FOURTH REPORT TO THE LEADERS ON THE
U.S.-JAPAN REGULATORY REFORM AND COMPETITION POLICY INITIATIVE
November 2, 2005

President George W. Bush and Prime Minister Junichiro Koizumi established the Regulatory
Reform and Competition Policy Initiative (Regulatory Reform Initiative) in June 2001. Now in
its fourth year, the Initiative is intended to promote economic growth by focusing on sectoral andcross-sectoral issues related to regulatory reform and competition policy.
Consistent with seeking to achieve tangible progress and the principle of two-way dialogue, theGovernments of the United States and Japan exchanged detailed regulatory reform
recommendations in October 2004. These recommendations provided the basis for extensive
discussions between the two Governments for meetings of the High-Level Officials Group andthe Working Groups established under this Initiative. These Groups met throughout the year to
discuss reforms in key sectors and areas such as telecommunications, information technologies,
intellectual property rights, energy, medical devices and pharmaceuticals, competition policy,transparency and other government practices, privatization, legal system reform, commercial law
revision, distribution, consular affairs, and trade and investment-related measures. As inprevious years, several of the Working Groups received input from private sector representatives,
who made presentations and provided their valuable expertise, observations, andrecommendations on important issues taken up under this Initiative.
The Government of Japan has taken a series of regulatory reform measures over the past year,
including the adoption by Cabinet Decision in March 2005 of its revised Three-Year Program for
the Promotion of Regulatory Reform. The Government of the United States welcomes thisdecision and the efforts by the Council for the Promotion of Regulatory Reform to improve theregulatory environment in Japan. The Government of the United States also continues toappreciate the work of the Headquarters for Promotion of Special Zones for Structural Reform topromote deregulation through the Special Zones. In addition, the United States and Japan are
placing a growing focus on cooperating to strengthen intellectual property rights protection andenforcement in the region and around the world. The two Governments affirm theirdetermination to continue to increase this cooperation in bilateral, regional, and multilateral fora.
The salient regulatory reforms and other measures by both Governments that relate to the work
under the Regulatory Reform Initiative are set out in this Report to the Leaders. (Financial
services measures taken up in the Financial Dialogue are also included.) The two Governments
welcome the measures specified in this Report and share the view that these measures will
improve market access for competitive goods and services, enhance consumers’ interests,
increase efficiency, and promote economic activity.
Both Governments reaffirm their determination to further promote regulatory reform and, upon
the request of either government, will meet at mutually convenient times to address the measurescontained in this Report.

REGULATORY REFORM AND OTHER MEASURES BY
THE GOVERNMENT OF JAPANI.

TELECOMMUNICATIONSA.

Promotion of Competition

B.

1.

The Government of Japan has implemented a competition policy in thetelecommunications field in line with rapid advances of technology, and has
thereby facilitated the development of telecommunications markets where
broadband services rank among the fastest, most affordable, and mosttechnologically advanced in the world. In addition, the numbers of subscribers of
third generation mobile phone and that of subscribed IP telephony numbers
exceeded 30 million and 8 million respectively as of March 2005.

2.

The Ministry of Internal Affairs and Communications (MIC) has been conducting
a competition evaluation of various telecommunications markets since FY2003 inorder to accurately understand the status of competition in thetelecommunications market, which is becoming increasingly complex as a resultof the rapid evolution of Internet Protocol (IP) and broadband technologies andservices.

3.

MIC published the result of its evaluation of the “Internet access” market in June
2004 after conducting a public comment procedure. According to this market
evaluation, based on the circumstances including the current regulatory regime,
there has not been any concern about the exercise of market power by either asingle carrier or collusive plural carriers in ADSL and FTTH on detached housing
and collective housing markets.

4.

This year, MIC reevaluated several broadband services such as ADSL, FTTH andcable TV internet services in the area of “Internet access,” and newly evaluated IP
telephony market (a major form of application of broadband services) and mobile
communications markets (including the cellular phone market, which is composedof three company groups). MIC published the result of the evaluation in July
2005 after conducting public comment procedures.

Fixed Interconnection
1.

The evolution of broadband services, accompanied by the spread of IP telephony,as well as the diffusion of mobile phones, has resulted in a rapid decrease in thevolume of traffic over traditional fixed phone lines. The annual rate of decreaseover the past 2 years has been around 15 percent in terms of unit communications
time. In addition, the environment surrounding the telecommunications market is
rapidly changing; one recent example is the start of direct fixed line telephone2

services by competitive carriers that use the “dry copper” loops of the incumbent
carriers.

C.

2.

Taking into consideration these environmental changes in the telecommunications
market, the Information and Communications Council submitted the proposal “A
Calculation Method of Fixed Interconnection Rates from FY2005 Onward.” Theproposal included an evaluation of a new calculation model that could contributeto the reduction of related costs as well as the phased elimination of non-traffic
sensitive (NTS) costs over a five-year period.

3.

Based on this proposal, MIC revised the related ministerial ordinances in
February 2005 for the revision of the calculation method for interconnection rates
that became applicable in and after FY2005. Revision of the LRIC model
reduced the interconnection-related costs by 11.8 percent. This, together with the
reduction of NTS costs, compensated for a significant decrease in traffic (20.2
percent for IC switches and 16.3 percent for GC switches, comparing FY2004
with FY2003), and curbed new interconnection rate increases to 14.9 percent for
IC and 2.7 percent for GC.

4.

The revised model will be in effect for three years. MIC will continue to conduct
any further deliberations on either the revision of the model or its replacement in atransparent manner.

5.

In December 2004, the Information and Communication Council established the“Universal Service Working Group” to conduct the review of the universal
service fund mechanism. The draft report of the working group’s proposal was
released for public comment in July 2005. The Government of Japan and theGovernment of the United States reaffirmed their continued intentions to maintainany universal service mechanism in line with WTO Reference Paper
commitments.

Mobile Communications
1.

NTT DoCoMo’s interconnection rates have been reduced over the last four years
by approximately 25 percent, to levels currently among the lowest in developed
countries that employ calling-party-pays systems. The rates filed in March 2005
were reduced by 3.4 percent. Telecommunications carriers with Category IIdesignated telecommunications facilities (mobile networks) continue to berequired to notify MIC of and publicize interconnection tariffs.

2.

With regard to spectrum for mobile services, a plan for IMT-2000 frequency
arrangement in the 800MHz band was decided through transparent procedures,such as solicitation of public comments and open discussions among interested
parties and experts in the “Study Group to Examine Expanded Use of Frequency
Bands for Mobile Services.”

3

3.

D.

E.

To further promote competition in the mobile communications market andeffective use of spectrum, MIC drafted a license policy for the 1.7GHz band andthe 2GHz band that addressed issues such as eligibility for and numbers of newlicenses. MIC solicited public comments on the draft policy and consulted theRadio Regulatory Council for its recommendations. The final policy, decided inAugust 2005, gave priority to new market entrants while also coping with thespectrum congestion of incumbent carriers under its licensing criteria for thesebands. Spectrum allocation will be completed by the end of this year, based on
the applications received by September 30, through fair and transparent
procedures.

Promotion of Advanced Technologies and Services
1.

The Telecommunications Working Group of the Regulatory Reform Initiative
heard views from private sector experts on mutual recognition systems and next
generation wireless technology.

2.

In December 2004, the Information and Communications Council released apartial report proposing technical conditions for high-power passive tag systems
using the 950MHz band. Taking into consideration the proposal and otherdiscussions, MIC made necessary adjustments to related ministerial ordinances in
April 2005. With regard to the active tag system using the 433MHz band, thediscussions at the Information and Communications Council will continue basedon the results of experimental trials on the possibility of its shared use withamateur radio. MIC issued an experimental radio stations license for theseexperimental trials in July 2005. When the Council releases a draft report onthese discussions, MIC will conduct public comment procedures.

3.

With a view toward the development of a ubiquitous network society, MIC
established the “Study Group for Wireless Broadband Promotion” in November
2004. The study group compiled an Interim Report in April 2005, and invitedsubmissions on practical wireless broadband systems. The method to facilitate
frequency reallocation for wireless broadband systems is under consideration inthis study group.

4.

The “Study Group on Policies Concerning the Effective Radio Spectrum Use”
decided in its final report to recommend not charging spectrum user fees tolicense-exempt radio systems that do not have exclusive use of bandwidth.

Deregulation of Network Construction
1.

To accommodate urgent construction of fiber-optic networks bytelecommunications carriers that could not have been foreseen at the beginning ofa fiscal year, the Ministry of Land, Infrastructure and Transport (MLIT) has been
undertaking necessary coordination among relevant parties including roadadministrators and telecommunications carriers approximately every 3 months.

4Based on this coordination, MLIT has been easing the relevant restrictions onroad construction in winter and around the end of a fiscal year, to the extent
compatible with not seriously disrupting road traffic. These measures will bemaintained until the end of FY2005.
2.

F.

With regard to directly controlled national roads, MLIT has, since FY2001,
enabled electronic application for the use of rights-of-way nationwide. As for theother national roads and roads controlled by local authorities, MLIT encouragedthese authorities to enable electronic application procedures. MLIT establishedand publicized the basic specifications of a standard system for local authorities.

Promotion of Trade in Telecommunications Equipment
1.

Following several meetings, MIC and FCC reached a common view on respective
procedures suitable for mutual recognition of telecommunications equipment andequipment subject to electro-magnetic compatibility (EMC) requirements. With
regard to telecommunications equipment, the Governments of Japan and theUnited States expect to start formal negotiations in November 2005 with a view
toward conclusion of those negotiations in early 2006, if feasible.

2.

Regarding EMC, the Government of the United States confirmed that it isprepared to work with Japan to develop an arrangement that would permit
acceptance of results of conformity assessment for information technology (IT)equipment and industrial, scientific and medical (ISM) equipment conducted byaccredited Japanese conformity assessment bodies.

G.

Network Channel Terminating Equipment (NCTE): The Government of Japan will
invite public comment regarding the proposed abolishment of the streamlined proceduresof the 1990 Exchange of Letters on Network Channel Terminating Equipment (NCTE)(“the 1990 Letters”) which were described in the Third Report to the Leaders. Unlesssufficient evidence demonstrating the continued need for these revised procedures issubmitted from the interested parties through public comments, the 1990 Letters willcease to be applied in and after FY2006.

II.

INFORMATION TECHNOLOGIESA.

Removing Regulatory and Non-Regulatory Barriers: Japan has made significant
progress in the area of IT and has realized remarkable achievements. Internet service inJapan, for example, is now among the fastest and most affordable in the world, andJapan’s e-commerce market has grown to become the second largest in the world after
the United States. Japan will continue to strive to foster a regulatory environment thatfurther promotes the utilization of IT, including e-commerce.
1.

Online Services: The Government of Japan will continue to remove barriers inexisting laws and regulations that hinder e-commerce, such as requirements forface-to-face or paper-based transactions and other hindrances to e-commerce and5online services; and amend laws and regulations as necessary to allow electronic
notifications and transactions in sectors in which they are currently barred. The
Government will, for example, start the partial operation of “One-Stop Service”
for Motor Vehicle Registration in December 2005 by providing this new service
for registering new vehicles in some locations. “One-Stop Service” will be
expanded to all procedures related to vehicle registration in all locations on an online basis by 2008.
2.

Technology Neutrality: The Government of Japan shares the view with theGovernment of the United States that it is generally important to implement laws,
regulations, and guidelines related to IT in a manner that strives not to unduly
promote, mandate, or favor specific technologies (technology-neutrality), in orderto provide maximum flexibility and encourage innovation in the private sector.
While it is, however, sometimes inevitable to employ specific technologies undercertain limited circumstances, the Government of Japan continues its efforts tomaintain technology neutrality to the extent appropriate and practicable, as it hasdone with its “Law Concerning Electronic Signatures and Certification Service”
with respect to the definition of electronic signatures (which avoided excessive
dependence on any specific technology).

3.

Private Sector Partnership and International Harmonization: The Government ofJapan understands that the private sector is a key player in developing andimplementing its e-Japan policies. Based on this principle, the “e-Japan Priority
Program-2004” articulates the need to cultivate an environment that facilitatessmooth market operations through, for example, promotion of free and faircompetition and revision of related regulations that can fully activate the potentialof the private sector. The Government of Japan will also continue to develop
legal frameworks without excessive regulation and impediments to e-commerce,and seek to harmonize these frameworks internationally.

4.

e-Document Law: To reduce costs in the private sector, the Government of Japan
implemented the e-Document Law in April 2005.
a.

The Government of Japan worked to ensure that the e-Document Law isimplemented in a manner that strikes a balance between the need for cost
reduction in the private sector and effective legal requirements for paper
storage. The Government of Japan also endeavored to ensure consistency
among all relevant regulations (ministerial ordinances) for the law. The IT
Strategic Headquarters (ITSH) has played a major role in this regard by,for example, managing the work schedule for the establishment andrevision of relevant regulations by individual Ministries and Agencies.

b.

Relevant Ministries and Agencies also took several measures, such as theuse of public comment procedures, to incorporate private sector input into
the development of the implementing regulations for the e-Document
Law.

6

5.

B.

Coordination of IT Policy:a.

As is clearly stated in the “e-Japan Priority Policy Program-2004,” theITSH has been closely cooperating with the Council for the Promotion ofRegulatory Reform (CPRR) and the Headquarters for the Promotion ofRegulatory Reform in making and implementing policies regarding
regulatory reform in the IT area. The ITSH will continue close
coordination with these institutions in order to maximize the benefits ofJapan’s IT policies.

b.

The ITSH appointed specialists from the private sector as members of theExpert Committee. In this course, the ITSH paid attention to themaintenance of neutrality and transparency of this Committee, and chose
private sector experts who could advise the ITSH from a wide range ofvisions that reflect the current globalized IT society. To further expandthat range of visions, the Government of Japan will actively seek input
from experts, including experts from non-Japanese entities, as it
undertakes subsequent evaluations of e-Japan. The Expert Committee on
IT Strategy Evaluation has been actively evaluating progress achieved inpursuit of Japan’s IT policy goals including the “e-Japan Priority Policy
Program-2004” based on the PDCA-cycle (“Plan Do Check Act” cycle)
method. The results of the ongoing evaluation are reported to the ITSH.
Moreover, in the decision of “e-Japan Strategy,” “e-Japan Strategy II,”and “e-Japan Priority Policy Program - 2004,” the ITSH sought opinionsfrom parties concerned including those of the private sector, by employing
the public comment procedure, and will continue to do so for developing
future IT strategies.

c.

The Inter-Ministerial Task Force (renraku kaigi) on IT, which consists of
the Deputy Vice-Minister for Management of relevant Ministries andAgencies, was established in February 2004 to promote inter-ministerial
cooperation. Individual task forces have also been working under the
ITSH’s initiative for important policies that involve more than one
Ministry and should be pursued under closer inter-agency coordination.
The ITSH will continue to promote the IT policy in close cooperation with
relevant Ministries and Agencies.

Strengthening the Protection of Intellectual Property Rights: Through the
Subcommittee on Copyright under the Council for Cultural Affairs, the Government ofJapan is conducting an extensive review of the Japanese Copyright Law to determinechanges required to address issues stemming from the burgeoning use of digitaltechnology.
1.

Copyright Term Extension: The Government of Japan will continue its
deliberations on extending the terms of protection for copyright, in consideration7

of relevant factors including global trends and the balance between right holders’and users’ benefits, and will reach a conclusion of its review of the terms of
copyright by FY2007. The Government of Japan recognizes the Government of
the United States’ concern that the term of protection for sound recordings and all
copyrighted works be extended, which the Government of the United Statesrecognizes as a global trend.
2.

Statutory Damages: The Government of Japan will continue to consider further
measures to decrease the burden on right holders, including statutory damages forinfringement, and will reach a conclusion of its review in this regard by FY2007.

3.

Protection of Digital Content: To strengthen the protection of digital content:a.

The Governments of Japan and the United States will continue toexchange information on improving protection of digital content,
including software and other intellectual property assets, on governmentsupported IT resources as necessary.

b.

The Law concerning the Liability of Internet Service Provider has had
some positive results with related guidelines since its enforcement in May
2002. Under the Law and the guidelines, right-infringing information on
the Internet, including digital content piracy, can be deleted upon request
through a Credibility Confirmation Organization. The Government ofJapan continues to observe the status of implementation of the Law.
Currently, this includes periodical circulation of a questionnaire to
stakeholders to help understand the effectiveness and the adequacy of the
Law.

c.

The Governments of Japan and the United States will continue to discuss
issues related to online piracy, including examining ways to clarify thescope and application of doctrines of secondary liability for copyright
infringement.

d.

The Government of Japan has ensured the right of making available, incompliance with the WCT and WPPT, to address the infringement of
copyright and neighboring rights in works and phonograms that are
uploaded onto peer-to-peer networks. In addition, the Government ofJapan will continue to make efforts to clarify its interpretation of the scopeof the private reproduction exception, considering provisions of related
international agreements.

e.

The Government of Japan has made efforts to render its interpretation of
the scope of protection for a “temporary copy” known through appropriate
measures. In addition, the Government of Japan will continue to makeefforts to clarify its interpretation of the scope of “temporary copy”
protection through appropriate measures.
8f.

The Governments of Japan and the United States will continue to discuss
issues related to improving technological protection measures.

g.

The Governments of Japan and the United States will continue to discuss
issues related to end-user piracy.

4.

Book Piracy: The Government of Japan will continue to discuss the issue related
to reproduction of books, especially on university campuses, with the Governmentof the United States.

5.

Appropriate Scope for Education Exception Copyright Law: The Government ofJapan has issued guidelines and presented examples of the “educational
exceptions” of the Copyright Law for educational institutions, teachers, andstudents to clarify the limitations of the exception under the amended Copyright
Law. The Governments of Japan and United States will continue to discuss
limitations to the exceptions on this issue.

6.

IP Strategic Program and Intellectual Property Policies:a.

The Intellectual Property Strategy Headquarters (IPSH) discussed various
policies to realize an IP-based nation and created the Intellectual Property
Strategic Program (IPSP) in July 2003. To further discussion on several
important issues on which IPSH did not reach final conclusions, IPSH
established three task forces in October 2003: (1) Task Force on
Enhancement of IP Protection; (2) Task Force on Patentability of Medical
Treatment Inventions; and (3) Task Force on Content Business. The law
provides that the IPSP shall be reviewed and revised at least once a year.
Consistent with this, IPSH finalized and published the IP Strategic
Program 2005 on June 10, 2005.

b.

When reviewing the IPSP, IPSH will provide an adequate period for thesolicitation of public comments, in accordance with the general rules on
public comment procedure decided by the Cabinet. In doing so, IPSH will
ensure that comments from the Government of the United States and otherstakeholders are seriously considered and, as necessary, reflected in the
final measures and actions. The Government of Japan will also ensurethat the Basic Law on Intellectual Property and implementing measures
for the IPSP are in compliance with international obligations, standards,
and norms, and that IPSH will be provided with the necessary support andresources to implement the Basic Law and measures for the IPSP.

c.

By Cabinet Order, the IPSH provides that when developing IP policies the
IPSH Task Forces may call experts or persons concerned, including rightholders, to their meetings to hear their opinions when the IPSH deems it
necessary.

9

7.

U.S.-Japan Cooperation to Improve Intellectual Property Rights Protection:a.

To combat the serious and growing problem of the global trade in pirated
and counterfeit goods, both the United States and Japan have recently
established major new initiatives. In October 2004, the United States
launched the Strategy Targeting Organized Piracy (STOP!), and in June
2005, Japan launched the “Intellectual Property Strategic Program 2005.”b.

In addition to establishing their own initiatives in this area, the UnitedStates and Japan have been and will continue to closely cooperate on
strengthening intellectual property rights protection and enforcement.
Along with cooperating multilaterally, the two Governments, for example:

c.

C.

(1)

Held bilateral meetings in November 2004 and April 2005 topromote IPR protection and enforcement in Asia and around theworld;(2)

Co-sponsored the APEC Anti-Counterfeiting and Piracy Initiative,
which was endorsed at the meeting of APEC Ministers
Responsible for Trade in June 2005 in the Republic of Korea; and(3)

Discussed under the Regulatory Reform Initiative ways tocooperate to combat piracy of digital content.

The Governments of Japan and the United States will continue tocooperate in bilateral, regional, and multilateral fora to promote greater
protection for intellectual property rights world wide.

Promoting and Facilitating Public and Private Sector Use of E-Commerce1.

Privacy: Relevant Ministries and Agencies of the Government of Japan haveintroduced new guidelines and/or revised existing ones concerning theimplementation of the Act on the Protection of Personal Information (Act), which
fully went into effect on April 1, 2005, in a manner intended to ensure theireffectiveness.
a.

Based on the Act, which outlines the minimum acceptable parameters for
all industrial sectors, the new or revised implementation guidelines areindustry-specific. Relevant Ministries and Agencies drafted theseguidelines after discussion with respective councils and solicitation of
public comments.

b.

Relevant Ministries and Agencies are to provide support for industry
organizations that publish voluntary guidelines for personal information10

protection. Those voluntary guidelines are expected to contribute to theproper handling of personal information in the private sector.
c.

2.

The Government of Japan regards it essential to ensure transparency,
respect voluntary efforts by the private sector, and promote better
understanding of the implementation of the Act, as demonstrated by thefollowing:(1)

On March 23, 2005, the Cabinet Office, the Financial Services
Agency, the Ministry of Internal Affairs and Communications(MIC), the Ministry of Economy, Trade and Industry (METI) andthe Ministry of Health, Labour and Welfare sent their experts toparticipate in a seminar for U.S. and Japanese enterprises on theAct, which provided more than 300 participants with a valuable
opportunity to better understand its implementation.

(2)

The Government of Japan believes that it is important that relevant
Ministries and Agencies implementing the Act publicly provide
information on enforcement and corrective actions.

(3)

As noted in the Basic Policy, the Cabinet Office shall examine theenforcement status of the Act approximately three years after it
fully goes into effect and will take necessary measures based on
the results. Relevant Ministries and Agencies regard it importantto take necessary measures to ensure the appropriate treatment of
personal information by the implementation guidelines. For
example, METI plans to conduct annual reviews of theeffectiveness of its implementation guidelines and make anynecessary changes to seek consistency throughout the government.

Promotion of Alternative Dispute Resolution: The Governments of Japan and theUnited States recognized in the 2004 Report to the Leaders that accessible andeffective Alternative Dispute Resolution (ADR) mechanisms are requisite to thesuccessful functioning and development of e-commerce. The Government ofJapan will ensure that the implementation of the “Law Concerning the Promotionof the Use of Alternative Dispute Resolution Procedures” (ADR Law) does nothinder the use of ADR in e-commerce disputes either within Japan or in the crossborder context. As such:a.

Under the ADR Law, parties will be allowed, as a general matter, todetermine the rules, processes, and standards to be applied in individual
ADR proceedings, including those concerning e-commerce. The
Government of Japan will ensure that the implementing ordinances andguidelines to the ADR Law are designed to promote online dispute
resolution and accommodate the cross-border nature of e-commerce.

11

b.

3.

The Government of Japan will monitor closely, once the ADR Law comes
into effect, the effects of the ADR Law on ADR proceedings involving
cross-border or e-commerce disputes and take action without delay toremedy any problems or impediments to such ADR proceedings that cometo light.

Network Security: Under the Japan-U.S. Joint Statement on Promoting Global
Cyber Security adopted on September 9, 2003, the Governments of Japan and theUnited States recognized that the increasing number of cyber attacks and theinterdependence of global information networks place responsibility on all nations
to respond to the challenge of securing critical information infrastructures. The
Government of Japan is working to raise the level of information security inJapan, both in government and private sectors. The Governments of Japan andthe United States reaffirm their recognition that critical infrastructure protection isa shared responsibility of the public and private sectors, particularly because thevast majority of critical infrastructure is owned by the private sector.
a.

In an effort to strengthen its ability to develop and implement appropriate
and uniform information security policies, the Government of Japan in
December 2004 decided to proceed with establishment of the Information
Security Policy Council (Council) and the National Information Security
Center (NISC) within the ITSH. The NISC became operational in April
2005, and the Council was set up in accordance with the decision of the
ITSH in May 2005. The Government of Japan will make utmost effort toprovide these units sufficient resources to fulfill their objectives ofenabling government-wide coordination and creating effective information
security policies.

b.

The Government of Japan currently is formulating details of its draft“standards for information security measures (standards for measures)” forits central government computer systems. The first stage of thesestandards for measures, released September 15, 2005, focuses on setting
common basic measures among Ministries and Agencies, such as
password usage and virus prevention. Following the establishment ofthese common basic standards for measures, the Government of Japan iscurrently developing more sophisticated standards for measures forsecuring central government computer systems. In the June 2004 Reportto the Leaders, the Government of Japan confirmed that these standards
for measures would be, where appropriate, open (non-proprietary) andconsistent with standards developed by voluntary standard bodies
constituted upon consensus in industry. Further regarding theseforthcoming standards for measures, the Government of Japan:(1)

Acknowledges the interdependent nature of government andprivate sector computer systems, and that private sector firms

12supply the majority of the IT infrastructure to support government
computer systems.

4.

(2)

Acknowledges that it is beneficial for the Government to seek
technical advice from a wide range of interested parties, especiallyto obtain input on technical feasibility or when there are a variety
of measures from which to choose. This process can help create
the best possible and most technically feasible standards formeasures. Further, if the Government of Japan enhances its
security measures in a transparent manner, they can serve as usefulreferences for the private sector.

(3)

Recognizes that comments from a wide range of interested parties
will be useful in formulating these standards for measures.
Therefore, the NISC will continue to consider appropriate ways toinvite public input into its process. In particular, in those areas
where its standards for measures will impact vendors, contractors,
or other private entities, the Government of Japan believes it willbe critical to obtain input as widely as possible, from all interested
domestic and foreign parties. The NISC commenced a review andpublic comment process on a draft of these standards for measureson October 17, 2005.

c.

In accordance with the “IT Policy Package 2005,” which the ITSH issued
in February 2005, the Government of Japan will promote the increased useof information security measures in the private sector. Recognizing thatvoluntary best practices can be more easily revised, the Government ofJapan will work in conjunction with the private sector to develop anddisseminate voluntary best practices for information security in, and willencourage the voluntary acceptance and adoption of such information
security measures by, the private sector during FY2005 and beyond.

d.

The Governments of Japan and the United States will continue to share
information and experiences to improve best practices regarding
information security.

Spam: The Governments of Japan and the United States are concerned with
unsolicited commercial email, or spam, which is generally recognized as a burden
for consumers and businesses alike. Spam is also increasingly associated withvarious forms of online fraud and the dissemination of malicious code, such as
viruses and phish. The Government of Japan has been actively working on antispam measures including the enforcement of the Law on Regulation ofTransmission of Specified Electronic Mail (the Anti-Spam Law) which passed in
April 2002 and came into force in July 2002. Based on the discussions of theStudy Group on a Framework to Handle Spam, which has been meeting regularly
since October 2004 at MIC, an amendment bill to the Anti-Spam Law that13

includes the introduction of direct penalty was submitted to the Diet in March
2005 and passed in May 2005.

D.

a.

The Government of Japan will further promote the international anti-spam
activities in close cooperation with the United States.

b.

The Government of Japan also recognizes the importance of respecting theprivate sector’s voluntary activities to develop innovative technologies
including authentication technology in combating spam, and will work
together with the private sector on policy development in combating spam,
which is the view shared by the Government of the United States.

Promoting Procurement Reforms for Information Systems
1.

2.

Promoting Implementation of Reforms: In December 2004, the results of a“follow-up survey” of progress made by Ministries in FY2003 in implementing
the reforms outlined in their memorandum of agreement on government
procurement for information systems were published on MIC’s website.
a.

Recognizing the importance of consistent, complete, and timely
implementation of the memorandum’s reforms, the Government ofJapan’s Inter-Ministerial Task Force for Information Systems Procurement(renraku kaigi) will direct all Ministries to fully implement them as soon
as possible.

b.

All Ministries and Agencies will enhance their efforts to implement by theend of FY2005 items in Section 2 of the memorandum concerning areview of rules for participation in bidding. This will expand
opportunities for small and medium-sized enterprises and foreign firms toengage in information systems procurement.

c.

In accordance with the “IT Policy Package 2005,” METI will formulate“Procurement Skill Standards” by the end of FY2005 to enhancecompetency in this area. This is an important contribution to the goal
identified in Section 3 of the memorandum concerning the improvementof training for procurement officers.

Measuring Progress on Implementation of Reforms: The 2004 follow-up surveyof progress made in implementing the memorandum’s reforms provided usefuldata indicating the overall pace and scope of individual Ministries’ work in thisarea that the 2003 follow-up survey’s results did not include. In April 2004, theGovernment of Japan created an online database (http://cyoutatujirei.e-gov.go.jp/)
that includes information about awards of procurement contracts for information
systems.

14

3.

4.

a.

The Government of Japan plans to conduct another annual follow-up
survey. The Inter-Ministerial Task Force will discuss the format andcontents of the survey.

b.

To complement the results of follow-up surveys and support efforts toaccurately evaluate progress being made on implementing reforms in thememorandum, the Government of Japan will ensure that all Ministries
regularly contribute all necessary information about specific procurementcases to the online database for information systems procurement.

c.

When the quantity and quality of information in the database reachappropriate levels, the Government of Japan will analyze this informationand publish statistics that help identify trends in information systems
procurement.

d.

The Inter-Ministerial Task Force will continue to promote the use of thedatabase by the public.

Evaluating and Enhancing the Effectiveness of Reforms:a.

The Cabinet Secretariat posted “Japan’s Government Procurement: Policy
and Achievements Annual Report (FY2004 version)” on its website in
May 2005. This report provides responses to several questions andcomments the Cabinet Secretariat has received related to procurement, andpresents the results of a survey of suppliers the Cabinet Secretariat
conducted in FY2004 to collect their opinions concerning the thresholdused by Japan for the Overall Greatest Value Method (OGVM), including
the threshold for computer products and services. To increase
opportunities for interested parties to learn about and provide feedback on
information systems procurement issues and reforms, the Government ofJapan will change or increase the number of questions it includes in its
survey of suppliers in the Cabinet Secretariat’s Annual Report on
procurement that are related to these issues and reforms.

b.

Nearly all Ministries have set criteria for low-priced bidding investigations
to discourage unreasonably low-priced bids. Ministries currently provide
information about the results of these investigations to the Japan Fair
Trade Commission and to MIC for inclusion in the information systemprocurement database.

c.

Ministries conducted 22 low-priced bid investigations in 2003. The
Government of Japan will continue to work to ensure that measuresintended to discourage unreasonably low-priced bids that are
anticompetitive are utilized effectively.

Strengthening Reforms:

15

a.

As part of the CIO Council’s “e-Government Plan,” Ministries have been
directed to conduct reviews of their work operations and “legacy”
computer systems with the objective of replacing them or making changes
to them that will help reduce costs and increase performance. Renovation
feasibility studies for 36 of these systems were completed in FY2004, andthe results of these have been posted on each Ministry’s website (with the
exception of those unsuitable for publication for security reasons).
Ministries will develop optimization plans for their legacy systems by theend of FY2005 and implement these plans starting from FY2006. The
CIO Council will continue to work to ensure that Ministries follow its
instructions to conduct these reviews in a transparent manner and provide
public comment periods for them before optimization plans are finalized.
The CIO Council will also direct all Ministries to continue to discuss how
contracting arrangements for legacy computer systems might be improved
through appropriate use of contract unbundling, competitive bidding,multi-year contracts, and other measures.

b.

In 2003, CIO Aides were selected from among outside experts to assist
Ministries in reviewing work operations and information systems anddevise plans to improve them. To help Ministries function more
efficiently and cost-effectively, the Cabinet Secretariat and all relevant
Ministries will work to enhance the Aides’ functions, as directed in the IT
Policy Package 2005.

c.

The Inter-Ministerial Task Force will continue to work to ensure that
Ministries publish the results of bidding on information systems
procurement without delay after a contract is signed.

III.

ENERGYA.

Regulatory Authorities: The Government of Japan has implemented some significant
reforms of its electricity and gas sectors in order to develop a competitive energy market
with expanded retail choice and opportunities for new market entry, consistent with the
Basic Energy Policy Act’s goals of ensuring a stable supply of energy and environmental
protection. Japan’s reform process is welcomed by the Government of the United States.
Vigilant market oversight is necessary to ensure the effectiveness of these reforms in thecreation of a fair, efficient, and stable energy market. The Government of Japan thus
recognizes the importance of establishing an enforcement mechanism equipped with thenecessary number of staff under clear rules of conduct with sufficient expertise,independence and budget resources to provide such oversight. In March 2005, METI
established the Market Monitoring Subcommittee (hereinafter referred to as “theSubcommittee”) under the Electricity Industry Committee (hereinafter referred to as “theCommittee”) as well as the Urban Heat Energy Subcommittee of the Advisory
Committee for Natural Resources and Energy. The Subcommittee is to support METI’smonitoring of liberalized electricity and gas markets as well as dispute settlement.

16

Membership of the Subcommittee will consist of external academic experts and the
Subcommittee will operate in a manner that ensures independent recommendations.
B.

C.

Public Input: METI took important steps to ensure that the development of related
ministerial ordinances and guidelines associated with implementation of Japan’s
electricity and gas reform was an open and transparent process. To further promotefairness and transparency in the decision making process, METI will continue to provide
meaningful opportunities for public comment, and ensure that public comments arefactored into the final rules.
1.

Electricity: In early 2005, METI and the Japan Fair Trade Commission (JFTC)
solicited and responded to public comments on the draft revision of Guidelines for
Fair Power Trade.

2.

Natural Gas: In the middle of 2004, METI and JFTC solicited and responded to
public comments on the draft revision of Guidelines for Fair Gas Trade.

Electricity: The Electricity Utilities Industry Law (the “Electricity Law”) was amended
in June 2003, paving the way for a new electricity industry system. METI has also
amended ministerial ordinances, resulting in expansion of retail choice to about 63
percent of the market (2.4 times the 2003 level) as of April 2005.
1.

Fairness and Transparency in Transmission/Distribution:a.

Neutral System Organization:(1)

Based on the Electricity Law, METI designated the Electric Power
System Council of Japan (ESCJ) as the Neutral System
Organization (NSO) in June 2004 after reviewing proposedbusiness plans, including information on its financial and technicalpotential. ESCJ is a limited-liability intermediate corporation thatis to be neutrally administered by the general power utilities(GPUs), new entrants, and other network users, as well as
academic experts. It also has an advisory council consisting of
economic analysts, consumers, and media representatives.

(2)

The NSO issued detailed rules pertaining to construction of
network facilities, network access, system operation, andinformation disclosure, taking into account input from theCommittee’s final report and public comments. Each GPU also
issued its own rules pursuant to the NSO rules.

(3)

METI supervises the NSO in order to secure fairness andtransparency of its decision making, and will issue orders or
revoke the designation of the NSO if necessary to correct any
inadequacies.

17

b.

2.

Behavioral Regulation:(1)

Based on input from the Committee, including public comments
submitted, METI will soon revise a ministerial ordinance in orderto require separation of transmission/distribution segment accounts
from other segments, and to provide for separation of accounts in
an income statement.

(2)

METI revised the Guidelines for Fair Power Trade with JFTC in
May 2005 in order to ensure effective information firewalls and theprohibition of discriminatory treatment pertaining to wheelingservices. In addition, METI added Guidelines regarding faircompetition between electricity and gas in response to recent
concerns heard from industry, such as competition in the
introduction/proliferation of co-generation systems and “allelectrification” projects.

(3)

If METI or JFTC finds that a GPU has performed an act inviolation of the Electricity Law, the Antimonopoly Act, or the
Guidelines, it will issue a stop or change order to the GPU to
remedy the problem, and request discussions in the Subcommittee
if necessary.

System Design for a New Electricity Market:a.

b.

Wholesale Electric Power Exchange:(1)

In the report “Framework of the Desirable Future Electricity
Industry System” issued in February 2003, the Committee notedthat the wholesale electricity market has an important role in theelectricity market, although it would be private and voluntary.

(2)

The private Japan Electric Power Exchange (JEPX) wasestablished in November 2003 and began trading in April 2005.

Liberalization Schedule:(1)

As a result of the December 2004 amendment of the ministerial
ordinance, the scope of retail liberalization was expanded in April
2005 to all customers using high voltage electric service of 50kW
or greater.

(2)

Discussion of full retail liberalization, including household
customers, will start around April 2007, taking into account theresults of partial liberalization up to that time.

18

(3)

3.

Review of the Wheeling Services System:a.

4.

The Government of Japan has been publicizing the expansion ofretail liberalization through public notices in newspapers andthrough leaflets.

Balancing Rules:(1)

After considering public comments, METI relaxed the balancing
rules in April 2005 so that a new entrant can choose a secondary
fluctuation range of 3 to 10 percent, in addition to the primaryfluctuation range of 3 percent. A new balancing support system
was introduced in connection with the start of a new wheelingservices system in April 2005, so that a new entrant can accesscustomer demand data every 30 minutes. The data is collected andowned by the GPUs, using remote metering systems or othersystems.

(2)

METI prepared ministerial ordinances and other regulatory texts in
December 2004 in order to implement such measures.

b.

Abolition of Pancaking: To facilitate nationwide electricity transactions
through fair and transparent wheeling service charges, METI issued
ministerial ordinances and other regulations in December 2004 in order toeliminate the “pancaking” problem and to introduce a new framework for
network users to pay a uniform wheeling rate in the area they supply,
wherever they generate. This reform was also implemented in April 2005.

c.

Clarification of Standards to Issue Orders to Change Rules of WheelingServices: METI clarified its standards and issued necessary regulations
for implementing “change orders” in order to ensure an appropriate
enforcement mechanism for network regulation.

Review of Regulatory Reform: The electricity market has changed since April
2005 with implementation of a series of new electricity industry reforms. The
Cabinet decided on the “Three-Year Program for the Promotion of Regulatory
Reform” on March 25, 2005. In accordance with this plan, METI will monitor
market conditions and evaluate their impact by reference to a set of announced
qualitative or quantitative criteria, taking into account the need for additional
steps, such as additional regulatory reforms to ensure fairness, transparency, andcompetitiveness in the market. Such assessment criteria may include transactions
on the wholesale power market, operations of the NSO, observance of behavioral
rules, newcomers’ entry and competitive behavior between the GPUs.

19

D.

Natural Gas: An amendment of the Gas Utilities Industry Law (the “Gas Law”) wasapproved by the Diet in June 2003 and entered into effect in April 2004. The scope ofretail choice was expanded to consumers with an annual demand of 500,000 cubic meters
and above in the Gas Law, expanding retail choice to about 50 percent of the market as ofDecember 2004. METI has been developing, after notice and comment whereappropriate, regulations associated with changes in the Gas Law, and implementing andenforcing these regulations.
1.

Fairness and Transparency of Third-Party Access (TPA) to Pipelines:a.

TPA rates: METI revised in September 2005 the Guidelines for
Information Disclosure on Gas Rates in order to make the administrative
process for approving rates more transparent and to make gas utilities
accountable for the reasonableness of their charges.

b.

Accounting separation: METI established in October 2004 a ministerial
ordinance for accounting separation that establishes requirements on how
to separate the account of the gas transportation/distribution segment fromthat of other segments, as well as requirements for the publication of theseseparated accounts.

c.

Behavioral regulation: METI and JFTC jointly revised the Guidelines for
Fair Gas Trade in August 2004 with new provisions that include
requirements for information firewalls and the prohibition of
discriminatory treatment of particular TPA users as stipulated in the Gas
Law. If METI finds that a gas utility has performed an act contrary to theGas Law, it will issue a stop or change order to remedy the problem.
Similarly, if JFTC finds that a gas utility has performed an act contrary to
the Antimonopoly Act, it will take action to remedy the problem.

2.

Development of Pipeline Network: The Ministry of Land, Infrastructure andTransport issued a rule in October 2004 allowing pipelines to be buried at a depthof 1.2 meters instead of the previously required depth of 1.8 meters. This is
expected to facilitate cost-effective enhancement of Japan’s gas pipeline network,and thereby allow greater competition.

3.

Third-Party Access to LNG Terminals: As part of the August 2004 METI and
JFTC joint revision to the Guidelines for Fair Gas Trade, an article about TPA to
LNG terminals was newly added to promote non-discriminatory negotiations
between LNG terminal owners and TPA users.

4.

Review of Regulatory Reform: METI will monitor market conditions andevaluate the impact of the regulatory reform, by reference to qualitative or
quantitative criteria such as an assessment of new entrants, the utilization of TPA
regimes, the compliance with behavioral regulations, including the Guidelines for
Fair Gas Trade, as well as from the viewpoint of the impact on the stability of20

supply and safety. METI will make this evaluation taking account of the need forthe implementation of regulations to ensure fairness, transparency, andcompetitiveness in the market, and in consultation with the Urban Heat Energy
Subcommittee.
5.

Further Expansion of Retail Choice: METI will amend the ordinance in a timely
fashion in order to expand the scope of retail choice for consumers with an annual
demand of 100,000 cubic meters and above from 2007. Whether and how to
expand retail choice for household and small commercial users with an annual
demand of less than 100,000 cubic meters will be determined in a timely manner.
The monitoring of the market and the evaluation of the regulatory reform abovementioned will be reflected in the detailed regulation design in expanding thescope of retail choice in 2007, as well as in consideration of further expansion ofretail choice.

IV.

MEDICAL DEVICES AND PHARMACEUTICALSA.

Medical Device and Pharmaceutical Pricing Reform and Related Issues
1.

Reimbursement Pricing Reform: In March 2003, the Cabinet of Japan decided toreview the reimbursement prices of medical devices and pharmaceuticals with aview to reducing the price differences between domestic and foreign markets andtaking current market prices into account. In view of this decision, the Ministryof Health, Labour and Welfare (MHLW) will continue to implement reforms
while recognizing the value of innovation. At the same time, it is important toensure efficient, high-quality healthcare for Japanese patients and to encourage
the development of better medical devices and pharmaceuticals. The Governmentof Japan is now tackling a fundamental reform of the medical insurance system.
In April 2005, subcommittees under the Central Social Insurance Medical Council(Chuikyo) started a review of the pricing systems for pharmaceuticals and medical
devices. Industry has been provided with opportunities to express views at
Chuikyo, and Chuikyo will take those views into account. In FY2005, in order to
expedite opportunities for the pharmaceutical industry, MHLW held a hearing on
pricing reform in July rather than autumn as in previous years. MHLW willcontinue to provide industry, including U.S. industry, with meaningful
opportunities to express views at Chuikyo. In FY2005, MHLW will ensure thatreimbursement pricing is consistent with its recognition of the value ofinnovation. When determining reimbursement pricing policies, MHLW will pay
attention to industry’s views regarding the factors that increase the cost of doing
business in Japan.
a.

Pharmaceuticals:(1)

Consideration of Additional Application Materials: MHLW
confirms that it will accept submission of any materials from anapplicant in addition to the review report when selecting

21

comparators and premiums. MHLW also will send all submitted
materials to members of the Drug Pricing Organization (DPO) andencourage them to consider those materials.

b.

(2)

U.S. Government View: Regarding the Government of Japan’s
consideration of reforms in its reimbursement pricing system forpharmaceuticals, the Government of the United States noted its
view concerning adoption of a manufacturer’s suggested
reimbursement price (MSRP) system and changes regarding thecomparator method and the criteria of repricing based on market
expansion.

(3)

Premiums: In FY2002, MHLW substantially raised the rate ofpremium pricing for innovativeness and usefulness to ensure
appropriate evaluation of innovative pharmaceuticals. MHLW
continues to use the full range of premium levels available forscientific evaluation of innovation. MHLW also will continue toprovide to Chuikyo aggregated data on the results of applied
premiums, including the number and type of premium.

(4)

Foreign Price Adjustment Rule for Pharmaceuticals: MHLW
continues to take appropriate measures to ensure that innovative
pharmaceuticals continue to be available in Japan to contribute tohigh-quality healthcare for Japanese patients. MHLW willcontinue to provide meaningful opportunities for industry,including U.S. industry, to consult on issues related to the Foreign
Price Adjustment rule for pharmaceuticals.

Medical Devices:(1)

Foreign Average Price (FAP) Rule for Devices: MHLW continues
to take appropriate measures to ensure that advanced medical
technologies continue to be available in Japan to contribute tohigh-quality healthcare for Japanese patients. According to therule, which is set by Chuikyo, MHLW should use available prices
of four countries, including the U.S., the U.K., Germany, andFrance in the medical device pricing revision process. MHLW
will examine the methods used to collect information about
appropriate pricing as well as the range of data used for thecollection, in consultation with industry, including U.S. industry.
While considering Chuikyo’s concern over price differences
between domestic and foreign markets, MHLW will call on
industry to provide information on the costs specific to theJapanese market and consider the results of a U.S. industry study
on the cost of doing business in Japan. The Government of theUnited States notes its view that the most appropriate comparator22

is the U.S. list price. As MHLW prepares for the next biennial
price revisions, it will review elements of pricing rules, including
the FAP rule. MHLW will continue to provide meaningful
opportunities for industry, including U.S. industry, to consult on
issues related to the FAP rule and the scope of future datacollection regarding medical devices.

2.

(2)

C1 and C2 Pricing: MHLW will continue to provide presubmission consultations for C1 and C2 applications to industry,including U.S. industry, and give necessary advice.

(3)

Clear Criteria on C1 Eligibility and Premiums: To further clarify
the types of products eligible for C1 pricing, MHLW will describe
to industry in FY2005 why certain products have been awarded ordenied a C1 designation in the past. MHLW continues to provide
companies, including U.S. companies, with opportunities for
consultation regarding the application of the criteria for the C1 andC2 categories.

Visions:a.

MHLW published the “Vision” policy papers for the pharmaceutical andmedical device industries in August 2002 and March 2003, respectively.
The Headquarters for the Promotion of Policies on the Pharmaceutical andMedical Device Industries of MHLW will make efforts to accelerate
implementation of the “Visions” Action Plans in FY2005. Making efforts
to accelerate implementation will foster innovation by providing market
return incentives and will speed the introduction in Japan of safe andadvanced drugs and medical devices. On April 28, 2005, MHLW issued aprogress report on its implementation of the pharmaceutical Vision. Areas
where progress was made in FY2004 included the environment of clinical
trials and drug pricing.
(1)

Environment of Clinical Trials: The number of people completing
the Clinical Research Coordinator training course increased from3,200 in FY2003 to 3,900 in FY2004. The number of medical
institutions belonging to the “Large-Scale Clinical Trial Network”
increased from 556 in FY2003 to 991 in FY2004. In FY2004,
MHLW received three clinical trial notifications (“Japanese IND”)
for Investigator-Initiated Clinical Trials.

(2)

Drug Pricing: Through a study group called “Meeting to study the
drug pricing system and drug benefits,” MHLW gathered
information and exchanged opinions with industry regarding drug
pricing and drug benefits over the medium to long term.

23

b.

On June 1, 2005, MHLW held a “Hearing on the Implementation of thePharmaceutical Industry Vision Action Plan.” On June 10, 2005, MHLW
held a “Hearing on the Implementation of the Medical Device Industry
Vision Action Plan.” During those hearings, various industry
representatives, including from U.S. industry, provided valuable input,
which MHLW will seriously consider as it proceeds with the Visions.

3.

Transparency: MHLW will continue to ensure the transparency of thereimbursement price-setting process. MHLW will continue to provide industry,including U.S. industry, with meaningful opportunities to provide input and withaccess to consultations prior to changes in pricing rules and when assessing theirimpact. Such consultations will occur in FY2005 while the Government of Japan
prepares for biennial pricing revisions and considers changes in thereimbursement pricing system. MHLW will amend the format of the firstmeeting on product applications held by DPO on a trial basis starting in FY2005.
In instances where DPO admits supplemental information would be beneficial tothe decision-making process regarding the application of premiums, MHLW andDPO will allow applicants to make a presentation on their products’ effectivenessand usefulness in the first several minutes of the meeting.

4.

Diagnostics: MHLW recognizes the value of diagnostics (e.g., in-vitro
diagnostics (IVDs) and imaging devices) when determining diagnostic
reimbursement pricing. For IVDs, MHLW continues a system to evaluate theclinical value of in-hospital tests and reflects this added value in reimbursement.
MHLW will continue to include representatives of the imaging and in-vitro
diagnostics industries in regular meetings with the medical device industry to
exchange views regarding the reimbursement of diagnostics. MHLW has
attended as an observer the IVD workshop that was established by the American
Chamber of Commerce in Japan in April 2004. Workshop participants include
academics and the Japan Association of Clinical Reagent Industries. In theworkshop, participants have discussed various issues related to IVDs, including
medical treatment fees, in-hospital testing, preventive medical diagnoses, andevaluation of data. MHLW will continue to ensure transparency for the
diagnostics industry (e.g., in-vitro diagnostics and imaging devices) regarding thepricing process.

5.

Biologics and Blood Products:a.

Biologics: MHLW recognizes the differences of development,
manufacturing, and safety between biologics and chemical-based
pharmaceuticals.

b.

Blood Products: In FY2005, MHLW will continue to consult with theblood products industry regarding reimbursement pricing matters related
to blood products.

24

B.

6.

Diagnosis Procedure Combination: MHLW will continue to study the impact of
the Diagnosis Procedure Combination (DPC) system on various aspects ofhealthcare, including the average length of stay and treatment outcomes. MHLW
will continue to provide industry, including U.S. industry, with information andmeaningful opportunities to provide input and with access to consultations, uponrequest by industry, regarding the introduction or major revision of the DPC
system. MHLW recognizes the importance of innovative products regarding the
DPC system.

7.

Data Exclusivity: As part of the “Intellectual Property Strategic Program”
implemented by the Intellectual Property Strategy Headquarters (IPSH), theGovernment of Japan is considering extending the protection period forpharmaceutical test data from six years to eight years. MHLW will continue tostudy the issue of pharmaceutical test data with a view to enhancing incentives todevelop new pharmaceuticals.

Medical Device and Pharmaceutical Regulatory Reform and Related Issues
1.

Introduction: In FY2005, MHLW will strive to speed the introduction of safe,
effective, and innovative medical devices and pharmaceuticals and to provide
Japanese patients with access to the best possible healthcare. The establishmentof the Pharmaceuticals and Medical Devices Agency (PMDA) on April 1, 2004,
and the implementation of major changes in the Pharmaceutical Affairs Law(PAL) on April 1, 2005, is expected to enhance the introduction of safe, effective,
and innovative medical devices and pharmaceuticals in view of the Visions’goals.
2.

Performance Goals:a.

While endeavoring to achieve expeditious review and approval ofpharmaceuticals and medical devices, MHLW will ensure that PMDA
meets the annual performance goals for pharmaceuticals and medical
devices described in the Third Report to the Leaders. The performancegoals apply to applications submitted after the establishment of PMDA.
MHLW and PMDA also recognize the importance of complying with themidterm (2009) goals.

b.

MHLW recognizes the existence of the substantial backlog of medical
device applications pending at the time of PMDA’s establishment and willstrongly encourage PMDA to work as quickly as possible to eliminate thebacklog. At the same time, MHLW will ensure that PMDA will process
new applications within the timelines designated in PMDA’s performancegoals.

c.

MHLW recognizes the need to facilitate the drug consultation process.
Per a notification on April 26, 2005, PMDA introduced a new reservation25

system for consultations. If there are more requests for consultations thanavailable time allotments, consultation appointments will be prioritizedbased on the importance of each pharmaceutical, according to criteria suchas the current development stage of the drug and type of application. Thissystem, which has been implemented since October 1, 2005, features arealignment in PMDA’s consultation process structure and will optimize
PMDA’s consultation resources. PMDA will continue to consult withindustry as it implements this system.

3.

d.

For “me-too” medical devices as defined under the old PAL, MHLW will
ensure that PMDA completes reviews in a manner equivalent to the oneused under the old PAL, i.e., within four months. This will continue as atransitional measure until March 31, 2008, when the revised PAL has been
fully implemented.

e.

The standard processing period for IVDs remains six months, as specified
in the U.S.-Japan Report of 1986 on Medical Equipment andPharmaceuticals under the Market-Oriented, Sector-Selective (MOSS)
Discussions.

f.

MHLW will ensure that PMDA achieves the midterm goals of medical
device reviews and will encourage PMDA to eventually exceed thesegoals.

g.

PMDA published its first annual report, which included information on its
performance, on June 22, 2005.

Performance Metrics:a.

The value of evaluating performance with appropriate measurements is
recognized. The Governments of Japan and the United States welcome
the constructive discussions that are taking place between PMDA andindustry regarding the usefulness of performance metrics, and lookforward to the successful conclusion of those discussions.

b.

The Government of the United States noted the importance of using
several types of metrics to facilitate PMDA’s performance and industry’s
business planning processes. For drugs, these metrics include the timefrom consultation request to meeting, from application to interview
meeting, and from interview meeting to hearing; the annual number ofstandard NDAs, priority NDAs, and orphan drugs approved, submitted,
and under evaluation; approval time for major variations and the numberof variations approved, submitted, and under evaluation; and the number
of Good Manufacturing Practice inspections conducted after the final
evaluation report. For medical devices, these metrics include the number
of applications (total and approved), number of cycles per review of26

application documents, time spent on each step of evaluation, and timespent by reviewer.
4.

5.

Transparency:a.

Meeting with Industry: In FY2005, MHLW and PMDA will continue toprovide meaningful opportunities to exchange views with industry,including U.S. industry, regarding regulation of medical devices andpharmaceuticals. In the process of review-related activities, MHLW will
ensure that PMDA ensures transparency by providing manufacturers withmeaningful opportunities to be involved in the process.

b.

Application Status: In September 2004, PMDA established a mechanism
to explain the communication process regarding the prospects, progress,
and other matters related to reviews. In an important step to improve thetransparency of the approval process, PMDA issued in September 2004
notifications announcing that a company that has applied for a newpharmaceutical or a new or improved medical device may request ameeting with PMDA to discuss the status of the agency’s review of the
product, including the expectation of the product’s approval and thetiming of several intermediate steps in the review process.

c.

Memos: For medical device clinical trial consultations, PMDA and an
applicant create an official meeting memo. PMDA will continue to ensurethat memos on consultations on clinical trials are provided to applicants
and are based on mutual confirmation by PMDA and the applicants. For
medical device simple consultations (kani sodan), PMDA, at an
applicant’s request, reviews meeting memos created by the applicant.
MHLW will ensure that PMDA continues to be flexible on time limits tofulfill the purpose of the meetings.

d.

Outside Advisors: In striving to provide Japan with safe and effective
medical devices and pharmaceuticals, MHLW and PMDA seek advice
from experts in these sectors. PMDA publishes on its website a list ofthese experts. MHLW and PMDA will utilize external experts withappropriate knowledge of the relevant medical device or pharmaceutical.
MHLW will avoid selecting experts with conflicts of interest as outsideadvisors.

Audits/Inspections: PMDA began auditing foreign manufacturing facilities from
April 1, 2005, in connection with the enforcement of the revised PAL that
stipulates new requirements for foreign manufacturing facilities. MHLW
recognizes that pre-approval GMP/QMS audits based upon proper applications
will generally be conducted in parallel with the product review and completed
within the overall review period. MHLW and PMDA recognize that overseas
pre-approval GMP/QMS audits, unless any substantial deficiencies have been27

observed, will not unreasonably delay the review process for approvals of new
products. MHLW and PMDA will continue to discuss with industry the practicalapplication of paper inspections. With regard to the cooperation of the U.S. Foodand Drug Administration (FDA) with PMDA to facilitate its GMP/QMS auditingof foreign manufacturing facilities, MHLW will continue to discuss this with theGovernment of the United States. PMDA will seek to exchange views on
GMP/QMS auditing with industry in the same manner as FDA with domestic andforeign industry, including Japanese industry. On April 1, 2005, PMDA began
conducting quality system audits for high-risk (Class 3 or 4) medical devices, andthe 11 third-party recognized bodies in Japan, which were registered as of April 1,
2005, began conducting inspections for Class 2 devices in domestic and foreign
plants. Class 2 products without recognized standards are subject to PMDA orprefectural government inspections.
6.

Guidance for Medical Devices: When preparing new guidance concerning thestandards, criteria, review procedures, and other matters related to medical
devices, MHLW will ensure that opportunities for the public to comment continue
to be provided. In FY2004, MHLW examined opportunities to increase the use of
published guidance made by MHLW regarding reviews of medical devices. In
FY2005, MHLW will issue more published guidance by MHLW regarding thepremarketing and review phases for devices.

7.

Staffing and Expertise: MHLW will ensure PMDA increases its resources andexpertise, including recruiting qualified staff, to facilitate product reviews andsafety. As of April 1, 2005, PMDA had 291 staff members. MHLW will ensure
PMDA reaches its goal of 346 employees by March 31, 2009. PMDA will use
one team for the clinical trial consultations and reviews of the same product.
MHLW will ensure that PMDA provides reviewers with continuing education andthat staff rotations enhance therapeutic expertise. In FY2004, PMDA provided
several training opportunities to its staff as appropriate. MHLW will ensure that
PMDA’s reviewers enhance their expertise through continuing education andother opportunities.

8.

Streamlining Medical Device Reviews: PMDA has taken steps to streamline
reviews of medical devices. In 2005, MHLW confirmed that partial changes inmanufacturing processes or product designs are suitable for notification rather
than approval if such changes do not affect safety or efficacy. On April 1, 2005,
the STED (Summary Technical Documentation) became part of Japan’s
regulatory system. MHLW and PMDA will reduce the documentation for
medical devices that have approval standards.

9.

Fast Track and Priority Review: On February 27, 2004, MHLW issued
Notification 0227016 that described the fast track and priority review processes.
PMDA is making efforts to facilitate the priority and regular review processes.

28

10.

Combination Therapies and Products: On March 25, 2005, Japan’s Cabinet
approved a revised Three-Year Plan for Regulatory Reform and Private Sector
Participation, which calls for the relaxation of approval requirements for
combination drugs in FY2005. On March 30, MHLW issued a notification toclarify the approval criteria for combination drugs in the application for approvalof pharmaceuticals. It has included the following additional criteria: (i) drugs thatapparently enhance patients’ convenience, and (ii) drugs that have scientificjustification for being combined.

11.

Appeals: In March 2005, PMDA issued a notification to clarify how to deal withappeals from industry related to its services including reviews and safety
activities. The notification specified measures PMDA will take in response tocomplaints about its review and safety activities including requiring directors to
respond to complaints within 15 working days to the greatest extent possible.
Applicants can make science-based appeals regarding PMDA’s decisions at a
meeting with PMDA and outside scientific experts. PMDA incorporated
industry’s views in structuring its appeals mechanism.

12.

Safety: MHLW will ensure that PMDA increases its efforts to exchange views
with the relevant company when reviewing adverse event reports, and particularly
when an adverse event may require a response.
a.

For medical devices, MHLW will align the postmarketing safety
requirements and practices with Global Harmonization Task Force(GHTF) guidance documents as appropriate. As of April 1, 2005, MHLW
allows periodic reporting for inconsequential events.

b.

For drugs, PMDA is currently developing a safety database and a data
mining analysis, and will make public its progress at the appropriate time.
MHLW will ensure that PMDA develops this data mining analysis in atransparent manner, and provides industry, including U.S. industry, with
opportunities to give input as it proceeds.

13.

Standards for Medical Devices: In FY2005, MHLW will adopt for medical
devices international standards and guidance documents developed byorganizations such as the GHTF, ISO, and IEC without substantive modification
as much as possible. Where modifications are deemed necessary, MHLW always
uses the public comment procedure. MHLW will ensure that opportunities for the
public, including U.S. industry, to provide input in various ways, including
through public comment procedures, continue to be provided when developing
new standards for medical devices. MHLW developed 363 recognized standards
for 765 Class 2 medical devices as of April 1, 2005. MHLW will continue todevelop recognized standards for Class 2 devices.

14.

GCPs for Medical Devices: In FY2005, MHLW will accept clinical data obtained
outside of Japan for medical devices as long as the applicant proposing a device

29

shows that the data comply with Good Clinical Practices that are regarded as
substantially equivalent to Japan’s GCP standards.
15.

C.

D.

Market Authorization License System: On April 1, 2005, as part of thepostmarketing safety changes resulting from reform of the Pharmaceutical Affairs
Law, MHLW replaced its In-Country Caretaker system with a Marketing
Authorization License system. MHLW recognizes the impact of the transition toa new system on the ability of foreign manufacturers to remain in the Japanesemarket and supply their products and has already taken measures including
establishing a transition period. MHLW will continue to exchange views withindustry, including U.S. industry, regarding the transition to the new system.

Blood Products
1.

Industry Input: MHLW will work actively with interested parties, including
industry, to ensure that doctors and patients receive accurate information about
the risks and benefits of various therapies, including those involving blood
products. In FY2004-2005, MHLW worked with all interested parties to holdmeetings to discuss issues related to securing a stable supply of blood products
including patient care, declining demand, and other topics. For example, MHLW
invited the representatives of relevant industries to attend the Subcommittee on
Demand and Supply of Blood Products in March 2005. In FY2005, MHLW willcontinue working with the interested parties to address these concerns. MHLW
will continue to provide opportunities to interested parties, including U.S.
industry, to express their views on these issues.

2.

Transparency: MHLW will continue to ensure that implementation of the Supply
and Demand Plan does not discriminate against foreign products, is transparent,
and is fully consistent with Japan’s international trade obligations.

Nutritional Supplements Liberalization1.

Educational and Informational Statements: In FY2005, MHLW expanded thescope of educational and informational statements on labels and in advertising for
Foods for Specified Health Uses (FOSHU). Based on the Codex Alimentarius,
MHLW intends to consider revising the Japanese system for foods with healthclaims including other foods.

2.

Import Duties: The Government of Japan will address the issue of tariff levels,
including on nutritional supplements containing the same ingredients aspharmaceuticals, in WTO negotiations comprehensively.

3.

Codex: MHLW will harmonize its regulations with the international guidelines
and standards established at Codex. Japan will take a more active role indeveloping these guidelines and standards at this international forum.

30

4.

Potency Limits: MHLW will base the revision of the maximum and minimum
values set in the Food with Nutrient Function claims on international standards.

V.

FINANCIAL SERVICES

A.

Furthering the Promotion of Regulatory Reform
1.

Japan continues to make progress in opening and liberalizing its financial services
market. This process started with the 1995 “Measures by the Government ofJapan and the Government of the United States regarding Financial Services” andaccelerated under Japan’s “Big Bang” financial liberalization initiative launched
in 1996, which committed Japan to fundamental deregulation of the financial
sector. Under its two-year “Program for Financial Revival,” the Financial
Services Agency focused on ensuring financial system stability, achieving its goalof reducing major banks’ non-performing loans ratio to about half by the end of
March 2005.

2.

In December 2004, the FSA unveiled its new two-year “Program for Further
Financial Reform” (“Program”), signaling a shift in its focus from ensuring
financial system stability to promoting financial system vitality by enhancing userprotection and convenience, while boosting the ability of financial institutions tooffer a wider range of services quickly. Under the new Program, the FSA has set
forth an aggressive, wide-reaching work schedule. Its aim is to point out a roadmap for financial reform to ensure Japan’s future as a highly advanced “financial
services nation.”

3.

The Program work schedule provides for reforms in a broad range of key areas
including distribution, pricing, advertising, market conduct, user protection,
corporate governance, disclosure, and risk management. These reforms may
result in sweeping changes to numerous laws, regulations, and guidelines. Given
the substantial impact these reforms could have on the global financial system andto U.S. financial service suppliers operating in Japan and Japanese financial
service suppliers operating in the United States, the Governments of Japan and theUnited States will discuss implementation of the Program and will discuss asnecessary other issues regarding the market for financial services during thebilateral financial services discussions under the Financial Dialogue of the
Economic Partnership for Growth or other occasions.

4.

In launching the Program, Japan recognizes the need to create a concrete programfor financial reform as part of its overall structural reforms essential to fostering
sustainable economic growth and to responding to an aging population, fallingbirthrate, and continued economic globalization.

5.

The United States supports generally the principles espoused under the Program.
Both governments share the goal of fostering open, prudentially sound, vital, andinternationally respected financial systems in which user satisfaction is a core31

value, and which are led not by the public sector, but by private sector initiative.
Key to achieving these goals are continuing efforts to develop a framework to
improve the transparency and predictability of financial administration consistent
with adherence to the principle of equal treatment between Japanese and nonJapanese financial institutions.
6.

B.

C.

The Governments of Japan and the United States recognize the value of bilateral
cooperation in such forums as the bilateral financial services discussions under
the Financial Dialogue of the Economic Partnership for Growth as essential tofurther strengthening partnerships between U.S. and Japanese financial regulatory
authorities.

Specific Measures
1.

Trust Bank License: The Government of Japan is studying revision of such laws
as the Trust Business Law and the Concurrent Operation Law in the context of its
plan for future amendment of the Trust Law. In the process of the study, theGovernment of Japan will consider equitable treatment of foreign bank branches
as one of the discussion points.

2.

Defined Contribution Pensions: The Government of Japan raised contribution
limits on private DC pension plans for employees for whom the companies do notprovide any company pensions in October 2004. The Government of Japan also
eased the requirements for early withdrawal in October 2005 because thewithdrawal fee can reduce or extinguish the asset if it is small. Ministry of
Health, Labour and Welfare is promoting investment education in a continuousand programmed manner to further promote DC pensions, while studying ways tomake DC pensions a more attractive retirement plan alternative by further
increasing contribution limits and other reforms.

Transparency -- No Action Letters: In an effort to enhance the transparency offinancial administration, the FSA continues to make progress in promoting more active
use of its No-Action Letter (NAL) system. Moreover, the FSA is studying measures tofurther enhance its NAL system and develop other means of expanding the body of
written interpretations of Japanese financial law and regulations as a key element of its
Program for Further Financial Reform. Steps taken to date and measures now in progressinclude:1.

The number of NAL published by the FSA is increasing. The FSA has issued 11
No-Action Letters since April 2004, compared to 6 issued in the previous 12
months and 4 during the first 21 months after the NAL system was introduced inJuly 2001.

2.

Under the Program for Further Financial Reform, the FSA has taken or will takethe following steps to encourage more active use of its NAL system and toenhance the system itself. Specifically, the FSA has:

32

3.

a.

Promoted awareness of the NAL system by publishing in February 2005
“Detail of the No-Action Letter System,” which is an English-language
version (Provisional Translation) of the bylaws of the NAL system;b.

Distributed in June 2005 a detailed questionnaire survey to the generalpublic (including regulated firms) with regard to the NAL system andsuggestions for improvement of the implementation of the FSA’s
application of the NAL system and its laws and bylaws; andc.

Improved the NAL system, in October 2005, by amending the system's
bylaws to reflect the results of the aforementioned survey. The FSA will
publicize these amendments through various channels.

In addition to the NAL system, the FSA has also begun studying measures toincrease the body of written interpretation of Japan’s financial laws andregulations, including the following measures:a.

Discussing establishment a “List of Reference Cases,” by this Fall, thatwill provide examples of the FSA’s interpretation of laws and regulations;andb.

Reviewing the guidelines for supervision with regard to “responses in caseof receiving general inquiries regarding interpretation of laws andregulations.”

VI.

COMPETITION POLICYA.

Strengthening the Effectiveness of Antimonopoly Enforcement
1.

Amendment of the Antimonopoly Act: On October 15, 2004, the Government ofJapan submitted the Bill to amend the Act Concerning Prohibition of Private
Monopolization and Maintenance of Fair Trade (the Antimonopoly Act or AMA),
which was enacted by the Diet on April 20, 2005. This legislation, the first majoramendment to the AMA in 28 years, represents Japan’s decision to establish acompetition policy that fits the social and economic environment of the 21stCentury, based on market mechanisms and the principle of self-determination.
The Fair Trade Commission of Japan (JFTC) held the Study Group on the AMA
since 2002 to review the AMA, and the Study Group issued its report in October
2003. Based on the Study Group report, as well as consideration of the views of avariety of stakeholders including business associations, bar associations andconsumer associations, JFTC drafted the Bill to amend the AMA. The
amendments will come into effect on January 4, 2006 and are expected tosignificantly strengthen JFTC’s capabilities to enforce the AMA and to eliminate
and deter anticompetitive activities, in particular hard-core cartels and bid rigging
activities. The most significant aspects of the bill provide for:

33

a.

b.

Strengthening the surcharge system by:(1)

Increasing the surcharge rate from 6 percent to 10 percent for large
manufacturers and service suppliers (from 3 percent to 4 percent
for small and medium-sized enterprises (SMEs)); from 2 percent to
3 percent for large-sized retailers (from 1 percent to 1.2 percent for
SME retailers); and from 1 percent to 2 percent for large-sizedwholesalers (SME wholesalers stay at 1 percent);(2)

Imposing a surcharge rate of 150 percent of the normal surcharge
on enterprises that are repeat AMA offenders within 10 years fromthe previous surcharge order;(3)

Expanding and clarifying the scope of conduct subject to surcharge
to include (a) unreasonable restraints of trade (cartels) substantiallyrestraining output, market share or customers, (b) illegal buying
cartels and (c) certain private monopolization that is implemented
in a manner equivalent to a cartel subject to surcharges; and(4)

Providing that surcharge orders are effective immediately upon a
JFTC determination in a case and are not extinguished if the
respondent chooses to seek review in a hearing procedure. If the
respondent fails to pay the surcharge by the due date and thesurcharge is sustained by a decision after hearing procedures, therespondent must pay interest at the rate provided for by Cabinet
Order. If the surcharge payment order is discharged by a decision
after the respondent has paid the surcharge, JFTC will pay back to
the respondent the surcharge, adding interest as provided for by
Cabinet Order.

Introducing a leniency program that:(1)

Eliminates the full amount of the surcharge to the first company
that, prior to the initiation of a JFTC investigation, discloses to
JFTC the existence of a cartel or bid rigging conspiracy and meetsother statutory conditions. Moreover, JFTC will further strengthen
the effectiveness of the leniency program by implementing a
policy that it will not file a criminal accusation against thatcompany or any of its employees. The policy was announced in“The Fair Trade Commission's Policy on Criminal Accusation andCompulsory Investigation of Criminal Cases Regarding
Antimonopoly Violation” on October 6, 2005; and(2)

Reduces the surcharge amount by 50 percent and 30 percent for thesecond and third firms, respectively, that qualify for the leniency

34

program before initiation of a JFTC investigation, or by 30 percent
for firms that qualify for the leniency program after JFTC has
initiated an investigation, consistent with the condition that no
more than three enterprises in total may enter the leniency
program.
c.

d.

e.

Strengthening the effectiveness of JFTC’s investigations to uncover andact against, inter alia, hard-core cartels and bid rigging conspiracies by:(1)

Providing JFTC designated staff members with the power to obtaincompulsory search warrants in cases where criminal accusations
are being pursued;(2)

Increasing criminal penalties against corporate officials andcorporations that interfere with JFTC investigations from theprevious maximum of a 200,000 yen fine and imprisonment of up
to six months, to a fine of up to 3 million yen and imprisonment
for up to one year;(3)

Strengthening penalties against corporations that fail to comply
with JFTC cease and desist orders from the previous maximum
fine of 3 million yen to a maximum fine of 300 million yen; and(4)

Extending the statute of limitations for JFTC to issue cease anddesist orders from one year after the unlawful conduct has been
terminated to three years.

With the goal of increasing the fairness of JFTC procedures:(1)

The proposed recipient of a cease and desist order or a surcharge
payment order will be given the opportunity to rebut theallegations against it, including by submitting evidence andmaking arguments in its defense, prior to the issuance of suchorders by JFTC (eliminating the current recommendation systemthat provides for issuance of a decision only if the respondent
consents, or after an extended hearing procedure.)(2)

In adopting its rules and procedures, JFTC will take into
consideration the necessity of ensuring due process forrespondents, including by ensuring that respondents have anadequate opportunity to respond to allegations and to state theirdefense.

In order to ensure the effective implementation of the new AMA
amendments:

35

2.

(1)

JFTC prepared implementing regulations, which were published
for public comment and finalized on October 6, 2005; and(2)

JFTC will increase its public outreach activities to enhance publicawareness of the new amendments, including by holding seminars
for the public and business community.

Criminal Enforcement of the AMA:a.

In May and June 2005, JFTC filed criminal accusations against a total of
26 companies and eight individuals for their participation in a conspiracy
to rig bids on steel bridge construction projects ordered by the Ministry ofLand, Infrastructure and Transport (MLIT), the first criminal accusations
by JFTC since July 2003. And in June and August 2005, JFTC filed
criminal accusations against a total of six companies and four individuals
for their participation in a conspiracy to rig bids on steel bridge
construction projects ordered by the Japan Highway Public Corporation
(JH).

b.

JFTC will vigorously use its new criminal investigation powers against
vicious and serious violative conduct, particularly hard-core cartel and bid
rigging cases.

3.

AMA Exemptions: With the aim of ensuring that AMA exemptions are as limited
as possible, JFTC continues to review remaining AMA exemptions, to determine
whether any can be further narrowed or eliminated, including the exemption forresale price maintenance agreements involving copyrighted works. In that regard,a council composed of JFTC officials, industry representatives, academic experts
and consumer representatives meets periodically to review whether the exemption
for resale price maintenance for copyrighted works is applied flexibly so as tolead to improvement of consumer interest. The last meeting of the council took
place in June 2005.

4.

JFTC Resources:a.

For JFY2005, JFTC received a budget increase of 4 percent to 8.131
billion yen and a net increase of 34 staff, bringing its total staff levels to
706 as of March 31, 2006.

b.

In order to strengthen its analysis of the economic and legal implicationsof suspected anticompetitive conduct, JFTC is endeavoring to improve theanalytical capabilities of its staff through recruitment efforts and trainingof existing staff. As of October 2005, eight JFTC staff have post-graduate
degrees in economics, including one associate professor, and 10 are
qualified as lawyers, one of whom had been a judge before joining JFTC
and now is working as a hearing examiner. JFTC will increase the number36

of staff with post-graduate economics training, as well as those withadvanced legal training. Five JFTC staff are currently receiving advanced
economic or legal training in graduate schools.
5.

B.

C.

AMA Compliance:a.

Since the amended AMA strengthens the enforcement capabilities of
JFTC, including through introduction of a leniency program, it is
becoming more and more important for companies to promote their own
compliance with the AMA. JFTC will, through increased public relations
activities and other means, encourage companies to adopt or enhance their
AMA compliance programs.

b.

JFTC will, in order to assist companies in complying with the AMA, issue
guidelines when necessary to clarify conduct that violates the AMA. For
example, on June 29, 2005, JFTC issued Guidelines on Standardization
and Patent Pool Arrangements. Currently, JFTC is disseminating the
Guidelines by holding briefings.

Increasing Procedural Fairness of JFTC Enforcement Activities
1.

Hearing Procedures: For the purpose of increasing procedural fairness in JFTC
hearing procedures, the JFY2005 budget provides for the addition of two hearing
examiners to JFTC staff that are qualified attorneys, with the result that three outof the seven JFTC hearing examiners will be qualified attorneys or judges.

2.

Warnings: JFTC will introduce a system by early January 2006 that will allow
proposed recipients of warnings against suspected AMA infringement (keikoku)
by JFTC to submit evidence and arguments in their defense prior to the issuanceof such warnings.

3.

Cautions: Only when JFTC considers it preferable from the viewpoint ofcompetition policy will it make cautions (chui) public, with the consent of therecipients.

4.

Review of JFTC Procedures: A study group under the Cabinet Office isundertaking a review of the AMA from the standpoints of ensuring procedural
fairness in administrative hearing procedures and other aspects of the AMA
enforcement system, to be completed around June 2007.

Addressing Bid Rigging Effectively
1.

Prevention of Bid Rigging, including Government-led Bid Rigging:a.

In response to the criminal accusation filed by JFTC on May 23, 2005
against eight companies for bid rigging on steel bridge construction

37

projects ordered by MLIT and the subsequent arrest of officials from three
additional companies, MLIT suspended for eight months a total of 11
companies from bidding on any construction project tenders by the three
MLIT regional bureaus whose bids were allegedly rigged and for fivemonths from bidding on the tenders of MLIT’s other regional bureaus. At
that time, eight months was the longest suspension from bidding everordered by MLIT as a result of a violation of the AMA. Following thesubsequent series of arrests and prosecutions related to the steel bridge
case, MLIT has extended the suspension on the offending companies. As
a result, 26 companies including those suspended additionally have beensuspended as of September, 2005.
b.

In order to strengthen measures to prevent bid-rigging on governmentordered construction projects, MLIT has established a 12-member
committee chaired by the Vice-Minister of Land, Infrastructure andTransport to examine why current measures are failing to prevent theoccurrence of large-scale bid rigging, such as the bid rigging conspiracy
on construction of steel bridges that was the subject of a criminal
accusation in May 2005. MLIT has also established a five-member
advisory group made up of scholars and lawyers to provide outside expert
opinions to contribute to the discussion of the committee. The committee
compiled the results of its survey about bidding procedures and contract
awards relating to steel bridge construction projects ordered by MLIT.
Based on the results of the survey, the committee formulated
countermeasures to prevent recurrence of bid rigging that were issued on
July 29, 2005. Those MLIT countermeasures include expanding thecoverage of the open and competitive bidding procedure and the overall
greatest value methodology as well as strengthening penalties for serious
bid rigging violations by clarifying the maximum 24 month-period ofsuspension from bidding and increasing the pre-established damages inconstruction services contracts from 10 percent to 15 percent of thecontract price.

c.

When JFTC finds that officials of public procuring entities have been
involved in bid rigging:(1)

JFTC will notify the head of the procuring entity of the facts
surrounding the matter, including, where it has obtained sufficientevidence, the names of the public officials involved in the bid
rigging; and(2)

JFTC may demand under the Act Concerning Elimination andPrevention of Involvement in Bid Rigging, that such head official
take necessary measures to improve the administration of bidding
and contracts to eliminate such involvement by public officials in
the future. In this regard, in September 2005, since JFTC

38

recognized the involvement by JH in the bid rigging, JFTC
demanded that the President of JH take necessary measures toprevent the recurrence of bid rigging.

2.

d.

In light of the AMA amendments establishing the JFTC leniency program,
MLIT will initiate an examination within JFY2005 of whether to adopt anadministrative leniency program that would exempt from certain
administrative sanctions a company that comes forward to report to JFTC
its participation in a bid rigging conspiracy.

e.

As part of the Three-Year Program for the Promotion of Regulatory,
adopted by the Cabinet on March 25, 2005, the Government of Japandecided to improve the operation of the government procurement systemby phasing in measures that will ensure more competition in the bidding
process with the goal of lowering the cost and increasing the quality ofservices received by the government.

Bid Rigging at the Local Government Level:a.

The Government of Japan recognizes the importance for local
governments to address bid rigging strictly. The Law for Promoting
Proper Tendering and Contracting for Public Works (Proper TenderingLaw) provides a number of measures to prevent bid rigging both at thecentral and local government level, including an obligation for local
governments to notify JFTC of any suspicious facts relating to possible
bid rigging on orders for public construction works they have placed.

b.

The Ministry of Internal Affairs and Communications (MIC) has been andwill continue to take appropriate steps to eliminate bid rigging at the local
government level.
(1)

In this regard, MIC, together with MLIT, issued a notice to all
local governments on December 28, 2004 requesting them to takethorough measures to eradicate bid rigging, including by educating
their officials on how to prevent bid rigging and establishingmechanisms to collect and publicize information about bid rigging
in order to facilitate transmission of information about suspected
bid rigging to JFTC.

(2)

MIC and MLIT have been and will continue to conduct surveys on
the measures taken by local governments to comply with theProper Tendering Law and to publish the results of their surveys
on their websites, and will continue to issue notices related to theeradication of bid rigging as necessary.

39

(3)

3.

D.

MIC is also making efforts to encourage local governments torevise their bidding processes and to introduce new bidding
systems, such as the use of Internet-based bidding, that will bebetter at preventing bid rigging at the local level.

Transparency in Administrative Sanctions against Bid Rigging:a.

MLIT will make public on its website a list of all companies subject tosuspension of designation, including those suspended because of bid
rigging activities, the period and scope of the suspension, and the reasonsfor the suspension. MLIT will also make public the amount eachcompany found to have engaged in bid rigging pays to compensate MLIT
for its damages from the bid rigging.

b.

MIC has encouraged and will continue to encourage local procuring
entities to publicize the trade names of companies subject to suspension ofdesignation, including those suspended due to committing bid rigging, theperiod and reasons of the suspension and other related matters.

Promoting Competition Throughout the Economy
1.

2.

Privatization in a Pro-Competitive Manner:a.

Ministries and agencies in charge of the privatization of individual
government-affiliated entities will cooperate and coordinate with therelevant ministries to ensure that privatization promotes, rather than
impedes, competition in the relevant market.

b.

With respect to the privatization of Japan Post, the Government of Japan
will ensure that the preparation and implementation of Japan Post
privatization does not distort the competitive process in Japan. The
privatized companies will be subject to the AMA, including during theprocess of privatization.

c.

JFTC will take appropriate actions on privatization efforts from theviewpoint of competition policy, including with regard to privatization ofJapan Post. JFTC monitors business activities, including those ofgovernment-owned entities in the process of privatization, and will takestringent action against conduct that infringes the AMA.

Promoting Competition in Regulatory Reform:a.

JFTC will continue to make efforts for the creation of a competitiveenvironment in industries subject to regulation, from the viewpoint ofpromoting competition among business. For this purpose, JFTC will makepolicy recommendations -- based on actual conditions of trade and, where40applicable, findings of AMA violations -- in order to improve regulatory
systems that have anticompetitive effects on business activities.
b.

JFTC will issue or revise guidelines, as necessary, to promote conduct inpublic utility and other sectors undergoing regulatory reform that is
procompetitive and consistent with the AMA. For example, over the past
year, JFTC has issued or revised the following guidelines:(1)

Guidelines concerning the Promotion of Competition Policy in the
Telecommunications Business Field (revised June 2004);(2)

Guidelines concerning Appropriate Dealing in the Natural Gas
Sector (revised August 2004);(3)

JFTC’s Views on the Number Portability Systems of Mobile
Phones based on the AMA (published November 2004); and(4)

Guidelines concerning Appropriate Electric Power Dealings(revised May 2005).

VII.

TRANSPARENCY AND OTHER GOVERNMENT PRACTICESA.

Public Comment Procedure
1.

The Government of Japan continues to work to improve the Public Comment
Procedure (PCP) to increase transparency and ensure fairness in theadministrative rule making process. On March 11, 2005, the Government ofJapan submitted a bill to the Diet to modify the Administrative Procedure Law
containing the legislation of the PCP, which passed the Diet on June 22.
Consistent with this objective, the amended Administrative Procedure Law
contains numerous reform measures to strengthen the PCP, including:a.

Requiring Ministries and Agencies to make public the draft
orders/regulations and related documents by using the Internet and othermeans as necessary;b.

Setting the minimum PCP period at 30 days in principle. In exceptional
cases where less than 30 days are provided, Ministries and Agencies must
make public the reason for this determination to shorten the period when
they make public the draft orders/regulations;c.

Requiring Ministries and Agencies to fully consider all submitted publiccomments; andd.

Requiring Ministries and Agencies to make public the complete text
and/or summary of the submitted comments, and also indicate how

41

comments were incorporated or not incorporated and the reasons for thedecisions. In cases where only the summary of the comments is madepublic by using the Internet, Ministries and Agencies are required to makeavailable the complete text upon request.

B.

2.

MIC will continue to conduct and publish a comprehensive annual survey on the
Ministries’ and Agencies’ implementation of the PCP, and will maintain close
communications with relevant Ministries and Agencies in this regard.

3.

The Government of Japan remains aware of the Government of the United States’
continuing interest in the future developments of Japan’s PCP, including thestatus of its implementation.

Special Zones for Structural Reform: Prime Minister Koizumi and his Administration
continue to make the Special Zones for Structural Reform a priority component ofJapan’s economic revitalization plan. Since the approval of the first 57 Special Zones in
April 2003, the total number of zones has grown to 548. The Government of Japan istaking necessary steps to ensure that successful zones have the largest economic impact
on the greater Japanese economy. To this end, the Government of Japan is:1.

Operating the entire application and regulatory exemption process for the Special
Zones in a transparent manner;

2.

Working to expand market-entry opportunities in the Special Zones;3.

Ensuring domestic and foreign companies alike have non-discriminatory access tooperate in the zones;

4.

Applying successful regulatory exemptions in the Special Zones on a national
basis as expeditiously as possible;

5.

Ensuring opportunities for U.S. and other foreign companies to submit proposals
for regulatory exemptions for Special Zones and to make proposals to local
municipalities to establish Special Zones; and6.

Responding as fully as possible to inquiries made by foreign companies for
information on Special Zones.

7.

Ensuring the Evaluation Committee for the Special Zones undertakes thefollowing in determining which regulatory exemptions in the Special Zones
should be applied nationwide.
a.

Ensure transparent decision-making process through open meetings andpublicly available information to determine nationwide regulatory
exemptions; and

42

b.

Publication of the decisions and supporting information on evaluations
after the decisions are made so that all interested parties can fully
understand the evaluation process.

C.

APEC Transparency Standard: APEC leaders have agreed to a package oftransparency standards for the range of trade and investment areas. The United States
and Japan have worked closely to develop these standards. Accordingly, the UnitedStates and Japan will continue to work jointly to achieve full implementation of the
APEC Transparency Standards in the domestic legal regimes of APEC member
economies.

D.

Public Input into the Development of Legislation: Some Ministries and Agencies, attheir discretion, have been opting for public input into draft legislation during its
development, before it is submitted to the Diet.

E.

Policyholders Protection Corporation: An amendment to the Insurance Business Law
which passed the Diet on April 22, 2005, includes the revision of the Life and Non-Life
Insurance Policyholders Protection Corporation (PPC). Under the revised system,compensation rates for insurance policies of higher guaranteed interest rates will be
reviewed, and the contribution percentages for the insurance industry and theGovernment of Japan will be restructured. The Financial Services Agency (FSA)
announced, on October 12, 2005, draft amendments of Cabinet and Ministerial
Ordinances necessary to introduce the new system and solicited public comments onthem. The FSA will provide adequate opportunities upon request for interested parties tobe informed of, comment on (including by soliciting public comments on draft
ordinances or regulations, if any), and exchange views with relevant officials andadvisors of the Government of Japan with respect to relevant laws and regulations
regarding the Life and Non-Life PPCs.

F.

Postal Financial Institutions: On October 14, 2005, the Diet passed bills related to
privatization of Japan Post. The measures related to the privatization of Japan Post arereferred to under the section “Privatization: Privatization of Japan Post.” The following
measures will be taken with respect to the existing postal financial institutions.
1.

The Ministry of Internal Affairs and Communications (MIC) will continue toprovide opportunities for private life insurance and other financial companies,
upon request, to exchange views with relevant officials on Kampo and Yucho
inspection and taxation requirements.

2.

With regard to the formulation of proposals to seek from the Diet amendments to
law related to Kampo products and distribution or origination by Japan Post of
non-principal-guaranteed investment products, the MIC recognizes theimportance of informing the general public of such formulation of proposals andwill provide meaningful opportunities for private sector interested parties uponrequest to exchange views with relevant officials. Japan Post cannot originate any
non-principal-guaranteed investment products, nor introduce new lending services

43not offered at present, as the Japan Post Law does not include any provisions
describing these products or services.

G.

H.

3.

The Government of Japan has continued to regularly provide the Government of
the United States with data related to the sales of a new Kampo product inJanuary 2004. This information will continue to be provided upon request, and
the Governments will continue to maintain communication on this subject.

4.

The Government of Japan is aware of the strong concern of the Government of
the United States that a level playing field should be established between postal
financial institutions and their private sector competitors, whereby these
institutions are subject to the same regulatory, legal, and tax requirements. The
Government of Japan furthermore is aware that the Government of the UnitedStates has requested that no new or altered Kampo products or new lending orother related banking services to businesses or individuals or the origination of
any new non-principal-guaranteed investment products should be introduced until
such a level playing field is established. The Government of Japan confirms thatJapan Post now has no plans to introduce any new or altered Kampo products or
riders.

Bank Sales of Insurance
1.

A report of the Financial Systems Council issued in March 2004 recommended
full liberalization, in principle, of banks sales of insurance products to beundertaken in a phased manner within a specified period. Following the report,
on July 8, 2005, the FSA amended the regulations based on public comments.
The new regulations envisage the first stage of liberalization to begin by
December 2005 with a view toward full liberalization after two years ofmonitoring. Consistent with the recommendations of the Financial Systems
Council, the new regulations include a set of consumer protection rules.

2.

The FSA will provide meaningful opportunities, upon request, for interested
parties to be informed of, comment on, and exchange views with relevant officials
and advisors of the Government of Japan with respect to the effectiveness of theconsumer protection rules during the monitoring period as well as theimplementation of the liberalization of bank sales of insurance.

Insurance Cooperatives
1.

An amendment to the Insurance Business Law, which passed the Diet on April
22, 2005, includes several measures regarding “unregulated kyosai.” In principle,
kyosai that are currently unregulated will be supervised by the FSA under theamended law. In addition, a new registration system will be applied to theinsurers which only provide small-amount and short-term insurance products.

44

I.

2.

The FSA will solicit public comments in the process of establishing regulations to
implement the new system. The FSA will also provide meaningful opportunities,
upon request, for interested parties to be informed of, comment on, and exchange
views with relevant officials and advisors of the Government of Japan withrespect to relevant laws and regulations regarding “unregulated kyosai,” including
with respect to the legislatively-mandated review of the new system.

3.

The Government of Japan and the Government of the United States havediscussed the view of the Government of the United States that a review should beundertaken in the near-term to evaluate the consistency of regulation andsupervision among kyosai that are regulated by ministries other than the FSA, andthat such a review should be undertaken in a transparent manner with
opportunities for interested parties to express their views.

Government Practices Relating to Agriculture: In 2004, the U.S.-Japan Regulatory
Reform and Competition Initiative took up issues related to agriculture that examine theadoption of international regulatory standards in key areas of plant quarantine.
Internationally adopted plant quarantine standards both increase transparency andreliance on science-based decision making - two essential components of trade in
agriculture.
1.

In December 2004, the Governments of Japan and the United States decided tohold a joint workshop with technical and policy experts to examine the adoptionof two key standards established by the International Plant Protection Convention(IPPC): (1) official control for plant quarantine pests; and (2) pest risk analyses(PRAs). At the workshop, held in Tokyo April 26-28, 2005, the Governments ofJapan and the United States made presentations and had a constructive exchangeof views on the interpretation and application of IPPC standards related to official
control and PRAs. Through valuable discussions conducted at the workshop,
both Governments deepened their mutual understanding on plant quarantine
systems. Specifically:a.

The Government of the United States provided an explanation of theconcept and application of IPPC official control and PRA standards;b.

Both Governments discussed specific examples of official control and thedevelopment of PRAs conducted by each Government;c.

The Government of Japan also explained that:(1)

The Japanese pest forecast system (PFS) does not correspond to
the IPPC standard on official control, since target pests of the PFS
are not legally required to be officially controlled. Further, theGovernment of Japan highlighted that there are several cases
where it has removed target pests from the import quarantine list as
a result of conducting PRAs; and

45

(2)

2.

It will continue to conduct import PRAs for quarantine pests,
including target pests of the PFS in accordance with the relevant
IPPC standards to determine if the pests should be subject toquarantine measures.

Furthermore, to enhance the understanding of PRA implementation in bothcountries, Japanese plant quarantine experts will visit the USDA/APHIS Center
for Plant Health Science and Technology, Plant Epidemiology and Risk Analysis
Laboratory in Raleigh, North Carolina, before the end of 2005 to gain greater
understanding of the Government of the United States’ procedures for conducting
PRAs.

VIII. PRIVATIZATIONA.

B.

Privatization of Public Corporations
1.

On December 19, 2001, the Cabinet adopted the “Reorganization andRationalization Plan for Public Corporations.” In implementing this Program, by
the end of September 2005, the Government of Japan conducted necessary
measures (amendment of relevant laws, etc.) to organizationally reform 136 of the
163 public corporations subject to the Program.

2.

The Government of Japan remains committed to the continued restructuring andprivatization of Japan’s public corporations and will continue to undertake thisprocess in a transparent manner, including through active use of public comment
procedures and, where appropriate, other measures that will contribute to ensuringtransparency.

3.

Established by the Government of Japan, an advisory committee consisting ofwell-informed experts from the private sector to monitor and evaluate theimplementation of the Program has met 41 times since its launch in July 2002.
The summaries of the minutes of those meetings and discussion papers have been
made public.

Privatization of Japan Post: On October 14, 2005, the Diet passed bills related to
privatization of the postal services that are based on the Cabinet’s September 2004 Basic
Policy on the Privatization of Japan Post. According to the legislation, the purpose of theprivatization of Japan Post is to enhance the autonomy, creativity and efficiency ofmanagement and to promote fair and free competition by privatizing and dividing Japan
Post into separate stock corporations according to function and by taking measures toensure equal footing with their competitors, while considering the impact on the local
community and on the market, and thus stimulating the economy through greater freedom
for funds investment and improving public benefits and convenience through theprovision of a variety of high-quality services.

46

1.

Postal Insurance and Postal Savings:a.

The laws on postal services privatization stipulate that the current Postal
Savings Law and Postal Life Insurance Law should be revoked and the
postal savings and postal life insurance functions of Japan Post should betransferred to the Postal Savings Bank and the Postal Insurance Company,
respectively, in October 2007. From the beginning of the privatizationtransition period, the new financial companies will be supervised by the
Financial Services Agency (FSA) under the Banking Law and theInsurance Business Law according to the same standards including thearms-length rule as those applied to other banks and insurance companies,
and will be subject to the same tax obligations as well as accounting anddisclosure requirements as other private sector stock companies including
those when engaging in public capital market transactions. From October
2007, the Post Office Company, a network service supplier, will be subject
to FSA supervision according to the standards applied to privatecompanies when engaging in sales and distribution of financial service orinsurance products. Also from October 2007, the Postal Savings Bank andPostal Insurance Company will be obliged to join the Deposit Insurance
Corporation of Japan and the Life Insurance Policyholders Protection
Corporation respectively on the same terms as other banks and life
insurance companies, as special government guarantees on new deposits
and insurance contracts will be abolished.

b.

The laws also impose business restrictions on the Postal Savings Bank andPostal Insurance Company during the transitional period as special
provisions to the Banking Law and the Insurance Business Law. The
initial scope of business of the new financial companies will be same asthat of Japan Post. Future expansion of business scope must go through atransparent and fair procedure whereby the Prime Minister (whose power
is delegated to the Commissioner of the Financial Services Agency) and
Minister of Internal Affairs and Communications, upon hearing an opinion
from the Postal Services Privatization Committee (PSPC) (a third-party
organization comprised of intellectuals), will decide on such expansions.
Equivalent conditions of competition and management freedom shall beconsidered in evaluations of new product introductions when the ministers
in charge make decisions on business expansions of the new companies.
The introduction of new or altered insurance products by the Postal
Insurance Company or new non-principal-guaranteed investment products
or new lending services by the Postal Savings Bank will be reviewed
through the process described above. The conditions described in 1.a, 1.c.
and 1.d. will be considered, including by the PSPC, when new or alteredproduct applications are submitted for review.

c.

The laws stipulate no scheme that will make possible ex-post crosssubsidization among the newly established financial companies and non-47

financial entities in order to ensure that profits and losses are clarified andto eliminate risk of being affected by other businesses. According to thelaws the objective of the Incorporated Administrative Agency
Management Organization for Postal Savings and Postal Life Insurance
shall be to appropriately and in a sound manner manage postal savings andpostal life insurance contracts inherited from Japan Post. The laws
stipulate that, from October 2007, the asset management arisen frominherited pre-privatized contracts will be delegated to the Postal Savings
Bank and Postal Insurance Company by way of deposit and reinsurance
contracts. As of October 2007, these deposit and reinsurance contracts
shall be subject to the Banking Law and Insurance Business Law as wellas to FSA oversight and supervision. The laws further provide that theoriginal deposit and reinsurance contracts will be stipulated in theBusiness Succession Plan, which will be reviewed by the PSPC prior togovernment approval (to take place before October 2007), taking into
consideration competitive conditions of new financial companies withother private financial institutions.
d.

2.

According to the laws, as of October 2007 the Postal Savings Bank and
the Postal Insurance Company will be subject to the same legal andregulatory requirements applied to their private sector competitors, except
for special provisions of the Postal Services Privatization Law that impose
stricter business restrictions on the new financial companies during thetransition period.

Express Delivery Services:a.

The privatization laws provide that the Postal Service Company -- on thebasis of being subject to the same regulations as those for other privatecompanies and providing no scheme for the Postal Service Company toreceive any special benefits beyond minimum necessary measures tosecure universal services -- should be subject to the supervision of the
Minister of Land Infrastructure and Transport under freight transportation
laws and ordinances when providing postal services business and domestic
and international logistics business, and should be subject to thesupervision of the Minister of Internal Affairs and Communications underpostal laws and ordinances when providing letter postal and international
parcel postal delivery services by the postal services business. Also,
domestic parcel delivery services, now provided as “postal parcel delivery
services,” should be excluded from the obligation of postal services
business from the beginning of the privatization transition period andshould be supervised by the Minister of Land Infrastructure and Transport
under freight transportation laws and ordinances. As for tax payment, thesame taxation system should be applied to the Postal Service Company asthat of other private companies, except for the minimum necessary
measures for the smooth transition and succession of business and48

functions of Japan Post.
b.

3.

With regard to cross-subsidization, under the current Postal Service Law,
the status of profit and loss is already disclosed according to the categories
of letter postal items, parcel postal items, and international postal services.
The privatization laws provide that the current measures regarding the
public disclosure of the status of profit and loss according to the categories
should be maintained (domestic postal parcel delivery services will be
excluded from “postal services”). In addition, the Postal Service
Company should disclose the status of profit and loss according to thecategories of postal services business and other newly privatized businessareas, including domestic and international logistics business to the same
standards of the Generally Accepted Accounting Principles as required ofother private companies. The privatization laws do not provide for any
scheme to allow unfair cross-subsidization between the postal services
business regulated by the Minister of Internal Affairs andCommunications and the parcel delivery and newly established logistics
business regulated by the Minister of Land Infrastructure and Transport(for example, income transfer from monopoly services to othercompetitive businesses would not be allowed).

Transparency:a.

The Office for Privatization of Japan Post (OPJP) and Ministry of Internal
Affairs and Communications (MIC) have ensured openness andtransparency by providing in a timely manner meaningful opportunities
for private sector interested parties upon request to exchange views with
relevant officials, steps that have been welcomed by the Government of
the United States. The OPJP and its succeeding bodies, MIC and FSA willcontinue to provide opportunities for private sector interested parties, uponrequest, to exchange views with relevant officials.

b.

The Government of Japan recognizes the importance of transparency inthe privatization process, including informing the general public of any
laws, regulations, guidelines, and other substantive aspects of postal
services privatization through appropriate methods. With respect to the
preparation and implementation of administrative rules, administrative
official decisions and administrative guidelines, the Government of Japan
will ensure transparency through the necessary use of procedures inaccordance with the amended Administrative Procedure Law and othermeasures, including providing in a timely manner meaningful
opportunities upon request for private sector interested parties to exchange
views with relevant officials of the Government of Japan. The
Government of Japan recognizes the importance of transparency of the
PSPC, and therefore will take appropriate measures accordingly. Issues
arising from the implementation of the privatization laws will also be

49

further addressed in a manner described in the last paragraph of the
preface of this Report.
IX.

LEGAL SYSTEMS REFORM

A.

Ensuring Freedom of Association for Foreign Lawyers

B.

1.

The amended Special Measures Law Concerning the Handling of Legal Businessby Foreign Lawyers (Gaiben Law) came into force on April 1, 2005. This
amendment introduces completely new mechanisms for association between
Japanese lawyers (bengoshi) and registered foreign lawyers (gaiben), including
provisions that lift the ban on employment of bengoshi by gaiben, abolish thesystem of specified joint enterprises (tokutei kyodo jigyo), and introduce thesystem of joint enterprises between bengoshi and gaiben (gaikokuho kyodo jigyo
or “GKJ”).

2.

The Japan Federation of Bar Associations (Nichibenren) has established rules andregulations for implementation of the amended Gaiben Law, including those forthe employment of bengoshi by gaiben and for the GKJ. Through discussions
with Nichibenren, the Ministry of Justice (MOJ) has made efforts to seek
Nichibenren’s better understanding of the amended Gaiben Law and to request
appropriate handling of the related procedures within respective bar associations
so that Nichibenren would be able to make its rules and regulations consistent
with the basic concepts and interpretation of the amended Gaiben Law.

3.

With respect to concerns related to interpretation of the Gaiben Law expressed by
the Government of the United States, it is the view of MOJ that a gaiben partner
who employs a gaiben associate with a different scope of competence from thatgaiben partner can accept and handle legal business to be handled by that gaiben
associate on the condition that Article 5-2 (legal business concerning the third
country law) of the Gaiben Law is followed.

4.

MOJ will, as necessary, discuss with Nichibenren the appropriate handling of its
rules and regulations so that its rules and regulations are consistent with the viewsof MOJ.

Permitting Professional Corporations and Branches: The MOJ will diligently study
whether gaiben should be permitted to form professional corporations and branch offices
from the standpoint of trends in international legal services and principles of nondiscrimination. In particular, MOJ is now studying the practical considerations that must
be addressed if gaiben were to be permitted to establish professional corporations or if
gaiben and foreign law firms were to be permitted to establish branch offices without
forming a separate Japanese legal professional corporation, in light of the actual
operation of the GKJ and bengoshi professional corporations, and other laws andregulations.

50

C.

Promoting Alternative Dispute Resolution
1.

The Government of Japan has been studying ways to strengthen and revitalize
alternative dispute resolution (ADR) in Japan, including ways to create a flexible
and open legal environment that will facilitate the development of ADR services,
so that ADR could become an equally attractive option to court litigation as ameans of dispute settlement, on the recognition that ADR mechanisms can play
an important role in helping individuals and businesses resolve disputes in an
efficient and economical manner. As a result, the Law for the Promotion of the
Use of Alternative Dispute Resolution (ADR Law), enacted in 2004, will allow
for the promotion of ADR in a manner that is consistent with international norms
and practices as follows:a.

The criteria under the ADR Law for certification by the Minister of Justiceof ADR services covered by chapter 2 of the ADR Law (hereinafterreferred to as “ADR services”) are minimal. Furthermore, certification for
ADR services by ADR providers will be completely voluntary and open to
Japanese and foreign nationals on an equal basis. The ADR Law does not
restrict the ability of providers of ADR services that are not certified tocontinue to operate their business or of new ADR providers to establish
new businesses without obtaining certification.

b.

Parties will be allowed, as a general matter, to determine the rules, process
and standards to be applied in individual ADR proceedings.

c.

ADR services that have received certification under the ADR Law are notconsidered to be in violation of Article 72 of the Lawyers Law. Similarly,
acting as a neutral for pay in ADR services by a person who is not abengoshi, even if the ADR services provided by that person are notcertified, is not considered to be a violation of Article 72, where acting asa neutral is just from a social viewpoint. Moreover, acting as an arbitrator
in accordance with the Arbitration Law is also considered not to be a
violation of this Article.

d.

Where persons who are not bengoshi act as neutrals in certified ADR
services, there will be no general requirement that a bengoshi supervise
the ADR process. Instead, there should be a system in place to obtainlegal advice from a bengoshi where necessary.

e.

In addition, both gaiben and foreign lawyers, as well as bengoshi, arepermitted to provide services of representing a party in international
arbitration proceedings that take place in Japan. The Government of Japan
confirms that gaiben are permitted to provide representation services in
ADR proceedings (other than arbitration proceedings, which are covered
by Article 5-3 of the Gaiben Law) within the scope of their functions.

51

2.

The ADR Law will come into effect no later than May 31, 2007. It provides thatthe central and local governments will be responsible for providing information tofamiliarize the public with ADR in order to promote the use of all kinds of ADR.
In elaborating ministerial ordinances and guidelines for the implementation of the
ADR Law, the Government of Japan will ensure that the ADR Law isimplemented in a manner that takes into account trends of international
discussions, norms and practices, and that the procedures for obtaining
certification, and any post-certification reporting requirements, are reasonable andnot unduly burdensome. In this regard, the Government of Japan will:a.

Ensure that the Public Comment Procedure is used for all ministerial
ordinances and guidelines implementing the ADR Law; andb.

Monitor closely, once the ADR Law comes into effect, the effects of the
ADR Law on ADR proceedings involving cross-border or e-commerce
disputes and take action without delay to remedy any problems or
impediments to such ADR proceedings that come to light.

X.

COMMERCIAL LAW

A.

Adoption of Modern Merger Techniques: The Government of Japan has beenpromoting the restructuring of the Japanese industry in various ways, such as the revisionof the Industrial Revitalization Law, which was enacted in April 2003. On March 22,
2005, the Government of Japan submitted to the Diet the Corporate Code Bill, which
introduces flexibility in merger currency to permit the use of triangular mergers, cash
mergers and exchanges of foreign shares as well as allows short-form (squeeze-out)mergers. This Bill was passed by the House of Representatives on May 17, 2005 and by
the House of Councilors on June 29, 2005. Most of the amendments to the Corporate
Code will come into effect on the date specified by Cabinet Order, and the provisions
introducing flexibility in merger currency will come into effect one year later.
1.

The Government of Japan will take the necessary steps to ensure that theamendments come into effect as soon as possible.

2.

The Government of Japan is convinced that these new provisions will facilitate
M&A transactions, and therefore will benefit the Japanese economy.

3.

The Government of Japan is studying tax treatment of triangular mergers
available under the Corporate Code, including consideration of theappropriateness and equity of taxation, the prevention of tax avoidance -- and theGovernment of the United States points out that tax considerations are crucial forcompanies in determining whether or not to participate in an M&A transaction -with the intention of adopting such policy by such time as relevant sections of the
Corporate Code go into effect.

52

4.

B.

The Government of Japan will encourage corporations to refrain from adopting or
invoking anti-takeover measures that do not have as their purpose and effect the
maximization of shareholder value or that have as their primary objective theprotection of entrenched management. In that regard, on May 27, 2005, theMinistry of Economy, Trade and Industry and the Ministry of Justice jointly
issued “Guidelines Regarding Takeover Defense for the Purposes of Protection
and Enhancement of Corporate Value and Shareholders’ Common Interests” tothat end.

Promoting Shareholder Value through Active Proxy Voting
1.

2.

Promote Sound Proxy Voting Policies by Pension Funds: The Government ofJapan recognizes the important role of active shareholder voting in strengthening
corporate governance and shareholder value to the benefit of the beneficiaries ofpension funds. In this light, the Government of Japan supports the promotion ofproxy voting by managers of public and private pension funds as a mechanism forincreasing investment returns to pension funds. Over the past year, theGovernment of Japan has pursued the following policies and taken the following
actions in this regard:a.

The Government Pension Investment Fund (GPIF) supports transparency
in the proxy voting policies and actual voting record of its fund managers.
In that regard, GPIF has previously issued the Investment Management
Policy applicable to all of its pension fund managers requiring them toexercise proxy voting rights to maximize shareholder value and to reportto GPIF annually on their actual record of proxy votes. In October 2004,
the results of the exercise of proxy voting rights by fund managers weremade public. Proxy voting rights were exercised by all fund managers in
2004.

b.

A number of GPIF’s fund managers have publicly disclosed their proxyvoting policies on a voluntary basis. GPIF will encourage all of its fundmanagers to disclose their proxy voting policies, as it continues to study
whether its Investment Management Policy should be revised to require
such disclosure.

c.

With regard to private pension funds, the Government of Japan supports
the continued development of fiduciary duties for pension fund managers
with respect to the exercise of proxy voting rights, and will undertake astudy to examine whether adoption of a specific fiduciary duty for the
exercise of proxy voting rights is appropriate, in light of developments ininternational practice in this area.

Encourage Disclosure of Proxy Voting Records by Mutual Funds:

53

3.

a.

The Government of Japan supports the promotion of proxy voting by
mutual fund and investment trust managers as a mechanism for increasing
corporate value. The Financial Services Agency (FSA) is currently
encouraging the Investment Trust Association to amend its rules on proxyvoting to also require members to publicly disclosure their actual proxyvoting record.

b.

FSA confirms that the Law for Investment Trust and Investment
Companies requires that the actual proxy voting record of investment trust
management companies be recorded in the official records of suchcompanies and that beneficiaries of those investment trusts be allowed toreview those records.

Facilitate Proxy Voting by Foreign Shareholders: In response to a request madeby the Government of the United States regarding proxy voting by foreign
shareholders, the Government of Japan confirmed the following:a.

Under the Commercial Code of Japan, there is no provision that restricts
proxy voting by foreign shareholders. A global custodian or subcustodianof foreign proxies may exercise some of its granted voting rights in favorof a certain proposal and the rest of its granted voting rights to another orcontrary proposal.

b.

Article 22 (2) of the Investment Trust and Investment Corporation Law
treats foreign companies and Japanese companies the same, where theforeign company is established in accordance with a foreign law, is thesame kind of corporate body as that stipulated by the Commercial Code ofJapan and has a sales office in Japan.

c.

The Government of Japan will continue to consider the role of the Tokyo
Stock Exchange (TSE) to enhance the corporate governance of its listedcompanies including a review of TSE rules to take into account the growthof the number of foreign shareholders.

XI.

DISTRIBUTION

A.

Airport Landing and User Fees
1.

The Government of Japan expressed its views on the concerns held by theGovernment of the United States regarding landing and user fees at Narita, Kansai
and Chubu International Airport.

2.

The 2005 management plan of Narita International Airport Corporation (NAA),
announced in April 2005, commits the corporation to the reduction of landing fees
as one of the most important strategies. On June 2, NAA began consultations
with IATA for the reduction of landing fees, and on September 16 they54

announced the new set of negotiated user charges, which has been applied since
October 1. Landing fees of NAA have been reduced by 21 percent on average,
with the introduction of some new fees for other services. NAA estimates thatthese changes will reduce their revenue by 11 percent in total. The new landing
charges are determined according to aircraft noise level and, therefore, the exact
percentage of reduction of landing fees varies for each airline.
3.

The Government of Japan welcomes NAA’s proposed reduction of landing fees.

4.

The Government of Japan shares the view with the Government of the UnitedStates that airport user fees should be determined in accordance with ICAO
principles, including transparency.

B.

Airfares: The Government of Japan expressed its views on the concerns of theGovernment of the United States regarding Airline Sales Distribution and 30-Day
Advance Fare Filing Requirement.

C.

Credit/Debit Cards

D.

1.

The Government of Japan recognizes the importance of maintaining the security
level equivalent to internationally accepted security standards in ATM networks
for banks in Japan. The Government of Japan also notes that hosts of banks’ATMs decide encryption standards for their networks, including complying withinternational PIN security and encryption standards.

2.

The National Police Agency (NPA) is continuing to tighten regulations related tocredit/debit card fraud in Japan. NPA is reinforcing cooperation with customs
and immigration authorities and credit and debit card issuers and merchants toprevent smuggling and use of “raw” cards into Japan, which do not carry any
personal information and could be used as materials for false cards, as well as
illegal entry of criminal groups.

3.

The Government of Japan took note of the request from the Government of theUnited States to promote the use of credit and debit cards as means of payment
for government services. In addition, a study group established by MIC isconsidering several aspects, including legal and technical, of introducing card
payment for local government services. Based on these considerations, MIC willreach a conclusion on the matter by the end of FY2005, as provided for in therevised Three-Year Program for the Promotion of Regulatory Reform.

Revision of the Road Transportation Vehicle Law
1.

To facilitate registration and title transfer procedures, the Office of the Trade andInvestment Ombudsman (OTO) recommended in March 2005 a review of theRoad Transportation Vehicle Law (RTVL) and its implementation.

55

2.

The Government of Japan will further consider the possibility of taking measures
to lighten the burden on vehicle leasing companies with regard to procedures
related to vehicle registration.

56

REGULATORY REFORM AND OTHER MEASURES BY
THE GOVERNMENT OF THE UNITED STATESI.

CROSS-SECTORAL ISSUES CONCERNING REGULATORY REFORM AND
COMPETITION POLICYA.

Consular Affairs
1.

2.

Use of Biometric Identifiers on Passports:a.

Reliable and secure travel documents are a key component of bordersecurity. The Government of the United States welcomes the efforts of all
countries to issue more secure passports. The Department of State, in a
September 26, 2004 letter, certified that the Government of Japan met therequirement of the Border Security Act to have a program in place toproduce biometrically enabled passports.

b.

The Government of the United States recognizes that the Government ofJapan has been active in moving forward with its advanced biometricpassport program, and particularly takes note that the Bill to amend thePassport Law passed the Japanese Diet and was enacted on June 3, 2005 inan effort to start issuing biometrically enabled passports in March 2006.

c.

The Government of the United States announced on June 15, 2005 that
Visa Waiver Program (VWP) countries will be required to produce
passports with digital photographs by October 26, 2005. On that date, all
VWP countries must also present an acceptable plan to issue passports
with integrated circuit chips, or e-passports, within one year. The
Department of State remains committed to the biometric passport as thesafest possible travel document, and will continue to work with the VWP
countries on its development. The Government of Japan welcomed thisannouncement June 15, 2005, because Japan’s participation in the VWP is
important to maintaining active interaction between the people of Japanand the people of the United States. Following the June 15 announcement
and in accordance with the more specific requirements presented by theGovernment of the United States for VWP countries, the Ministry ofForeign Affairs of Japan submitted a letter dated July 29, 2005, as
notification that the Government of Japan adequately fulfils therequirements. The Department of Homeland Security confirmed in its
letter of September 15, 2005 that Japan is certified for the requirements toretain VWP status.

VWP Requirement Regarding Machine-readable Passports:

57

3.

a.

Although the U.S. Immigration and Nationality Act originally set October
1, 2003 as the date by which Visa Waiver Program (VWP) travelers wererequired to present an individual machine-readable passport for visa-freetravel to the United States, the majority of VWP countries, including
Japan, requested and were granted a postponement of this requirement for
more than a year to October 26, 2004.

b.

For a limited period that started on October 26, 2004, U.S. Customs andBorder Protection (CBP) officers at U.S. borders and ports of entry could
exercise discretion to grant a one-time entry at no charge for VWP
travelers arriving without an individual machine-readable passport.
Japanese travelers carrying non machine-readable travel documents
benefited for eight months from this discretionary waiver as requested in
the Government of Japan’s recommendations.

c.

Although this limited period ended on June 26, 2005, the Department ofState has been working closely with VWP countries to communicate
information about the machine-readable passport requirement to theircitizens. Since October 26, 2004, CBP officers have been notifying VWP
travelers entering the United States with a letter explaining the machinereadable passport requirements. CBP issued a reminder on June 6, 2005 to
all travelers from the VWP countries about the new requirement. The
Government of the United States will continue to work with theGovernment of Japan to assist travelers with non machine-readable travel
documents on a case-by-case basis when true emergencies arise.

d.

Outreach efforts to inform the public of the June 26, 2005 deadline havehelped reduce the number of VWP visitors arriving in the U.S. without theproper passport. Outreach efforts have also been made to inform VWP
countries of the requirement that, from October 26, 2005, new passports
issued by VWP must include a digital photo, or the traveler will be
required to obtain a visa.

Immigration Control by Use of Biometric Identifiers at Ports of Entry:a.

US-VISIT is a top priority for the U.S. Department of Homeland Security
because it enhances security for citizens and visitors while facilitating
legitimate travel and trade across U.S. borders.

b.

US-VISIT entry procedures are currently in place at 115 airports, 15seaports and in the secondary inspection areas of the 59 busiest land portsof entry. US-VISIT exit procedures are operating at 12 airports and 2
seaports. Entry procedures will be deployed to the remaining land ports ofentry by December 31, 2005.

58

c.

As US-VISIT moves toward fulfilling its vision for an automated entryexit system at the land border ports of entry into the United States, USVISIT is continuing to improve the border management system byplanning tests of radio frequency identification (RFID) technology at the
U.S. land borders. As of October 2005, over 39 million foreign visitors
have been processed, and there has been no significant increase in wait
times attributed to US-VISIT. Wait times are continually monitored aspart of daily Port operations. US-VISIT procedures take just seconds.
Post-implementation reviews from the pilot testing at three of the busiest
land ports of entry: Douglas, Arizona; Laredo, Texas; and Port Huron,Michigan, show that US-VISIT deployment is in almost every case
expediting processing times for those visitors who require a Form I-94 andare therefore subject to US-VISIT procedures. Prior to US-VISIT, theaverage inspection time at Laredo’s secondary inspection area wasapproximately 11 minutes. Results from Laredo indicate that the process
now takes less than five minutes and, in many cases, as little as two
minutes. DHS will continue to monitor the situation of air, sea and land
ports of entry to ensure that it has adequate human, physical andtechnological resources to fully and efficiently implement US-VISIT.

d.

US-VISIT meets regularly with the Government of Japan through its
Embassy in Washington, DC. These discussions address public education,
privacy, and operational issues. US-VISIT has an extensive outreachprogram to inform the Government of Japan, the travel industry and the
public about the requirements of the US-VISIT program and what toexpect when entering or exiting the United States. This effort has been inplace since early 2004 and will continue. In addition to the list below, USVISIT participated in the “See America Week Japan” program in Tokyo,
Nagoya, and Osaka in September 2005. That program included a “Media
Marketplace” for outreach to local media.

e.

In December 2003, DHS launched a public information outreachcampaign which has included: paid advertisements in major Japanese
media which collectively reach over 10 million people in Japan,
distribution of an animated in-flight video for airlines in Japanese,
pamphlets in Japanese and instructional signage in Japanese. US-VISIT
also attended meetings with travel and tourism stakeholders and a media
roundtable (November 2004, Tokyo), Visa Waiver Program
Announcements (September 27, 2004, Los Angeles and Dulles
International Airports), and international travel and tourism trade showssuch as the Travel and Industry Association Pow Wow (April 2004, Los
Angeles) and World Travel Market (November 2004, London).
SeeAmerica, developed by the Travel Industry Association of America(TIA) in the absence of a federally-funded national tourism promotion
agency, also seeks to inform travelers of US-VISIT and otherrequirements.

59

4.

f.

Information on the US-VISIT program is available in Japanese on the
Embassy Tokyo website. The U.S. Government continues to welcome
suggestions by the Government of Japan for further dissemination of thisinformation.

g.

At land ports of entry, a Japanese national with a visa would only
experience US-VISIT procedures once for each multiple entry Form I-94
they apply for. If the I-94 were good for one year, then the person would
only go through US-VISIT again upon the expiration of the original
document.

h.

The Government of the United States fully understands the Government ofJapan’s concerns about protecting the information of Japanese citizens
obtained through the new biometric requirements. That information will
be stored in databases maintained by DHS and the State Department as
part of an individual’s travel record. The system will be available to U.S.
Customs and Border Protection Officers at ports of entry, special agents in
U.S. Immigration and Customs Enforcement, adjudications staff at U.S.
Citizens Immigration Services offices, and United States consular offices and appropriate federal, state, and local law enforcement personnel on aneed to know basis. The program will be implemented in compliance with
US-VISIT established privacy policies and the privacy impact assessment.
US-VISIT is staffed by a privacy officer who specializes in this program
and works in close cooperation with other DHS privacy officers. The
Government of the United States protects the biometric identifiers of
foreign nationals collected by US-VISIT under the same level of privacy
standards as those applied to United States citizens’ personal information.
Safeguards have also been implemented to ensure that the data is not usedor accessed improperly. The DHS privacy officer will review pertinent
aspects of the program to ensure that proper safeguards are in place.

Visa Process:a.

Introduction of Visa Services into the Other Consulates in Japan:(1)

The computerized appointment system that permits visa applicants
to schedule appointments over the Internet without a fee has
contributed to greater efficiency for Japanese applicants. Since thecommencement on August 1, 2003, of the requirement to interview
all visa applicants, the Department of State has increased staffing
in the visa sections in Tokyo by five officers, Osaka by three
officers, and Naha by one officer. The Government of the UnitedStates will continue to monitor whether the appointment system isfunctioning effectively and whether the number of staff stationed60

in Japan for visa services is sufficient to process visa applications
without backlog.
(2)

b.

c.

The Government of the United States continues to consider therequest by the Government of Japan that the United States
Consulates in Fukuoka and Sapporo should resume visa services,and to take note of its request that the United States Consulate in
Nagoya should open visa services. The United States remains
committed to making continued improvements in the visa process,including expanded uses of technology that leverage the power ofbiometrics.

Efficiency in Visa Revalidation Procedures:(1)

Serious concerns have been raised by the Japanese business
community operating in the United States, as well as by theGovernment of Japan, about the increased burden incurred by thesuspension of business visa revalidation in the United States.
While visa validity is not linked to the eligibility of visa holders tostay in the United States, in reality, it is somewhat inconvenient forbusinessmen to have their visas revalidated while on business trips
to the neighboring countries of the United States or to their homecountry. Scheduling of business trips is often decided on short
notice and a tight schedule in their destination sometimes does notallow them to appear at United States Embassies and Consulates
for visa revalidation. Bearing in mind this difficulty, theGovernment of the United States will continue to consider the
resumption of visa revalidation in the United States.

(2)

The Government of the United States is deeply interested in
exploring ways to facilitate visa processing, using technology
where possible to improve security while making it easier for
legitimate travelers to obtain visas and renew them. The
Government of the United States and the Government of Japan
engage in regular working level dialogue on visa issues.

Visa Issuance and Terms of Validity:(1)

While the United States encourages all visa applicants to apply forvisas in their home countries, it is possible to apply at some third
country posts, provided the post is able to accommodate aninterview appointment request. The Department of State has
initiated a new feature on its website which gives useful estimatesof “visa wait times” at all diplomatic posts around the world.
Some posts do not currently offer E-visa revalidation for third
country nationals. However, the Department of State is reviewing

61staffing and resource allocations at all visa processing posts, andwill carefully and seriously consider Japan’s request that its
nationals be allowed to revalidate E-visas at posts in Canada and
Mexico.

5.

(2)

The number of H-1B visas issued annually is set by the Congress.
The current cap is 65,000. In the Omnibus Appropriations Act for2005 (HR 4818) an additional 20,000 H-1B visas were authorizedthat will not count against the cap. These are for individuals who
received higher level degrees in the United States.

(3)

HR 4818 also contained several provisions relating to H-1B and L1 visas. For L-1 visas these include restrictions on the stationingof L-1 workers at third party sites under the control of the third
party and extending the length of continuous employment required
for employees covered by blanket petitions to 12 months. H-1B
employers are now required to pay 100 percent of prevailing wage.
Other provisions relate to the prevention of fraud in thesecategories, including the establishment of a fraud prevention fee of$500. Several bills from the 108th Congress (H.R. 2154, H.R.
2702, and H.R. 2849) about which the Government of Japan had
expressed concern were not enacted.

(4)

The Government of the United States seriously considers theconcern raised by the Government of Japan from the reciprocal
point of view that L visas are valid only for two or three years
while intracompany transferees to Japan are provided with fiveyear visas.

(5)

The Government of the United States recognizes that facilitation of
E visas is important to the Government of Japan and acknowledges
its request concerning the requirements to be qualified for E visa.

Driver’s License:a.

The Real ID Act, signed into law by President Bush on May 11, 2005 andwhich will go into effect in three years, requires the Department ofHomeland Security (DHS) to issue regulations that will establish theminimum standards for State governments to follow when issuing driver’s
licenses or other forms of State-issued identification. The Real ID Act
requires that the States collect certain biographic information about eachindividual applying for a driver’s license, including full name, date ofbirth, and address of principal residence. The Act prohibits federal
agencies from accepting for any official purpose a state-issued
identification card or driver’s license that does not meet the minimum
standards that DHS will issue.

62

b.

In addition, all States must enter into a Memorandum of Understanding(MOU) with DHS to verify the legal presence of all noncitizen driver’s
license applicants. Most States entered into the MOU with DHS requiredby the Real ID Act by September 11, 2005 to routinely use the Systematic
Alien Verification for Entitlements (SAVE) to verify a driver’s license
applicant’s lawful status. The MOU, however, did not require a State
entering the MOU to begin using SAVE in 2005. For all noncitizens
authorized to be in the United States for a temporary period, the validity
period of a driver’s license or identification card issued by the State may
not exceed the period of authorized stay.

c.

Individuals who hold driver’s licenses or personal identification cards
from States that are not in compliance with the law cannot use that license
for federal identification or other official federal purposes, for example, toenter federal buildings or fly on planes. States are not prohibited fromissuing a “driving certificate” valid for driving but not for federal
identification purposes, as States such as Tennessee and Utah have alreadydone. Use of foreign passports to board airplanes would still be permitted.

d.

How States will implement the new law’s provisions remains unclear at
this point. The Act accords the Secretary of Homeland Security, in
consultation with the Secretary of Transportation and the States, theauthority to issue regulations, certify compliance, and issue grants
pursuant to the Act. The Government of the United States understands theconcerns raised by that the Government of Japan that the new law may
impact foreign citizens, including Japanese nationals residing in the
United States. DHS will seek input from stakeholders as regulations aredeveloped, and acknowledges the request of the Government of Japan that,in the course of the implementation of the Act, States should also consider
the issues currently affecting Japanese and other foreign nationals as aresult of States’ driver’s license regulations. DHS welcomes theparticipation of the Government of Japan in the public comment period of
the rule-making process that will take place after publication of a Noticeof Proposed Rule-Making.

e.

A new Illinois law (Public Act 93-0752), which went into effect onJanuary 1, 2005, allows the state to issue “Temporary Visitor Drivers
Licenses” to foreign citizens who are living in Illinois legally, but are
ineligible for a SSN. A detailed explanation of the procedures is available
on the Illinois Secretary of State website.
www.ilsos.net/departments/drivers/drivers_license/tempvisitordl.html. At
this time it is the understanding of the Government of the United States
that, with the change in Illinois law, all the States now accept analternative identifier for a SSN for driver license purposes.

63

f.

6.

The Government of the United States recognizes that the Government ofJapan is concerned about some State regulations regarding driver’s
license, including international driver’s permits, State of Michigan
identification requirements, State of Massachusetts sponsor requirements,
and State of Tennessee driver’s certificates.

Social Security Number (SSN):a.

Shorter Period for SSN Assignment Process:The Social Security Administration (SSA) must verify the immigration
status of all non-citizens before assigning an SSN or issuing a Social
Security card. Within the last year, the SSA and the Department ofHomeland Security (DHS) have continued efforts to improve timeliness inverifying immigration status. They are currently working to implement a
WEB based verification system, which will further reduce delays inverification and result in fewer SSA referrals to DHS for manual (paper)
verification of documents. The Government of the United States willcontinue these efforts, taking into consideration the request by theGovernment of Japan in this regard.

b.

7.

Issuance of Social Security Numbers to the Dependents of Employment
Visa Holders: The Government of the United States fully understands theconcerns of the Government of Japan regarding the assignment of SSNs
for dependents of employment visa holders.

Permission to Stay (I-94):a.

Longer Terms of Validity of I-94: The Government of the United States
confirms that by Federal Regulations, CBP immigration officers have theauthority to admit E visa holders for an initial period of not more than two
years as long as the remaining validity period of their passports issufficient.

b.

Swifter Processing of I-94 Extension:(1)

U.S. Citizenship and Immigration Services (USCIS) has prioritizedbacklog elimination in its FY2006 budget, submitted in February
2005, requesting an overall 4 percent increase over the FY2005
budget, and earmarking a total of $100 million specifically forbacklog elimination efforts.

(2)

USCIS has set the agency’s priorities as (1) ensuring national
security, (2) reducing the backlog, and (3) improving customer
service. In the agency’s first two years, USCIS has, among otherthings, expanded electronic filing of applications and benefits to64

support 50 percent of the total volume; and expanded the ability
for customers to access case status information via the USCIS
website. USCIS will continue these efforts.
B.

Trade/Investment Related Issues
1.

2.

Anti-Dumping Measures and Safeguard Measures:a.

The Government of the United States will ensure that its anti-dumping
laws conform to its WTO obligations. In that regard, the Administration
supports legislation that would bring relevant provisions of the Continued
Dumping and Subsidy Offset Act (CDSOA) into compliance with WTO
recommendations and rulings. In addition, the Administration willcontinue to work closely with Congress on legislation to implement the
WTO recommendations and rulings in the Hot-Rolled Steel dispute.

b.

Legislation has been introduced in the 109th Congress that would bring
United States law into conformity with WTO obligations with respect to
the CDSOA and Hot-Rolled Steel disputes.

c.

Section 801 of the U.S. Revenue Act of 1916 (Anti-dumping Act of 1916)
was repealed on December 3, 2004.

d.

The Government of the United States has explained its views with respect
to the Government of Japan’s concerns on certain other U.S. anti-dumping
and safeguard measures and practices.

The Patent System of the United States: The Government of the United States
and the Government of Japan reaffirm mutual support for effective substantive
patent law harmonization efforts, and at the same time:a.

The Government of the United States will continue to discuss with theGovernment of Japan its concerns with the United States’ first-to-invent
patent system. The United States acknowledges that its first-to-invent
system is unique, but believes that the system has worked well in and for
the United States. While there is some growing interest in first-to-file, as
reflected in legislation currently pending in the U.S. Congress (H.R. 2795
and proposed amendments thereto), this remains a controversial issue inthe United States. Outside of the proposed legislation, the U.S., Japan,
and other WIPO Group B members have also been engaged in talks onpatent law harmonization, in which the draft provisions being discussed
are written from a first-to-file perspective. The United States willcontinue to pursue these discussions.

b.

The Government of the United States will continue to discuss with theGovernment of Japan its requests regarding abolition of the exceptions to65the publication of patent applications within 18 months from the filingdate found in the U.S. early publication system. The United States hopesthat its experience with the early publication system will reveal that theneed for exceptions will be proven to be unwarranted. This issue is also
addressed in the above-referenced legislation.

3.

c.

The Government of the United States will continue to consider therequests of the Government of Japan regarding further improvements of
the reexamination system. Changes to the U.S. reexamination system, as
well as new provisions for post-grant opposition proceedings, are also
addressed in the above-referenced legislation.

d.

The Government of the United States will continue to consider therequests of the Government of Japan to ease requirements for the unity of
invention. It should be noted that the United States is currently studying
adoption of a Unity of Invention standard.

e.

The Government of the United States will continue to discuss with theGovernment of Japan its requests to modify the Hilmer Doctrine. The
United States would like to note that this issue is being discussed in theongoing substantive patent law harmonization talks between the U.S.,
Japan, and other WIPO Group B members. This issue is also addressed in
the above-referenced legislation.

f.

The Government of the United States notes the issue raised by theGovernment of Japan concerning the determination of novelty as provided
for under U.S. plant patent law and the UPOV convention. The
Government of the United States notes the concern expressed by theGovernment of Japan and will take the issue under consideration.

Insurance Business Regulations:a.

The National Association of Insurance Commissioners (NAIC) continues
to implement its 2003 Regulatory Modernization Action Plan that includes
steps to promote interstate cooperation and enhance efficiency. Concrete
progress includes:(1)

Development of a company licensing model act to establish
standardized filing requirements for license applications anduniform licensing standards, which has been adopted by all states;(2)

Creation of a single point electronic filing system, which is now inuse by 49 states and the District of Columbia; and

66

(3)

4.

Implementation of the Interstate Insurance Product Regulation
Compact covering life, annuity, disability, and long-term careproducts, currently adopted by 15 states.

b.

The Government of the United States is aware that the Government ofJapan has expressed some concerns with respect to certain state insurance
regulations and procedures. The Government of the United States hasconveyed these views to NAIC, and the NAIC has in turn conveyed theseviews to the appropriate state regulators. The Government of the UnitedStates will continue to facilitate communications, as appropriate, between
the Government of Japan and the NAIC on issues relating to state-based
regulations.

c.

Issues involving reinsurance collateral requirements continue to be
discussed within the NAIC’s Reinsurance Task Force. The Task Forcehas met regularly, and its meetings are announced on the NAIC’s website.
Interested parties have been able to attend these meetings freely. The
Task Force is currently working on a white paper to provide acomprehensive overview of U.S. reinsurance requirements applicable tounauthorized reinsurers, and the proposals that have been presented to the
Task Force for consideration of revising the current collateral rules.

Harmonization of State Environmental Regulations:a.

The federal Environmental Protection Agency (EPA) understands theconcerns of the Government of Japan regarding harmonization of theenvironmental regulations of individual States.

b.

EPA and the individual States share responsibility for environmental
protection and work as partners to solve the nation’s environmental
challenges. One approach to this partnership is the National
Environmental Performance Partnership System, the goal of which is tobuild an environmental management system focused on achieving the best
results possible, taking full advantage of the unique strengths of eachpartner. By promoting and sharing best results, the program can help toimprove the consistency of State regulatory approaches.

c.

EPA is also taking steps to highlight and promote successful State
approaches concerning mercury switches and other items of concern,
which should help to harmonize State approaches. As an example, EPA is
amending the federal Universal Waste Rule to include mercury
applications, which will ease the recovery of mercury switches. Many
States will automatically adopt the new federal regulations on the Statelevel, and EPA will work with all States to encourage the adoption of thisnew standard. EPA also provides links to all State universal waste67

programs on the EPA website.
http://www.epa.gov/epaoswer/hazwaste/id/univwast/uwsum.htm
d.

C.

In the field of electronics, EPA is working very closely with key
stakeholders, including States, to encourage reduced use of mercury incomputer desktops, laptops, and monitors through the development of theElectronic Products Environmental Assessment Tool (EPEAT). Moreinformation on this environmental procurement tool can be found at thefollowing website: www.epeat.net.

Distribution
1.

Counterterrorism Measures in Physical Distribution:a.

Transport Security: The Government of the United States shares anunderstanding with the Government of Japan on the importance ofbalancing security considerations with the need to facilitate international
trade. This can be achieved through international cooperation in setting
consistent practices and common procedures. The Government of theUnited States played an important role in working with the International
Maritime Organization (IMO) to develop the International Ship and Port
Facility (ISPS) Code which has set a common standard for assessing ship
and port facility security. The Government of the United States, throughthe High Level Strategic Group, is currently working with the World
Customs Organization (WCO) to implement the Framework of Standards
to Secure and Facilitate Global Trade. This framework will secure tradein such a way that it will also facilitate the commerce that is essential toeconomic prosperity.
(1)

Advance electronic presentation of cargo information: The
Government of the United States has worked very closely with theinternational trade community as the regulations implementing theadvance electronic cargo information for the Trade Act weredeveloped. It is important that governmental information
requirements to support risk assessments are properly aligned withthe business process to ensure accurate and timely information
without placing an undue burden on the trading community.
International consistency is one method of limiting the impact.
The Government of the United States welcomes the opportunity towork with the WCO to move toward greater international
uniformity in cargo data requirements. The Customs-Trade
Partnership against Terrorism (C-TPAT) is an industry andgovernment partnership to improve overall supply chain security.
It is a voluntary program to implement security criteria and bestpractices that better protect the entire supply chain against
exploitation by terrorists. In exchange for voluntarily

68implementing security criteria, C-TPAT participants are eligible
for a number of benefits including a reduced level of inspection of
their cargo. Our review has shown that C-TPAT participantsreceive significantly fewer cargo inspections than non-C-TPAT
importers. It should be noted that C-TPAT members are 6 times
less likely to undergo a security related inspection, and 4 times lesslikely to undergo a trade related inspection, as compared to non-CTPAT members. There are clearly financial benefits as a result of
these fewer inspections. The Government of United States
welcomes discussions with the Government of Japan and explores
further advantages for C-TPAT members. The Government of
United States will continue to facilitate private sector engagement
in an effort to enhance the transparency in the process of
implementation and further revision of C-TPAT rules.
(2)b.

Automated Commercial Environment: The AutomatedCommercial Environment (ACE) will be implemented over a
multi-year system development cycle. ACE is designed to meetthe evolving needs of both the United States government and thetrade community. System wide enhancement now and in the
coming years will create increases in efficiency and the reductionof paperwork. An important milestone is the implementation of
the electronic manifest which will support advance electronic
cargo information for trucks arriving from Canada and Mexico.
This e-manifest system is currently being field tested prior to large
scale implementation. This will support the implementation of theelectronic advance information requirements of the Trade Act.
Automated manifest systems already exist for rail, air, and vessel.

The Bioterrorism Act and Related Regulations:(1)

The Public Health Security and Bioterrorism Preparedness andResponse Act of 2002 (the Bioterrorism Act or the Act) (PL 107188), authorized the U.S. Food and Drug Administration (FDA) todevelop rules, after notice and an opportunity for domestic andinternational stakeholders to comment, to implement four
provisions in the Act, including section 307 (Prior Notice ofImported Food Shipments). FDA and U.S. Customs and Border
Protection jointly issued the Prior Notice Interim Final Rule in
October 2003, which allowed affected parties an additional
opportunity to comment on the interim final rule’s provisions while
the rule took effect on December 12, 2003, as required by the
Bioterrorism Act. FDA and CBP issued a Compliance Policy
Guide in December 2003 (most recently revised in March 2005)
regarding the exercise of enforcement discretion. FDA now iscarefully considering all comments it received during an open69

comment period on the interim final rule, including those filed by
the Government of Japan, and the areas addressed by theCompliance Policy Guide, as it develops the final rule, with theobjective of developing provisions that are consistent with the
Bioterrorism Act and its legislative history, and that achieve theAct’s objectives, while minimizing the impact on trade to theextent feasible.

2.

(2)

The United States notes that FDA’s “Compliance Policy Guide”
initially published in December 2003 (and most recently revised in
March 2005) provides that “FDA and CBP should typicallyconsider not taking any regulatory action when an article of food isimported or offered for import for non-commercial purposes with a
non-commercial shipper” and such article is not typically refusedby FDA and CBP even without prior notice, regardless of whether
the food is sent by international mail or home-delivery services.
See http://www.cfsan.fda.gov/~pn/cpgpn5.html.

(3)

The United States Embassy in Tokyo recognizes and appreciates
the high level of interest in compliance with the Bioterrorism Act
by Japanese food processors, Japan Post, commercial expressdelivery service providers, and the general public in Japan. The
Embassy will endeavor to provide relevant information on its
website in Japanese regarding any significant developments underthe Bioterrorism Act that may give impact on food processors andsenders in Japan. The Government of the United States will also,
in close consultation with the Government of Japan, work todevelop user-friendly materials that are easily available through its
Embassies and Consulates to assist Japanese and other foreign
nationals, individual food senders and small and medium-sizedfood processors in particular, in complying with the Bioterrorism
Act. The Embassy welcomes further discussion with theGovernment of Japan and interested parties on how to efficiently
and effectively improve outreach regarding the Act.

Container Weight Limits:a.

The Department of State has consulted with the Office of Freight
Management and Operations (FMO) of the Department ofTransportation’s Federal Highway Administration (FHWA) regarding therecommendations of the Government of Japan concerning container
weight limits. FHWA’s FMO oversees individual State enforcement ofFederal size and weight standards for heavy trucks and buses in the UnitedStates, as set by Congress. FHWA provided detailed guidance oncommercial vehicle weight limits in the United States.

70

3.

4.

b.

In summary, federal weight laws, effective on the National System ofInterstate and Defense Highways and reasonable access thereto, establish
commercial vehicle limits on the basis of axle weight, gross vehicle
weight, and the bridge formula weight (spacing of axles along the vehicle
and the effect that has on load distribution). The U.S. does not set weightstandards for cargoes or the boxes in which they move, but rather, the total
vehicle combination and its relative axle weights. The maximum grossvehicle weight on Interstate highways is 80,000 pounds except where
lower gross vehicle weight is dictated by the bridge formula.

c.

States also have the option to consider, as “non-divisible loads,” cargoesthat are carried in containers moving in international commerce (i.e.,either originating in another country or destined thereto). Various, but notall, States have chosen to exercise this option. Thus, if State policy
defines the significantly heavier Japanese container movements as nondivisible loads, a State can issue an overweight permit allowing the loads
on the Interstate. A State would have to determine if it were willing toaccept (and physically capable of handling) the accelerated infrastructuredamage from such loads in determining whether to grant them nondivisible status.

d.

The Government of the United States and the Government of Japan willcontinue to exchange views and information on this issue. FHWA/FMO’s
Commercial Vehicle Size and Weight Team has offered to brief theGovernment of Japan on the federal weight limits, and to discuss any
additional concerns.

Maritime Transport Legislation:a.

Merchant Marine Act of 1920 and the Reporting Requirement on the
Situation of Japanese Ports: The Government of the United States and theGovernment of Japan exchanged views regarding the Merchant Marine
Act of 1920. The executive agencies of the United States will continue toconsult and exchange information with the Government of Japan and willkeep the Federal Maritime Commission (FMC) informed of the situationof Japanese ports.

b.

Ocean Shipping Reform Act of 1998: The Government of the UnitedStates and the Government of Japan exchanged views on the Ocean
Shipping Reform Act of 1998. The Government of the United States took
note of the concern of the Government of Japan.

Maritime Security Program: The Government of the United States took note of
the request of the Government of Japan to abolish the Maritime Security Program.

71

5.

D.

a.

The Maritime Security Program (MSP) is intended to ensure that an active
U.S. merchant fleet and the trained personnel needed to operate bothactive and reserve vessels will be available to meet U.S. national andglobal security requirements for sealift capacity. On November 24, 2003,
the President signed the National Defense Authorization Act for Fiscal
Year 2004, which contained the Maritime Security Act of 2003 (MSA
2003), creating a new MSP for up to 60 ships for fiscal years 2006 through2015. The new 10-year program begins October 1, 2005 and authorizes$156 million annually for FY 2006-2008; $174 million annually for FY
2009-2011; and $186 million annually for FY 2012-2015.

b.

The Government of the United States will ensure that the Government ofJapan is kept informed of the list of the dedicated vessels and any changes
in the MSP. The Government of the United States believes the MSP is
important to meet global security needs at this time.

Cargo Preference Measures: The Government of the United States and theGovernment of Japan exchanged views on Cargo Preference Measures, including
the law requiring that the transport of Alaskan North Slope crude oil be done on
U.S.-flag ships. The Government of the United States took note of the opinion of
the Government of Japan that measures such as cargo preferences may distortconditions for free and fair competition in the international maritime market.
With respect to these issues, the Government of the United States explained thefollowing:a.

United States Government-owned cargoes covered by cargo preference
laws, including the transport of U.S. military cargo, represent less than one
percent of the United States’ total ocean borne foreign trades; andb.

The last Alaskan crude oil to be exported was in April 2000. Since thattime all Alaskan crude oil production has moved to the U.S. West Coast
market for refining and domestic consumption.

Sanctions Acts
1.

Iran and Libya Sanctions Act:a.

The Government of the United States appreciates having the views of all
its trading partners on this matter, including those of the Government ofJapan. In response to the issues raised by the Government of Japan, theGovernment of the United States explained that by its terms, the Iran and
Libya Sanctions Act (ILSA) applies to those who engage in activities
covered by the statute, without distinction by nationality. It was explainedthat the legislative history of the Act indicates a concern by Congress thatthe law be applied in a manner consistent with the international
obligations of the United States. The Government of the United States72

will continue to have a dialogue with the Government of Japan on theseissues.
b.

2.

3.

E.

The United States again notes that the scope of the law was significantly
changed in April 2004, when its application to Libya was terminated in
response to Libya’s progress in dismantling its weapons of mass
destruction and the missiles capable of delivering them.

Cuban Liberty and Solidarity Act of 1996:
a.

The Government of the United States understands the concerns of theGovernment of Japan regarding the Cuban Liberty and Democratic
Solidarity (LIBERTAD) Act of 1996 (Public Law 104-114). Since theenactment of the Act, the President has, every six months, suspended theright to bring an action under Title III (which provides for civil suits
against persons who traffic in expropriated property), based on findingsthat such suspension is necessary to the national interests of the UnitedStates and will expedite a transition to democracy in Cuba. The durationof the suspension is fixed by statute and cannot exceed six months at atime. P.L. 104-114, Sec. 306.

b.

Most recently, on July 15, 2005, the President sent a letter to Congressconsistent with the Act to suspend for six months beyond August 1, 2005,
the right to bring an action under title III of the Act.

Sanctions Acts Instituted by Local Governments: The Government of the UnitedStates has made considerable efforts over the years to reach out to state and local
authorities to help ensure that initiatives at the state or local level support U.S.
foreign policy. The Government of the United States will continue those efforts
when needed, mindful of any relevant international obligations.

Competition Policy
1.

The Antitrust Modernization Commission (AMC) was established on April 2,
2004, pursuant to the Antitrust Modernization Commission Act of 2002.
a.

The Commission is charged by statute with:(1)

Examining whether the need exists to modernize the antitrust laws
and to identify and study related issues;(2)

Soliciting views of all parties concerned with the operation of theantitrust laws;(3)

Evaluating the advisability of proposals and current arrangementswith respect to any issues so identified; and

73

(4)

b.

c.

2.

Preparing and submitting to Congress and the President a reportcontaining a detailed statement of the findings and conclusions of
the Commission, together with recommendation for legislative or
administrative action the Commission considers to be appropriate.

At its January 13, 2005, meeting the AMC decided to examine, among
other matters, the following issues related to antitrust immunities andexemptions, and in May 2005 solicited public comment on detailed
questions related to certain of those issues:(1)Should antitrust immunities and exemptions be eliminated if notjustified by the benefits they provide, or should they otherwise betime-limited?

(2)

Should the antitrust exemptions for exporters set forth in the
Webb-Pomerene Act and Title III of the Export Trading Company
Act be eliminated?

(3)

Should the state action doctrine be clarified or otherwise changed?

(4)Should the Noerr-Pennington doctrine be clarified or otherwisechanged?

On March 31, 2005, the AMC released a projected timetable for its work.
According to that timetable, the AMC will submit its final report toCongress and the President in April 2007.

The Government of the United States’ antitrust agencies continue to look foropportunities to express their views on the appropriate scope and reach oflimitations on and exemptions to the application of the federal antitrust laws.
a.

In that regard, in June 2004, the United States filed an amicus curiae briefwith the U.S. Court of Appeals for the Sixth Circuit in Jackson, Tennessee
Hospital Co. v. West Tennessee Healthcare, Inc. arguing that subordinate
state entities, such as municipalities and hospital districts, may claim“state action” exemption from the Sherman Act only if they candemonstrate that their anticompetitive activities were authorized by theState pursuant to state policy to displace competition with regulation ormonopoly public service, and that mere authorization to do business like aprivate firm does not amount to the requisite authorization.

b.

Also, in December 2004 the United States, in U.S. v. Gosselin World
Wide Moving N.V., filed a brief with the U.S. Court of Appeals for the
Fourth Circuit arguing that the antitrust immunities provided by the
Shipping Act of 1984 should not be construed to apply to rigging bids on74

through rates paid by the Department of Defense to transport military andcivilian household goods to the United States.
F.

Legal Services and Other Legal Affairs
1.

2.

Acceptance of Foreign Lawyers as Foreign Legal Consultants:a.

In August 2002, the American Bar Association (ABA) adopted aresolution to encourage all states to adopt foreign legal consultant systems
based on the ABA’s Model Rule. Since that time, the ABA has continued
to work diligently to increase the number of states that have foreign legal
consultant systems consistent with its Model Rule. In that regard, in 2005
the ABA’s Joint Committee on Lawyer Regulation met with state bar
leaders, worked with the Conference of Chief Justices and provided
consultations services to a number of states regarding implementation of
the Model Rule.

b.

In response to the ABA’s efforts, in 2005 the states of Pennsylvania andIdaho adopted foreign legal consultant systems based on the ABA Model
Rule. Moreover, the state of Georgia revised its foreign legal consultant
system to make it equivalent to the ABA Model Rule. These actions bringto 26 the number of U.S. jurisdictions that permit Japanese and otherforeign lawyers to practice as foreign legal consultants in their territory.
These 26 jurisdictions account for approximately 85 percent of the total
legal services market in the United States.

c.

Also in 2005, the Virginia Bar Association approved the proposed
adoption of a foreign legal consultant system in Virginia, and that proposal
is now awaiting approval by the Virginia Supreme Court.

d.

The Government of the United States has again conveyed to the ABA
Japan’s views on foreign legal consultant systems in the United States as
described in its October 2004 requests and asked that those views beconveyed to the Conference of Chief Justices, the ABA GATS Task Forceand the appropriate people at the ABA Center for Professional
Responsibility.

e.

The Government of the United States will continue working with the ABAon these matters, and will inform the Government of Japan of any
responses by state authorities to its requests.

Product Liability Law:a.

President Bush has stated that legal reform is a cornerstone to acomprehensive economic expansion program. For this reason, thisAdministration is firmly committed to alleviating the undue burden on the75

business community from inappropriate tort litigation and unreasonable
awards, and has supported a number of bills to that end.
b.

3.

President Bush strongly supports enactment of medical liability reform
and asbestos litigation reform legislation to expedite resolutions and curb
the costs of lawsuits. To that end, the President has expressed his
commitment to continue to work with the Congress to pass meaningful
legal reforms, starting with reform in these areas.

Class Actions: On February 18, 2005, the President signed into law the Class
Action Fairness Act of 2005. This law makes reforms to the class-action systemthat will keep out-of-state businesses, workers and shareholders from being
dragged before unfriendly local juries, or forced into unfair settlements, while
maintaining the valuable benefits that class action lawsuits can have to efficiently
allow injured parties to receive proper compensation. Specifically, the Act moves
most large, interstate class actions into federal courts, preventing lawyers fromshopping around for friendly local venues. And it provides new safeguards toensure that plaintiffs and class-action lawsuits are treated fairly, including byrequiring heightened judicial review of settlements. Enactment of this bill is asignificant step in reforming class action litigation.

II.

TELECOMMUNICATIONSA.

Participation in the U.S. Wireless Market: The Government of the United States willcontinue to provide information to the Government of Japan on the classification between
common carriers and non-common-carriers and the distinction between tariffed and nontariffed services in the United States.

B.

Deregulation of Licensing and Reporting Requirements: The Telecommunications
Act of 1996 requires the FCC to review the rules issued under the Communications Act
that apply to telecommunications service providers to determine whether any regulations
are no longer necessary in the public interest due to meaningful economic competition
and whether such regulations should be repealed or modified. Regarding certificationand licensing criteria for foreign carriers’ entry into the U.S. telecommunications market,
the United States welcomes the Government of Japan’s participation in biennial reviews
and will seriously consider any recommendation on its merits.

C.

Regulatory Predictability
1.

Dichotomous Classification of Telecommunication Service and Information
Service:a.

In the Notice of Proposed Rulemaking entitled In the Matter of IP-enabled
services (WC Docket 04-36), released in March 2004, the FCC initiated aproceeding to examine opportunities that allow consumers greater choices
created by voice services provided over the Internet and provide a measure76

of regulatory stability to the communications marketplace and to further
promote the development of these Internet-based services. The Noticerecognized not only that Internet services should continue to be subject tominimal regulation, but also that mechanisms to implement importantsocial objectives, such as public safety, emergency 911, law enforcement
access, consumer protections and disability access, may change ascommunications migrate to Internet-enabled services. In this proceeding,
FCC has asked for comment, on, inter alia:

2.

(1)

The jurisdictional nature of IP-related services;(2)

Appropriate basis or bases for asserting Federal jurisdiction overthe various categories of IP-enabled services;(3)

Whether, and on what grounds, one or more classes of IP-enabled
services should be deemed subject to exclusive federal jurisdiction
with regard to traditional common carrier regulation; and(4)

The proper legal classification and regulatory treatment of eachspecific class of IP-enabled services commenters have identified.

b.

The United States Government will continue to provide information on its
review of the dichotomous framework of Information Service andTelecommunications Service.

c.

In June 2005 the United States Supreme Court ruled in the case National
Cable and Telecommunications Association v. Brand X Internet Services,
upholding the FCC decision classifying cable modem service as an
information service. In August 2005, the Commission determined thatwireline broadband Internet access services are defined as information
services functionally integrated with a telecommunications component.

Development of UNE Regulations: The emergence of alternative platforms fordelivering services (i.e., cable modem, broadband over powerline, and wirelessbroadband) has prompted the United States Government to reexamine how best to
promote facilities-based competition. In 2004, a U.S. appeals court found that themarket conditions under which unbundling could be imposed should be better
defined. In February 2005 the FCC released new rules governing the provision of
unbundled elements to competitive carriers. These revised rules impose
unbundling obligations in a more targeted manner where requesting carriers haveundertaken their own facilities-based investments and will be using unbundled
network elements in conjunction with self-provisioned facilities. This approach isintended to spread the benefits of facilities-based competition to all consumers,
particularly small- and medium-sized enterprise customers, consistent withtechnology trends that are reshaping the industry. The rules are designed toremove unbundling obligations over time as carriers deploy their own networks

77and downstream local exchange markets exhibit the same robust competition thatcharacterizes the long distance and wireless markets.
3.

D.

E.

Universal Service: The Government of the United States and the Government ofJapan reaffirmed their continued intention to maintain any universal service
mechanism in line with WTO Reference Paper commitments.

Harmonization of State Level Regulation
1.

The Government of the United States will continue a dialogue with theGovernment of Japan regarding state-level regulations, including licensing
procedures, the Government of Japan’s interest in regulatory harmonization
among states, and adoption of unified reporting requirements.

2.

Taking account of concerns raised by the Government of Japan in this area, theGovernment of the United States will provide the Government of Japan with
relevant information on NARUC’s work.

Access Charges
1.

Inter-State Access Charges:a.

The FCC is currently in the process of reviewing recommendations andsoliciting further comment for developing an intercarrier compensation
regime. In March 2005, the FCC released a Further Notice of Proposed
Rulemaking with the goal of replacing the myriad existing intercarrier
compensation regimes with a unified regime designed for a market
characterized by increasing competition and new technologies. In a
preceding rulemaking, the Commission acknowledged a number ofproblems with the current intercarrier compensation regimes (accesscharges and reciprocal compensation) and expressed interest in identifying
a unified approach to intercarrier compensation. The Commission
solicited comment on a bill-and-keep approach to reciprocal compensation
payments governed by section 251(b)(5) of the Act. The Commission alsosought comment on alternative reform measures that would build upon thecurrent requirements for cost-based intercarrier payments.

b.

Several industry groups have developed proposals for comprehensive
reform of existing intercarrier compensation regimes and submitted those
proposals to the Commission. In this Further Notice, the FCC is soliciting
comments on these proposals, (available at http://www.fcc.gov/wcb/ppd/)
including the legal and economic bases for these proposals, as well as theend-user effects and universal service issues implicated by them. In
addition to the comprehensive reform proposals submitted in the record,
the FCC is seeking comment on alternative reform measures, includingchanges to the existing intercarrier compensation regimes and cost78

standards. The FCC will continue to reform intercarrier compensation
through transparent and fair procedures.
2.

F.

G.

H.

Intra-State Interconnection Rates: The Office of the U.S. Trade Representative
will take reasonable steps to facilitate Government of Japan requests for
information about TELRIC models used in specific states and about opportunities
for participation in the development of such models.

Procedures for Processing Export Licenses, TAA Approval and Other Measuresconcerning Commercial Satellites
1.

The Government of the United States will continue its efforts to minimize delays
and maximize transparency of procedures in export licensing and TAA approval
for commercial communications satellites in accordance with U.S. laws,
regulations, and policies. For example, the Government of the United States now
provides more forms on the web and has increased the use of on-line applications
to help ease the licensing process. The Government of the United States will
respond to the extent possible to requests for information from the Government ofJapan regarding improvements resulting from this new system.

2.

The Government of the United States and the Government of Japan haveconducted an informative dialogue on export licensing for commercial satellites.
Recognizing the importance of U.S.-Japan relations, the Department of State isprepared to discuss specific issues with the Government of Japan if necessary.

Promotion of Trade in Telecommunications Equipment
1.

Following several meetings, MIC and FCC reached a common view on respective
procedures suitable for mutual recognition of telecommunications equipment andequipment subject to EMC (electro-magnetic compatibility) requirements. With
regard to telecommunications equipment, the Governments of the United States
and Japan expect to start formal negotiations in November 2005 with a view
toward conclusion of those negotiations in early 2006, if feasible.

2.

Regarding EMC, the Government of the United States confirmed that it isprepared to work with Japan to develop an arrangement that would permit
acceptance of results of conformity assessment for information technology (IT)equipment and industrial, scientific and medical (ISM) equipment conducted byaccredited Japanese conformity assessment bodies.

Network Channel Terminating Equipment (NCTE): The Government of Japan will
invite public comment regarding the proposed abolishment of the streamlined proceduresof the 1990 Exchange of Letters on Network Channel Terminating Equipment (NCTE)(“the 1990 Letters”) which were described in the Third Report to the Leaders. Unlesssufficient evidence demonstrating the continued need for these revised procedures are79submitted from the interested parties through public comments, the 1990 Letters willcease to be applied in and after FY2006.
III.

INFORMATION TECHNOLOGY

A.

Protection of Copyright and Related Rights
1.

The Government of the United States recognizes the importance of ensuring theprotection of the right of making available, rights concerning live performances,and moral rights, as well as the importance the Government of Japan places on theprotection of unfixed works. The Government of the United States has also had aseries of productive discussions with the Government of Japan concerning
Government of Japan’s requests for clear and reliable protection of these items
under U.S. law, including the Copyright Act. The Governments of the UnitedStates and Japan will continue discussions on these issues.

2.

To ensure adequate continuing protection, the Government of the United States
will continue to monitor the development of case law concerning the protection of
moral rights.

3.

The Government of the United States will continue discussions with theGovernment of Japan on the protection of the right of rental for computer
programs with special emphasis on video game programs.

B.

Adequate Protection of Rights under the Digital Millennium Copyright Act: The
Governments of the United States and Japan recognized the importance of striking anappropriate balance between the rights of copyright owners and the interests of ISPs andalleged infringers. In this connection, the Government of the United States will continue
to observe future developments of case law in this area.

C.

New Copyright Issues Pertaining to the Wider Use of the Internet and theDevelopment of Digital Technologies: The Governments of the United States and Japan
exchanged useful information about adequate legal protection and effective legal
remedies against the circumvention of effective technological measures. The UnitedStates will review the affect of the provisions of the Digital Millennium Copyright Act
related to the circumvention of access control technologies on non-infringing uses of any
particular class of works and provide appropriate exceptions. This review commenced on
October 3, 2005 with the first request for comments from the public. The two
Governments will continue to discuss this matter.

D.

U.S.-Japan Cooperation to Improve Intellectual Property Rights Protection:1.

To combat the serious and growing problem of the global trade in pirated andcounterfeit goods, both the United States and Japan have recently establishedmajor new initiatives. In October 2004, the United States launched the Strategy

80Targeting Organized Piracy (STOP!), and in June 2005, Japan launched the“Intellectual Property Strategic Program 2005.”
2.

3.

IV.

In addition to establishing their own initiatives in this area, the United States andJapan have been and will continue to closely cooperate on strengthening
intellectual property rights protection and enforcement. Along with cooperating
multilaterally, the two Governments, for example:a.

Held bilateral meetings in November 2004 and April 2005 to promote IPR
protection and enforcement in Asia and around the world;b.

Co-sponsored the APEC Anti-Counterfeiting and Piracy Initiative, which
was endorsed at the meeting of APEC Ministers Responsible for Trade inJune 2005 in the Republic of Korea; andc.

Discussed under the Regulatory Reform Initiative ways to cooperate tocombat piracy of digital content.

The Governments of the United States and Japan will continue to cooperate inbilateral, regional, and multilateral fora to promote greater protection for
intellectual property rights world wide.

ENERGYThe Government of the United States is taking measures to promote a comprehensive energy
policy which will improve the functioning of the U.S. energy market. This process is welcomedby the Government of Japan.
A.

Federal Energy Regulatory Commission (FERC) Market Regulation Policies andMeasures
1.

As reflected in its strategic plan, FERC’s goals are to secure high quality,
environmentally responsible infrastructure through consistent policies; foster
nationwide competitive energy markets as a substitute for traditional regulation;and protect customers and market participants through vigilant and fair oversightof both traditionally regulated and transitioning energy markets.

2.

FERC’s open and transparent policy making procedures allow all interested
parties the opportunity to participate in the process, thus supporting an investment
environment that is responsive to market conditions. As part of its outreach,
FERC regularly holds open conferences in which parties may address policy
decisions. Proposed rules are issued through a formal Notice of Proposed
Rulemaking (NOPR) process, where they are opened up to further publiccomment. Mandated by law, this process ensures that the general public, and notjust those most affected by the proposed rule, will have ample opportunity toindicate any concerns about the provisions and requirements of the proposal.

81

Since FERC carefully takes into account the concerns of all those who comment,
final rules approved by FERC may differ substantively from the rules as initially
proposed. FERC currently has a number of ongoing rule makings in progress.
3.

B.

C.

FERC remains committed to fostering nationwide competitive energy markets
and continues its efforts to promote a more positive energy industry investment
environment. In this regard, FERC has conducted a series of infrastructure
conferences and technical workshops on investment in electric transmission
infrastructure. On June 15, 2005, FERC took action on adoption of the Proposed
Pricing Policy for Efficient Operation and Expansion of Transmission Grid.

Federal and State-Level Regulations
1.

While the United States’ system of government provides for separate federal andstate responsibility over energy regulation, FERC continues to take steps to makeregulation of the wholesale energy markets more uniform across all states. FERC
has issued a standardized large generator interconnection rule that makes more
uniform the interconnection process and protocols for new generators that arecontained in the open access transmission tariffs of all public utility transmission
providers. The Final Rule was issued July 24, 2003, and a compliance directive
to implement the Final Rule was issued December 20, 2004. A second Final
Rule, for standardized small generator interconnections, was issued May 12,
2005. This second Final Rule adopted many of the best practices recommended
by the states’ National Association of Regulatory Utility Commissioners(NARUC). Also, a Notice of Proposed Rulemaking on wind generator
interconnection protocols was issued January 24, 2005.

2.

In addition, FERC has promoted the formation of Regional Transmission
Organizations (RTOs) and Independent System Operators (ISOs) to improve
efficiency in wholesale electricity markets and to ensure that electricity
consumers pay the lowest price possible for reliable electricity service. On May
11, 2005, FERC issued a staff document and invited all interested persons to filecomments addressing long-term transmission rights in electricity markets
operated by RTOs and ISOs.

Comprehensive Energy Legislation: The Energy Policy Act of 2005, intended tomodernize energy production and distribution systems, was signed by President Bush on
August 8, 2005. The Act includes the following provisions:
1.

More favorable tax treatment for expanding or modernizing the electricity gridand building natural gas pipelines;

2.

Establishment of mandatory federal electricity grid reliability rules;

3.

Clear final authority for FERC to approve liquefied natural gas (LNG) importterminals; and

82

4.

Repeal of the Public Utility Holding Company Act.

D.

Review on Public Business: The Government of the United States continues to assess
the impact of Publicly Owned Entities (POEs) on competition in a liberalized market.
FERC regularly consults with the American Public Power Association (APPA) and the
National Rural Electric Cooperative Association (NRECA) on a host of market related
issues. Many POEs have already made their transmission delivery service tariffs
consistent with FERC’s open access transmission policies. The Energy Policy Act of2005 allows FERC to ensure open access among all transmitting utilities, including
POEs. FERC actively encourages ISOs and RTOs to include POEs as members.
Generally, municipalities that do not own generation rely on the opportunities to purchasetheir power at wholesale from competitive generation markets where all investors canparticipate.

E.

Price Cap Regulation in Wholesale Market: FERC can impose price caps or bid caps
on wholesale electricity when it deems that such steps are necessary and the only way tocurb the abusive exercise of market power. As such, FERC uses this authority sparingly
to not interfere with market participants making sound business decisions.

F.

Public Trust and Energy Markets
1.

FERC and the Commodity Futures Trading Commission (CFTC) actively monitor
energy markets. In this regard, FERC strengthened its market monitoring
capabilities by significantly increasing the size and experience its staff.
Approximately 50 people were hired from the outside when FERC’s new Officeof Market Oversight and Investigation (OMOI) was established. OMOI is now
staffed with about 100 personnel dedicated to monitoring and overseeing
electricity and natural gas markets in the United States.

2.

FERC also issued updated standards of conduct behavioral rules for public utility
transmission providers and natural gas pipelines in 2004. In addition, FERC
increased its auditing and investigations, and is aggressively pursuing violations.
The results of FERC’s investigations are released to the public.

3.

FERC’s Office of Market Oversight and Investigation enforces the regulations on“Accounting and Reporting of Financial Instruments, Comprehensive Income,
Derivatives and Hedging Activities,” issued in October 2002, and takes necessary
action when appropriate.

V.

MEDICAL DEVICES AND PHARMACEUTICALSA.

FDA’s Meetings with Foreign Industry: MHLW has continuously offered meaningful
opportunities for directly exchanging views with U.S. and other foreign medical device
and pharmaceutical industries operating in Japan. FDA provides continuous andmeaningful opportunities for discussions concerning its regulations on medical devices

83and pharmaceuticals with Japanese and other foreign pharmaceutical and medical devicecompanies who have submitted an application with FDA. On a similar basis, Japaneseand other foreign industry associations are provided information on FDA’s website,
opportunities to participate in public meetings, and opportunities for direct meetings with
FDA.
B.

Compliance with Guidelines of the International Conference on Harmonization
(ICH)
1.

Based on the intention of the timely implementation of internationally harmonized
guidelines, FDA and MHLW are discussing the incorporation of and compliancewith such guidelines at meetings of ICH.

2.

As has been discussed at ICH, FDA continues to fully support the use of
MedDRA terminology in the international setting for which it was designed.

3.

With regard to the test duration of chronic toxicity testing of new drugs in nonrodents, FDA would be willing to provide updated information about the numberof cases requiring longer duration than that according to the ICH guideline in
response to a request from MHLW through the ICH steering committee and toresolve this issue technically.

C.

Early Implementation of Matters Agreed Upon by the Global Harmonization Task
Force (GHTF): In recognition of the importance of the global convergence ofregulatory systems, FDA is striving toward implementation of “Essential Principles of
Safety & Performance of Medical Devices” and other matters that have not been fully
implemented in the United States, and making efforts to deepen technical discussions
with regulatory authorities of relevant countries under the framework of GHTF.

D.

Mutually Agreed Approach towards an MRA or a Similar Information Sharing
Arrangement on Good Manufacturing Practices (GMP) of Medical Devices andPharmaceuticals: Since the revised Pharmaceutical Affairs Law that was put in force inApril 2005 in Japan will require GMP certification for medical device andpharmaceutical approval, an MRA on GMP or establishment of a similar cooperative
relationship will enable innovative medical devices and pharmaceuticals to be brought tomarket more quickly. With the goal of achieving GMP mutual recognition, or a similar
information sharing cooperative arrangement, MHLW has urged FDA to advance GMP
cooperation between the United States and Japan on medical devices and pharmaceuticals
in a positive manner. FDA has indicated that it will not pursue an MRA but
acknowledges that closer cooperation between FDA, MHLW and PMDA, such as therecently concluded confidentiality agreements among the three organizations, could leadto improved patients’ access to medical devices and pharmaceuticals developed by U.S.
and Japanese companies and that it will be beneficial for the relevant industries of boththe United States and Japan. FDA and MHLW will continue to seek a mutually agreed
approach to share certain defined information within the limits of their resources andlegal ability to do so. As a means to pursue enhanced cooperation, FDA has given

84

MHLW access to the FACTS database, a computerized inventory of regulated firms,
which contains the results of inspections of medical device and pharmaceuticalmanufacturers, and will provide clarification of entries when MHLW requests suchinformation. FDA and MHLW will continue to discuss procedures for sharing medical
device information and GMP inspection reports on pharmaceuticals. For GMP ofpharmaceuticals, FDA and MHLW have already exchanged letters related to an MOU
and agreed that both FDA and MHLW will provide copies of inspection reports. In
contrast, however, such a partnership has not yet been formed in the field of medical
devices. As a first step, FDA has shown its intention, on a case by case basis, to respondwhen MHLW and PMDA request information on QMS auditing. This topic will be
discussed by MHLW and FDA in developing the framework associated with theconfidentiality agreement. With an aim to facilitate cooperation in the auditing of
medical devices between both governments, MHLW and FDA will seek further concrete
steps to be included in the framework.
E.

Mutually Agreed Approach towards an MRA or a Similar Information Sharing
Arrangement on Good Clinical Practices (GCP): In view of Japan’s growing
accumulation of experiences following the introduction of ICH Good Clinical Practicestandards, FDA is willing to provide training to personnel of MHLW and PMDA in orderto promote the exchange of information on GCP between Japan and the United States
within its resource constraints. MHLW, PMDA and FDA will discuss this matter anddesign a mutually agreed approach.

F.

Simplification of Data Requirements for Investigational New Drugs (IND)
Applications: FDA is willing to discuss at ICH what data on manufacturing and control
should be required in the investigational stage for new drug applications, and to study
specifically how to implement the simplification of IND applications under theframework of discussions between FDA and MHLW.

VI.

FINANCIAL SERVICES

A.

Registration Requirements for Foreign Issuers in Case of Mergers, Consolidation,
or Reclassification of Securities
1.

In 1999, the U.S Securities and Exchange Commission (SEC) adopted a rule thatexempts from registration requirements offers where the acquiring company andthe target company are foreign companies, and where U.S. residents hold lessthan 10 percent of the shares of the target company. SEC staff recognizes theJapanese Government’s view that this rule has extra-territorial effects. SEC staff
is aware of Japan’s interest in raising this level. However, at the time of adopting
this rule, the SEC carefully considered the level of U.S. ownership that was
desirable and appropriate for purposes of this exemption and in the interest ofinvestor protection.

2.

In addition, even above the 10-percent level of U.S. ownership, more tailored
relief has been adopted for foreign companies that addresses conflicting85

regulatory mandates and offering practices. Accordingly, Japanese companies
engaged in merger and acquisition or other transactions that fail to meet the 10percent threshold are encouraged to raise specific concerns with SEC staff.
B.

Qualification of Financial Holding Companies: Until recently, the United States, like
Japan, restricted affiliations between commercial and investment banks. In the GrammLeach-Bliley Act, the Congress determined to lift these restrictions but only for thoseorganizations whose U.S. depository institution subsidiaries meet very high prudential
standards with respect to capital and management. Organizations that qualify for theliberalization are known as financial holding companies (FHCs). A foreign bank may
become an FHC if the bank meets prudential criteria that are comparable to the prudential
standards applicable to the U.S. bank subsidiaries of U.S. bank holding companies thatare FHCs, giving due regard to the principle of national treatment and equality ofcompetitive opportunity. The standards are applied to all foreign banks on a
nondiscriminatory basis. Reliance on government support to meet capital requirements is
one of several factors that may be taken into account in determining comparability ofcapital. No one factor is determinative. More than 30 foreign banks are FHCs. The
Government of the United States welcomes applications for FHC status by any foreign
financial institutions that meet these prudential criteria.

C.

Regulation on Sales and Offers of Foreign Investment Trusts/Companies: Although,by its terms, Rule 7d-1 promulgated under the Investment Company Act of 1940
(Company Act) applies only to Canadian investment companies, the SEC historically has
also required non-Canadian foreign investment companies seeking 7(d) orders to comply
with the rule’s conditions. For example, between 1954 and 1973, the SEC issued section
7(d) orders to investment companies from Canada, Australia, Bermuda, South Africa, andthe United Kingdom. In each of these orders, the applicant agreed to comply with theconditions of Rule 7d-1 as a prerequisite to receiving its section 7(d) order. In someinstances, the SEC has granted limited exemptive relief from Rule 7d-1. For example, in
1979, the SEC permitted a Canadian investment company to maintain its Japanese
portfolio securities in the custody of a Japanese branch of a United States bank, which
otherwise would have violated Rule 7d-1 (see Templeton Growth Fund, Ltd., Investment
Company Act Release Nos. 10628 (March 13, 1979) and 10657 (April 11, 1979)). The
SEC staff remains willing to consider applications for 7(d) orders from any foreign
investment company, including those organized in Japan. Moreover, additional avenues
for access to the U.S. market for asset management services exist. Indeed, SEC staff
interpretations and innovations in the mutual fund industry have significantly increased
the ability of foreign advisers, which can easily register with the SEC, to offer theirservices to U.S. investors and to establish funds that are organized in the United States.

D.

Participation of US Investors to Foreign Exchange Traded Funds (ETFs): Because
ETFs operate differently from traditional investment companies, U.S. ETFs have had toseek exemptive relief from certain provisions of the Company Act. In some cases, inproviding exemptive relief to U.S. ETFs, the SEC has provided relief from the prospectus
delivery requirements of Section 24 of the Company Act, thereby allowing sales of sharesto purchasers in the secondary market unaccompanied by a prospectus. (See In the86Matter of iShares Inc. and iShares Trust, Investment Company Act Release No. 25623(June 25, 2002)). Like U.S. ETFs, non-U.S. ETFs likely would also have to seek
exemptive relief, in addition to a 7(d) order, to register under the Company Act.
Moreover, like U.S. ETFs, non-U.S. ETFs could seek, as part of their applications for
exemptive relief, relief from the requirements of Section 24 of the Company Act.

87