Recommendationsof theEU-Japan Business Dialogue Round Table
to the Leaders of the EU and Japan
Brussels, 7-8 July 2005
“A Continued Innovative Approachto Address New Common Challenges”
Part I
Summary of Recommendations
I. A.

Introduction

The EU-Japan Business Dialogue Round Table (BDRT) held its annual meeting in Brussels
on 7 and 8 July 2005 under the co-chairmanship of Viscount Davignon and Mr. Kobayashi,
and in the presence of Mr. Verheugen, Vice-President of the European Commission andCommissioner for Enterprise & Industry, Mrs. Reding, Commissioner for Information Society& Media, and Mr. Lamoureux, Director-General of Energy & Transport DG; and from theJapanese Government: Mr. Onodera, Parliamentary Secretary for Foreign Affairs (MOFA),
Mr. Yamamoto, Parliamentary Secretary for Economy, Trade and Industry (METI) andMr. Matsui, Vice-Minister for Policy Coordination, International Affairs (MIC).
The participants were informed of the decisions of the last EU-Japan Summit held in
Luxembourg on 2 May 2005. They appreciated the call for “a continued innovative approachto the Action Plan to address new common challenges”. Among others, issues on international
accounting standards, regulatory reforms, REACH regulations, intellectual property rights, etc.
are subjects on which the BDRT has been focusing. It was with those elements in mind thatthey drew up their new Recommendations to the Authorities.
The BDRT is pleased with the deepening relationship between the enlarged European Union
and Japan and welcomes the positive business environment created to foster growth in twoway direct investment. Having noted some positive response to last year’s Recommendations,
the BDRT requests that further efforts be made by both the EU and Japanese Authorities toimplement pending or new Recommendations.
At this year’s annual meeting the work undertaken by the working parties was reviewed by
the BDRT Members, and the general discussions focused on six major areas:-

Competitiveness: Europe and Japan share a lot of common concerns. They need inparticular to tackle the issue of a growing ageing population and to answer two
fundamental questions: how to sustain economic efficiency with a high level ofenvironmental and social protection, and how to deal with the trends of delocalisation andthe rise of new competitors. The BDRT participants called for close cooperation between
the EU and Japanese Authorities on competitiveness issues and underlined the need todeliver on economic reform in order to speed up growth.

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WTO: The BDRT made a plea in favour of a successful completion of the Doha
Development Agenda negotiations and urged the EU and Japan to reinforce their common
views in the run-up to the Hong Kong WTO Ministerial Conference in December 2005.

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Investment: Even if the investment environment is improving, overseas capital still faces
barriers. A continuous pressure from Industry is needed to make Europe and Japan more
attractive places to invest, for the benefit of growth and employment. It is expected that
the Government of Japan, the European Commission and the Governments of the Member
States will pay particular attention to this issue. In that context, the BDRT noted theprogress made since last year in implementing the recently set-up Investment Framework,
as stressed by both Leaders at the last Summit meeting. However, further action is stillneeded to remove remaining barriers to trade and investment, particularly those identified
by the BDRT “Trade & Investment” Working Party.

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Importance of a harmonised market: The EU as a single market, under which unified rules
are valid throughout the Union, will benefit both European and third-country companies
equally. However, there are quite a few fields in which rules remain independent and varyfrom Member State to Member State due to the nature of the Union. The BDRT Members
take this opportunity to request that the EU Authorities pay prioritised attention to finding
solutions for these shortcomings.

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Energy issues: Recognising the close relationship between energy and economic growth
as well as the present volatility of the international energy markets, the BDRT underlined
the need to forcefully address current energy challenges, including those related tosecurity of supply, sustainability and competitiveness. The BDRT especially noted that amore rational use of energy should be pursued, as well as the need to develop closeinternational cooperation, in particular between the EU and Japan, on energy efficiency
and the role of each energy source.
In the present energy situation, BDRT Members consider that the International Energy
Agency should play an active and important role. In this regard, the IEA should select asa priority the promotion of energy efficiency and the increase of cooperation between its
members on these topics.
BDRT Members suggest cooperation between the EU and Japan in order to promote theuse of clean technology, particularly in the coal sector. This cooperation could be
implemented through a partnership between public and private sectors. The use of thistechnology should be utilised in the first instance in China and in India.
The BDRT considers that great effort should be made in the development of renewableenergies, including in the need for the required incentives.

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China: BDRT Members noted with satisfaction the progress made by China’s economy.
Indeed, such an evolution, provided it occurs at a steady pace, is a source of new business
opportunities.
BDRT Members were, however, concerned by some of the various impacts of Chinese
foreign trade on the world economy. Recent price hikes for primary goods, such as energy,
and a sudden increase in Chinese exports have had negative consequences for some
sectors or countries, in particular for Least Developed Countries.
A harmonious development implies for China a respect for all the obligations to which itcommitted itself, particularly those relating to IPR, when joining the WTO.
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BDRT Members consider that every effort must be made to increase the efficiency ofenergy and other natural resources, including through cooperation between the EU, Japanand China.
The BDRT underlined that the EU-Japan economic relationship still has to reach its fullpotential and praised the continuous efforts made by both business communities to support
the respective Authorities in strengthening the economic and trade partnership.

I. B.

Highlights of main Recommendations

Trade & Investment
The BDRT Members welcomed the adoption of a "Cooperation Framework for Japan-EU
Two-way Investment Promotion" by the heads of the EU and Japanese Authorities in June lastyear. They would like to emphasise, however, that the framework is only a first step and thatit needs to be substantiated by concrete measures with substantial impacts on the two-way
investment between Japan and the EU.
Optimising returns of investment is crucial in stimulating investment and trade flows between
the two regions. BDRT Members would, therefore, encourage both Authorities to addresscontinuously the important issues of avoiding double taxation, reducing compliance costs
associated with transfer pricing and participation exemption. The new U.S.-Japan tax treaty
could serve as an example for encompassing tax treaties to be negotiated also between thegovernments of the EU and the government of Japan. In order to give the efforts to reducecompliance costs associated with transfer pricing a fresh start, the Working Party
recommends Japan and EU Member States to establish a joint forum, similar to the JTPF (EUJoint Transfer Pricing Forum) established between EU Member States. To expedite thenegotiations on Social Security agreements, BDRT Members furthermore recommend the
Authorities to consider utilising external resources.
BDRT Members are encouraged by the continuous close dialogue between the EU and Japanon regulatory reforms. Much more effort, however, is still needed if unreasonableauthorisation procedures hindering the trade of products and services are to be fully abolished.
In order to avoid the creation of a new barrier to trade when introducing new standards, amechanism should be put in place to ensure standard convergence.
Forms of legal presence and merger measures allowed are of critical importance for thedevelopment of foreign business in Japan and the EU alike. BDRT Members therefore
maintain that companies investing in Japan and the EU should be protected from suddenchanges in rules governing the forms of legal presence. Improvements of Company Laws
under way in the EU and Japan should, furthermore, be carried out in full to facilitate smoothcross-border reorganisations between the EU and Japan that involve the exchange of sharesand transfer of assets.
The BDRT takes note of real progress made during the past year but maintains that it isimportant to accelerate the implementation of all Recommendations in order to eliminate theoutstanding structural barriers to investment and trade between the EU and Japan.
Accounting & Tax Issues
BDRT Members understand that the Committee of European Securities Regulators (‘CESR’)has been asked to give technical advice on the equivalence of IAS/IFRS and third-country3

GAAP, and the European Commission will take a final decision after considering both the
CESR’s advice and the actual impact on the economy. They ask the European Commission totake a decision after careful consideration that minimises the cost and inconvenience to users
and providers of J-GAAP following receipt of the final technical advice.
BDRT Members ask the public Authorities to observe closely the process of rule-setting andrevision by the IASB and to have regard for the interests of companies and investors (whether
European or Japanese) in the opinions they transmit to the IASB, in particular in its
Performance Reporting project.
BDRT Members welcome the news that the European Commission intends to present in 2006
a Communication on the Member States’ bilateral tax treaties and ask that the European
Commission use this opportunity to encourage the Member States to revise those treaty
provisions concerned with the reduction of certain withholding taxes and to enter into
common agreements with the Government of Japan in order to realise fully the benefits of thesingle market.
Information and Communication Technologies
The year 2005 will be a turning point in light of ICT policies for both the EU and Japan. The
BDRT expects both Authorities to steadily continue and intensify their efforts to ensure
achievements of the goals specified in policies, and to carry out an objective review of theachievements. Furthermore, both Authorities should create visions and lay out plans ranging
to 2010, to promote advanced ICT societies that realise the “quality of life” of every citizen.
In the Recommendations for 2005, the BDRT expects both the European Commission and theJapanese Government to take remaining steps in view of the establishment of infrastructures,
security of infrastructures, and efficiency through ICT, while developing a cooperative
relationship for the realisation of a “quality of life” with ICT.
Both Authorities should address promotion of broadband usage, establishment of a seamless
ubiquitous network environment between fixed and mobile, R&D for ensuring secure ICT
infrastructures, and appropriate regulations. Especially in the area of information security,
they should have continuous talks in forums consisting of industry, government and academia,
for example, to ensure secure ICT infrastructures.
Members of the BDRT highlighted the need to tackle the digital divide. They discussed theimportance of both Authorities creating a favourable environment, which acts as an incentive
for investment in the dissemination of new ICT technologies.
Moreover, it is expected that both Authorities will realise a “ubiquitous network society”, inwhich every citizen can enjoy the benefits of ICT, by promoting the study and analysis ofeffects of the rapid spread of ICT on citizens and societies, appropriate policies on IPR, andexperiments and proposals on new work-styles with advanced utilisation of ICT, and lead thecreation of a new stage of ICT utilisation.
WTO
BDRT Members expect the European Union and Japan to work closely, together with other
WTO Members, to ensure the achievement of a substantive agreement at the sixth WTO
Ministerial Conference to be held in Hong Kong in December 2005.
Economic progress in developing countries should be pursued further at the New Roundnegotiation. Developing countries are essential players for a stable and prosperous global
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economy, and liberalisation of multilateral trade and investment is truly beneficial for socialand economic progress in developing countries.
The ongoing New Round negotiation is immensely important for all stakeholders in themultilateral trading system, in terms of economic growth, stability and development. BDRTMembers request the European Union and Japan to pursue solutions, through close bilateraldialogues, to advance the negotiation at every opportunity, and to exert their maximum efforts
for a successful conclusion of the New Round.
Life Sciences and Biotechnology
The second joint bio-seminar was held in April 2005 in Lyon, France, in association with
BioVision 2005, one of the three biggest bio-conferences in the world. BDRT Members werepleased to have the participation of EU Commissioner Mr. Verheugen, Member of the Houseof Representatives Mr. Omi, and government officials from Research DG, MEXT, and METI,
as well as industry representatives from the EU and Japan.
The action plans for the promotion of LS/BT were issued by the Authorities in 2002. The
BDRT acknowledges that some improvements have been made; however, insufficient
progress has been seen in certain issues. The LS/BT Working Party requests that more
attention be paid to the implementation of those, in particular with regard to plant technology.
This year, the LS/BT Working Party proposes the continued implementation of those
programmes and also the strengthening of functions for pre- and post-evaluation of R&D
projects. In 2006, new mid-term plans for Research and Development will start both in the
EU and Japan: Framework Programme 7 and the 3rd S&T Basic Plan; the Working Party calls
for prioritised engagements of the Authorities with regard to the LS/BT field in those plans.
Although the understanding of the public is essential for the smooth realisation of LS/BT
benefits for society, a holistic approach for this has been insufficient both in the EU and Japan.
The BDRT proposes that both Authorities establish a “National LS/BT Understanding
Promotion Plan” for a nationwide strategic approach to the issue. This will also encourage theproper implementation of the existing frameworks for GMOs, which is the top priority for
Industrial as well as Plant Biotechnology.
In the fields of LS/BT, it is important that all stakeholders such as governments, industries,
consumers and the public work together for the goals of realising a healthy and affluent
society. In order to create awareness of common issues we are facing, communications
between governments and industries are valuable and have to be strengthened by maintaining
opportunities for constructive discussions on topics such as evaluation and pricing systems forinnovative medicines, concrete plans for promotion of BT public understanding, and smoothand efficient implementations of BT strategic action plans.
Sustainable Development
While confirming 2004 Recommendations, the BDRT focused its 2005 Recommendations on
Global Warming issues. The Kyoto Protocol became effective in February, and discussionsof the post-Kyoto framework (beyond 2012) will start this year. The BDRT stresses major
greenhouse gases emitting countries such as the USA, China and India should participate not
only to reduce emissions on a global scale but also to secure the competitive position of EU
and Japanese industries. They also emphasise the importance of promoting technologicalinnovation including public and private joint funding. Effective use of the Kyoto Mechanisms,
such as CDM and JI, is also recommended for reducing emissions on a global basis.

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The BDRT recognises that there is potential to reduce CO2 emissions by developing energysaving products and services and by diffusing them on a global basis. It is important to work
together with participation of the Authorities, industry and the public for prevention of global
warming, especially to educate and cultivate the population to contribute to greenhouse gases
reduction. The BDRT recommends that technological development of renewable energy as
well as hydrogen energy be promoted from a mid- to long-term point of view.

I. C.

Assessment of the Progress Reports issued by the Authorities

The BDRT Members think it is important to review how the past Recommendations are
implemented or followed up by the relevant Authorities. In this context, the BDRT is very
grateful for the Progress Reports in which the EU and Japanese Authorities provide a detailed
status to every recommended item several months after the submission of the BDRT
Recommendations every year.
Last year the BDRT submitted 89 Recommendations, including sub-items, of which 35 items(39%) have been assessed by the BDRT Members as progress undertaken. Implementation of
the Recommendations by the Authorities has shown much better results than last year, and yet,further improvement is desired since the majority of the Recommendations are still awaiting
action. This year even more Recommendations have been made by the BDRT Members.
Among the Recommendations which were assessed as ‘Progress Undertaken’, some examplesof the major items are as follows:
Trade and Investment
1-EJ-1: Joint declaration on direction to enhance foreign direct investment between
the heads of the Authorities of the EU and Japan.
1-J-4: Creating a strong competition regime.
1-E-1-3: Proposal on cross-border mergers of companies with share capital.
1-E-4: Personal Data Protection.
Accounting and Tax Issues
2-EJ-2: Close observation on process rule-setting and revision by the IASB.
2-J-1: Promotion by GOJ for consistency of Japanese accounting standards with
IAS.
2-E-1: European Commission’s consideration to encourage Member States to allow
Japanese companies to use Japanese GAAP after 2007.
Information and Communication Technologies
3-EJ-1: Revision of target number of broadband subscription.
3-EJ-2: Promotion of broadband utilisation.
3-EJ-3: Establishment of secure network environment.
3-EJ-4: Establishment of PDCA cycle for evaluation of IT policy development.
Life Sciences and Biotechnology
5-EJ-1: Expedited implementation and review of 2002 Action Plans.
5-EJ-2: Dialogue between the Authorities and industry on Action Plans including
harmonisation of regulations, public understanding, best practice sharing.
5-E-7: Re-commence the process for market approvals of GM-technology products.
5-J-5: Establishment of standards for bio-materials such as biodegradable polymers.
65-E-4:

Utilisation of Biomass as a sustainable resource.

Sustainable Development
6-EJ-1: Voluntary Actions.
6-EJ-2: Sufficient prior consultations.
6-EJ-4: Promotion of Technological Development of Alternative Energy.

I. D.

EU-Japan Centre for Industrial Cooperation

In this context, the EU-Japan Centre is expected to continue to support the EU-Japan
Business Dialogue Round Table and to keep adapting its activities to address the newchallenges.

7Part II
Policy Statement concerning theWorld Trade Organization

On the occasion of the 2005 annual meeting of the EU-Japan Business Dialogue Round Table(BDRT), business leaders from the European Union and Japan have adopted the following
message:
1.
The BDRT reiterates its strong support for the multilateral trading system and the
DDA, which are crucial to bolstering international economic growth and helping developing
countries integrate into the global economy.
2.
The BDRT welcomes the progress in the WTO Doha Round achieved since the WTO
General Council of July 2004 in Geneva successfully put the DDA back on track. The BDRT
welcomes the EU and Japan taking instrumental roles in this, including their flexibilities
shown on the so-called “Singapore Issues”.
3.
Having some concerns about future prospects, however, the BDRT calls on the EU
and Japan to work closely together, and with other WTO Members, to ensure that the Hong
Kong Ministerial Conference in December 2005 achieves a balanced and significant result inview of a rapid conclusion of the Round. The BDRT hopes that the General Council Meetingscheduled in July this year will reach the first approximation of the Hong Kong agreement
which may provide a clear way forward in all areas.
4.
On industrial products, the BDRT underlines the need to maintain ambition in terms ofachieving genuine and substantial market opening. To that end, the BDRT supports the Swiss
formula which reduces tariff peaks and high tariffs of Member countries. In addition, the
BDRT would welcome sectoral initiatives that further liberalise trade by reducing or
eliminating tariffs in sectors of interest to Member countries. While believing that special anddifferent treatment for developing countries is an integral part of the modalities, the BDRT isconcerned about the potential for excessive flexibilities to undermine our goal of achieving
real market opening.
5.
On services, the BDRT is particularly concerned about the current state of play.
Services are one of the main pillars of the DDA, but so far progress in services negotiations
has been slow, and they are lagging behind other negotiating areas. Services negotiations
should match the level of ambition of other negotiating areas. All WTO Members have an
important stake in these negotiations and should contribute with substantial offers in services
trade. Considering the place of this sector in the economy of developed countries, anincreased access to the services market will offer new prospects to developing countries.
6.
With regard to agriculture, which remains a key factor of the DDA, the BDRT
reiterates the importance of achieving progress in the agricultural negotiations and encourages
all Members to show the required flexibility to reach a balanced agreement.

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7.
The issue of geographical indications should also be elaborated in an appropriatemanner.
8.
The BDRT supports the development of an ambitious and specific set of rules on tradefacilitation across all elements of the negotiating mandate. The BDRT recognises that theother Singapore Issues (investment, competition and transparency in government
procurement) are not for negotiation in the DDA but underlines the importance of keeping
them in the WTO. Other rules issues, such as anti-dumping, are an integral and importantpart of the DDA and need to be effectively addressed.
9.
There is a need to continue to build on efforts to address developing countries’
concerns, including with respect to capacity building, and to deliver results, including onmarket access, to ensure that Least Developed Countries participate actively in the DDA. All
WTO Members should make serious efforts in this regard.
10.
The BDRT congratulates the WTO Members on the choice of Mr. Pascal Lamy as the
new WTO Director-General. With his strong trade background and qualifications, Mr. Lamyis well placed to build consensus and lead the WTO at this important stage of the DDA.
11.
The BDRT encourages the EU and Japan to keep strong bilateral contacts and coordinate their positions closely on the DDA in order to help drive the DDA forward,
recognising the significant importance of the negotiation resumption for a successful
conclusion.

9Part III
Recommendations by Working Parties
The items of Recommendations by both the EU and Japanese Round Table Working Parties
are presented in this section.

WP 1 Trade and Investment
WP 2 Accounting and Tax Issues
WP 3 Information and Communication Technologies
WP 5 Life Sciences and Biotechnology
WP 6 Sustainable Development

10Working Party 1

Trade and Investment”
Recommendations to the EU and Japan
1-EJ-1 Concrete and focused actions to follow up the investment framework agreement toenhance foreign direct investment (Joint recommendation)
1. The heads of governments of the EU and Japan should follow up and expand the‘Cooperation Framework for Japan-EU Two-Way Investment Promotion’ adapted at the
EU-Japan Summit in Tokyo 2004. Concrete measures with substantial impact on
investment between the EU and Japan should be elaborated.
2. Such measures should be assessable and clearly focused on the following fourpriorities: the optimisation of the returns on investment; supporting timely developmentof business; supporting timely and smooth business reorganisation; and promotion ofregulatory reforms.
3. The results of the reviews of its progress should be communicated promptly to the
BDRT as well as to the general public.
1-EJ-2 The optimisation of returns on investment (Joint recommendation)(1)Avoidance of double taxation
The two authorities should exempt dividend payments from subsidiaries to parent
companies and royalty and interest payments between related companies fromwithholding taxes. The Japanese government, in addition, should introduce measures
to avoid the reduction of the ceiling of foreign tax credits as a result of such an
exemption.
The European Commission should promote co-operation between Member States intheir efforts to make bilateral tax treaties with third countries. The planned
communication for next year on the subject may be an appropriate starting point.
(2)Reducing compliance costs associated with transfer pricing
A reduction of compliance costs of transfer pricing through simplification andrationalisation of transfer pricing regimes in a coordinated manner will increaseinternational competitiveness of businesses in the EU and Japan. The two authorities
should establish a joint forum, similar to the JTPF established between EU Member
States, for the following purposes:
1.To harmonise and simplify interpretation and documentation requirements
between the EU and Japan and among the EU Member States in order to reduce thecosts of compliance to various transfer pricing taxation regimes.
2.To make the conclusion of bilateral and multilateral APAs (advance priceagreements) between the EU Member States and Japan easier and cheaper byimproving procedures.
(3) Participation exemption
The governments of the EU, the EU Member States and Japan should, as a medium
to long-term objective, consider the introduction and/or expansion of participation
exemption regimes in order to promote direct investment between the EU and Japan.
1-EJ-3 Supporting timely development of business (Joint recommendation)(1) Smoother and swifter transfer of personnel
1. Social security contributions
The two authorities should introduce measures to avoid double contributions tothe social security systems of both home and host countries by intra-corporatetransferees through the accelerated introduction of social security agreements. In
addition, they should introduce an interim measure since it is likely to take a longtime to conclude bilateral agreements between all the EU Member States and11

Japan. Such an interim measure could be either unilateral exemption by the hostcountry or refund of contributions to pension funds by the host country when such
expatriates return to the home country.
Research work should be outsourced to external think tanks.
To facilitate the negotiations on Social Security agreements, external think tanks
should be contracted to do the basic research and provide adaptable agreement
texts to be adopted by governments within a period of five years.
2. Work and residence permits
The two authorities should simplify and accelerate the procedure to obtain a workand residence permit – or a residence permit for self-employed statutory directors– for intra-corporate transferees between the EU and Japan. The procedure should
include the possibility to submit an application for a work-residence permit or aresidence permit for self-employment after entering the assigned country.
Furthermore, spouses should be automatically granted the same rights as theholder of the permit, such as a work-resident permit and a residence permit for
self-employment, upon their arrival.
(2)Data Protection: International Data Transfer
1. Japan’s Data Protection Law should be amended in a way that it could satisfy thelevel of protection required by the EU’s Data Protection Law to permit the transferof personal data from the EU Member States to Japan.
2.The EU should re-examine the current standard contractual clauses between a data
controller and a data processor whether they are workable and sufficiently flexible
in the light of modern business practice and experience.
1-EJ-4 Guaranteeing stable rules for choice of legal presence and facilitating businessreorganisation from a legal and tax point of view (Joint recommendation)
1. Improvements of Company Laws under way in the EU and Japan should be carriedout in full to facilitate smooth cross-border reorganisations between the EU and Japanthat involve exchange of shares and transfer of assets. Companies investing in Japan andthe EU should be protected from sudden changes in rules governing the forms of legal
presence acceptable for conducting business.
2. Tax law should be improved in order to expand the scope of tax deferral on
unrealised profits resulting from business reorganisations including those involving
exchange of shares and transfer of assets.
1-EJ-5 Promotion of regulatory reforms (Joint recommendation)
The EU and Japan should continue to cooperate with each other through their ongoingregulatory reform dialogue with the goal of creating an open environment for trade andinvestment.
The EU and Japan should abolish unreasonable authorisation procedures related to
products and services, and continue to pursue mutual recognition of product standards,
certification and notification. It is equally important that both authorities cooperate
when introducing new standards to assure standard convergence and avoid the creationof future barriers to trade.

Recommendations to the EU
1-E-1 The policy of the EU on taxation (Japan-side recommendation)
1. The European Commission and the Member States should realise a common
consolidated corporate tax base as soon as possible.
2. Merger Directive (90/434/EEC)
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(a) Its scope should be extended to include the deferral of taxation on unrealised gains
on goodwill.
(b) Its scope should be extended to include deferral of taxation on the transfer of realestates and other intangible assets.
(c) The requirements in certain Member States to maintain the holding of shares for anumber of years should be abolished.
3. Concerning the EU Transfer Pricing Documentation - the EU TPD – the EU and theMember States should commit themselves to exemption from penalties (i.e. penalties
related to non-compliance with documentation requirements, penalties related totransfer pricing adjustments and interest related to adjustments) if a company submits
an EU TPD acting in good faith and in a timely manner.
4. Although VAT is a common taxation system in the EU, difference among Member
States is so large that companies find it very difficult to centralise VAT
administration. The EU and the Member States should simplify and harmonise it to
the extent that companies can centralise VAT administration easily without
employing people with expert knowledge of the VAT regime in each country inwhich it is operating.
5. The European Commission and the Member States should make swift progress inrealising the cross-border offset of losses against profits.
1-E-2 The policy of the EU on company law (Japan-side recommendation)
1. The proposal for a Directive of the European Parliament and of the Council on crossborder mergers of companies with share capital (a 10th Company Law Directive)
should be adopted and implemented without delay.
2. A 14th Company Law Directive on the cross-border transfer of the registered officeof limited companies without liquidation and incorporation should be proposed,
adopted and implemented as soon as possible.
3. A Statute for a European Private Company should be introduced as a short-term
priority.
1-E-3 The policy of the EU on corporate governance (Japan-side recommendation)
Corporate governance and its disclosure make sense only if it is applied to the entire
group companies in a consistent way. Corporate governance and its disclosure,therefore, should be regulated at the level of listed companies where disclosure toshareholders is crucial.
The European Commission should coordinate EU Member States and introduce a
guideline in order to make sure that corporate governance and its disclosure is regulated
at the level of listed companies.
Adoption of a code should be voluntary and companies should comply with the adopted
code based on the principle of 'comply or explain'.
1-E-4 Japanese expatriates (Japan-side recommendation)
The EU should introduce a fast track procedure for Japanese nationals who are alreadylegally resident in a Member State when he or she moves to another Member State for
economic activities or other reasons.
1-E-5

1-E-6

Pension (Japan-side recommendation)
The European Commission and the Member States should eliminate double taxation
related to occupational and supplementary pensions as soon as possible.
Community Patent (Japan-side recommendation)

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The proposal for a Council Regulation on the Community patent should be adopted andimplemented as soon as possible.
1-E-7 Fight against counterfeited, pirated and contraband goods(Japan-side recommendation)
Fight against counterfeited, pirated and contraband goods should be reinforced at the
new and extended border of the EU.
1-E-8 Tariffs and tariff classification (Japan-side recommendation)
1. Compared with other developed nations, the European Union (EU) imposes hightariffs on certain manufactured goods (for example, duties on audiovisual electricalappliances: EU 14%, Japan almost 0%; duties for automobiles: EU 10%, Japan 0%,
United States 2.5%). These should be eliminated or reduced.
2. Tariff classifications must be appropriate, timely and transparent, based on the
primary function of the manufactured good at the time of import. Importers find thatclassification remains unpredictable because of inconsistencies in the interpretation of
the tariff schedule by the EU.
1-E-9 The decision-making system of the EU (Japan-side recommendation)
The EU and its Member States should pursue institutional reforms so that the EU could
speed up its decision-making. In the corporate taxation area, in particular, unanimity
requirements in the Council should be abolished in the area where uncoordinatedtaxation policies of Member States could become obstacles to cross-border businessactivities.
1-J-1

Recommendations to Japan
Maintaining stable rules for the legal presence of foreign companies(Europe-side recommendation)
The Government of Japan should use all means available, including revision, to ensurethat Article 821 introduced recently without adequate public notice into the JapaneseCorporation Law does not constrain forms of legal presence available for foreigncompanies in Japan. Forcing foreign companies into detrimental reincorporation bysuddenly changing the legal framework governing forms of legal presence substantiallydamages investor confidence in Japan.

1-J-2 Promoting economic growth through decisive reform (Europe-side recommendation)
It is important that the Japanese Government continue pursuing its structural reform
agenda so that the current economic recovery can be maintained.
1-J-3 Modernising legal and tax systems to support foreign investment(Europe-side recommendation)
The Company Law and relevant corporate tax laws should be revised to allow for crossborder share exchanges on a tax-neutral basis. Swift introduction of the triangularmerger scheme into the new Corporation Law is of the highest importance.
1-J-4 Take-over defences should be introduced with caution (Europe-side recommendation)
Take-over defences outlined in the new Corporation Law shall be introduced only withproper shareholders’ rights protection in place. We support the Guidelines outlined by
the Ministry of Economy, Trade and Industry first and then also the Ministry of Justice
but are concerned that these are not yet legally binding.
1-J-5 Championing business activity at the local level (Europe-side recommendation)

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More private sector involvement in the delivery of public services should be encouraged
through the use of PFI/PPP schemes. Local governments should also take a moreproactive role in attracting investment beyond their current promotion efforts, forexample, by offering special tax and/or regulatory incentives to potential investors.
Cities and prefectures should be better co-ordinated in their incentive packages, andexisting regulatory incentives should be made easier to understand for potential
investors.
1-J-6 Privatisation of Japan Post (Europe-side recommendation)
The privatisation of Japan Post is an important element of the Japanese Government’s
ongoing structural reform efforts and, if implemented effectively, will contribute to thereinvigoration of the Japanese economy. It is imperative, however, that the frameworkfor privatisation ensures a level playing field for private sector competitors in Japan
Post’s three core business lines: insurance, banking and delivery services. The
privatisation scheme as presented in the package of bills submitted to the parliament inApril 2004 does not go far enough in separating the branches of operation. Crossshareholding between the holding company and the entities (mail services, postal
savings, postal life insurance and the branch network) should not be accepted as it will
enable centralised group management after full privatisation in 2017 with the risk ofcross-subsidised financial products on the market.
1-J-7 Facilitating business development through regulatory reform(Europe-side recommendation)
The Japanese Government’s regulatory reform programme should be strengthened bygiving the new Regulatory Reform and Privatisation Promotion Council extra powers to
implement the Government’s “3-year Regulatory Reform Programme” and by
expanding the special deregulation zone initiative. Special attention should be paid toregulatory reform recommendations made in the context of the EU-Japan bilateralregulatory reform dialogue and recommendations submitted by European businessorganisations such as the Council of the European Business Council in Japan.
1-J-8 Ensuring transparency and consistency in the regulatory process(Europe-side recommendation)
Japanese regulators should make more efforts to improve the transparency andconsistency of regulation, including for tax-related matters. When new laws areformulated they should with no delay be accompanied with clarifying orders.
1-J-9 Modernising Japan’s food additives list (Europe-side recommendation)
The remaining 43 as yet unapproved food additives in the list of 46 submitted by the
Ministry of Health, Labour and Welfare (MHLW) to the Food and Sanitation Control
Council on December 19, 2002 should be reviewed and approved for use in Japan
without delay. The time schedule for approval should be made public by the Food
Safety Commission.
1-J-10 Protecting test data in new drug applications (Europe-side recommendation)
Protection for data submitted as part of a new drug application should be madeequivalent to the protection currently provided for in Europe. We support theFederation of Pharmaceutical Manufacturers’ Association of Japan (FPMAJ) call for aneight-year protection period, noting that a similar period of protection was approved by
the EU Council on March 11, 2004.
1-J-11 Strengthening market mechanisms in the telecommunications sector
15

(Europe-side recommendation)
Japan should not introduce universal service funding obligations. Non-traffic-sensitive(NTS) costs should not be transferred from the interconnection charge into a universal
service funding scheme.
Japan should maintain its current policy approach of non-intervention in the mobile
market, as this strikes the right balance between vigorous price competition andsustainable investment in innovative products and services.
Japan should ensure that the criteria for allocating growth spectrum do not entrenchdominance and unfairly disadvantage competitors by starving them of spectrum andfrustrating their growth.
There should be a legislative requirement that the regulator make decisions based on
objective economic factors, with specific references to internationally accepted tests,
such as “the long-term interests of end-users”, “efficiency”, “innovation”, “investment”,
and “effectively competitive outcomes”.
The existing obligations on bottleneck facilities do not adequately safeguard abuse of
dominance. They need to be strengthened by:- Requiring NTT to notify and price on tariff in market segments where it is dominant;- Requiring NTT to publish regulatory accounts horizontally across its different
businesses and vertically between the network and retail parts of its horizontal business;and- Strengthening firewalls to prevent NTT from leveraging its dominant position in thelocal loop into new business areas.
1-J-12 Promoting EU-Japan cooperation in commercial aircraft development, production andprocurement(Europe-side recommendation)
1. Competition in the procurement of commercial aircraft will benefit all airline
companies and passengers and could contribute to promoting the Japanese government’s
plan to double the number of foreign tourists to Japan within five years.
2. By buying large aircraft for official government use from various suppliers, theJapanese government would follow the positive example of the private sector which hasrecognised the advantages of multiple-sourcing.
1-J-13 Foreign tax credit (Japan-side recommendation)
The Japanese government should expand the number of tiers covered by its foreign tax
credit system considerably. Furthermore, the minimum shareholding requirement
should be reduced from the current 25% to 5 or 10%.
1-J-14 CFC rules (Japan-side recommendation)
We recommend the following three points concerning Japanese CFC rules.
1. To exempt profits for re-investment.
2. To increase certainty in their application.
3. To reconsider of Exception.

16

WORKING PARTY 2 : ACCOUNTING AND TAXATIONACCOUNTING ISSUES
2-E-1
KEY POINTS OF RECOMMENDATIONS(i) We understand that the Committee of European Securities Regulators (‘CESR’) has
been asked to present technical advice on equivalence of IAS/IFRS and third-country
Generally Accepted Accounting Principles (‘GAAP’) and that the European Commission
will take a final decision considering both CESR’s advice and the actual impact on theeconomy. We ask that the European Commission decides after careful consideration tominimise the cost and inconvenience to users and providers of J-GAAP following receiptof CESR’s final technical advice.
(ii) In addition we ask that the European Commission makes every effort to adopt a
prompt decision, well before the 1 January 2007 deadline, on the equivalence of J-GAAP.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONS
In our report last year we recognised the need to examine the question of equivalence
between International Accounting Standards/International Financial Reporting Standards(‘IAS/IFRS’) and third-party GAAPs, and we commented that we wished to add our voice
to those of other stakeholders calling for broad-based and urgent discussion of the issue.
We welcome the European Commission’s decision to refer the matter to CESR.
Since we reported, CESR’s technical advice has been presented as a consultation
paper. CESR found that the GAAPs of the US, Canada and Japan were equivalent to
IAS/IFRS. However the advice identified four areas of significant variance between JGAAP and IAS/IFRS. As matters stand at present, the elimination of these variances will
require companies using J-GAAP in the EU after 1 January 2007 to file separate accounts
for the areas in question.
2–E–2
KEY POINTS OF RECOMMENDATIONSGiven that the European Union’s Emissions Trading Scheme (‘ETS’) is now in operation,
we ask the European Commission to endorse widely accepted accounting rules on
emissions rights.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONSIn advance of the introduction of ETS on 1 January 2005, the International Financial
Reporting Interpretations Committee (‘IFRIC’) issued a draft interpretation to guideaccounting treatment of emission rights.
This was not endorsed by the European Financial Reporting Advisory Group (‘EFRAG’),
which provides technical advice to the European Commission. Thus a new interpretation
has to be presented by IFRIC.
2 - EJ - 1
KEY POINTS OF RECOMMENDATIONS
We ask that the public authorities in Japan and the European Union make steady progress
towards adoption and implementation of IAS/IFRS.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONS
We recognise IAS/IFRS has been adopted in the EU with the exception of certain
provisions in fair value accounting for financial instruments.
We note that the Accounting Standards Council is examining how financial documents
based on IAS/IFRS are positioned in terms of the Japanese legal system and look forward
to early results from this important work.
17

2 – EJ - 2
KEY POINTS OF RECOMMENDATIONS
We ask the public authorities to observe closely the process of rule-setting and revision by
IASB and to have regard for the interests of companies and investors (whether European orJapanese) in the opinions they transmit to the IASB, in particular in its Performance
Reporting project.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONS
We welcome and support the progress that has been achieved in adopting IAS/IFRS.
We have registered in earlier recommendations our concern that the opinions of business
users of accounting standards, as distinct from those of technical experts and standards
setters, do not always appear to be as fully reflected as we should wish, and we reiteratethat concern here, in view of development in discussion of the Performance Reporting
project.
The IASC is now reviewing its governance and we welcome efforts of the EC and theGovernment of Japan that published their views on such matters as due processes to set
accounting standards in the IASB.
2 – EJ – 3
KEY POINTS OF RECOMMENDATIONS
Concerning research on the introduction of reports on internal control over financial
reporting, we ask that both governments sufficiently discuss the function of internal control,
correlating with each mechanism to improve credibility of financial reporting, such as
corporate governance, audits on financial statements and oversight over companies andindependent auditors.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONSIn Japan, introduction of management’s assessment and auditors’ attestation on companies’
internal control over financial reporting has been discussed by the Accounting Standards
Council. On the other hand, the EU proposed to adopt International Standards on Auditing(ISA) for statutory audits of financial statements and International Auditing and AssuranceStandards Board (IAASB), which sets ISA, considers the possibility to put reporting on
internal control on its agenda.
In the US, which introduced such a system earlier, while it was appreciated thatreinforcement of internal control reviews contributes a deterrent effect on accounting
frauds to some extent, it was also pointed out that costs of compliance were far higher than
anticipated. It is necessary to carefully examine the balance of benefits and costs, reflecting
needs in the capital market, and a deliberate attitude should be taken to introduce such amechanism.
2 – EJ – 4
KEY POINTS OF RECOMMENDATIONS
Recognising that convergence of international standards of accounting, auditing, anddisclosure is an objective, we ask that the public authorities adopt mutual recognition as ashort-term target on a course toward convergence in the future.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONS
We fully support convergence of standards of accounting, auditing and disclosure, and we
recognise that this is an objective that will take some time to achieve because sufficient
discussion and building consensus among participants in the market are necessary. To
eliminate practical obstacles quickly for smooth capital financing, even at a stage thatconvergence is not completed, we ask that the public authorities adopt timely mutual
recognition as a short-term target on a course toward convergence in the future, under thecondition that those standards fulfil common minimum standards.

18

TAX ISSUES
2–E–3
KEY POINTS OF RECOMMENDATIONS
We welcome the news that the European Commission intends to present in 2006 a
Communication on the Member States’ bilateral tax treaties and ask that the European
Commission use this opportunity to encourage the Member States to revise those treaty
provisions concerned with the reduction of certain withholding taxes and to enter into
common agreements with the Government of Japan in order to realise fully the benefits ofthe single market.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONS
The income tax treaty between the USA and Japan has come into effect in January 2005.
The main feature of the revision is the reduction or elimination of certain withholding taxes.
We hope that it can be replicated in relations between the GOJ and the EU’s Member States.
We believe that the relevant treaties between Japan and the EU Member States would
benefit from renewal. For example, the treaties with Germany, Italy and the UK are over
30 years old. We welcome that the Netherlands and the United Kingdom have started tonegotiate with Japanese tax authorities to revise their tax treaties in 2004.
We recognise that the Member States and not the Commission decide taxation. We ask theCommission to take whatever steps it can to invite the Member States to ensure that there isconsistency between new treaties they may agree with the GOJ. The integrity of the single
market would be damaged if there were to be significant differences between Member
States’ treatments of withholding taxes.
2–J–1
KEY POINTS OF RECOMMENDATIONS
We ask that the Government of Japan quickly reform the consolidated tax system, allowing
the carrying forward of tax losses in subsidiaries incurred before the system came into
effect, exempting revaluation of subsidiaries at the initiation, and allowing tax deduction oftransfers between consolidated entities.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONS
We believe that the GOJ should reform the system because discriminatory treatments ofconsolidated taxation remain though the 2% surtax was abolished.
2–J–2
KEY POINTS OF RECOMMENDATIONSIn order to promote mutual investment between the EU and Japan, the BDRT asks theGovernment of Japan to reduce or eliminate certain withholding taxes.
ADDITIONAL INFORMATION IN SUPPORT OF RECOMMENDATIONSLast year we noted that the Governments of Japan and the USA reached agreement inNovember 2003 to revise the income tax treaty between their two countries with theintention of reducing or eliminating certain withholding taxes. We welcomed this decisionand hoped that it could be replicated in relations between the GOJ and the EU’s Member
States. We repeat this request.

19

Working Party 3
Information and Communication Technologies
Further Challenges for Quality of Life with ICT
1. Introduction
2005 is a decisive year for Japan and Europe as it is the final year for the e-Japan Strategy andthe Science and Technology Basic Plan in Japan, and the starting point for a new era under
the revised Lisbon agenda focusing on growth and jobs in Europe. At this turning point for
the EU and Japan, both authorities should steadily continue their efforts to ensure higher
utilisation of ICT by setting up and implementing programmes, based upon objective reviewsof the achievements of previous plans. ICT is already having a disproportionate impact on
productivity and growth, but it should and can play an even bigger role in economic andsocial development in both regions in the future. The sector is ready to increase investment
substantially in order to introduce the next generation of networks, services and develop new
business models. Both authorities should remove existing barriers, in particular regulatory, tomajor investment in networks and services in order to facilitate the role that ICT can play forthe economic development of Japan and Europe. Through an enabling framework andprogressive deregulation, policy makers in Japan and Europe can play a key role for the
stimulation of the sector.
2. Issues and recommendations
3-EJ-1: Promotion of broadband usage
Widespread availability and use of broadband networks are driving factors for the
improvement of competitiveness of both economies. E-entertainment services are important
for the take-up of broadband access. End users attracted by services beyond the PC, forexample, through mobile phones or digital TV, have an incentive to subscribe to broadband
services. Both authorities must ensure that the provision of e-entertainment services is nothindered by regulatory obstacles, such as, for example, inappropriate legislation on epayments. Another way to enhance broadband take-up is the development of large-scale epublic services. The public sector is a service intensive sector, which would gain a hugebenefit by further implementing ICT. Better and lower-cost services would be the result of
the introduction of large-scale e-public services. Governments should ensure that no legal
requirements prevent the delivery of public e-services to citizens.
•

Both authorities should enable development of mass market e-entertainment services
and give priority to large-scale public e-services.

3-EJ-2: Establishment of a seamless ubiquitous network environment
Both authorities should promote the development of seamless ubiquitous network
environments to allow users to access networks “anytime, anywhere” regardless of whichkind of network is used. In Europe and Japan, the issues of effective utilisation and system
improvement of wireless networks must be included in R&D activities. Radio spectrum
policy of both regions should be forward-looking.

20• Both authorities should coordinate as widely as possible when it comes to the preparationof the next World Radio Conference in 2007.
3-EJ-3: Ensuring secure ICT infrastructureManaging security, trust and privacy at all levels of ICT infrastructure is of key importancefor the future development of the market.
Therefore, ensuring availability of the ICT infrastructure by activities for the improvement of
reliability of the infrastructure is quite important, including prevention of disruption ofcommunications, clearance of exceptional traffic, and early recovery of services in case ofdisasters such as terrorism. Additionally, governments should work together to address thegrowing problem of computer-related crime. Worldwide open and transparent negotiations,following the example of the negotiations leading to the Council of Europe’s Convention on
Cybercrime, should be the way forward.
As ICT develops, some negative impacts of some human uses of ICT are growing, such asdefamation on a network, which takes place frequently nowadays in Japan. It is worrying thatfurther growth in these negative trends, which are becoming overt, will hinder technology
development and the spread of ICT. In this context research on the physiological andpsychological effects of the widespread use of ICT is useful in order to learn more about how
citizens and societies can benefit as much as possible from ICT.
For users Spam is a significant and growing problem, networks and the Internet as a whole.
Spam and cyber-security should be dealt with at appropriate national and international levels.
We therefore welcome the joint declaration Europe and Asia issued at an Asia-Europe(ASEM) conference on eCommerce, held in London on 21-22 February 2005. In thestatement on international anti-spam cooperation, government participants in the conferenceagreed to take action to fight spam nationally and to promote anti-spam efforts in internationalorganisations and by industry.
From a user perspective data protection laws, which guarantee privacy, are the most important
step to a secure ICT infrastructure.
•

Both authorities should have continuous talks to raise their awareness of the quality of
ICT infrastructure for ensuring secure ICT infrastructure, by promoting highly reliable
and secure system/products, information exchange and matching regulations between
them, and establishing a framework that can draw lessons from terror events and disasters.

3-EJ-4: Bridging the digital divide
ICT has the potential to combat the digital divide by empowering the unemployed, elderly,
sick and disabled to participate in society. Due to the complexity of digital divide issues
ranging from age over education to skills, a broad set of measures should be envisaged bygovernments. The plan of the European Commission to propose an Action Plan on egovernment for citizen-centred services in 2006 is one of several useful initiatives helping toovercome the geographic and social digital divide. A similar programme is incorporated in “eJapan Priority Plan 2004” as well as “u-Japan Policy”. The basic aim should be theimprovement of ICT literacy. A priority for governmental measures must be the promotion of
ICT education in schools.
• Both authorities should adopt every possible measure to improve ICT literacy, especiallyby promoting ICT education in schools. We encourage an exchange of information
between Japan and Europe on the success of these initiatives in order to mutually benefit
from experiences gained by the partner country when developing future initiatives.
3-EJ-5: Ubiquitous and interoperable platforms
21

Recognising the primary role of industry in developing voluntary, consensus-based standards
that promote interoperability, both authorities should foster the development of interoperable
software and systems allowing various networks, services and equipments to interconnect in aseamless way. Governments can assist by ensuring a smooth cooperation between different
industries and by including interoperability issues in their R&D efforts.
•

Interoperability of software and systems should be a relevant matter in R&D programmes
set up by governments.

3-EJ-6: IPR in a network society
The network society is a huge opportunity for right holders, as it is creating a new andcomplementary market for their offers. However copyright protection, effective copyrightenforcement and a secure environment for content is crucial for the development of thismarket. Especially the take-up of open, interoperable and standardised protection solutions
such as DRM should be fostered by governments, where appropriate.
On the other hand, data protection rules for individuals are also part of the regulatory
framework that has to be taken into account when dealing with this issue. Data protection isimportant in order to keep a relationship of mutual trust with customers. Furthermore, it has
been proven that a large choice of attractive and user-friendly legal content is a very effective
way to prevent users from piracy, regarding music and motion pictures, for example.
From a customer point of view it must be ensured that customers pay only once for content
through DRM systems and not twice due to levies on devices.
Another aspect the governments should take into account is the importance of patent
protection for IT-related innovations and the need for improvement of patent systems
worldwide. The EU and Japan also have a shared interest in seeing increased capacity ofother governments to protect IPR through effective policy infrastructures and adequate
resources for enforcement.
•

Governments should intensify their dialogue on the best way how to protect intellectual
property rights e.g. by promoting the use of protection solutions such as DRMs.

3-J-7: Barriers to market access (Recommendation from EU)
It is vital to ensure the international flow of both ICT products and services. Only when thebarriers to market access are abolished, can the ICT sector help to facilitate economic growthand productivity gains. Japan has recently reviewed its regulatory system for radio equipmentby introducing the Suppliers' Declaration of Conformity (SDoC) concept. However, theapplication of this concept has been currently restricted to very few radio interfaces and only
terminal equipment. Terminals increasingly accommodate several radio interfaces hence
requiring terminal manufacturers to resort to third-party certification when placing radio
products on the Japanese market. Japan should consider expanding the list of products subject
to the SDoC regime in terms of radio interfaces and type of equipment (i.e. including also
network equipment).
•

The Japanese government should continue to work towards eliminating barriers tomarket access.

3-EJ-8: Diverse working styles for ensuring quality of life
(Recommendation from Japan)

22

The realisation of diverse working styles that are fit to individuals’ lifestyles contributes to thequality of life of every citizen. A seamless and ubiquitous network environment must be
realised in workplaces. The environment must be configured so as to enhance businesses’
efficiency and extensively create job opportunities by realising a “ubiquitous office” and“enhancement of knowledge creativity”. This is to promote an advanced ICT utilisation forworkers in workplaces.
For that purpose, proposals on new working styles in the ubiquitous society are required.
•

Both authorities should take an active role in encouraging work-style conceptual
frameworks by promoting societal experiments and their evaluation by experts in various
areas of industry, academia, and government.

23

Recommendations 2005
Working Party 5: Life Sciences & Biotechnology
INTRODUCTION
This is the second report of Working Party 5 on Life Sciences & Biotechnology (LS&BT),
that was created in 2003.
LS&BT broadly cover healthcare, foods, industrial processes, environments, plants, etc. They
are social fundamental requirements for economic activities and are expected to be vital inorder to realise sustainability of the globe.
Economic growth depends on the development and use of new technologies and new products.
Equitable access to new technologies will, therefore, be crucial. LS&BT are important newtechnologies; both the EU and Japan have recognised this through development of Action
Plans in LS&BT strategies. The enlargement of the EU has triggered additional investment
opportunities linked with growth, competitiveness and increased employment.
LS&BT for Health, also known as “Red Biotechnology” in the EU, has already made an
impact on healthcare and will continue to contribute to improving human health and life
expectancy. Market share of biotech medicines has reached around 10% worldwide and is
steeply increasing into the future, especially in crucial disease areas such as cancer.
Historically, biotech medicine meant a product which was produced by biotechnology such asa protein drug. However, recently, biotechnologies are utilised widely in pharmaceuticaldevelopment even for traditional synthetic chemicals through target identification, drug
discovery, clinical development, and also post-marketing evaluations. Advancement of life
science and utilisation of biotechnology are essential to overcome diseases, and no one canassume the appearance of an innovative medicine without these.
LS&BT for Industrial/Environmental Uses (IEB), also known as “White Biotechnology” in
the EU, is the application of Biotechnology to achieve sustainable production of Biochemicals, Bio-materials and Bio-fuels from renewable resources, using living cells and/or
their enzymes. Undesired by-products are minimal and costly separation techniques may not
be required. Economic and ecological benefits are achieved simultaneously, making IEB an
important technology to generate sustainable production systems.
LS&BT for Plants, also known as “Green Biotechnology” in the EU, has the potential to
make traditional food production more efficient; it is also leading to the creation andimprovement of functional foods. With a growing worldwide population that is becoming
increasingly aged, the benefits of plant Biotechnology will be needed. It will be critical to
improve public acceptance of Biotechnology through intensified scientific discussion among
the many stakeholders in the EU and Japan.
1. General Recommendations
5-EJ-1

Continue to implement with urgency the Action Plans issued by the EU in
2002 and by Japan in 2002 through the strong initiatives by both Authorities.
Continuous review of these Action Plans is recommended to ensure that theykeep pace with advances in LS&BT and the changes of society. Further,24

project evaluation functions and inter-minister/inter-states coordination
should be strengthened.
5-EJ-2

Encourage Governments to establish “National LS/BT Understanding
Promotion Plans” by a strong governmental initiative in cooperation withindustrial and academic sectors for promoting public understanding of
biotechnology in the form of a strengthened education in biotechnology and in
the form of more direct Communication programmes. Encourage theacademic society to help by playing a greater role in fostering understandingin biotechnology.
• Cooperation to improve public understanding and acceptance of LS&BT.
• Reassessment and harmonisation of current regulations of the EU and Japan tofacilitate commercialisation of products of LS&BT.

5-EJ-3Make research for LS&BT a priority in public research funding schemes (e.g.
Framework Programme 7 in the EU and the 3rd term S&T Basic Plan inJapan)• Adoption of the final EU FP7 programme should confirm the importance of
research in biotechnology that was outlined in the initial Commission proposal of
April 2005.
• The Japanese government should position the LS/BT fields as top priority in the
3rd term Science & Technology Basic Plan starting in 2006.
Explanatory Notes

Biotechnology is a key technology, which can contribute considerably to the Healthcare,
Industrial and Agricultural sectors. Both Japan and the EU have prepared Action Plans to
support and further develop Life Sciences and Biotechnology.
Greater focus and effective co-ordination by Governments are required to implement these
Action Plans in an efficient and timely manner, in particular to ensure that the EU and Japan
can again compete effectively with the United States.
Implementation of the EU Action Plan for LS&BT is the responsibility of Member States, the
EU Commission, the industry and other stakeholders. Co-ordination and communication is
key.
Japan’s Action Plan has more of a central co-ordination through the Council for Science &Technology Policy (CSTP), but still, stronger co-ordination is needed. A continuous dialogue
between the EU and Japan and also between the Governments and industry on a regular basis
is very important to ensure effective implementation of the Action Plans and to resolve issues
or barriers relating to LS&BT.
With our joint EU-Japan seminar of the Japanese government and Commission officials, andindustry representatives we established a valuable means of exchanging views.
With respect to the implementation of the EU-Biotechnology strategy, the Competitiveness
Advisory Group stressed in its report (January 2005) that implementation has been patchy andthere remain some serious concerns, in particular:• R&D framework programmes as presently designed do too little to encourage
innovation.
• Entrepreneurship in biotechnology needs to be encouraged.
25

•
•
•
•
•

•

The complex and expensive system of patenting in Europe requires urgent attention.
The regulatory framework for all areas of biotechnology must not be over-stringent
and should ensure that requirements remain rational and science-based.
EU rules should encourage rapid patient access to important new medicines.
Of great concern is the continued politicisation by certain EU Member Statesconcerning decision-making for approval of biotechnology research and development.
Another point of concern is the lack of progress towards a clear harmonised regulation
for human cell and tissue-based. Europe is currently not taking advantage of its
innovative potential by letting this field linger on without harmonised regulations andtherefore without a clear basis for reimbursement.
The actions of some Member States and regions within Member States to establish
disproportional and discriminatory “coexistence” rules that would act to discourage or
prohibit farmers from choosing to grow GM crops is contrary to both established EU
law, and to the Lisbon Strategy.

In addition, some inconsistencies are apparent in the implementation of the strategy
recommendations, both between units of the Commission and within and between EU
Member States. Discussion of the Progress Reports at the level of ministerial Councils(competitiveness, trade, industry, environment, internal market) would help to ensure that
their contents were properly considered and acted upon by Member States.
Implementation of action plans in Japan’s Biotechnology Strategy Guidelines has beenreviewed at least once a year by the Biotechnology Strategy Council chaired by the Prime
Minister. The seventh meeting was held on March 15th this year and the progress of the actionplans was evaluated. Although the Council members appreciated the assurance of progress,
especially in basic research fields, it was pointed out that there still remained several issues tobe considered or solved.
During the discussion, it was commonly recognised that “public understanding” on LS&BT isvery important and will be crucial for future development in this area. However, progress inthe promotion of public understanding has been quite insufficient due to the lack of detailed
actions to be effective towards the real goal.
Japan Association of Bioindustries Executives (JABEX) proposed that the Japanese
government establish a “National LS/BT Understanding Promotion Plan” for a nation-wide
and strategic approach to the issue. The WP5 members definitely support this and also
recommend a similar way for promotion for public understanding in this field in the EU.

26

2. LS&BT for Health
5-EJ-4

Ensure the communication mechanisms between industry and Government
regarding pricing and evaluation system of medicines to address the barrier
to innovation.
• Work together to ensure that the value of innovation is recognised in the pricing
of medicines in EU Member States and Japan.
• Ensure that mechanisms in place for the evaluation of medicines are based on
clear, transparent and objective criteria, and are subject to appeal.

5-EJ-5Enhance funding to the clinical research and facilitate regulatory
harmonisation to enhance the integrity as well as the practicability of
meaningful pre- and post-approval review.
• Support clinical research by addressing regulatory barriers, public involvement
in clinical trials and facilitating development of an improved infrastructure forclinical research. The government should make clinical research a priority areafor funding in research programmes and through establishment of study
programmes for clinical practitioners.
• Continue to facilitate regulatory harmonisation where possible and practical by
supporting international regulatory harmonisation. Review the regulatory
requirements for vaccines between the EU & Japan.
• Work with industry to make further improvements to the regulatory framework
for medicines, such as supporting the development in biomakers, surrogates, andpredictive technologies to ensure development of regulatory competence andacceptance.

Explanatory Notes
The Biotechnology and pharmaceutical sectors involved in research and development of new
medicines make a significant contribution to both the health and wealth of European andJapanese people. As our population ages, we will rely increasingly on innovative new
medicines that prolong and enhance the lives of our citizens. An environment that values andencourages innovation is critical if industry is to deliver innovative new medicines andvaccines that meet the needs of our populations.
It is important to encourage public understanding of Biomedical research and ensure that
intellectual property issues are addressed effectively. Genetic research should be supported
and encouraged. Large collections of human tissues and DNA samples should be developed
and be readily accessible to industry.
Cost containment mechanisms in both the EU and Japan are putting significant pressures onrevenues generated for industry, and delays to market access are resulting in patients being
denied access to new medicines. Policy-makers have to recognise contributions of theindustry not only for public health but also for the economy such as improving medical
efficiency, increasing social productivity, generating employment, and so on, throughproviding innovative medicines.
To improve the competitiveness of the EU and Japan and to be able to compete more
effectively with the US, industry believes that significant improvements need to be made to
the environment in the EU and Japan for the research, development and commercialisation ofhealthcare products.
27

Our recommendations focus on a number of areas including rewarding innovation throughappropriate pricing mechanisms for new medicines, encouraging clinical research andensuring that effective regulatory review of new innovations is in place. Our objectives will
be achieved only by industry and Government working together to address the barriers toinnovation.
3. LS&BT for Industrial/Environmental Uses
5-EJ-6

Encourage Governments to work towards harmonisation of regulatory
requirements for biotechnology products and processes.
• In particular encourage the European Commission and Member States’
governments to keep the present interpretation of EU Regulation 1829/2003 on
Genetically modified Food and Feed that “Food and feed (including food andfeed ingredients such as additives, flavourings and vitamins) produced byfermentation using a genetically modified microorganism (GMM) which is kept
under contained conditions and is not present in the final product are notincluded in the scope of Regulation 1829/2003”.

5-EJ-7

Provide incentives to enable industries to switch to more sustainableproduction processes.
• Consider tax abatements and investment tax credits to incentivise and speed up
the implementation of sustainable production technologies.
• Provide financial support for highly promising Bio-based technologies at theproof-of-concept stage.

5-EJ-8Support setting up a few demonstration projects, either in the area of Biochemicals, Bio-materials and/or Bio-fuels, using the US Bio-refineries as amodel.

Explanatory Notes
Industrial/Environmental Biotechnology (IEB), also known as “White Biotechnology” in theEU, is the application of Biotechnology for sustainable production of Bio-chemicals, Biomaterials and Bio-fuels from renewable resources using living cells and/or their enzymes.
This normally results in environmentally-friendly processes with a minimum of waste
generation and energy use. Bio-materials include polymers such as polylactic acid andpolyhydroxyalkonoates. Typical Bio-fuels are ethanol and hydrogen.
IEB is still in its infancy in Europe and elsewhere in the world. This technology needs to be
nurtured with the creation of effective support measures to remove existing obstacles for the
implementation of this sustainable production technology.
Full support should be provided to the first EU-Japan IEB Summit that will be organised
between EuropaBio and the Japan Bioindustry Association (JBA) in the beginning of
September 2005.
4. LS&BT for Plants

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5-EJ-9Further implement and enforce existing regulatory frameworks on GMOs,
both in the EU and in Japan.
In the EU:•••

We urge the Commission to ensure that all applications made in accordancewith the EU legislation and that have received a positive safety assessment fromthe European Food Safety Authority (EFSA) receive a timely approval.
We would also like to see the Commission ensuring that Member States thathave invoked bans based on “safeguard clauses” and that have failed to provide
the required scientific justification to support these bans, withdraw these illegalbans immediately.
We are against linking European-wide legislation for coexistence (as aprecondition) with GMO approvals for cultivation in the EU.
In Japan:•••

We urge the Japanese government to ensure that the central and local
governments take the same position that GMO technology is essential ininnovation of agriculture in Japan and those governments take unified actions
toward wide applications of the advanced technology.
We urge the Japanese government to prevent regulation, delay and/or restriction
by laws and/or guidelines of local governments in the cultivation and use of the
GMO crops that are approved by the central government for cultivation and use
in Japan based on safety evaluation.
We would like the Japanese government to make and implement comprehensive,
nationwide action plans for public understanding/acceptance of GMO crops toprovide the public with accurate and sufficient information in order to remove
apprehension of GMO crops among consumers and farmers.

Explanatory Notes
Limited public acceptance for Biotechnology in the EU and Japan will delay market accessfor Biotech-based products. It will also lead to trade issues in the food sector and delay thedevelopment and use of environmentally-friendly, sustainable agricultural production.
Industry keeps funding individual programmes to promote public understanding of plantbiotechnology in the EU and in Japan respectively. However there is still no public-funded
Joint Action Plan to promote jointly, both in the EU and Japan, public understanding of plantbiotechnology.
In addition governments and authorities also have a key role to play in public acceptance andconsumers’ confidence in plant biotechnology by ensuring policy coherence on plantbiotechnology. For instance, on the one hand public funding is rightly allocated to research inplant biotechnology, but on the other hand market approvals are not granted for these
innovative and competitive products. This policy inconsistency from governments andauthorities can only confuse the public and further delay acceptance of plant biotechnology.
In this frame proper implementation of the existing regulatory frameworks of GMOs
(including experimental and commercial approvals for GM plants) is now a top priority bothin the EU and in Japan.
A feasibility study could reveal to what extent the development of a non-food agricultural
sector could facilitate economic progress in accession countries.

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Several prefectural governments in Japan are tightening regulation of cultivation of GMO
crops by their own local laws and/or guidelines. A bye-law that was adopted by Hokkaido
prefecture this year is especially strict, because criminal penalties could be imposed on those
who cultivate GMO crops without permission from the prefecture even if the safety of the
GMO crops have already been approved by the central government. These local governments
are claiming that such legislation is necessary to avoid confusions resulting from cultivationof GMO crops, considering apprehension of GMO crops among consumers and farmers. On
the contrary, it is clear that such over-regulation is a key factor inciting apprehension andcreating a negative cycle to drive public understanding backwards.

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Recommendations from theSustainable Development Working Party (WP 6)
As outlined in the 2004 recommendations, Sustainable Development implies the right balance
between economic, social and environmental strategies, in true partnership with every
stakeholder. Promotion of voluntary actions, enhanced dialogue between the Authorities andthe industry, promotion of innovation and partnerships, as well as education of the population
and aid of developing countries on greenhouse gases (GHG) reduction were key messages lastyear. We thank the Japanese Government as well as the European Commission for their
feedback.
This year, we have decided to deepen last year’s recommendations on Global Warming and
the Post-Kyoto Protocol.
Basic Thoughts
The EU and Japanese industry are committed to reduce GHG and did not wait for the Kyoto
Protocol to initiate drastic reductions. Within existing technologies, room for drastic
improvements is limited. Therefore breakthrough solutions which balance the 3 pillars ofsustainable development while securing the competitiveness of the EU and Japaneseindustries have to be found. It is essential that every country, every industry, and every
population contribute to GHG reduction. Innovation through joint cooperation between thegovernments and the industry is of prime importance.
More specifically, we insist on a broader international participation in reducing emissions,
inclusion of more sectors, a push for innovation, the continued use of flexible market-based
instruments (The Kyoto Mechanisms) for reduction of emissions globally, and an adaptationof policies to secure the competitive position of the EU and Japanese industries.
Regarding Corporate Social Responsibility, we continue to encourage voluntary commitment
together with guidance from international organizations.
Recommendations<Cooperation of the EU and Japan on Global Issues>
6-EJ-1 Effective Use of the Kyoto Mechanisms
The Kyoto Mechanisms, including CDM (Clean Development Mechanism) and JI (Joint
Implementation), are an important scheme for international cooperation approved by the
Kyoto Protocol, and effective utilisation of this mechanism will help to reduce GHG on a
global scale. CDM, in particular, contributes to GHG reduction in developing countries by
the investments of energy-efficient infrastructures from developed countries, and can be
implemented at lower cost than domestic countermeasures. Therefore, this scheme shouldbe actively promoted without being seen simply as a complementary initiative. The
authorities should adopt active use of the Kyoto Mechanisms as a government policy andcreate such systems as internationally harmonised accounting and tax incentives whichlead industries to easily utilise this mechanism.
6-EJ-2 Post-Kyoto Framework- It is indispensable that major GHG-emitting countries such as the USA, China and India
participate in the post-Kyoto framework (beyond 2012) in order not only to reduce global
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GHG emissions but also to secure the competitive position of the EU and Japaneseindustries. We recognise that it should be considered to set different targets from the initial
Kyoto Protocol, which encourage those countries to join the framework. Energy efficiency
or emission intensity by major sub-sectors on a cross-border basis is one of the targets tobe set instead of the current country-by-country basis.
- We recognise that the technological development for reduction of GHG emissions
including joint efforts of the authorities and public-private partnership of the EU and Japanis important. The European Commission and the Japanese Government should work
together to include the technological development as an item for post-2012 negotiation.
6-EJ-3 Impact Assessment
The impact of materials and products should be assessed in an extended manner which
includes the economic, social and environmental dimensions. It is important for theauthorities to adopt the methods of life-cycle assessment and/or full value chain assessment
in any impact assessment, and not exclusively for GHG reduction.
<Promotion both in Japan and in the EU>
6-EJ-4 Development of Energy-Saving Products and Services and Diffusion on a globalbasis
As stated in Basic Thoughts, industries of the EU and Japan have already madeconsiderable efforts for GHG reduction, and room for drastic improvements by using
current technologies is limited. However, we recognise there is potential of reduction of
GHG emissions by implementing the following measures by the industries and people,
together with the support from the authorities:- Adopting higher efficient electric and electronics equipment by using a top runnerapproach.
- Using the full potential of IT society such as higher efficiency of production andlogistics, and diffusion of e-commerce.
- Adopting energy-saving offices and houses equipped with high performanceinsulators.
- Diffusion of fuel-efficient vehicles.
6-EJ-5 Cultivation for People and Initiatives of the Authorities
It is important to work together with the participation of the authorities, industry and the
public to reduce emissions of greenhouse gases. Industry has been working hard notincreasing CO2 emissions with voluntary actions. Its emissions have remained flat or areeven decreasing for some sectors. But CO2 emissions from households are largely
increasing. Therefore, it is necessary to reduce emissions especially from this sector, andto educate and cultivate the population to contribute individually to GHG reduction. It isalso important that the authorities take initiatives to promote such a movement as a modelfor the nation/community.

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6-EJ-6 Diversification of Energy
From a mid- to long-term point of view, it is indispensable to promote technologicaldevelopment for nuclear energy, renewable energy such as wind, solar, biomass, andhydrogen energy, or other forms of energy which will replace fossil fuels. Renewableenergy needs cost reduction and stability of output power. Hydrogen energy has huge
potential as generation of electricity and fuel batteries, however, there are big issues suchas production methods without CO2 emissions as well as secure safety ofstorage/transportation. It is important to promote the joint development between industry
and the authorities to solve those issues. Technologies of CO2 capture and storage shouldbe also developed. We call for government initiatives, including joint ones between theEuropean Commission and the Japanese Government.
[End]

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