregulation, especially in wholesale and retail and in health care services,” it said.

To increase foreign competition in the sector, Japan would have to make it easier to set up a business, “especially with respect to time taken and costs incurred,” as well as reducing barriers to trade and restrictions on foreign investments.

It also said the country’s high corporate tax rate, one of the highest among developed countries, inhibited foreign companies from setting up shop in Japan.

Other concerns include the agricultural sector, “but that is nothing new,” Lamy said.

The report also stressed the need for labor market reforms to address the divide between regular and nonregular workers, who accounted for 34 percent of the workforce in 2008.

“Nonregular workers receive less firm-based training, which has negative productivity implications for individuals and the economy as a whole.”

Nonetheless, Lamy praised Japan for resisting protectionist measures during the financial crisis.

“We often say that one . . . unexpected explosion that did not happen during the crisis — so far — is a wave of protectionism,” he said.

“This has been extremely valuable for Japan,” Lamy said, referring to the country’s high dependence on exports.

“When you look at the (rise in exports) in 2010, this was only possible because there was a system of rule and disciplines which played its role of an insurance policy against protectionism for Japan and others,” he concluded.

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