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
October 18, 2007

The U.S.-Japan Regulatory Reform and Competition Policy Initiative (Regulatory Reform
Initiative) continues to contribute to growth and opportunity for the citizens of both countries bypromoting reforms that open new markets, reduce burdensome regulations, increasetransparency, and stimulate competition. The Regulatory Reform Initiative, now in its seventh
year, also remains a key forum for deepening and broadening our bilateral economic
relationship.
The Regulatory Reform Initiative was created in 2001 under the U.S.-Japan Economic
Partnership for Growth to promote a pro-growth agenda of reform through sectoral and crosssectoral reforms. As a result, this year’s recommendations by the United States focus on making
continuing progress in industry sector areas such as medical devices and pharmaceuticals,
communications, financial services, information technologies, and agriculture, as well as
advancing progress in several cross-sectoral issue areas such as intellectual property, commercial
law, competition policy, and transparency. The United States continues to look to Japan toundertake important economic reforms in these and other areas in order to achieve the aims ofthis Initiative.
This year’s U.S. recommendations also place an emphasis on the United States’ desire tocontinue to work closely with Japan both bilaterally and in regional and other fora to promote
higher standards of intellectual property protection as well as transparency across the AsiaPacific region and beyond.
These comprehensive U.S. recommendations serve as the basis for discussions over the coming
months in the Initiative’s High-Level Officials Group as well as in four different working groups
covering telecommunications, information technologies, medical devices and pharmaceuticals,
and cross-sectoral issues. Progress achieved by each Government in response to the other
Government’s recommendations is then documented and presented to the President and Prime
Minister in the Regulatory Reform Initiative’s annual Report to the Leaders.
The Government of the United States continues to look forward to constructive discussions onthese recommendations and welcomes receiving the Government of Japan’s recommendations
under this Initiative.

TABLE OF CONTENTS
RECOMMENDATION HIGHLIGHTS ............................................................3
COMMUNICATIONS ...............................................................................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 GOVERNMENT PRACTICES ..........................................................7
PRIVATIZATION .......................................................................................8
DISTRIBUTION.........................................................................................8
ANNEX .........................................................................................ANNEX - 1
COMMUNICATIONS ................................................................... ANNEX - 2
INFORMATION TECHNOLOGIES................................................. ANNEX - 4
MEDICAL DEVICES AND PHARMACEUTICALS ................................ ANNEX - 9
FINANCIAL SERVICES ................................................................. ANNEX - 16
COMPETITION POLICY............................................................. ANNEX - 20
COMMERCIAL LAW AND LEGAL SYSTEMS REFORM..................... ANNEX - 26
TRANSPARENCY ........................................................................ ANNEX - 29
OTHER GOVERNMENT PRACTICES ............................................ ANNEX - 32
PRIVATIZATION ......................................................................... ANNEX - 36
DISTRIBUTION........................................................................... ANNEX - 41

2

RECOMMENDATION HIGHLIGHTS

3

COMMUNICATIONSThe United States continues to monitor Japan’s regulatory reform efforts affecting its communications sector
with a view to promoting competitive opportunities for innovative services and technologies. Key regulatory
principles that enhance such opportunities include maximizing operators’ choice of technology, ensuring
efficient and minimally burdensome equipment approvals, transparency and impartiality of rulemaking(particularly in the wireless area).
RECOMMENDATION HIGHLIGHTS
develop new rules for video offered over telecom
networks are implemented in a transparent mannerwith a view to minimizing unnecessary regulation.

Promoting Competition and Efficiency in the
Wireless Sector: Eliminate threat of fees fordevice manufacturers or users of license-exempt
services (e.g. WiFi) to ensure robust usage of suchservices; expeditiously license new spectrum, or“re-farm” existing spectrum for wirelessbroadband systems on a technology-neutral basis;
ensure new mobile entrants enjoy reasonableinterconnection arrangements with other wirelessoperators to offer customers reasonable roamingarrangements as network build-out progresses.

Strengthening Competitive Safeguards on
Dominant Carriers: Ensure that NTT East andWest offer cost-oriented interconnection rates once
current regime expires; eliminate East-Westsubsidies and ensure interconnection offerings fortheir Next Generation Network are subject tosufficient transparency and consultation withaffected companies; review financial conditions
imposed on competing carriers.

Promoting Streamlined Regulation ofConvergent Services: Ensure that efforts to_____________________________________________INFORMATION TECHNOLOGIESThe United States’ recommendations seek to promote competition and confidence in government procurementof information technologies (IT), improve mutual understanding of e-Accessibility policy, advance theadoption of information technology to improve the quality and efficiency of Japan’s healthcare system,
strengthen protections for intellectual property rights (IPR) focusing on infringement in the digital age,enhance IPR enforcement in the region and globally, and ensure any revisions in the implementation of thePrivacy Act also enhance the business environment.
RECOMMENDATION HIGHLIGHTSIT and e-Commerce Policymaking: Facilitate
private-sector input and transparency inpolicymaking; foster technology neutrality; promotecompatibility with international practice.

IPR and Copyright Protection: Strengthen
protection, including through adoption of measures
to defend against online piracy and increased term ofprotection for sound recordings and other works.

Government IT Procurement: Specify plans toensure compliance with the Basic Policy and assess
progress made under the Policy; allow contractors topossess IPR created in government IT systemdevelopment; promote competitive bidding.

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.

Health IT and e-Accessibility: Promote adoption of
Health IT through effective implementation of theGrand Design and increased incentives for use of
Health IT; exchange information on e-accessibility
policies and activities.

Privacy: Ensure that any revisions of Privacy Act
implementation enhance the business environmentand do not restrict trans-border data flows.

4

MEDICAL DEVICES AND PHARMACEUTICALSThe United States encourages Japan to implement rapidly many proposals in its August 2007 “Vision” reporton its drug industry, including those on improved clinical trials, accelerated approval reviews, and fair value ofinnovation. Several of these proposals would also benefit the medical device market if applied in that sector.
As Japan strives to provide excellent healthcare despite the challenges of an aging society, the United States
also recommends that reimbursement pricing policies provide appropriate incentives for development ofinnovative medical devices and drugs and that regulatory policies help end the device and drug lag.
RECOMMENDATION HIGHLIGHTS
Pricing Reform: Ensure reimbursement pricing of
medical devices and pharmaceuticals appropriately
values the benefits of innovative products; increase
opportunities for producers of innovative devices andpharmaceuticals to explain to reimbursement pricing
authorities the benefits of their products.

Blood Products: Ensure the pricing system forplasma protein therapies is based on the uniquecharacteristics of those products; provide industry
with meaningful opportunities to discuss labelingrequirements and other regulatory issues.
Nutritional Supplements: Create a new category forfoods that allow ingredient-specific claims; provide
meaningful opportunities for industry input during thedevelopment of health food safety regulations; shorten
approval times for new food additives.

Regulatory Reform: End the lag in the introductionof innovative medical devices and drugs bystreamlining reviews and approvals; improve theclinical-trial environment and encourage simultaneous
global development of drugs; facilitate approvals of
and reform regulatory requirements for minor changes
in medical devices.

Cosmetics / Quasi-Drugs: Increase transparency andefficiency in the quasi-drug approval system; allow
claims based on significant and verifiable data.

_____________________________________________FINANCIAL SERVICESThe United States commends the Government of Japan for committing to develop a “Plan for Enhancing theCompetitiveness of Financial and Capital Markets.” The United States believes that competitive financial andcapital markets are a key element contributing to sustained economic growth, efficient capital allocation, job
creation, and innovation. The United States encourages Japan to adopt measures necessary to assure global
financial center status. In addition to specific measures that would improve efficiency and afford more options
to Japanese savers and workers, the United States calls on Japan to continue its recent progress on regulatory
reform in the financial services sector notably by taking action in the following areas.

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.

pricing for consumers and small businesses bycollecting and providing fair; open access tocomprehensive full-file credit information.
Information Sharing and Firewalls: Identify anddefine the scope of required firewalls through written
guidance and continue an active dialogue withforeign financial institutions regarding appropriate
revisions to the current firewalls regime, including
the Financial Instruments and Exchange Law and the
Personal Information Protection Law.

Credit Bureaus: In order to promote sound credit
underwriting: deter excessive lending and improve
consumer welfare and competitive credit markets;
create a legal and regulatory framework for a credit
bureau system that facilitates more accurate risk

5

COMPETITION POLICY
Strong and effective Antimonopoly Act (AMA) enforcement against anticompetitive practices will provide
great benefits not only to Japanese consumers, but also to the Japanese economy as a whole. At the same time,care must be given to ensure that AMA enforcement policy does not interfere with procompetitive conduct andthat Japan Fair Trade Commission (JFTC) procedures are perceived to be fair and transparent. The UnitedStates welcomes the report of the Advisory Panel on Basic Issues Regarding the AMA and looks forward to
the implementation of many of its recommendations. At the same time, bid rigging and its facilitation by
government officials remains a continuing problem, and bold measures are needed to address this matter
properly. The United States urges Japan to take measures to improve further Japan’s competition environment.
RECOMMENDATION HIGHLIGHTS
Improving Antimonopoly Compliance andDeterrence: Strengthen administrative sanctions
against cartels; promote use of JFTC’s leniency
program; increase effectiveness of criminal
enforcement; avoid surcharges on unilateral conduct;
review AMA exemptions on international aviationand shipping; revise Distribution Guidelines; adopt
pre-notification system for stock acquisitions; ensurecompetition during postal privatization; hire more
outside legal professionals and economists.

Improving Fairness and Transparency of JFTC
Procedures: Enhance credibility of hearing
procedures; clarify conditions necessary to move toa pre-order hearing procedure; improve regulations
on JFTC warnings.
Addressing Bid Rigging: Strengthen penalties
against bid rigging; prevent government-assisted bid
rigging and address conflicts of interest in
procurement; expand administrative leniency
programs; improve procurement practices.

_____________________________________________COMMERCIAL LAW AND LEGAL SYSTEMS REFORM
A commercial law and legal systems regime in Japan that recognizes the realities of the global market andreflects best international practices will encourage efficient business practices and structures that will
strengthen the Japanese economy. Essential aspects of a modern commercial law system include laws that will
facilitate rather than impede cross-border investment and corporate governance mechanisms that promotemanagement accountability to, and full participation by, shareholders. Japan should also ensure thatinternational legal services can be provided in an efficient and cost-effective manner. The United States urges
Japan to take measures to further improve Japan’s commercial and legal environments.
RECOMMENDATION HIGHLIGHTS
Promoting Efficient Restructuring andShareholder Value: Review the success of
introducing triangular merger techniques for crossborder acquisitions; protect shareholder interests inanti-takeover measures.

Protecting Foreign Firms Legitimately Doing
Business in Japan: Adopt redomestication
procedures that allow a foreign company to merge
or convert into a Japanese corporation; ensure that
Article 821 does not have adverse effects on thelegitimate operations of foreign companies.

Strengthening Good Corporate Governance:
Encourage active and appropriate proxy voting;protect shareholder interests through independent
directors; ensure sufficient protection of minority
shareholders.

Achieving Legal System Reform: Permit
professional corporations and branching by foreign
lawyers (gaiben); allow Japanese lawyers to
associate freely with international legal
partnerships; revise minimum qualification criteria
for gaiben; promote arbitration and otheralternative dispute resolution.

6

TRANSPARENCY
Transparent regulatory and policy-making practices are a cornerstone of any good business environment.
While a number of improvements have been made in Japan in recent years, such as the introduction of a moremeaningful public comment procedure, actual experience clearly indicates that such improvements are notbeing uniformly implemented across the Japanese Government. The United States continues to urge Japan tofurther improve its business environment by taking new steps that ensure consistent application of hightransparency standards, including by creating new rules as well as promoting best practices. The United States
looks forward to cooperating with Japan to promote higher transparency standards in the Asia-Pacific region.
RECOMMENDATION HIGHLIGHTS
Advisory Groups: Implement new rules to ensuretransparency and access for stakeholders to provide
input into government-appointed advisory groups;
develop and promote transparency best practices forsuch groups on a government-wide basis.

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

Public Comment Procedures (PCP): Ensure
agencies give public comments ample consideration;
take steps to lengthen the public comment period;
evaluate the current effectiveness of the PCP to
identify other areas to improve its implementation.

Strengthen International Cooperation: Intensify
bilateral work to promote higher transparency
standards in the Asia-Pacific, such as throughensuring active implementation of APEC
Transparency Standards.

_____________________________________________OTHER GOVERNMENT PRACTICESThe United States urges Japan to undertake regulatory reform in a number of other areas to help create newopportunities as well as ensure efficient competition by creating a level playing field. Full liberalization ofsales of insurance products through banks, for example, will help enhance competition and consumer choice.
Holding insurance cooperatives to the same regulatory supervision that private insurers must meet will also
help provide for a sound, competitive insurance market for Japanese consumers. In addition, the U.S. urges
Japan take a number of steps to facilitate trade in agricultural products in ways that expand consumer choice
while rooted in science-based international standards to ensure a safe food supply for Japanese consumers. The
business environment for foreign nationals can be improved via streamlined consular requirements.
RECOMMENDATION HIGHLIGHTS
Liberalize Bank Sales of Insurance: Ensure thebank sales channel for insurance products is fully
liberalized no later than the end of 2007.
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.

Practices Related to Agriculture: Facilitate tradeby applying science-based standards to assess
substances used on organic crops; complete thereview of food additives recognized as safe by
relevant international organizations and used widely
throughout the world; ensure measures that enforce
maximum residue levels are the least trade
restrictive possible; implement international
standards in animal health and related measures.

Consular Issues: Revise the re-entry permit
requirements to minimize burdens on visa holders inJapan.

Special Zones for Regulatory Reform: Strongly
promote new approaches in Japan’s Special Zones
program; apply more zone measures nation-wide.

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 items
handled by Japan Post Service as applied to private
express carriers for similar actions, including
application of the “duty declaration” system to
EMS items; adequately disclose relationships andensure cross-subsidization does not occur between
competitive and non-competitive services.

Level Playing Field - Savings and Insurance:
Ensure the new postal financial institutions meettax, legal, and regulatory obligations and are
subject to the same supervisory standards asprivate firms; ensure these institutions do not
actively leverage their 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; conduct regular reviews of
the impact of the reforms on markets and invite
input from all parties.

_____________________________________________
DISTRIBUTIONBoosting productivity, increasing efficiency, and opening new opportunities in Japan's distribution system iscritically important for sustaining Japan's economic growth. The United States therefore applauds Japan’s
efforts to lower fees for airport use and the results of the recent U.S.-Japan Civil Aviation agreement thatprovide for increased access for cargo and commercial airlines. The United States requests that Japan takefurther steps to lower distribution costs, increase transparency, and ensure a level playing field for allindustries, including retailers, airlines, and express delivery companies.
RECOMMENDATION HIGHLIGHTS
De minimis: Streamline customs procedures by
increasing the Customs Law’s de minimis level.

Parking Spaces: Expand the availability of
temporary parking slots in urban areas for
distribution vehicles.

Airport Expansion and Operations: Ensure all
airport operational changes develop withappropriate public input and transparency.

Customs Procedures: Standardize customs
procedures for all packages to ensure a levelplaying field for all delivery agencies.

8ANNEX

Annex - 1

COMMUNICATIONSThe United States has broad interests in the Japanese communications market which have been
supported by the Japanese Government’s efforts to foster a more competitive market, encourage
new entrants, and introduce new technology. To enhance these opportunities, the United Statessuggests several areas where additional action would be mutually beneficial to both Japanese andU.S. suppliers and consumers.
I.

Wireless Devices and Services
A.

License-Exempt Use of Spectrum. Clarify that spectrum user fees will not beapplied to license-exempt use of spectrum, the imposition of which could unduly
constrain innovative uses of spectrum and require burdensome and inefficientcollection mechanisms.

B.

Licensed Spectrum.

C.

D.

II.

1.

Conduct broadband wireless spectrum assignment currently underconsideration (two licenses proposed for 2.5 GHz spectrum) in a timely,transparent, objective and non-discriminatory manner that adheres toprinciples of technology neutrality; and2.

Clarify procedures for ensuring competitive access to 800 MHz spectrum
being vacated by carriers transitioning to 3G services in different bands.

Competition in the Mobile Sector.
1.

Ensure new entrants’ ability to roam onto existing mobile networks,
particularly of the dominant NTT DoCoMo network; and2.

Ensure that sufficient review is conducted to ensure that incumbents do
not abuse dominant market positions as a means to unduly constrain new
entrants in the market for call termination.

Wireless Equipment. Finalize the procedures for “family approval” for wireless
LAN antennas.

Wireline Services
A.

Interconnection.
1.

Ensure that interconnection rates offered by NTT East and West continue
to be set in a transparent manner, consistent with cost-oriented principles,even after transition away from long-run incremental cost (LRIC)
methodology is implemented;

Annex - 2

B.

III.

IV.

2.

Ensure that interconnection arrangements offered by NTT East and Westfor their Next Generation Network (NGN) are developed in a transparent
manner, where all interested parties have an opportunity to comment on
economic and technical requirements NTT seeks to impose prior to
implementation; and3.

Take definitive steps to eliminate cross subsidy based on transferring
above-cost interconnection revenue from NTT East to West

Safeguards on Dominant Carriers for New Entrants.
1.

Prior to eliminating any unbundling requirement, conduct a market review
based on competition principles, incorporating public comments, toevaluate relevant instances of market power and bottleneck control;2.

Limit the amount of proprietary financial information that needs to bedisclosed to NTT, ensure adequate regulatory measures are in place toprotect data submitted, and ensure that appropriate levels are set withrespect to amounts required by NTT for security deposits frominterconnecting carriers; and3.

Ensure appropriate rates for leasing of ducts.

Convergent Services. In light of various Ministry of Internal Affairs andCommunications (MIC)-sponsored study groups making recommendations on theregulatory treatment of converged services:A.

Ensure that copy restrictions imposed on digital content distribution do not unduly
burden network service providers;B.

Institute transparent process for addressing issues relating to broadcast content
provided over non-broadcast media (e.g. the Internet); andC.

Endeavor to minimize the application of broadcast regulation on IP-based
services, to ensure that new digital products and services are not encumbered withtrade-distorting restrictions.

Other. Continue to strengthen procedures and conditions for ensuring the impartiality of
regulatory decision-making.

Annex - 3

INFORMATION TECHNOLOGIESI.

IT and E-Commerce Policymaking. To promote the use of information technology ande-commerce throughout Japan’s economy, the United States urges Japan to ensure that its
regulation of IT and e-commerce is transparent and flexible.
A.

B.

C.

II.

Facilitate Private-Sector Input. Advice from the private sector is crucial to
Japan’s ability to formulate effective IT and e-commerce policies, plans, andregulations. The United States urges Japan to promote an active role for theprivate sector in the policymaking process by:
1.

Ensuring the private sector has meaningful opportunities to submit views
on drafts of relevant legislation, Cabinet orders, ministerial ordinances,
regulations, and guidelines through public comment procedures and othermeans; and2.

Ensuring the private sector can obtain information promptly about, andparticipate actively in, the formation and work of governmentcommissioned IT and e-commerce advisory and study groups.

Foster Technology Neutrality. The United States urges Japan to:1.

Implement laws, regulations, and guidelines to promote choice andcompetitive market conditions by ensuring that technology providers andusers have the flexibility to choose the technologies that best suit theirneeds; and2.

Work cooperatively with the private sector on international standards
development and, when appropriate, use established international
standards when formulating IT and e-commerce guidelines andregulations.

Promote International Compatibility. The United States urges Japan to ensure its
IT and e-commerce policies and laws 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
Japan to adopt the following recommendations.
A.

Enforcement System. The United States welcomes confirmation that Japan is
exploring various avenues to strengthen protection of copyrighted works and willconclude studies on whether to adopt the following measures by the end of FY
2007. In this regard, the United States recommends that Japan:
1.

Statutory Damages. Adopt a statutory damages system that will act as adeterrent against infringing activities, ensure that right holders are fairly
Annex - 4

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 the terms of copyright protection forsound 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. Provide police and prosecutors broader authority to investigate
and prosecute copyright crimes on their own initiative by removing therequirement of right holder consent for prosecutions.

B.

Online Piracy. Take the necessary measures to defend against infringement
online, including via peer-to-peer services, by streamlining the “notice andtakedown” system with a faster and more reliable method for requiring disclosure
to right holders of contact information for subscribers who use networks to
infringe.

C.

Protect Digital Content. Ensure the transparency of relevant rules and regulations
so that right holders are not adversely affected and competition law, andprotection of trade secrets are considered, including by limiting the private copy
exception to copies made from a legal source and not extending this exception toactivities with implications outside the home (such as downloading copies frompeer-to-peer services).

D.

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.

E.

Exceptions to Copyright Protections Affecting Publishers. 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
not unreasonably prejudice the legitimate interests of right holders, and that any
additional proposed copyright exceptions that impact scientific, technical, medicalor educational publishers are carefully scrutinized on the same grounds and in atransparent manner.

F.

Technical Protection Measures. Provide effective civil and criminal remedies forunauthorized circumvention of access controls, and all forms of trafficking indevices or services to circumvent technological protection measures

G.

Patent Procedures. Streamline Patent Procedures through promotion of work
share efficiencies by:Annex - 5

H.

1.

12-Month Grace Period. Provide for a 12-month grace period during
which information made publicly available by the applicant or by a third
party (including a patent office), which obtained the information directly
or indirectly from the applicant, shall not affect the patentability of theinvention.

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 continue with, and in support of, work to promote a strong standard
for IPR enforcement among interested trading partners.

IV.

Privacy. Globalization necessitates accountable but efficient cross-border data flows.
Undue restrictions could hinder companies from conducting business in and within Japan,
impede economic efficiency, and interfere with business’ ability to meet the needs andexpectations of consumers. The United States notes the June 2007 report by Japan’s
Quality-of-Life Policy Council reviewing the effectiveness of the Act on the Protection of
Personal Information (Privacy Act). To ensure that any revisions to the implementationof the Privacy Act bolster its effectiveness yet avoid unnecessarily impeding businessservices for customers, the United States urges Japan to:V.

A.

Develop clear, consistent, and predictable privacy guidelines across Ministries,
with Ministries adding separate guideline provisions when necessary for
individual business sectors; andB.

Ensure that any recommendations regarding cross-border transfers provide
effective protections for individuals’ personal information without unduly
restricting the international flow of data. Further, such recommendations should
include provisions recommending that the data collector implement reasonablemeasures to protect the privacy and security of individuals’ personal information.

Health IT and e-Accessibility
A.

Promote Adoption of Health IT. In March 2007, the Ministry of Health, Laborand Welfare (MHLW) issued a new Grand Design, an action plan for theGovernment of Japan’s efforts to promote adoption of Health IT. The UnitedStates encourages MHLW to implement the Grand Design so that IT is used to
improve the quality and efficiency of Japan’s healthcare system. The UnitedStates urges Japan to:

Annex - 6

B.

VI.

1.

Implement the Grand Design in a way that is open, transparent, and that
promotes technology neutrality and interoperability;

2.

Increase incentives for doctors and hospitals to use innovative healthinformation technologies that facilitate information sharing, such as digitalarchiving systems and electronic medical records;

3.

Encourage a wide range of qualified IT vendors to participate ingovernment-sponsored projects used to develop or showcase health IT
systems;

4.

Provide meaningful opportunities for interested parties to present theirviews on health IT proposals, policies, and rules; and5.

Ensure that Japan’s work on standards for health IT systems promotes
harmonization with international standards.

Improve Understanding of e-Accessibility Policy. There is an ongoinginternational effort to harmonize IT accessibility policies and their underlying
standards. Under this Initiative, the United States looks forward to continuing
discussions with Japan aimed at facilitating a better understanding of ourrespective work and priorities in the area of e-accessibility. In support of thisgoal, the United States urges Japan to exchange information on current and futuree-accessibility policies and activities between United States and Japanese
Government experts.

Government IT Procurement Reform. The United States is encouraged by Japan’s
efforts to stimulate competition in government IT procurement and make the process
more transparent and fair.
A.

B.

Enforce the Basic Policy. Japan’s “Basic Policy for the Public Procurement ofComputer Systems” (Basic Policy) took effect on July 1, 2007. To improvegovernment IT procurement practices in line with the Basic Policy, the UnitedStates urges Japan to take measures that will help ensure all procuring entities
comply with the Basic Policy, such as through:1.

Specifying plans to enforce compliance with the Basic Policy, including
by announcing details on the conduct and timing of follow-up surveys;
and2.

Conducting follow-up surveys as soon as possible to measure progress
made in implementing the Basic Policy to help determine whether
improvements should be made in the policy or in compliance, and widely
disseminating to the public the results of follow-up surveys.

Improve Communication with the Public. Effective two-way communication
with interested parties about government IT procurement policy andAnnex - 7

implementation is essential to build public trust in the system. The United Statesurges Japan to:

C.

D.

1.

Provide meaningful opportunities for all interested parties, including
foreign and domestic IT vendors, to provide input on the formulation of,and propose changes to government IT procurement policy;

2.

Use the Government of Japan’s online database for IT procurements(http://cyoutatujirei.e-gov.go.jp) to both obtain information from
Ministries on their procurement practices, and to disseminate that
information; and3.

Disclose the extent of use of non-competitive contracts.

Expand the Bayh-Dole System. To achieve the goal, noted in the IP Strategic
Program, to expand and strengthen Japan’s Bayh-Dole system by implementingthat system in all government procurement, the United States urges Japan to:1.

Implement the April 2007 amendment to the Industrial Technology
Enhancement Act to ensure that it is possible for contractors to possess
intellectual property rights concerning software developed throughgovernment-sponsored programs; and2.

Incorporate a model clause in the Basic Policy that defines the rights andresponsibilities of contractors and the government with respect toownership of intellectual property produced through government IT
procurement projects.

Limit Vendor Liability. The United States urges Japan to allow IT vendors tolimit their liability to a level proportionate to the risks they take in government
procurement transactions by:
1.

Ensuring implementation of the Basic Policy’s stipulation that government
procuring authorities will set appropriate limits on, and clearly define,liability in IT government procurement contracts; and2.

Developing guidance, such as model contracts, that help Ministries
understand how to address liability issues in IT procurement contracts.

E.

Promote Competitive Bidding. Reduce the use of sole source contracting in IT
procurements by taking steps such as applying rules on competitive bidding that
now apply only to central government Ministries to independent administrative
legal entities, government-sponsored private companies, and local governments.

F.

Prohibit Backdating. Implement the Basic Policy’s provisions to ensure that
contracts should be swiftly concluded after winning bidders are chosen andcontracts must not be backdated.
Annex - 8

MEDICAL DEVICES AND PHARMACEUTICALSI.

Changes in Japan’s Healthcare System. The United States encourages the Governmentof 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 UnitedStates urges Japan to recognize the long-term benefits of reimbursement pricing thatrewards development of innovative medical devices and drugs as it considers the extent
of medical spending. The United States also urges Japan to take the following actions:A.

Pharmaceuticals.
1.

Continue to allow U.S. industry participation in healthcare reform
discussions with the Japanese Government, such as the GovernmentPrivate Sector Dialogue for Innovative Drug Discovery. Seek views ofinternational experts by appointing a representative of the U.S.-researchbased drug industry to the Drug Pricing Expert Subcommittee of Chuikyo.

2.

Abolish re-pricing based on market expansion, which reduces incentives
for research on additional indications and impedes access to treatments.

3.

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

4.

Provide as an alternative to the current pricing system for new drugs a
flexible method that examines data submitted by manufacturers to ensure
the full scope of a drug’s innovative value can be evaluated and rewarded.

5.

Improve and stabilize economic returns for advanced patented drugs
during their patent life or exclusivity period to reflect accurately their levelof innovation and the financial risks taken to develop them.

6.

Ensure that comparators used in determining reimbursement prices are
selected and applied in a way that accounts for an appropriate valuation of
innovation. Avoid use of certain comparators that fail to value innovation
appropriately.

7.

Enhance transparency by allowing independent experts to lead discussions
with manufacturers on their pricing applications before final discussions
with the Drug Pricing Organization.

8.

Reform use of the Foreign Price Adjustment (FPA) rule to reward
innovation.

Annex - 9B.

9.

Increase the treatment period for new drugs to 30 days per prescription, in
general, and work with industry to develop rules on cases in which drugs
are assigned shorter treatment periods.

10.

Ensure health insurance coverage for medical care and tests that arenecessary for the proper use of drugs.

Medical Devices.
1.

Work with U.S. industry to modify product category groupings for certain
cardiovascular and orthopedic products to more appropriately reflect
product differences, and create new functional categories for new devices
that have certain improved functions over existing devices.

2.

Eliminate the Foreign Average Price (FAP) rule. Until the rule isreplaced, use industry-provided list prices and data only from the four
current comparator countries, refrain from adding functional categories
beyond those used in 2004-2006, maintain the rules on maximum pricereductions, phase-in any cuts over two years, and use weighted averages.

3.

Establish a voluntary process by which companies can request changes inreimbursement prices for devices that companies believe are notreimbursed appropriately due to price revisions.

4.

Create a category of premiums for devices with enhanced benefits such as
greater longevity and shorter recovery time. Adjust the ranges of existingpremiums to match those applied to analogous drug categories.

5.

Expedite the introduction of new devices by letting companies apply forreimbursement during the approval process so such applications will be
discussed at the first Chuikyo experts meeting and the general meeting
following product approval.

6.

Adopt mechanisms to compensate companies for the expense and delay inmarket entry of having to conduct redundant or otherwise unnecessary
clinical trials in Japan.

7.

Provide incentives for adoption of advanced and less invasive diagnostic
imaging techniques that expedite the identification and treatment ofdiseases and other health conditions.

8.

Consult closely with industry, including U.S. industry, on reimbursement
rules for in-vitro diagnostics (IVDs) so progress can be made on testing
fees, “quick testing,” and the use of IVDs between clinical trial andreimbursement approval.

Annex - 10

C.

III.

Blood Products. Allow industry, including U.S. industry, meaningful
opportunities to discuss with the Japanese Government how the current drugbased reimbursement pricing system should be reformed in recognition of theunique qualities of plasma protein therapies. Ensure the pricing system forplasma protein therapies is based on the unique characteristics of those products.

Medical Device and Pharmaceutical Regulatory Reform and Related Issues. The
United States encourages Japan to improve the regulation of medical devices and drugs
so as to facilitate the introduction of such products in Japan, and to focus on preventive
care by promoting access of patients to innovative devices and drugs. The United Statesurges Japan to:A.

Pharmaceuticals. Make it easier for companies to develop drugs in Japan and forJapan’s market by taking the following steps:
1.

Work with industry, including U.S. industry, to facilitate Japan’s
participation in simultaneous global development of drugs.

2.

Improve the environment for clinical trials, such as implementing the new
five-year plan to stimulate clinical trials and, where appropriate,
expanding that plan to include additional facilities; increasing incentives
for patients, hospitals, and doctors to participate in clinical trials; andimproving hospital clinical trial operations.

3.

Ensure industry, including U.S. industry, can participate in the study groupon ethnic factors in clinical data from Japan, South Korea, and China.

4.

Reduce the drug lag by letting industry, including U.S. industry, propose
directly to the Committee on Issues Related to Use of Unapproved
Pharmaceuticals certain drugs that treat serious, life-threatening diseases.

5.

Ensure the Pharmaceuticals and Medical Devices Agency (PMDA)
maintains a dialogue with industry, including U.S. industry, on user feesand performance metrics, which leads to better consultations and reviews.

6.

Implement expeditiously the planned increase in PMDA drug reviewers
for FY2007-2009. Allow reviewers newly hired from the drug industry toreview applications pertaining to their areas of expertise.

7.

Reduce PMDA review times for post-approval manufacturing changes tolevels similar to those of the United States and European Union.

8.

Reduce the processing time for new drug applications before final
approval by the Ministry of Health, Labor and Welfare (MHLW).

9.

Improve regulatory reviews and promote the use of vaccines.

Annex - 11

B.

Medical Devices. Make it easier for companies to develop medical devices inJapan and for Japan’s market by taking the following steps:
1.

Speed approvals and reduce requirements for “partial changes” by:a.

Clarifying which “minor changes” do not require regulatory
approval, which may be submitted by notification only, and which
may simply be recorded in an annual report.

b.

Implementing a “real-time review” process for changes that are
more significant and that require prior review and approval.

c.

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

2.

Use accelerated stability test data for device approvals where accelerated
testing methods are validated in scientific literature or other adequate
scientific support, and accept real-time stability test data frommanufacturers upon completion of the real-time testing.

3.

Ensure PMDA consults closely with industry, including U.S. industry, todevelop improved performance goals for the next five-year plan and to
identify measures to ensure it achieves the goals. Refrain from adjustinguser fees without agreement by industry, including U.S. industry.

4.

Protect from public disclosure business confidential information containedin product approval submissions.

5.

Reduce requirements for raw material data by eliminating the requirement
to specify the chemical composition of raw materials; requiring disclosureof information on device components only when information on the
biological safety of the finished device is not adequate to determine theproduct’s safety; and ensuring Japan’s requirements for biocompatibility
testing are fully consistent with ISO 10993.

6.

Adopt a system for simple registration of foreign manufacturing facilities
in harmonization with international practices in lieu of the current
accreditation system.

7.

Adopt quality management system (QMS) conformity assessments that are
specific to factories rather than to products.

8.

Streamline the approval of IVDs by eliminating the pre-approvalevaluation of IVDs by the National Institute of Infectious Diseases,
reducing from two to one the predicate devices for which comparison isrequired, accepting actual product specifications, and developing
simplified stability test requirements in consultation with industry.
Annex - 12

IV.

Blood Products
A.

Provide industry, including U.S. industry, with meaningful opportunities todiscuss the labeling requirements of kenketsu and hikenketsu.

B.

Provide industry, including U.S. industry, with meaningful opportunities todiscuss supply and demand issues, as well as other regulatory matters, such as thenational assay.

V.

Over-the-Counter Medicines. Provide industry, including U.S. industry, withmeaningful opportunities to consult with MHLW regarding over-the-counter medicines.

VI.

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

B.

C.

Regulatory Categories and Claims.
1.

Create a new regulatory category for foods that would allow ingredientspecific claims for nutritional supplements that could be used on labels,
advertising, and promotional materials.

2.

Review and revise potency limits for items in the Foods with Nutrient
Function Claims (FNFC) category based on scientific risk assessment.

3.

Liberalize the Foods for Specified Health Uses (FOSHU) category to
make the framework practical for nutritional supplements products.

4.

Work with industry to establish and implement by the end of FY2007 asystem to provide information from the National Institute of Health andNutrition’s database to consumers as recommended by the Office of Tradeand Investment Ombudsman.

Health Food Safety Regulations.
1.

Provide meaningful opportunities for input to industry, including U.S.
industry, during the development of regulations related to the safety ofhealth foods, such as opportunities to participate as members ofgovernment-sponsored study groups or panels.

2.

Consider developing a regulatory framework for companies to introduce
new ingredients for nutritional supplements that ensures safety while
being practical and timely with consideration of best practices from otherindustrialized nations.

Food Additives.
1.

Shorten the processing time for the approval of new food additives,
Annex - 13

particularly those evaluated by the Joint FAO/WHO Expert Committee on
Food Additives (JECFA), by taking steps such as clarifying the materials
required for an application and improving efficiency in the approval
process.
2.

D.

VII.

Revise in a timely manner the standards of use for food additives using
scientific principles and reflecting advances in analytical techniques andtechnology.

Import Issues.
1.

Continue to make the food import process more efficient by improving thesystem of tracking prior consultations and instructions completed bycompanies at quarantine stations.

2.

Limit the disclosure of proprietary information on import declaration
forms.

3.

Address other long-standing concerns related to the import of nutritional
supplement products.

Cosmetics and Quasi-Drugs. The United States urges Japan to:A.

B.

Quasi-Drugs. Increase the transparency and efficiency of the quasi-drug approval
process by:
1.

Publishing a list of active ingredients including their levels and efficacies
that have been approved in previous quasi-drug applications and updating
this list regularly.

2.

Publishing a list of additives (inactive ingredients) including their levels
that have been approved in previous quasi-drug applications and updating
this list regularly.

3.

Relaxing pre-approval requirements for additives (inactive ingredients) tobe consistent with regulatory frameworks in other industrialized nations.

Advertising and Labeling. Enable Japanese consumers to make more informed
decisions by:
1.

Allowing additional claims for cosmetics that are within the scope ofcurrently approved claims and that are supported by scientific data.

2.

Allowing numerical claims for quasi-drugs and cosmetics based on
significant and verifiable scientific data.

Annex - 14

C.

Other Transparency and Regulatory Issues. Improve the transparency andefficiency of the quasi-drug and cosmetic regulatory systems by:1.

Working with industry, including U.S. industry, to develop a system todisclose the outcome of meetings of the Local Advertisement Controllers’Meeting (Rokushakyo), such as through issuing a monitoring report.

2.

Continuing to work with industry, including U.S. industry, to ensure that
product standards are both safe and practical and setting specific timeframes for the review process of product standard revisions so thatcompanies can plan for changes.

3.

Streamlining import and approval paperwork and procedures for quasidrugs and cosmetics to reduce lead time to market.

4.

Continuing to improve MHLW’s web site to include more information for
consumers and industry on the quasi-drugs and cosmetics regulatory
systems in an easily accessible location.

Annex - 15

FINANCIAL SERVICES
I.

Specific Measures. The United States commends the Government of Japan for adopting
a commitment in its 2007 Basic Policies to develop, by the end of 2007, a “Plan for
Enhancing the Competitiveness of Financial and Capital Markets.” The United States
believes that competitive financial and capital markets are a key element contributing tosustained economic growth, efficient capital allocation, job creation, and innovation. The
United States encourages Japan to adopt measures necessary to become a global financial
center, including measures beyond the financial services sector such as in the areas of tax,
labor, healthcare, education, and transportation infrastructure. The United States calls on
Japan to continue its recent progress on regulatory reform in the financial services sector
by adopting the following measures:
A.

Legal and Regulatory Framework for a Comprehensive Credit Bureau System.
Building on the revision of the Money Lending Business Law, create andimplement a comprehensive consumer and small business credit information
system, covering all sectors of financial services. In order to promote soundcredit underwriting, deter excessive lending and improve consumer welfare andcompetitive credit markets, it is essential to create an effective regulatory
framework that enables the collection of, and provide access to, comprehensive
full-file credit information.

B.

Firewalls. The Financial Services Agency (FSA) has begun to assess the impactthat current legal and regulatory provisions on firewalls have on financial services
companies, including foreign financial institutions, taking into accountdevelopments in this area in other major financial markets. Foreign financial
institutions are impacted significantly by various firewalls regarding the sharing
of information and personnel between business units and/or legal entities and thatsuch firewalls often render exceedingly difficult the importation of global bestpractices to Japan’s financial services industry. As a result, the United Statesrecommends that the FSA identify and define the scope of required firewalls
through written guidance and continue an active dialogue with foreign financial
institutions regarding appropriate revisions to the current firewalls regime,
including the Financial Instruments and Exchange Law and the Personal
Information Protection Law.

C.

Regulation of Financial Conglomerates. The U.S. Government welcomes the
FSA’s acknowledgement in the 6th Report to the Leaders that regulation of
conglomerates, including permissible management structures and the ability toshare information across group companies for prudential risk management andimproved customer service, are relevant to Japan’s efforts to increase its
competitiveness as an international financial center. As such, the United Statesrecommends that the FSA continue to consult with interested parties, including
foreign financial firms, regarding the implementation of the Conglomerate
Guidelines.

Annex - 16

D.

Defined Contribution Pensions. In recognition of the importance of, and the valueof improving, the national defined contribution pension system in terms of
securing income for the elderly, labor mobility, and investment education, theUnited States encourages Japan to continue its efforts to improve the defined
contribution pension system. Specifically, the United States recommends thatJapan:
1.

Increase the tax-deductible contribution limits to comparable global levels;

2.

Allow employee contributions;3.

Allow early access to funds before the age of 60 in specific circumstances;

4.

Allow investment advice service to be made available to participants; and5.

Introduce a defined contribution pension scheme for public sector
employees.

E.

Harmonize the Regulatory Framework for Investment Advisory Services andInvestment Trusts. Consistent with the basic philosophy of the Financial
Instruments and Exchange Law to provide a comprehensive and consistent
regulatory regime across financial products and services, the United Statesrecommends that Japan continue to provide necessary encouragement toward therealization of true harmonization between the regulatory environment ofinvestment advisory and investment trust management businesses level, including
the integration of the self-regulatory associations governing these two businesses.

F.

Merger and Termination of Investment Trusts. The United States recommends
that Japan establish standards and clear procedures for mergers and reduce
obstacles to the early termination of investment trusts in order to permit
investment managers to provide suitable levels of diversification within
investment trust portfolios and to minimize costs to investors.

G.

Materiality Standard in Net Asset Value (NAV) Calculations. The United Statesrecommends that Japan encourage the establishment of clear and reasonable“materiality” standards comparable to levels in leading investment management
jurisdictions that define when net asset values of Japan-domiciled funds must berecalculated and when compensation may or must be paid to investors in suchfunds.

H.

Institutional Investor Disclosure Rules for Large Shareholdings. The UnitedStates recommends that Japan review the revisions to institutional investor
disclosure rules for large shareholdings (shareholdings in excess of 5 percent) as
they apply to portfolio institutional investors, particularly with regard to reducing
the frequency of required reporting, easing administrative burdens (including
through technological improvements) and reducing the scope for leakage ofproprietary data and related speculative activity.

Annex - 17

I.

II.

Global Custody. The United States recommends that Japan clarify thecharacterization of global custody business under the Financial Instruments andExchanges Law so as to provide consistency of the regulatory approach to thisbusiness.

Transparency
A.

The United States welcomes the FSA’s efforts to expand the body of published
written interpretations of Japan’s financial laws, including the improvements tothe no-action letter system that were implemented during the past year, andcommends the outreach efforts of the FSA to explain to and engage in dialogue
with the private sector regarding these changes. Written interpretations reduce
uncertainty, enhance compliance and allow for productive innovation by financial
services providers. The United States encourages the FSA to continue to enhancethe effectiveness of written interpretation, including the no-action letter andrelated systems, including to:1.

Encourage 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.

2.

Make 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 and may include requests for clarification oflaws and regulations governing existing products and services. Althoughnon-binding, such letters would promote consistent understanding amongmarket participants of current FSA views on existing laws, regulations andguidelines. Specifically, the United States recommends that Japan use theinterpretive letter system to:a.

Provide written interpretations on issues about which FSA officials
have received informal oral inquiries and about which there may
be some misinterpretation; andb.

Publish negative responses to no-action letter requests.

B.

Publish “frequently asked questions” on FSA’s website as was done regarding theimplementation of Basel II for a wider variety of topics, including theimplementation of the Financial Instruments and Exchanges Law.

C.

Establish other means to provide written interpretations of Japan’s financial lawseven when an interpretation has not been formally requested. Possible models
include the Securities and Exchange Commission’s (SEC) “telephoneinterpretations” web page and its “Staff Legal Bulletin” and “Staff Accounting
Bulletin” systems.
Annex - 18

D.

A transparent and predictable rule interpretation and inspection process is criticalto sound development of financial markets and to the appropriate balance among
consistency, innovation and consumer and investor 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,
inspection manuals and administrative action criteria. Consistent with the FSA’s
efforts to promote “better regulation”, the United States encourages the FSA to
consult with foreign financial institutions and financial sector industry
associations regarding concerns or potential improvements related to theinspection process, recognizing the sensitivities that individual companies may
have regarding disclosure of company-specific inspection experiences.

E.

The United States welcomes the efforts of the FSA and encourages continued
dialogue in the coming months among the FSA, the Financial System Council,
foreign and domestic financial firms and other interested parties as the “Plan for
Enhancing the Competitiveness of Financial and Capital Markets” is developedand implemented. Seeking early input from the private sector, including foreign
firms, in the process of drafting laws and regulations and having extended publiccomments periods for complex changes in the regulatory framework reduces therisk of adverse unintended consequences of financial laws and regulations.

Annex - 19

COMPETITION POLICY
I.

Improving Antimonopoly Compliance and Deterrence
A.

B.

C.

Strengthen Administrative Sanctions on Hard Core Cartel Violations. In
accordance with the recommendation of the Advisory Panel on Basic Issues
Regarding the Antimonopoly Act (AMA Advisory Panel) that Japan ensure thatadministrative fines are set at a level that deprives enterprises “of a motivation to
engage in a violation” of the AMA:
1.

Increase the base surcharge level for cartel and bid rigging behavior to atleast 15 percent of sales attributable to the unlawful practices;2.

Provide an aggravating factor adjustment to the surcharge rate that results
in a significantly higher surcharge than the base rate for firms that play aleading role in such violations; and3.

Extend the current three-year statute of limitations for the application ofcease and desist orders and surcharge payment orders to five years fromthe date of the last unlawful act.

Promote Active Use of the Leniency Program. The Japan Fair Trade
Commission’s (JFTC’s) Leniency Program has been highly successful since its
implementation in 2006. In order to enhance its effectiveness:
1.

Treat as a single leniency applicant all companies that are majority-ownedby the leniency applicant and, where appropriate, the parent of theleniency applicant; and2.

Ensure that any new reductions in the surcharge rate for companies thatcooperate with JFTC investigations do not undermine the incentives forenterprises to participate in the Leniency Program.

Increase Deterrence through Criminal Enforcement. Criminal enforcement ofhard-core AMA violations is a crucial component of an effective antimonopoly
deterrence system. In order to ensure effective deterrence against hard corecartels:1.

Maintain the current system of allowing the imposition of both criminal
penalties and administrative sanctions against firms that engage in cartel
and bid rigging activities;

2.

Extend the current three-year statute of limitations for criminal violationsof the AMA for cartel activities to five years; andAnnex - 20

3.

D.

E.

F.

Seek to increase significantly the number of cartel and bid rigging cases
referred to the public prosecutor’s office for criminal prosecution,
including with respect to international cartel activities.

Minimize Unintended Deterrence of Procompetitive Unilateral Conduct. The
possibility of significant monetary sanctions against conduct whose lawfulness
cannot easily be ascertained in advance may deter enterprises from engaging inprocompetitive unilateral conduct. In order to minimize over-deterrence of
procompetitive unilateral conduct:
1.

Maintain the current system of remedying unfair trade practices andexclusionary practices that constitute private monopolization through theimposition solely of cease-and-desist orders; and2.

If Japan nonetheless decides to extend surcharges to exclusionary
monopolization practices and/or certain unfair trade practices, create a
new discretionary surcharge system with flexible surcharge rates that takes
into account, among other factors: (a) the difficulty enterprises may havein distinguishing lawful unilateral conduct from unlawful anticompetitive
behavior, (b) the seriousness and extent of the violation, and (c) the degreeof harm to consumer welfare.

Review AMA Exemptions. Competition in Japan’s markets can be enhanced byreviewing and seeking to limit or eliminate remaining AMA exemptions. To
further expand the coverage of the AMA:
1.

Follow the lead of the European Union, Australia and the United States ineliminating specific antimonopoly exemptions in the international aviation
sector; and2.

Complete by the end of JFY 2007 a Ministry of Land, Infrastructure andTransport (MLIT) study of the continued necessity of an antimonopoly
exemption in the field of international shipping, with a view towardeliminating or limiting that exemption.

Provide Guidance on AMA Compliance. Clear and transparent JFTC
enforcement policies that reflect the best economic and legal understanding ofsound competition law enforcement will facilitate AMA compliance and ensurethat procompetitive conduct is not chilled. The United States recommends that,toward that end, JFTC in particular review and revise its 1991 Distribution andBusiness Practices Guidelines to reflect current economic understanding of theworkings of the market, including by substantially increasing the market sharesafe harbors for vertical restrictions.

Annex - 21

G.

H.

I.

II.

Improve Pre-Merger Notification Procedures.
1.

Eliminate the post-stock acquisition notification requirements under the
AMA and adopt a system in which mergers and stock acquisitions are, in
principle, treated the same for purposes of pre-transaction notification
obligations; and2.

Ensure that any revisions to notification thresholds applicable to foreign
enterprises are consistent with International Competition Network
Recommended Practices and the 2005 OECD Recommendation of theCouncil on Merger Review.

Promote Competition in Sectors Undergoing Privatization. With the October 1,
2007 establishment of the new postal corporations, it is essential that theprivatization process is undertaken in a manner that promotes effective
competition in the relevant markets. In order to further that objective:
1.

Ensure that the Privatization Commission and relevant supervisoryagencies seek and consider views, including those of the JFTC, regarding
competition policy aspects of the privatization process and regarding theoperations of the new postal entities; and2.

Based on careful monitoring by JFTC of the conduct of Japan Post and thenew postal entities from the standpoint of ensuring competitive markets,
ensure that such companies fully comply with the AMA, including
through vigorous enforcement measures if such companies are found tohave engaged in practices that violate the AMA.

Strengthen JFTC Staff and Resources. Continue steady and substantial increases
in the staff and budget of JFTC, with priority given to hiring additional outside
legal professionals as hearing examiners as well as staff with post-graduate
economics degrees.

Improving Fairness and Transparency of JFTC Administrative and Investigatory
Procedures
A.

Enhancing the Credibility and Transparency of Hearing Procedures. The AMA
Advisory Panel concluded that in order to maintain the current ex-post hearing
procedure system, “the credibility and transparency of the administrative hearing
procedures needs to be enhanced.” In order to assure the public and business
community that JFTC hearing procedures are fair and impartial:
1.

Lengthen significantly the minimum two-week period after JFTC’s
advance notification of a draft cease and desist order or surcharge payment
order to the proposed recipient during which the proposed recipient may
review the evidence against it and submit its views and evidence to JFTC
before the order is issued;
Annex - 22

III.

2.

In accordance with the AMA Advisory Panel’s recommendation that
JFTC establish a minimum quota for hearing examiners who are outside
legal professionals, increase the number of hearing examiners that areoutside legal professionals with the goal of ensuring that a majority ofmembers of multiple hearing examiner panels for any given case areoutside legal professionals; and3.

Strengthen JFTC conflict of interest rules to exclude persons with ties tothe respondent or to any other person or entity affected by theproceedings, with a financial interest in the outcome of a particular case,or with any other conflict of interest, from acting as a hearing examiner inthat case.

B.

Clarify Conditions Necessary to Return to Ex-Ante Hearing System. Based on
the conclusions of the AMA Advisory Panel that JFTC should adopt an ex-anteadministrative hearing procedure system once certain conditions are met,
publicly-release a document that states the conditions that need to be met, thereasons for those conditions and the process that JFTC intends to follow to create
the conditions that would allow an ex-ante administrative hearing proceduresystem to be implemented by JFTC.

C.

Improve Regulations Governing the Issuance of Warnings. In accordance with therecommendations of the AMA Advisory Panel, improve regulations governing thestandards and procedures that JFTC will use before it issues warnings, and for
publicizing the name of warning recipient, with the goal of adequately responding
to due process concerns with the current procedure.

D.

Recognize Attorney-Client Privilege. Initiate a study of the treatment of attorneyclient privileged materials by other major competition enforcement authorities,
with the view to revising JFTC hearing and investigation procedures to beconsistent with good international practice in this area.

Addressing Bid Rigging
A.

Strengthen Penalties Against Bid Rigging. In order to deter bid rigging
violations:
1.

Increase the standard minimum period of suspension from bidding for all
enterprises determined to have engaged in bid rigging to six months, withhigher minimums for enterprises that fall within special categories (e.g.
violated written oaths, are ring-leaders, etc.) and ensure that thesuspensions apply on a nationwide basis; and2.

Ban individuals who engaged in bid rigging activities from taking part incompetitive bidding for up to three years.

Annex - 23

B.

Prevent Conflicts of Interests in Procurement. In order to ensure that conflicts ofinterests do not facilitate bid rigging, strengthen rules against conflicts of interests
by government officials, includes rules prohibiting officials for an appropriate
period of time from communicating with their former agencies, or from accepting
employment with companies that have received contracts from their former
agencies, and increase penalties against officials and companies violating suchrules.

C.

Bolster Efforts to Eliminate Government-Assisted Bid Rigging. In order toincrease the awareness of the business sector, government officials and the public
about measures to eliminate government-assisted bid rigging:

D.

E.

1.

Make public any demands made by JFTC to central government agencies,
public corporations or local government entities for improvement
measures to prevent the recurrence of government-assisted bid rigging, as
well as the specific improvement measures implemented by such entities;
and2.

Apply heavy sanctions on government officials who facilitate bid rigging,and disclose information on the number of officials from central
government agencies, public corporations and local government entities
who have received sanctions for facilitating bid rigging activities, and on
the sanctions imposed on each such official.

Expand Administrative Leniency Programs.
1.

Promote adoption by all central government agencies, public corporations
and local government entities of administrative leniency programs thatsignificantly or proportionately reduce the period of suspension frombidding for companies admitted into JFTC’s Leniency Program; and2.

Publish by the end of JFY 2007 the results of the survey regarding
implementation of the May 23, 2006 Cabinet decision revising “The
Guiding Principles concerning Measures to Promote Proper Tendering andContracting for Public Works,” including the list of central government
agencies, public corporations and local government entities that haveadopted an administrative leniency program.

Hinder Bid Rigging by Improving Procurement Practices.
1.

Expand the use by central government agencies, public corporations andlocal government entities of the Overall Greatest Value Method forawarding contracts;2.

In furtherance of the March 2007 request of MLIT and the Ministry ofInternal Affairs and Communication to local governments to takemeasures to promote proper tendering and contracting for public works,
Annex - 24

including by expanding the general open bidding system, installingelectronic bidding systems and publishing bid contract-related
information, survey local governments concerning whether these measures
have been implemented, and publish the results, on a local government bylocal government basis, by March 2008;
3.

Encourage local governments to establish “whistle blower” windows forreporting incidents of bid rigging and other improper conduct; and4.

Ensure that eligible bidders on contracts let by local governments andregional offices of central government agencies are not limited to local
companies.

Annex - 25

COMMERCIAL LAW AND LEGAL SYSTEMS REFORM
I.

II.

Promoting Efficient Restructuring and Shareholder ValueA.

Review the Use of Modern Merger Techniques. Despite the introduction in May
2007 of provisions in the Company Law allowing foreign companies to acquire
the shares of Japanese companies through a triangular merger technique, theconditions for deferring the recognition of capital gains on such transactions fortax purposes may be too onerous to permit the effective use of this technique. In
order to determine whether the tax deferral rules unduly impede the ability offoreign investors to use triangular mergers, the United States recommends thatJapan issue a report by August 2008 detailing the frequency with which triangularmerger techniques have been used by foreign companies to merge with Japanesecompanies since May 2007 and, if rarely, measures that Japan will take to addressthat problem.

B.

Protect Shareholder Interests in Anti-Takeover Measures.
1.

Conduct and publish by April 2008 a survey on the adoption of defensive
measures by Japanese corporations to determine whether they areprotecting the interests of shareholders, rather than of management, andare otherwise consistent with the goals and rules of the Tokyo Stock
Exchange (TSE) as well as with the 2005 Takeover Defense Guidelines
issued by the Ministry of Economy, Trade and Industry. Include
recommendations on what additional measures are necessary to ensurethat anti-takeover measures do not harm shareholder interests; and2.

Require that all publicly-traded companies establish a committee
composed of truly independent directors to review and provide their views
and recommendations on any take-over bid (TOB) received by thecompany. Require that the board of directors include in its “position
statement report” the views and recommendations of the committee of
independent directors and, where applicable, the reasons why those views
and recommendations were not adopted by the board.

Strengthening Good Corporate GovernanceA.

Encourage Active and Appropriate Proxy Voting.
1.

Require that at least large publicly-traded companies provide proxymaterials to shareholders a minimum of four weeks before theshareholders meeting;

2.

Clarify the fiduciary duty on pension fund managers to exercise proxyvoting rights solely in the interest of beneficiaries by revising the Ministryof Health, Labor and Welfare’s 1997 and 2002 guidelines on the roles andduties of pension fund managers, and by other means; andAnnex - 26

3.

B.

C.

Establish a clear fiduciary duty on mutual fund and investment trust
managers to evaluate and vote proxies for the benefit of investors in thefund or trust.

Foster Protection of Shareholder Interests through Independent Directors.
1.

Take measures to increase the number of independent directors inpublicly-traded companies by requiring that, by the beginning of JFY
2009, at least all large publicly-traded companies and all publicly-traded
companies with one controlling shareholder have at least two independent
outside directors on their boards;

2.

Ensure that outside directors are truly independent by:a.

Revising the definition of “outside director” in the Company Law
to also exclude, at a minimum, persons who (i) have hadsignificant transactions with the company or are employees ofother companies that have a significant business relationship withthe company, or (ii) have an immediate family member who has
had significant transactions with the company or is an executive
officer in a company that has a significant business relationshipwith the company; andb.

Encouraging the TSE and the other major Japanese stock
exchanges to adopt listing rules or guidelines that define outside
directors in a manner generally consistent with the listing standardsof the New York Stock Exchange or NASDAQ for determining
director independence.

Ensure Sufficient Protection of Minority Shareholders. Reconvene the Corporate
Value Study Group (CVSG) to evaluate and make recommendations aimed atensuring that minority shareholder interests are sufficiently protected. In thatregard, direct the CVSG to:
1.

Examine the protection of minority rights in the context of managementbuy-outs and take-over bids, as well as the usefulness of requiring bidders
to disclose third party fairness and valuation opinions to the public inorder to assure objective valuation and support of the offered price;2.

Determine the adequacy of existing rules and procedures that serve toprotect investment value before it has been lost;3.

Evaluate the adequacy of fiduciary and other legal duties on controllingshareholders, particularly with regard to related party transactions between
a controlling shareholder and the company, and to ensuring a fair priceand fair dealing in minority squeeze-out situations; andAnnex - 27

4.

III.

IV.

Include both foreign and domestic investors as members, and provide anactive role for Company Law experts at the Ministry of Justice.

Protecting Foreign Firms Legitimately Doing Business in JapanA.

Adopt Redomestication Procedures. Amend the Company Law to create a simple
procedure for a foreign company to merge or convert into a Japanese corporation,and ensure that the Japanese tax consequences of such redomestications do not
unduly impede the ability of foreign companies to use these procedures.

B.

Monitor Effects of Article 821. Continue to watch closely the effects on foreigncompanies of Article 821 of the Company Law and amend that provision if
necessary to prevent adverse effects on the legitimate operation of foreigncompanies in Japan.

Achieving Legal System ReformA.

Permit Professional Corporations and Branching.
1.

Permit registered foreign lawyers in Japan (gaiben) to form professional
corporations on the same basis and with the same benefits, including theability to establish branch offices, as professional corporations forJapanese lawyers (bengoshi); and2.

Allow all law firms, including foreign law firms and their bengoshi andgaiben partners in Japan, to establish multiple branch offices in Japan
without regard to whether they have formed a professional corporation.

B.

Allow Bengoshi to Associate Freely with International Legal Partnerships.
Ensure that there are no legal or bar association rule impediments to Japaneselawyers, whether in solo practice, in partnership with other bengoshi or inpartnership with gaiben, becoming members of an international partnership oflawyers outside of Japan.

C.

Revise Minimum Qualification Criteria for Gaiben. Amend the Gaiben Law sothat all experience practicing the law of the home jurisdiction, wherever thatexperience was obtained, will be counted toward the three-year experience
requirement for qualification as a gaiben.

D.

Promote Alternative Dispute Resolution (ADR). Amend the Gaiben Law to
explicitly permit gaiben to act as neutrals and to represent parties in all
international ADR proceedings taking place in Japan.

Annex - 28

TRANSPARENCY
I.

Public Input into Policy Development – Advisory Groups. The United States believes
that the Japanese Government’s assurance of the openness and transparency of alladvisory councils (shingikai) and other government-commissioned study groups that arecommenting or making recommendations on policy and regulatory matters is necessary
to ensure that the views of interested parties are reflected in their deliberations. The
United States continues to urge Japan to supplement the general guidance for advisorygroups outlined in an April 1999 Cabinet Decision with specific requirements that would
ensure basic transparency standards in the creation and management of all advisory
councils and study groups. Specifically, the United States recommends that Japan:
A.

B.

C.

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.

Continue to develop a centralized, publicly accessible electronic list ofadvisory groups and their members; and3.

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

Issue guidelines that require related Ministries and Agencies to provide interested
parties the opportunity to provide input into the deliberations andrecommendations of advisory groups, including by:
1.

Ensuring that all interested parties have the opportunity to participate insuch groups to the maximum appropriate extent;

2.

Providing ample and meaningful opportunities for all interested parties toprovide input into policy formulation throughout the deliberations by suchgroups; and3.

Providing ample advance public notice prior to council and groupmeetings to enable interested parties to prepare for and attend discussions.

In addition to improving the specific requirements and responsibilities governing
the operation of government-appointed advisory groups as outlined above, theUnited States recommends that Japan, on a centralized basis, develop before theend of 2008 a guide of best practices on ensuring advisory group transparency andactively promote their use in all Japanese Government ministries and agencies.

Public Comments. As Japan implements its Public Comment Procedure (PCP), theUnited States strongly encourages Japan to monitor the impact of the Administrative
Procedure Law and take new steps to enhance the effectiveness of the system.
Annex - 29

A.

In order to improve the current PCP system, the United States recommends thatJapan:
1.

Provide adequate public comment periods (30 days minimum, 60 days inprinciple). In cases where an urgent need for a shorter period exists, clear
written explanations should be provided;

2.

Make proposed regulations public at the earliest possible time to allow
interested parties sufficient time to analyze issues and prepare meaningful
public comments;

3.

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

Respond to submitted comments in a timely, meaningful manner.

B.

The United States recommends that the Japanese Government continue to conduct
surveys of the implementation of the PCP and issue guidance on its
implementation. The United States also recommends that Japan undertake athorough evaluation of the effectiveness of changes in the Administrative
Procedure Law related to the PCP, publicly report the findings of that evaluation,and provide opportunities for public input on these findings.

C.

The United States recommends that Japan’s Ministries and Agencies, although
not required under Japan’s Administrative Procedure Law, provide greater
opportunities for interested parties to be aware of and comment on draft
legislation in the early stages of its formation.

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 recommends that Japan require Ministries and Agencies to make publictheir regulations and any statements of policy or generally applicable interpretations of
those regulations. The Unites States also urges Japan to promote the use of plain
language when drafting regulations to prevent arbitrary and inconsistent interpretation.

IV.

Strengthen U.S.-Japan Cooperation to Promote High Standard Transparency
Practices. The United States recommends that our Governments continue to intensify
our cooperation to raise transparency standards in the Asia-Pacific to improve investment
and business environments throughout the region, including by jointly promoting theimplementation of the APEC Transparency Standards and the use of APEC transparencymodel measures as reference for future trade agreements.

Annex - 30

V.

Foreign Translations of Japanese Laws. The United States encourages Japan tocontinue with its program of translating into English its laws of greatest interest and, as it
does so, continue to closely consult with the foreign business community.

VI.

Implementation of Rulemaking. The United States recommends that Japan ensure thatits Ministries and Agencies ensure the implementation of a reasonable delay ineffectiveness of regulations (at least 30 days) to allow regulated entities a fair opportunity
to come into compliance with the new regulation. The United States also recommends
that any clarifying documents, such as implementing guidelines or regulations, be madeavailable as soon as possible after the publication of regulations.

Annex - 31

OTHER GOVERNMENT PRACTICESI.

II.

Bank Sales of InsuranceA.

After monitoring the effectiveness of these safeguards until December 2007, theFinancial Services Agency (FSA) in September 2007 found no significant
problems with bank’s insurance sales practices and plans to fully deregulate thebank sales channel as scheduled in December 2007. The United States welcomes
this finding and urges Japan to fully liberalize the bank sales channel for the fullrange of insurance products without delay as scheduled in December 2007,
consistent with the Financial System Council’s recommendation.

B.

The United States welcomes Japan’s commitment that it will review, and if
necessary revise, the 10 million yen ceiling on third sector insurance products that
smaller banks may sell to related companies prior to full liberalization in
December 2007. The United States requests that Japan eliminate the 10 million
yen ceiling on first and third sector insurance products in order to eliminate an
unfair disadvantage to first and third sector insurance service suppliers.

C.

The United States also recommends that Japan review and revise, as necessary,
restrictions on the use of certain “non-public financial information” of bankcustomers such as customer deposits and loan balances to enable bank agents toreview these in advance, consistent with their sales of other financial services
products, to help ensure among other things that insurance products offered aresuitable to customers.

D.

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, sales method orservices supplier over another. The United States requests that Japan continue toensure 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
Annex - 32their conformity with Financial Services Agency (FSA) standards of supervision
for private insurance service suppliers.
B.

III.

IV.

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). The amended Insurance Business Law,
which came into effect on April 1, 2006, stipulates that the system regarding PPC’s
financial resources will be reviewed within three years. As Japan begins preparations toreview the Life and Non-Life Policyholder Protection Corporations, the United Statesrecommends 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 Japan:
A.

Prepare related draft legislation and other measures in a transparent manner,
including via access to deliberations by advisory groups and via public comment
procedures.

B.

Adopt measures to ensure that the PPC is used as a last resort, including through ashift to a post-funding system, to help ensure that a more efficient, sustainablesafety net system is created before the current system expires.

Domestication of Foreign Insurance Operations. The United States requests Japan totake the necessary measures so that foreign incorporated insurance companies operating
branches in Japan who wish to transfer their businesses to a Japan-incorporated entity,
have a procedure whereby transfer of their businesses can be made in a seamless way that
protects policyholders and other creditors and maintains the continuity of the business.
Specifically, the United States request that Japan:
A.

Revise the Insurance Business Law’s portfolio and business transfer provisions to:1.

Create a system to permit “overnight” reorganization by eliminating or
creating exceptions to the sales blackout rule, and ensure that any
revisions to the Company Law to permit redomestications are recognizedby the Insurance Business Law;

2.

Establish statutory disclosure, notice and deemed approval procedure withall creditors analogous to procedures permitted in merger and spin-off byJapanese insurers;
Annex - 33

B.

V.

3.

Allow the transferee entity to assume all assets and liabilities of thetransferring entity in transactions approved by FSA and creditors; and4.

Permit a “deemed license” (minashi menkyo) assumption of regulatory
licenses and approvals on condition that the transferee entity candemonstrate in the FSA review of the transaction that it will satisfy thesame conditions and business methods after the transfer’s completion.

Ensure that the tax treatment of de-mutualization, domestication, consolidation, ortransfer of a foreign insurance company’s business within Japan is roughly
equivalent and does not unduly impede the ability of foreign insurance companies
to use these procedures.

Consular Issues
A.

Re-entry Permits. Japanese law requires all foreign residents to obtain "re-entry
permits" prior to traveling outside of Japan, regardless of the length of time thetraveler intends to spend abroad. Failure to obtain the permit can cause visaholders to lose their status as residents once they depart Japan. Obtaining a reentry permit is a burdensome requirement in terms of cost and convenience,
particularly in the event of last-minute travel obligations for foreign businesspersons and other residents in Japan. The United States therefore encourages
Japan to take steps to change immigration regulations so as to require re-entry
permits only for trips outside Japan that are of particularly long duration, such as
those lasting a year or longer.

B.

Domestic Employee Visas. American citizens living in Japan complain that there
are unreasonable restrictions on the visa issuances of business executives'
personal/domestic employees. The United States requests that Japan give due
consideration to such concerns within the foreign resident community and workwherever possible to find solutions to improve the situation.

VI.

Special Zones for Regulatory Reform. The United States recommends that Japanfurther expand the Special Zones for Structural Reform program, including by allowing
for-profit healthcare companies to operate in Special Zones providing full-service
medical offerings. The United States furthermore urges Japan to continue transparent
administration of the system and seek greater application of Zone measures nation-wide.

VII.

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:

Annex - 34

A.

Apply science-based standards to assess the safety of production substances usedon organic crops and to modify the current pesticide residue policy with the goalof enhancing organic trade.

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.

Complete the review of 20 food additives that are recognized as safe by Joint
FAO/WHO Evaluation Committee on Food Additives and used throughout theworld. Twenty-six additives were approved in the past year, but a number of foodadditives remain.

D.

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

E.

Accelerate bilateral work already underway to implement a plant quarantine
system that harmonizes the classification of plant pests and diseases based on theInternational Plant Protection Convention standards for official control and risk
analysis.

Annex - 35

PRIVATIZATIONI.

Privatization of Public Corporations. As Japan implements the restructuring andprivatization 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 by ensuring domestic and foreign
private sector entities are given meaningful opportunities to provide input and express
views on matters affecting the market.

II.

Japan Post Reforms. The United States recognizes the potential benefits for theJapanese economy of a market-oriented reform of Japan Post which, if implemented
vigorously, should stimulate competition and lead to a more productive use of resources.
The implementation of a fully market-oriented reform is also necessary to eliminate
long-standing advantages that the postal institutions have 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 all necessary
measures are taken to ensure the legislation’s principle of establishing equivalentconditions of competition between the new Japan Post entities 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 Japan Post
Bank and Japan Post Insurance, from the outset of the privatization process in
October 2007, will cease offering products that carry government guarantees andwill be required to meet the same tax, legal, and regulatory obligations and, alongwith Japan Post Holdings, be subject to the same supervision and disclosure
standards as private sector companies. The United States is also encouraged by
Japan’s commitment that measures shall be implemented to ensure that theprivatized postal financial institutions, in practice, objectively meet the same
licensing, disclosing and supervisory requirements as private sector financial
institutions. The United States also welcomes confirmation that relationships
among the new postal companies with capital relationships will be ensured on anarms-length basis and that no schemes exist to allow for cross-subsidization (andthus also transfer of risks) between and among the new entities created underrelated laws. As the sole authority over the supervision and inspection of Japan
Post Bank and Japan Post Insurance under the Banking Law and Insurance
Business Law, the Financial Services Agency (FSA) will play a critical role inassuring they develop and exercise effective risk management so as not tojeopardize financial system stability. In addition to fully implementing the abovementioned measures, the United States urges Japan to also take the following
steps to help meet the Japan Post Privatization Law’s aim to achieve equal
conditions of competition between the new Japan Post entities 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 Japan Post Network consistent with industry bestpractices and, consistent with the arms-length rule, ensure that the Japan
Post Holding’s relationships with Japan Post Bank and Japan Post
Annex - 36

Insurance are undertaken on a truly market basis. Furthermore, ensurethat Japan Post Network, including its employees, is and will be subject to
FSA supervision when acting as an agent or intermediary for any financialtransactions such as taking deposits, lending, exchange transaction andselling insurance products.
2.

Deposit and Reinsurance Relationships. With respect to deposit andreinsurance contracts the Incorporated Administrative Agency
Management Organization for Postal Savings Postal Life Insurance(Public Successor Corporation) enters with Japan Post Bank and Japan
Post Insurance, respectively, contain 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 ensure that the Deposit Insurance
Corporation and insurance Policyholder Protection Corporations
will not be liable for pre-existing accounts and contracts;b.

Ensure deposit and reinsurance contracts are on a fully arm’s
length basis and, as such, will not allow for cross-subsidization of
the new postal financial institutions through such arrangements.
With respect to transparency, make public the method used for
determining the reinsurance fees; 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. Including until such time that Japan Post
Holdings is fully divested from its shares of the postal financial
institutions, take meaningful steps to ensure that consumers and themarketplace are aware that products issued from October 2007 will not bebacked by the Government. In addition, prior to expanding the scope ofJapan Post Bank and Japan Post Insurance businesses and on a periodic
basis thereafter, carefully monitor actual sales practices and enforce
related laws to ensure accounts and contracts from October 2007 are notmisrepresented as having a Government guarantee, as well as to ensure thepostal financial institutions do not leverage their relationship with theGovernment to provide them an advantage over their competitors in themarketplace.

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 freeAnnex - 37

competition, transparency and arms-length business practices, effective
enforcement of competition policy and regulatory reform.

B.

5.

Regional Social Contribution Fund. Ensure that 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.

6.

Asset Valuation. Ensure that independent auditors undertake a fullvaluation of the assets, liabilities, and reserves of the Incorporated
Administrative Agency Management Organization for Postal Savings andPostal Life Insurance (Public Successor Corporation), and that thisvaluation is fully disclosed to the public.

7.

Cross-subsidization. To ensure transparency in the independent
operations of Japan Post Holding’s subsidiaries, request that independent
auditors of the subsidiaries report an opinion on the measures put in place
to eliminate cross-subsidization, as well as those measures’ effectiveness.

8.

Ensuring FSA Resources. The United States welcomes news the FSA has
reserved personnel to review the new Japan Post entities’ compliance with
relevant financial laws and regulations and urges Japan to ensure thatsufficient personnel and other resources from among FSA’s regularsupervisory staff are provided so that the FSA can properly regulate thepostal financial entities under all regulations applicable to private sector
firms on a national treatment basis with other market participants.

Conditions of Competition and the Introduction of Products. The United Statesurges Japan to ensure that a level playing field is actually created between the
postal financial institutions and private financial institutions before the postal
financial institutions are permitted to introduce new lending services, new oraltered insurance products underwritten by Japan Post Insurance, and theorigination of non-principal-guaranteed investment products by Japan Post Bank.
The United States welcomes confirmation that the FSA will apply the same
standards as private sector financial institutions to Japan Post Bank and Japan
Post Insurance under the Banking Law and Insurance Business Law whenengaging in sales and distribution of their financial services or insurance products.
The United States also welcomes Postal Services Privatization Commission(PSPC) review of new product applications to ensure that new or altered products
do not create market distortions. Achieving a level playing field also includes
requiring the postal entities to meet objectively on a national treatment basis thesame obligations that other companies must meet, including when introducing
new products or riders. Thus, the United States urges Japan to ensure effective
monitoring and compliance of the postal financial institutions with laws andAnnex - 38

regulations in the same manner as its private sector peers, and that the reform
process and its implementation are consistent with Japan's WTO obligations,particularly the national treatment principle of GATS.
C.

Level Playing Field for Express Carrier Services. The United States continues tourge Japan to take all necessary steps to fully ensure that ‘equivalent conditions ofcompetition,’ as called for under Article 2 of the Japan Post Privatization Law, areestablished between the new Japan Post companies and private express carriercompanies. In this regard, the United States urges Japan to take the following
steps to help create a fully level playing field:
1.

Apply customs clearance procedures for mail and packages handled by
Japan Post Service Company equivalent to those applied to private express
carriers for similar actions. In particular, the United States urges Japan toensure that mail delivered under express mail service (EMS) follows the“duty declaration” system and not the “duty assessment” system thatJapanese regulations currently apply to EMS.

2.

Require Japan Post Service to pay equal costs for customs clearance forsimilar processes, including NACCS charges and the costs for application
document preparation.

3.

Apply all safety and security laws and regulations to Japan Post items inthe same manner as to those carried by private express carriers.

4.

Take all necessary measures to make public disclosures of the Japan Post
Service Company’s business, including transactions involving Japan Post
Holdings and its subsidiaries, sufficient to demonstrate that 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.

5.

Ensure that supervision by the Ministry of Land, Infrastructure andTransport (MLIT) of the new Japan Post entities and their related
operations is undertaken according to the same standards as those applied
to private companies.

6.

Make draft regulations available for public review and implement in atimely fashion final regulations that subject the logistics and postal
services operation of Japan Post Service to the same taxes as private
corporations and make such subject to the same aviation safety andsecurity regulations; and ensure EMS services are governed by MLIT
under the same transportation laws and regulations and, with respect topostal services, supervise related operations according to freighttransportation laws and ordinances.

Annex - 39

D.

Transparency. The United States urges that all necessary measures are taken by
Japan to ensure the implementation of these reforms is fully transparent, including
providing ample opportunity for the views of interested parties to be considered
before final decisions are made. This is particularly important during decisionmaking processes where the final decision may impact the competitiveenvironment and thus the businesses of Japan Post’s private sector competitors inboth the financial services and express delivery sectors. Specifically, the UnitedStated urges the following measures be taken by Japan:
1.

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

2.

Conduct regular (i.e. annual) public reviews of the implementation of theJapan Post reforms, including by providing meaningful opportunities for
all interested parties to express their views on the impact of the reforms onmarkets and on the degree of equivalence of competitive conditions ofcompetition between the new Japan Post entities and the private sector,
and also provide for transparent verification of the compliance of these
entities with the same laws and regulations that currently apply to theprivate sector.

3.

Provide 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;

4.

Seek 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 reforms, and also ensurethat input is fully considered and, where appropriate, incorporated into
draft measures before they are finalized; and5.

Ensure 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 - 40

DISTRIBUTION
I.

Airport Landing and User Fees. The United States urges Japan to improve the businessand tourism climate in Japan and help boost the economy by further reducing landing anduser fees at Narita, Kansai, and Chubu International Airports, which would benefit both
Japanese consumers and industry. Landing fees and other user charges should betransparent both for domestic and international flights and directly related to the costs
associated with the use of airport runways and facilities, consistent with International
Civil Aviation Organization and other relevant guidance.

II.

Airport Expansion and Operation. Both Narita Airport and Haneda Airport are in theprocess of an ambitious set of projects that will expand capacity beginning in 2010.
Japanese and U.S. civil aviation negotiators have agreed to resume talks by the summerof 2008 that will consider, among other issues, market access issues related to thisexpansion of capacity. The process for planning and, at least in the case of Narita,
financing this work has not been fully transparent, and there are concerns that foreign
airlines, including U.S. carriers, have not been given an adequate opportunity to comment
meaningfully in the setting of plans for utilization of the airports once new slots areavailable in 2010. These concerns include the manner in which slots at the two Narita
runways will be managed and the various perimeter and other rules that the Ministry ofLand, Infrastructure and Transport (MLIT) envisages to restrict the use of slots at
Haneda. Although these issues will be addressed in U.S.-Japan Civil Aviation Talks set
to resume by the summer of 2008, the United States urges Japan to:

III.

A.

Ensure that, through a timely and transparent consultative process, non-Japanesecarriers have meaningful opportunities to comment throughout the establishmentof new rules and procedures at both airports; andB.

Support rules and procedures that offer flexibility to carriers and ensure use of the
airports at the highest levels of efficiency, as such decisions will significantly
affect for years to come the options of the traveling public and the movement ofcargo in the Tokyo Metropolitan Area.

Improving Efficiency in Customs Processing. The United States welcomes theGovernment of Japan efforts to formulate an Authorized Economic Operator (AEO)
system in Japan. In this regard, the United States recommends that Japan apply thefollowing measures to customs brokers with good compliance records.
A.

Two-staged Declaration of Import. Introduce a system for customs declaration
whereby the declaration of shipment acceptance is separate from the declarationof tax and duty payment to allow customs officers to work during daytime
business hours only while enabling express carriers to release import items in atimely way outside regular business hours.

Annex - 41

B.

Postmortem Declaration of Exports. Introduce a system to allow customs brokers
to make export declaration after export. The declaration process is available in
the United States and is effective for the necessary speedy process of export due
to the curfew hours of Narita Airport.

C.

Freedom of Selecting Customs Office for Declaration. Customs brokers using
Nippon Automated Cargo Clearance System (NACCS) should be able to declareexpress items at any convenient Customs Office beyond a territory of the Customs
Office, in order to allow shipments to more quickly reach their destination.

D.

Reduction of Overcharge Costs and NACCS Charges. In order to facilitatesmooth and speedy customs declaration processes, the overcharge costs and
NACCS charges should be lowered.

IV.

De Minimis. To follow a global trend toward reducing customs workloads while
maximizing efficiency, the United States recommends that Japan increase the Customs
Law de minimis limit from its current 10,000 yen to a level comparable to the US $200 deminimis, which would equate to a rounded yen amount of 25,000.

V.

Parking for Distribution Vehicles. The United States welcomes assurances that
distribution vehicles, including those carrying Yu-pack and Express Mail Service (EMS)
items, will be treated equally with regard to the enforcement of parking laws and traffic
regulations. In light of the impact of the revised Road Traffic Law (effective June 1,2006), the United States continues to urge Japan, particularly MLIT and the National
Policy Agency (NPA), to take measures that help provide additional parking spaces for
distribution vehicles in urban centers where shortages have appeared through the Law’s
enforcement. The United States therefore recommends that Japan:

VI.

A.

Increase the number of parking spaces and short-duration loading, unloading anddelivery zones on major streets;

B.

Coordinate policies among concerned ministries and local autonomies in order tofacilitate the introduction of local measures to help facilitate distribution activitiesin crowded areas; and.

C.

Ensure equitable application of parking laws for all distribution vehicles in thedense congestion of Tokyo streets.

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. To
measure the actual impact of these new nationwide measures, the United States requests
that Japan undertake fully transparent reviews of the new regulations a timely fashion,
including ensuring that meaningful opportunities to provide input are made available tointerested parties and that the results of these reviews are made public.

Annex - 42