RESTRICTED
WORLD TRADE G/SCM/Q2/JPN/8
24October 1996
ORGANIZATION(96-4452)
Original: English Committee onSubsidies andCountervailing Measures
SUBSIDIES
Questions from theUNITED STATES Regarding theUpdating
Notification ofJAPAN1
Thefollowing communication, dated 21October 1996, hasbeenreceived fromthePermanent
Mission oftheUnited States.
_______________
TheUnitedStateshasnotedthatthenotificationofJapandoesnotaddress,interalia,the“Special
Measures LawtoPromote Enterprise Reform forDesignated Enterprises, No.61of1995 (Tikutei
Jigyosha NoJigoKakushin NoEnkutsuka NiKansura Ringi Sochtho) ,thatisapparently implemented
through MITI Ordinance No.31of1995. TheUnited States requests thatJapan reply tothefollowing
questions concerning thislaw.Should itbetheviewofJapan thatthelaw,oranymeasures undertaken
asaresult ofthislaw,donotmeetthenotification requirements oftheAgreement, wewould appreciate
anexplanation ofJapan’sanalysis inthisregard andrespectfully request thatJapan inanycaserespond
tothefollowing questions intheinterest oftransparency.
1. The“Special Measures LawtoPromote Enterprise Reform forDesignated Enterprises, ”No.
61of1995 (ERL) provides assistance toproprietors ofbusinesses (designated entrepreneurs) which
belong tothe165industries designated byMITI Ministerial Order No.31of1995(designated industries)
pursuanttotheERLprovidedthatthecompetentministryapprovestheentrepreneur’sproposedenterprise
reform plan. Thelistincludes manufacturing andmining industries, aswellastheretail andwholesale
industries which areclosely related tothose industries.
Howweretheindustries selected forinclusion inMITI Ministerial Ordinance No.31?Please
identifythoseindustriesinwhichenterprisereformplanshavebeenapprovedforindividualenterprises,
indicating theindustries atthesame levelofspecificity astheyarelisted inOrdinance No.31.
What criteria doesthecompetent Minister apply inapproving anenterprise reform plan? Doeseach
Minister apply thesame criteria? ForeachMinistry, where arethese criteria spelled out?
2. TheERL recognizes fourtypes of“enterprise reform ”forwhich assistance maybesought
pursuant toanenterprise reform plan:
(i) Tosignificantly change thecomposition oftheproduct related toproduction orsales
through thedevelopment andproduction ofnewproducts.
(ii) Toremarkably enhance production efficiency byintroducing newproduction methods
orbyimproving theperformance ofequipment.
1G/SCM/N/16/JPN.G/SCM/Q2/JPN/8
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(iii) Tosignificantly develop newdomestic demand, ortoremarkably enhance efficiency
inthesalesofaproduct, byintroducing newsalesmethods.
(iv) Tosignificantly reduce thecostofproducing aproduct byusing newrawmaterials,
parts, orsemi-manufactured goods orbyintroducing newmethods ofpurchasing raw
materials, parts, orsemi-manufactured goods.
ERLArticle II
What general forms ofassistance areavailable toachieve eachofthefourtypesofenterprise
reform listed inERL Article II(i.e.grant, loan, taxconcession, etc.)?
3. Thefollowing forms ofassistance appear tobeavailable pursuant toanapproved enterprise
reform plan:adjustments fromtheJFTC forcompetition laws(ERL Article VII);capital (ERL Article
X);services provided bytheIndustrial BaseConsolidated Fund(ERL Article XI);special consideration
related totheapplication oftheFactory Land Law, No.24of1959 (ERL Article XIV); special
depreciation asdefined bytheSpecial Measures LawforTaxation, No.26of1957(ERL Article XV);
employee measures (ERL Article XVI); andliaison withuniversities forresearch anddevelopment
(ERL Article XVII).
Please listanddescribe theprecise form ofassistance available todesignated entrepreneurs
under theERLpursuant toanapproved enterprise reform plan. Please provide theannual amount
budgeted foreachtypeofassistance.
(a) Provision ofCapital -ERL Article Xstates thatthe“government willmake efforts
tosecure capital necessary fortheapproved designated entrepreneur orrelated
entrepreneur toconduct business according totheapproved enterprise reform plan,
andfortheapproved application entrepreneur toconduct business according tothe
approved utilization entrepreneur plan.”According toERLArticle V.4,theenterprise
reform planmustexplain the“[a]mount ofcapital necessary toimplement theenterprise
reform andthemethod forraising thatamount. ”According toaMITI official, ultra
lowinterest loans areavailable frominstitutions suchastheJDB, including under the
loansystem forfacilitating enterprise reform andtheloansystem fornewtechnological
development. Koyu Takada (Assistant Section Manager, Industrial Structure Section,
IndustrialPolicyBureau,MITI),“CommentaryontheEnterpriseReformLaw,”Denshi
Kogyo Geppo ,Figure 4(June 1995).
What efforts doesthegovernment make tosecure capital fordesignated entrepreneurs under
Article X?From what sources iscapital secured? Howdoesthegovernment determine howmuch
capitalshouldbesecuredforanapprovedenterprisereformplan?Doestheamountofcapitalprovided
intheenterprise reform planinaccordance withERLArticle V.4include onlythecapital thatthe
applicant hopes thegovernment willsecure, orallofthecapital thattheapplicant willneedtoengage
intheproposedenterprisereform?Doestheexplanationprovidedintheenterprisereformplansuggest
oridentify thesource where thegovernment cansecure thecapital? Does thegovernment secure
allofthecapital necessary toimplement theenterprise reform plan? From what sources doesthe
government secure thecapital? Howistheamount ofassistance given determined? Doeachofthe
competent Ministers apply thesame criteria indetermining theamount ofassistance given? For
eachtypeofassistance, where arethese criteria spelled out?
(b) Debt Guarantees -ERLArticle XIprovides thatthe“‘Industrial BaseConsolidated
Fund’(Fund) willprovide thefollowing services inorder forthedesignated
entrepreneurs topromote enterprise reform inaddition totheservices regulated inG/SCM/Q2/JPN/8
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Special Measures Law(No.77of1986) related tothepromotion ofadjustment inthe
specified facilities inaccordance withtheapplication ofthecapabilities ofprivate
entrepreneurs:
(i) Toguarantee services related tolending thecapital necessary forthe...
enterprise reform ....
(ii) Tocollect, organize, andprovide information ontheenterprise reform.
(iii) Toprovide services supplemental totheservices intheprevious number (ii)”
Please describe thetypes ofdebtguarantee available under theERLincluding, forexample,
debtguarantees under theIndustrial Base Consolidated Fund discussed inERL Article XI.
(c) TaxConcessions -According toaMITI official, there areatleastfivetypes oftax
assistance available under theERL: (1)special exemption ofthe80percentadvanced
depreciation ratiointhecaseofpurchasing machinery etc.toreplace long-term held
assets; (2)10percenttaxdeduction inthecaseofanincrease intesting andresearch
feesusing 1993 asabaseyear; (3)25percentspecial repayment oftheequipment
forenterprise reform; (4)special exemption ofregistration andlicense taxinsuchcases
astheestablishment, merger, andbusiness transfer ofcorporations duetoenterprise
reform; and(5)special exemption ofrealestate acquisition taxes inthecaseofreal
estate acquisition arising from business transfers. Takada atFigure 3.
Please describe thetypesandamounts oftaxconcessions thatareavailable forentrepreneurs
under theERL? Aresome taxconcessions available onlypursuant toMITI certification? Ifso,
whyisMITI certification required inaddition toministerial approval ofanenterprise reform plan?
(d) Other forms ofassistance.
Please explain theforms ofassistance available under ERLArticle XIVwithrespect tothe
Plant Location Law?
What forms ofassistance willtheMinistry ofEducation andMITI provide topromote the
harmonious cooperation andcollaboration between designated entrepreneurs anduniversities, etc.
forR&D under ERL Article XVII?
What forms ofassistance doestheGovernment provide tofulfil therequirements ofERL
Article III.1 andIII.2 toconduct surveys concerning thedifferences inthecostoftheproduct or
labour within andoutside Japan andontrends inthedomestic andoverseas industries? Have
anysurvey results beenpublicly announced ascontemplated byArticle III.1 and,ifso,where?
What forms ofassistance willbeprovided bythenational andprefectural governors pursuant
toERL Article XVIconcerning employees affected byenterprise reform?
What forms ofassistance willbeprovided pursuant toERL Article XIIIconcerning small
andmedium-sized enterprises?
4. ERLArticle V.5(I) requires theMinister todetermine whether theenterprise reform plan“will
beeffective andsuitable asameasure forthepertinent designated entrepreneur tohandle thediverse
andstructural changes inthedomestic andoverseas economic environment. ”G/SCM/Q2/JPN/8
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Inapproving anenterprise reform plan, doesthecompetent minister consider whether the
planwillresult inmore products being exported ormore imports being displaced?
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?