Japan had maintained the import quota (IQ) system for foreign leather products until 1986, when the IQ system was replaced with the current tariff quota (TQ). A country with a TQ system imposes a quota on products that can be shipped into the country either tariff-free or with relatively low tariffs. Imports that exceed the quota face much higher - often prohibitively high - tariffs and, as a result, lose much of their competitiveness in the country's market.

In the case of the Japanese TQ system, leather products within the quotas can be imported into the lucrative market with relatively low tariff rates of 12 to 24%, but not tariff-free. Imports that exceed the quotas are subject to a higher, flat tariff rate of 30%, except leather shoes.

In the case of the above-quota imports of leather shoes, Japan is entitled to apply the higher of the 30% ad valorem rate or 4,300 yen (US$36) per pair specific rate. Among other leather products, the quota for dyed bull and horse leather is set at 1.466 million square meters and that for leather shoes at 12.019 million pairs for the current fiscal year ending in March.

In the face of international pressure, however, the Japanese government has cautiously but steadily eased its import restrictions, starting with the 1986 introduction of the current TQ system to replace the previous IQ system. The quotas have been increased gradually, and Japan has also met its Uruguay round agreements to lower the ad valorem ceiling rate by 50% and the alternative "per pair" or specific-rate ceiling by 10%. These market-opening measures have put many of weak domestic tanners in dire straits.

Pressure for further liberalization is also growing outside the framework of the WTO negotiations. Japan concluded its first free trade agreement, or FTA, with Singapore in 2002, and then struck its second FTA, with Mexico in 2004. Japan has also reached a basic agreement in the FTA negotiations with Thailand, the Philippines and Malaysia, and is now negotiating FTAs with South Korea, Indonesia and the 10-member Association of Southeast Asian Nations (ASEAN) as a whole. In the FTA negotiations with Mexico, Japan refused to fully liberalize imports of leather products, but made a major concession. Japan agreed to grant Mexican products greater market access by introducing a special and more preferable TQ for them separately from the already existing TQ system.

Unlike the IQ system, the TQ system is permitted under WTO rules because it does not set a ceiling on the import volume itself. But with the Doha round entering its crucial stages, international pressure is intensifying day by day on Japan to do away with import tariffs for leather products once and for all. While flatly rejecting the growing international demand for a total elimination of import tariffs, some Japanese government officials acknowledge that the country may be forced to abolish the nearly 20-year-old TQ system or significantly lower the still high tariff rates - for products both within and above the quotas - in return for many other WTO members dropping their demand for a complete elimination of tariffs.

The leather trade row between Japan and the European Union first surfaced in late 1996, when the European Commission, the executive arm of the then still 15-nation EU, began to press Japan publicly to increase imports from Europe by modifying the TQ system. The EU made the move, apparently at the prodding of such major leather-exporting union members as France, Italy and Spain.

At the heart of the trade spat was the existence of a confidential letter written by Tokyo several years earlier during the Uruguay round of negotiations. Brussels claimed that Tokyo had failed to follow through on its promise made in the letter to increase leather imports by expanding the quotas.

Brussels claimed that Japan made the promise in exchange for Europe's agreement to drop its demand in the round for sizable reductions in high Japanese import tariffs for leather products. Government sources confirmed the existence of the letter at the time, although they declined to make it clear whether Tokyo interpreted the document as a promise to increase imports or as merely expressing willingness to consider doing so. The letter, signed by the then deputy trade minister, Noboru Hatakeyama, has never been made public.

After its request for increased imports fell on deaf years, the EU took the case to the WTO in October 1998, insisting that the Japanese government's subsidies to domestic tanners, as well as what it viewed as Japan's opaque operation of the TQ system, could be in violation of WTO rules. Several weeks later, Tokyo and Brussels held "bilateral consultations" for the first stage of the WTO's dispute-settlement procedures.

Under the WTO's dispute-settlement procedures, the complainant in a trade row can request the establishment of a neutral panel to adjudicate the case, within nine months in principle, if the bilateral consultations fail to produce a settlement within 60 days of a complaint being filed. And the losing side can appeal the panel's ruling to the Appellate Body - the WTO's highest court - which hands down a final verdict, within 60 days in principle.

The EU failed to extract any significant concessions from Japan through the bilateral consultations. But strangely, the EU shied away from moving on to the next stage of dispute-settlement procedures by asking for the creation of a neutral dispute-settlement panel. When the EU filed the WTO complaint, some Japanese officials doubted from the outset that the EU was determined to fight an all-out legal battle with Japan at the WTO. They said at the time that the WTO filing might be no more than a bluff aimed at putting pressure on Tokyo to make concessions.

Seven years later, the EU is still grumbling about the Japanese TQ system. In its annual wide-ranging proposals for regulatory reform in Japan, released on October 27, the EU said, "The EU concerns in the leather sector are related to undue restrictions under the Japanese quota system, especially in light of elimination of textile and clothing quotas in on January 1, 2005 under the WTO agreement."

While acknowledging that the Japanese TQ system is "formally in line with the current WTO rules", the EU said,"It is clear that the spirit of liberalization would suggest, especially in an advanced industrialized country as Japan, that the ultimate aim is to dismantle such tariff quotas."

Noting that the 1998 bilateral consultations within the framework of the WTO's dispute-settlement procedures did not lead to a satisfactory solution, the EU also claimed in the document that Japan indicated at that time that "all sectors would be on the table" in the current Doha round of negotiations "without any a priori exclusion". The EU also complained that Japan maintains tariff quotas on leather footwear "at extremely low levels not corresponding to the market potential".

The Office of the US Trade Representative (USTR) for many years has also harped on how problematic the Japanese leather import restrictions are. The USTR said in its 2005 National Trade Estimate Report on Foreign Trade Barriers, released on March 30, that above-quota imports of footwear still face market access barriers. "US industry has expressed concern that the quota on leather footwear imports effectively bars US footwear manufacturers and US brands from the Japanese market, one of the largest consumer markets in the world," the report said.

The question of whether to level the playing field between domestic and foreign makers of leather products is not a purely economic one. It is also a highly sensitive political and social question that involves buraku-min, or hamlet people.

Even today buraku-min, the descendants of Japan's former social outcasts, still face widespread prejudice and discrimination despite being ethnically identical to other Japanese. Many buraku-min earn their living by tanning leather, some of them still in secluded buraku - or hamlets - in various parts of the country, especially in Osaka and surrounding districts of western Japan.

News about how Korean residents, Ainu people - indigenous inhabitants in the northernmost main Japanese island of Hokkaido - and Okinawans on the southernmost Japanese island of Okinawa are heavily discriminated against in Japan have often grabbed headlines. But even talk of buraku-min - another group of relentless segregated people - has traditionally been considered taboo in Japanese society as a whole - and even in the major media. So Japanese trade diplomats seldom touch on the former untouchables publicly when they make their case against fully opening the domestic leather market to foreign competition in bilateral or global trade liberalization talks.

The oppression of buraku-min's ancestors, who were branded eta (very filthy or impure) or hinin (non-human), began during the Edo period (1603-1868), when the four social classes - samurai, farmers, craftsmen and merchants - were arbitrarily created. In addition to these four well-known classes, many other social classes actually existed, and eta or hinin people were at the bottom of the feudal hierarchy. Numerous regulations rigidly governed the occupation, residence, marriage, style of dress and social behavior of buraku-min, who were engaged in occupations thought to be undesirable, including disposal of the dead, collecting garbage, butchering animals and tanning and crafting leather. The jobs of handling the flesh of four-legged animals, such as butchers and leather artisans, were thought to be something violating Buddhist strictures against killing. People who made their living as security guards and executioners were also shunned.

Official estimates put the current number of hamlets where buraku-min people are concentrated at 4,442 across the country and the number of buraku-min at 1.2 million. But unofficial figures are much higher - 6,000 hamlets and 3 million buraku-min, including people who live outside their hamlets.

Several years after the 1868 Meiji Restoration, which restored imperial power, the Japanese caste system was abolished and the Emancipation Edict was issued. Article 14 of the post-World War II constitution also mandates equality before the law and bans discrimination based on race, creed, sex, social status or family origin.

More recently, as a result of tenacious lobbying by the Buraku Liberation League, Japan's largest outcast rights group, the government has enacted a series of laws aimed at improving the living conditions in buraku-min's hamlets by upgrading such infrastructure as housing and roads, and education, as the main pillar of efforts to promote dowa, or compatriot reconciliation. The first such law was enacted in 1969. The most recent one, enacted in 1987 with a five-year life span, expired in 2002 after being extended for five years twice.

Justice Ministry officials boast that as a result of government-funded dowa projects, efforts to develop physical infrastructure of buraku has achieved steady results and that the regional disparity with other districts has become considerably smaller.

Meanwhile, while keeping import restrictions for leather products with the TQ system, Japan, bowing to international pressure for freer trade, has gradually increased imports by expanding the quotas on low-tariff imports and lowering tariff rates. As for leather footwear, China is by far the largest source of imports under the TQ system. Also outside the framework of the TQ system, tariff-free and quota-free imports of cheap leather footwear from such least developed countries (LDCs) as Bangladesh, Myanmar and Cambodia are soaring sharply thanks to the special treatment granted to them under the so-called Generalized System of Preferences (GSP).

The Tokyo Jinken-ren (Tokyo Human Rights Federation), which is affiliated with the Zenkoku Jinken-ren (National Human Rights Federation), another buraku-min rights group, estimates that Japan's imports of leather footwear have risen 80% in the past decade while domestic output has plunged 40% during that period. Shipments of leather footwear by business establishments in Tokyo alone, including the traditional producing district of Asakusa, have shrunk to 57% of what they were 10 years ago.

The Tokyo group, headquartered in Ueno, very close to Asakusa, warns that Japan's leather-footwear industry is "in danger of extinction because it is being effectively liberalized at an accelerated pace". In its fiscal 2005 campaign policy, the group vows it is firmly determined to demand continued protection of Japan's leather-footwear industry, especially maintaining the TQ system, with the slogan of "Protect Japan's shoes [in general] and Asakusa's shoes [in particular]".

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