Annual Reform Recommendations from theGovernment of the United States to the Government of Japan under the
U.S.-Japan Regulatory Reform and Competition Policy Initiative
December 5, 2006

The Regulatory Reform and Competition Policy Initiative (Regulatory Reform Initiative) was
launched in 2001 under the U.S.-Japan Economic Partnership for Growth to promote economic
growth and open markets through sectoral and cross-sectoral reforms. The Initiative, now in its
sixth year, continues to play a major role in deepening bilateral trade and economic relations.
The United States welcomes Prime Minister Abe’s commitment to press forward with economic
reform in Japan. Reforms that create new opportunities, stimulate competition, and foster astronger business climate will help maintain Japan’s economic growth and vitality for years tocome. The United States has also been encouraged by the efforts of other reform advocateswithin Japan, and is hopeful these activities will intensify in the coming months and years.
This year’s recommendations from the United States emphasize the importance of making
continuing progress on reform in the broad areas of telecommunications, information
technologies, medical devices and pharmaceuticals, financial services, competition policy,
commercial law and legal services, transparency, privatization of government corporations,distribution, and agriculture.
The Regulatory Reform Initiative is also an important forum enabling the United States andJapan to intensify our cooperation in pursuit of mutual interests through promoting highstandards internationally, including in areas such as intellectual property protection andtransparency in regulatory practices. The United States wishes to strengthen our work under theInitiative in these and other areas.
These recommendations, in addition to recommendations from Japan, serve as the basis fordiscussions over the coming months in the High-Level Officials Group and in four different
Working Groups covering telecommunications, information technologies, medical devices andpharmaceuticals, and cross-sectoral issues. Progress achieved by each Government under theInitiative is then presented to the President and Prime Minister in the Initiative’s annual Reportto the Leaders.
The periodic participation of private sector representatives in this Initiative has also greatly
informed our work through their expertise, and the United States looks forward to increasing thefrequency of this practice.
The Government of the United States also looks forward to constructive discussions on theserecommendations and welcomes receiving the Government of Japan’s recommendations under
this Initiative.

TABLE OF CONTENTS
RECOMMENDATION HIGHLIGHTS ............................................................3
TELECOMMUNICATIONS ........................................................................4
INFORMATION TECHNOLOGIES.............................................................4
MEDICAL DEVICES AND PHARMACEUTICALS ............................................5
FINANCIAL SERVICES ...............................................................................5
COMPETITION POLICY............................................................................6
COMMERCIAL LAW AND LEGAL SYSTEMS REFORM...................................6
TRANSPARENCY ......................................................................................7
OTHER TRADE-RELATED GOVERNMENT PRACTICES .................................7
PRIVATIZATION .......................................................................................8
DISTRIBUTION.........................................................................................8
ANNEX ......................................................................................... ANNEX-1
TELECOMMUNICATIONS ..............................................................ANNEX-2
INFORMATION TECHNOLOGIES...................................................ANNEX-6
MEDICAL DEVICES AND PHARMACEUTICALS ................................ANNEX-13
FINANCIAL SERVICES ...................................................................ANNEX-19
COMPETITION POLICY................................................................ANNEX-22
COMMERCIAL LAW AND LEGAL SYSTEMS REFORM.......................ANNEX-25
TRANSPARENCY ..........................................................................ANNEX-28
OTHER TRADE-RELATED GOVERNMENT PRACTICES .....................ANNEX-31
PRIVATIZATION ...........................................................................ANNEX-33
DISTRIBUTION.............................................................................ANNEX-37

2

RECOMMENDATION HIGHLIGHTS

3

TELECOMMUNICATIONSThe United States continues to monitor Japan’s regulatory reform efforts for its telecom sector in response to
evolving technologies. The United States believes that increased competition would foster innovation andoffer Japanese consumers greater choice at lower prices. In this regard, the Government of Japan’s decision todelay until 2010 an important discussion on the reorganization of the dominant carrier Nippon Telegraph andTelephone (NTT) was disappointing. Nevertheless, the United States urges Japan to continue taking steps toensure a competitive environment for new entrants, competitive carriers, and equipment manufacturers.
RECOMMENDATION HIGHLIGHTS
ensure a competitive playing field for both
wireline and mobile interconnection; promotefacilities-based competition across different
broadband platforms; ensure that the universal
service program is administered in acompetitively-neutral manner.

Ensuring Market-Based Technology Decisions:Improve transparency and increase stakeholder
participation in policymaking and regulations;promote efficient use of spectrum to increase
opportunities for new services and technologies;
foster a technology-neutral licensing regime whereservice providers can introduce innovativetechnologies.

Promoting Trade in Telecommunications
Equipment: Make the Suppliers’ Declaration ofConformity (SDOC) process an efficient andattractive alternative to third-party certification;
adopt a “family approval” approach for radio typeapproval procedures.

Strengthening Competitive Safeguards on
Dominant Carriers: Prevent anticompetitive
behavior by carriers with market dominance as
telecom services move to IP-based networks;_____________________________________________INFORMATION TECHNOLOGIESThe Government of Japan has completed several major plans for IT-related policies in 2006, including the
New IT Reform Strategy, Priority Policy Program 2006, and e-Government Promotion Plan. In addition, it isundertaking an extensive review of its Copyright Law and steps to achieve goals contained in the Intellectual
Property Strategic Program 2006. This year’s recommendations support Japan’s continuing efforts to enhanceprotection for IPR regionally and globally, strengthen bonds between our IPR regimes, foster the developmentof private-sector and government IT infrastructures, and promote use of IT and e-commerce in Japan.
RECOMMENDATION HIGHLIGHTSIT and e-Commerce Policymaking: Foster private
sector participation and transparency inpolicymaking; promote technology neutrality andcompatibility with international practices.

Online Security: Ensure comprehensive andtransparent review of Privacy Act implementation,and that any revisions enhance business environmentand do not restrict trans-border data flows; work
closely with private sector on online fraud issues andcontinue collaboration with the United States.

IPR and Copyright Protection: Strengthen
protection, including through adoption of a statutory
damages system and increased term of protection forsound recordings and other works.

Health IT and e-Accessibility: Provide
opportunities for a wide range of vendors toparticipate in government health IT projects;
exchange views on e-accessibility issues.

IPR Cooperation: Promote strong standards for
IPR protection and enforcement worldwide,
especially in the Asia-Pacific, through enhanced
cooperation in various fora; promote informationexchange on trademarks and streamline patent
procedures.

Government IT Procurement: Clearly define andappropriately limit liability in IT procurement
contracts; allow contractors to possess ownershiprights to IP created in government IT systemdevelopment; reduce use of sole source contracting.

4MEDICAL DEVICES AND PHARMACEUTICALSThe United States continues to monitor Japan’s efforts to change its healthcare system in response to its aging
population. The United States has taken interest in Prime Minister Abe’s “New Health Frontier Strategy,”which would focus Government attention on disease prevention and healthy life expectancy, and the“Innovation 25” strategy, which would foster innovation in medicine and other fields. The United States urges
Japan to ensure that as these efforts are undertaken Japanese patients enjoy rapid access to innovative medical
devices and pharmaceuticals. Reimbursement pricing policies that reward the development of advanced
devices and drugs and regulatory policies that facilitate the development of such products will help Japan meetthe challenge of providing world-class healthcare to an aging society.
RECOMMENDATION HIGHLIGHTS
Pricing Reform: Improve transparency andindustry’s ability to offer input on the reimbursement
pricing system for drugs; implement a reimbursement
pricing system for medical devices that reflects thevalue of advanced medical technology.

Blood Products: Create a pricing system based on theindustry’s characteristics, including its regulatory anddistribution systems.
Over-the-Counter Medicines: Clarify how Japanese
regulators will implement recent legal changes related
to over-the-counter medicines.

Regulatory Reform: Increase regulatory agency
staffing; improve the environment for drug clinical
trials and reviews; speed reviews of medical devices;
facilitate use of medical device clinical data.

Nutritional Supplements: Allow informational/
educational statements; expand list of allowable
additives and solvents; set quantity limits based on
scientific principles.

Cosmetics/Quasi-drugs: Reform the quasi-drug
regulatory system; allow verifiable data-based claims.

_____________________________________________FINANCIAL SERVICESThe United States welcomes Japan’s continued progress on financial services regulatory reforms, including
removing barriers to foreign and domestic competition, and enhancing financial sector regulatory andsupervisory transparency and clarity. We encourage Japan to continue its progress in establishing clear andconsistent regulation and supervision of financial institutions, in line with international standards and bestpractice, and to continue to eliminate unnecessary regulatory barriers to competition. A more efficient andcompetitive financial sector can play a critical role in boosting Japan’s long-term economic growth potential.
RECOMMENDATION HIGHLIGHTS
Financial Regulatory Transparency: Expand the
body of published written interpretations of financial
laws, including by active use of no-action andinterpretive letters; ensure all stakeholders to provide
input on draft laws and regulations.

Information Sharing and Firewalls: Review legal
and regulatory restrictions that unduly limit foreign
financial groups’ ability to manage their operations
and effectively meet customer needs across legal
entities; define the scope of all required firewalls andidentify firewall maintenance “best practices” indetail in written guidance.

Credit Bureaus: Create a legal and regulatory
framework for a credit bureau system that facilitates
more accurate risk pricing for consumers and small
businesses by collecting and providing fair, open
access to comprehensive full-file credit information.

Market Efficiencies: Harmonize the regulatory
framework governing investment advisory andinvestment trust management activities; allow
mergers and reduce obstacles to the early terminationof investment trusts; review revised institutional
investor disclosure rules for shareholdings over 5
percent.

Defined Contribution Pensions: Broaden anddeepen pension participation and enhance labormobility including by increasing tax deductibility ofcontributions and allowing employee contributions.

5

COMPETITION POLICYThe United States believes that a strong and effective enforcement policy against Antimonopoly Act (AMA)
violations will provide great benefits to Japanese consumers and the business community. Public confidence
in AMA enforcement by the Japan Fair Trade Commission (JFTC) will be maximized where enforcement
procedures are as fair and transparent as possible. Bid rigging remains a significant problem at all levels ofgovernment and the incentives leading officials to assist bid rigging must be addressed fully. The UnitedStates urges Japan to take measures to improve further Japan’s competition regime.
RECOMMENDATION HIGHLIGHTS
hearings; provide procedures for AMA clearance ofstock acquisitions; improve fairness of Subcontract
Law procedures.

Strengthening Antimonopoly Deterrence:Strengthen criminal enforcement and penalties;
maintain criminal and administrative penalties
against cartels; avoid imposition of surcharges on
unilateral conduct; revise JFTC enforcement
guidelines; review AMA exemptions; promotecompetition in sectors with privatization; strengthen
JFTC staff and resources.

Addressing Bid Rigging: Prevent conflict ofinterests, including in the amakudari system, thatencourage government officials to assist bid rigging;
expand the range of ministries offering protections
from administrative punishment for companies
admitted to JFTC’s leniency program; improve
procurement practices to maximize competition on
public procurements.

Improving Fairness of JFTC Procedures:
Establish standards for issuing stays of JFTC orders;
improve confidence in the fairness of JFTC_____________________________________________COMMERCIAL LAW AND LEGAL SYSTEMS REFORM
A modern commercial law regime that facilitates cross-border mergers and acquisitions and promotes good
corporate governance will lead to efficiency in the business sector and the maximization of shareholder value
for Japanese investors. In addition, creating a legal environment in Japan that is conducive to providing
efficient international legal services to domestic and foreign companies and that facilitates the handling oflegal disputes through less-costly alternative dispute resolution (ADR) mechanisms will also contributesignificantly to the health of Japan’s economy. The United States urges Japan to take necessary measures toimprove further Japan’s commercial and legal environments.
RECOMMENDATION HIGHLIGHTS
Promoting Efficient Restructuring andShareholder Value: Allow use of foreign stock as
consideration without restriction in triangularmergers and provide clear and predictable rules fortax deferral benefits that treat domestic and crossborder transactions similarly.

Protecting Foreign Firms Legitimately Doing
Business in Japan: Amend the Company Law soforeign firms doing business in Japan legitimately
through branch offices are not subject to therestrictions of Article 821.
Achieving Legal System Reform: Permit licensed
foreign legal consultants (gaiben) to form
professional corporations and to open branch
offices; count legal experience in Japan toward theminimum qualification criteria for gaiben; allow
Japanese lawyers to join overseas legal
partnerships; promote arbitration and otheralternative dispute resolution (ADR) by ensuring
gaiben and foreign lawyers can act as neutrals andrepresent parties in international ADR proceedings
in Japan and by implementing the new ADR Law
consistently with international norms and practice.

Strengthening Good Corporate Governance:
Encourage active proxy voting by pension andmutual funds, including by facilitating electronic
voting; protect shareholders by requiring
independent board directors to evaluate tender
offer bids and by strengthening the executive
committee and corporate auditor systems.

6

TRANSPARENCY
Transparency in regulatory and policy-making processes is one cornerstone of any positive business andinvestment climate, and the United States and Japan share a deep, mutual interest in promoting strongtransparency standards and practices in the Asia-Pacific region. While we have taken important first steps in
APEC to help address transparency challenges, the United States looks to Japan to intensify our cooperation inthese and new ways to make more progress in this area. To advocate high standards internationally, it is also
critical that Japan build on recent progress to achieve higher standard transparency practices domestically. The
United States therefore urges Japan to take steps to ensure access to government-commissioned advisory
councils, close loopholes and further boost the effectiveness of Japan’s new public comment procedure, andensure all government interpretations of regulations are published to provide more certainty for companies.
RECOMMENDATION HIGHLIGHTS
Advisory Groups: Implement new rules by whichgovernment-commissioned councils operate toensure transparency and access for interested
stakeholders to provide input.

Public Input into Draft Legislation: Provide
greater opportunities for interested parties to beaware of and comment on draft legislation preparedby Ministries and Agencies in the early stages of its
formation.

Public Comment Procedures (PCP): Strengthen
the PCP system by lengthening public comment
periods and ensuring ample time is given to consider
and, where appropriate, incorporate comments.

Regulatory Transparency: Require Ministries andAgencies to make public in writing their regulations
and any statements of policy or generally applicableinterpretations regarding those regulations.

Strengthen International Cooperation: Intensify
bilateral work to promote implementation of APEC
Transparency Standards; take new steps to promotehigh transparency standards in the Asia-Pacific.

No-Action Letters: Take steps to increase theeffectiveness and use of the no-action letter system
to help firms clarify interpretations of regulations.

_____________________________________________OTHER TRADE-RELATED GOVERNMENT PRACTICESRegulatory reform that creates new opportunities and ensures a level playing field for all players in a market
fulfills the goals of enhancing economic growth and strengthening competition to the benefit of consumers.
The United States urges Japan to move forward with specific steps to achieve these goals in Japan’s insurance
sector, including by fully opening the bank sales channel for insurance and continuing progress to provide for asound and secure insurance market by holding insurance cooperatives to the same regulatory supervision andstandards that private insurers must meet. The United States also welcomes steps taken by Japan under thisInitiative to facilitate trade in agricultural products and urges Japan to continue to make progress by taking newsteps to adopt more science-based international standards that protect consumers and their food supply.
RECOMMENDATION HIGHLIGHTS
Promote Bank Sales of Insurance: Ensure the banksales channel for insurance products is fully
liberalized no later than the end of 2007.

Agriculture: Ensure measures that enforce
maximum residue levels are the least trade
restrictive possible; implement international
standards in plant quarantine and in other measures,
including biotech products; implement international
standards in animal health and related measures;complete review of food additives recognized as safe
by a Joint FAO/WHO Evaluation Committee.

Insurance Cooperatives: Build on recent progress
to secure a level playing field between privatecompanies and cooperatives (kyosai) that offer
insurance by taking new steps to hold them to thesame obligations as applied to private insurers.

7

PRIVATIZATIONThe United States continues to take great interest in Japan’s effort to privatize and reform Japan Post. The
United States recognizes the potential benefits for Japan’s economy if these steps are taken in a fully marketoriented manner. The United States also views it essential that these reforms are undertaken transparently andbring about a level playing field between Japan Post and private sector competitors in Japan’s banking,insurance, and express delivery markets. The United States continues to urge Japan to take necessary steps toensure equivalent conditions of competition are achieved in these markets.
RECOMMENDATION HIGHLIGHTS
Level Playing Field - Express Delivery: Apply
equivalent customs clearance procedures for
mail/packages handled by Japan Post as applied to
private express carriers; adequately disclose
relationships to ensure cross-subsidization does notoccur between competitive and non-competitive
services.

Level Playing Field - Savings and Insurance:
Ensure Japan Post is required to meet tax, legal,
and regulatory obligations and is subject to thesame supervisory standards as private firms;
ensure Japan Post does not actively leverage its
Government ties to secure new advantages.
Competitive Conditions and New Products:
Create a level playing field in Japan’s banking andinsurance sectors before postal financial
institutions are permitted to introduce new lending
services, underwrite new or altered insurance
products, and originate non-principal-guaranteed
investment products.

Transparency: Ensure strong transparency in theimplementation of Japan Post reforms, including
providing interested parties meaningful
opportunities for input and exchanges of views as
the process proceeds.

_____________________________________________
DISTRIBUTION
Lowering costs and increasing efficiency of the distribution system can strengthen Japan’s economy, benefit
consumers, and create a more competitive business environment. Regarding airports, the United Statesremains concerned about fees, lack of transparency, and access to information about large expansion projects.
The United States also is still concerned about several other areas under Distribution, including ensuring alevel playing field in the express delivery market, speeding implementation of revised laws and regulations,and ensuring retailers are free to compete in the Japanese market.
RECOMMENDATION HIGHLIGHTS
Airport Landing Fee Reform: Appoint anappropriate airport economic regulator; assuretransparency in the setting of fees, and reduce fees.

Airports Discussion Group of the Aviation
Subcommittee of MLIT’s Transportation Policy
Committee.

Airport Expansion and Operations: Ensure
Narita Airport’s Runway B extension and othercapital improvements at airports move forward in atransparent way with views of all carriers taken
into account; increase transparency on proposed
rule changes at Haneda Airport.

Road Transport: Speed implementation of therevised Road Transport Vehicle Law.
Parking Spaces: Take steps to facilitate temporary
parking by distribution vehicles.
Customs Procedures: Set new customs
regulations for express consignments; separate
declaration systems.

Boost Transparency: Ensure interested
stakeholders are able to exchange views with the8ANNEX

Annex - 1

TELECOMMUNICATIONSI.

Ensuring Market-based Technology Decisions. Consumer choice in Japan’s telecom
market is unnecessarily limited by the regulatory environment. The Ministry of Internal
Affairs and Communications (MIC) continues to act as regulator and policy promoter forthis sector, fueling a perception that its decisions provide disproportionate benefits tolarger companies with historical ties to the Government. The United States believes thatJapan needs to move regulatory functions to a fully independent governmentalorganization and encourages Japan to review the need for requirements that theGovernment of Japan own a specified amount of NTT shares. In addition to thesefundamental reforms, Japan can take immediate steps to improve transparency, promote
efficient use of spectrum, and institute technology-neutral principles.
A.

To foster greater transparency in policymaking and revision of telecom
regulations, the United States urges Japan to:
1.

Open the selection process for Government-sponsored study groups,
whereby interested stakeholders (foreign or domestic) can participate;2.

Require Government-sponsored study groups charged with making
recommendations relating to regulation (including setting any mandatory
technical requirements or recommendations on spectrum allocation) tomake available in a timely and accessible manner the minutes and relevant
documents of each meeting;3.

Develop procedures to enable any interested party to formally petition
MIC for the development, adoption, change, or deletion of rules, and for
MIC to act on a petition without requiring study group involvement.

4.

With respect to private sector-led efforts to develop standards for areas
such as digital home networks or services for next-generation networks(NGNs), refrain from interfering in, seeking to influence, or coordinatingsuch efforts, apart from ensuring that:5.

a.

any such standardization activities are open to full participation by
any interested company, foreign and domestic; andb.

any standardization effort that identifies specific bands for
exclusive use of spectrum is subject to full and open notice andcomment process if and when such proposals are taken up by MIC;

With respect to NGNs:a.

Ensure any network requirements established by NTT involving
interfaces necessary for interconnection with the NTT East or West
networks are developed in an open and transparent fashion, withall interested parties able to fully participate in the process (i.e., notAnnex - 2

discriminating against companies which have not been selected toparticipate in NTT-sponsored co-development programs);

B.

b.

Ensure that any new design NTT East or West seeks to implement
in deploying NGNs minimizes proprietary solutions that requireinterconnecting companies to invest in supplemental equipment,such as the proprietary “Module C” originally required forinterconnecting with NTT’s circuit-switched network; andc.

Ensure that NTT East and West give adequate advanced notice ofproposed network changes, to allow competing carriers ample timeto introduce any necessary modifications into their own network.

To promote efficient use of spectrum and thus increase opportunities for new
services and technologies, the United States urges Japan to:1.

Institute a clear policy of technology-neutral licensing, separating, to the
maximum extent possible, operator choice of technology from thespectrum assignment and service license process.

2.

With regard to access to spectrum:3.

a.

Analyze incumbents’ unused spectrum, determine criteria to
identify “warehousing” (hoarding), and take steps to eliminate it;b.

Publish draft plans for making additional spectrum available forinnovative wireless technologies (including LANs, MANs) on an
unlicensed consumer usage or “license-exempt” basis, including in
the 5 GHz band; andc.

Institute a notice and comment process with a view to ensuring thatlicensed users of wireless broadband technologies have access tospectrum in a way that promotes multiple new entrants who areaccorded maximum flexibility in their choice of technology.

With regard to competition in the wireless sector:a.

Review whether there are any unreasonable impediments to accessto towers and tower sites for new entrants;b.

Create clear guidelines for licensed operators to lease, sub-lease,and exchange spectrum with other service providers (including
MVNOs); andc.

Ensure that new entrants are able to avail themselves of reasonable
procedures to facilitate roaming onto incumbent networks, until the
new entrants are able to build out their own networks.
Annex - 3

C.

II.

To foster an environment where service providers can introduce innovativetechnologies, the United States urges Japan to:1.

Implement the universal service fund program in a technology-neutral
manner by expanding the scope of eligible operators to include othertechnologies capable of delivering voice services (e.g., wireless);

2.

Allow the introduction of technological solutions that reduce harmfulinterference and make shared use of spectrum possible, such as for
Broadband Over Powerline (BPL), on both an indoor and outdoor basis;

3.

Initiate procedures to permit broader use of software-defined radios; and4.

Ensure the least burdensome regulation and technical requirements on
emerging IP-based products and services and maintain flexibility for new
business models for related services.

Strengthening Competitive Safeguards on Dominant Carriers. In September 2006,
MIC published its “New Competition Promotion Program 2010” to address competition
concerns as telecom services migrate to IP-based networks. The United States urges
Japan to continue strengthening competitive safeguards on dominant carriers in thisevolving market to ensure a competitive environment for new market entrants,
competitive carriers, and equipment manufacturers.
A.

B.

Competition Policy. As regulations are developed to implement the New
Competition Promotion Program 2010, the United States urges Japan to:
1.

Ensure that carriers implementing Fixed-Mobile Convergence (mobile
devices that “roam” onto a fixed network) do not abuse any dominance ineither the fixed or mobile sector through their affiliates;

2.

Ensure that dominant carriers implementing Fiber to the Curb (FTTC) or
Fiber to the Home (FTTH) do not preclude competition by unreasonably
eliminating copper-based access to customers;

3.

Review licensing requirements for international Internet-based voiceservices and applications to distinguish between voice applications thatfully substitute for traditional phone service and those that do not; and4.

Promote facilities-based competition among different broadband
platforms, aiming to encourage network operators to invest in and build
competing IP-based infrastructure and minimize regulatory disincentives.

Wireline Interconnection. Keeping in mind that the current LRIC model will
expire in 2008, and to ensure a competitive playing field under changing market
conditions, the United States urges Japan to:
Annex - 4

C.

III.

1.

Require NTT East and West to each set a cost-oriented interconnection
rate, consistent with Japan’s WTO obligations, taking into accountdiffering costs of the respective regions; and, as necessary, permit
differential interconnection rates between the regional carriers, taking into
account dangers of (and ways to prevent) anti-competitive price squeezes;

2.

Eliminate the use of interconnection revenue as a source of crosssubsidization between NTT East and West; and3.

Consider permitting interconnection (connecting with either dry copper orline-shared frequencies) at remote terminals.

Mobile Interconnection. For calls terminating on mobile networks, the UnitedStates urges Japan to:1.

Institute an objective and transparent means for evaluating whether mobile
wireless termination rates are set at levels that reflect the principle of costorientation under efficient management, consistent with Japanese law;2.

Provide transparent means for resolving mobile interconnection issues,
utilizing objective criteria as a clear basis for arbitration if commercial
negotiations fail; and3.

Analyze NTT DoCoMo’s dominant position in the mobile sector, and thedegree to which any existing mobile carriers exert market power in the sub
market for call termination.

Promoting Trade in Telecommunications Equipment. With a view towards removing
burdensome requirements that do not reflect the technological realities of the global
marketplace, the United States recommends that Japan take steps to streamline its
certification process for telecom equipment, to benefit both domestic and foreign
equipment makers.
A.

B.

Suppliers’ Declaration of Conformity (SDOC). To make the SDOC process anefficient and attractive alternative to third-party certification, the United Statesurges Japan to:1.

Seek industry feedback in a transparent manner on possible reforms; and2.

Take concrete steps to simplify and improve the process.

Type Approval. The United States urges Japan to adopt a “family approval”
approach for radio type approval procedures that allows modifications to radio
equipment certifications without requiring a new type approval registration.

Annex - 5

INFORMATION TECHNOLOGIESI.

IT and E-Commerce Policymaking. The e-Japan Strategies and Programs havepromoted the use of IT and e-commerce throughout Japan’s economy. To ensure thatJapan’s policies continue to encourage development in these areas, the United Statesurges Japan to foster an open, transparent, and flexible regulatory environment.
A.

IT Policy Plans. Japan has completed several major plans for IT-related policies
in 2006, including the New IT Reform Strategy, Priority Policy Program 2006,
and e-Government Promotion Plan. These plans are designed to promote thefurther development of private-sector and government IT infrastructures and theincreased use of IT and e-commerce in Japan. The United States urges Japan toimplement these plans in a manner that fosters private-sector leadership, selfregulation, and active participation in policymaking processes.

B.

Private-Sector Input. Japan has acknowledged the importance of seeking input
from the private sector in the development and implementation of IT and ecommerce policies. To facilitate this, the United States urges Japan to ensure thatmeaningful opportunities are provided for interested parties in the private sector,
both domestic and foreign, to:

C.

D.

II.

1.

Submit their views on drafts of relevant legislation, Cabinet orders,ministerial ordinances, regulations, and guidelines through Public
Comment Procedures and other means; and2.

Obtain information in a timely manner about, and participate actively in,
the formation and work of government-commissioned IT and e-commerce
advisory and study groups.

Technology Neutrality. To encourage maximum flexibility and innovation in theprivate sector, the United States urges Japan to:1.

Implement laws, regulations, and guidelines related to IT and e-commerce
in a manner that does not unduly promote, mandate, or favor specifictechnologies (technology neutrality); and2.

Cooperate closely with the private sector in international standards
development activities and give due consideration to establishedinternational standards when formulating IT and e-commerce policies.

International Compatibility. To further promote the development of cross-border
e-commerce, the United States urges Japan to ensure that its policies and legal
frameworks for IT and e-commerce are compatible with international practice.

Strengthening the Protection of Intellectual Property Rights. Consistent with thegoals contained in Japan’s IP Policy Promotion Plan and in the mutual interest of both
our countries to strengthen the bonds between our IPR regimes, the United States urges
Annex - 6

Japan to adopt the following recommendations.
A.

Enforcement System. Strengthen the enforcement system against copyright
infringement by taking the following measures.
1.

Statutory Damages. Adopting a statutory damages system that will act asa deterrent against infringing activities, ensure that right holders are fairly
compensated for the losses suffered by infringement, and enhance judicial
efficiency by eliminating the costly and difficult burden of having toestablish and calculate actual damages or profits.

2.

Copyright Term Extension. Extend Japan’s terms of copyright protection
for sound recordings and all other subject matter protected under the
Copyright Law in alignment with the current global trend toward life of
the author plus 70 years for works generally, and to 95 years frompublication for works for which the term is not based on a human life.

3.

Ex Officio. Providing police and prosecutors broader authority toinvestigate and prosecute copyright crimes on their own initiative byremoving the requirement of right holder consent for prosecutions.

4.

Book Piracy. Enforcing the Copyright Law to effectively combat illegal
reproduction of books, especially on university campuses.

5.

Movie Piracy. Enacting effective anti-camcording legislation against theuse of recording devices in movie theatres, aimed at cutting off the major
source for masters used to make pirate DVDs.

B.

Protect Digital Content. Ensure the transparency of relevant rules andregulations, and effectively combat online piracy.

C.

IP Multicasting Compulsory License. Ensure that changes to Japan’s measuresconcerning IP multicasting and/or rebroadcasting of television programs over theInternet both give primacy to efforts for a market-based solution and comportwith international obligations.

D.

Private-Use Exception. Take further steps to strengthen the protection of digitalcontent and preventing online piracy by narrowing the scope of the private-use
exception so that activities with implications beyond the home, such as
downloading copyrighted works from peer-to-peer networks, are not permitted
without right holder authorization.

E.

Education Exception to Copyright Law. Ensure the education exception in
Article 35 of Japan’s Copyright Law is confined to certain special cases that do
not conflict with normal exploitation of copyrighted works and do notunreasonably prejudice the legitimate interests of right holders.

Annex - 7

F.

G.

Patent Procedures. Streamline Patent Procedures through promotion of work
share efficiencies by:
1.

Deferred Examination System. Provide for a system that ensures patentrights are clearly defined for third parties early in the application process,including by reconsidering usage of the 3-year deferred examination
system.

2.

Patent Application Prosecution. Implement procedures to avoid“piecemeal” examinations and identifying all appropriate grounds ofrefusal at the earliest stage in the examination process.

Trademarks. Exchange information on Japan’s practices regarding protection ofgeographical indications.

III.

Strengthening U.S.-Japan Cooperation on IPR Protection and Enforcement. The
United States and Japan have been increasing cooperation to promote increased
protection and enforcement of IPR around the world, and especially in Asia. This
cooperation should be intensified in parallel with, and in support of, work to promote astrong standard for IPR enforcement among interested trading partners.

IV.

Promoting Online Security. Public and private-sector policies that protect personalprivacy, address online fraud, educate consumers, and promote secure government
information systems can contribute to greater online security and the continued
development of IT and e-commerce. These policies should emphasize private-sector
leadership and technology neutrality, stress public/private cooperation in addressing
problems, and be compatible with international practice. Such policies should also
encourage cooperation between governments.
A.

Privacy. Ministries have released implementation guidelines to help companies
comply with the Act on the Protection of Personal Information (Privacy Act),
which took effect in April 2005. The Cabinet Office has held multiple rounds ofhearings to review the effectiveness of the Privacy Act implementation and gather
input from industry, non-profits and academics. The United States looks forward
to the Cabinet Office’s release of a document (Report) in mid-2007, reviewing thePrivacy Act’s effectiveness and potentially recommending revisions to improve
implementation. To enhance understanding of, and compliance with, the Privacy
Act, the United States recommends that Japan:
1.

Publish information on a Cabinet Office website confirming its statementthat non-compliance with voluntary guidelines will not result in penalties
to firms.

2.

Ensure that reports compiled by the Cabinet Office about enforcement of
the Privacy Act be thorough and detailed to better educate companies how
to comply with the Act.

Annex - 8

3.

4.

B.

Make the Cabinet Office’s review process of the implementation of thePrivacy Act as effective and transparent as possible by:a.

Publishing a schedule, in advance, for the development and releaseof the Report, indicating clearly when there will be opportunities
for comment, so that stakeholders can prepare effectively; andb.

Creating a page on the Cabinet Office website that enables
stakeholders to find relevant information on the Report easily.

Ensure that the Cabinet Office’s Report enhances the businessenvironment and protects personal information by:a.

Clearly differentiating between publicly available information andconfidential or sensitive personal information, and clarify howeach should be properly handled;b.

Standardizing implementation guidelines across Ministries asmuch as possible, with Ministries adding separate guideline
provisions when necessary for individual business sectors; andc.

Making sure that any recommendations regarding cross-bordertransfers do not unduly restrict the international flow of data, andinclude provisions recommending that the data collector exercisesdue diligence in protecting the information.

Online Nuisance, Deceptive Practices, and Fraud. Malicious, illicit and illegal
activity online generates formidable and unwanted costs and can erode essential
consumer confidence in online transactions. Recent U.S.-Japan collaborations toaddress such issues include work by the U.S. Federal Trade Commission and theGovernment of Japan to translate the E-consumer.gov website into Japanese, andthe support of both Governments to ensure the success of the U.S.-Japan Financial
Technology Seminar in April 2006. In continuing its work to address online
fraud, the United States urges Japan to:
1.

Work closely with the private sector in a transparent manner to encourage
a balanced approach to combating online hazards featuring the use ofindustry-appropriate technology, best practices, and consumer education;

2.

Publish information on prosecutions under the amended Spam Law;

3.

Continue to work with the United States to help enhance understanding ofConstitutional Secrecy of Communications provisions and theTelecommunications Business Law to help private sector firms comply
with the law in the context of filtering and blocking spam;

4.

Collaborate with the United States to address online fraud, including
Annex - 9

jointly supporting a seminar in Japan; and
5.

C.

V.

Government Information Security. Japan’s New IT Reform Strategy calls for
Ministries to procure new information systems and develop, and promote on a
local level, evaluation structures to ensure the reliability and security of thesesystems. The United States urges Japan to take a balanced and uniform approachin its procurement policies and evaluation criteria to ensure predictability for IT
vendors and consistency throughout Japan’s central and local government entities.

Health IT and e-Accessibility
A.

B.

VI.

Japan and the United States were among the first signatories on theCouncil of Europe Convention on Cybercrime (Convention). The UnitedStates ratified the Convention on September 29, 2006, and looks forward
to hearing the status of Japan’s plans to ratify the Convention.

Health IT. The New IT Reform Strategy and the Priority Policy Program 2006
highlight Ministries’ efforts to formulate and implement measures designed tohelp Japan introduce IT solutions for items such as medical records andprocessing of medical receipts. The United States welcomes Japan’s commitment
to health IT and urges it to:1.

Ensure that all relevant laws, ordinances, guidelines, and standards are, tothe extent practicable, technology neutral; and2.

Provide meaningful opportunities for:a.

Interested parties to present their views on proposed policies andrules related to health IT through transparent, open, and inclusive
policymaking processes; andb.

A wide range of qualified IT vendors to participate in governmentsponsored projects used to develop or showcase health IT systems.

e-Accessibility. Millions of people around the world have disabilities and their
numbers are expected to increase as the populations of many countries age. Thereis an ongoing international effort to harmonize IT accessibility policies and theirunderlying standards. The United States encourages Japan to engage in bilateral
discussions on current and future e-accessibility policies and activities aimed at
facilitating a better understanding of our respective work and priorities.

Government IT Procurement Reforms. The United States supports Japan’s efforts toreform its procedures for government IT procurements to accomplish goals such as
discouraging anticompetitive behavior, acquiring high-quality IT systems at reasonable
costs, stimulating innovation and competition, and promoting transparency and fairness.

Annex - 10

A.

B.

A “follow-up survey” released by the Inter-Ministerial Task Force for Information
Systems Procurement (Task Force) in January 2006 indicated that many items in
the Task Force’s memorandum on government IT procurement reform have notyet been implemented. With the memorandum’s five-year anniversary (March
2007) fast approaching, the United States urges the Task Force and Ministries toimplement all of the memorandum’s reforms without delay by taking steps to:1.

Clearly define and set appropriate limits on liability in all IT procurement
contracts. To help Ministries accomplish this, develop model contracts orother types of guidance that provide Ministries with examples of bestpractices and increase their understanding of how liability issues in IT
procurement contracts can be addressed most effectively;

2.

Follow through on plans outlined in the IP Strategic Program 2006 to
submit legislation to the Diet in FY2007 that will expand the scope ofJapan’s Bayh-Dole system by making it possible for contractors to possessownership rights to IP created through government-sponsoreddevelopment of IT systems, including software; and3.

Contribute fully to efforts to make the Government of Japan’s online
database for IT procurements (http://cyoutatujirei.e-gov.go.jp) an effective
tool to enhance transparency and fairness. To accomplish this:a.

Ministries, including MHLW, should provide all necessary
information about their IT procurement cases to the database
regularly and without delay; andb.

The Task Force should follow through by the end of FY2006 withplans to conduct analyses of the database to help identify trends in
IT procurements. The United States recommends that the Task
Force reference the suggestions for approaches to these analyses
that the United States provided to Japan in March 2006.

To further improve procedures for government procurements of IT systems, theUnited States urges Japan to ensure that:
1.

Ministries and all other government procuring entities significantly reduce
their use of sole source contracting in IT procurements. This action would
be consistent with directives in the CIO Council’s 2006 e-Government
Promotion Plan, as well as recommendations in the Board of Audit ofJapan’s October 2006 report on central government computer systems,
which documented the extensive use of sole source contracts in IT
procurements and called on procuring entities to enhance competition andtransparency in their contracting practices. To help accomplish this goal,
Japan should:a.

Examine justifications provided for each instance of sole sourcing
Annex - 11

to determine if they are consistent with Japan’s commitments
under the WTO Government Procurement Agreement;b.

Ensure that justifications provided for sole sourcing are madepublic; andc.

Monitor and publicize progress Ministries make to increase theproportion of competitive contracts they conclude for IT
procurements, in terms of both numbers of contracts and values ofcontracts. To help perform this task, analyses the Board of Audit
of Japan performed on IT procurement data for its October 2006
report should be repeated periodically with more recent data.

2.

Ministries sign IT procurement contracts as soon as possible after winningbidders are chosen, and refrain from backdating contracts; and3.

Ministries provide meaningful opportunities, through the use of Public
Comment Procedures and other measures, for interested parties toparticipate in the formulation of government IT procurement policies,
including the Basic Guidelines for Government Procurements Related toInformation Systems, which Japan is expected to issue in 2006.

Annex - 12

MEDICAL DEVICES AND PHARMACEUTICALSI.

Changes in Japan’s Healthcare System. Japan faces dual challenges of limited
healthcare resources and aging populations. The United States has similar concerns.
Given our similar objectives and challenges, the United States encourages theGovernment of Japan and its advisory bodies to fully consider input from industry,including U.S. industry, before making healthcare system changes.

II.

Medical Device and Pharmaceutical Pricing Reform and Related Issues. The
Government of Japan is studying ways to limit medical spending growth, includingchanges to reimbursement pricing systems for medical devices and drugs. The UnitedStates urges Japan to consider the budgetary and health benefits of pricing systems thatreward development of innovative products, and to take the following actions:A.

Pharmaceuticals.
1.

Improve transparency and industry’s ability to offer input by:a.

Allowing a representative of the U.S.-research-based drug industry
to be a member of Chuikyo’s Drug Pricing Expert Subcommittee;
andb.

Sending Ministry of Health, Labor and Welfare (MHLW) pricing
recommendations to applicants well before the first Drug Pricing
Organization (DPO) meetings and ensuring DPO fully explains its
positions at such meetings.

2.

Implement as an alternative to the current pricing methods for new drugs a
flexible pricing method by which pricing authorities evaluate data
provided by applicants to assess the drugs’ long-term value to Japan.

3.

Use mid-points of premium ranges as defaults when granting premiums.

4.

Abolish the re-pricing criteria for market expansion based on the sales of a
product or its comparator for both a product’s initial indication and for
additional indications.

5.

Reverse the April 2006 revisions to the Foreign Price Adjustment rule fordrugs, including the change by which the rule will no longer be applied incases where only one foreign price is available.

6.

Refrain from implementing annual price revisions, which would
discourage the introduction of innovative drugs in Japan.

7.

Allow U.S. industry to present views directly to MHLW’s Council for
Improvement in the Distribution of Ethical Drugs (Ryukaikon) on issues
such as bulk-buying contracts.
Annex - 13

8.

B.

C.

III.

Improve intellectual property protection in close consultation with thedrug industry, including U.S. industry, as the Intellectual Property
Strategy Headquarters considers proposals related to drugs.

Medical Devices.
1.

Replace the Foreign Average Price (FAP) rule for medical devices no later
than April 2008 with a system that fully reflects the value of advanced
medical devices to Japan. Until the FAP rule is replaced, restrict its
application to categories covered in the April 2006 FAP price changes,
adopt a weighted average system for price calculations, maintain the rules
on maximum price reductions, and limit the data used in price calculations
to those provided by industry for the four comparator countries.

2.

Work with U.S. industry to increase functional categories so as to reflect
differences in technology, performance, and clinical benefits amongproducts in the current functional categories. Adjust reimbursement for
products in the modified categories to fully reflect their value.

3.

Provide a provisional price for an applicant seeking C1 designation
immediately after regulatory approval when that designation is requested
and use the provisional price until Chuikyo sets the ultimate
reimbursement price.

4.

Continue recognizing the difference in quality between conventional andinnovative diagnostic imaging equipment by granting premiums toinnovative products. Recognize the value of advanced diagnostic imaging
techniques by providing additional reimbursement rates, so-called senshingazo kasan.

5.

Establish an IVD subcommittee in Chuikyo to improve the reimbursement
pricing system for IVDs.

Blood Products. Create a pricing system for plasma protein therapies that is basedon the plasma protein industry’s characteristics, including the industry’s
regulatory and distribution systems, which differ from those of pharmaceuticalproducts.

Medical Device and Pharmaceutical Regulatory Reform and Related Issues. Japanaims to improve its regulatory system to help patients gain faster access to medical
devices and drugs. The United States urges Japan to reform regulations and practices that
impede the development and introduction of devices and drugs in Japan. The UnitedStates encourages Japan to:A.

Make it easier for companies to develop drugs in Japan and for Japan’s market by:
1.

Increasing substantially the staff of the Pharmaceuticals and Medical
Annex - 14

Devices Agency (PMDA), particularly in medicines and biostatistics, so
PMDA can facilitate simultaneous global development.

B.

2.

Consulting with industry, including U.S. industry, to improveunderstanding of simultaneous global development of drugs andfacilitating Japan’s participation in such programs.

3.

Improving the environment for clinical trials in Japan by taking such steps
as increasing incentives to participate in trials and upgrading hospital
clinical trial operations.

4.

Reducing the waiting time for consultations on clinical trials to 60 days
and use the points system only until the 60-day waiting period is achieved.

Improve drug reviews by:
1.

Expanding the types of drugs the Committee on Issues Related to the Useof Unapproved Pharmaceuticals considers for approval.

2.

Ensuring that PMDA continues to provide industry, including U.S.
industry, with detailed performance metrics on reviews and clinical-trial
consultations that contribute to a PMDA-industry dialogue on those topics.

3.

Clearing the drug application backlog at PMDA as soon as possible.

4.

Reducing approval times for changes in the manufacture and testing ofdrugs to levels similar to those of the United States and European Union.

C.

Speed reviews and standardize regulatory requirements for globally approved
vaccines. Ensure that the “Vision” plan for the vaccine industry promotes
industry’s role in safeguarding public health.

D.

Improve reviews of medical devices by:E.

1.

Doubling PMDA’s staff of device reviewers to 56 by March 2008.

2.

Ensuring quality management systems audits, including audits of foreign
manufacturing plants, do not delay product approvals.

3.

Eliminating the application backlog by March 2007.

Facilitate the use of medical device clinical data by:
1.

Issuing new guidance clarifying when Japan accepts foreign clinical data
without requiring supplemental Japanese clinical data and when Japan
accepts foreign clinical data supplemented by Japanese clinical data.

Annex - 15

2.

F.

Accepting data from clinical trials done outside Japan according to therequirements of ISO 14155 Good Clinical Practices standards and not
requiring conformity with ICH guidance.

Expedite the introduction of improved devices by:
1.

Requiring “partial change approval” only for changes that significantly
affect a device’s safety or effectiveness.

2.

Issuing guidance developed with industry that clarifies which changes
require partial change approval and which require notification.

3.

Allowing partial change submissions while previous applications for thesame device are under review.

G.

Reduce substantially the information required to demonstrate raw material safety
and biocompatibility.

H.

Refrain from auditing third-party suppliers or requiring them to register withregulators.

I.

Establish a rule that allows the use of new diagnostic tests during the period
between their regulatory approval and reimbursement approval.

IV.

Blood Products. Take steps to facilitate the development of a market for plasma protein
therapies that helps ensure clinicians and patients determine treatment levels that benefit
patients the most.

V.

Over-the-Counter Medicines

VI.

A.

Clarify to industry, including U.S. industry, how MHLW will implement recentchanges in the Pharmaceutical Affairs Law (PAL) related to over-the-counter(OTC) medicines, including the circumstances under which an ingredient canchange from one class to another and the rules governing the kind of information.

B.

Consult with industry, including U.S. industry, regarding the laws and regulations
that affect advertising of OTC medicines.

Nutritional Supplements. The United States urges Japan to:
A.

Allow educational and informational statements for foods, including liberalizing
the Foods for Specified Health Uses (FOSHU) and Food with Nutrient Function
Claims (FNFC) categories to be consistent with the regulatory regimes fornutritional supplements in other industrialized nations.

B.

Work with industry to establish and implement by the end of FY2006 a system toprovide information from the National Institute of Health and Nutrition's database
Annex - 16

to consumers as recommended by the Office of Trade and Investment
Ombudsman.

VII.

C.

Expand the list of allowable additives and solvents for foods and chemical formsof nutrients to include those commonly approved in other industrialized nations.

D.

Set or revise quantity limits for food residues and contaminants so that they arebased on scientific principles and reflect advances in analytical techniques andtechnology. Publish testing methodologies in a timely manner.

E.

Streamline the food import process by harmonizing forms and procedures among
MHLW quarantine offices and by establishing a system to keep track of priorconsultations and instruction completed by companies.

F.

Reduce duties for nutritional supplements to the same level as duties forpharmaceuticals containing the same ingredient.

Cosmetics and Quasi-Drugs. The United States urges Japan to take the following steps
to increase access to safe and innovative products for Japanese consumers and to help
them make informed decisions:
A.

B.

C.

Quasi-Drugs. Reform the quasi-drug regulatory system by replacing pre-market
approval with a post-market surveillance system similar to the U.S. OTC
monograph system starting with:1.

Publishing a list of active ingredients with levels and efficacies that havebeen approved in previous quasi-drug applications.

2.

Eliminating registration requirements for additives that are approved foruse in cosmetics and for individual excipients.

3.

Providing opportunities for input from industry, including U.S. industry,
on revisions to the quasi-drug regulatory system.

Advertising and Labeling. Revise the Pharmaceuticals Affairs Law and theStandards for Fair Advertising Practices of Drugs, Quasi-Drugs, Cosmetics, andMedical Devices to be consistent with international standards by:
1.

Abolishing positive lists for claims and allowing claims based on
significant and verifiable data.

2.

Providing opportunities for input from industry, including U.S. industry,
on revising advertising policy and in government-sponsored consultative
bodies such as the Copy Review Board.

Transparency and Regulatory Procedures. Increase transparency in the regulatory
system and revise regulations that impose excessive administrative burdens or that
Annex - 17

do not enhance safety, efficacy, or quality, by:1.

Publishing detailed information on regulations and guidance related tocosmetics and quasi-drugs in a timely manner and in a central location on
MHLW’s web site.

2.

Working with industry, including U.S. industry, to ensure that productstandards are both safe and practical and setting specific time frames forthe review process of product standard revisions so that companies canplan for changes.

3.

Reducing lead time for importation and approval of cosmetics and quasidrugs by streamlining procedures and paperwork.

Annex - 18

FINANCIAL SERVICES
I.

Specific Measures. The United States commends Japan on its progress on financial
services regulatory reforms and calls on Japan to continue such reforms, including thefollowing measures:A.

Create a legal and regulatory framework for a credit bureau system that will allow
better risk assessment by lenders and thereby more accurate risk pricing for
consumers and small businesses. Collection of and fair, open access tocomprehensive full-file credit information facilitates sound credit underwriting,deters excessive lending, and improves consumer welfare.

B.

Review the legal and regulatory restrictions, including inspection guidelines thatunduly limit foreign financial groups’ ability to manage their operations and meetcustomer needs effectively across legal entities, including branches, in Japan.
Regulators should identify and define the scope of all required firewalls andidentify firewall maintenance “best practices” in detail in written guidance.

C.

Under the five year review currently being carried out, foster expanded use of
corporate Defined Contribution (DC) pension programs by:
1.

Increasing the tax deductible contribution limit;

2.

Allowing employee contributions (for example, employee matching of
employer contributions);

3.

Allowing early access to funds before the age of 60 in specified
circumstances;

4.

Allowing investment advice to be made available to participants; and5.

Ensuring transparency and broad opportunities for public comment andpresentation of views to the study council during the review.

D.

Through the regulations under the Financial Instruments and Exchange Law,harmonize the regulatory framework governing investment advisory andinvestment trust management activities and eliminate inconsistencies andduplications, including by merging industry associations.

E.

Allow mergers and reduce obstacles to the early termination of investment trusts,
in order to permit investment managers to combine and diversify investments,
which would result in a reduction of both risk and cost to investors.

F.

Review the revisions to the institutional investor disclosure rules for large
shareholdings (shareholdings in excess of 5 percent) after a set period of time toassess their impact on market volatility and potential market-timing behavior by
speculators, and the administrative burdens on portfolio institutional investors.
Annex - 19

G.

II.

Continue steady and substantial increases in the staff and budget of the Financial
Services Agency (FSA), with a focus on strengthening both the FSA’s regulatory
and supervisory capabilities.

Transparency. The United States encourages the FSA to continue its progress inenhancing financial sector regulatory and supervisory transparency and clarity, andrecommends the following additional measures:A.

B.

The United States welcomes FSA efforts to expand the body of published written
interpretations of Japan’s financial laws. Such interpretations reduce uncertainty,
enhance compliance and allow for productive innovation by financial services
providers. One avenue for providing such written interpretations is by enhancing
the effectiveness of the no-action letter and related systems, including by:1.

Drawing upon the United States’ recommendations (in the “Transparency”
chapter) for enhancing the government-wide no-action letter system;

2.

Encouraging FSA staff to promote more active use of the no-action lettersystem, such as by indicating receptivity to no-action letter requests tofirms that seek oral advice on how to interpret Japanese laws, especiallyon matters where the FSA’s internal interpretation is settled but no public
interpretation is available; and3.

Making more active use of the interpretive letter system, which allows
interested parties to seek interpretations on issues beyond those covered by
the no-action letter system (which is limited to “new products andservices”) and may include requests for clarification of laws andregulations governing existing products and services.

The United States recommends that the FSA adopt new programs and more
actively use existing programs to complement the no-action letter and related
systems as vehicles for expanding the body of written interpretations of Japanesefinancial laws and regulations. To that end, the United States recommends that
the FSA take the following steps:
1.

Build on progress made with the FSA’s web publication of “reference
cases” giving examples of FSA interpretations of Japan’s financial laws
and regulations by steadily increasing the number of such cases published;2.

Use the interpretive letter system to provide written interpretations on
issues about which FSA officials have received informal oral inquiries andabout which there may be some misinterpretation;

3.

Publish a “reference case” or “interpretive letter” clarifying the conditions
under which regulated affiliates of foreign financial firms are allowed toAnnex - 20

share customer information for risk management purposes with theirgroup management and home office; and4.

Establish other means to provide written interpretations of Japan’s
financial laws even when an interpretation has not been formallyrequested. Possible models include the Securities and Exchange
Commission’s (SEC) “telephone interpretations” web page and its “Staff
Legal Bulletin” and “Staff Accounting Bulletin” systems.

C.

The FSA’s active solicitation of input from private, including foreign, firms in theprocess of drafting the Financial Instruments and Exchanges Law has been amajor step in the process of enhancing regulatory transparency in Japan’s
financial sector. Seeking such input also reduces the risk of adverse unintended
consequences of financial laws and regulations. The United States welcomes
those efforts and encourages continued dialogue in the coming months among the
FSA, the Financial System Council, foreign and domestic financial firms andinterested governments and industry associations as the regulations to implement
the law are developed. In particular, given the huge number of regulations to beissued under the law, the United States urges that regulations be released for
public comment as soon as they are completed, rather than as a package closer toimplementation, to allow for thoughtful public comments to be formulated andconsidered, and to allow maximum time for financial firms to prepare forcompliance with the new law and its regulations.

D.

A transparent and predictable inspection process is critical to sound developmentof financial markets and to ensure consumer protection. The United States
welcomes measures taken by the FSA to enhance the transparency of theinspection process, including publication of the Financial Inspection Basic Policy
and inspection manuals, and encourages updates of these materials as well as
outreach to the private sector to highlight inspection priorities and criteria.

E.

The United States also welcomes the Japanese financial authorities’ close working
relationship with private sector financial industry associations, such as theAmerican Chamber of Commerce in Japan and the International Bankers
Association, that fully represent the views and expertise of their members.

Annex - 21

COMPETITION POLICY
I.

Improving Antimonopoly Compliance and DeterrenceA.

Strengthen Criminal Enforcement.
1.

Make use of the Japan Fair Trade Commission’s (JFTC’s) expanded
investigatory powers and new leniency program to increase significantly
the number of cartel and bid rigging cases that are referred to the publicprosecutor’s offices for criminal prosecution.

2.

In light of the new jurisdiction of district courts and district publicprosecutors’ offices to handle criminal Antimonopoly Act (AMA)
prosecutions, consider the usefulness of implementing programs to
educate prosecutors and judges about the goals and operation of the AMA.

3.

Strengthen criminal penalties against individuals who engage in unlawfulcartel activities by lengthening the maximum sentence of incarceration to
five years imprisonment.

B.

Maintain Criminal and Administrative Sanctions on Cartels. Maintain the current
system of allowing the imposition of both criminal penalties and administrative
sanctions against cartel activities by enterprises.

C.

Avoid Over-Deterrence of Procompetitive Unilateral Conduct. The possibility ofsignificant monetary sanctions against conduct whose lawfulness cannot easily beascertained in advance may deter enterprises from engaging in procompetitive
unilateral conduct. The United States recommends that Japan maintain thecurrent system of remedying unfair trade practices and exclusionary practices that
constitute private monopolization through the imposition solely of cease-anddesist orders.

D.

Review and Revise Existing Antimonopoly Enforcement Guidelines. In order toensure that JFTC enforcement policies reflect the best economic and legal
understanding of sound competition law enforcement, review and revise, as
appropriate, existing JFTC enforcement guidelines. In particular:
1.

Revise the 1999 Patent and Know-How Licensing Guidelines to clarify
that JFTC fully recognizes the procompetitive benefits of intellectual
property rights and that it will apply a rule-of-reason analysis to virtually
all IPR licensing practices;2.

Raise substantially the market share safe harbors for vertical non-pricebehavior in the 1991 Distribution and Business Practices Guidelines andreview other aspects of those Guidelines to ensure that they reflect current
economic understanding of the operation of markets;

Annex - 22

II.

3.

Review the 2004 Guidelines to Application of Antimonopoly Law to
Reviewing Business Combinations with a view to ensure they reflect thestate of the art in economic thinking on delineating the relevant productand geographic markets and on determining the likely competitive effects
of a transaction, while ensuring that consumer welfare considerations
continue to be the paramount goal; and4.

Ensure that any proposed revisions to JFTC Guidelines are published for
public comment before they are finalized.

E.

Review AMA Exemptions. Follow the lead of the European Union, Australia andthe United States in examining the possible elimination of antimonopoly
exemptions in the international aviation and other sectors.

F.

Improve the Accessibility of Relief in Private Antimonopoly Litigation. Review
possible ways to increase the ability of persons injured by Antimonopoly
violations to recover their damages and obtain other relief from the courts.

G.

Promote Competition in Sectors Undergoing Privatization. Ensure, throughappropriate JFTC studies and other steps, that privatization and reform of Japan
Post is undertaken in a manner that promotes effective competition in the relevantmarkets. Carefully monitor the practices of newly privatized entities, including
new Japan Post entities, to ensure they do not engage in anticompetitive behavior.

H.

Strengthen Staff and Resources. Continue steady and substantial increases in thestaff and budget of JFTC, with an emphasis on strengthening the criminal
investigation and economic analysis capabilities of JFTC.

Improving Fairness of JFTC Investigatory and Administrative Procedures.
Reviewing JFTC procedures to ensure they are as fair and transparent as possible will
increase the confidence of the public and the business community in JFTC enforcementof the AMA. With that goal in mind, the United States recommends that Japan:
A.

Improve Transparency in Decisions to Stay Enforcement of Elimination Orders.
In order to ensure that elimination orders for AMA violations do notunnecessarily cause serious harm to the recipients of such orders before they have
had an opportunity to respond fully to a JFTC determination of an AMA
violation, establish and publicize clear standards that JFTC will use indetermining whether to grant a request to stay the enforcement of an elimination
order pending review of such order in a hearing procedure or by a court.

B.

Improve Public Confidence in Hearings. Consider steps to improve confidence inthe fairness of JFTC hearing procedures, such as ensuring at least a majority ofhearing examiners in each particular hearing procedure are not JFTC career
employees.

Annex - 23

III.

C.

Ensure Fairness in Actions under the Subcontract Law. Ensure that proposed
recipients of recommendations and public warnings and cautions under the Act
Against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors areprovided an adequate opportunity to submit evidence and arguments in theirdefense prior to the issuance of those measures.

D.

Increase Certainty in Stock Acquisition Transactions. Introduce transparent andtimely procedures that will allow parties that intend to acquire or hold stock inother companies to obtain a formal and binding decision from JFTC on theconsistency with the AMA of such stock acquisition or stock holding.

E.

Continue Transparency of AMA Basic Issues Study Group. Provide an
opportunity for interested persons, including foreign parties and organizations, toorally provide views on the Study Group’s work before its final report is issued.
Also, publish the final report and recommendations of the Study Group for publiccomment before any measures are taken to implement those recommendations.

Addressing Bid Rigging
A.

Prevent Conflicts of Interest – Amakudari. Strengthen measures to ensure that
central and local government officials, and officials of public corporations, thatparticipate in or supervise the procurement of goods and services are not facedwith conflicts of interest, including those created by the amakudari system, that
may cause them to assist in bid rigging activities. In particular:
1.

Revise laws and National Personnel Agency rules against conflicts ofinterests by government officials, including rules prohibiting officials
from taking jobs in companies that have received contracts from theiragencies, to ensure conflicts of interests do not facilitate bid rigging, andincrease penalties against officials and companies violating such rules.

2.

Improve the effectiveness of Ministry of Land, Transport andInfrastructure (MLIT) rules designed to prevent conflicts of interest by its
officials engaged in or supervising procurement activities.

3.

Prohibit personnel offices of government agencies from seeking to placeretiring officials in jobs that violate conflict of interest rules and policies.

B.

Expand Administrative Leniency. Expand the administrative leniency program
adopted by MLIT in February 2006, which reduces by half the period ofsuspension from bidding for companies admitted into JFTC’s leniency program,to other government agencies and public corporations.

C.

Improve Procurement Practices. Review procurement practices to ensurecompetition is maximized, including by ensuring eligible bidders on contracts let
by local governments and regional offices of central government agencies are notlimited to local companies.
Annex - 24

COMMERCIAL LAW AND LEGAL SYSTEMS REFORM
I.

II.

Promoting Efficient Restructuring and Shareholder Value through Modern Merger
TechniquesA.

Facilitate Use of Foreign Shares as Consideration. Take necessary measures toensure that the new provisions of the Corporate Code that, as of May 1, 2007, will
permit the use of shares of foreign companies as consideration in triangular andother types of merger transactions are implemented in a manner that permits useof virtually all foreign stock without significant restriction or procedural hurdles.

B.

Implement Clear and Non-Discriminatory Tax Deferral Rules. Revise the Tax
Code before May 1, 2007, to provide clear and predictable rules regarding theavailability of tax deferral benefits for triangular merger transactions that use
foreign shares as consideration, and ensure that, unless necessary to avoid specifictax avoidance concerns, those rules provide the same tax deferral benefits undersimilar basic conditions to all triangular merger transactions, regardless ofwhether they involve the use of shares of domestic or foreign companies.

Strengthening Good Corporate GovernanceA.

B.

Facilitate and Encourage Active Proxy Voting.
1.

Promulgate Financial Services Agency regulations or encourage adoptionof rules by the Tokyo Stock Exchange (TSE) and other major stock
exchanges in Japan that require each publicly-traded company above anappropriate size threshold to provide proxy materials to its shareholders atleast four weeks in advance of its annual meeting.

2.

Encourage and facilitate the ability of publicly-traded companies, directlyor through the major Japanese stock exchanges, to make available toshareholders mechanisms for electronic voting of proxies.

3.

Strongly encourage the Investment Trust Association of Japan to adopt
rules requiring mutual fund and investment trust managers to publicly
disclose their actual proxy voting records.

4.

Adopt legislation, or promulgate regulations or guidelines by the Ministryof Health, Labor and Welfare or other appropriate ministries, that will
require or at least strongly encourage private pension fund managers,
including insurance companies that manage pension funds, to exercise
proxy votes for the benefit of their ultimate beneficiaries.

Protect Shareholder Interests.
1.

Eliminate potential conflicts of interest of Boards of Directors in
responding to tender offer bids (TOB) by requiring that the statement ofAnnex - 25

the position of the Board of Directors on the offer that is conveyed to FSA
pursuant to the Securities and Exchange Law and the adoption or
invocation of any anti-takeover measures in response to a TOB be
authorized by a committee of the Board of Directors that is composed of amajority of outside directors or auditors.
2.

Encourage the TSE and other major Japanese stock exchanges
to have listing rules or guidelines that encourage best practices in theprotection of shareholder interests, including by requiring or encouraging
companies to have a certain number or percentage of outside directors andby revising the definition of outside directors and outside auditors toensure that they are truly independent.

3.

Encourage the MOTHERS, JASDAQ and Hercules stock exchanges toadopt listing and delisting rules that restrict companies from introducing
anti-takeover measures that seriously harm the interests of shareholders.

C.

Strengthen the Executive Committee System. Empower the Board of Directors ofa company that has opted to have executive committees to legally delegate to suchcommittees relevant decision-making and other powers of the Board including,for example, delegating to the audit committee the power to hire the outside
auditing firm.

D.

Improve the Kansayaku System. Establish a formal study group to examine
whether the current kansayaku (corporate auditor) system can be improved tomore effectively prevent corporate malfeasance.

III.

Protecting Foreign Firms Legitimately Doing Business in Japan. Amend Article 821
of the Commercial Code to make clear that foreign firms doing business in Japan throughbranch offices that are duly registered under the Commercial Law and complying withapplicable regulatory and tax laws are not subject to the prohibition of engaging intransactions on a continuous basis in Japan or to the liabilities of their directors andofficers set out in that article.

IV.

Achieving Legal System ReformA.

Permit Professional Corporations and Branching. Permit gaiben to form
professional corporations on the same basis and with the same benefits as
bengoshi professional corporations. Also, allow foreign law firms and theirbengoshi and gaiben partners in Japan to establish multiple branch offices inJapan without regard to whether they have formed a professional corporation.

B.

Revise Minimum Qualification Criteria for Gaiben. Amend the Foreign Lawyers
Law so that all experience practicing the law of the home jurisdiction, whereverthat experience is obtained, is counted toward the three-year experience
requirement for qualification as a gaiben.

Annex - 26

C.

Allow Bengoshi to Associate Freely with International Legal Partnerships Outside
Japan. Publicly confirm that Japanese lawyers, whether in solo practice, inpartnership with other Japanese lawyers or in partnership with gaiben, may
become members of an international partnership of lawyers outside Japan without
limitation or restriction.

D.

Promote Arbitration and Other Alternative Dispute Resolution
1.

Ensure that gaiben, foreign lawyers and non-lawyers are permitted to act
as neutrals in any international arbitration or other international alternative
dispute resolution (ADR) proceedings that take place in Japan, in whole orin part, regardless of the governing law or matter in dispute.

2.

Amend the Foreign Lawyers Law to make clear that gaiben may represent
parties in any international ADR proceeding taking place in Japan.

3.

Ensure that the Law for the Promotion of the Use of Alternative Dispute
Resolution (ADR Law) is implemented in a manner that is consistent withinternational norms and practices, and promotes rather than hinders thegoal of establishing Japan as a center for international dispute resolution.
In furtherance of this goal:a.

Apply the Public Comment Procedure to all government proposed
ordinances, regulations and guidelines related to theimplementation of the ADR Law; andb.

Ensure that Japan Association of Arbitrators publishes for publiccomments its proposed rules related to implementation of the ADR
Law and allows at least 60 days for the submission of comments
before the rules are finalized.

Annex - 27

TRANSPARENCY
I.

Public Input into Policy Development – Advisory Groups. Advisory councils(shingikai) and other government-commissioned study groups are often accorded asignificant role in Japan’s policy development. The Government of Japan’s active
assurance of the openness and transparency of such groups is necessary to ensure theviews of interested parties are reflected in their deliberations and enrich the policies that
result. While general guidance for advisory groups is outlined in an April 1999 Cabinet
Decision, specific requirements are lacking. The United States therefore urges Japan tostandardize and improve the transparency of and access to these advisory councils andother working groups. Specifically, the United States recommends that Japan:
A.

B.

II.

Enhance publicly accessible information about advisory groups by requiring
related Ministries and Agencies to:
1.

Make public a notice of intent to form such groups and information about
the process for their establishment;

2.

Create a centralized, publicly accessible electronic list of advisory groups
and their members; and3.

Make detailed minutes of advisory group meetings and meeting materials
publicly available.

Ensure interested parties have full opportunities to provide input into advisorygroup deliberations and conclusions by requiring Ministries and Agencies to:1.

Conduct open nominations for group membership when possible andpermit all interested parties to participate in such groups to the extent
possible;2.

Provide meaningful opportunities for interested parties to provide input
into deliberations by such groups; and3.

Provide ample advance public notice prior to group meetings to enableinterested parties to prepare for and contribute to discussions.

Public Comment Procedures (PCP). As Japan implements its revised PCP, the UnitedStates strongly encourages Japan to review the amended Administrative Procedure Law
and proactively take new steps to boost the system’s effectiveness. Some deficiencies
have already been identified in Japan’s latest annual survey of PCP implementation, suchas frequent solicitation of public comments for periods shorter than 30 days.
A.

To improve upon deficiencies in the current PCP system, the United States urges
Japan to take the following measures:

Annex - 28

B.

1.

Provide adequate public comment periods (30 days minimum, 60 days inprinciple), barring a genuinely urgent need to do otherwise (in which caseclear written explanations should be provided);2.

Make draft regulations public as early as possible to allow interested
parties sufficient time to prepare meaningful public comments;

3.

Ensure Ministries and Agencies fully consider public comments and allow
ample time to incorporate them, as appropriate, into final regulations; and4.

Respond to submitted comments in a timely manner, prior to release of
final regulations whenever possible.

The United States also recommends that Japan thoroughly evaluate theeffectiveness of recent changes to the PCP, publicly report evaluation findings,
and provide opportunities for public input on these findings.

III.

Transparency in Regulation and Regulatory Enforcement. To ensure the private
sector has sufficient information about regulations as well as information necessary tostay in compliance with regulations, including Government interpretations of such, theUnited States encourages Japan to require Ministries and Agencies to make public in
writing their regulations and any statements of policy or generally applicableinterpretations regarding those regulations.

IV.

Public Input into the Development of Legislation. The United States recommends thatJapan’s Ministries and Agencies provide greater opportunities for interested parties to beaware of and comment on draft legislation in the early stages of its formation.

V.

Strengthen U.S.-Japan Cooperation to Promote High Standard Transparency
Practices. The United States recommends that our Governments intensify cooperation toraise transparency standards in the Asia-Pacific to improve investment and businessenvironments throughout the region. Steps should include jointly promoting theimplementation of the APEC Transparency Standards and the use of APEC transparencymodel measures as a reference for future trade agreements.

VI.

Foreign Translations of Japanese Laws. To enhance the effectiveness of Japan’s
initiative to translate laws into foreign languages, the United States recommends thatJapan continue to closely consult with the foreign businesses on this initiative and ensure
timely completion of translations of laws selected under the foreign translations initiative
as well as laws already in effect prior to the implementation of the initiative.

VII.

Implementation of Rulemaking. The United States recommends that Japan ensure thatits Ministries and Agencies ensure reasonable periods (at least 30 days) between the
publication of final regulations and their effective date (except for clearly-defined,
extraordinary circumstances) to give parties required to comply with such regulations afair opportunity to comply by the initial date of enforcement.

Annex - 29

VIII. Special Zones for Structural Reform. The United States recommends that Japan
continue transparent administration of the Special Zones for Structural Reform and seeks
greater application of Zone measures nation-wide.
IX.

No Action Letters. The United States urges Japan to take further steps to enhance theeffectiveness and increase the usage of Japan's no-action letter system, which allows
regulated firms to seek clarification of an administrative agency's interpretation of laws
and regulations. Specifically, the United States recommends:
A.

Giving Japan's no-action letter system the force of law by incorporating its
requirements into the Administrative Procedures Law.

B.

As an interim step, providing by Cabinet Decision more detailed governmentwide guidelines to administrative agencies as to the requirements governing theagencies' individual no-action letter systems, and setting a timetable for thoseagencies to set up their no-action letter systems. Specific steps should include:C.

1.

Establishing one “window” per agency to receive no-action letter requests.

2.

Promoting more active use of the no-action letter system, including by:a.

Outreach efforts by administrative agencies to inform firms inregulated industries that they can seek clarification of Japan's laws
and regulations via the agency's no-action letter system;b.

Announcing that groups of firms and/or industry associations can
submit NAL requests on behalf of specific firms; andc.

Establishing internal systems to encourage agency staff to actively
solicit no-action letters from individual firms and other interested
parties that seek informal oral interpretations of laws andregulations on issues that are matters of settled policy.

Establishing both government-wide and agency-specific fora for seeking private
sector input as to how to improve the no-action letter systems of the various
government administrative agencies.

Annex - 30

OTHER TRADE-RELATED GOVERNMENT PRACTICES
I.

II.

III.

Bank Sales of InsuranceA.

The United States urges Japan to fully liberalize the bank sales channel for
insurance products without delay, no later than before the end of 2007.

B.

Prior to full bank sales liberalization, the United States furthermore urges Japan toeliminate the 10 million yen ceiling on third sector insurance products that smallerbanks may sell to related companies in order to eliminate an unfair disadvantage
to third sector insurance service suppliers.

C.

The United States welcomes confirmation from Japan that related rules preventing
inappropriate sales tactics to enhance consumer protection are to be developedand implemented in a manner that does not favor one product or services supplierover another. The United States requests that Japan continue to ensure that timely
opportunities are made available to interested parties to provide views and input
relating to the development and implementation of such rules.

Insurance Cooperatives. Insurance cooperatives (kyosai) provide insurance productsthat compete directly with the private sector and occupy substantial market share in
Japan’s insurance market. The lack of a uniform regulatory regime for kyosai
undermines the ability of Japan to provide companies and policyholders with a sound,transparent regulatory environment, and affords kyosai significant advantages over theirprivate competitors. Some kyosai continue to take advantage of this situation to expand
their market presence and product offerings. The United States therefore recommends:
A.

With specific regard to kyosai regulated by various ministries, create a levelplaying field between kyosai and their private sector competitors by subjecting
kyosai to the same laws, requirements, standards, and oversight by the same
regulator as their private sector counterparts. As a first step toward achieving
equal conditions of competition, undertake a thorough review of the rules andregulations governing the supervision and inspection of these kyosai to determine
their conformity with Financial Services Agency (FSA) standards of supervision
for private insurance service suppliers.

B.

With respect to kyosai regulated by the Financial Services Agency under the“Small Amount, Short-term Insurance Provider” system, undertake a thoroughreview of this system in a transparent manner within the period provided forunder the Insurance Business Law (IBL). Such kyosai, to the extent they directlycompete with FSA-licensed insurance companies, should be regulated as
insurance companies under the Insurance Business law and treated consistently
with private companies. Remaining unregulated kyosai should be monitored by
the FSA to determine if they legitimately should be subject to the IBL.

Policyholder Protection Corporation (PPC). As Japan begins preparations to review
the Life and Non-Life Policyholder Protection Corporations, the United States
Annex - 31

recommends Japan adopt measures, including a shift to a post-funded system, to help
ensure that a more efficient, sustainable safety net system is created before the current
system expires. The United States welcomes confirmation from Japan that the Financial
Services Agency and relevant advisory groups will provide meaningful opportunities for
input as the review process moves forward. The United States urges that the preparationof related draft legislation and other measures is undertaken in a transparent manner.
IV.

Government Practices Relating to Agriculture. The United States welcomes steps
taken by Japan under this Initiative to facilitate trade in agricultural products throughadoption of more science-based international standards that protect consumers and theirfood supply. Such steps have enhanced the efficiency of the trading environment and thetransparency of relevant rules and regulations. The United States therefore urges Japan tocontinue to make this progress by taking the following additional measures:
A.

Implement a plant quarantine system that harmonizes the classification of plantpests and diseases based on the International Plant Protection Convention
standards for official control and risk analysis by:
1.

Ensuring that the Ministry of Agriculture, Forestry and Fisheries
expeditiously finalizes its review of the status of four cosmopolitan pestsof lettuce to determine whether they should be subject to quarantine
measures; and2.

Undertaking joint pest risk assessments on other pests/commodities ofpriority interest to the United States.

B.

Implement a Maximum Residue Limits regime that ensures that any mitigating
measures are the least trade restrictive possible, provide national treatment toimports, and are in accordance with international practices.

C.

Apply science-based standards in accordance with World Organization for
Animal Health protocols to promote enhanced trade in animal products.

D.

Update relevant rules and regulations to reflect international safety standards asapplied to biotech products.

E.

Complete the review of the 46 food additives that are recognized as safe by Joint
FAO/WHO Evaluation Committee on Food Additives and used throughout theworld. While this review commenced on an expedited basis in 2003, so far only
15 additives have been approved.

Annex - 32

PRIVATIZATIONI.

Privatization of Public Corporations. As Japan moves forward with the restructuring
and privatization of public corporations, the United States urges Japan to create a levelplaying field for all market participants. The United States also recommends that such
steps be undertaken in a transparent manner, including ensuring domestic and foreign
private sector entities are given meaningful opportunities to provide input and express
views on matters affecting the market. Such steps should include, but not be limited to,full use of the Public Comment Procedures and meaningful opportunities to participate inrelated advisory councils that deliberate and make recommendations on reforms.

II.

Japan Post. The United States welcomes a market-oriented reform of Japan Post. If
implemented vigorously, the United States recognizes the potential benefits for theJapanese economy of these reforms by stimulating competition and leading to a moreproductive use of resources. The implementation of a fully market-oriented reform isalso necessary to eliminate long-standing advantages that Japan Post has been accorded
over U.S., Japanese, and other private companies and to ensure that new advantages are
not created. As the implementation of these reforms progresses, it is important that allnecessary measures are taken to fully realize the legislation’s principle of establishingequivalent conditions of competition between Japan Post and the private sector.
A.

Level Playing Field for Postal Savings and Insurance and Financial System
Stability. The United States welcomes confirmation by Japan that the Postal
Savings Bank and Postal Insurance Corporation, from the outset of theprivatization process in October 2007, will no longer be allowed to offer productsthat carry government guarantees and will be required to meet the same tax, legal,
and regulatory obligations and, along with the Post Office Corporation, be subject
to the same supervision and disclosure standards as private sector companies.
The United States also welcomes confirmation that relationships among the new
postal companies must be on an arms-length basis and that no schemes exist thatallow for cross-subsidization (and thus also transfer of risks) between and among
the new entities created under related laws. The Financial Services Agency(FSA) will play a critical role in assuring they develop and exercise effective risk
management so as not to jeopardize financial system stability. In addition to fully
implementing the above-mentioned measures, the United States urges Japan toalso take the following steps to help meet the Japan Post Privatization Law’s aim
to achieve equal conditions of competition between Japan Post and private firms:
1.

Product Distribution and Sales Channels. Ensure private firms are given
equal and transparent access to compete for distribution of financial
products through the Post Office network and, consistent with the armslength rule, ensure that the Post Office Corporation’s relationships with
the Postal Savings Bank and Postal Insurance Corporation are undertaken
on a truly market basis.

2.

Deposit and Reinsurance Relationships. With respect to deposit andreinsurance contracts between the Incorporated Administrative Agency
Annex - 33

Management Organization for Postal Savings and Postal Life Insurance(Public Successor Corporation) and the Postal Savings Bank and the
Postal Insurance Corporation, respectively, take all necessary measures to:a.

Ensure full and complete separation of pre-existing accounts andcontracts (those held prior to October 2007) from accounts andcontracts concluded beginning October 2007 so as to ensure a full
separation of risk and that the Deposit Insurance Corporation andinsurance Policyholder Protection Corporations will not be liablefor pre-existing accounts and contracts;b.

Ensure deposit and reinsurance contracts are on a fully arms-length
basis and, as such, will not allow for cross-subsidization of the new
postal financial institutions through such arrangements; andc.

Ensure the Public Successor Corporation’s financial condition,
including surpluses and/or deficits, and reinsurance transactions
are publicly disclosed and accounted for in a manner that meetsgenerally accepted corporate accounting rules/standards in Japan.

3.

Implicit Government Guarantee. Until such time that the Government ofJapan is fully divested from its shares of the postal financial institutions,take meaningful steps to ensure consumers and the marketplace are awarethat products issued from October 2007 will not be backed by theGovernment. In addition, carefully monitor actual sales practices andenforce related laws to ensure accounts and contracts from October 2007
are not misrepresented as having a Government guarantee, as well as toensure the postal financial institutions do not leverage their relationshipwith the Government to provide them an advantage over their competitors
in the marketplace.

4.

Antimonopoly Act Enforcement. Ensure through appropriate Japan Fair
Trade Commission studies and other steps that the privatization andreform of Japan Post is undertaken in a manner that promotes effective
competition in the relevant markets. In addition, carefully monitor thepractices of Japan Post entities to ensure they do not engage inanticompetitive behavior.

5.

Regional Social Contribution Fund. Ensure the Fund is administeredtransparently (including sufficient and periodic public disclosure of thecost allocation methodology, cost and revenue data used to make suchcalculations, and the distributions of funds) and include measures such as
internal controls and transparent, precise disbursement criteria to prevent
benefits from unfairly accruing to the postal financial service suppliers but
not to other domestic and foreign service suppliers.

Annex - 34

6.

Asset Valuation. Ensure that, prior to October 2007, independent auditors
undertake a full valuation of the assets, liabilities, and reserves of theIncorporated Administrative Agency Management Organization for Postal
Savings and Postal Life Insurance (Public Successor Corporation), andthat this valuation is fully disclosed to the public.

B.

Conditions of Competition and the Introduction of Products. The United Statesurges Japan to ensure a level playing field is actually created between the postal
financial institutions (both existing institutions and, from October 2007, the new
institutions) and private financial institutions before the postal financial
institutions are permitted to introduce new lending services, new or alteredinsurance products underwritten by the postal insurance business, and theorigination of non-principal-guaranteed investment products by the postal savings
business. Relevant measures should include those that ensure the postal financial
institutions, in practice, meet the same licensing and supervisory requirements asprivate sector financial institutions, including requisite risk management andinternal controls requirements and full FSA supervision. Achieving a levelplaying field also includes requiring the postal entities to meet the sameobligations and standards that other companies must meet when introducing new
products or riders. Moreover, prior to engaging in any new product sales ortransactions, sales agents and representatives of the Post Office Corporation,
Postal Savings Bank, and Postal Insurance Corporation would have to fully meetthe same requirements and standards that licensed private sector providers mustmeet to engage in such sales and transactions. Such requirements should include
the development of systems and management skills to effectively evaluate andmanage the risks associated with those products.

C.

Level Playing Field for Express Carrier Services. The United States welcomesconfirmation by Japan that the logistics and postal services operations of the
Postal Services Company will be subject to the same taxes as private companies
and, furthermore, will be subject to the same aviation safety and security
regulations. The United States also welcomes confirmation that the Minister ofLand, Infrastructure and Transport will supervise Japan Post’s international
physical distribution services under transportation laws and, with respect to postal
services, supervise related operations according to freight transportation laws andordinances. In order to fully achieve a level playing field in the express carrier
services sector, the United States recommends the above measures are fully
implemented and that the following additional steps are taken:
1.

Ensure that supervision by the Ministry of Land, Infrastructure andTransport of Japan Post operations is undertaken according to the same
standards as those applied to private companies.

2.

Apply customs clearance procedures for mail and packages handled by
Japan Post equivalent to those applied to private express carriers for
similar actions. Specifically, the United States urges Japan to ensure thatmail delivered under EMS follows the “duty declaration” system and not
Annex - 35

the “duty assessment” system that Japanese regulations currently apply to
EMS mail.

D.

3.

Require Japan Post to pay equal costs for customs clearance for similaractions, including NACCS charges and the costs for application document
preparation. Furthermore, Japan should ensure it applies all safety andsecurity laws and regulations to Japan Post letters in the same manner as
to documents carried by private express carriers.

4.

Take all necessary measures to make public disclosures of the Postal
Service Company’s business and transactions sufficient to ensure crosssubsidization among the Company’s businesses and with other Japan Post
entities does not occur, including requiring disclosures of separatebusiness areas to the same standards required of other private companies.

Transparency. The United States welcomes measures being taken to ensure thepreparatory process and implementation of the reforms of Japan Post progress in atransparent manner. The United States recommends that steps continue to betaken to make the preparation and implementation of these reforms fullytransparent and inclusive of the views of interested parties, including by:
1.

Ensuring meaningful opportunities are provided to interested private
sector parties, including U.S. and other foreign companies, to actively
contribute to deliberations by committees or components of such
convened by the Government of Japan, including the Postal Services
Privatization Committee, on issues that may impact the private sector;

2.

Providing meaningful and timely opportunities for private sector interested
parties to exchange views with relevant Government of Japan officials on
matters pertaining to Japan Post reforms that may affect the private sector;

3.

Seeking public input through the use of Public Comment Procedures andother methods with respect to implementing regulations, guidelines,
Cabinet and other orders, implementation plans, and other measuresestablished for matters pertaining to Japan Post, and also ensure that input
is fully considered and, where appropriate, incorporated into draft
measures before they are finalized; and4.

Ensuring that information relating to the planning and implementation ofJapan Post reforms, including the discussion materials and minutes ofrelated government-convened advisory groups, is made public in a timely
way by continued use of web postings, press conferences, and other tools.

Annex - 36

DISTRIBUTION
I.

Airport Landing and User Fees. The United States urges Japan to improve the businessand tourism climate in Japan and help consumers and boost the economy by:A.

Immediately further reduce landing and user fees, which in combination remain
the highest in the world, for Japan’s three major international airports: Narita,
Kansai, and Centrair;

B.

Appointing an independent economic regulator for “corporatized” airports such as
Narita Airport to ensure fees are set transparently and fairly;C.

Ensuring the landing fee calculation at all airports is transparent both for domestic
and international flights, and includes only those costs associated with the use of
airport runways and facilities, as prescribed by IATA; andD.

Inviting and considering the comments of all interested stakeholders, including
U.S. and other foreign airlines, for the deliberations of the Airports Discussion
Group of the Aviation Subcommittee of MLIT’s Transportation Policy
Committee.

II.

Airport Expansion and Operation. Narita Airport has started an ambitious set of
construction projects to extend its Runway B to allow for use by larger aircraft Many
carriers, not only those from the United States, are concerned this project has increased inscope and may be inefficient and unprofitable. While the United States applauds NAA’s
recent profit of 14.77 billion yen in FY2005 as evidence that the corporatization/
privatization of Narita Airport is on track, there is widespread concern that fees will beraised again in the future to fund this expansion and that the expansion may not be carriedout in the most economical way. There are similar concerns with construction at otherairports. The United States urges Japan to make the process for planning and financing
of Narita and other airports’ expansion fully transparent, and to provide a detailed
breakdown of the necessary budgets in a timely fashion.

III.

Haneda Airport Operations. The project to construct a fourth runway at Haneda
Airport, to be completed by 2009, will provide needed new slots to the Tokyo area. The
planned internationalization of Haneda, however, has moved forward without adequatetransparency. In particular, the lack of transparency has created concern over two issues:
1) a perimeter for allowable regular international flights has been proposed, but it seems
to be an artificial and arbitrary limit as some international charter flights will operate
beyond the perimeter; and 2) changes in operating hours that may affect U.S. carriers in
the future may be made without adequate input from all parties concerned. Thus, theUnited States urges Japan to create a transparent mechanism by which carriers and otherinterested private-sector parties can be informed of proposed rule changes, expansion
plans, curfews, and other changes at Haneda, with a full explanation of the justification
for an action, and provide such information in a timely manner to allow for comment on
any proposal during the decision-making process, before it has been finalized.

Annex - 37

IV.

Improving Efficiency in Customs Processing
A.

Separate Customs Treatment for Express Consignments. In order to enable more
efficient and faster handling of express shipments and to bring Japan in line withgrowing international practice, the United States recommends that Japan establish
separate customs regulations for express consignments and operate a separate
section to handle such consignments, distinct from the current system that was
designed for traditional air cargo and ocean freight. Any such regulations should
be developed in a transparent manner, including by seeking domestic andinternational industry input.

B.

Customs Declarations. To further improve customs processing procedures andefficiency of operations, the United States recommends that Japan:
1.

Introduce a system for customs declaration whereby the declaration of
shipment acceptance is separate from the declaration of tax payment toallow customs officers to work during daytime business hours only while
enabling express carriers to release import items in a timely way outside
regular business hours; and2.

Allow Nippon Automated Cargo Clearance System (NACCS) users to
declare express items at any convenient Customs office, rather thanlimiting them to the office where the cargo is physically stored, in order toallow shipments to more quickly reach their destinations in Japan.

V.

Customs de Minimis. The United States recommends that Japan significantly increase
the Customs Law de minimis limit from its current 10,000 yen level to higher level (suchas 30,000 yen) to help reduce customs workloads and customs clearance time.

VI.

Parking Spaces for Distribution Vehicles. To ensure smooth and timely distribution of
packages and other items following strict enforcement actions being taken under the
recently revised Road Traffic Law, it is important for Japan to take new measures toensure sufficient parking spaces are available for distribution vehicles in urban centers.
Specifically, the United States recommends that Japan take the following measures:A.

Create New Parking Zones for Delivery Vehicles. Increase the number of parking
spaces available for distribution vehicles as well as the number of short-duration
loading and unloading zones available on major streets.

B.

Introduce Long-Term Solutions. Examine other measures that help provide along-term solution, such as revising building codes to require property owners toprovide distribution vehicle parking spaces in commercial buildings.

C.

Introduce Temporary Mitigation Measures. Until more permanent solutions are
introduced, examine the feasibility of introducing an “observation rule,” by whichparking officers will first observe whether the vehicle is attended by a driver andwhether loading or unloading activities are taking place before issuing a ticket.
Annex - 38

VII.

Speed Implementation of the Revised Road Transport Vehicle Law (RTVL). The
United States welcomes changes made to the RTVL in May 2006 that will create a onestop omnibus registration system for automobiles. However, the new system is not due tobe fully introduced until late 2011. The United States encourages Japan to take steps todevelop and introduce the new omnibus registration system well before late 2011.

VIII. Laws Affecting Large Scale Retail Stores. Revisions made to the Central City
Invigoration Law and the City Planning Law in May 2006 have the potential tosignificantly erode retailers’ ability to open larger stores that meet customers’ needs. The
United States urges Japan to ensure that its initiatives to revitalize urban areas do not
impede the ability of developers and operators of large-scale stores to open locations inurban, suburban or rural areas and that national regulations are applied consistently
throughout the country. The United States furthermore requests that Japan undertake athorough and fully transparent review of its new measures, including regularly soliciting
input from interested parties, and publishing the results of its reviews in a timely fashion.

Annex - 39