SUBMISSION BY THE GOVERNMENT OF THE UNITED STATES TO
THE GOVERNMENT OF JAPAN REGARDING DEREGULATION,COMPETITION POLICY, AND TRANSPARENCY AND
OTHER GOVERNMENT PRACTICES IN JAPAN
October 6, 1999
The United States has a deep, sustained and substantive interest in the promotion of deregulation,competition and regulatory reform, stronger competition policy advocacy and enforcement, andgreater transparency of regulatory processes in Japan. Bold measures by the Government ofJapan in these areas are needed to address the structural and regulatory impediments to theeffective functioning of market forces in the Japanese economy. Adoption and implementation of
meaningful policies in these areas will increase the efficiency of the allocation of capital andhuman resources in Japan, which is critically important to the longer-term sustainability of
economic growth in Japan. It would also redress some of the structural and regulatory barriers
impeding market access for U.S. and other foreign firms.
The Governments of the United States and Japan recognized the importance of sustained bilateralfocus on these issues when they established in June 1997 the Enhanced Initiative on Deregulation
and Competition Policy. The Enhanced Initiative identifies key sectoral and structural areas forparticular attention by the two Governments. The United States welcomes the progress achieved
to date under the Enhanced Initiative, set out in the First and Second Joint Status Reports issued
by the leaders of the two countries in June 1998 and May 1999, respectively, and anticipates
Japan’s full implementation of these measures. Notwithstanding, much more remains to beaccomplished.
The Government of the United States is pleased to present to the Government of Japan thissubmission on deregulation, competition policy, and transparency and other government practices
in Japan. In addition to containing numerous specific and concrete proposals in all of the sectors
covered by the Enhanced Initiative, this submission also calls for broad bold structural initiatives.
The United States believes that this submission should form the basis for a Third Joint Status
Report which the two Governments will issue by the end of March 2000.

TABLE OF CONTENTSTELECOMMUNICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

MEDICAL DEVICES AND PHARMACEUTICALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

FINANCIAL SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

HOUSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

ENERGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

LEGAL SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

OTHER SECTORAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

COMPETITION POLICY & ANTIMONOPOLY LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

TRANSPARENCY AND OTHER GOVERNMENT PRACTICES . . . . . . . . . . . . . . . . . . . . 38

TELECOMMUNICATIONSAs recognized by Japanese consumers and industry alike, the telecommunications market in Japanis burdened by a legacy of laws, regulations, and monopolistic business practices that fail tosupport the needs of a competitive market. As such, Japan has been denied the broad-based
benefits of innovative services and technology and lower prices that competition brings. Japan’s
lag in the deployment of broadband and Internet-based services, and, more broadly, developmentof electronic commerce is a direct result of the absence of a pro-competitive telecommunications
regulatory structure. Leading-edge foreign companies, which will be key to building thisinfrastructure in Japan, will continue to be restricted in their ability to invest in Japan andintroduce innovative technology unless a fundamental change in Japan’s regulatory approach totelecommunications is forthcoming.
The United States Calls on Japan to Undertake a “Telecommunications Big Bang”
It is increasingly being recognized by governments and regulators globally that fostering
competition in the telecommunications sector can only be accomplished through the establishmentof regulatory structures that seek, as a key policy objective, to address two critical issues: 1) theneed to promote and foster the entry of new competitors; and 2) simultaneously establishing legal
and regulatory protections against the anti-competitive abuse of monopoly positions traditionallyenjoyed by established dominant carriers. While Japan has made some progress in the first area,e.g., removing unnecessary and outmoded regulations, it has yet to seriously address thegovernment’s lack of the legal and regulatory tools to ensure that NTT can be prevented fromusing its dominant position in wired and wireless communications to prevent anti-competitive
practices.
Japan will not succeed in establishing a globally competitive telecommunications sector throughcontinued incremental regulatory change. Rather, fundamental legislative and regulatory changes
are necessary. The United States calls on Japan to establish a clear public policy commitment to
the implementation of a “Telecommunications Big Bang.” As in financial services, a“Telecommunications Big Bang” would address both fundamental legislative and regulatory issues
within a defined timeframe. Early adoption of a “Telecommunications Big Bang” would create
jobs, stimulate investment, lower prices for both businesses and individual consumers, and lead tonew services and technologies not only in the telecommunications sector but throughout theJapanese economy. A globally competitive and open telecommunications sector would also
position Japan as a leader in the emerging global digital economy. Specifically, the United States
believes that the following measures are necessary to address these key issues and thus achieve a
Telecommunications Big Bang.
I.

Dominant Carrier Regulation and Competition Safeguards
A.

During CY 1999, the Japanese Government should undertake preparations to
implement in FY 2000 a legal framework that establishes the promotion of1

competition for the benefit of consumers as the clear primary objective of
telecommunications regulation, and the fundamental criterion guiding all
regulatory action. This framework should include the establishment of dominant
carrier regulation and stronger oversight to prevent anti-competitive behavior by
the incumbent. Specifically, a new Telecommunications Business Law should:
1.

Set out a clear, pro-competitive mission for the Ministry of Posts andTelecommunications (MPT) and its successor entity.

2.

Provide for dominant carrier regulation, which involves:

3.
B.

freeing new entrants from regulatory burdens while safeguarding
against dominant carrier abuses;b.

covering rates, terms and conditions for retail and wholesale service
offerings; andc.

providing access to dominant carrier facilities.

Establish institutional measures to enhance regulatory independence.

As interim measures, MPT should by October 31, 1999:
1.

2.

C.

a.

Direct the NTT Companies to modify the structure of its NTT discountservices to ensure that they are not anti-competitive by:a.

Require the NTT regional companies to apply discounted prices for
local discount services (e.g., Telehodai, Time Plus, flat- rate
Internet) to calls that terminate on its competitors’ local networks;
and

b..

Require NTT Communications Corporation to apply discounts tocalls terminating on competitors networks, e.g., including“Shaberichhi” discount service.

Begin developing metrics, to be published by the end of CY 1999, tomeasure progress in advancing local competition thus enabling concretegoals to be set (e.g., number of local lines controlled by competitors); andIntroduce strengthened measures to ensure that restructured NTT entities do not
engage in anti-competitive cross-subsidization, or the imposition of inefficiencies
on competing carriers. Specifically, by the end of FY 1999:

2

II.

1.

Require NTT Holding Company, NTT East, NTT West, NTT
Communications Corporation, NTT Facilities, and NTT Commware to
publish separate financial reports that are at least equal in specificity tothose published by the pre-restructured NTT; and2.

Require that any NTT reports to MPT on successor companies’
interactions (including financial, R&D, personnel and other interactions), as
called for by MPT in its April 1999 response to NTT’s restructuring plan,
be made public.

Interconnection
Effective April 1, 2000, MPT should fulfill its pledge in the Second Joint Status Report to
reduce NTT’s interconnection rates as much as possible, to a level equivalent to those thatwould be found in a fully competitive market using pricing, based on a Long Run
Incremental Costing (LRIC) model that reflects all relevant economic principles. In theinterim (FY 1999), MPT should fulfill its pledge to significantly reduce interconnection
charges to prepare the market for LRIC pricing and to ensure that the relationshipbetween retail and interconnection rates does not impair local competition. To achievethese commitments, MPT should:A.

Improve the MPT LRIC model to accurately reflect widely accepted LRIC
principles. These include cost recovery reflecting:1.

accurate distinction between traffic-sensitive and non-traffic sensitive costs;

2.

accurate depreciation rates based on objective studies, includinginternational experience; and3.

advances in technology which provide more efficient delivery oftelecommunications services.

B.

Disallow pricing based on NTT’s Top-Down Model, given the inherent
inefficiency of NTT’s existing network.

C.

Commit to making LRIC-based pricing retroactive to April 1, 2000.

D.

Ensure that the NTT retail-interconnection charge relationship for different typesof services (e.g., residential, ISDN, Internet) does not impair local competition,
factoring in the full range of NTT interconnection rates and NTT discount, flat rate
and other retail services.

3

E.

Within CY 1999, require the NTT regional companies to provide interconnection
within six months of application, without assessing “premium charges,” unlessthere is a need for major network modification; and to require itemized charges formodification, subject to independent review.

F.

Beginning in FY 2000, apply interconnection conditions of a “designated carrier”
to NTT DoCoMo for wireless services and to NTT Communications Corporation
for long distance services.

G.

In the interim, during CY 1999, require NTT DoCoMo and NTT Communications
Corporation to:

H.

III.

1.

Publish their interconnection tariffs, including rates, terms and conditions;2.

Disclose their computation methodology for interconnection rates;

3.

Provide interconnection within six months of application; and4.

Allow competing carriers to set rates for calls terminating on DoCoMo’s
network.

Establish regulations that require NTT regional companies to expand the list offunctions considered basic in their tariffs to include all services currently available
to NTT customers. For services where NTT can prove that a “value added”
charge is valid, NTT should be obligated to provide such services to competing
carriers at wholesale rates.

Rights of Way and Access to Incumbent Facilities
A.

During CY 1999, Japan should develop regulations, to be implemented in FY2000,
which will require NTT, electric utility companies, and railroads to provide
transparent, non-discriminatory, timely and cost based access to all poles, ducts,
conduits, and rights of way that they own or control. Such regulations should:i.

Ensure that rates, terms and conditions for access are just, reasonable andnon-discriminatory;ii.

Establish clear rules for costs and burden sharing associated with facility
modifications;iii.

Set benchmarks for responsiveness; andiv.

Establish an expeditious complaint settlement procedure.
4

B.

As interim measures, by the end of CY 1999, the Government of Japan should:
1.

Extend the interconnection obligations that MPT has placed on certain
parts of NTT’s networks (e.g. up to the manhole closest to the switch) toother bottleneck facilities, including conduits and ducts linking fiber loops
and customer premises;

2.

Encourage NTT, electric utility companies, and railroad companies toimprove their voluntary plans by:
For NTT:a.

Publishing its policies, rates, terms and conditions for each of the
NTT successor companies;b.

Identifying one contact point to coordinate all aspects of conduit
and duct survey and installation;c.

Explicitly allowing other carriers to install and maintain their own
cables in NTT facilities; andd.

Shortening NTT’s facility survey period to 30 days, publishingsurvey rates, and setting a standard installation period of threemonths for cables installed by NTT.

For electric utility companies:e.

Publishing rates, terms and conditions for using their ducts andconduits; andf.

Publishing the rates and formulas used to compute polemodification and maintenance costs, including a system for fairburden sharing among pole occupants.

For railroad companies:g.

C.

Submitting voluntary plans providing rates, terms and conditions
for use of their facilities, including poles, ducts, conduits and land.

With respect to access to public rights of way, Japan should facilitate constructionof telecommunications and CATV infrastructure using public roads, highways, andbridges by:
5

IV.

1.

Accelerating the construction of publicly controlled ducts and conduits(such as the Ministry of Construction’s (MOC) CC boxes) in urban areas;

2.

Eliminating the MOC’s winter/spring road digging moratorium;

3.

Eliminating mandatory 5-7 year intervals between digging of certain roads;

4.

Permitting trenching of cables, as opposed to mandatory installation of
conduits and tunnels; and5.

Publishing in one location all plans for construction or renovation of
highways, bridges, tunnels and other public works which provide
opportunities for telecommunications facilities to be installed.

Resale/UnbundlingIn the Second Joint Status Report, Japan recognized carriers’ needs for flexibility inchoosing network structures based on the carriers’ evaluation of their practical andeconomic requirements, and the technical viability of such arrangements. Consistent withthis recognition, during FY 2000, MPT should eliminate all restrictions on carriers’ ability
to combine owned and leased facilities in building their networks, ensuring that all carriers
have the choice to build, buy or lease facilities in any combination necessary to facilitate
their business. Specifically, MPT should:A.

Eliminate Type I/ Type II distinctions, allowing carriers to structure and build their
networks in the most efficient manner, without needless corporate redundancy.

B.

By April 1, 2000, expand the minimum list of elements that must be unbundled bya designated carrier and ensure that new and existing elements are provided on
rates, terms and conditions that are timely, reasonable, and non-discriminatory.
Specifically, the designated carrier should be required to:1.

Offer LRIC-based, geographically de-averaged rates for all unbundled
elements, applying to both recurring and non-recurring costs.

2.

Price unbundled elements that are not traffic-sensitive on a flat-rate (e.g.
monthly) basis; and3.

Provide unbundled elements, as well as access to them, that are at least
equal in quality and provisioning timeliness to that which the designatedcarrier provides itself or its affiliated companies.

6

C.

V.

In addition, MPT should require unbundling of:1.

Local loops, including high-capacity lines, sub-loops, x-DSL-capable loops,
dark fiber, and inside wiring owned by a designated carrier;

2.

Inter-office transmission facilities, or transport, including dark fiber andshared transport; and3.

Enhanced extended link (EEL), including a combination of an unbundled
loop, multiplexing/concentrating equipment, and dedicated transport.

Co-location
To enhance the ability of competing carriers to offer competing services, the MPT should
strengthen co-location obligations of the designated carrier to include rules for co-locationin NTT facilities that ensure reasonable and non-discriminatory treatment for competitors
on a tariffed basis (subject to comment by competitors). Such rules should include:

VI.

A.

A fair methodology for assessing co-location charges;

B.

Reasonable rates and timely provisioning times, based on benchmarks;

C.

24 hour access to facilities by any bona fide competitor or qualified contractor;

D.

The right of competitors to inspect facilities to determine if space exists; andE.

A burden on the designated carrier to prove that co-location at a requested
location is not technically feasible.

Inside Wiring
Pervasive impediments exist in Japan to accessing existing wiring within buildings which
prevent new telecommunications entrants from reaching end-users. In order to remove
these impediments, MPT should develop during CY 1999, for implementation during CY
2000, an internal wiring policy that will best advance competition in servicing privatelyowned buildings. MPT should adopt policies that:A.

Ensure that designated carriers are prohibited from obstructing access withinbuildings and require that they provide for use of their facilities (e.g. wiring, risers,etc.) on rates, terms and conditions that are fair, reasonable and nondiscriminatory; and7

B.

Set forth principles to govern when the ownership or control of facilities rests with
the incumbent or competitive service providers, when ownership rests withcustomers or business owners, and under what circumstances ownership or control
may change or the ability to exercise control may be limited.

8

MEDICAL DEVICES AND PHARMACEUTICALSThe Government of Japan has agreed to undertake a number of important measures to reduce
regulatory impediments to the introduction of new and innovative pharmaceuticals and medical
devices. Many of these measures are contained in the First and Second Joint Status Reports
under the Enhanced Initiative on Deregulation and Competition Policy, and it is critical that Japan
fully implement those measures on the timelines agreed. Looking forward, the Government of theUnited States is committed to continuing to work with the Government of Japan on these andother related issues. As such, the United States advances the following proposals based on the
belief that market-led innovation through deregulation and structural reform are the best means toachieve Japan’s goal of ensuring health care quality while striving to contain overall health carecosts. As that debate unfolds in Japan, the United States may submit proposals, in addition to
those below, specifically relating to legal and regulatory issues regarding the provision of healthcare services.
I.

Recognizing Innovation
Under the Enhanced Initiative, the Ministry of Health and Welfare (MHW) agreed torecognize the value of innovation of pharmaceuticals and medical devices, so as not toimpede the introduction of innovative products which bring more effective and morecost-effective treatments to patients. In implementing this policy, the United States callson MHW to adopt the following:

II.

A.

Promote the Introduction of Innovative Pharmaceuticals. MHW should introduce
steps that recognize the role of the market to increase the availability of innovative
pharmaceutical products.

B.

Promote the Introduction of Innovative Medical Devices. In reforming the byfunction system for medical devices, MHW should accommodate incremental
functional differences in medical device development which result in enhanced
performance and abilities over the expected life of the product.

Approval Process
Speeding the approval process for medical devices and pharmaceuticals will increase theavailability of innovative medical products to Japanese patients. Consistent with themeasures agreed to by MHW in the Joint Status Reports, MHW should adopt thefollowing:A.

Speed the Approval of Innovative Medical Devices. Improve the consistency andspeed of the approval process for medical devices by:

9

B.

III.

1.

Instituting a four-week review for the JAAME to complete the equivalency
study (doitsusei chosai);

2.

Indicating within two weeks of receipt of requested information and /ordata if reviewer’s questions have been answered fully;

3.

Accepting biocompatibility tests done in accordance with the International
Standards Organization without the need to conduct additional tests;

4.

Relaxing the Medical Services Law and the Radiation Hazard Prevention
Law to allow the start of clinical trials in January 2000 for certain radiation
therapies including, intravascular radiotherapy of restenosis and radio
isotope treatment of prostate cancer;

5.

Exempting medical devices (thermometers and blood pressure gauges)
from the Measurement Law; and6.

Expanding the scope of medical devices not subject to clinical trials.

Speed the Approval of Innovative Pharmaceuticals. The approval processing
period for new drug applications (NDAs) will be shortened to 12 months by April
2000, with steady and continuous improvement in the interim. To speed theapproval process:1.

Outline the 12-month processing period for NDAs including clarifying
timeout periods;

2.

Allow for the submission and review of an NDA for an additional
indication while the NDA for the molecule’s initial indication is still
pending;3.

Allow applicants to continue clinical work on a molecule, including
compassionate use and work on additional indications, during the NDA
review of a molecule’s initial indication; and4.

Add provisions for the pre-filing and review of the chemistry, pharmacy,
and toxicology sections of the NDA.

Acceptance of Foreign Clinical Data
The broad use of use of foreign clinical data in the pharmaceutical approval process will
help speed the availability of innovative pharmaceutical products to Japanese patients. The

10

United States welcomes Japan’s agreement in the Joint Status Report to allow the use ofsuch foreign data. Consistent with this agreement, MHW should adopt the following:A.

IV.

Reimbursement Process
A.

B.

V.

Speed the Reimbursement Process for Medical Devices. Improve the consistency
and speed of the reimbursement process for medical devices by:1.

Establishing a maximum time period for granting reimbursement of threemonths from the date of reimbursement application for new products withincremental improvements, and six months for brand new technologies; and2.

Developing a mechanism by which products which are no longer new toJapan, including for example, stents, specialized wound dressings, andinferior vena cava filters, can be shifted from Category C to Category B.

Appeals Process. Establish and make public a process whereby an applicant for
medical device or pharmaceutical reimbursement may appeal a reimbursement
decision.

Transparency
A.

VI.

Allow for Bridging Packages. For pharmaceutical products which have significant
global experience and corresponding data, including post-marketing data, MHW
should allow for the submission of a bridging package rather than a pre-designed
bridging study in order to approve such products when data to confirm
comparability is already available for extrapolation.

Access to Chuikyo. Improve access to Chuikyo by allowing U.S. medical device
and pharmaceutical industry representatives meaningful opportunities to participate
in Chuikyo’s health care reform discussions of policy recommendations and othermatters, including those being conducted by the Subcommittees formed on
September 1, 1999 to study medical and pharmaceutical pricing rules.
In
addition, Japan should make the draft recommendations of these Subcommittees
available for public comment before such recommendations are finalized.

Nutritional Supplements
A.

Market Liberalization. MHW should expeditiously institutionalize and implement
measures to promote liberalization of the Japanese nutritional supplements
market, e.g., vitamins, herbs, and minerals, including the recommendations madeby the Office of the Trade and Investment Ombudsman on March 18, 1996.

11

VII.

Health Care Services
A.

Deregulation of Health Care Services. The Government of Japan should adopt
policies to deregulate its health care services sector, including hospitalmanagement and the scope of providable services, with an aim to improving theefficiency of Japan’s health care system.

12

FINANCIAL SERVICES
I.

Financial Services
The United States Government welcomes Japan’s successful implementation of themeasures under the 1995 U.S.-Japan Measures Regarding Financial Services, negotiatedunder the U.S.-Japan Framework Agreement, as well as the Japan's actions taken to dateunder its Big Bang financial deregulation initiative. The Government of the United States
will continue to closely monitor the implementation of the measures that have been taken,
as well as regard with interest additional steps under the Big Bang initiative to further
open and develop the Japanese financial market.
A.

Specific Measures
In this context, the United States welcomes deregulation in the following areas at
the earliest possible date:
1.

Introduction of tax-advantaged defined contribution pension plans, in an
open and competitive environment for investment offerings and plan
administration.

2.

Rapid implementation of the proposed direct onshore trust arrangement for
management of Pension Welfare Service Public Corporation (Nempuku)
funds by investment advisory companies, as well as the elimination of the
cashing requirement on these funds when changing fund managers.

3.

Modification of the regulations regarding foreign holder exemption fromwithholding tax on Japan Government Bond (JGB) interest to allow use of
global custodians.

4.

Modification of the Corporation Tax Law to grant the same rights of income tax deferral and business expensing of
employee and employer contributions to pension funds, irrespective of whether the administrators of the plans are
Japanese companies, or branches or subsidiaries of foreign companies.

5.

Allowance of investment advisory companies to manage pension fundassets on a co-mingled basis, similar to the treatment accorded trust banks
and life insurance companies.

6.

Revision of the laws and regulations governing special purpose companies(SPCs) and servicer companies to encourage wider use of asset-backed
securitization.

13

7.

B.

Permission for the introduction of Internet banking operations without
requiring physical branches, provided that legitimate prudential concerns
are met.

Transparency
The United States welcomes deregulation that improves transparency andgovernment practices, including:

II.

1.

Establishment of an open and transparent process for the approval of new
products and services.

2.

Full use of the Government's notice and comment procedures for financial
services, with sufficient time to incorporate industry comments, and with
sufficient time between finalization of regulatory changes andimplementation so that industry can make necessary organizational,
operational, and systems changes.

3.

Introduction of a regulatory review process to evaluate experience andconsider revisions to newly implemented financial services regulations.

4.

Introduction of measures to increase regulatory and supervisory clarity,
including published rulings and no-action letters.

5.

Clear separation of industry representation and industry self-regulatory
functions. Industry associations should represent and advance the interestsof their members. Association policies and procedures should be fullytransparent, and all members should have a meaningful role in theassociation’s governance.

6.

Improve the disclosure of pension funds and investment trusts to allow
standardized and accurate comparisons of investment performance.

Insurance
The United States welcomes the efforts of the Financial Supervisory Agency and otherentities in Japan to deregulate and open Japan’s insurance sector to U.S. and other foreign
insurance providers. Deregulation of Japan’s insurance sector will provide Japanese
consumers access to the broad range of innovative, low cost products and services
available in other developed country markets. Japan should move forward in
implementing deregulation measures which ensure the financial soundness of the industry,
and thus bolsters consumer confidence, while maximizing the role of the private sector,
and conversely minimizing the government’s role, in the provision of insurance.
14

A.

Improvements in Administrative Procedures and Practices . The United Statesurges Government of Japan to implement the following improvements in theadministrative procedures and practices related to licenses, permits and approvals
in the insurance sector.
1.

The United States urges the adoption of a simultaneous file-and-use system
to regulate a broad range of insurance rates and forms beginning in JFY
2000. To ensure that the file-and-use system is operated with sufficienttransparency, the FSA should review the examination standards for theissuance of product approvals with the aim of clarifying, specifying andquantifying the examination standards, while minimizing discretionary
factors, in accordance with the Three-Year Deregulation Program ofMarch 31, 1998.

2..

The FSA should conduct all communications with insurance companies in amanner fully consistent with the APL.

3.

As a further method of ensuring fairness and transparency in conducting
product examinations, the FSA should employ a “First In, First Out”
system so that no firm’s application is given delayed consideration due toconcerns that it is too complex or innovative.

4.

To enable the FSA to cope more adequately with the large and expanding
flow of insurance product applications, the United States welcomes theincrease in the number of personnel in the FSA’s product approval office in
JFY 1999, and suggests that staff be further expanded significantly in JFY
2000. FSA processes should be modernized and streamlined throughcomputerization and the utilization of relevant technical resources such as
the Internet.

B.

Actuarial Services: The Government of the United States encourages efforts by theAmerican and Japanese actuarial profession to achieve a mutual recognition
agreement consistent with provisions of the WTO General Agreement on Trade inServices.

C.

Postal Insurance (Kampo): Expanding the role of government postal insurance into
product lines currently being offered by private insurers is inconsistent with Japan's
goals of deregulation for free, fair and global financial markets. Such schemes falloutside the scope of the Insurance Business Law, and are not subject to oversightby the Financial Supervisory Agency or the Japan Fair Trade Commission. As
such, the United States urges Japan to halt all consideration of expanding
government and quasi-public insurance schemes included in the Postal Insurance

15

(kampo) that compete with products offered by private insurers, and review
whether existing programs should be reduced or eliminated.

16

HOUSING
The United States welcomes Japan’s efforts over the past two years to deregulate its housing
policy regime and to move towards performance-based housing standards. These measures havecontributed to the recovery of Japan’s housing construction market, which in turn has promoted
growth in the Japanese economy.
Yet much remains to be accomplished. Homes in Japan continue to cost far more than in othercountries, and they lack functional features that are common elsewhere. Long-term growth ofJapan’s housing sector is also constrained by the lack of a significant resale and renovation
markets, as well as the paucity of quality rental housing.
Excessive regulations and the continued reliance on prescriptive regulations in many areas are at
the root of these problems. The United States believes that implementation of the following
proposals would help Japan and the United States achieve the mutual goal of improving thequality, affordability, and variety of Japanese housing -- without compromising safety.
I.

II.

Land Use PolicyA.

By December 31, 2000, Japan should revise the Land and House Lease Law(Shakuchi Shakka Ho) to allow for fixed-term lease regimes, including eliminationof automatic lease renewal (Article 26), “justifiable cause” requirements for leaserenewal refusal (Article 28), and tenant rights to demand rent changes/resist rental
increases (Article 32).

B.

By July 2000, Japan should rationalize floor area ratio requirements (FARs) in
Category I and II Residential Zones in the Building Standard Law, including
provisions regarding opening-to-floor area ratios (Article 29), specific FAR
requirements (Article 52), specific ratios for building-to-site areas (Article 53) andminimum building site areas (Article 54).

Forest Products Issues
A.

By December 31, 2000, Japan should implement a performance-based building
standard to allow construction of four-story, multi-family and mixed-use/multifamily wood-frame buildings with improved fire protection outside of fire
protection and quasi-fire protection districts.

B.

By April 1, 2000, Japan should undertake a review of the provisions relating to
restrictions on construction of special use buildings to ascertain the consistency ofsuch provisions with Japan’s adoption of performance-based codes by June 2000.
The results of this review should be made publicly available by December 31,
2000.
17

C.

III.

IV.

Housing Components
A.

By the end of CY 2000, Japan should adopt the legal changes necessary to prohibit
dissuasion or outright prohibition through local ordinances of food waste disposers
connected to sewer lines.

B.

By July 2000, Japan should adopt, and implement in a non-discriminatory andtransparent manner, international standards as the basis for reasonable and safe fire
test requirements for interior finish applications, e.g., acoustical ceiling tiles.

C.

To promote further harmonization of plumbing standards, by the end of CY 2000,
Japan should allow standard NSF 61 to serve as the equivalent to its Water Works
Law standards on drinking water system components, or develop a jointcertification system that applies in both Japan and the United States.

Resale/RenovationA.

V.

By March 31, 2000, Japan should publish alternative rules for fire separation
between building sections, in accordance with international practice, with thestated intention of reducing the size of the current fire separation requirement andof permitting firewalls. Buildings sections separated by such walls would betreated as separate buildings for purposes of calculating the permissible buildingarea.

Working with the real estate industry and public and private sector lending
institutions, the Government of Japan should establish by July 2000 a property
quality appraisal and assessment system in order to promote the resale of theexisting housing stock.

Government Housing Loan Corporation Loan ProgramsA.

By March 31, 2000, Japan should take all necessary measures to revise the loan
programs of the Government Housing Loan Corporation (GHLC) to ensure thatthey do not discriminate against imported products.

B.

By March 31, 2000, the GHLC should increase the maximum repayment terms forresale housing to 35 years, the same as for new housing.

18

ENERGY
Japan has set goals of reducing electricity costs to internationally-competitive levels by 2001 andof increasing the share of natural gas in Japan’s primary energy supply. The United States
Government supports the promotion of a regulatory and competitive environment that would
allow Japan to achieve these goals. Worldwide experience has demonstrated that the mostefficient way to lower energy costs and stimulate economic growth is through the establishment ofan open and competitive energy market. Moving from a monopoly to a competitive structure
would enable Japan to attract investment in innovative energy equipment and services andleading-edge technologies that are necessary to increase efficiency and lower energy costs. The
United States is following Japan’s energy deregulation initiative carefully and assessing the new
trade and investment opportunities that may be created by this initiative.
Based on its own experience and the experience of other countries, the United States believes
three steps are key to a successful transition from a monopoly to a competitive market in theenergy sector: (1) reducing regulatory and other barriers that discourage investment and market
entry; (2) implementing appropriate incentives and disciplines for pro-competitive behavior; and(3) providing for full transparency in setting and implementing rules and procedures so thatappropriate and fair rules are set and rational business decisions can be made. The proposals
below focus on these steps.
I.

Electricity Sector
A.

Establishment of Independent Regulatory Authority. Japan should establish an
independent regulatory authority that is separate from, and not accountable to, any
supplier of electricity services. The responsibility of this independent regulatory
authority would be to oversee activities of participants in the electricity sector andto ensure fair, transparent, and non-discriminatory access in both generation andtransmission in this sector. The decisions of and the procedures used by thisregulatory body should be impartial with respect to all market participants. The
process by which the independent regulatory authority reaches decisions should be
open to all interested parties and its decisions should be published in publicly
available documents. Among its responsibilities, the independent regulatory
authority should:
1.

Ensure that effective unbundling of generation, transmission, anddistribution functions is undertaken by all market participants.

2.

Review and monitor the establishment of independently operated andmanaged generation, transmission, and distribution units within utilities.

19

3.

B.

Establish competition standards and procedures for all market participants
owning or operating generation or transmission facilities, including rules
and enforcement procedures on:a.

anti-competitive cross-subsidization or other anti-competitive
pricing practices;b.

improper use of information obtained from competitors;c.

failure to make available on a timely basis technical information orother commercially relevant information that is necessary for theusers of the regulated good or service to provide their own good orservice; andd.

development and implementation of an effective dispute resolution
and appeals mechanism.

4.

Establish, after consideration of the views of all industry participants andother interested parties including through the use of Public Comment
Procedures, terms and conditions for access to transmission facilities andprocedures for determining and implementing cost-based transmission
tariffs, allocation and use of transmission capacity, transmission accessrequirements and standards, and a dispute resolution mechanism.

5.

Encourage the use of transmission operators that are independent of othermarket participants.

6.

Work toward establishing spot markets for electric energy.

Transmission Services. In order to encourage new entrants into the Japaneseelectricity sector, the Government of Japan should introduce by March 21, 2000
non-discriminatory tariffs and terms of access to transmission facilities and require
provision of access to the transmission network on a fair, transparent, and nondiscriminatory basis.
1.

With regard to access and connection to the transmission system, theGovernment of Japan or an independent regulatory authority should require
the regulated entity to provide transmission unless it can demonstrate that
it is unable to provide the necessary transmission capacity and lacks thecapability to provide open access to third party transmission users,
including necessary ancillary services, on a fair and nondiscriminatory basis.

2.

Access to the transmission network should be provided:20

a.

under non-discriminatory terms and conditions (including technicalstandards and specifications) and of a quality no less favorable thanthat provided by the transmission owner for its own like services orfor its subsidiaries or other affiliates;b.

to all similarly situated parties, regardless of the ownership ofgenerating facilities, under the same terms and conditions;c.

in a timely fashion, with the transmission capacity available for saleas well as all requests for transmission service and the response tothese requests available to all market participants via an electronicbulletin board or the internet;d.

on terms, conditions (including technical standards andspecifications) and cost-oriented rates that are transparent andsufficiently unbundled so that the supplier need not pay for network
components or facilities that it does not require for the service to beprovided;e.

guaranteed except for exceptional reasons, such as congestion orother technical problems, that are clearly defined in writing by theutilities, including additional information or other arrangements thatare needed to enable the utility to provide the requested service,and subject to the approval of and verification by the Governmentof Japan or an independent regulatory authority;f.

upon request, at points in addition to the network termination
points offered to the majority of users, subject to charges thatreflect the cost of construction of necessary additional facilities; andg.

with transmission access rights subject to reassignment by thecustomer.

3.

Ensure that procedures applicable for obtaining access to and using thetransmission system and the established tariff or standardized contract for
using the network are clearly specified, publicly available, and easily
accessible.

4.

Require electric utilities to make publicly available either standardizedtransmission contracts or a reference transmission offer, following review
of such contracts or offers by the Government of Japan or an independent
regulatory authority.
21

C.

5.

Ensure that any electricity supplier requesting access to the transmission
network has recourse at any time to the Government of Japan or an
independent regulatory authority to resolve disputes regarding appropriate
terms, conditions, and rates for transmission in a timely fashion.

6.

Ensure that procedures regarding the allocation and use of transmission
capacity is carried out in an objective, timely, transparent, and nondiscriminatory manner and is subject to appeal as described in (5) above.

7.

Consider establishment of a congestion pricing system, which may include
payments to relieve congestion.

Setting of Fair Transmission Charges. The Government of Japan or an
independent regulatory authority should implement measures that set out howtransmission tariffs are to be calculated and that ensure a pro-competitive andtransparent tariff rate structure that is applied fairly to all transmission users.
1.

D.

Develop rates for transmission and ancillary services that:a.

use an internationally recognized system of cost accounting; andb.

allow for the opportunity to earn a fair return on investment but notguaranteed profits.

2.

Establish transparent procedures for reviewing utilities’ plans for allocating
costs, including revenues, and require accounts to be maintained in amanner that permits the independent regulatory authority or theGovernment of Japan to review cost allocation between and withinfunctions.

3.

Establish transparent procedures for review by the Government of Japan or
an independent regulatory authority of investment decisions by utilities
regarding the transmission charges.

Competitive Safeguards. Development and implementation of measures to preventa utility or other major supplier that has the ability to materially affect the terms ofparticipation (with regard to price or supply) in the relevant market for electricity
equipment or services as a result of its control over essential facilities, or use of its
position in the market, from engaging in anticompetitive practices.
1.

By April 1, 2000, repeal Antimonopoly Law Article 21 exemption for
natural monopolies, including for electricity and gas.

22

E.

II

2.

Develop guidelines regarding application of the Antimonopoly Law to theelectricity and gas sectors and subject Draft Guidelines to Public Comment
Procedures.

3.

After deregulation of concentrated markets in these sectors, apply
Antimonopoly Law rigorously to:a.

prevent dominant firms from engaging in business practices that
restrict competition, including exclusionary reciprocal dealingarrangements; group boycotts; and the anticompetitive use of
exclusionary, nontransparent or discriminatory standards ortechnical requirements; andb.

prevent activities aimed at maintaining or increasing dominantmarket position. (See also Competition Policy and Antimonopoly
Law, JFTC Guidelines and Antimonopoly Law exemptions).

Timetable for Review of Future Liberalization. The Government of Japan should
review the progress of liberalization in this sector by no later than March 20, 2001
and publicly announce its findings. This review process should evaluate the scopeof liberalization of the electric utility sector with a view toward including retailusers among the set of eligible customers who receive electricity via high voltage
lines by April 1, 2003 and eventually to allow full retail competition.

Natural Gas Sector. The increased use of natural gas as a fuel in Japan will play animportant role in lowering the cost of clean energy. To accomplish this, Japan should
create a legal and regulatory framework that will foster competition and facilitate thedevelopment of a national gas grid. Such a framework also would promote thedevelopment of a dynamic natural gas market, thereby encouraging the construction ofpipelines between Japan and Asian natural gas fields. The APEC Natural Gas Initiative,endorsed by APEC members in 1998, also contains useful recommendations for policies inthis sector.
A.

Developing a Competitive Market. Japan should establish a regulatory regime thatwould permit non-discriminatory access by new entrants to the existing utilityowned natural gas infrastructure. For example, that regime should allow newentrants permission to import natural gas and access to utility-owned LNG
receiving terminals and transportation networks for a reasonable fee.

B.

Long Distance Pipelines. Japan should ensure a regulatory regime that will
promote the construction of new long distance pipelines and foster competition byfacilitating access by new entrants. For example, Japan should develop a procompetitive framework governing construction and operation of long-distance23

pipelines that would include rights of way, eminent domain, and a transparent,
non-discriminatory project approval process. Japan also should establish a regime
on non-discriminatory access charges for the pipeline system, including transparent
publication of rates, a fair and timely process of granting access, and a mechanism
for resolving disputes.

24

DISTRIBUTION
The distribution system is a crucial link between producers and consumers in modern market
economies. Overly burdensome regulations and other distribution inefficiencies can causesignificant resource misallocation and higher economic costs. Increased efficiency andcompetition in the distribution sector would lead to lower price levels, increase consumer choice,and enhance overall consumer welfare.
Distributing foreign goods from the point of entry to the end user is a costly and time-consuming
process in Japan relative to other major countries. The high cost of distribution is a principal
reason why Japanese commodity prices are much higher than in other countries. Furthermore,long lead times between the arrival of imported goods in port and actual delivery can be thecritical factor in a business decision to order domestic or foreign goods. This is especially true inthe case of a company using the just-in-time inventory method.
I.

Customs/Import Processing
A recently issued report by the Japan External Trade Organization (JETRO) points outthat the lead time between the arrival of imported goods in Japan and their removal from
customs custody is three times longer than any other country surveyed (U.S., UK,
Germany, France, Netherlands) for sea freight, and longer than all but one of the surveyedcountries for air freight. Despite the efforts of Japan to modernize and expedite its
customs procedures in recent years, the report cites numerous specific areas in which
Government of Japan procedures continue to compare unfavorably with other majorcountries. Further efforts are needed, inter alia, to improve the practical value of preclearance procedures, eliminate inefficient cargo handling inherent in the bonded area
principle; hasten the introduction of information technology, improve inter-agency
coordination; and expand regular hours for customs operations to make them responsive
to the age of 24-hour distribution.
It is the view of the United States Government that the Government of Japan should
continue to modernize and expedite its customs clearance procedures with the goal ofachieving lead times comparable to other major countries, and to that end should:A.

Recognize that many of the problems identified do not fall solely within thejurisdiction of the customs administration and that a coordinated Government ofJapan response is needed;

B.

Permit the release of low risk (physical examination not required) shipments at the
point of arrival without transfer to a bonded area (hozei);

C.

Improve pre-clearance procedures so that prior to arrival the customs
administration and all other relevant Japanese Government agencies accept and25

process declarations, determine whether physical examination will be required, andnotify the importer/broker/carrier by NAACS whether the goods are released orthat a physical exam will be required;

II.

D.

Establish a "one-stop office" to coordinate simultaneous processing of all legal
permits required for importation, such as food and plant quarantine procedures,
and applications required by the High Pressure Gas Control Law, Poison Control
Law, and Pharmaceutical Law;E.

Upgrade NAACS to permit access and use by all government agencies and private
parties involved in the clearance process;F.

Enable bank transfers to be made into NAACS 24 hours a day for payment ofcustoms duty;

G.

Until NAACS is available 24 hours a day, change the daily maintenance period
from 0430-0600 to 0200-0330 to avoid down time when importers need to use thesystem most;H.

Extend the customs administration's regular hours for cargo clearance to conformto passenger hours (from 0830-1700 Monday through Friday to 0600-2200 365
days a year);I.

Increase the import de minimus value in Customs Tariff Law, Article 14, Section
18, from 10,000 to 30,000 yen to improve efficiency and reduce manpower
requirements;

J.

Calculate dutiable value on an FOB rather than CIF basis in the interest of fairness(because CIF includes the cost of transportation, it imposes higher duties on goods
coming from farther away);

K.

With respect to shipments of duty-free documents, eliminate the requirement thatcarriers submit the manifest for each individual shipper when the carrier has
consolidated several different shipments under a master airway bill;L.

Sharply reduce the number of requests for presentation of paper documents forinspection for inbound shipments from Asia when information about those
shipments has been entered into NAACS.

Retailing and Services
Large retail stores enjoy economies of scale and offer consumers more variety at lower
prices. Restrictions on large stores have been shown to contribute to low productivity in26the distribution sector because efficiency is closely linked to average store size.
Furthermore, complex establishment procedures give increased market power to existingretailers, which control the relatively scarce assets of location and space, resulting inhigher prices and limited choice.
The Government of Japan will begin a new era of large retail store regulation when the
Large-Scale Retail Store Location Law (Daiten-Ricchi Ho) takes effect on June 1, 2000.
At this point in time it is impossible to tell whether the new law will produce the desired
effect of decreasing the burden of regulation on large retail store openers, or whether
application of the new Law will pose an even greater obstacle to the establishment oflarge-scale retail stores than existed under the previous regulatory regime. The UnitedStates is concerned that the Guideline and Ministerial Ordinance impose excessive andburdensome requirements and may lead to the establishment of a defacto prior evaluation
system rather than a post facto verification system. It is the view of the United States that,in order to ensure the fair, reasonable and uniform application of the Daiten-Riccho Ho by
local governments that is consistent with the Daiten-Riccho Ho, the Japanese Government
should:A.

Use the Public Comment Procedure , which was adopted on March 23, 1999 priorto adopting or issuing any commentary or measures that expand, explain, interpretor elaborate upon the Guideline, Ministerial Ordinance, or Daiten-Ricchi Ho andensure that any such measure is made public.

B.

In accord with the Second Joint Status Report, publish the name and address ofthe contact point within the Ministry of International Trade and Industry that will
receive and facilitate resolution of complaints from any interested party regarding
the application of the Daiten-Ricchi Ho, and take all necessary steps to ensure thatthe office is fully staffed on June 1, 2000 to perform this function.

C.

Undertake a broad education campaign to inform local government officials, prior
to June 1, 2000, of the content of the Guideline, Explanatory Document andMinisterial Ordinance; their legal responsibilities and the limitations on theirauthority under the Daiten-Ricchi Ho; and the role of the contact point describedin paragraph A

D.

Ensure that MITI and the relevant local governments take all necessary andappropriate measures to remove obstacles faced by any store opener in opening alarge-scale retail store as a result the so-called "construction freeze" during thetransition phase from the repeal of the Daiten-Ho to the implementation of theDaiten-Ricchi Ho.

27

LEGAL SERVICES
It is essential that Japan’s legal service infrastructure be capable of meeting the needs of Japaneseand foreign persons and enterprises that are responding to the opportunities created by market
liberalization and deregulation. Japan’s restructuring process, e.g., in the financial services sector,
will be seriously impeded if Japan continues to thwart the development of a globally competitive
legal services sector in Japan and to prevent foreign and Japanese lawyers from offering
comprehensive services to clients. Both Japanese and foreign persons and enterprises must beable to obtain fully integrated transnational legal services for domestic and cross-bordertransactions. Accordingly, the United States recommends that Japan take the following measures:A.

Remove Partnership Prohibition. The Japanese Government should remove theprohibition against partnerships between Japanese lawyers (bengoshi) and foreign
legal consultants (gaikokuho-jimu-bengoshi or gaiben). The rule should befreedom of association between and among legal professionals on an equal basis,
as contemplated by Article 27 of the Bengoshi Law.

B.

Increase Transparency and Participation in Foreign Lawyer Regulation. The
Japanese Government should ensure that gaiben are provided meaningful
opportunities to participate in the development by the Japanese Federation of Bar
Associations (Nichibenren) and mandatory local bar associations (local bars) of all
new or amended rules or regulations that affect them. In particular, the Japanese
Government should:C.

1.

Require Nichibenren and the local bars to provide for greater
representation and effective participation by gaiben on all Nichibenren andlocal bar committees, subcommittees and other bodies that consider
registration, discipline and all other regulations and issues relevant togaiben;2.

Require Nichibenren and the local bars to use public comment procedures
before adopting or issuing rules or regulations;

3.

Reduce the time required for registration by gaiben, including any appeals,
and expedite and rationalize the reporting process for gaiben; and4.

Ensure that the Nichibenren and the local bars do not impose any
restrictions on the use of specified joint enterprises (tokutei kyodo jigyo).

Allow Full Credit for Experience in Japan. The Japanese Government should
allow a foreign lawyer to count all of the time in Japan spent practicing the law of
the lawyer’s home jurisdiction toward meeting the experience required to register
as a gaiben, not just the one year allowed under current practice.
28

D.

Remove Discriminatory Restrictions on Gaiben Advising on “'Third Country”
Law. A gaiben should be recognized to be as capable as a bengoshi of offering
advice on so-called “third country” law (that is, the law of a country other than the
one which is a gaiben's home jurisdiction). To that end, the Japanese Government
should remove the current discriminatory requirement, not applicable to bengoshi,that a gaiben may give advice on third country law only on the basis of specific
written advice from a bengoshi or a lawyer admitted to practice in the third
country involved.

E.

Examine Establishment of Professional Corporations. The Japanese Government
should examine expeditiously the establishment of professional corporations forbengoshi and other legal professionals in Japan to determine whether theirestablishment would facilitate the provision of more comprehensive, transnationaland easily accessible legal services in Japan. However, the Japanese Government
should ensure that any such establishment of professional corporations does notdiscriminate against or disadvantage existing forms of international legal and otherprofessional partnerships and organizations. If the Japanese Government allows
the establishment of professional corporations, it should recognize professional
corporations and limited liability partnerships covered under the laws of a foreigncountry, and should allow such firms that use LLP, LLC or similar designations intheir names in their home jurisdictions to use those designations in Japan, so longas their Japanese office complies with the office- naming requirements of theForeign Lawyers Law.

F.

Increase the Number of Qualified Legal Professionals. There exists a significant
need to increase access for Japanese and international participants in the Japanesemarket to Japanese legal advice and judicial processes. The United States strongly
supports efforts in Japan to consider new avenues of qualification for bengoshi,
judges and public prosecutors. In the short term, the Japanese Government should
increase the number of trainees admitted to the Supreme Court's Legal Research
and Training Institute to not less than 2000 trainees per year as soon as possible,
but no later than the class entering on or after April 1, 2001.

G.

Allow Consultations on Behalf of Third Parties. The Japanese Government should
confirm and clarify that it is within the scope of permissible activities of gaiben to
confer with Japanese government agencies and other authorities on behalf ofclients.

H.

Remove Restrictions on Association with Quasi-Legal Professionals. The
Japanese Government should allow complete freedom of association among all
types of legal professionals and quasi-legal professionals (which include benrishi,
zeirishi, shiho shoshi and gyosei shoshi). To that end, the Japanese Government
should remove the partnership, employment and cost-sharing restrictions on
29

relationships between quasi-legal professionals and bengoshi and gaiben, and on
relationships among the various quasi-legal professionals.

30

OTHER SECTORAL ISSUES
Japan, through its Road Traffic Law, maintains unnecessary restrictions on the operation of
motorcycles on motorways, which do not contribute to highway safety, are not in accordancewith international norms, and unnecessarily limit the use of large motorcycles. The Governmentof Japan should move quickly to remove these restrictions, specifically by harmonizing the speed
limits for mini cars and motorcycles to the standard automobile speed limit of 100km/hour; and byeliminating the prohibition on tandem riding of motorcycles on motorways. The United States is
encouraged by progress made by Japan's National Police Agency to study the possibility of raising
the speed limit for motorcycles, and would like to see the speed limit law revised as soon as
possible. The United States understands that a recommendation on the tandem riding issue is
expected this December. The United States urges Japan to resolve this issue at the same time as
the speed limit issue. Appropriate actions would include:A.

By March 31, 2000, Japan should raise the highway motorcycle/mini car speed
limit so that it is the same as the speed limit for automobiles.

B.

By March 31, 2000, Japan should eliminate the ban on tandem riding (carrying apassenger) of motorcycles on national expressways and motorways.

31

COMPETITION POLICY & ANTIMONOPOLY LAWI.

Japan Fair Trade Commission’s Independence
Japan should take additional measures to ensure the continued independence of the Japan
Fair Trade Commission (JFTC) when it is placed under the Ministry of General Affairs(MGA) in 2001, as part of the central government reorganization. In particular, because
the Ministry of Posts and Telecommunications will also to be placed under MGA., a
Cabinet Order should be issued that will ensure that the JFTC’s application of the
Antimonopoly Law (AML) in the telecommunications area will not be influenced in any
way by MPT or MGA, and that the integrity of the JFTC’s personnel system and budget
will also be maintained.

II.

Anticartel Enforcement
Consistent with the OECD Recommendation (March 25, 1998) concerning Effective
Action Against Hard Core Cartels, which recognized that “hard core cartels are the mostegregious violations of competition law,” the JFTC, Ministry of Justice (MOJ) and otherrelevant Japanese Government ministries should take measures to strengthen enforcement
against cartels and bid-rigging. By April 2000 the JFTC in coordination with the MOJ
should establish an “Anticartel Enforcement Reform Council” to review the JFTC’s
investigatory powers and recommend reform legislation, with a view to introducing reform
legislation by April 2001. The council should examine:
A.

B.

Criminal Investigation and Accusation Powers
1.

Reforming antimonopoly criminal accusation procedures and requirements
to promote the filing of more criminal accusations;

2.

Strengthening the JFTC’s investigative powers for purposes of filingcriminal accusations; and3.

Amending Chapter 10 of the AML (or other appropriate law) to make clearthat the prescription period for violations of section 89 of the AML
involving unreasonable restraints of trade only starts to run from the last
act in furtherance of the agreement or conspiracy.

Sanctions for Obstruction of Investigations
1.

Providing stronger sanctions against obstruction of investigations
undertaken pursuant to §§40 or 46 of the AML (including the making or
submission of intentional false statements to the JFTC or to JFTC

32

investigators), including providing for substantial imprisonment and fines
for violations of AML §94 and §94-2; and2.

C.

Reform of Administrative Surcharge System
1.

III.

Adopting a policy of actively prosecuting individuals that obstructinvestigations in a manner covered by §§ 92-2, 94 or 94-2 of the AML.

Strengthening the surcharge system by:a.

Amending AML §7-2 to permit the JFTC to reduce or eliminate
surcharges against a firm which notifies the JFTC of illegal cartel
activity and fully cooperates with the JFTC; andb.

Eliminating the differential treatment for small and medium sizedenterprises.

Measures Against Dango
To further combat dango (bid rigging) in central and local government procurement,
Japan should adopt by April 2000 an Anti-Dango Program, which should include
measures such as the following:A.

Announcing a new initiative by the National Police Agency (NPA) and theprefectural police departments, including in particular the Tokyo Metropolitan
Police Agency, to investigate criminal bid rigging under §96-3 of the Criminal
Code;

B.

Establishing a liaison mechanism between the JFTC and the NPA and prefectural
police departments for the purpose of increasing cooperation on the investigationof criminal bid rigging activities. Such cooperation might include such activities as
training programs or information exchanges on effective investigation techniques inthis area and the use of laboratory facilities to aid in investigation of such crimes;

C.

Adopting a policy that all Japanese Government procuring entities will seek
damage compensation under the tort or unjust enrichment provisions of the Civil
Code against companies found to have engaged in bid rigging on government
contracts;

D.

Implementing a Government of Japan-wide policy and enforcement system forensuring that government officials that knowingly provide assistance to bid rigging
activities, especially through use of the designated bidder system or the improper
disclosure of the ceiling price (yotei kakaku), are severely disciplined; and
33

E.

IV.

Developing a system of effective deterrents, including criminal penalties and/or
administrative sanctions (including surcharges), to discourage companies fromparticipating in or otherwise aiding dango activities by submitting complementarybids.

Private Remedies
The United States strongly believes that the practical availability of injunctive relief andeffective damage remedies through private litigation is an integral part of a comprehensive
antimonopoly legal regime -- persons directly injured by anticompetitive behavior shouldhave the ability to seek redress for violations of the AML directly from the courts. To thisend, Japan should introduce legislation by April 2000 to:V.

A.

permit private parties to sue for injunctions against practices that are clearly
anticompetitive and that violate the AML, particularly §§ 3 or 8(1)(i);B.

ease legal impediments faced by plaintiffs in (i) meeting their burden of proof on
the amount of damages and (ii) proving the causal connection between the AML
violation and the damages suffered, in private damage actions based on alleged
AML violations; andC.

provide standing to prefectural and other local governments, and/or governmentfunded consumer organizations, to bring private lawsuits under the AMA or Civil
Code to recover damages suffered by consumers within their jurisdiction becauseof antimonopoly violations. An appropriate mechanism for distributing any awards
from such lawsuits should also be specified.

Promotion of Deregulation
A.

Elimination of Anticompetitive Private Sector Regulation
1.

Consistent with the Cabinet Decision (March 31, 1998) and the JFTC
Survey of the Standards and Certifications of Public Interest Corporations(July 1998), the JFTC should report by April 2000 on measures it has taken
to ensure the elimination of anticompetitive private sector regulations (minmin kisei) used by industry and nonprofit associations. (See also
Transparency and Other Government Practices, Private Sector
Regulations)B. Public Utilities Deregulation

34

1.

The United States supports the JFTC’s preparation of guidelines on theapplication of the AML to the electricity and gas sectors in light of
deregulation. In this regard, the JFTC should:a.

use the Public Comment Procedure, which became effective on
April 1, 1999, to provide the public and foreign governments withthe opportunity to comment on these guidelines before they are
finalized;b.

seek to address the following general issues, among others, inthese guidelines:i.

Proper product and geographic market delineation
approaches, especially in light of time-sensitive shifting oftransmission capacity;ii.

Explaining the scope of application of the AML totransactions and firms subject to continued full or partial
regulation;iii.

Distinguishing procompetitive from anticompetitive
coordination in transmission interconnection; andiv.

Prevention of anticompetitive practices by dominant firms
to maintain or increase market power, including the removalof incentives (through structural or other measures) forcompanies to use their market power to impede market
access to other integrated and non-integrated competitors;

2.

The JFTC should continue to play an active role in promoting maximum
deregulation in the electricity and natural gas sectors consistent with soundcompetition policy.

3.

The JFTC should ensure that its study group currently examining
deregulation and competition policy in the public utilities sector:a.

publicly discloses its work schedule, including when it expects toissue preliminary and final reports and/or recommendations;b.

holds a hearing in which interested parties can express their views;
and

35

c.

VI.

Antimonopoly Law Exemptions
A.

Japan should repeal AML §21 exemption for natural monopolies, including forrailway, gas and electricity, by April 2000.

B.

Regarding the application of Article V of the Industry Revitalization Law (Law
No. 131, 1999), Japan should:

C.

VII.

provides an opportunity for public comment on any interim reports
or preliminary recommendations of the study group, in accordancewith the Public Comment Procedure or comparable procedures.

1.

affirm that the law in no way supersedes the AML or prejudices the JFTC’s
independence in enforcing the AML;

2.

ensure that the JFTC is notified of, and has the chance to review, allapplications, especially joint applications, submitted under the law; and3.

make all JFTC advice regarding such applications publicly available.

Japan should review the necessity of § 10-5 of the Premiums andMisrepresentations Law, which provides an effective exemption for Fair Trade
Councils from the AML, with a view towards abolishing that provision.

Merger and Stock and Asset Acquisition Review
Japan should support active application of the AML to proposed mergers and acquisitions,whatever their form, that may substantially restrain competition. In this regard:
A.

Japan should amend the AML to require pre-notification of stock and otheracquisitions that currently fall under AML Section 10.

B.

Japan should promote improvement in the ability of the JFTC to investigate fully
and analyze rigorously complicated mergers and acquisitions by supporting
increases in the JFTC’s resources devoted to those purposes.

C.

The JFTC should take measures to increase the transparency of its review ofmergers and acquisitions by, for example:
1.

disclosing a fuller analysis of the JFTC’s reasoning for seeking changes in a
proposed transaction during the prior consultation period, or for notseeking changes in transactions that appear to raise competitive concerns;

36

2.

explaining in fuller detail how proposed changes to particular transactions
will eliminate competitive problems; and3.

seeking the comments of interested third parties, and where possible thepublic at large, before finally approving a proposed transaction based on a
restructuring of the transaction, and publishing those comments where notconfidential.

VIII. Promotion of Competition in the Distribution Sector
With a view toward the promotion of a competitive and efficient distribution sector, the
JFTC should:

IX.

A.

Initiate a survey on the extent and form of financial inter-relationships linking
manufacturers and distributors in "highly oligopolistic industries." The survey, on
an industry-by-industry basis, should cover equity ties, provision of loans or othercapital sources, and the sharing of employees, facilities and equipment.

B.

Monitor closely the activities of local and prefectural governments that areconsidering requests to establish a large-scale retail store, and make submissions tosuch local and prefectural governments on the procompetitive benefits oflarge-scale retail stores.

C.

Initiate a mechanism whereby the Antimonopoly Law compliance plans of privatecompanies, particularly in sectors that are highly concentrated, could be reviewed
with a view to ensuring that such plans promote the highest standards of AML
compliance.

JFTC Budget and Resources
A.

Japan should increase the JFTC’s staff levels by an extraordinary amount (at least
50 persons) for FY2000, including by taking advantage of the opportunity createdby the government reorganization to allow the JFTC to accept permanent transfersfrom other agencies.

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TRANSPARENCY AND OTHER GOVERNMENT PRACTICESIn recent years, the Japanese Government has begun to lay the foundation for a more transparent
and accountable regulatory system, including through the implementation of an Administrative
Procedure Law, the adoption of a Public Comment Procedure and the enactment of an
information disclosure law. The United States welcomes these measures. However, it believes
that additional measures are necessary to achieve the level of transparency and accountability
recognized as essential in the 1999 OECD Review of Regulatory Reform in Japan (OECD
Review). The OECD found that: “Lack of transparency in regulatory and administrative
processes is a major weakness of Japan’s domestic regulatory system. Non-transparency affects
all potential market entrants and competitors, who must have adequate information on
regulations so that they can base their decisions on accurate assessments of potential costs,
risks, and market opportunities, but has disproportionate costs for foreign parties.” The OECD
concluded that: “Investment, market entry, and innovation should be promoted by increasing thetransparency and accountability of regulation.”
The United States urges the Japanese Government to introduce a broad regulatory reform
program designed to bring greater transparency and accountability to its regulatory system. The
underlying premise of the reform program should be that ministries and agencies must justify tothe public the rationale for the adoption of new regulations, as well as changes to and thecontinuation of existing regulations. Regulations should be the exception and not the rule,
meaning that regulations that are not directly linked to public policy interests should be abolishedor not adopted. The public should be given an effective means of participating in the development
and assessment of regulations. The program should embrace both public regulations and private
regulations (so-called min-min kisei).
I.

Public Comment Procedure
With regard to the Public Comment Procedure, which the Japanese Government adopted
on March 23, 1999 as an administrative measure, the OECD Review noted the potential
benefits of the Procedure “if implemented consistently and systematically acrossministries.” The United States acknowledges that the publication of proposed regulations
by a number of ministries, agencies and advisory councils has made the rulemaking
process in Japan more transparent. However, the United States is concerned that to dateministries, agencies and advisory councils appear in most cases to have given inadequate
consideration to the public comments that they received. It is important that ministries
and agencies actively demonstrate that they take the public comment process seriously bymodifying final regulations to reflect public comments where warranted. Unfortunately,
there is no independent review mechanism that the public can use to challenge
implementation of the Public Comment Procedure. To address such deficiencies, theJapanese Government should begin preparations to incorporate the Public Comment
Procedure into legislation.

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A.

Follow-up of the Implementation of the Public Comment Procedure. In
undertaking the follow-up of the implementation of the Public Comment
Procedure, as provided for in the Second Joint Status Report, the Management
and Coordination Agency (MCA) should, at the end of JFY 1999, invite publiccomments on the implementation of the Procedure. In its follow-up, the MCA
should include the following in its findings:
1.

With respect to each case in which the Public Comment Procedure wasused: (1) a brief description of the relevant regulation or other measure;(2) the length of the public comment period; (3) the length of time between
the submission of public comments and the finalization and adoption of theregulation or other measure; (4) whether the public comments were madeavailable for public inspection; and (5) the extent to which the regulation orother measure was modified in response to public comments; and2.

An assessment of whether the decisions by the ministries and agencies not
to use the Procedure were appropriate.

B.

Enhancement of the Use of the Public Comment Procedure. To make use of the
Public Comment Procedure more effective, the United States urges ministries,
agencies and advisory councils to provide a 60-day comment period to the extent
possible.

C.

Application of the Public Comment Procedure to Specific Measures. Given theextensive discretion allowed central government entities in applying the Public
Comment Procedure, the Japanese Government should ensure, in particular, that
the Procedure is fully used in the following cases:
1.

Ministry of International Trade and Industry’s (MITI) development of the“commentary” or other measures relating to the implementation of theLarge-Scale Retail Store Location Law (Daiten Ricchi Ho);

2.

MITI/Ministry of Transport’s development of regulations regarding theautomotive sector;

3.

Ministry of Finance’s and Financial Supervisory Agency’s development of
all regulations affecting financial services, including insurance, (allowing
sufficient time for public comments and sufficient time between notice of
final regulatory changes and their implementation to enable industry to
make the necessary organizational, operational and systems changes);

4.

The Japanese Government’s development of an Action Plan on thedigitization of government procurement procedures in December 1999; and
39

5.

D.

II.

MITI's development of regulations regarding deregulation of the electricutility and natural gas sectors.

Use of the Public Comment Procedure by Advisory Councils
1.

Given the important role that advisory councils play in the regulatory
process in Japan, the Japanese Government should require, by the end of
JFY 1999, all advisory councils, including shingikai, kenkyukai, kondankai
and benkyokai and their subcommittees and other subsidiary bodies(collectively referred to as “advisory councils”), to use the Public Comment
Procedure or comparable procedures when they issue interim reports andpreliminary recommendations (collectively referred to as “interim reports”).
The United States notes that a number of advisory councils have provided
an opportunity for the public to comment on their interim reports andencourages the broader use of this practice.

2.

Pending implementation of advisory council-wide public comment
procedures, referred to in paragraph 1, the Japanese Government should
encourage advisory councils to use the Public Comment Procedure when
they develop interim reports on regulations, legislation and other significant
policies, including:a.

Ministry of Health and Welfare’s Central Social Insurance Medical
Council (Chuikyo) in its discussions of medical device andpharmaceutical reimbursement rate-setting rules;b.

Ministry of Construction’s Central Council on Construction
Contracting Business (Chukenshin);c.

MITI’s Electric Utility Industry Council; andd.

Ministry of Finance’s Customs Tariff Council’s subcommittee’sreport and recommendations on revisions of the Customs Law.

Regulatory Reform Process
The OECD Review recognized the benefits of regulatory impact analysis (RIA) in Japan:“Regulatory analysis would help officials understand the consequences of theirregulatory decisions, improve the transparency of regulation, and identify more flexible
and cost-effective policy instruments, such as economic instruments. Such alternatives
are not widely used in Japan. RIA is more effective when it is part of public consultation,and the new public consultation procedures provide Japan an opportunity to improve its
use of RIA.” The OECD noted that while 24 OECD countries use RIA, its use is in its
40

infancy in Japan. Accordingly, the United States recommends that the Japanese
Government take the following measures:
A.

B.

III.

Regulatory Impact Analysis.To enhance transparency in policy-making andadministrative management, and consistent with the OECD Review(recommending that the Japanese government improve its RIA system) and the
March 31, 1999 Cabinet Decision (calling for ministries and agencies to improvetheir policy evaluation capabilities), and building on MITI’s proposed Policy
Evaluation System, the Japanese Government, by the beginning of JFY 2000,
should institute a government-wide regulatory impact system, which would subject
regulatory changes with a significant economic impact to such analysis and public
notice and comments. Specifically, the Japanese Government should:
1.

On a government-wide basis, implement measures to apply cost/benefit
analysis (both quantifiable and non-quantifiable) for proposed regulatorychanges which will have a significant economic impact;

2.

Take measures to use the best available scientific, technical, and economic
data when reviewing proposed regulations; and3.

Provide an opportunity for interested parties and the public in general tocomment on the cost/benefit analyses, as well as on the reasonableness of
the assumptions and methodologies used.

Regulatory Reform Entity. The Japanese Government should enact legislation toestablish an office of regulatory impact analysis to review regulatory changes witha significant economic impact. To be effective, such an entity should beestablished by the highest legal authority with a secretariat that is independent ofministries and agencies and authorized to report directly to the Cabinet.

Administrative Procedures and Practices
A.

Improvements in Administrative Procedures and Practices Related to Licenses,
Permits and Approvals. The United States has long raised its concerns withadministrative procedures and practices related to the process for obtaining
licenses, permits and other approvals (collectively referred to as “approvals”) inJapan. Of particular concern, regulations often do not provide potential applicantswith sufficient information upon which to prepare their applications; ministries andagencies use non-transparent administrative guidance in lieu of, or to amplify,
regulations; and applicants must often engage in protracted consultations withministries and agencies in order to be able to complete their applications
satisfactorily. The MCA confirmed the existence of many of these problems in its
extensive survey, issued in June 1999, on the fairness and transparency of41

administrative procedures. The United States welcomes the MCA’s
recommendations, in particular, with regard to the handling of applications and theuse of administrative guidance. The United States urges the Japanese Government
to take the necessary measures to implement the MCA’s recommendations. In linewith those recommendations, the Japanese Government should require eachministry and agency to:

B.

C.

1.

Accept every application that is submitted to it and, without delay,commence review of it, consistent with Article 7 of the Administrative
Procedures Law (APL);2.

Not require or encourage applicants to engage in prior consultations, i.e.,
discussions with the government entity regarding the content, scope orother aspects of a potential application, before formally accepting theapplication and commencing review of it;

3.

Where it determines that an application does not contain all required
information, provide the applicant with a written statement identifying all
deficiencies in the application and the information that must be provided,
consistent with Article 7 of the APL;

4.

Not use administrative guidance to amplify requirements for approvals; and5.

Upon the request of an applicant, provide the applicant with a written
statement of the status of the application and a statement as to when adecision (or disposition) of the application can be expected, consistent with
Article 9 of the APL.

Improvements in Administrative Procedures and Practices Used in Specific
Sectors. Improvements in the following administrative procedures and practices
related to licenses, permits and approvals in the following sectors are particularly
important:1.

Medical device and pharmaceutical sectors;

2.

Financial products and services; and3.

Insurance products and services.

Introduction of New Regulatory Mechanisms. The United States urges theJapanese Government to consider the introduction of two new regulatory
mechanisms that would increase the transparency and predictability and reduce thecomplexity of the regulatory process.
42

D.

1.

“No Action Letters.” Under this mechanism, a private sector entity would
be allowed to make a written request to a ministry or agency regarding theapplication of an existing regulation to a specific factual situation. Where
not applicable, the ministry or agency would issue within a specified periodof time a “No Action Letter” that would state that, based on the facts
presented, the ministry or agency would take no action. After a specified
period of time, the contents of the “No Action Letter” would become amatter of public record with, where requested, information identifying therequesting party deleted.

2.

“Letter Rulings.” Under this mechanism, a private sector entity would beallowed to request an interpretation of the application of a law or
regulation to a specific factual situation. The ministry or agency would
respond in writing within a specified time period and its response would bemade public.

Administrative Guidance
Given that there have been, according to the OECD Report, only 33 public
disclosures of administrative guidance despite the APL provisions for written
guidance, the Japanese Government should take the appropriate actions to require
all administrative guidance to be issued in writing, unless there is a specificcompelling reason to not disclose it.

IV.

Private Sector Regulations
As the Japanese Government removes and relaxes regulations, it is essential that special
public corporations (tokushu hojin), industry associations and other private sector
organizations (referred to collectively as “private regulatory organizations”) are notallowed to substitute private regulations (so-called “min-min kisei”) in place ofgovernment regulations. In addition, there is a need for greater transparency andmonitoring of the role of private regulations in the Japanese economy. Private regulations,
including rules on market entry and business operations, approvals, standards,
qualifications, inspections, examinations and certification systems (collectively referred toas “private regulations”), can adversely affect business activities. Accordingly, the UnitedStates urges the Japanese Government to undertake the following measures:A.

Monitoring Mechanism. The Japanese Government should provide for two typesof monitoring of private regulations:
1.

The JFTC should ensure that private regulations are not anti-competitive(as elaborated upon in the Competition Policy section); and

43

2.

B.

The Japanese Government should designate a permanent administrative
entity to oversee the use of private regulations, and provide it with theauthority to:a.

Request each ministry and agency to provide, with respect to theprivate regulatory organizations under its jurisdiction: (i) adescription of the regulations issued by the organization; (ii) theindustry or enterprises subject to the regulation; (iii) the penalties
for non-compliance; and (iv) the legal authority or basis for the
regulation;b.

Establish a process for examining the need and authority forexisting private regulations, and for eliminating those that are
unnecessary or without statutory authority; andc.

Review new regulations proposed by private regulatoryorganizations prior to their adoption.

Enhanced Transparency. To increase the transparency of private regulations, theJapanese Government should require private regulatory organizations that havebeen delegated public policy or governmental functions to use fair and transparent
public comment procedures before adopting or issuing regulations, particularly thefollowing:
1.

Japanese Federation of Bar Associations (Nichibenren);

2.

Japan Automotive Service Equipment Association;

3.

Life and Non-Life Policyholder Protection Corporations; and4.

Non-life Rating Organizations.

C.

Industry Associations. The Japanese Government should ensure that the policies
and procedures of industry associations are fair and fully transparent and that all
members have equal access to association information and a meaningful role in theassociation’s governance, including the right to vote and representation at theboard and committee levels. Industry associations should represent and advancethe interests of all of their members.

D.

Delegation by Governmental Entities. The Japanese Government should prohibit
government entities from delegating governmental or public policy functions, suchas product certifications or approvals, to private regulatory organizations, otherthan by express provisions in a law.
44

V.

Information Disclosure by Tokushu Hojin. The United States appreciates that theJapanese Government has established an advisory council to consider the disclosure of
information by special public corporations (tokushu hojin). To provide the public witheffective access to such information, the Japanese Government should take, as soon as
possible, the measures necessary to require such entities to disclose information to the
public, in the same manner and effective on the same date as the new Information
Disclosure Law.

45