JOINT STATEMENT
44th Annual U.S.-Japan Business Conference
U.S.-Japan/Japan-U.S. Business Councils
November 5, 2007
Washington, D.C.

U.S. ECONOMY
The Councils are encouraged by the return of the U.S. economy to a solid 3.9% real
growth rate (preliminary) in the third quarter due to stronger-than-expected personal
consumption, non-residential investment, and export growth. This performance attests tothe underlying resilience and strength of the economy despite serious problems in credit
markets and the housing sector, which cut into the overall growth rate. There arequestions about whether growth in subsequent quarters will hold at such strong levels.
The credit and housing problems persist, and will be the major risk factors to growth in
the near term. Accordingly, the Councils encourage the U.S. government and Federal
Reserve to continue their efforts to ensure that adequate liquidity is in the financial
system, and that appropriate policy adjustments are made.
Exports will continue to play a major role in sustaining U.S. growth given theuncertainty of domestic demand over the next few quarters. It is therefore very importantthat the governments of Japan, the major economies of the EU, and large emerging
economies implement macroeconomic and exchange rate policies that boost domestic
demand-led growth, particularly consumption. It is also important that the U.S. economy
and markets remain open to foreign trade and investment, and the Councils urge the U.S.
government and Congress to move expeditiously to approve pending bilateral trade
agreements with Peru, Colombia, Panama and Korea.
JAPANESE ECONOMY

The Japanese economy remains in relatively good shape, driven by capital spending
and exports. Despite a decline of real GDP in the second quarter, the economy should
continue on the current moderate growth path in place since the recovery began in 2002.
Corporations have made much progress in reducing debt levels, and continue to invest
heavily in new plant and equipment and expand exports. There are several uncertainties
about the future, however.
First, while Japanese exports continue growing at a faster pace than the previous year,
strongly backed by China/Asia-bound exports, the potential negative impact of thesubprime mortgage issue on U.S. growth in coming quarters could adversely affect future
export growth. The weak yen, which is at almost the same level as in the mid-1980s, hasbeen one of the factors supporting the expansion of exports.
Secondly, personal spending has been sluggish. Although employment continues
growing, the retirement of high-income baby boomers from the labor market and theentry of low-income young people in turn have resulted in a decline in overall employee
income. Slumping stock prices triggered by the global financial market turmoil and thepension problem have also hurt consumer sentiment, thus dampening personal spending
further.
Thirdly, the construction sector has been slowing down. On the supply side, housing
investment has declined significantly since June due to the revision of the BuildingStandard Law, and this has led to a significant year-on-year decrease in construction

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starts for condominiums, etc. Demand for housing has also slowed as prices have risen in
response to higher land prices and building costs.
All these factors, compounded by oil prices at $90 per barrel, bear watching in coming
months. As the government tackles problems such as regional disparity, competitive
differences among corporations, and growing fiscal imbalances, it is important tocontinue with measures that boost productivity so that Japan’s high living standards may
be sustained as the population and workforce age.
JAPAN AND THE U.S. AS GLOBAL FINANCIAL HUBS
Last year, the Councils recognized efforts underway by the governments of Japan andthe United States to strengthen their markets as global hubs for financial services. The
Councils are again encouraged by continued, proactive steps taken by each government
in 2007 to identify how to secure that goal.
The Councils believe that Japan and U.S. should assess how treatment of skilled
personnel and managers affect the attractiveness of their markets and their citizens
involved in the global finance sector, including how they treat managers withresponsibilities for their respective regions and how their expatriate citizens are taxed.
Both countries should improve immigration rules to attract highly skilled foreign
nationals that boost talent levels and add to the tax base. The U.S. should bring its
taxation of expatriates in line with global standards.
The Councils believe that transparency contributes to policy effectiveness by reducing
uncertainty in the decision-making of market participants, and promotes financial andsystemic stability by enabling better understanding of financial policies. Increased use ofopen dialogue in policymaking, published criteria for product approvals andadministrative sanctions, proper public comment procedures, no action letter systems,
interpretive letters and the like significantly improve stability and the ability ofcompanies to comply with laws. The Councils welcome FSA publication this year ofrevised inspection manuals, release of criteria used in issuing sanctions, andimplementation of measures aimed at creating a more robust no-action letter system.
Recognizing the importance of uniform comprehension of FSA regulatory interpretations
by the market, the Councils urge the FSA to issue forward-looking interpretive letters on
emerging issues without waiting to address those issues in response to a request fromindustry. The Councils believe that Japan should further clarify its guidelines forfinancial conglomerates and financial services supervision applicable to foreign financial
institutions in order to ensure transparency in implementation of regulatory policy.
The Councils believe that Japan should carefully measure the impact of existing andfuture tax rules on business activity and economic growth. Japan’s effective corporate
tax rate should be lowered to international standards. If Japan reviews its consumption
tax regime, the government should ensure that the treatment of such transactions is
consistent with global standards for VATs (Value Added Tax) and should reconsider
treatment regarding the application of consumption tax to transactions between whollyowned affiliates. The Councils also believe that current treatment of capital gains and3

dividends in private income tax should be maintained after 2008, and deduction of capital
losses should be allowed against interest deriving from bond investment and deposits.
In the U.S., the Sarbanes-Oxley Act has helped to bolster public confidence in the
securities market but has also increased significantly compliance costs for listedcompanies. Japan’s new Financial Instruments and Exchange Law (FIEL) incorporates
internal controls disclosures and other reporting requirements similar to those inSarbanes-Oxley. The Councils believe that both governments should continue to review
these laws with a view to improving effectiveness while reducing compliance costs andtime demands through dialogue with industry participants.
The Councils believe that Japan should carefully monitor whether the FIEL serves its
key objective of protecting investors in the most efficient fashion. More broadly, theCouncils support Japan’s commitment in the Economic and Fiscal Reform 2007 “Basic
Policies” to develop, by the end of 2007, a “Plan for Enhancing the Competitiveness ofFinancial and Capital Markets.” The Councils also support the recommendation of theWorking Group at the Cabinet’s Council on Economic and Fiscal Policy to use costbenefit analysis, including objective techniques and quantitative analysis, not only duringrule-making, but periodically after implementation to ensure that regulations areachieving their intended effects at a level that reinforces economic activity.
Finally, to encourage more people to prepare for a more secure financial future, theCouncils believe that both public institutions and private companies in both countries
need to enhance efforts to promote financial education among the general public.
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 DefinedContribution (DC) Pension Plan system is needed not only to reinforce overall pension
schemes but also to reinvigorate capital markets and enhance labor market flexibility.
The Councils ask the Government of Japan to review and improve the DC Pension
Plan system by: 1) increasing contribution limits substantially; 2) abolishing the special
corporate tax; 3) allowing voluntary employee matching contributions; 4) expanding
eligibility for participants; 5) relaxing restrictions on access to DC Pension funds; 6)enhancing portability of DC Plans; and 7) encouraging flexibility in the types ofinvestment options available under DC plans.
The Pension Protection Act of 2006 in the United States went a long way toward
addressing the problem of underfunded defined benefit corporate pension systems. It
also promoted broader participation by employees in defined contribution corporate
pension systems by allowing automatic enrollment of employees through an opt-out
system and made permanent the higher contribution limits originally passed in 2001.

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POSTAL PRIVATIZATION
Postal Savings and Life Insurance
The new Japanese postal businesses began operations on October 1, 2007. The“Implementation Plan Regarding Succession of Japan Post’s Businesses”, which wasapproved in September, specifies the scope of products and services to be provided by the
Postal Savings (Yucho Bank) and Postal Life Insurance Corporation (Kampo Life) andputs forward those entities’ intention to expand their business scopes quickly.
“Securing equivalent conditions of competition” is essential to ensuring that the postal
savings and insurance businesses do not unfairly disadvantage the private sector.
Measures to ensure equivalent conditions of competition must be effective, taking into
consideration the totality of the circumstances. The Councils believe that ensuring
equivalent conditions of competition are prerequisite when Yucho Bank and Kampo Life
broaden the range of products underwritten/manufactured.
Accordingly, the process for approval of entry by the new postal entities into new
businesses or product areas is critical. In particular, the proceedings of the Postal
Privatization Committee, which oversees the progress of privatization, should be
conducted in a transparent manner, such as hearing the views of relevant parties. The
Councils strongly request that when the Postal Privatization Committee reviews
applications concerning the expansion of the business scope, it should maintain acautious manner so as to ensure equivalent conditions of competition with private
financial institutions.
Express Delivery
Japan Post Service Co., Ltd., the privatized postal delivery company, began operations
on October 1, 2007.
Securing “equivalent conditions of competition” is also essential to ensuring that Japan
Post Service’s express and other value-added delivery services do not unfairly
disadvantage the private sector. Effective measures to ensure equivalent conditions ofcompetition in all express and value-added delivery services – including both thedomestic service, “Yu-pack,” and the international service, “Express Mail Service”(EMS) – must be undertaken to ensure the overall health of the economy and thefundamental principle of maintaining and enhancing the long- and short-term interest ofboth customers and taxpayers.
From this perspective, the Councils urge the Postal Privatization Committee to play amore active role in overseeing near-term progress toward establishing equivalentconditions of competition between Japan Post Service and the private sector. The
Councils also urge the Committee to ensure that there is full transparency, regularcommunication with the private sector, and opportunities for the private sector to provide
meaningful input to the Committee and to the various Ministries overseeing Japan Post
Service’s businesses on these matters as privatization proceeds.

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HEALTH CARE INNOVATION
A fundamental part of maintaining a healthy aging population is having a health careindustry that can develop innovative life-saving and life-enhancing products andtherapies, shorten hospital stays, and reduce costs. The Councils believe that an
innovative health care technology industry – pharmaceuticals, biologics, and medical
devices – is critical to Japan and the United States, for these reasons:•First, it is increasingly important given aging populations. Innovative drugs,
biological therapies and medical devices can help ensure a higher quality of life byhelping people lead longer, healthier and more productive lives.

•

Second, as a science and technology-based industry, both the U.S. and Japan have acompetitive advantage given their highly educated workforces and sophisticatedinfrastructure.

•

Third, as one of the largest, fastest-growing and most innovative sectors in advanced
economies, health care technology contributes significantly to overall productivity
and economic growth.

The Councils commend the Government of Japan for making the healthcare industry apriority under the “Innovation 25” initiative, and strongly urge that forward movement
toward the initiative’s goals continue. In addition, we encourage the improvement ofpeople’s quality of life and the realization of economic growth through theimplementation of the “Five-year Strategy for the Creation of Innovative Pharmaceuticals
and Medical Devices” as well as the continuation of the “Government-Industry Policy
Dialogue.” In the U.S., the FDA has launched the Critical Path Initiative, a national
effort to stimulate and facilitate modernization of the scientific process through which
potential human drugs, biological products, and medical devices are transformed fromdiscoveries into actual products.
The Councils believe that there are the following similarities in the regulatory andmarket conditions needed to support innovative pharmaceutical and medical device
industries:••

The best way for governments to encourage innovation is to establish the most
supportive conditions possible so that researchers, scientists, entrepreneurs, investors
and manufacturers may pursue the best ideas rather than trying to promote specifictechnologies or companies.
These include:(1) a predictable, transparent, and efficient regulatory system that leads to timely andreasonable decisions, before and after marketing;(2) a fair, adequate and predictable reimbursement environment that values
innovation;(3) a sound clinical research environment supportive of clinical trials;(4) good intellectual property protection and technology transfer regimes; and(5) healthy venture finance markets

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There are some key differences that need to be recognized, as outlined below:
Recommendations: Pharmaceuticals
1.

Improve the R&D Process: It is more expensive and time consuming to conduct clinical
trials in Japan than in any other major market. The Councils agree that further practical steps,
such as building greater capacity and introducing more competition into this segment of themarket, are critical. In addition, attention needs to be given to the administrativerequirements that pull Japan out of sync with other major markets.
The time and cost of drug development is recognized by the US FDA as an issue as well. To
attempt to make the R&D process more efficient the FDA has introduced the Critical Path
Initiative. The Councils endorse this effort.

2.

Eliminate the “drug lag”: Japan has a problem in that Japanese patients cannot access thenewest drugs that can be used in other countries. There is a difference of 2.5 years between
the launch time in the U.S. and Japan. There are various factors that cause the drug lag suchas the longer time and higher cost of the clinical trial in Japan, and the longer time of theexamination by the Pharmaceuticals and Medical Devices Agency (PMDA). MHLW andPMDA have set the goals of reaching median approval times for standard new drug
applications, including biologics, of 12-months total time by April 1, 2012, and by reducing
development time by 1.5 years, which are most welcome. To facilitate this PMDA will besignificantly increasing its staff size through increased user-fees. It is critical that measurable,
steady progress takes place in approval times from April 1, 2007 through April 1, 2012. In
addition, the Councils encourage the Japanese Government to take steps to further expedite
the availability of products that today are approved overseas, but not in Japan.
Faster approval of new drugs is also desirable in the U.S. The Councils strongly supports theimplementation of the reauthorization of the Prescription Drug User Fee Act (PDUFA).

3.

Reform the pharmaceutical pricing system: It is one of the factors of the ‘Drug-lag’ inJapan that the prices of new drugs are inadequate and unattractive and they are subject todownward price revisions. Comprehensive pricing system reform should be realized torecognize the value of innovative new drug more adequately. PhRMA and JPMA announced
pharmaceutical drug pricing system reform proposals in July. The Government of Japan
should earnestly consider these proposals from the viewpoint of encouraging innovation andeliminating the drug-lag, and try to realize them as soon as possible. In the interim, steps thatwould further erode the prices of patented products, such as annual price revisions and the repricing of highly successful innovative products, should not be pursued.
On the other hand, there is a growing concern with controlling medical expenditure by thegovernment in the U.S. Any steps that the U.S. Government takes must continue to use themarket principle, and not obstruct innovation, patient and physician choice or economic
growth.

4.

Enhance IPR protection: The MHLW has decided to expand the term of data exclusivity
from six to eight years. The Councils 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. In addition, the Councils affirm that
innovation and strong intellectual property protection play critical roles in developing new7and effective life science and pharmaceutical products. Patient access to these medicines andtherapies is and always will remain a primary focus of both countries and our innovator
companies. The Councils urge both governments to stand against the weakening of IP rights
in these vital industries, including by combating the counterfeiting of patented medicines andpreventing unfair reliance upon proprietary innovator data by non-innovators.

Recommendations: Medical Devices/Technology
1. Improve environment for clinical research and new technology development:•••

Recognizing that innovation for medical devices requires close collaboration between
manufacturers and physicians, establish the regulatory environment where manufacturers
can provide prototypes for use in clinical research, with appropriate protection forparticipating patients.
Create a vision by identifying disease areas and milestones for therapy and technology
development; allowing patients to see their future opportunities through the promotion
and advancement of medical technology investments.
Establish a structured critical path process that enables early applications of innovativetechnology through efficient industry research and efficient regulatory review processes.

2. Accelerate regulatory reform to achieve faster and more efficient review for allparticipants:
•
•
•
•
•

Promote regulatory science activities among industry, academia and governments tofurther develop regulatory expertise, especially regarding risk management and thescience and technology of medical devices.
Establish firm streamlined criteria that are consistent with international practices andtransparent standard process for improving review times and increasing review
performance, and manage review practices according to those processes.
Recognizing the varied nature of medical devices and technology, increase the number ofexperts from sources such as the private sector, academic institutions, national research
institutions, third party reviewing bodies, and physicians from both home and abroad.
Facilitate employing third party organizations to outsource selected parts or full portionsof reviewing process to reduce the burden of the increasing workload.
Also consider lifting individual liability of reviewers for product performance andclarifying that such responsibility lies with the institutions and their management.

3. Ensure that the reimbursement process for medical devices rewards innovation:
•

•

•
•

Enhance the transparency of the re-pricing process, without utilizing the Foreign Average
Pricing (FAP); while it is utilized, the FAP process should employ appropriate weighting
for averaging methodology and should not change referring countries and limitations toprice cuts.
Recognizing that improvements in medical devices often come in incremental steps that
may nevertheless represent or add up to significantly better therapy, provide reasonable
and effective mechanisms for evaluating and awarding higher reimbursement rates forinnovative products including those products with incremental improvements.
Subdivide functional categories grouping old generation products with advanced,
innovative products, and create new categories for new and innovative technology, inorder to provide adequate reimbursement versus inclusion into existing categories.
Recognize the value of innovative technology for prevention, early detection andintervention in order to achieve the best quality of life and most cost-effective care.

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4. Proposed cooperative action agenda for regulatory agencies in both countries•••

Continue and enhance activities for achieving harmonized regulatory environment andpromote exchanges of personnel among relevant agencies.
Engage in U.S.-Japan government-to-government dialogue for development ofappropriates systems and processes to accept each other’s data and reviews, including
partial or incremental steps as appropriate.
Explore the concept of establishing or recognizing a third-party organization, such as a
notified body, whose reviews would be valid in both markets.

ENERGY AND ENVIRONMENT/CLIMATE CHANGE
Based on improved understanding of climate change and the contribution of humanactivities, the Councils agree that the U.S. and Japanese governments must take more
rapid and aggressive steps toward mitigation. Delay in curbing greenhouse gas (GHG)
emissions is poor risk management, as this will likely force our countries to take more
drastic and costly action in the future. Given Japan’s role as host of the 2008 G-8Summit and the U.S. role as host of the Major Economies Meeting on Energy Security
and Climate Change, the U.S. and Japan are well positioned to exert leadership in
structuring an effective, practicable and flexible international framework for reducing
GHG emissions in the post-Kyoto Protocol period after 2012. To create the greatest
certainty of future market conditions, it is essential to reach agreement on a post-Kyoto
international framework by 2010.
The Councils believe such a framework should adhere to these essential principles:
1) Predictability: Definite but realistic, scientifically-based medium- and long-term targets andcommitments for reducing GHG emissions should be set so that businesses may plan andadjust accordingly. Predictable market signals indicating the relative costs/benefits of C02
emissions are necessary for companies to justify investment in more efficient and expensive
capital equipment and, longer term, to develop and adopt new technologies. In the U.S., it isparticularly important to develop a national program to avoid the confusion and compliancedifficulties inherent in multiple state emission-reduction targets or programs.
2) Comprehensiveness: Any viable national or international program must include all major
GHG producing sectors and nations, including the U.S., China and India.
3) Sector neutrality and equitability: Any targets should not impose excessive burdens on any
one industrial sector or emission source, but should be spread proportionally acrosssectors/sources. Obligations should take into consideration the relative capabilities of eachsector and country to meet them.
4) Market flexibility and efficiency: To increase viability, any program, including a mandatory
framework, must be flexible in order to minimize the impact of emission-reduction measureson economic growth. This will require that a range of instruments such as cap and tradesystems, baseline and credits systems, benchmark and performance standards, and tax
incentives be available for use according to national circumstances. Any program should be
structured to ensure adequate returns to investors and an orderly replacement of capital assets
as the markets stimulate new technologies for reducing emissions.

9While there will be significant adjustment costs, the Councils believe that the climatechange challenge can also create new economic opportunities for both the U.S. and Japan
if the following policies and approaches are adopted:•

Emphasize energy efficiency: Improvements in energy efficiency should be the foundationof any climate change strategy, as it is half as expensive to conserve energy as to add newcapacity. According to the International Energy Agency, buildings and appliances accountfor approximately 24% of total CO2 emission reductions that would be required in a longterm plan.1 The Councils urge their governments to work together to develop stronger codesand standards for commercial buildings, houses, and household appliances, and on measures
to ensure compliance with such codes and standard. Significant improvements in vehicle
fuel-efficiency are also essential, but these should be economically and technologicallyfeasible and phased in over a reasonable time frame.

•

Focus on sectors: To encourage major emitting economies such as China, India, and Brazil
to participate in an international emission reduction framework, the Councils support use of“sectoral” approaches that could enable developed economies such as Japan and the UnitedStates to provide incentives to emerging economies to deploy more efficient and cleaner
technologies. Sectoral approaches may be applied through technology-based international
partnerships that share best available technologies (BAT) and best practices, and set common
benchmarks.

•

Accelerate development and use of renewables: Increasing the use of renewable energy
technologies such as hydro, wind, solar, geothermal, and biomass will promote energy
security, diversification, and conservation while reducing GHG emissions. Both governments
should explore all possible short- and long-term measures and incentives to encourage further
research, development, deployment and usage of these technologies.

•

Increase nuclear cooperation: Nuclear power generation is gaining widespread recognition
as one of the most important potential contributors to energy security and GHG reduction.
Accordingly, the U.S. and Japanese governments should continue to encourage theconstruction of new nuclear plants in the U.S. and Japan. Both government and private
sectors should enhance cooperation on the following initiatives to support further
development of the industry: the Global Nuclear Energy Partnership; government financingof new nuclear plants; development of advanced nuclear technology such as “GenIII/IV”; andpolicies and best practices regarding plant safety, waste disposal, proliferation and theestablishment of an international nuclear fuel supply assurance mechanism.

•

Develop clean coal technologies: There is a need for an effective regulatory framework andincentives, and national/international public/private cooperation, to encourage thedevelopment and appropriate application of clean coal technologies, including IGCC
(Integrated Gasification Combined Cycle) and carbon capture and sequestration. The ability
to offer this technology at affordable prices depends to a large extent on the ability to develop
a number of commercial-scale projects that will, over time, drive cost reductions.

•

Enhance Asia-Pacific Partnership for Clean Development and Climate (APP): The APP
offers significant potential to become one of the best models for sectorally based
public/private cooperative actions such as (a) sharing best practices in reducing greenhouse

1

Energy Technology Perspective 2006, International Energy Agency

10gas emissions; (b) developing innovative cleaner energy projects; and (c) identifying barriers
to and creating effective incentives for the deployment of advanced technologies. To
maximize this potential, both governments need to commit the resources and politicalinfluence required to make this a more effective mechanism.
•

Promote transfer of “clean” technology: As major producers of “clean” technology such as
wind turbines, solar panels, and heat pump systems, the U.S. and Japan should accelerate its
transfer, particularly to the larger emitting countries among emerging economies.
Cooperative, multilateral programs such as the APP can facilitate this process. The U.S. andJapanese governments should also devise programs to help finance the purchase of clean
technology -- bilaterally, through the U.S. Ex-Im Bank and Japan Bank for International
Cooperation, and multilaterally, through the World Bank and Asian Development Bank.
Aggressive efforts should also be made through the WTO and APEC to eliminate tariff andnon-tariff measures affecting the export of clean technology.

•

Improve the Clean Development Mechanism (CDM): The CDM, a project-based flexible
mechanism, has the potential to allow the transfer of substantial financial flows fromdeveloped countries to emerging economies via technology transfers, if appropriate
modifications are made. This could reduce CO2 emissions by a significant amount.
Accordingly, this mechanism must be continuously improved and expanded.

LABOR MARKET FLEXIBILITYThe Councils continue to emphasize labor market flexibility as one of the mostimportant ways to increase productivity, a critical component of economic growth in bothcountries, but particularly in Japan because of the dwindling birthrate and aging society.
Last year, the Councils recommended that both governments emphasize Japanese labor
policy more in bilateral discussions of economic issues, and urged approval of certain
reform measures. The political situation prevented any action from being taken in 2007,
however.
Creating better working opportunities to meet various interests and needs of society is
one of the most critical policy agendas for the Government of Japan. Specifically, theCouncils urge the Government of Japan to implement earlier labor policy proposals,
including the following:(1) establish more precisely the definition and scope of what is considered an unjustified
dismissal;(2) introduce monetary settlements in alternative dispute resolution procedures;(3) expand and define more clearly the category of “overtime exempt” employees; and;(4) improve the Defined Contribution (DC) pension plans.
The Councils acknowledge that labor issues are challenging given the need to balancecompeting interests. In Japan, these include work-life balance, diversity management,
and addressing the changes associated with an older and declining workforce. As theJapanese economy becomes more global, however, maintaining antiquated labor laws
will not only hurt the competitiveness of Japanese companies, but will affect Japan’s
attractiveness as a place for global companies to invest.

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The U.S. labor market is more dynamic due to flexible employment rules, merit-based
compensation and portable retirement (defined contribution) plans. This flexibility has
been a key to strong U.S. economic performance in recent years. The U.S. also faces
various challenges. In particular, as the need for more highly skilled workers inknowledge-based, high value-added industries such as information technology, healthcare, and finance increases, significant improvements in K-12 and higher education, areessential.
Improved social safety nets and retraining programs to help workers in transition arenecessary in both countries.
INTELLECTUAL PROPERTYThe Councils understand that recent changes in the business environment,characterized by progress in globalization and the rapid spread of information technology,
are making intellectual property increasingly important as a source of corporate value anddriver of innovation. The Councils believe that the U.S. and Japan share a common
interest in strengthening intellectual property rights both domestically and globally.
Accordingly, the Councils urge the two governments to show leadership in the following
areas:First, the Councils encourage both governments to consider initiatives such as the
Patent Prosecution Highway and the Substantive Patent Law Treaty as key measures for
an international patent system. Vital to this will be U.S. adoption of a first-to-file system,in order to bring U.S. practice into conformity with international rules andprocedures. The Councils are pleased to note that legislation addressing this importantmatter recently was passed in the U. S. House of Representatives, and hope to see further
progress on this issue.
Second, the Councils urge the U.S. government to improve its patent system by
ensuring the quality of patent examinations, the expertise of district court judges and thereasonableness of court proceedings and damage awards. The Councils also urge theGovernment of Japan to shorten the patent examination period and establish uniform
criteria for determining inventiveness and patentability so as to avoid conflicting
standards between the Japan Patent Office and courts.
Third, the Councils urge both governments to work jointly, as well as through publicprivate partnerships, to eliminate intellectual property infringement in third countries byencouraging the governments of these nations to take independent measures to addressthese problems. In particular, the Councils support continued collaboration in combating
piracy and counterfeiting, including efforts toward the possible international legal
framework on preventing the proliferation of counterfeit and pirated goods.
Fourth, the Councils affirm that IP and competition laws share the same basis ofenhancing consumer welfare and promoting innovation – and that policy approaches inthese area need to work in tandem to bring new and better technologies, products andservices to consumers at lower prices. Moreover, given the increasingly global nature of12commerce – particularly in information technology and other innovation-intensive sectors– it is vital that a country`s IP and competition law regimes not be in tension with thoseof its key trading partners.
Fifth, the Councils underscore that, while interoperability is clearly an important
objective in today’s networked society, software developers are meeting the market’s
demand for products that work together seamlessly within heterogeneous networks
without government intervention such as compulsory licenses. Patents are, in fact, acritical component of the industry’s interoperability strategy, allowing firms to share
proprietary technologies without jeopardizing the commercial value of their innovations.
Sixth, the Councils request both governments to take steps to address new issues
brought about by globalization and the advent of digitization. These include achieving abalance between the protection and utilization of media content. It is necessary to clarify
the assessment method for the allocation of profit among entities and implement
promptly and efficiently transfer pricing and tax measures such as Advanced Pricing
Agreements and the Mutual Agreement Procedures.
INFORMATION & COMMUNICATIONS TECHNOLOGY (ICT)Recognizing that innovation is at the heart of a successful ICT strategy, the Councils
note that both governments can best contribute to it by sustaining an environment thatallows companies and individuals to compete in the marketplace to bring new ideas andtechnologies to the consumer. Governments should not micro-manage the developmentof ICT equipment and applications by trying to pick winners or by favoring one
technology over the other, as this distorts the competitive discipline of the market andultimately slows innovation. The Government of Japan's promotion of broadband
diffusion is a successful example of how government policy can appropriately support thegrowth of the ICT sector.
A comprehensive response to online privacy concerns in the ever-changing Internet
environment requires close cooperation between the private and public sectors. The
Councils urge that this cooperative effort should seek to promote market-driven
technological solutions, recognize the privacy principles around which there alreadyexists broad consensus, and develop legal frameworks that support such technologicalsolutions and principles. Working together, industry and government can provide thetechnologies and structures that effectively address the privacy concerns of online
consumers, while ensuring that the Internet achieves its full potential. Both governments
also need to work together closely across borders to address privacy concerns to ensurebusinesses are subject to consistent obligations and to provide consumers with confidence
about interacting online.
ICT is a driving force in the world economy, leading to cutting-edge developments in
e-commerce, global communication, education, entertainment, and many other areas. ICT
will continue to change our lives and to offer new and exciting opportunities, particularly
for the generation of people growing up in an increasingly connected and interdependentworld. The Councils call for policies that ensure a more secure and dependable network13

as social infrastructure and that exclude unlawful and harmful information - including
support for effective cybercrime laws, adequate enforcement capacity, and enhanced
public awareness - which are essential to our societal and economic future, to public
safety, and to global security. Both Governments can also help build public-private
partnerships based on information sharing and strategies for critical infrastructure
protection.
The Councils also believe that harmonizing the legal framework fortelecommunications and broadcasting is necessary. The new framework should give
preference to market-driven solutions to promote new entrants and business models withthe goal of providing consumers with the full benefits of the ongoing convergence oftechnologies and services in the digital media area and affording a firm basis for the
global development of the content industry. The Councils believe that a wider range ofcontent available through the Internet, broadcasting, and new services over next
generation networks is necessary to achieve the full benefits of this new technology fordelivering content. The Councils anticipate that new business models for the distributionof digital content will be established. An appropriate revenue sharing arrangement among
stakeholders is needed to facilitate new business opportunities in the media space.
The Councils share the Government of Japan's goals of improving the productivity of
the healthcare system, meeting the needs of Japan's aging population, and finding
innovative solutions to address the doctor shortage. The Councils believe that ICT isvital to effective sharing of patient data and that for this reason more work needs to bedone on standardization of healthcare nomenclature and documents and the developmentof industry-wide privacy and security standards (Healthcare Public Key Infrastructure HPKI) to ensure the protection of personal data. The Councils believe that market driven
solutions will ultimately provide maximum benefits for the consumer and encourage theadoption of widely shared approaches rather than customized solutions.
SECURE TRADE
In an era of global supply chains, logistics and transportation is an increasingly criticaland strategic component of business. Ensuring security in the post-9/11 environment
while maintaining the essential open and free-flowing trading system requires close
cooperation between governments and industry in the development and implementationof new security programs. Cooperation and adoption of harmonized requirements among
countries can provide opportunities to improve trade efficiency as trade flows increase
and governments seek to enhance their ability to assess risk of cargo.
In some cases, particularly ocean-bound freight, the Councils are concerned about new
requirements being discussed, such as the new advanced data collection requirements (theso-called 10+2 regulations) and 100% container scanning legislation, that could maketrade between the U.S. and Japan (and other markets) more costly and complicated.
Accordingly, the Councils urge both governments to continue their dialogue on secure
trade with the objective of modifying or eliminating measures that add to lead times andcosts without providing a clear security benefit.

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It is important to note that secure trade issues are not bilateral in nature, so any
effective measure must be applied in a multilateral context. The Councils thus support
multilateral efforts to globally harmonize trade security requirements throughorganizations such as the World Customs Organization (WCO), which is promoting
common rules and programs to be adopted globally to facilitate trade in the new security
environment. To date, 149 countries, including the U.S. and Japan, have agreed to
implement the WCO “SAFE” Framework. APEC is also pushing harmonization throughthe APEC Framework of Standards to Secure and Facilitate Trade.
Recommendations•

Promote harmonized requirements and ensure that security benefits of new rules areworth costs: Through its work in the WCO on the SAFE Framework, the U.S. and othergovernments developed a consolidated list of data elements that governments could collect inadvance from traders for risk targeting. However, with its “10+2” proposal, the U.S. appears
ready to implement new, unilateral data requirements outside of the scope of what was agreed
to in the WCO SAFE Framework. This sets a bad precedent and is precisely the type of
unilateral action that will unnecessarily impose unmanageable costs on traders. The Councils
urge the U.S. to work any such changes that are necessary through the mechanisms
established within the SAFE Framework prior to implementation in order to continue tosupport and promote harmonized requirements. Further, the Councils, like other businessgroups, have other concerns about the proposed “10+2” rule such as protection against
possible data security/proprietary information leaks to unauthorized parties, and the fact thatsome of the data points are beyond the ability of some players in global supply chains to
obtain. In the Councils’ view, a full cost-benefit analysis of this program is necessary to
determine if security would be enhanced enough to offset the additional costs to business. In
addition to this 10+2 rule, the so-called 24-hour rule is still problematic, although it wasagreed to as part of the core elements of the SAFE Framework. Further efforts should bemade to solve problems created by the security requirement of presenting trade data ‘before
loading aboard.’•

Establish mutual recognition of Authorized Economic Operator (AEO) programs: The
Councils urge both governments to continue their joint work towards achieving mutual
recognition of their respective AEO programs. Compatible secure trader programs, andmutual recognition, would facilitate bilateral trade by establishing uniform procedures forcompanies to follow. Similarly, the Councils encourage both governments to continue work
towards implementing robust national single window systems to further streamline andharmonize requirements for traders.

•Reconsider 100% container screening requirement: The Councils are concerned about therequirement that, starting no later than 2012, 100% of all containers entering U.S. ports bescanned at ports of origin before entry. This requirement has the potential to disrupt thesmooth flow of international trade given the enormous number of containers (12 million in2006) entering U.S. ports from around the world. This requirement conflicts with theprinciples of the current U.S. threat-based risk management approach that deploys multiple
layers of security at various points in the supply change. In that most experts consider the
threat-based risk management approach the most effective way to deploy limited security
resources than trying to have a 100% solution at single supply chain points, the Councils urge
reconsideration of this requirement.

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ECONOMIC PARTNERSHIP AGREEMENTThe 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 at a time when U.S. and Japanese economic ties with Asian
countries are expanding much more rapidly than with each other, and the number ofbilateral or regional trade agreements in the Asia-Pacific region – including thoseinitiated by the U.S. and Japan – proliferates.
The Councils envision an EPA as an “FTA-Plus” agreement that would have toencompass “substantially all the trade” in goods, as well as “substantial sectoral
coverage” in services, as required under WTO rules, and address tariff and non-tariffmeasures in areas including, but not limited to, regulations and regulatory transparency,
distribution, standards, commercial laws, investment rules, capital and currency markets,
agriculture, trade remedies such as antidumping, competition policy, human resources
and movement of natural persons, intellectual property, and secure trade.
The Councils endorse the U.S. and Japanese government support for APEC’s efforts toaccelerate trans-Pacific economic integration, including the ambitious long-term goal of aFree Trade Area of the Asia-Pacific (FTAAP), and believe that a U.S.-Japan EPA could
provide a starting point and model for such integration going forward.
The Councils are encouraged that leading business groups in Japan and the U.S., suchas Nippon Keidanren, the Business Roundtable and the American Chamber of Commercein Japan (ACCJ), have also endorsed a U.S.-Japan EPA over the past year. The Councils
are also encouraged that the two governments have begun the process of “informationexchange” with regard to details of U.S. Free Trade Agreements (FTAs) and Japanese
EPAs with third countries. These are very positive developments, but more action isneeded by the private sector and both governments to move this forward.
Despite the political and other challenges in both countries affecting a potential launchof EPA negotiations, the Councils believe it is important to act now to lay thegroundwork so that negotiations could proceed in 2009. In particular, the Councils
recommend that the period between late-2007and late-2008 be used for extensive
analysis and information exchange regarding the potential economic impact, priority andsensitive areas for negotiation, and implications of a comprehensive U.S.-Japan EPA.
The Councils recognize that while negotiations on such an agreement would be complex
and difficult in some areas, the potential political and economic benefits to both countries
are substantial. The Councils believe it is essential to consider a U.S.-Japan EPA in thisbroader context while carefully considering how to resolve sensitive areas.
The Councils believe the private sector should play a leading role in this phase, andpledge to work together, and with other business organizations, in sponsoring or directly
conducting this analysis and dialogue. However, the Councils also believe that it iscritical for both governments to participate in or endorse such activity in order to give it
credibility and help generate wider support and sustain momentum for a possible U.S.Japan EPA.

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For Japan, the most important task now is to promote structural reform of the
agriculture sector with the objective of strengthening its international competitivenessand transforming it into a vibrant industry. Another urgent task that should be tackled
parallel with this is to make measures required to meet the challenges of globalizationcompatible with the construction of a healthy domestic agricultural sector. The Japanesebusiness community will continue to support the on-going structural reform of the
agricultural sector.
In short, the strategic, political and economic case for an EPA between the UnitedStates and Japan is more compelling than ever. Such concrete steps will enhance theprospects for a U.S.-Japan EPA, and the Councils urge both governments to moveaccordingly to get this process underway.

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