RESTRICTED
WORLD TRADE G/SCM/Q2/JPN/12
5May1997
ORGANIZATION(97-1931)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Replies toQuestions from theUNITED STATES1Regarding theUpdating
Notification ofJAPAN2
Thefollowing communication, dated 29April 1997, hasbeenreceived from thePermanent
Mission oftheJapan.
_______________
TheLawonTemporary Measures toFacilitate Business Innovation
Q. Should itbetheviewofJapan thatthelaw,oranymeasures undertaken asaresult ofthis
law,donotmeetthenotification requirements oftheAgreement, wewould appreciate an
explanation ofJapan 'sanalysis inthisregard.
Reply
Japan considers thatthelaw,andthemeasures based onthelawarenot"specific within the
meaning oftheAgreement onSubsidies andCountervailing Measures, because thescope ofthelaw
broadly covers mining, manufacturing andwholesale andretailsales. Inaddition, some ofthemeasures
theUSindicates donotinvolve asubsidy element. However, Japan endeavours toconsider the
notification ofthelawforthesakeoftransparency which isagoalofArticle 25oftheAgreement.
Q.1.-1 Howweretheindustries selected forinclusion inMITI Ministerial Ordinance No.31?
Reply
They were chosen as"anindustry inthemining ormanufacturing sector where production
and/or employment levels havedeclined orareexpected todecline asaresult ofdiverse andstructural
changes inthedomestic andinternational economic environment oranindustry intheretailorwholesale
sector which isclosely linked totheabove industries" asprovided inparagraph 1ofArticle II.In
practice, themining ormanufacturing industries thatfulfiloneofthefollowing requirements, andretail
orwholesale industries which isclosely linked tothesaidmining ormanufacturing industries were
selected inprinciple.
(i) Overthepastfiveyears, production oftheindustry hasdecreased by5%ormore and
employment oftheindustry hasdecreased.
1G/SCM/Q2/JPN/8.
2G/SCM/N/16/JPN.G/SCM/Q2/JPN/12
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(ii) Over thepastthree years, production oftheindustry hasdecreased by10%ormore,
andemployment oftheindustry hasdecreased.
Q.1.-2 Please identify those industries inwhich enterprise reform plans have been approved for
individual enterprises, indicating theindustries atthesamelevelofspecificity astheyarelisted
inOrdinance No.31.
Reply
They arelisted inAttachment 1.
Q.1.-3 What criteria doesthecompetent Minister apply inapproving anenterprise reform plan?
Reply
Thecriteria fortheapproval ofthebusiness innovation planisprescribed inparagraph 5of
Article Vofthelaw. (SeeAttachment 2.)
Q.1.-4 Does eachMinister apply thesame criteria?
Reply
Yes.
Q.1.-5 Foreachtypeofassistance, where arethese criteria spelled out?
Reply
Thecompetent Ministers approve abusiness innovation planasawhole, noteachtypeof
assistance. Thecriteria fortheapproval ofthebusiness innovation planareprescribed inparagraph 5
ofArticle Vofthelaw.
ERL Article II
Q.2.What general forms ofassistance areavailable toachieve eachofthefourtypes ofenterprise
reform listed inERLArticle II(i.e.grant, loan, taxconcession, etc.)?
Reply
Taxconcessions, loans provided bygovernment financial institutions andaloanguarantee by
theIndustrial Structure Improvement Fund areavailable when adesignated enterprise which conducts
business innovation fulfils therequirements foreachmeasure.
Q.3.-1 Please listanddescribe theprecise formofassistance available todesignated entrepreneurs
under theERLpursuant toanapproved enterprise reform plan.
Reply
Approved designated enterprises canavail taxconcessions, loans bygovernment financial
institutions andaloanguarantee byIndustrial Structure Improvement Fund when theyfulfil the
requirements foreachmeasure setbytherespective institutions.G/SCM/Q2/JPN/12
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Q.3.-2 Please provide theannual amount budgeted foreachtypeofassistance.
Reply
Theannual amount oftheloans provided bythegovernment financial institutions was
Yen900million in1995FY andYen2,600 million in1996FY.
There isnobudget provided forthetaxconcessions andtheloanguarantee forthose measures.
Q.3.-3 (a) What efforts doesthegovernment make tosecure capital fordesignated entrepreneurs
under Article X?From whatsources iscapital secured?
Reply
Article Xprescribes ageneral obligation ofthenational government tosecure necessary funds
forbusiness innovation measures anditisnottheprovision under which national government should
provide funds foreachdesignated enterprise. Loans bygovernment financial institutions andaloan
guaranteebyIndustrialStructureImprovementFundaretherelatedmeasureswiththisArticle.However,
raisingnecessaryfundsforbusinessinnovationistheresponsibilityoftheapproveddesignatedenterprises
themselves andthenational government doesnotprovide anyfunds foreachdesignated enterprise.
Q.3.-3 (b) How doesthegovernment determine howmuch capital should besecured foran
approved enterprise reform plan?
Does theamount ofcapital provided intheenterprise reform planinaccordance with
ERLArticle V.4include onlythecapital thattheapplicant hopes thegovernment will
secure, orallofthecapital thattheapplicant willneedtoengage intheproposed
enterprise reform?
Does theexplanation provided intheenterprise reform plansuggest oridentify the
source where thegovernment cansecure thecapital?
Does thegovernment secure allofthecapital necessary toimplement theenterprise
reform plan?
From whatsource doesthegovernment secure thecapital?
Howistheamount ofassistance given determined?
Reply
Although theamount offunds required forthebusiness innovation andthemethods of
procurement should beincluded inbusiness innovation plans, raising necessary funds forbusiness
innovation isresponsible forapproved designated enterprises themselves andthenational government
doesnotprovide funds foreachdesignated enterprise atall.
Q.3.-3 (c) Doeachofthecompetent Ministers apply thesame criteria indetermining theamount
ofassistance given?
Reply
Although thecompetent Ministers approve business innovation plans, theydonotdecide the
amount ofassistance. Thus, suchcriteria donotexist.G/SCM/Q2/JPN/12
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Q.3.-3 (d) Foreachtypeofassistance, where arethese criteria spelled out?
Reply
Thecompetent Ministers approve abusiness innovation planasawhole, noteachtypeof
assistance. Thecriteria foranapproval ofthebusiness innovation planareprescribed inparagraph 5
ofArticle Vofthelaw.
Q.3.-3 (e) Please describe thetypes ofdebtguarantee available under theERLincluding, for
example, debtguarantees under theIndustrial BaseConsolidated Fund discussed in
ERLArticle XI.
Reply
Aloanguarantee byIndustrial Structure Improvement Fund isavailable.
Q.3.-3 (f) Please describe thetypes andamounts oftaxconcessions thatareavailable for
entrepreneurs under theERL?
Reply
Thefollowing taxconcessions areavailable:
(1) Special Depreciation onMachinery
WhenadesignatedenterpriseobtainsrecognitionunderArticle15andacquirescertainmachinery
which contribute tothebusiness innovation under theapproved business innovation plan,special initial
depreciation (25% oftheacquisition cost)isadditionally available totheenterprise intheyearwhen
itacquires themachinery.
(2) Relief ofRegistration andLicence Tax
Registration andLicence Taxispartly relieved when anapproved enterprise oranapproved
utilizer registers certain matters (foundation ofanewcompany, capital increase, etc.)concerning
approved business innovation plans orapproved business utilization plans. (Thenormal taxratesare
relieved bycertain fixed ratios between 18%and50%depending ontypes ofregistration).
(3) Relief ofRealEstate Acquisition Tax
Onesixth oftheRealEstate Acquisition Taxisreceived when anenterprise ishanded over
apieceofrealestate which relates toabusiness transference fromanapproved enterprise oranapproved
business utilizer thatreceives recognition under Article 15.
(4) Deferral ofIncome TaxorCorporate Taximposed onthebenefit fromthetransfer ofcertain
assets forbusiness
When adesignated enterprise receiving recognition under Article 15transfers certain land,
buildings orstructures forbusiness andpurchases certain other buildings, structures, ormachinery
anddevices forbusiness, income taxorcorporate taximposed onthegainsderived fromthetransference
could bepartly (80% ofthetransfer benefit) deferred.G/SCM/Q2/JPN/12
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(5) TaxDeduction fortheIncreased TestandResearch Expenses
When testandresearch expenses ofadesignated enterprise receiving recognition under Article
15increases compared withthatofthe1994 taxyear, acertain amount oftheincrease (10% ofthe
amount ofincrease) isdeducted from thetotalamount ofincome taxorcorporate tax.
Q.3.-3 (g) Aresome taxconcessions available onlypursuant toMITI certification?
Reply
Thatdepends onthetypeoftaxconcession. Some require recognition under Article 15.
Q.3.-3 (h) Ifso,whyisMITI certification required inaddition toministerial approval ofan
enterprise reform plan?
Reply
Tocheck whether anenterprise hoping fortheapplication oftaxconcession engages inbusiness
activities inthedesignated industries toacertain degree.
Q.3.-3 (i) Please explain theforms ofassistance available under ERLArticle XIVwithrespect
tothePlant Location Law?
Reply
Article XIVmerely confirms thatadministrative procedures under theFactory Siting Lawshall
beimplemented appropriately according totheprovisions ofthelaw.These provisions donotconcern
"subsidies" within themeaning oftheAgreement.
Q.3.-3 (j) What forms ofassistance willtheMinistry ofEducation andMITI provide topromote
theharmonious cooperation andcollaboration between designated entrepreneurs and
universities, etc.forR&D under ERLArticle XVII?
Reply
Article XVIprescribes ageneral obligation ofthenational government tofacilitate research
anddevelopment tie-ups andcooperative arrangements between designated enterprises anduniversities
etc.Thisprovision doesnotconcern "subsidies" within themeaning oftheAgreement.
Q.3.-3 (k) What forms ofassistance doestheGovernment provide tofulfiltherequirements of
ERLArticle III.1andIII.2toconduct surveys concerning thedifferences inthecost
oftheproduct orlabour within andoutside Japan andontrends inthedomestic and
overseas industries? Haveanysurvey results beenpublicly announced ascontemplated
byArticle III.1and,ifso,where?
Reply
MITI carried outthesurvey onprice differentials ofproducts between domestic andoverseas
markets andannounced itpublicly.G/SCM/Q2/JPN/12
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Q.3.-3 (l) What forms ofassistance willbeprovided bythenational andprefectural governors
pursuant toERLArticle XVIconcerning employees affected byenterprise reform?
Reply
Article XVIprescribes thefollowing items asageneral obligation ofthenational government
orprefectural governments.
(1) Thenational government shallendeavour totakethenecessary measures toprevent lossof
employment among workers employed byapproved enterprises andtootherwise maintain
employment stability.
(2) Thenational government shallendeavour toprovide placement services andtakeothernecessary
measures tocontribute tothevocational stability andgeneral livelihood ofworkers previously
employed byapproved enterprises.
(3) Bothnational andprefectural government shallendeavour toprovide vocational training and
takeother necessary measures todevelop andenhance thecapabilities ofworkers employed
orpreviously employed byapproved enterprises.
(4) Bothnationalandprefecturalgovernmentshallendeavourtotakenecessarymeasurestofacilitate
theadaptation toneweconomic environments ofsmall andmedium enterprises linked to
approved enterprises.
Thisprovision doesnotconcern "subsidies" within themeaning oftheAgreement.
Q.3.-3 (m) What forms ofassistance willbeprovided pursuant toERLArticle XVIII concerning
small andmedium-sized enterprises?
Reply
Article XVIII prescribes theexceptions ofsmall andmedium enterprise credit insurance
concerning limits oftotalvalue insured percapita andpremiums when thesmall andmedium enterprise
credit insurance covers theguarantee forloans which isprovided forsmall andmedium enterprises
conducting business under anapproved business utilization plan.
Q.4. Inapproving anenterprise reform plan, doesthecompetent Minister consider whether theplan
willresult inmore products being exported ormore imports being displaced?
Reply
Theapproval ofabusiness innovation planisconducted under paragraph 5ofArticle V.Neither
theincrease ofexport northedisplacement ofimport isincorporated inthecriteria oftheapproval
provided inparagraph 5ofArticle 5.
Q.5. WhydidtheGovernment ofJapan believe thatiswasnecessary ordesirable toimplement the
ERLin1995? Some commentaries havesuggested thattheERLwillhelptocounteract “hollowing
out”intheJapanese manufacturing industry. What ismeant bytheterm“hollowing out”andwhy
would itneedtobecounteracted?
Reply
Thepurpose ofthelawistostimulate domestic production activities byproviding measures
tofacilitate business innovation byenterprises inresponse todiverse andstructural changes inthe
domestic andinternational economic environment, taking intoconsideration factors suchasemployment
stability, andthereby tocontribute tothehealthy development ofthedomestic economy withthe
international economic environment, asprovided inArticle I.G/SCM/Q2/JPN/12
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ATTACHMENT I
Thefollowing sectors listed below aredesignated industries which haveresults ofapproval
forindividual enterprises under Article 5.
- Machine finishing ofcotton, staple bastfibreandhemp fabrics.
- Machine finishing ofnatural andartificial silkfabrics
- Machine finishing ofwool fabrics
- Knitandlacefinishing
- Feltnon-woven fabrics manufacturing
- Wooden furniture manufacturing (excluding lacquered wooden furniture manufacturing)
- Pulpproduction
- Paper manufacturing
- Ammonia production
- Phosphoric acidfertilizer production andcompound fertilizer production
- Urea production
- Soda production
- Inorganic pigment production (excluding carbon black production)
- Oxygen production
- Wet-process phosphoric acidproduction
- Petrochemicals (limited totheproduction ofcertain major petrochemical products created as
aresult ofdissolving naphtha)
- Vinyl chloride monomer manufacturing
- Synthetic dyemanufacturing
- Polyvinyl chloride production
- Chemical fibremanufacturing
- Rubber beltmanufacturing
- Refractory brick manufacturing andprepared unshaped refractories manufacturing
- Carbon electrode manufacturing
- Other carbon andgraphite products manufacturing
- Ironindustries withblastfurnaces
- Steel manufactured withelectric furnaces andwithrolling facilities
- Cold rolled steel(Excluding copper pipemanufacturing andsteelrolling)
- Wire drawing
- Gray andductile ironcastings manufacturing (excluding castironpipes andmalleable iron
casting manufacturing)
- Malleable ironcasting manufacturing
- Steel casting manufacturing
- Steel forgings manufacturing from ingots
- Wrought copper andcopper alloys
- Aluminum andaluminum alloy rolling industry
- Electric wireandcable production (excluding optical fibreproduction)
- Metal stamping processing
- Metal heattreatment
- Construction andmining machines andmining machinery manufacturing
- Tractor manufacturing
- Metal-cutting machine tools manufacturing
- Metal-forming machines manufacturing (excluding metal-tooling machines manufacturing)
- Tools formachines production (excluding powder andmetal-working)
- Textile processing machine andweaving machine manufacturingG/SCM/Q2/JPN/12
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- Sewing machine manufacturing
- Pulpmaking machine andpaper-making machine manufacturing
- Plastic processing machine andaccessories manufacturing
- Compressors, fanandlowers machine manufacturing
- Power transmission equipment manufacturing (excluding ballbearings androller bearings
production)
- Oilhydraulic equipment andpneumatic equipment manufacturing
- Ballbearings androller bearings production
- Trajectory operated robot manufacturing
- Wiring device andwiring accessory production
- Wired telecommunications equipment manufacturing
- Electrical measuring instrument manufacturing
- Telecommunication andelectronic device component andaccessory production
- Automobile andautoparts manufacturing
- Forklift truck manufacturing
- Coalmining (excluding coalseparating)
- Yarn wholesaling
- Textile wholesaling
- Ironandsteelwholesaling
- Automobile wholesaling andretailing
- Machine-made Japanese paper manufacturing
- Datarecording device manufacturing
- Paint andvarnish manufacturing
- Artificial leather manufacturing
- Industrial plastic products manufacturing
- Cement manufacturing
- Medical machinery andapparatus manufacturing andmedical supplies manufacturingG/SCM/Q2/JPN/12
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ATTACHMENT 2
LAW NUMBER 61OF1995
TheLawonTemporary Measures toFacilitate Business Innovation
Approval ofBusiness Innovation Plans
Article V
5. Intheevent ofanapplication forapproval under paragraph 1,thecompetent Minister shall,
ifhedetermines thatthebusiness innovation planpresented therein satisfies eachoftheitems listed
below, approve thebusiness innovation plan.
1. Thebusiness innovation setoutinthebusiness innovation planconstitutes aneffective an
appropriate response todiverse andstructural changes inthedomestic andinternational economic
environment;
2. Thebusiness innovation setoutinthebusiness innovation planwillnotimpede thehealthy
development ofthenational economy inharmony withtheinternational economic environment;
3. Thebusiness innovation planconstitutes anappropriate approach tothesmooth andaccurate
implementation ofthebusiness innovation;
4. Thestatus ofworkers atthedesignated enterprise willnotbeadversely affected;
5. Where abusiness innovation planissubmitted bytwoormore designated enterprises engaged
inbusiness activities inthesame designated industry, thebusiness innovation planmustconform to
(a)and(b)below:
(a) Thebusiness innovation planmustnotaffect themaintenance ofappropriate competition
betweenthetwoormoredesignatedenterprisesinquestionandotherenterprisesengaged
inbusiness activities inthesame designated industry;
(b) Theplanmustnotharbour anypossibility ofunjustly affecting theinterests ofordinary
consumers and/or relevant enterprises.