ECONOMIC RESEARCH CENTERDISCUSSION PAPER
E-Series

No.E08-2

Japan’s Economic Structural Reform: Regulatory
Reform and Special Zones for Structural ReformbyKenji Nozaki

December 2008

ECONOMIC RESEARCH CENTERGRADUATE SCHOOL OF ECONOMICSNAGOYA UNIVERSITY

Japan’s Economic Structural Reform: Regulatory Reform andSpecial Zones for Structural Reform
Kenji NOZAKI1

Abstract
Since mid-80’s, Japan’s regulatory reform has been done under the context ofadministration reform. In particular, at the first stage, economic regulations and social
regulations were divided in order to focus on the reform of economic regulation such as
monopoly and market participation. Year 2001 was a turning point because all
regulations started to be reviewed to improve the economic efficiency. At the year,
Council for Regulatory Reform was established under the Cabinet Office. The Cabinet
Office was newly established in the same year to promote basic economic and fiscal
policies.
Although the border between the economic regulations and social regulations
was deleted, the deregulation process faced deadlock. Special Zones for Structural
Reform was introduced in 2002 to facilitate the regulatory reform. Namely, deregulation
measures are implemented in a limited area, and if there is no problem, it will be
developed into nationwide deregulation. This experimental trial was generally
successful and many measures were developed into nationwide. On the other hand, we
can observe main purpose is shifting from nationwide deregulation to regional
vitalization, which was considered to be a second purpose at the first stage.
This paper collects information from the policy documents concerning to thepolicy change. As for the special zones, it gives consideration about the necessary things
to success, using the information through case study in Kitakyushu-City.

Professor in Economic Research Center, Graduate School of Economics, Nagoya
University, Japan1

1

Introduction
In order to strengthen its economic structure, Japan is now undertaking
structural reforms, in which deregulation plays a particularly important role. This
paper will do an overview of developments in deregulation promoted by the neworganizational setup initiated by the government. At the same time, the author would
like to clarify, from the point of view of a social experiment, the significance of theintroduction of special zones for structural reforms, as one newly adopted policy, and to
consider the economic effects of deregulation.

1. Japan’s Regulatory Reforms (Economic and Social Regulations)
The promotion of regulatory reforms up to the 1990s was instituted as part ofadministrative reforms. For example, prior to the Council for Regulatory Reform to bementioned later, the 3-year plan (ratified on March 2001) for the promotion of
deregulation was deliberated by the regulatory reform committee2 which was set up
within the administrative reform promotion headquarters. In short, this can be thought
as putting focus to the manner of administrative system in transferring from an ex-ante
regulation type of administration to an ex-post checking type of administration. Amidst
this, the concept of regulation is clarified, and economic regulation and social regulation
are clearly distinguished from each other.

It is possible to think that the movement toeventually exclude ex-ante economic regulations has been brought to the center ofregulatory reforms.
As Yashiro (2003)3 has pointed out, the separate usage of the terms “economic
regulations” and “social regulations” was officially first made in the second
extraordinary

administrativereformpromotion

deliberation

councilof1988.

Backtracking three years to 1985, the first extraordinary administrative reformpromotion deliberation council gave rise to the following concepts of social regulations:(i) coping with natural monopolistic industries; (ii) corresponding to regulations thatrefers to economic activities such as the formation of specific industries or firms, or theprotection of declining industries; and (iii) ”regulations that have social aims such thesafety of consumers and laborers, the preservation of health, the conservation of theenvironment, the prevention of disasters, and the protection of cultural treasures. Suchclassification contra poses restrictions on business activities in specific industrial fields”,
inspection systems for maintaining safety, and accreditation systems for maintaining

The name was changed in April 1999 from the original “Deregulation Committee”.
Refer to Naohiro Yashiro (2003) “Kisei Kaikaku: ‘Hou to Keizaigaku’” (Law andEconomics on Regulatory Reform), Yuhikaku
232

the quality of professional services, which all have the public interest objective of “social
regulation”, with price regulations and market entry regulations in specific industrial
fields, which are thought to be “economic regulations”. In so doing, the road is shown fora gradual deregulation whereby “economic regulation is in principle liberalized, andsocial regulation is kept to the necessary minimum.”This classification was perhaps undertaken with the purpose of particularly
promoting the relaxation of economic regulations so as to enable the post war Japanese
economic system to overcome a type of limitation it was then confronting. However, thisbecame the basis for the interest groups, which were against deregulation, to assert as
their sacred cause wherein “social regulation is the regulation they themselves are tochampion, and a minimum of regulation is deemed necessary.”
Is it easy to separately classify “economic regulation” and “social regulation”?
Actually, there are not a few examples where even social regulations for protecting the
public interest become entry regulations that protect, at least as a result, existing
businesses. Consequently, there arises the case of carrying out a demand supply
adjustment as a form of social regulation. On the other hand, even in fields where
liberalization in principle is being undertaken as economic regulations, cases arise
wherein it becomes necessary to pay attention to the social aspects of safety.

As such,there are thoughts to many aspects wherein the differences between social regulationand economic regulation are vague, and the discussion on evaluations regarding
regulation continues to this day.
For example, the entry regulation in the taxi business is classified as economic
regulation, and was subjected to deregulation after the 1990s. At which time, themechanism for restricting entry and vehicle proliferation was left in place whendeclining revenues raised fears of problems regarding safety. This can be thought as theresult of a consideration for the social aspect.4

2. 2001 Ministerial and Agency Reform and Council for Regulatory Reform
2.1 Establishment of the Council for Regulatory Reform
The Council for the Regulatory Reform, which was inaugurated in April 2001,
can be said to be the turning point wherein a new perspective was to be brought to bearon regulatory reforms, which up to that point was made from an administrative reformperspective.5 The Council for the Regulatory Reform was placed within the Cabinet
Recently, there have been moves to re-strengthen regulations. Refer to the November
21, 2007 issue of the Nihon Keizai Shinbun.
5 The General Regulatory Reform Assembly is an organization set up by law, and has alifespan of three years. It was reorganized as the Regulatory Reform/Private Liberal
43

Office, which was established by the ministry/agency reorganization of January 2001.
Furthermore, the legal basis for its establishment was the administrative execution of
the 1st clause of the 4th article of the Establishment Bill of the Cabinet Office, which was
one of the auxiliary functions6 assigned to the Cabinet Office, and an important policy
proposal regarding economic and fiscal policy. Hence, the minister specially designatedby the Cabinet to take charge of regulatory reform came to have adjustment rights one
step higher than other ministers.7
In this way, an institution for promoting regulatory reform was set in place
within the Cabinet Office. In particular, on a plea of having basis on economic and fiscal
policy, such establishment ushered in regulatory reforms increasingly made from theperspective of economic efficiency.
Still, in the ministry/agency reorganization, the establishment of the Council
for Economic and Fiscal Policy (from hereon called CEFP) was extremely important inconnection with economic and fiscal policy. The CEFP is an organization that is chairedby the Prime Minister and consists of a selected group of ministers and experts from theprivate sector, making it one of the important government assemblies established in the
Cabinet Office by the ministry/agency reorganization.8 In particular, the assessment of
the “big-boned policy”9 during the Koizumi administration, which was inaugurated in
April 2001, performed the function of promoting structural reform. With respect to thepromotion of deregulation, based on the progress of discussions in the Council for the
Regulatory Reform, a support system was established whereby deliberations could also
be made within the CEFP.

Promotion Assembly in 2004, and as the Regulatory Reform Assembly in 2007.
The administrative work of supplementing the Cabinet’s policy decision-making
function. In contrast, the administrative work for the execution of business decided bylaw is called allotted administrative work.
7 Since a special minister is appointed in a separate fashion to take charge of Cabinet
supplementary administrative work related to economic and fiscal policy, there arises
the situation wherein the minister in charge of the separately placed economic andfiscal policy is not in charge of all the economic and fiscal policy.
8 In addition to that, there are the General Scientific Technology Assembly, Central
Disaster Assembly (chaired by the Prime Minister), and the Gender Equality Assembly(chaired by the Chief Cabinet Secretary)
9 “The official name of Big-Boned Policy” in 2001 was “Structural Reform of theJapanese Economy: Future Basic Policies for Macroeconomic Management”, in 20022006 was “Basic Policies for Economic and Fiscal Policy Management and Structural
Reform”, and in 2007 became “Economic and Fiscal Reform Policy 2007”. In short form
such expression as “Basic Policy 2003”. Since the start, however “big-boned” was being
used, and from the Cabinet’s home page “big-boned policy” was used, so we will use
big-boned policy here.
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2.2 Activities of the Council for the Regulatory Reform
The Council for the Regulatory Reform decides on and conducts follow ups ofthe three-year plan of the regulatory reform. In actual practice, the Council for the
Regulatory Reform started from following up the “Regulatory Reform Promotion ThreeYear Plan”, which was decided in March 2001 by Regulatory Reform Committee, which
was the predecessor organization. In its first task, the committee made an “Interim
Summary” on July 2001 wherein it emphasized six fields, which included the social
regulations of medicine and education.10 Based on this, the committee put together inMarch 2002 the Regulatory Reform Promotion Three Year Plan (revised version).
Furthermore, in the “Interim Summary” of July 2002, besides from proposing
the promulgation of special zones for structural reform, the committee raised the
problem of the reconstruction of the burden between government and the private
sectors, which would lead to the market test whereby a government-private sector
competitive bidding will be introduced in the future.
In so doing, the Council for the Regulatory Reform was able to aggressively
push forward its activities by, among others, introducing issues, which have not beenaddressed so far, and new policy methods. The CEFP backed this up. It promoted
structural reforms through the big-boned policy and so forth, while holding
deliberations about regulatory reforms. For example, the proposal for the special zones
for structural reform work towards the “Interim Summary” of July 2002 in the Council
for the Regulatory Reform proceeded in parallel with discussions made from theperspective of invigorating the economy and attended, as an extraordinary Council
member, by then Minister Ishihara, who was in charge of structural reform. Thisconfirmed the importance of coordination with the Council for the Regulatory Reform.11
Reflecting such discussions, the special zones for structural reform initiative wasinscribed in the “2002 big-boned policy” adopted by the Cabinet in June 21st of the same
year. Discussions were held thereafter in September and December of 2002, and in
February 2003, continuing the coordination towards the realization of special zones.12

In addition to the five sectors of medicine, welfare, nursery, human resource (labor),and environment, urban revitalization was also given, as the six sectors to beemphasized.
11 Refer to the “Minutes of the 11th Economic and Fiscal Advisory Council Meeting in
the 14th year of Heisei” (held on April 24, 2002)
12 Aside from the regulatory reform minister-in-charge attending as an extraordinary
Diet member, Chairman Miyauchi (at that time) also participated in the discussion.
Also within Section 2 (Specific Initiatives for Structural Reform) in the “Big-boned
Policy 2003” of 2003, a clause for “regulatory reform and structural reform special
zones” was included.
10

5

3. Introduction of Special Zones for Structural Reform
3.1 Policy Experiments
The system of special zone for structural reform was a method that was
introduced to further promote regulatory reform. Specifically, while a certain amount of
economic effect and regional economic activation could be expected from the relaxationof various regulations including social regulations, there is also the aspect of
unavoidably applying the brakes on the progress of the regulatory reforms in the casewhere it is feared that the reforms will be accompanied by social disruptions. Owing tothis, the thinking behind special zones for structural reform is to have a method
whereby regulations are experimentally relaxed in a limited way within a specific area,and deliberation of nation-wide implementation is done based on an investigation of theexistence of disruptive effects. Such special zones were proposed in the “Interim
Summary” of July 2002, and, after undergoing parallel discussions in the CEFP as one
policy for invigorating the economy, became inscribed into the “2002 big-boned policy”.
The concept of special zones for structural reform means that in Japan, which
is not a federal state, various systems will be co-existing, which has been pointed out
from the very beginning to be possibly against equality under the Article 14 of theconstitution. Although local autonomous government ordinances have already been
built up, they are considered that minimum regulations are followed and they just add
on the national regulations. In this connection, people whose concept is against the
special zones for structural reform understood that the exemption from the obligationmust not be allowed because the minimum regulations by law should be followed
nation-wide. Hence, the situation, wherein a different regulation is imposed upon acertain area that has been qualified as a special zone, has also become the introductionof a one-country two-system in Japan through stipulations set out only by the additionallaw. Through this, the government carried out experiments, the results of which
initiated efforts for a nation-wide deployment.
As such, the introduction of the special zones for structural reform was expected
to “lead to a nation-wide regulatory reform and invigoration of the our country’s
economy through the implementation of regulatory reforms that focus on thepeculiarities of selected areas” as found in the objective of moving (towards therealization of special zones for regulatory reform) in Chapter 5 of the “Interim
Summary” of the Council for the Regulatory Reform in July 2002. The one-country
two-system concept was considered to be in its extreme form a concept to be
implemented to the whole country. However, considerations were made so that the6setting up of special zones does not at least become a reason for barring the nation-wide
deployment of regulatory reforms.

This was evident from indications made in

documents submitted by private experts in April 2002 which state that “it goes without
saying that (special zones for structural reform) attempts should not delay efforts
towards regulatory reforms.”13
Based on such developments, in the “Basic Policy for the Promotion of Special
Zones for Structural Reform”14 decided by the cabinet in September 2002, the objectivesof the special zones for structural reform, (i) in addition to meeting the goal proposed in
the Council for the Regulatory Reform of spreading structural reform throughout thecountry by showing success cases of structural reforms, and realizing the invigoration of
our whole country’s economy, (ii) equally raised the perspective of regional invigoration
through, among others, the formation of industrial clusters, which correspond to thespecial features of the region, and new industries.
However, according to the “Basic Policy of Special Zones for Structural
Reform”,15 which was revised in April 2007, in the implementation of the evaluation of
items in the basic policy, the statement was added whereby, with regards to nation-wide
deployment, “special measures of regulations that have strong regional features will beallowed to continue to exist for some period of time within special zones.” That is to saythat through the accreditation as special zones, it becomes possible to promote theconsolidated efforts by regional public groups and the assistance and cooperation ofnational government-related institutions.

The significance of this lies more in being a

policy of regional invigoration rather than being a breakthrough for nation-wide
regulatory reform.16
In the backdrop of such changes, a gap can be considered to have arisen
between the initial concept, which was thought out by the Council for the Regulatory
Refer to “Regarding Structural Reform Special Zones” document submitted byexperts and Diet members in the 11th advisory meeting of 2002 (April 24). In theadvisory meetings, the format frequently adopted was to have the four private experts
and Diet members jointly submit materials, and proceed on with the discussions.
14 Decision of the headquarters for the promotion of special zones for structural reform(September 20, 2002)
15 Based on the law for special zones for structural reform, the basic policy is decided by
the Cabinet. The first basic policy came out in January 24, 2003, and was repeatedly
revised thereafter. In particular, the regulatory special measures (the clause referring to
special zones) is listed in Annex Table 1, while the contents related to nation-wide
deployment are listed in Annex Table 2. [The basic policy] is revised occasionally as thelist is changed.
16 See the separate Sheet 1 (main body) on “Regarding Part of the Changes of the Basic
Policy on Special Zones for Structural Reform” decided by the Cabinet in April 27, 2007,
p. 3
13

7

Reform of making the special zone system a breakthrough for the nation-wide
deployment of regulatory reform, and the situation, wherein the need has arisen toreflect to some extent the intention of regional public groups of maintaining special
zones for a certain period of time even during nation-wide deployment. This situation isbased on the system’s feature of leaving to the discretion17 of the regional public groupthe actual application of the proposal and planning.
3.2 System Overview
At this point, we should clarify the process leading to the realization of thespecial zones for structural reform. Concretely, it is as follows: (i) acceptance ofproposals on ideas for special zones for structural reform from, among others, regional
public groups and private enterprises; (ii) at a national level, making publicly known alist of special measures of regulatory reforms and so forth to be implemented in thespecial zone as decided based on consultations with related ministries and agencies; (iii)
at the regional group level, formulating the special zone plan with regards to specified
points, and applying for accreditation; (iv) on the national level, accrediting the special
zone proposal; (v)at the regional public group level, implementing the special zone plan;and (vi) performance assessment by the evaluation and survey committee. As such, theflow is as follows: proposal Æ application Æ accreditation Æ implementation Æ
assessment.
The first call for proposals on ideas for special zones was made from July 26th toAugust 30th of 2002. Proposals were made for regulatory reforms related to 1,081 itemsof special zones from 249 groups. These were classified into (i) special zone, (ii)nation-wide deployment, (iii) for consideration, and (iv) others.18 The result was that 80
cases of matters pertaining to regulation were deemed to be special measures that canbe implemented within special zones for structural reform. Based on that, 129 special
zone proposals were made in April 2003 by regional public groups. The first special zone
accreditation was done in April and May of 2003 covering a total of 117 plans. The
process was repeated of receiving proposals regarding special zones twice a year,19 andaccreditation three times a year.
On the other hand, with regards to the performance assessment, an evaluation
There is also the aspect of rewarding efforts for proposing and making the plans.
This refers, among others, to matters related to currently doable, mistaken facts(subject regulation does not exist), and requests for the issuance of tax exemptions andsubsidies.
19 Accurately speaking, there is a call for proposals for both measures of regulatory
reform related to special zones and regulatory reforms that should be implemented
across the country.
17
18

8

committee was created under the headquarters for the promotion of special zones forstructural reforms.

In addition to surveys made by regulatory government offices of alllevels, interviews of related regulatory government offices of all levels, and independent
surveys including on-site inspections were made, and opinions regarding theassessments were collected every semester.

As a result, the subject operations ofspecial zones were classified into three stages: (i) nation-wide deployment; (ii) continued
application to a specific area; and (iii) abolition of regulations as special measures. The
first performance assessment was concluded as a response measure taken by thepromotion headquarters in September of 2004, the year following the accreditation of
the first special zone. At that point, the decision has already been made for thenation-wide deployment of special measures in 28 cases of special zones.
3.3 Nation-wide Deployment and Trends in Special Zone Proposal and Accreditation

First, we take a look at the movements in number of proposals on ideas for
special zones (Figure 1). In the 1st round, which preceded the first special zone
accreditation and the 2nd round call for proposals, there were 426 and 651 proposals,

9respectively, indicating the high level of interest among those concerned. This dropped
thereafter. In the 5th round, the number of proposals rose to 652, but this can be thoughtof as reflecting the submission of proposals, which were jointly called under regional
revitalization, were placed under “unclassified”, and then combined with regional
revitalization proposals. In the succeeding 9th and 11th round of call for proposals were
jointly made for regional revitalization and special zones. These yielded a bit more
proposals compared to call for proposals for special zones only. Hence, if we adjust forthis factor, it can be said that, since the 3rd round of call for proposals, the number of
proposals dropped to about 1/3 of the initial number.
With regards to the proponent, regional public groups were predominantly
many at the system’s inauguration, thereafter proposals from private firms andindividuals went up. In the 6th round of call for proposals, the share of proposals fromthe private entities overtook that from the regional public offices, and has thereafter
remained dominant. This can be considered as the result of full-blown efforts to know
more about call for proposals, as per indications of the special zone promotion
headquarter administrative office.20 However, it is necessary to be it is carefully notedthat the private entity share of proposals has been relatively rising due to the drop in
the proposals from regional public groups, and that the absolute number of proposals
has not really been increasing.
Based on these proposals, if we look at Figure 2, the number of special
measures for special zones initially was 80, but increased for some time after that.
However, combined with the reductions due to increases in new measures and special
measures for nation-wide deployment, there was a tendency for the number to drop
after 2004, reaching 68 measures by December 2007.
We now take a look at how special zones, as special measures, were deployednation-wide from an initial 80 measures (Figure 3). In November 2002, the list waspresented, and a year later towards the end of 2003, two measures were deployednation-wide. A succession of nation-wide deployment followed thereafter, and as a resultat the end of 2007, there were only 20 remaining special zones as special measures, only
1/4 of the original number.21 From a different perspective, the number of measures
deployed nation-wide, although only a part of the special measures, rose to 64, and we
20 With regards to the acceptance of proposals related to “Monthly Report on Special
Zones, Regional Revitalization, Regulatory Reform, and the Intensive Acceptance ofPrivate Liberalization” by the Cabinet Office for the promotion of special zones forstructural reform. (7th report, July 5, 2005; 9th report, July 6, 2006)
21 We need to be careful since there are also cases where the special measures have notbeen revised. There are 20 measures, which as of December 2007 remained as special
measures for special zones (Annex Table 1).

10could see that within five years, 80 percent of the measures were in some way deployednation-wide.

The performance assessment committee was influential in such a movement
towards nation-wide deployment. It voiced out its opinion to the special zone promotion
headquarters calling for the nation-wide deployment of 73 measures 22 during theperiod from September 2004 to January 2007. Out of the 64 measures from the initial
80 that was deployed nation-wide, 43 measures were deemed fit for nation-wide
deployment by headquarters based on the opinion of the performance assessment
committee.23
Next, we look at the accreditation situation of special zone applications
submitted by regional public offices. From April 2003, to November 2007, over 15
rounds, a total of 984 plans were accredited as special zones. Looking at the figures,
after the accreditation of 117 cases in two stages during the inauguration of the new
Includes partial nation-wide deployment.
There are also a lot of measures that were deployed nation-wide before response
measures were made based on the opinion of the performance assessment committee(the first response measure was in September 2004).
22
23

11

system, there was a slight drop, but it increased from the second half of 2005 up to thestart of 2006, and stayed at a low level since then. The share of accredited cases within
the number of applications, even at its lowest point, surpassed 90 percent at the time of
inauguration.24 The changes in the number of accreditations could be thought of aspractically being the changes in the number of applications, so we could see that there
was a slowing down in the movement in the applications after the second half of 2006.
Furthermore, the increase from the end of 2005 to the start of 2006 could be considered
as due to the increase in the number of proposals, which were combined with regional
revitalization in the previous year, accompanied by increases in the related
applications.

24 The first accreditation was broken down into two stages because of the high level ofmaturity of 57 cases, which were pushed ahead of time for accreditation (Refer to“Regarding the First Accreditation of the Special Zone for Structural Reform” by the
Office-in-charge of the Special Zones for Structural Reform in the Cabinet Office, April
17, 2003). After getting on the right track, although rarely there was an independent
withdrawal, accreditation would be made for as long as there are no particular
problems.

123.4 Some Considerations Regarding Proposals and AccreditationsFirst of all, the special measures for special zones could be characterized as
speedy in nation-wide deployment and many in numbers. To recall, the motivation for
the Council for the Regulatory Reform’s proposing the special zones was for abreakthrough in the nation-wide promotion of regulatory reform. It can be said that the
movements to this date show that the introduction of such system was successful. This
could be alluded as being a result of the leadership of the administration pushing forstructural reform from the beginning, and the promotion of the cooperation among
different levels and offices of the government, which have the authority to regulate.
However, it is plausible that in such a situation the points of discussion
mentioned below may exist.
One is the relative demerit for the regional public groups, which have been
moving ahead. We can think of the effect from special zones as being divided into
economic effect and social effect. With respect to the economic effect, in the case where
special zones are used as tools for inter-regional competition, there will be changes innuances depending on the level of discussion, which may have an effect on the persons
concerned. For example, when public regional groups invite firms, supposing that the13

firm’s location was critically decided on the merit of the region as a special zone, such a
merit disappears when the special measures related to the special zone is deployednation-wide. Indeed, thinking on a national level, irrespective of which region, the firm
concerned will locate in the place that has a high level of economic efficiency. In the casewhere conditions other than special measures are different, there is the possibility thatlocating in another place would generally be more efficient. In the first place, a special
zone is not granted alone to the regional public group that applied for it, so competition
within the special zone framework could become more intense if another region makes a
special zone plan. However, not giving consideration to efforts made in proposing a
special zone as a special measure and in making a concrete special zone plan, could
affect the incentive for thinking up ideas on the part of the proponent or applicant
regional public group. It is possible then that there will be an accompanying negative
effect on the promotion of the regulatory reform. Actually, in recent times, even taking
into account that, to some extent, idea-generating has reached a plateau, the drop in the
proposal and applications related to special zones, particularly the drop in the share of
proposals of regional public groups, indicates the possibility of such incentive problems
taking effect.
In terms of social merit, it is conceivable that there are ways to exploit, as apublicity strategy for the local government, the media’s coverage of regional public
groups, which lead and foment a sense of unity in revitalizing the village or region. As inthe economic perspective, it is then possible that incentives of the regional public groupare being affected due to the cancellation of special zone plans if special measures as
special zones are deployed nation-wide.
In actuality, within the assembly for the promotion of special zone forstructural reform, which is placed in the Citizens Forum for Renewal, indications havebeen made, in the “Towards the Improvement of the Special Zone for Structural Reform”
of April 2006, about the drop in interest on special zone accreditation accompanying the
rapid increase in special zone cancellations as special zones are deployed nation-wide.25
There are also cases of requests made to the government from individual regional public
groups.
It is conceivable that a change in the policy, which “allows the continuation for

Looking at the minutes of the chairman meeting of the Assembly for the Promotion ofSpecial Zones for Structural Reform (February 3, 2006), we need to be careful about the
point that there are many chairmen who replied that, while there is a disappointment
about the speed of nation-wide deployment of the special zones, the special zone is an
initiative that is premised on nation-wide deployment, which in itself should be
welcomed.
25

14

some period of time of regulatory special measures within special zones that arestrongly region-specific, was based precisely on consideration of these developments by
the headquarters for the promotion of special zones for structural reform. In October
2007, four headquarters related to regional revitalization were jointly opened, which
consisted of the urban revitalization headquarters, the headquarters for the promotionof special zones for structural reform, the regional revitalization headquarters, and thecentral urban revitalization headquarters. This came to be called the “integrated
assembly of headquarters for regional revitalization.” This shows that there were moves
for special zones to also put more emphasis on the aspect of regional revitalization, as
well as in coordinating with other administrative work.
Secondly, another feature would be the prudence towards special zone
proposals when these are viewed as social experiments. Indeed, it is a fact that, despite
being social experiments, the repeated occurrence of problematic cases is not desirable
for as long that citizen’s lives are therein involved. However, for example, although 80
percent of the special measures made known during the inauguration were deployednation-wide within five years, there was not one case wherein the performanceassessment committee had to abandon special measures due to problems that arose.
This indicates the sufficient level of prudence that was exercised in the initial listing
up.26 Of course, given that special measures are being set up, sufficient coordination
has to be made with government ministries and agencies having regulatory jurisdiction
even in the case of special zones. This also would be one cause for leaning towards thesafe side when designating special zones.
With respect to the decrease in proposals related to special zones, it may benecessary to also consider the problem of opportunity costs of the ministry and agencies
having regulatory jurisdiction. That is to say, special zones, as already mentioned,
legally guarantee a one-country two-system, so it is necessary to make a special
measure for special zone, and to go twice through a legislative process for its
nation-wide deployment. When granting special zone status, a lot of prudent
consideration is made. In the case where there is little fear that a problem arises evenwith immediate nation-wide deployment, it is possible that it would be more efficient toexpedite the processing of the special zone and directly deploy nation-wide deregulation,
26 Moreover, the opinion of “continued application of status as special zone” in theperformance assessment committee was given in only one case (pertaining to harmful
wildlife capture whereby permission is given to those who do not have hunting permits).
This is not deemed to particularly have a bad influence on society even if it wasderegulated. However, the merit of implementing it as a special zone is small, and theeffort to deploy it nation-wide is considered not necessary. Hence, it appears that there
is no particular reason for aggressively classifying it as “continuing special zone status.”

15

rather than limiting it to special zone status and going to all the trouble of double-work.
We have considered above the recent decrease in special zone proposals,
applications of special zone plans, and permission. It is conceivable that all these causes
actually interact to create the present situation. Just because of this it is important tocarefully look at how to hereon develop policies that emphasize and combine regional
revitalization.

4. The Case of Kita Kyushu
4.1 Efforts at Special Zones for Structural Reform
The Kita Kyushu City of Fukuoka Prefecture flourished as a center for heavy
chemical industries, as well as the location of the first modern steel factory, among
others. However, amidst the change in Japanese industrial structure, a shift inindustrial structure is called for. In such a situation, the city has proposed as one policy
the attraction of firms and the support of expansion by firms. In order to improve thebenefits from attracting firms, amidst clamors for regulatory reform in the past leading
to the establishment of system of special zones for structural reform, which the city has
since then been aggressively utilizing this system. The city has included its name in thefirst special zone accreditation, and to date has been accredited for six special zone
plans. 27
Furthermore, amidst the government’s promotion of the special zones forstructural reform, in some local governments, there have appeared some places, which
strive to establish their own unique version of special zones for their districts. 28Kita
Kyushu City has established its own unique special zone.
We shall make an overview of the Kita Kyushu City’s efforts regarding special
zones, and consider the effects on regional revitalization.
4.2 Concrete Efforts
4.2.1 National Efforts on Special Zones for Structural Reform
Table 1 shows the authorized special zones in Kita Kyushu City. Up to now
there have been six accredited plans, four of which have been cancelled following theirnation-wide deployment. Although the rest of two are remaining, they are not alreadysupported by full measures. Namely, one is about an “international distribution special
Includes plans that have been deleted, accompanying the special measure ofnation-wide deployment.
28 In the home page of the headquarters for the promotion of special zones for structuralreform, the systems are described for Hokkaido, Shiga Prefecture, Shimane Prefecture,
Tokushima Prefecture, Ehime Prefecture, Saga Prefecture, as well as Kita Kyushu City.
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zone”. It is the special zone plan only related to the special measure of setting up a
university. The rest of the special measures have been deployed nation-wide. Anotherone is about “special zone for self-reliance and living together”. In this case, the special
measures of all other projects, besides the expansion of learning opportunities throughthe use of IT for self-induced absentee students, have either been deployed nation-wideor is scheduled to be so. This indicates the high speed at which nation-wide deployment
is being carried out.
Table 1

Plans of Special Zones for Structural Reform in Kita Kyushu City

① Approved cases as of January 2008
Name of Special Zone Plan

Deregulation Measure(Date Approved)(Including Nation-wide Deployment)

Kita

KyushuCity

International

・virtually 24-hour customs clearance

Distribution Special Zone Plan (April・specified supply of power not dependent on

21, 2003)

capital relationships
・flexibility and shortning of processing inchanges of use of property in the area ofreclaimed land・granting establishment of stock-owned
universities
・promotion of acceptance of foreign trainees
・formation of IT human resources

Kita Kyushu City “Education for ・Drawing up of curriculum that is not based on
Self-RelianceandCo-existence”

Special Zone Plan (April 12, 2008)

standards for education
・ School operation thru leasing of school
grounds or buildings②

Cases which have been deleted after nation-wide deployment

Robot development/Empirical Testing・ Clarification of the object of road use

Special Zone Plan (November 18,

permissions of robot empirical testing

2003 to July 3, 2006)“Environmental Capital” Made by

・ Implementing an unmanned car rental

Citizens, Kita Kyushu Special Zone

business using IT

Plan (December 8, 2004 to July 3,
2006)
Kita Kyushu City Regional Currency

・Allows the issuance of regional currencies

17

Special Zone Plan(March 28, 2005 towhich are valid for more than six months

July 4, 2006)
Kita Kyushu City Welfare Onerous

・ Allows onerous welfare businesses using

Transportation Sedan Type Vehicle

sedan-type vehicles

Special Zone Plan (November 12,
2005 to March 30, 2005)
Note: Based on interviews with the Industrial Scientific Promotion Bureau of the Policy
Planning Office of Kita Kyushu City in February 2008.
Along these lines, we would like to cite the example related to “special supply ofelectricity that is not dependent on capital relationships” in the international
distribution special zone, which has large economic effects from attracting firms and soforth.
Concretely speaking, when managing a project for the supply of electricity, theregulation based on the law for electricity projects required that the relationship withthe parties supplier and demanders of electricity be so intimate as to be considered as
members of the same enterprise. Through the special measures found in special zones,
such regulation is stated in the requirement for “jointly creating a union; the union
concerned will possess electricity generation facilities or carry out maintenancemanagement; and such relationship is foreseen to continue for a long period of time.” In
the Higashida District, which is one part of the international distribution special zones
of Kita Kyushu City, efforts are in progress to attract firms to the re-development
district where a steel factory used to be located. One sales point here is the utilization of
the subject scheme so as to supply electricity at a low cost. Higashida Co-generation
Corporation, which is 100% financed by Nippon Steel Corporation, possess electricity
generation facilities29, which it lends to Nippon Steel Corporation Yahata Works, which
in turn supplies electricity to users. For this purpose, all firms or groups formed aelectricity supply union. At the initiation of supplying electricity in February 2005,
there were 21 firms and groups for an electricity usage of about 8000 KW. Three years
later in February 2008, this increased to 36 firms or groups using about 19000 KW.30
Underlying the success of this case is the holding down of electricity
transmission costs arising from the Nippon Steel Corporation steel factory being locatedGeneration capacity is about 33,000 KW (supply capacity is about 32,000 KW).
Supply started in February 2005.
30 Based on interview from a officer-in-charge of Nippon Steel Corporation, February
2008.
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18

adjacent to the electricity supply district.31 In addition to which, there is the ability ofthe steel factory to utilize through co-generation the heat (as steam) that is produced inelectricity generation. We can point out that in the background there was a
region-specific feature, which made possible the attainment of high efficiencies. This
enabled the people in charge of attracting firms to do their jobs, using as ammunition
the cheap and stable power supply as well as the other incentives. There were actuallydifferences in perceptions in a firm’s joining the group. It was unavoidable perhaps thatin some cases, electricity cost is said to be a critical factor, while in some cases it wasconsidered to be marginal in the deliberation to join.
4.2.2 The City’s Unique Special Zone System
The special zone system unique to the City of Kita Kyushu is related to thedivision of the harbor district based on the city planning law and the harbor
management law. A special ordinance was enacted here with regards to the regulatory
special measure, wherein: there were no changes made on the division designation;
there was no relaxation of the forbidden application of construction materials in all of
the divisions; and there was no revision of the original ordinance in order to limit therelaxation of rules within specific areas that emphasize revitalization. In short, where
deregulation is to be carried out on all divisions, it would be alright to revise the original
ordinance. In such case, however, the special zone version of the regional public groupwill be put to use, whereby deregulation will be limited to a specific area.
Through such measures, it has become possible to construct structures otherthan factories within the harbor district of Hibikinada, Wakamatsu Ward. Morespecifically, a venture company, Hibikinada Saien Corporation, was jointly formed with
Kagome Corporation in 2005 within the property in Hibikinada owned by J Power
Corporation. Production of fresh tomatoes has started in high-tech greenhouse farms
wherein Dutch technology has been introduced. Saibu Gas Corporation, which has afactory in the same Hibikinada, set up the SG Green House Corporation, which itwholly finances, and started the cultivation of leaf lettuce and others.
Either case involves business switching: J Power Corporation switching
between power and land utilization businesses; and Saibu Gas Corporation switchingfrom land and power businesses to one which reflects the regional feature of utilizing
the network that comes from relationships to food culture.

The electricity generation equipment is within the Nippon Steel Corporation
grounds.
31

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5. The Economic Effects of Regulatory Reform and Special Zones for Structural
Reform
5.1 Effects of Regulatory Reform
An attempt to quantitatively analyze the economic effects of regulatory reform
has been done in the Cabinet Office’s “Policy Effect Analysis Report”.32 The report sums
up the economic effect as the increase in consumer surplus since the 1990s. The merit tothose who use regulatory reform is the consumer surplus that arises from the increasein demand accompanying price drops due to a more intensified competition. Suchsurplus is measured across 14 sectors33 related to regulatory reform. According to this,as of fiscal year 2005, a total of about 18 trillion 300 billion yen worth of user merit has
been gained.
Looking at the details of the analysis, some issues and points to think about
come up. However, the fact that the government publicized such trial computations is
significant perhaps in explaining the necessity of regulatory reform. For example,
regarding the discussions about the re-strengthening of regulations in the taxi business,
if we exclude the safety issue, the drop in sales of existing firms have been emphasized
but ideally what is perhaps important is a discussion based on the comparison of theeconomic losses of the existing business and the merits of users.
Having such significance it is just fitting to indicate the issues and points to bepondered on about the report’s analysis. The analysis computes for the consumer
surplus that comes from the expansion in demand concomitant with the price drops ingoods and services subjected to regulatory reform. The premise here is the hypothesisthat the demand curve is obtained by joining the yearly outcomes (equilibrium point for
supply and demand). As the report also indicates, if the demand itself undergoeschanges with the regulatory reform, it is possible that the demand curve shifts every
year. In this report, it is necessary perhaps to pay more attention to its premise that thedemand curve is not shifting.
Furthermore, a somewhat bigger point is that the calculation is only for

In the Cabinet Office (Policy Coordination Office in charge of Economic and Fiscal
Analysis), since the era of the preceding Economic Planning Agency, repeated trial
computations have been made about the economic effects of regulatory reform in theform of user merit analysis in the No. 1 (January 2000), No. 7 (June 2001), No. 17(December 2003), and No. 22 (March 2007) Policy Effect Analysis Reports.
33 Concretely, the 14 sectors are mobile communications (electric communications),
domestic airlines, railroads, taxi, trucking, automobile registration inspection system(transportation), electricity, urban gas, oil products (energy), subcontractor fees forstock trading, casualty insurance (finance), rice, sale of alcoholic beverages (drink
products), cosmetics, and medical products (products marked for resale).
32

20

consumer surplus. Since the objective is to discuss the effects of regulatory reform,
ideally it would be necessary to calculate for the producer surplus and then make ageneral judgment. This is because, owing to the possible downward shift of the supply
curve, it is conceivable that producer surplus will increase or decrease, depending on
the shape of the supply curve. However, it is a fact that such a calculation would be
more difficult than that for the demand curve, since it is conceivable that the supply
curve is shifting every year.
5.2 Economic Effects of Special Zones for Structural Reform
Table 2: Related to the Economic Effect in Special Zones
Equipment

About 530 billion

Investment Amount

yen increase

Annual Revenue

An increase ofabout 520
billion yen

Cost Reduction

About 15 billion

Number of

An increase ofAmountyen reduction

Employees

about 14,000
workers

Number of Users of

About 18,000

Annual number of

An increase of

Subject Facilities

peoplepeople interacting

about 1.5
million people

Source: Cabinet Office for the Promotion of Special Zones for Structural Reform/Cabinet
Office-in-Charge of Special Zones for Structural Reform “Special Zone for Structural Reform:
Making Attractive by Exploiting Regional-Specific Features (August 2007 Pamphlet)

With regards to the effect of regulatory reforms, the computation method is tosome extent established, and the results of approximate computations, although having
issues, have been made public. However, with regards to the economic effects of thespecial zone system, the computations can become more difficult. Since regulatory
special measures are carried out within a limited region, special zones have a difficulty
in being reflected in economic statistics gathered at a national or other such levels. In
addition to which, it is thought that the merits would be hard to measure since most
special zone plans end up in deregulation of non-final demand parts. The government
has implemented a survey of the economic effects on 709 special zones that have been
accredited until November 2005, and has compiled this (Table 2) as publicly available
materials of the government in March 2006. According to this, the major effects were on21

the producer side, but it was found that there was one trillion yen worth of demand
increase in addition to the increase in equipment investment and sales. On the other
hand, in total the cost reduction was a small 15 billion yen, and unlike the regulatory
reforms in economic sectors at the national level, the measurement of the effects
through price reductions appeared to be difficult. It can be seen that there are a lot of
merits, which would be difficult to quantify due to the increase in the number of facility
users and interacting people as the region revitalizes.
We shall now try to put into order the situation of Kita Kyushu City, which wehave looked at as one concrete example. In said city, the effect of attracting firms,
starting from the making of the initiative for the international distribution special zone
in April 2002 34 up to January 2008, was taken to be 24 entry firms, about 4,500
employment, and about 157.8 billion yen of gross investments.35 Since the period isdifferent from that of the whole country, checking at the figures that were thought to besubmitted in the national survey of March 2006, it is found that there were 16 new firm
entrants, about 4,000 employment, and about 100 billion yen gross investment. 36 Since
the government’s figures in principle use exactly the same figures from each regional
public group,37 the figures of Kita Kyushu City come out to be extremely large, such as
in the case of investment figures that occupy close to 20 percent of that for the wholecountry. The implication here is that the possibility of the following becomes
conceivable: (i) extremely favorable results are obtained even when compared with thenational average due to the making of special zone plans which combine well theattracting of firms with region-specific features; (ii) such aggregation is extremely
difficult since the entrant firm’s motivation is not necessarily the benefits to be received
from a special zone; (iii) even if there are similar special zones in other regional public
groups, the effects of such investments would be difficult to grasp and hence not tallied,in the case where attraction of firms, which include regional public groups, are notcarried out.
As such, it is important to make general judgments from various perspectives

As could be inferred from the fact that the first call for proposals for special zones
was in July to August of 2002, work started rather very early.
35 Includes the effect of the city’s unique special zone. Listing as entrant firm is made at
the time of declaring entry not at the firm’s start of operations.
36 The number of employment excludes firms where the amount of investments is
unknown. At the time of the survey (March 2006), excluding firms that have not yet
started operations, there were 13 firms, about 800 people employed, and about 90
billion yen in gross investments.
37 Based on “The Economic Effects of Special Zones” by the Cabinet office for thepromotion of special zones for structural reform (September 2006)
34

22

with respect to the economic effects of special zones for structural reform. However, itappears necessary to design a national survey, just by looking at the survey done by thepromotion office of special zones for structural reform and the case of Kita Kyushu City.
Also it seems important to consider what other economic demerits could arise from
special zone projects, and in such cases what would be the estimation method to be used.
38

6. Conclusion
In this paper, we have given an overview of on-going structural reforms, whichuses a new policy method based on the introduction of special zones for structuralreform, even as progress is being made, even in sectors where progress was inadequate,
through the regulatory reform efforts under the new order after the ministry andagency reform of 2001. During this period, the significance of classifying the regulations
made by government into economic regulations and social regulations gradually waned,and it is conceivable that throwing away of the boundaries between these two has led tothe introduction of the special zones for structural reform. At the same time, even in thecase of economic regulations, we will find issues having social aspects as a result of
regulatory reforms, and it is possible that discussions will continue from hereon.
Next, when considering special zones for structural reforms as part of social
experiments, although the assessment could be made for nation-wide deployment of
successful experiments, we could also hold the view that those that made it to theexperimental cutting board were mostly those that were predicted as not to give rise to
problems. Indeed, structural reform has proceeded through the nation-wide deployment
of different proposals and measures, but it is possible that there were proposals madethat did not even see the light of day, or even going further, there are ideas in theregions that did not reach the proposal stage.
On the other hand, response seemed late in terms of also giving consideration
to regional revitalization and not to lean too much on nation-wide deployment ofregulatory reforms as a plan to be able to maintain the incentives of regional public
groups, which have sent it their ideas. Furthermore, in taking special measures in theform of special zones, efforts are needed for harnessing the specific features of eachregion. For this, we would like to repeat, it would be effective to allow an all out
regulatory reform. Specially, now a system has been set up whereby special zones for

For example, in the case of facilities where there is competition between regions, it ispossible that a facility would have its revenues, for one, drop when an opposing special
zone enjoys more benefits.
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23

structural reform and regional revitalization policies are being simultaneously
promoted. We look forward to policies that consider such a point.
Contrary to such movements, for example even in economic regulations, as wehave touched upon above in our talk about the re-strengthening of entry restrictions in
the taxi business, it is a fact that criticisms have come up based on the view that
regulatory reforms up to now may have been carried out too fast. Moreover, it isimportant that appropriate comparison be made of the economic effects of regulatory
reforms, which tend to focus on the interests of the consumers, and of the sector thatwould be adversely affected.
In that instance, a future issue would be the further refinement of approaches
to measure from consumer surplus the economic effect of regulatory reform as touched
upon in this paper, and the improvement of methods to measure the economic effect ofregional revitalization as seen in the special zones for structural reform.
Either way, it is important to promote policy while enabling coordination
between the state and regions, and maintaining a high level of tension within theadministration. For this, it is hoped that social experiments are smoothly implemented.

References
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estimates) ”, Policy Effect Analysis Report No. 22 (in Japanese)
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Sectors” (in Japanese)
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