Joint Statement
43 Annual U.S.-Japan Business Conference
U.S.-Japan/Japan-U.S. Business Council
November 13, 2006
Tokyo, Japanrd

U.S. Economy
The Councils welcome the continued moderate economic expansion of the U.S. economy in
the face of the rise in crude oil prices and monetary policy tightening. The economy has slowed
in recent months, mainly because the rate of appreciation of housing prices has slowed
substantially, and inventory adjustment has led to a sharp decline in housing investment. The
housing adjustment, along with higher crude oil prices, has exerted some downward pressure on
consumer spending, and vigilance will be necessary as to their repercussions.
Corporate production remains brisk, and corporate earnings are moving steadily. Combinedwith high capacity utilization, this has kept capital spending strong. Employment has lost somemomentum but still continues to expand, and unemployment rates remain low, thus leading tosolid growth in household income, which is supporting consumer spending. Consumer spending
could be boosted further if oil prices continue to moderate and housing stabilizes as data indicate,
which would result in modest strengthening in the fourth quarter.
Monetary tightening appears to have reached a temporary halt with inflation under control andeconomic growth moderating. A flexible monetary policy is expected to continue providing
stable economic growth into the future.
Global economic imbalances remain a significant issue. The large and still growing U.S.
current account deficit remains a significant concern. Correction of this imbalance requires
change in economic policies as well as a realignment of currency values. Addressing future risks
associated with the U.S. deficit will necessarily require multilateral cooperation and coordination.
Japanese Economy
The Councils are encouraged by the continued expansion of the Japanese economy. The
private sector’s resolution of its key structural issues ― excess debt, excess capacity, and excess
employment ― has improved the medium- to long-term stability of the economy. The
elimination of the supply-demand gap has helped the economy emerge from its years of deflation.
Having completed their structural improvements, corporations have improved profitability andare starting to take more ambitious strategies as a result, and this should lead to continued
strength in both capital spending and employment. Stabilized growth in employee compensation
has been particularly significant, and should support future growth in private consumption.
The economy is in the process of changing its nature to one with a better balance between
domestic and external demand. While the effects of the slowdown in the U.S. economy requires
cautious observation, stable growth in Asia including China remains a positive factor, and alongwith stable domestic demand, should maintain the momentum for continued expansion.
It is also important for the government to continue with its structural reforms. While therestoration of fiscal soundness is a pressing issue, priority should be placed on achieving
efficiency in the government sector. In particular, cautious study is required on such matters asincreased taxes and social benefit expenses. The Councils support efforts to reactivate the private
sector through further deregulation and tax reform, and are encouraged by the Abe government’s
emphasis on sustaining economic growth through innovation. Ultimately, this will increase
government revenues and thereby restore fiscal soundness.

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Pursuing a U.S.-Japan Economic Partnership Agreement
The Councils continue to believe that conclusion of a high-level, comprehensive, andcommercially meaningful Economic Partnership Agreement (EPA) between the UnitedStates and Japan is a positive and worthy objective that would: 1) provide substantial
economic and trade benefits to both economies; 2) improve and solidify bilateral relations
more broadly by strengthening the economic relationship and deepening economic
integration; and 3) establish a model for other bilateral or regional agreements that
achieve meaningful economic and trade liberalization.
The Councils continue to envision an EPA as an “FTA-Plus” agreement that would
have to encompass “substantially all the trade” in goods, including agriculture, as well as“substantial sectoral coverage” in services, as required under WTO rules. Most
importantly, a commercially meaningful EPA would have to address non-tariff measures
such as regulations and regulatory transparency, standards, commercial laws, investment
rules, capital and currency markets, trade remedies such as antidumping, competition
policy, human resources and movement of natural persons, intellectual property, secure
trade and the like. A U.S.-Japan EPA would build upon and expand the progress madeunder existing bilateral trade agreements, and give new life and purpose to the Economic
Partnership for Growth, which includes many areas that would be covered in EPA
negotiations.
A comprehensive, high-level U.S.-Japan EPA would be a significant andunprecedented undertaking requiring high-level political commitment by bothgovernments, and strong support by the private sectors in both countries. In theCouncils’ view, the timing is right for both governments, in cooperation with the private
sector, to begin formal study of the outlines and essential areas of coverage in such an
agreement.
The Councils pledge to support this initiative by conducting studies, both separate andjoint, to identify those sectors and areas that are essential to realizing a comprehensive
and commercially meaningful U.S.-Japan EPA. Moreover, the Councils will cooperatewith both governments to support this process.
Aging Society: Implications for Healthcare and ICT
Japan has a rapidly aging society, while the United States will face a similar situationin the near future. An increasing number of global studies suggest that detecting andtreating diseases at their earliest stages saves time, money and lives. As societies such as
Japan and the United States age, this approach is increasingly important so that people
remain healthy and productive, as well as safe and secure, for as long as possible given
increasing life expectancy.
These objectives are consistent with the “New Health Frontier Strategy” promoted byPrime Minister Abe in his September 29 policy speech to the Diet, and President Bush’splan for “Reforming Health Care in the 21st Century” announced in early 2006.
Accordingly, the Councils urge both governments to accelerate movement towards apreventive medicine or “Early Health” model that: recognizes the clinical and economic
potential of early diagnosis and treatment; develops information systems that drive
greater quality and efficiency; provides earlier access to innovative pharmaceuticalproducts and medical devices that help citizens lead longer and more productive lives;2and encourages both transparency and consumer awareness of quality and cost in
healthcare.
State-of-the-art ICT technologies can contribute to the maintenance of a healthy andproductive society by improving quality and reducing the cost of healthcare. Promoting
standard Electronic Healthcare Records (EHR) and improving the health information andcommunication (ICT) infrastructure across hospitals and other service providers could
satisfy patient needs and dramatically improve the U.S. and Japanese healthcare systems
by increasing efficiency, reducing administrative costs, improving diagnostics, andavoiding fatal mistakes. Strategic utilization of ICT in healthcare will also play a keyrole in linking healthcare providers through networks that can provide seamless services
to patients and create an environment for senior people to live safe and secure lives. ICT
also contributes to R&D activities, including the creation of innovative products anddiagnostic techniques.
To accelerate the use of strategic healthcare ICT in Japan and the United States, theCouncils urge both governments to use an open and transparent process with regard to
standards and procurement, with the goal of utilizing the best technologies from aroundthe world. More specifically, the Councils urge both governments to: Develop andharmonize common standards and protocols for the health communication infrastructure
for the sharing of electronic health information; provide incentives, including subsidies,to medical institutions to invest in new technologies and systems; ensure thattransparency and technology-neutrality are maintained in procurement processes toprevent vendor “lock-in” and promote new entrants into the market; promote utilizationof ICT, such as remote sensing over a ubiquitous network to enable senior citizens to live
safely and securely; and promote translational research in order to accelerate applicationsof fundamental research to real markets.
Trade
WTO
The Councils are very concerned by the impasse in the Doha Development Agenda(DDA), and urge both governments to take action to achieve a successful outcome.
Further postponement of the opportunity to achieve multilateral liberalization andestablish multilateral rules would seriously impact the global economy and economies of
WTO members. It could also erode confidence in the WTO system itself, especially at atime when many countries are pursuing regional free trade agreements or economic
partnership agreements on their own.
In particular, both countries must put forth new and improved offers on agricultural
trade.
The United States must be prepared to reduce trade-distorting production subsidies
further. In this regard, the Councils urge the U.S. government and Congress to deliberateon the 2007 Farm Bill with the implications for the DDA firmly in mind. The Councils
also strongly urge the U.S. Congress to renew Trade Promotion Authority (TPA) tofacilitate approval of the DDA and bilateral Free Trade Agreements (FTAs).
Japan must be prepared to increase market access in agriculture by offering greater
reductions in tariffs and increases in tariff-rate quotas. The Councils encourage efforts of
the Government of Japan to strengthen agricultural competitiveness within Japan by3

accelerating structural reform of the sector, in line with the new Basic Plan for Food,
Agriculture and Rural Areas.
While these are politically sensitive and difficult matters, as the two largest economies
and leading trading nations, it is critical that the United States and Japan exhibit realleadership. It is also critical that both governments and key constituents in both countries
understand that much larger gains will flow to the U.S., Japanese and global economies
from further liberalization of trade in goods and services.
Security and Trade
In the aftermath of 9-11, the need for enhanced security of sea and air-bound freightshipments entering the United States, Japan, and other countries has been heightened
significantly. In this era of global supply chains, logistics and transportation is a criticalcomponent of business, and balancing these security objectives with the needs of an open,
free-flowing trading system is a challenging but essential task.
The U.S. Department of Homeland Security (DHS) has endeavored to do this throughthe Container Security Initiative (CSI), Customs-Trade Partnership Against Terrorism (CTPAT), and the so-called 24-Hour Rule. The Government of Japan is currently
considering its version of the 24-hour Rule, as is the European Union. Although suchmeasures are essential for improving security against terrorism, some – in particular the
24-hour rule – have made trade between the United States and Japan (and other markets)
more costly and complicated. The implementation of such programs should not impede
the smooth flow of bilateral trade, and it is important to eliminate measures that add tolead times and costs without providing a clear security benefit.
The Councils urge both governments to establish a bilateral dialogue to reconcile
supply chain security and trade facilitation issues. The Councils recognize that it isessential that governments and the private sector cooperate, including through institutions
such as the World Customs Organization (WCO), in order to identify and adopt bestpractices and establish mutual recognition of security and trade facilitation programs.
Toward this end, the Councils agreed to study matters relating to security and tradefacilitation as part of a Working Group on trade in order to convey practical suggestions
for improving the programs to both governments before the next Council meeting.
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 U.S. and the Japanese governments are starting to recognize the economic impactof the healthcare industry. In the U.S., President Bush noted that “keeping America
competitive requires affordable healthcare” in his address, “Reforming Health Care forthe 21st Century.” Meanwhile, in his first policy speech since taking office, Prime
Minister Shinzo Abe announced “Innovation 25,” a long-term strategy to stimulateinnovations in several fields by 2025, including healthcare, engineering and information
technology. The 2006 Economic Growth Strategy of the Ministry of Economy, Trade andIndustry (METI), also emphasized the importance of the healthcare industry. The
Councils believe that the healthcare industry can contribute significantly to sustainableeconomic growth in both countries, and urge reforms that support innovative industries.

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Pharmaceuticals
In the U.S., the FDA has launched the Critical Path Initiative, a national effort tostimulate and facilitate modernization of the scientific process through which potential
human drugs, biological products, and medical devices are transformed from discoveries
into actual products. Meanwhile, the Japanese Ministry of Health, Labor and Welfare(MHLW) began revising its Vision for the Pharmaceutical Industry issued in 2002. The
Councils recommend that the MHLW consider the following actions in this process:•Improve the R&D processes: The MHLW has introduced several efforts in line with thisvision, including increasing the number of Clinical Research Coordinators (CRC). However,attention still needs to be paid to administrative requirements, as well as institutional
practices, that pull Japan out of sync with other major markets. The Councils recommend thatefforts currently being undertaken by various government bodies be centrally coordinated by
the Prime Minister and Cabinet Office.

•Accelerate the product approval process: The MHLW has introduced several initiatives toshorten approval times, in line with this vision. The MHLW established a specialorganization to accelerate product approval on 1st October 2006. Furthermore, thePharmaceutical and Medical Device Agency (PMDA) has decided to increase the number ofstaff in order to resolve the problem of “drug lag” The Councils welcome the efforts toprevent the drug lag, but, at the same time, actions need to be taken to close the current gap in
the review process between the US and Japan. The PMDA’s performance metrics should be
actively employed, through dialogue with the health care industry of Japan, the U.S. andEurope as the basis for seeking process improvements and improving consistency andefficiency. At the same time, steps need to be taken to ensure that PMDA staff numbers cancontinue to grow. The Councils encourage continued meetings of high-ranking officials
between FDA and MHLW, in order to improve trust building and information exchange.

•

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 from five to eight years, as in Japan.

•

Reform pricing system: Steps need to be taken to establish a new pricing system that
evaluates innovations adequately in the context of a universal healthcare system. Under
Japan's universal healthcare system, prices of new pharmaceuticals are determined through aseries of complex pricing rules that include comparisons with older, devalued products. All
listed products have their prices revised downward every two years. To recognize more fully
the value of innovation over a product's patent life, comprehensive pricing system reform
should be pursued with a long-term view. In the interim, steps should be taken to make thecurrent pricing system more fully reward and encourage innovation. The Councils urge theGovernment of Japan to actively discuss reforms with the industry, including the U.S.
industry, to seek an alternative to the current pricing system that recognizes more fully thevalue of innovation, and encourages innovative pharmaceutical R&D in Japan.

5Medical Devices
Medical technology reduces the cost of long-term health care and hospital stays, andmany studies have shown that funds invested in medical technology yield far greater
benefits than the costs to society, saving and extending lives. However, medical devices
and diagnostic technology currently face a number of hurdles in Japan. In particular, theCouncils urge the Government of Japan to:•

Accelerate approval time: To make the regulatory approval process faster and more
efficient so that Japanese patients have more timely access to innovative medical devices,
PMDA should speed the approval process and substantially increase the number of medical
device reviewers while accelerating the approval of products already approved in other majorcountries. The PMDA should also allow applicants to use foreign clinical data, without
requiring supplemental Japanese data, whenever possible.

•

Expand reimbursement coverage: Recent technology-based reimbursement differentiation
with respect to imaging devices such as Magnetic Resonance (MR) and Computed
Tomography (CT) scanners has provided greater incentives to hospitals and clinics to replace
outdated technology. On the other hand, total reimbursement for most hospitals in Japan has
been reduced. The Councils agree that it is important to evaluate new medical devices withadvanced technology in order to ensure medical treatment in the early stage of diseases.
However, it is also important to take into account the total medical expenditures and economy
of Japan. The Councils urge the MHLW to evaluate new technologies properly and ensurebalanced allocation of reimbursement fees that are beneficial to the citizens in Japan.

Japan and the U.S. as Global Financial Services Hubs
Recognizing their critical importance to economic growth, the Councils applaud
ongoing efforts by the Japanese and U.S. governments to establish fair and efficientfinancial and capital markets, and to reinforce their markets’ positions as global financial
centers. The Councils believe that observance of global best practices in regulations andtaxation can help to ensure each market’s prominence.
The Councils believe that Japan and the 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.
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 believe that Japan should further clarify
its guidelines for financial conglomerates and financial services supervision applicable toforeign financial institutions in order to ensure transparency in implementation ofregulatory 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
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tax regime, the government should ensure that the treatment of such transactions is
consistent with global standards and should reconsider treatment regarding theapplication of consumption tax to transactions between wholly-owned affiliates.
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 study the most efficient way toachieve the important investor protection objectives of the FIEL as it develops thedetailed regulations by which companies comply with the new law.
The Councils recommend that further steps be taken to put in place a more transparent
and efficient legal and market environment for consumer and commercial lending toensure a robust supply of credit. The reform of consumer finance laws currently underconsideration by the Government should provide a stable and predictable legal
framework for the consumer lending sector.
Postal Privatization
Postal Savings and Insurance
The “Framework of the Implementation Plan Regarding Succession of Japan Post’s
Businesses” (“Framework”) was issued by Japan Post’s management on July 31, 2006.
The Framework specifies the scope of products and services to be provided by the new
Postal Savings (Yucho) and Postal Life Insurance (Kampo) corporation and puts forward
those entities’ intention to expand their business scopes quickly.
“Downsizing” and “securing equivalent conditions of competition” are essential toensuring that the postal savings and insurance businesses, which are government-owned,
do not unfairly disadvantage the private sector. Measures to ensure equivalent conditions
and competition must be effective, taking into consideration the totality of thecircumstances. The Councils continue to urge that Yucho and Kampo not be allowed tobroaden the range of products underwritten/manufactured beyond those currently offered
while equivalent conditions of competition are not ensured. In addition, the Councils
continue to urge that effective measures be taken to prohibit cross-subsidies among thenew (post-privatization) businesses and existing (pre-privatization) businesses.
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 the 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.

7Express Delivery
The Framework also specifies the products and services to be provided by the new
Yubinjigyo Kabushiki-gaisha or Postal Services Company. According to the Framework,
the Postal Services Company (PSC) sees expansion opportunities in the international
express and logistics businesses. The PSC plans to compete in such services against
private companies.
To meet the Postal Privatization Act's goal of "promoting open and free competition"(Article 2), competitive services offered by the PSC should operate under the same
regulatory framework and be supervised by the same regulatory agency as competing
private sector services. The Framework acknowledges this principle in the case of Japan
Post's domestic parcel delivery service (Yu-Pak), but contemplates allowing theequivalent international express delivery services (EMS) to continue to enjoy numerous
regulatory advantages over competing private sector services and be supervised by adifferent regulatory body. EMS’ regulatory and other advantages should be eliminatedto ensure fair competition.
Foreign Direct Investment
The Councils are concerned that the environment for foreign direct investment (FDI) in
both the United States and Japan is becoming less hospitable at a time when it is needed
in both countries as a source of capital, technology, and employment. The vast majorityof FDI in developed economies such as Japan and the United States occurs through crossborder Mergers & Acquisitions (M&A), so it is critical to establish an atmosphere, as
well as the rules and processes, in which transactions between foreign and domestic
companies are welcome.
As the leading host and source of FDI, the United States sets an example. Accordingly,
the Councils urge the U.S. Congress to take great care in making any revisions to the
CFIUS (Committee on Foreign Investment in the U.S.) process by which proposedtransactions are reviewed for their national security implications. In the Councils’ view
the CFIUS process should remain objective and fact-based so that potential deals areevaluated solely on national security grounds.
The Councils are very concerned that “net” FDI inflows in Japan remain lower than
FDI levels in other major economies. The Councils therefore welcome Prime Minister
Abe’s pledge to double inward FDI by 2010, and urge the government to move much
more proactively and aggressively to improve the investment environment, including areview of regulations that impede FDI.
Moreover, a functional environment for cross-border M&A is still needed in Japan.
The triangular merger mechanism allowing foreign subsidiaries in Japan to use parentcompany stock as consideration in cross-border M&A transactions, which will beeffective as of May 1, 2007, is a welcome step. The Councils urge the Government ofJapan to implement rules allowing both appropriate shareholder protection and flexible
tax deferral on such transactions at the same time so that this can be an effective tool for
enabling “friendly” transactions between willing parties.

8Intellectual Property
The 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 and a driver ofinnovation. The Councils believe that the United States and Japan share a common
interest in strengthening intellectual property rights both domestically and globally. 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, the Substantive Patent Law Treaty, and a Patent FTA 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 and procedures. After
first discussing the need for this change ten years ago, the Councils are pleased to note thatlegislation recently introduced in the U. S. Congress addresses this important matter, andhope to see solid progress in this area.

•

Second, the Councils urge the U.S. government to improve its patent system by ensuring thequality of patent examinations, the expertise of district court judges and the reasonableness ofcourt proceedings and damage awards. The Councils also urge the Government of Japan toshorten the patent examination period and to establish uniform criteria for determining
inventiveness and patentability so as to avoid conflicting standards between the Japan Patent
Office and courts.

•

Additionally, 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 address these
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.

•

Finally, the Councils request both governments to take steps to address new issues brought
about by globalization and the advent of digitization. These include achieving a balance
between the protection and utilization of media content. It is necessary to clarify theassessment method for the allocation of profit among entities and implement promptly andefficiently transfer pricing and tax measures such as Advanced Pricing Agreements and the
Mutual Agreement Procedures.

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Labor Market Flexibility
Labor market flexibility is one of the chief factors in improving productivity, a criticalcomponent of economic growth. As experience from economies such as the UnitedStates shows, more flexible rules on employment practices and benefits can encourage amore dynamic and mobile labor market that increases productivity, as well as innovation,
investment, job creation, worker welfare, and competitiveness. Accordingly, the Councils
urge both the U.S. and Japanese governments to make labor policy issues a higher
priority in terms of domestic policy, as well as in bilateral policy discussions.
There are new labor market challenges that must be met in both countries. In the
United States, as the number of workers in short-term employment increases, ensuringthat they have sufficient skills and capabilities is an increasingly important part of Human
Resources (HR) policy, as well as education policy.
In Japan, creating better working opportunities to meet various interests and needs ofsociety – such as work-life balance, diversity management, and managing an older
workforce – have become priority issues as the birthrate declines and society ages.
The Councils recognize that it is crucial to establish a better labor policy environment
in Japan as a result of recent policy discussions such as: (1) the Labor Policy Council on
Labor Contract Rules and Working Hour Management; and (2) the review team on the
Defined Contribution (DC) pension plan. In this regard, the Councils urge the Japanese
government to:•

Introduce pecuniary settlement for dismissal: New rules on labor contracts should becreated which would result in judicial decision-making options that are more acceptable toboth parties in a lawsuit. New rules should also be implemented in consideration of varying
types of cases that arise in connection with different business models.

•

Introduce white collar exemption rules: New rules on exemption from working hour
management should be created to expand and define better the category of “overtime exempt”
employees and promote performance and merit-based employment standards. In parallel, theexisting discretionary work system should be fundamentally reviewed for its necessity.

•

Improve Defined-Contribution (DC) pension plans: Improvement of DC plans along thelines suggested under Pension Reform (below) will help make the labor market more flexible
by increasing worker mobility.

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.

10Energy and Environment
The Councils continued to discuss the impact of growing worldwide demand for energy,
high energy prices, and global climate change. The Councils encourage greater efforts on
the part of government, industry and consumers to address these issues. Sustained efforts
to increase energy conservation, including through the accelerated development andapplication of new or alternative technologies, are essential in reducing greenhouse gas(GHG) emissions. A coherent regulatory environment that takes into account both thespecific circumstances of each country and realistic economic costs and technologicalcapabilities is essential.
Climate Change
It is important for governments and industry to begin focusing on an effective and practicableinternational scheme post-Kyoto that takes into account the need to maintain economic growth
while addressing the increasingly evident urgency of the challenge. The Councils continue tobelieve that one of the most realistic and effective schemes will be a market-driven approachemphasizing new technology and the inclusion of all major GHG producers. Governments
should provide consistent rules that provide regulatory certainty to companies operating in one ormore countries.
Energy Conservation
In cooperation with both governments, U.S. and Japanese industries can contribute to energy
conservation efforts in the United States and Japan, as well as in third countries, through: 1) the
development and commercial deployment of more efficient technologies; and 2) the applicationof building codes and product standards based on appropriate energy-efficiency technologies.
Nuclear
Nuclear power generation has become an increasingly important component of both energy
security and CO2 emission reduction. U.S. and Japanese companies should partner globally tofurther develop this source of clean energy through initiative such as the Global Nuclear Energy
Partnership.
Renewables
Renewable energy sources such as wind and solar can help promote energy security,
diversification, conservation, and the reduction of GHG emissions. Both the U.S. and Japanese
governments should therefore be exploring all possible short- and long-term incentives toencourage further research in and development and deployment of these key sources of energy by
all potential suppliers in this industry.
Clean Coal Technologies
There is a need for both a regulatory framework and incentives to encourage the development andprove the viability of clean coal technologies, including Integrated Gasification Combined Cycle(IGCC), with carbon capture and sequestration, taking the specific circumstances in each country
into consideration. The ability to offer this energy source 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. American and Japanese companies can cooperate in these efforts.

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