Recent Characteristics of Royalties and License Fees in Japan's Balance of Payments

"Royalties and License Fees" in balance of payments statistics includes payments accruing from patent, trademarks, registered designs, utility models, copyrights and technical instruction. Japan's balance of royalties and license fees had remained consistently in deficit since statistics were first compiled until a surplus was registered for the first time in 2003. This reflects growth in royalty receipts from the overseas subsidiaries of Japanese companies (non-resident corporations) resulting from the globalization of manufacturing activities, which in turn has been promoted by such developments as the avoidance of trade friction by Japanese manufacturing industries, countermeasures to combat loss of price competitiveness due to the appreciation of the yen, and declining market-entry costs pursuant to expanding WTO membership. A review of current developments identifies the following major contributors to the emergence of a surplus. By industry, transportation equipment has played a leading role, and by region, receipts from North America have been critical. Overseas production of automobiles by Japanese companies is expected to increase over the coming years in North America and Europe, while manufacturing in Asia is now taking off. Consequently, the outlook is for the surplus in royalties and license fees to continue growing in the years ahead. On the other hand, in the area of software, the competitive position of Japanese companies remains weak (as evidenced by continued deficits in copyright-related payments). Moreover, the recent surplus can be essentially attributed to intra-firm trade in specific industries, such as transportation equipment and electrical machinery. Thus, it cannot be said with any finality that the competitive position of Japanese companies in the area of intellectual property has improved significantly. In its progress toward a truly technology-based economy, it would be a desirable option for Japan to boost receipts from extra-firm transactions in both software and hardware by achieving higher levels of technology and maturity.