JOINT STATEMENT
46 U.S.-Japan Business Conference
U.S.-Japan/Japan-U.S. Business Councils
November 3, 2009th

U.S. ECONOMY
Compared to where the U.S. economy was a year ago, the Councils are very pleased to see thebeginnings of a gradual and modest recovery from the most severe recession in decades. The
extraordinary financial rescue and stimulus measures initiated by the U.S. government in late2008 and early 2009 deserve credit for preventing an even worse recession, and for helping turnthe situation around. The economy should continue to improve as more of the stimulus
measures pass through in coming months, and as business confidence gradually increases.
A slight increase in exports has been an important factor in moving the economy into a slow
growth phase. As demand in overseas markets picks up, particularly in Asia, this should
continue to play an important role in the recovery. Accordingly, the Councils urge theadministration and Congress to pursue policy measures, including trade agreements, which
support the expansion of U.S. exports as a means of supporting economic growth and job
creation.
There are problem areas of significant concern. In particular, serious credit constraints remain,
particularly for small and medium-sized companies. The near-term employment outlook also
remains severe. With unemployment near 10%, this will continue to exert downward pressure
on consumption, thus limiting growth. There have been modest increases in housing andconsumer spending in recent months, propelled by temporary credits for first-time home buyers
and the so-called Cash for Clunkers program. Until there are more significant and sustainable
increases in commercial lending, corporate investment and consumer spending, questions about
the sustainability of the recovery will remain.
Historically, the U.S. economy has proven to be resilient and dynamic, and the flexibility ofcapital and labor markets has been a critical factor in this. Extraordinary government efforts
and spending have helped the economy weather a 50-year storm, and the Councils commend the
Obama administration for bold action in a time of crisis. Going forward, economic recovery
will depend primarily on private sector activities and initiatives, as the current level of public
spending is unsustainable given the impact on U.S. budget deficits and national debt.
With this in mind, the Councils encourage the U.S. government to accelerate growth in this next
phase of the recovery by concentrating its efforts and initiatives on stimulating private job
creation through regulatory, investment and tax policies that lead to new private investment,
innovation, and business development. Regulation of capital, labor and product markets isnecessary, particularly in light of some of the excesses that led to the recession. However, at atime of economic weakness and growing competition in the global economy, regulation must be
smart and balanced so that this does not stifle innovation and competitiveness.
JAPANESE ECONOMY
The Japanese economy has been on a recovery track since the beginning of the year, but looking
at sectors, those on the track have been rather limited so far. According to the BOJ's quarterly
survey of business sentiment (tankan), business sentiment has shown some improvement,
including small- to medium-sized companies, but it still fell short of the level achieved prior tothe crisis.
One of the factors contributing to the recovery is exports. However, demand observed at theearly stage of recovery for restoration of the inventory levels has already been waning, and thegrowth rate has been slowing down gradually. Production has also been increasing thanks togood demand from overseas and to the government measures to stimulate the economy, but here
again, the growth rate has been gradually decelerating. The sentiment of excess capacity,although somewhat moderated, still remains at a level higher than the historic peak recorded
during the past economic slowdown periods.

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The sentiment of the household sector also is still very weak. Recently, thanks to "eco-points,"
subsidies for "eco-cars," and similar measures for economic stimulation, sales of household
appliances and automobiles have been driving consumption. However, the employment
environment is still very tough, and household income also remains sluggish. Under thesecircumstances, it will still take some time before consumption starts recovering in aself-sustaining manner.
In the near future, it is likely that Japan's economy will continue on its recovery track helped byrecovery of overseas economies. However, there are some downside risks. In particular, thestronger yen in the foreign exchange market and suspension of public works projects under the
new administration are two of the current concerns.
In the foreign exchange market, the yen remains strong against the US dollar, hitting 88 yen per
dollar at one time in October 2009. In view of the fundamentals of Japan and the U.S. andinterest rate trends in the two nations, yen-buying pressure could continue to build up. The
Hatoyama administration is planning to review the Supplementary Budget of 14 trillion yen
enacted under the previous administration. In particular, public works spending amounting tosome 900 billion yen is likely to be suspended. The surplus budget thus worked out (about 3
trillion yen) will be used direct subsidies for households such as child benefits and thus help
stimulate consumption. However, the change in government policies will likely delay the
economic effects to materialize.
Amidst the rather weak economic recovery and remaining deflationary pressure, the BOJ
remains very prudent for the exit strategy of its financial policies. Despite some market
expectations, it was decided in the BOJ's October Monetary Policy Meeting to postpone thetermination of CP and corporate bond purchases. Although the extreme tension in the financial
market after the Lehman shock has been unwound and the real economy has bottomed out fromthe worst, there still remain concerns for deflation, and the BOJ remains very prudent.

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HIGH-LEVEL ECONOMIC DIALOGUE, ECONOMIC INTEGRATION, AND ANECONOMIC PARTNERSHIP AGREEMENT
Given Asia’s current growth and integration trends and the vital security interests that are atstake in the region, there is arguably no area of the world more important to long-term global
prosperity and stability. In this context, and as the United States and Japan look for ways topromote economic recovery and increase their competitiveness amid the economic challenges ofthe 21st century, closer U.S.-Japan economic integration and cooperation in Asia makes sense.
The Councils accordingly call upon the governments of the United States and Japan to commit toan economic dialogue focused on facilitating economic integration of the two economies andaddressing global issues of concern to both economies. This dialogue should be dedicated toachieving concrete measures that increase trade and investment, cooperation in areas such asenergy and environment, and harmonization of regulations and standards -- both bilaterally andin the Asia-Pacific region. In the Councils’ view, high-level engagement is an essential part ofthis vision in order to set priorities and provide the leadership and political weight necessary toadvance an ambitious agenda at a time of growing protectionist sentiment around the world.
The successive hosting of APEC by Japan in 2010 and the United States in 2011 presents a
tremendous opportunity for Japan and the United States to refocus on their common values andgoals for the Asia-Pacific. The Councils urge both governments to work closely together insetting an ambitious mid and long-term vision and agenda for APEC, and to jointly drive
APEC’s key economic objectives and initiatives, including pursuit of free and open trade andinvestment in the Asia-Pacific, promotion of regional economic integration, and economic andtechnical cooperation in areas such as ICT, energy and environment, life sciences, etc. in order torevitalize businesses and the economies of the region.
The Councils endorse the U.S. and Japanese government’s support for APEC’s efforts toaccelerate Asia-Pacific economic integration and remain supportive of multilateral negotiations
at the WTO. The Councils believe greater U.S.-Japan economic integration and cooperation
would provide impetus for further progress on both of these fronts.
As a long-term objective, the Councils continue to strongly support a comprehensive, high-level
Economic Partnership Agreement (EPA) as the most effective and enduring way to strengthen
bilateral economic relations and bolster the overall competitiveness of the U.S. and Japanese
economies, both regionally and globally. Such an ambitious goal would build further
momentum in the U.S.-Japan economic relationship and lay the foundation for an active,
forward-looking bilateral economic agenda. Working towards the goal of a comprehensive,high-standard U.S.-Japan EPA would, by enhancing economic integration between the twolargest economies with similarly high standards for labor and environmental rules andtechnology, serve as a model and possible platform for a broader regional agreement among
like-minded countries.
The Councils envision an EPA as an “FTA-Plus” agreement that would have to encompass“substantially all the trade” in goods as well as “substantial sectoral coverage” in services, as
required under WTO rules, and address tariff and non-tariff measures in areas including, but notlimited to, regulations and regulatory transparency, distribution, standards, commercial laws,
investment rules, capital and currency markets, agriculture, cross-border data flows, trade
remedies such as antidumping, competition policy, human resources and movement of natural
persons, intellectual property, and secure trade.
The Councils acknowledge that the path forward for a high-standard EPA is difficult in thecurrent political and economic environments in both countries and in light of some sensitive
issues that would have to be tackled to achieve such an agreement. Nevertheless, the Councils
believe the potential benefits of a comprehensive EPA to both economies far outweigh the costs
3and urge the U.S. and Japanese governments to commit to this long-term goal while starting now
to take incremental steps toward it. Specifically, the Councils urge the two governments tolook for early opportunities to negotiate binding, interim trade-enhancing initiatives, or “building
blocks,” in a few targeted areas as a means of building the trust and confidence necessary forachieving the long-term vision of a comprehensive, high-standard EPA.
For example, the Councils urge the U.S. and Japanese governments to make regulatory andstandards harmonization one of their top priorities in the Regulatory Reform and Competition
Policy initiative (or its successor) with a goal of reaching a broad agreement or series ofagreements in key industries as determined by business-government consultation. Greater
harmonization of regulations and standards would provide significant benefits to Japanese andU.S. companies in the short term by lowering production and compliance costs, while also
representing a significant step toward the longer term goal of a bilateral EPA. This could also
provide a critical platform and model for regulatory and standards harmonization among
like-minded countries in the Asia-Pacific region through APEC.
In addition to the above, the Councils share the understanding that cooperation andharmonization between the U.S. and Japan in the area of intellectual property rights could
generate benefits not only at the national level, but also globally, by enhancing the presence ofpredictable and balanced intellectual property systems. The Councils support the activities of thegovernments towards, e.g., harmonization of the national patent systems including adoption of
the “first-to-file” principle, leadership for the international patent systems including the Patent
Prosecution Highway, the Substantive Patent Law Treaty, and the Anti-Counterfeiting Trade
Agreement, and cooperation to build respect for intellectual property rights in third countries.
The Councils acknowledge that increased trade, while bringing tremendous benefits tocompanies and consumers alike, often results in dislocation in certain areas due to greater
competition and that concentrated efforts are required to build a strong consensus on promoting
free trade moving forward. The Councils urge both governments to establish morecomprehensive and robust systems to help workers, companies, and communities better adjust to
rapid change in the marketplace and succeed in the increasingly global economy. Necessary
measures include reforms in agriculture; trade adjustment assistance, education, labor market
flexibility and security, and worker retraining systems; and portable, cost-effective pension andhealthcare structures as well as effective enforcement of existing multilateral trade agreements.
Most of all, it will take strong leadership and vision and sustained efforts on the part of bothgovernments to communicate this message to key constituencies and implement these measuresin ways that build support for continued engagement in the global economy.

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Aviation
The Councils strongly endorse the current efforts of the U.S. and Japanese Governments tonegotiate an updated bilateral aviation agreement including Open Skies on the grounds that thearrangement will expand international trade and commerce and enhance convenience forpassengers and shippers. By increasing the possibilities for where, when, and how often
airlines can fly between the world’s two largest economies, and beyond to other countries, an
updated agreement will provide benefits for the U.S. and Japanese economies, and those of the
Asia-Pacific region.
Open Skies agreements around the world provide substantial benefits in the form of increases inpassenger and cargo traffic, lower prices for passengers, and increased jobs. With the Asia
Pacific region forecast to become the world’s largest aviation market over the next 20 years,
encompassing more than 40 percent of the world’s airline traffic, an Open Skies agreement
would help facilitate the expansion of regional trade and supply networks and movement ofpeople. The updated bilateral aviation agreement including Open Skies would help solidify
Tokyo’s key role as a major Asian hub for passengers and shippers, and expand efficient
Asia-Pacific trade and passenger movement.
The Councils recognize the complexities involved in negotiating such an agreement but urge
both governments to afford the effort to reach it the highest possible priority.

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HEALTH CARE INNOVATIONThe current global recession is bringing further challenges to the medical device andpharmaceutical industries. The Obama administration in the United States is proposing a major
overhaul of the country's health care system in the face of the large number of uninsured
Americans. Japanese patients face delays in receiving the latest in medical technologies, andthe healthcare system is weakened by inefficient administration of public hospitals and aphysician shortage. In order to face these challenges, a thorough review is required for thecountries' regulatory and reimbursement systems, R&D and clinical trial environments, andhospital infrastructure. The Councils believe that the recent changes in political leadership inboth countries present a good opportunity for detailed study and launch of initiatives in the
medical technology sector.
The Councils strongly believe that the goals of supporting innovation and growth in the healthtechnology sector and ensuring high quality and efficient care are complementary. Sound
fundamental policies to strengthen technology development and investment in the healthtechnology sector bring new options for improving treatment and lessening the burden of disease.
The Councils urge the U.S. and Japanese governments to (1) more strongly pursue policies insupport of innovation, and (2) increase dialogue and cooperation between the governments tostreamline, harmonize and pursue policies to ensure dynamic leadership of the United States andJapan in medical technology innovation.
The Councils offer the following specific recommendations and assessment of progress towards
these goals:
Recommendations: Pharmaceuticals


Improve the R&D Process: The Councils continue to support Government of Japan’s efforts toimplement the “Five-Year Clinical Trail Activation Plan”. In addition the “Clinical Trial Center”
should be set up in some core hospitals. The Councils encourage PMDA to continue to efficiently
meet the demand for consultations and to respond favorable to multinational clinical trial protocols.
In addition to tracking the number of consultations for multinational clinical trials, we welcome
PMDA metrics on the numbers of new drug applications that are approved based on multinational
clinical trial data.
The Councils continue to support the FDA’s dialogue with industry under the Critical Path Initiative,
and look forward to concrete outcomes that will streamline the drug development process.

Eliminate the Drug Lag: The Councils continue to place great importance on PMDA’s
undertaking to reduce new drug review times to 12 months by April 1, 2012 PMDA. To achieve
concrete process improvements between now and then we look forward to industry’s continued active
participation in the PMDA “Expert Working Groups” on consultations and on review practices.
Specifically, regarding consultations, we look forward to reviewing the experiences of the“pre-evaluation” pilot.
Regarding the approval process, the Council look forward to reaching agreement on a question andanswer process that is more efficient and predictable that would include, for example, a fixed“clock-stop” when all questions would be given to the sponsor who would have a fixed time toprovide answers.
The Councils strongly encourage FDA to meet the goals set out in PDUFA IV, while ensuring patient
safety.

6Improve the Pharmaceutical Pricing System: The Councils look forward to continued
meaningful discussions on industry’s proposal. The ultimate purpose is the introduction of the“exceptional drug price maintenance system”, under which (1) the prices of innovative new drugs aremaintained until the launch of a generic, at which time (2) the prices of the innovative drugs are
reduced. We strongly hope that the exceptional drug price maintenance as proposed by industry will
be accepted and implemented in 2010. In the mean time Councils continue to urge against steps thatwould further erode the prices of patented products, such as annual price revisions and the re-pricingof highly successful innovative products, should not be pursued.
The Councils support meaningful, cost-effective healthcare reform in the U.S. that broadens access tohealth insurance. We continue to stress that such reform should continue to use the market principle,
and not obstruct innovation, patient and physician choice or economic growth.

Enhance IPR Protection: The Councils continue to recommend that the U.S. government consider
expanding its data exclusivity term which is valid for five years now, to keep its market exclusivity in
the U.S. as long as that of Japan.

Recommendations: Medical Devices/Technology


Ensure that the reimbursement process for medical devices rewards innovation: The Councils
consider it a fundamental principle that new treatments which improve outcomes and reduce theburden of disease or patient care should be valued for these contributions. A reimbursement systemthat fails to reward these gains will not succeed in controlling costs and ensuring high quality careacross the healthcare system.
The Councils remain highly concerned about the use of the arbitrary and blunt “Foreign Average
Pricing” (FAP) mechanism in Japan. The FAP is based on the flawed principle that prices for
medical devices should be the same in all countries, despite movement in exchange rates andfundamentally different cost, market and reimbursement structures. Prices are not the same acrosscountries for other complex industrial products, and there is no reason to expect them to be the samefor medical devices.
The FAP mechanism is highly influenced by exchange rate fluctuations. The strong rise in the yen
this year would mean a potentially dramatic price cut in Japan in the 2010 update for reimbursement
prices. Without an appropriate exchange rate adjustment, such a cut would take place without any
underlying improvement in the cost and market conditions in Japan, and accordingly it would behighly damaging to industry and would undermine basic conditions for medical technology
innovation and investment in Japan. The 2010 update for reimbursement levels should not utilize
FAP. At a minimum, the 2010 update should not include any modifications to the current list of
FAP countries or to the allowable FAP differential.
The Councils also urge the creation of a more transparent and predictable process for establishing
reimbursement prices and functional categories in order to support the development and introductionof innovative products, and for revising existing reimbursement prices and functional categories tosupport the continued availability of safe and effective existing products.

Strongly implement regulatory reform to achieve faster and more efficient review for allparticipants: In April of 2009, the Japanese Cabinet announced a package of medical device
regulation reforms and an increase in the number of medical device reviewers at PMDA. The
package included publicly announced targets for reducing approval times for new devices, and aprocess of semi-annual public reports and consultations with industry on the review performance data
and regulatory reforms.

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The Councils welcome and support the reforms and the process of industry consultation. All
stakeholders need to monitor implementation of the reforms to ensure that review times decrease –this is the fundamental measure of success or failure. Industry stands ready to collaborate withregulators on this project, for example through support of training programs in regulatory science andprocess. The principles of “least burdensome approach” and appropriate “risk/benefit” balance need
to be followed.
The process of involving accredited third-party review bodies in regulatory review of low
risk-category products needs to be implemented quickly, and the experience applied to expanding the
program to higher risk category products.
The Councils also remain concerned that the risk of individual liability for reviewers impedes
appropriate review of products. Accountability and responsibility should lie with the institutions
involved in the process and not the individual regulatory personnel.
Although the PMDA's five-year plan to accelerate review times of medical devices does not include
in vitro diagnostic products, the Councils believe that increased industry consultation on ways tostreamline and accelerate approval process for innovative in vitro diagnostic products is necessary.
Strengthen U.S.-Japan Regulatory Cooperation: The Councils strongly support the objective of
convergence and harmonization of medical device regulatory requirements between the United States
and Japan, with the eventual goal of mutual recognition. The U.S. FDA and Japan’s PMDA/MHLW
are the world’s most respected and advanced medical device regulatory agencies. It will serve thegoals of patient safety, regulatory efficiency as well as reducing barriers to trade if these two agencies
can work cooperatively to streamline the introduction of new technology into both markets.
The Councils support the ongoing review of the “Harmonization by Doing” initiative between FDA
and PMDA/MHLW. However, concrete results from the initiative are needed. Progress andresults should be more closely monitored and reported on a regular basis. The scope of the initiative
should be expanded beyond clinical trials. Efforts should be made to speed new productintroductions in both countries, while improving patient safety.

Improve environment for clinical research and new technology development: The Councils
continue to believe that a sound environment for clinical research is a basic condition for medical
technology innovation. The Councils urge a thorough review of Japan’s medical device R&D
environment. This would include regulatory systems, patient protection mechanisms, andreimbursement and health insurance systems for patients in clinical research. There is need forrenewed dialogue among government, universities, industry and patient associations about patientneeds and the benefits of new technology. The Councils renew their recommendation to establish aregulatory environment with transparent rules whereby manufacturers can provide prototypes for use
in clinical research, with appropriate protection for participating patients. The Councils also renew
their recommendations to set “visions” for therapies and technologies needed to address importantpatient needs, and to establish structured critical path processes to realize efficient patient access to
those therapies and technologies.



Support increased use of healthcare IT: The Councils urge greater support for use of healthcare IT
to improve efficiency of healthcare resource use and generate better outcomes or reduce burdens forpatients, including technologies for remote patient monitoring and disease management.
Reimbursement coverage should be extended for those technologies.

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Consumer Health Care
Consumer health product manufacturers produce a wide variety of over the counter (OTC) andquasi drugs that help consumers improve their quality of life. However, manufacturers facechallenges in bringing these products to Japanese consumers in an efficient manner due toinsufficient regulatory transparency and slow product reviews. Increasing transparency andreducing the average review times in Japan could be done in a manner that results in greater
choice for consumers without reducing safety, quality, or efficacy.
Recommendations:

Reduce review times for over-the-counter and quasi-drugs: The Councils recommend a
streamlined and expedited product approval and partial change process in Japan for over-the-counterand quasi-drugs, especially for products that use active ingredients that have been previously
approved for use in similar products. This would allow reviewers to spend more time on productsthat present higher risk.



Increase quasi drug transparency: The Councils appreciate the MHLW for working with industry
to publish a list of previously approved active ingredients for quasi drugs in December 2008. The
Councils recommend the Japanese government to further increase transparency by establishing a clear
process and schedule for regularly updating and expanding the list.

9FINANCIAL SERVICES
Overview
The Councils believe that a robust financial sector based on market principles, effective
regulation, transparency, and strong global institutions is vital to achieving sustained economic
growth and recovery. The Councils are encouraged by steps taken in the United States andJapan to restore confidence in the integrity of the financial system and put the economies on
track for a sustainable recovery. As the United States and Japan continue working to recoverfrom the global financial and economic crisis, the Councils welcome measures designed toprotect customers and investors, promote market discipline, support competition and innovation,
and avoid protectionism.
The Councils welcome Japan’s continued commitment to strengthening the competitiveness of
its financial markets and improving the quality of financial regulation through steps to enhance
its effectiveness, efficiency, consistency and transparency through its Better Regulation andBetter Market Initiative programs.
The Councils also welcome the United States’ commitment to improving financial regulation andsupervision, which should help to restore confidence in the financial markets, provide protection
for consumers and investors, reward innovation, and enable adaption and evolution with changes
in the financial markets.
Today global bodies and financial regulators around the world are focused on strengthening
financial regulation. The Councils hope that both the United States and Japanese governments
will assess the effectiveness of tightening their national regulations to avoid over-regulating
while also attempting to minimize pro-cyclicality in the financial system. Where appropriate,
financial regulation should respect country and regional differences, which may not be possible
under a single global standard. The Councils will continuously encourage both governments tobe thoughtful and moderate in order to form effective, stable financial markets for the long term.
Specific Recommendations
The Councils urge the governments of the United States and Japan to adopt the following
measures, which the Councils believe will contribute to achieving robust, well-regulated
financial sectors in the United States and Japan.
Transparency: The Councils believe transparency contributes to policy effectiveness by reducing
uncertainty in the decision-making of market participants, and promotes financial and systemicstability by enabling better understanding of government policies. Transparency is critical to theconfidence commercial entities have in making investment decisions. Moreover, this form ofstability is undeniably in the interests of consumers as well.

Consumer welfare and regulation by the CAA: The Councils welcome the Japanese government’s
commitment to further enhance consumer welfare. With respect to the establishment of theConsumer Affairs Agency (CAA) and the transfer of laws either wholly or partially to the CAA’s
jurisdiction, measures should be taken to ensure that the CAA is adequately staffed with appropriate
experts and that any concurrent jurisdiction should be transparent and not result in double regulation,
duplicative investigations, and penalties to regulated entities. In a similar fashion, the Councils
support the use of cost-benefit analysis for any new related rules and regulations, including objective
techniques and quantitative analysis, not only during rule-making for the CAA, but periodically after
implementation to ensure that regulations are achieving their intended effects at a level that reinforces
economic activity.



Corporate reorganization: The Councils believe further measures to allow smooth and flexible
tax-deferred corporate reorganizations should be implemented to accelerate the development of

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Japanese and foreign financial groups in Japan. Greater ease of foreign branch domestication
procedures, including elimination of the sales blackout in portfolio transfer for foreign insurers andintroduction of a new quasi company split system allowing a foreign branch to incorporate a stockcompany by transferring its business to such stock company in accordance with procedures
comparable to the company split, would promote corporate reorganizations that promise greaterbusiness efficiency. The Japanese government should also consider the simplification of thereporting requirements for investors holding equity asset that surpass 5% of outstanding shares in acompany in recognition of the distinction between portfolio investors and those investors seeking
effective management or ownership of an entity.
Like regulation for like products and service providers: Like regulation for like products and service
providers is a key regulatory principle for strengthening Japan’s financial and capital markets andavoiding market inefficiencies and distortions that arise when one market segment or participant isgiven favorable treatment over another. On October 1, 2007, the new Japanese postal financial
entities began operations which, given the scale of these businesses, have a major impact on thefinancial and capital markets. The Councils believe that ensuring equivalent conditions ofcompetition is essential in determining whether the postal financial entities broaden the range of
products underwritten/manufactured. In addition, it is indispensable to establish appropriate systems
to ensure better customer protection. Similarly, it is important to establish a level playing field
between cooperative financial institutions and private sector financial services industries.

Compliance costs: As a result of the global financial crisis, both countries are actively consideringwide-ranging and significant changes to their financial regulatory systems. Any such legal andregulatory changes will undoubtedly require companies in both countries to incorporate changes totheir systems and processes in order to comply, and it is possible that significant and unnecessary
costs could be incurred. As an example of a prior response to financial crisis, while the
Sarbanes-Oxley Act helped to bolster public confidence in the securities market, the Act itself
increased significantly compliance costs for listed companies in the United States. Japan’s
Amendment of Financial Instruments and Exchange Act (FIEA), promulgated in June 2008,
incorporates internal controls disclosures and other reporting requirements similar to those inSarbanes-Oxley. Both governments should take into consideration the development of new laws
and regulations with a view to improving effectiveness while reducing compliance costs and time
demands through dialogue with industry participants, consider the shortcomings of the
Sarbanes-Oxley Act, such as compliance with overly cumbersome procedures, and, in the case of the
FIEA, carefully monitor whether the FIEA serves its key objective of protecting investors in the mostefficient fashion.

Pension Reform: The Councils continue to believe that the reinforcement of corporate pension
schemes to supplement national pension schemes in Japan is increasingly important in light of rapid
demographic and social changes. In particular, the expansion of the Defined Contribution (DC)Pension Plan system would have the dual benefits of creating a better retirement outcome forJapanese workers and supporting the laudable goal of moving from a savings to an investing society.
The Councils ask the Government of Japan to review and improve the DC Pension Plan system by: 1)
further increasing the limits on tax deductible contributions; 2) allowing employee matching of
employer contributions, with the only applicable limit on employee contributions being the level of
employer contributions; 3) allowing withdrawals prior to age 60 (under certain conditions); and 4)
introducing a DC pension plan for public workers.

Commercial Finance: In order to facilitate business growth and to enhance needed liquidity to a broadcross-section of commercial entities, Japan’s commercial finance laws need to be modified toencourage lenders to provide credit to businesses. The Councils believe that it is vital to enhance theavailability of funds supported by a broad range of collateral, without excessive reliance on real
property values or personal guarantees. The Councils recommend the improvement of current
secured transaction laws, including the legal infrastructure for asset based lending and Debtor In

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Possession (“DIP”) finance so as to achieve (1) a more uniform and exclusive system for registrationand perfection of security interests in various classes of collateral, (2) stronger lender protection in
DIP financing, and (3) a uniform set of commercial lending regulations that would enhance clarity
and regulatory parity among lenders.


Reform and Modernization of U.S. Insurance Regulation: Over the past 150 years, the U.S.
state-based regulatory system for insurance has served consumer interests, protected consumers, andbeen responsive to the needs of the local marketplace. However, there are challenges to companies
doing business across multiple states. Amid changing market conditions both in the United Statesand globally, it is clear that further progress can be made to modernize and reform the U.S.
state-based system of insurance regulation. U.S. reinsurance collateral requirements are an issue of
specific concern to many non-U.S. insurers. The Councils urge legislators and regulators to work
together to ensure that U.S. reinsurance regulation is consistent with global best practices.
Modernization and reform of U.S. insurance regulation was discussed in the July 2009 “Eighth
Report to the Leaders on the U.S.-Japan Regulatory Reform and Competition Policy Initiative.” TheCouncils recognize the progress that has been made in recent years and urge relevant policymakers
and regulators to continue to make further progress towards practical solutions beneficial to both U.S.
domestic and Japan-based market players.

Investment and Tax Rules for Enhanced Competitiveness
The Councils strongly believe that the Japanese and the U.S. governments should carefullymeasure the impact of existing and future investment and tax rules on business activity andeconomic growth. Broadly speaking, one critical objective of investment and tax policy should
be to move towards global standards/treatment as a means of helping ensure that both economies
remain globally competitive as destinations/locations for both domestic and foreign portfolio anddirect investment.


Corporate Tax Rates: The OECD’s weighted average for corporate tax rates in all member economies
fell below 30% for the first time in 2009 as Canada, Sweden and Korea, among others, enacted
significant cuts. In contrast, on a combined (national, state and local) basis, corporate tax rates inJapan and the United States, at 39.5% (40.7% for large corporations based on the “inhabitants tax”rate) and 39.1% respectively, remain the highest in the OECD. According to OECD studies,
corporate taxes “are the most harmful for economic growth” because of negative effects on capital
accumulation and productivity. The Councils thus urge both governments to undertake corporate tax
reforms with a goal of simplifying and aligning the U.S. and Japanese corporate tax systems with
OECD/global trends and practices by: (1) lowering statutory corporate tax rates closer to the OECDweighted average of 30% to provide a foundation for a balanced, globally competitive corporate tax
regime that encourages investment by domestic and foreign companies; and/or (2) adopting a“territorial” system in which profits earned by U.S. and Japanese companies in foreign markets are
not taxed, thus enabling them to compete globally against companies from countries with comparable
tax regimes. Meanwhile, the Councils welcome the Japanese Government's introduction, in the 2009
tax reform, of a measure to treat the dividends received from overseas subsidiaries as non-taxable
income.



Tax Treatment of Net Operating Losses: The Councils believe that Japan’s 7-year carry-forward
period for Net Operating Losses (“NOLs”) should be significantly extended to be in line with othermajor developed economies – if not an unlimited period as in major economies such as the UK,
France, and Germany, Japan’s carry-forward period should at least be extended to 20 years to matchwith the current NOL carry forward period of the U.S. and Canada. The carry back has been revisedfor small and medium enterprises in the 2009 tax reform but it should intrinsically be allowed to all
corporations. A large number of corporations, large and small, have incurred significant losses
during the financial downturn of the last few years; extension of the NOL carry forward period,

12particularly if done retroactively for losses incurred during the current economic downturn of
2007-2009, will provide immediate stimulus to these companies. An extension will spur future
capital investment in new technologies, and economic growth.
Consumption Tax: The Councils urge the Japanese government to ensure that the treatment ofpurchases of goods and services is consistent with global best practices for Value Added Tax (VAT).
For example, Japan’s consumption tax law and related regulations should be revised to ensure
neutrality in the treatment of the sales of financial services offered through third-party sales agentsand to allow VAT grouping for financial service providers that are wholly-owned affiliates.

Capital Gains and Dividends: The Councils also believe that current treatment in private income tax
of capital gains and dividends on shares of listed companies in Japan should be maintained even after
2011 year-end, at which point the temporary treatment is scheduled to cease under the current law.
Meanwhile, deduction of capital losses should be allowed against interest deriving from bondinvestment and deposits.

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ENERGY and ENVIRONMENTWith the global debate on climate change moving to a new stage as nations prepare for COP 15
in Copenhagen this December, and with both the U.S. and Japanese governments debating
ambitious policies to reduce domestic emissions while creating new jobs related toenvironmental goods and services, this is an opportune and critical time for the United States andJapan to cooperate on this important global issue. As major industrialized nations Japan and,especially, the United States are major consumers of energy and emitters of CO2 and othergreenhouse gases (GHG). Japan and the United States are also among the most importantdevelopers of the low carbon and energy efficient technologies required to achieve any large
scale reduction in GHG emissions on a global basis. Accordingly, the Councils call on the
United States and Japan to cooperate in three areas: Negotiation of a Post-Kyoto climate change agreement and related agreements
 Diffusion of effective baseload technologies including Nuclear Power Generation
 Development and application of policies to promote greater efficiency and the rapid
deployment of renewable energy technologies
International Agreement
The Councils urge the governments of the United States and Japan to support a Post-Kyoto
system that creates a realistic and sustainable long-term policy environment to encourage
investment in the development and deployment of zero or low GHG emission technologies.
Attaching a long term, predictable cost to carbon emissions is an important piece of that policy
framework, along with measures that achieve deployment of zero and low-emissions
technologies in the short term.
To achieve the required GHG emission reductions and create the political balance needed forsignificant emission cuts in developed countries, the Post-Kyoto agreement should include
substantial and meaningful commitments from all major emitting countries, including China andIndia.
The Post-Kyoto international framework and national policies implementing commitments underthat framework should achieve both a low carbon society and economic prosperity, as these are
not mutually exclusive. It is therefore vitally important that this new international climatechange regime include commitments to fundamental market principles and proven pro-growthpolicies. In particular, Japan and the United States should take the lead to ensure that a new
agreement not justify or encourage either: (1) the application of trade barriers; or (2) reductionsin intellectual property right protection.
Accordingly, in parallel with the Copenhagen process, the Councils urge the U.S. and Japanese
governments to take the lead in driving a Global and/or Plurilateral Environmental Agreement
aimed at reducing costs for cleaner and lower emitting technologies through the elimination oftariff and non-tariff barriers to trade in environmental goods and services. Such a new agreement
would promote the international exchange of advanced products and services under a higher
level of global harmonized rules, and make for a better investment environment. It could also
ensure proper IP protection for environmental goods and services so that these may be traded andtransferred across borders.
The Councils also urge the U.S. and Japanese governments to exert greater leadership in
harmonizing environmental regulations and standards, including the emerging area of carbon
footprint labeling. As various environmental labels and standards proliferate from governments,
retailers and standardization agencies around the world, consumers often find it difficult tounderstand the differences among them, while businesses increasingly face challenges incomplying with them. For example, in April 2009, the Government of Japan began a newprocess for certifying methodologies for the voluntary calculation and numerical display on
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product labels of the quantity of GHGs (in kilograms or tons) emitted during the production,
distribution, use and disposal of products and services. Proposals for similar programs are being
considered in the U.S. Congress.
Although the Councils support the principle of encouraging reductions of GHG emissions, they
are concerned that the lack of sufficient validated datasets for many products makes it difficult togenerate accurate numerical labels that can be easily understood by consumers. Moreover, theCouncils are concerned that the resulting country-specific methodologies could become a tradebarrier, and that the narrow focus on product carbon emissions could shift attention away fromother ways of reducing GHG emissions or promoting environmental sustainability. Rather thanfocusing on the display of numerical carbon footprints based on country-specific methodologies,
the U.S. and Japanese governments should promote a broader framework of environmental
sustainability that is based on technically valid and globally harmonized standards.
Diffusion of Effective Technologies
A Post-Kyoto agreement that attaches a cost to the emission of GHGs is unlikely to set
meaningful GHG emission price signals for many years. Yet the cost of most low carbon
baseload energy technologies is higher than the cost of higher-emission alternatives. Action
must be taken today to create volume manufacturing and deployment of these technologies tospeed learning and bring costs down. This calls for specific national measures to promote a
range of technologies. The Councils specifically recommend the following:

Nuclear Generation: To have any reasonable hope of achieving the kinds of GHG reduction targets
being considered by both governments, both countries will have to rely much more on nuclear
electricity generation than at present. The peaceful use of nuclear energy can generate baseload
power with virtually zero GHG emissions. This is an area in which U.S. and Japanese companies
are already closely aligned and therefore presents a unique opportunity for bilateral cooperation inestablishing market conditions for a revival of new plant construction around the world.
Specifically, the U.S. and Japan should continue to collaborate in the following areas: (1)Promotion of Safeguards/non-proliferation measures; (2) Safety and Security in civilian nuclear
regulatory systems and policies in their own countries and around the world; (3) Creating
conditions for growth in civilian nuclear power plant construction through an effective nuclear
liability regime.

Clean Coal: Coal is another widely available fuel for large scale baseload power generation.
However, in order to permit the use of coal while cutting GHG emissions, the International Energy
Agency has called for the construction of over 100 full scale carbon capture and storage (CCS)
plants by 2020.1 The United States and Japan are world leaders in coal gasification systems andthe use of the resulting synthetic gas in combined cycle power plants. This technology (Integrated
Gasification Combined Cycle, or IGCC) is proven, efficient and able to reduce CO2 emissions
today.2 Government engagement is required to put in place legal frameworks for the storage of
CO2 and to either provide incentives for storing carbon or to provide financial support for theincremental cost associated with capturing and storing carbon. The Councils thus urge the UnitedStates and Japan to serve as leaders in applying IGCC technology with CCS around the world
through grants and other incentives for carbon capture demonstration. Japan and the United Statesshould also encourage best practice sharing through public-private programs such as the
Asia-Pacific Partnership for Clean Development and Climate as part of an effort to decrease
emissions from large coal-consuming countries such as China and India.

1

International Energy Agency, “Technology Roadmap: Carbon Capture and Storage,” 2009, p. 4.
A commercial scale IGCC is under construction in Edwardsport, Indiana and the owner has begun plans foradding CCS capability to that facility.
2

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Efficiency and Renewable Energy Technologies
Through further energy efficiency gains and deployment of renewable energy technologies, theU.S. and Japan can substantially reduce carbon-based energy consumption and GHG emissions.


Smart use of energy: Both the United States and Japan have opportunities to further reduce their
GHG emissions through the internal application of existing technologies and the accelerated
development and deployment of new technologies. Indeed, given that energy conservation is themost effective way to decrease CO2 emissions for all sectors, including manufacturing and business,
the Councils urge the U.S. and Japanese governments to make further substantial efficiency gains anational priority. The Councils urge the two governments to expand upon their cooperative efforts
to develop and promote new technologies to achieve more energy-efficient buildings. Bothgovernments should encourage production of more energy-efficient industrial motors, industrial
systems and appliances/household goods through the application of rigorous energy efficiency andperformance standards. Green IT approaches that promote further energy saving through both IT
equipment and IT solutions are also vital. In addition, the Councils urge both governments tocontinue their support for promising technologies such as plug-in hybrid vehicle, electric vehicle,
and heat pump systems for households, buildings and production processes.
Government policy should also promote supply side efficiency. In particular, each country should
deploy smarter and more efficient electrical grid systems to reduce system-wide losses and facilitateenergy saving decisions by businesses and consumers. Here, too, regulations and standards that
promote interoperability are essential, and the Councils urge both governments to work closely withthe private sectors in developing and properly harmonizing such standards. Government policy
should promote grid security. As new communications, sensors, and command and control
capabilities are adopted to form the smart electrical grid, it must also operate securely in an
increasingly hostile cyber-security threat environment. Government policy should establish
appropriate cyber-security standards and incentivize its adoption by the electrical industry.



Renewable Energy Development and Deployment: Government policy in the United States andJapan should contribute to the accelerated growth of renewable energy sources. This should
include Wind, Solar, Geothermal, Biomass, Hydro and ocean power. In addition to theappropriate economic incentives such as a predictable price on carbon, it is essential to have strong,
consistent and harmonized regulations and standards, as well as strong intellectual property
protection, to facilitate the development and deployment of these technologies on the needed
domestic and global scales. To stimulate domestic use, the United States and Japan should adopt
appropriate legislation, such as Renewable Portfolio Standards and long-term tax incentives, tosimilarly increase the levels of renewable penetration on their grids.

Through cooperation in the above areas, the United States and Japan can accelerate innovation,
investment and job creation in new products, services and technologies that will be in high demand tomeet future environmental needs in the U.S and Japan, and around the world.

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COMPETITION POLICY
Due Process of the Japan Fair Trade Commission
The Councils urge the Government of Japan to revise the Anti-Monopoly Act (AMA) to better
comply with global fair standards of “due process” in the investigative and appeals processes of
the Japan Fair Trade Commission (JFTC) in the enforcement of Japan’s AMA. This policy
would increase respect for Japanese law and encourage greater cooperation in AMA enforcement,
while ensuring fairness and justice.
Specifically, the Councils urge the following changes:
Appeals process: Under the current appeals process, the JFTC first issues cease-and-desist orders or
surcharge payment orders and then reviews its own orders in an administrative appeals process(Shinpan). In practical terms, this means the JFTC acts as “prosecutor, judge and jury,” which isespecially problematic where, as in the Japanese system, there are inadequate safeguards to ensure theindependence of the initial hearing officers. As a result, the system lacks credibility and fairness anddoes not meet with the legal standard of due process applied in the United States and major European
countries. Therefore, the Councils urge the Government of Japan to abolish this appeals process andreplace it with a procedure within the judicial system in which a named corporation can appeal to a
district court in accordance with general principles of administrative lawsuits.



Investigations: JFTC investigations should adhere to fundamental, international standards of due
process and transparency, including the following procedures and protections:(1)Disclosure of evidence held by the JFTC to the party under investigation;(2)

Respect for the attorney-client privilege and the right to have counsel present during all stagesof an investigation to protect the defense rights of parties that are subject to investigations andinterviews;(3)

Respect for the right against self-incrimination as embodied in the Japanese Constitution;(4)

Preservation of confidentiality of information provided to the JFTC; and(5)

Hearing procedure in advance of issuance of administrative orders and the presentation of thereason and the evidence to the party at the time of the issuance of the order.

Exclusionary Conduct: Recent amendments to the Antimonopoly Act expand the scope of conductsubject to punitive surcharges to include “exclusionary monopolization” and certain unfair tradepractices. In connection with these amendments, the JFTC recently publicized draft guidelines on
exclusionary monopolization. The Councils urge that the JFTC take into consideration comments
submitted on the guidelines. Such guidelines should seek to avoid chilling conduct that is typicallynot considered to be inherently anticompetitive. Specifically, the Guidelines should incorporate thefollowing considerations:(1) A company should have monopoly power or dominant market power before it can be held liable
for exclusionary monopolization.
(2) The guidelines should focus on the conduct’s effect on competition as a whole, not merely theeffect on any individual competitor. Accordingly, there should be substantive guidance on what
type and degree of competitive effect will be considered a “substantial restraint of trade.”(3) The Guidelines should set forth clear standards and safe harbors for drawing the line between
illegal below-cost pricing and low prices that benefit consumers.

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(4) The Guidelines should set forth clear standards consistent with international norms with respect
to exclusive dealing, tying, refusal to supply, and discriminatory treatment. The JFTC should
further clarify the distinction between exclusionary monopolization and unfair trade practices.

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COMPETITIVENESS: LABOR POLICY
Faced with extraordinarily difficult economic conditions over the past year, U.S. and Japanesecompanies alike have had to take many difficult steps to reduce operating costs, reallocate
resources and streamline labor forces in order to maintain competitiveness in the global market.
The Councils acknowledge the social, political and economic concerns over the highunemployment rates in Japan and the United States that have resulted in part from such measures.
Both governments are to be commended for taking extraordinary steps to mitigate the impact onworkers through the extension of unemployment benefits in the United States, support forwork-sharing and relocation, and investment in areas such as energy and transport infrastructure,environment, and advanced ICT applications in healthcare and other areas to create short andlonger-term jobs. While short-term crisis mitigation is essential, governments need to maintainfocus on the mid-term measures required for both economies to exit from the crisis in a stronger
and more sustainable competitive position.
From a national economic and employment perspective, both countries face growing competition
from lower-wage economies in many manufacturing and service industries. It is critical that U.S.
and Japanese policymakers not respond to this challenge through trade protection or limits onoverseas investment by domestic companies, as this will stifle growth and job creation in the
United States and Japan even more. Moreover, the Councils caution that the imposition of rigid
and restrictive labor rules and social mandates on companies, large or small, in response to rising
unemployment ultimately will be counterproductive, as this will discourage investment andbusiness expansion – the critical engines of sustainable job creation.
Instead, the Councils urge both governments to focus on measures that increase thecompetitiveness of the U.S. and Japanese economies and their attractiveness as investment
locations for foreign and domestic companies.
Labor policies and labor market conditions are a critical part of competitiveness. As high-cost,knowledge and innovation-based economies, the United States and Japan cannot compete on thebasis of wage costs, and thus have immediate and long-term needs to increase the number ofhigh-value, high-wage jobs in manufacturing and service sectors. The reality is that in today’s
global economy, labor markets, rules, and practices must evolve constantly, as things thatworked a decade ago may not work now. In the 21st Century, the U.S. and Japanese labormarkets will have to be more dynamic and flexible in order to adjust quickly to changes incyclical and structural economic conditions, global competition, social and demographic trends,
and technology and business models.
To survive and thrive, companies must adjust work force location and size and salary and benefit
practices in response to economic conditions, global competition, specific market demands,social and demographic trends, strategic imperatives, and technological innovation. Workers
must adjust as well: job changing, active career development and diversified working style are
more common practices now, so workers must upgrade skills and knowledge, be willing to
relocate, or change careers. In short, for sustainable new job creation, which is key for
improvement of the labor environment, companies need to have the flexibility – and workers the
support and encouragement – to adapt.
In Japan, to address the current labor problems characterized by a high ratio of non-traditional
workers and growing unemployment, particularly among younger and non-traditional workers,
more regulatory and policy changes that enable greater employer flexibility in managing theworkforce in response to demand conditions are critical. Given the high structural costs and rigid
rules of the traditional employment system, domestic and foreign companies utilizing traditional
employees only are not able to cope effectively with any dynamic change in the businessenvironment, for example, when they are scaling up production in response to higher demand forgoods and services. In this context, it makes a certain economic sense to hire non-traditional
19

workers. Given these conditions, measures that seek to limit or eliminate the use of
non-traditional workers merely address the symptoms, not the cause of the problem, andultimately would be counterproductive.
The U.S. labor system is more flexible and dynamic, but rising health care costs have led tostagnant wage levels and growing burdens on U.S. companies, thus making job creation moredifficult. There are also criticisms that worker rights and protection have been downplayed inrecent years, thus prompting legislative and/or regulatory initiatives to facilitate recruitment ofunion membership and improve workplace conditions in certain industries. Clearly, U.S. laborlaws must be upheld, but there is a risk that some initiatives such as the Employee Free Choice
Act, or EFCA, could be counterproductive in terms of improving the competitiveness of the U.S.
labor market.
Recommendations
With this as background, and with the goal of promoting a sustainable and common solution, theCouncils urge both governments to take a comprehensive approach and work with U.S. andJapanese companies and labor organizations to develop smart and competitive labor policies andrules that balance worker protection and social needs with employer flexibility and productivity
needs. The overarching theme should be to protect and enable the worker, not protect the job.
From the viewpoint of stabilized economic growth policy, it is important to pursue a dynamic
and appropriate policy mix that creates jobs through innovation and investment in leading
manufacturing and service industries, including through the advanced application of ICT. In
addition, it is essential to create a social system that gives people hope and confidence for the
future and gives them access to better social services as they age and leave the workforce.
More specifically, the Councils urge both governments to join with the private sectors, including
the Councils, in launching a new, collaborative model of dialogue and partnership on these
critical issues. In particular, the Councils look forward to having a dialogue with the new
government of Japan on the need for, and elements of, a balanced and collaborative approach.
Some key elements needed to enhance worker protection and social needs include:

Upgrade training programs: Improved business-government-labor partnerships to develop educational
and worker training/re-training systems and institutions that enable workers to adjust more rapidly tothese changes. More generous allowances such as tax credits or low interest loans should be madeavailable to workers who want to upgrade skills and educational levels.



Improve social safety nets: Expanded and improved social safety nets that provide unemployment
benefits (income assurance) and health insurance for longer employment transition periods are neededin the U.S. In Japan, finding ways to create domestic jobs in the global economy while reforming
social security and improving other parts of the social safety net should be a priority.



Increase portability and flexibility of health insurance and pensions: In the U.S. more portable healthinsurance and pension benefits would enable workers to move more easily between jobs. In Japan,
restrictions on access to pension benefits before retirement in certain cases of financial hardshipshould be relaxed. Also, substantial increases to contribution limits on defined-contribution
retirement plans should be implemented as a priority. As indicated in the Financial Services
recommendations, these include allowing matching contributions by employees indefined-contribution pension plans.

20

From the employer perspective, key elements include the following:

Recognition of today’s more diversified workforce: Proposals to treat all non-traditional regular
employees (such as fixed term contract employees, dispatched workers and other contingent workers)
the same as regular employees should be considered carefully. Ideas such as converting contingent
workers to regular employees or uniform treatment might look attractive in the short-term, but willremove flexibility and choice for both workers and employers, and will burden the economy in thelong term. Today’s diverse employment models respond to both lifestyle choices of workers and tomarket needs of employers

Changes in pension and health care plans: Both Japan and the U.S. should encourage employers toprovide pension and health care benefits to their employees through more flexibility in the regulatoryenvironment. As indicated in the Financial Services recommendations, in Japan, these include
raising the limits on contributions and allowing matching contributions by employees indefined-contribution pension plans.



Allow skilled workers to move more freely: Both countries should set as priorities the need to attract
highly skilled foreign nationals that boost talent levels and add to the tax base. Specific measures
include changes in immigration rules and/or certain types of visa quotas to allow skilled workers tomove more freely across borders for short-term (six months or less) work or training assignments,
longer term assignments, or fixed-term positions.



Treatment of expatriate workers: The Councils believe that Japan and the United States should assess
how treatment of skilled personnel and managers affect the attractiveness of their markets and theircitizens involved in global finance and other sectors characterized by high mobility, including how
regulatory and tax rules treat managers with responsibilities for a company operating within the
country or region and how their expatriate citizens are taxed. The U.S. should bring its taxation of
expatriates in line with global standards.

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