The Japanese economy is bound up in red tape, hindering economic growth and impeding imports, the United States said Tuesday in an annual trade report.

"Beset with structural rigidity, excessive regulation, and market access barriers, the Japanese economy continues to underperform," said the bluntly worded US Trade Representative (USTR) report.

The United States' trade deficit with Japan slid to 69 billion dollars last year from 81.6 billion dollars in 2000, as the global slowdown choked off Japanese exports, said the 2002 National Trade Estimate on Foreign Trade Barriers.

"Over-regulation in Japan continues to hamper economic growth, raise the cost of doing business, restrain efficiency, restrict competition, and impede imports and investment," the report said.

"Typical of highly regulated economies, the Japanese economy also suffers from a misallocation of resources and a lack of entrepreneurial innovation," it charged.

The 1990s had been dubbed a "Lost Decade" in which Japanese gross domestic product (GDP) grew only at an average of 1.6 per cent, or less than half the rate of the preceding decade.

Over-regulation in the world's second-largest economy raised prices for Japanese businesses and consumers, it said.

"In addition, Japanese government over-regulation lies at the heart of many market access problems faced by US companies," said the annual report, which lists worldwide barriers facing US exporters.

"Recognizing that a vibrant Japanese economy is vital for a healthy global economy, the United States continues to urge regulatory reforms that will enable Japan to more fully realize its economic potential."

US President George W. Bush and Japanese Prime Minister Junichiro Koizumi had signed an agreement on June 30 last year to reform regulations in telecommunications, information technologies, energy, medical devices and pharmaceuticals, and financial services, it said.

Last month, officials from both countries reviewed US recommendations for reform, it said. A special report for Bush and Koizumi would be completed by summer detailing Japanese reform plans.

Japan had made important changes to rules in the telecommunications sector in 2001, the annual USTR assessment said.

"Still, this sector remains encumbered by excessive, outdated regu-

lations -- the legacy of a period of bureaucratic direction of industry -and the inability of Japan to implement a regulatory framework adequate to address the overwhelming market power of the dominant carrier group, Nippon Telegraph and Telephone Corporation (NTT)."

NTT companies controlled access to more than than 98 per cent of the local telephone network, giving them the ability to inhibit new competitors and services while promoting their own products and technologies, it said.

"These problems are compounded by the fact that the Ministry of Public Management, Home Affairs and Posts and Telecommunications (MPHPT) is hemmed in by political and industry interests that can inhibit competition enhancing measures."

On information technology, Japan may be hampered by a lack of progress in such areas as copyright protection, on-line privacy, paperless transactions, and other laws, the United States said.

It pressed for broader reform of the energy market, a dismantling of barriers to imported medicines, and further progress in liberalizing the financial markets.

Protection of competition also must be strengthened, the USTR report said.