FIRST JOINT STATUS REPORT ON THE U.S.-JAPAN ENHANCED INITIATIVE
ON DEREGULATION AND COMPETITION POLICY
MAY 15, 1998
Since June 1997, the Governments of the United States and Japan have
been engaged in an extensive effort to fulfill the objective of the
U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy
(Enhanced Initiative) under the U.S.-Japan Framework for a New Economic
Partnership (Framework) "to conduct a serious exchange of views and
to undertake measures, as called for in the Framework, to 'address reform
of relevant government laws, regulations, and guidance which have the
effect of substantially impeding market access for competitive goods
and services,' in order to enhance consumers' interests and to increase
efficiency and promote economic activity."
The Enhanced Initiative reflects the strong belief of both governments
in the benefits of deregulation. The promotion of deregulation and active
implementation of competition policy are issues of major importance
to both governments.
Under the Enhanced Initiative the Governments of the United States
and Japan have held meetings of the High-level officials Group and of
five Expert-level Groups: telecommunications, housing, medical devices/pharmaceuticals,
financial services, and the deregulation and competition working group,
which addresses structural issues, including competition policy and
distribution, and issues related to transparency and government practices.
Consistent with the principles of two-way dialogue and the achievement
of tangible progress, both sides have exchanged views and interests
on a wide variety of deregulation items and each has provided clarifications
on the progress made on its side. As part of that effort, the Government
of the United States provided a submission to the Government of Japan
regarding deregulation, competition policy, transparency and other government
practices in November 1997. The Government of Japan has also raised
regulatory issues of interest with the Government of the United States.
The Government of Japan has undertaken a series of deregulatory measures,
the latest and the most significant being the new three-year program
for the promotion of deregulation decided by the cabinet on March 31,
1998, based on the extensive hearings of both domestic and foreign requests.
The salient Japanese deregulatory and other measures that relate to
the dialogue under the Enhanced Initiative are set out in this report.
The Government of the United States welcomed the progress made through
efforts by the Government of Japan. At the same time, the Government
of the United States encouraged continued efforts by the
Government of Japan to promptly address outstanding U.S. proposals contained
in the Government of the United States' November 1997 submission.
The Government of the United States provided explanations of the U.S.
items of interest to the Government of Japan. Those items are set out
in this report. The Government of Japan encouraged the Government of
the United States to actively address these issues.
The Governments of the United States and Japan share the view, as discussed
under the Enhanced Initiative, that these measures will improve market
access for competitive goods and services, enhance consumers' interests,
increase efficiency and promote economic activity. Consistent with international
obligations, the measures undertaken under the Enhanced Initiative will
provide nondiscriminatory treatment to foreign goods and services.
Both governments reaffirmed their determination to further promote
deregulation and to continue dialogue under the Enhanced Initiative,
including considering new issues. Recognizing the importance of broad-based
deregulation in fostering competition, and that the energy sector is
closely related to energy security and the global environment, the two
governments will address deregulation matters under the Enhanced Initiative
in an expert-level group to be established under the existing Japan-United
States Energy Working Group. This expert-level group will be co-chaired
by the Ministry of Foreign Affairs and the Ministry of International
Trade and Industry for the Government of Japan and chaired by the United
States Trade Representative for the Government of the United States.
The two governments recognize that implementation of the measures identified
in this Report is an ongoing process and in many cases will require
reform of relevant government laws, regulations, and guidance. Under
the Enhanced Initiative, the two governments, upon the request of either
government, will meet at a mutually convenient time to address these
measures, and will work closely together to ensure that these measures
contribute to fulfilling the objective of the Enhanced Initiative.
DEREGULATION AND OTHER MEASURES BY THE GOVERNMENT OF JAPAN
UNDER THE ENHANCED INITIATIVE
A. Housing
- Amendment of the Building Standards Law to introduce performance-based
codes and a centralized evaluation system for new building materials
by FY 2000 and to implement by FY 1999 upgraded and efficient building
confirmation and inspection procedures, and newly simplified performance-based
procedures to be implemented in FY 2000 for three-story, multi-family
wood housing and certain commercial and mixed use wood buildings in
quasi-fire protection districts (legislation submitted in the current
session of the Diet).
- Announcement of basic ideas on how to implement regulations related
to the amended Building Standards Law to the parties concerned at the
stage of its preparation over a two-year period beginning in June 1998.
- Introduction and promotion of procedures for approval of three-story,
multi-family wood housing and certain commercial and mixed used wood
buildings in quasi-fire protection districts implemented beginning in
August 1997.
- Implementation of the testing methods and procedures for 2x4 construction,
including pass/fail testing procedures, based on international and North
American practices beginning in May 1998.
- Recognition of American Standards Lumber Committee (ASLC) and Western
Wood Products (WWPA) grademarks for machine stress rated lumber announced
in February 1998, and recognition of ALSC and WWPA grademarks for finger-jointed
lumber to be announced in May 1998.
- Work toward recognition of the Underwriters' Laboratories as a
fire testing laboratory for various fire preventative building materials.
- Conclusion that the cordless nailer (IM350/90CTQ) does not fall
within the definition of "firearms" in the Firearms and Swords Control
Law in March 1998.
- Continue ongoing dialogue on recognition of U.S. nails and nailing
systems.
- Continue ongoing dialogue on market access and standards-related
issues in the housing sector, including detailed and timely review of
measures to implement the amended Building Standards Law.
- A revised Japanese Agricultural Standards (JAS) for structural
plywood, emphasizing performance-based standards, including board strength,
will be introduced during FY 1998.
B. Telecommunications
- Interconnection
- Recommendation on methods for realizing number portability
will be issued in FY 1998 based on a study conducted by experts.
- Recommendation on the streamlining of the way to conclude interconnection
agreements among more than two companies will be issued in FY
1998 based on a study conducted by experts.
- The Government of Japan intends to submit a bill necessary
to amend the Telecommunications Business Law (TBL) to the ordinary
session of the Diet in the Spring of 2000 in order to implement
long-run incremental cost methodology (LRIC) as early as possible.
Once the bill is passed, the Government of Japan will expedite
necessary procedures (e.g., the issuance of ministerial ordinances
and approval of interconnection tariffs) so as to implement LRIC
at the earliest possible date. Provided that all due procedures
are completed expeditiously, LRIC will be implemented in CY 2000.
In this process, due consideration will be paid to ensuring that
the implementation of LRIC would cause no disruption of provision
of universal service and that it would not prove destructive to
end user rates and business operations of incumbent local exchange
carriers. Prior to the introduction of LRIC-based rates, the Government
of Japan will, within the scope of its existing authority, promote
the reduction of interconnection rates as much as possible.
- Communications Satellite Digital Broadcasting
- Relaxation of restrictions on the multiple ownership of channels
for Communications Satellite Digital Broadcasting services in
March 1998.
- Permission for statistical multiplexing between CS digital
broadcasting-consignors by the end of 1998.
- Elimination of the full cost principle applied for the notification
system of CS broadcasting transponder rates, expected to be implemented
around June 1998.
- International Simple Resale (Ko-Sen-Ko): Liberalization
of international simple resale, implemented since December 22, 1997.
- Foreign Investment Restrictions in KDD: Elimination of foreign
investment restrictions in KDD (law to be promulgated in May 1998).
- The 100-Destination Rule: Elimination of restriction on international
transit services (the 100 destination rule) by June 1998.
- Licensing and Tariffs Procedures
- Introduction of legislation permitting tariffs on notification
basis (law to be promulgated in May 1998).
- Permission for Type II telecommunications carriers to establish
access line facilities that will connect single user facilities
(law to be promulgated in May 1998).
- Narrowing the scope of Special Type II telecommunications businesses
(law to be promulgated in May 1998).
- Introduction of measures to prevent predatory pricing (law
to be promulgated in May 1998).
- Ministry of Posts and Telecommunications' (MPT) Notice and Comment
Procedures: Voluntary implementation by the MPT of a notice and comment
process for major regulatory changes.
- CATV Services: Conclusion of a study by the end of 1998 on restrictions
on foreign investment for cable television operators with a view toward
their removal.
- Testing and Certifications
- Simplification of application procedures for testing and approval
of the Radio Equipment Testing and Approval Association (MKK) from September
16, 1997.
- Simplification of MKK technical standard compliance certification
from December 25, 1997.
- Simplification of permission procedures for cable television facilities
installation from April 1998.
- Simplification of certifications of conformity with technical
standards for radio equipment (law to be promulgated in May 1998).
- Simplification of compliance approval with technical conditions
for telecommunications terminal equipment (law to be promulgated in
May 1998).
- Rights of Way: Completion of a study by the end of 1998 on current
conditions in Japan governing access to poles, conduits, ducts and rights-of-ways,
with a view to proposing measures to improve the ability of CATV companies
and telecommunications carriers to obtain timely, nondiscriminatory
and transparent access to such resources.
C. Medical Devices/Pharmaceuticals
- Greatly expanded acceptance of foreign clinical test data for approval
of new medical devices, by interpreting the March 1997, Ministry of
Health and Welfare (MHW) directive as broadly as possible.
- Recognize the value of innovation of pharmaceuticals and medical
devices, so as not to impede the introduction of innovative products
which bring more effective and more cost-effective treatments to patients.
- In order to ensure transparency in the consideration of health care
policies, allow foreign pharmaceutical and medical device manufacturers
meaningful opportunities to state their opinions in the relevant Councils
on an equal basis with Japanese manufacturers, and provide them on their
request, with opportunities to exchange views with MHW officials at
all levels.
- Shorten the approval processing period for new drug applications
to 12 months by April 2000, with steady and continuous improvement between
now and then, and to further speed the introduction of innovative new
pharmaceuticals, significantly shorten approval times, particularly
for priority drugs.
- Expand acceptance of foreign clinical test data for pharmaceuticals
through the incorporation of International Conference on Harmonization
guidelines into Japanese domestic regulations by August 1998, and use
an acceptance process that is transparent and avoids inappropriate delays.
- Develop as soon as possible streamlined and transparent procedures
for the prompt creation of new functional reimbursement categories for
medical devices within a specified period of time considering the views
of interested manufacturers, clinical experts, and others, subject to
the approval of Central Social Insurance Medical Council (Chuikyo).
D. Financial Services
An extensive program of liberalization of financial services, extending
until 2001, is being implemented according to the schedule set down
in June 1997, and legislation to implement a significant part of the
remaining program has been submitted to the Diet. The United States
welcomed the progress made, and the Japanese intention to carry out
the full program of liberalization within the proposed schedule.
- Lifting of the ban on issuance of subordinated bonds by commercial
banks (June 30, 1997).
- Liberalization of intermediation of unlisted and unregistered equities
by securities companies (July 1, 1997).
- Introduction of options on individual stocks in the Tokyo Stock
Exchange and the Osaka Stock Exchange (July 18, 1997).
- Introduction of general securities accounts (similar to cash management
account in the U.S.) (October 1, 1997).
- Widening the scope of business activities for subsidiaries of financial
institutions (October 1, 1997). Securities subsidiaries of banks are
allowed to engage in secondary market business for equity related bonds
and transactions related to stock index futures and options (excluding
those that may require delivery of the underlying shares). Trust bank
subsidiaries of securities firms are allowed to engage in loan trust,
specified money trusts (tokkin) and directed money trust for
separate investment (shiteitan).
- Introduction of an off-hour trading system for block and basket
trading in the Tokyo Stock Exchange (November 14, 1997).
- Introduction of direct over-the-counter sales of investment trusts
by securities investment trust companies on the premises of banks and
other financial institutions (December 1, 1997).
- Lifting of the ban on financial holding companies (March 11, 1998).
- Liberalization, in principle, of cross-border capital transactions,
as the revised Foreign Exchange and Foreign Trade Law came into effect.
(April 1, 1998).
- Liberalizing brokerage commissions or the portion of a transaction
in excess of yen 50 million (April 1, 1998).
- Abolition of the obligation for member insurers to use premium
rates calculated by the rating organizations (under deliberation in
the current session of the Diet and expected to be implemented on July
1, 1998).
- Promoting transaction of assets through establishing a system for
securitization of assets via special purpose companies (SPCs) (under
deliberation in the current session of the Diet and expected to be implemented
on September 1, 1998).
- Introduction of new investment trust products such as company-type
investment trusts and privately-placed investment trusts. (Under deliberation
in the current session of the Diet and expected to be implemented on
December 1, 1998).
- Full liberalization of securities derivatives (under deliberation
in the current session of the Diet and expected to be implemented on
December 1, 1998).
- Elimination of restrictions on the scope of business activities
for securities companies (under deliberation in the current session
of the Diet and expected to be implemented on December 1, 1998).
- Switch from a licensing system to a registration system for securities
companies (under deliberation in the current session of the Diet and
expected to be implemented on December 1, 1998).
- Introduction of proprietary trading systems (under deliberation
in the current session of the Diet and expected to be implemented on
December 1, 1998).
- Expansion of the scope of business activities for banks (lifting
the ban on sales of investment trusts, etc.) and for subsidiaries of
banks (to full financial related services.) (Under deliberation in the
current session of the Diet and expected to be implemented on December
1, 1998).
- Creation of the Securities Investor Protection Fund, with accompanying
measures, such as required separation of customer and proprietary accounts,
to reduce participant risks, and creation of the Policy Holders Protection
Corporations (under deliberation in the current session of the Diet
and expected to be implemented on December 1, 1998).
- Requirement that corporate financial statements and disclosures
should be made primarily on a consolidated basis (to be phased in from
FY 1998).
- Elimination of restrictions on the scope of business activities
for securities operating subsidiaries of banks and trust bank operating
subsidiaries of securities companies (expected to be implemented in
the 2nd half of FY 1999).
- Full liberalization of brokerage commissions (expected to be implemented
by the end of 1999).
- Mutual entry between the insurance businesses and other financial
business areas (expected to be implemented by March 2001).
- Allowing investment trust management companies and investment advisory
companies to grant discretionary authority to other fund management
companies (under deliberation in the current session of the Diet and
expected to be implemented on December 1, 1998).
E. Distribution
- Customs/Import Processing
- Introduced an interagency network system which links the customs
clearance computer systems with the computer systems of the Ministry
of Health and Welfare (MHW) and the Ministry of Agriculture, Forestry
and Fisheries (RAFF), in order to expedite import procedures.
- To enable swift import clearance, Japan Customs introduced several
measures, such as expanding pre-arrival review, providing prior classification
information by facsimile and so-called clearance-upon-arrival through
the use of customs clearance system for air cargo (Air-NACCS: Nippon
Automated Cargo Clearance System).
- Prior classification information system using e-mail will be established
by the end of 1998.
- Upgrade the customs clearance computer system for maritime cargo
(Sea-NACCS) by the end of FY 1999:
- to enable swift import clearance for maritime cargo with sophisticated
linkage between cargo status information and import declaration information;
and
- to enhance the interagency network system in order to link with
the computer systems of other agencies concerned to realize one-stop
service on import and export procedures.
- EDI filing for import-export permits and approvals under the provisions
of the Foreign Exchange and Foreign Trade Law will be instituted by
FY 1999.
- Retailing and Services
- Fundamental Changes of Policy Concerning Large Scale Retail Stores:
Submission of a bill to introduce a new legal regime to address current
and new concerns involved in the opening and operating of large-scale
retail stores. This new legal regime will eliminate the use of supply/demand
adjustment mechanisms and require local governments to apply transparent
criteria that are limited to environmental factors, e.g., traffic and
noise, set out in guidelines issued by the central government. The current
Large Scale Retail Store Law will be thereby abolished.
- Liquor: With regard to liquor retail license, the restriction
on the number of licenses issued per a definite population will steadily
be phased out from September 1998, to be abolished as of September 1,
2003. The restriction on proximity to existing premises will be abolished
on September 1, 2000.
- Transportation
- Trucking Business
- Enlargement of the operation zones to cover entire regional economic
blocs will be completed during FY 1998; and
- Minimum number of vehicles for a trucking business will be gradually
reduced to five for every region of the country by FY 2000.
- Requirements for the submission of cost account statements, concerning
fees and charges for freight forwarding business, will be eased by FY
1998.
- Necessary measures will be taken concerning port transportation
business to comply with the contents of the final Report submitted by
the Administrative Reform Committee in December 1997, which included
the following points: the abolition of the current business licensing
system (demand-supply adjustment regulation), to be replaced by an approval
system; the abolition of the current approval system for charges, to
be replaced by a notification system; and at the same time, the examination
and implementation of various measures for ensuring stability of port
transportation.
- Standards, Specifications and Certification of Vehicles
- The current system for automotive repair mechanics is being reviewed,
taking into account comments and opinions of interested domestic and
foreign parties, with deregulation as one of the objectives.
- Extension of the period of validity of completion inspection certificate
from six months to nine months (legislation for the revision of the
Road Vehicles Act submitted to the current session of the Diet).
F. Competition Policy
- The Japan Fair Trade Commission (JFTC)
- The JFTC reaffirms its commitment to effectively enforce and strictly
apply the Antimonopoly Act in accordance with relevant guidelines to
address anti-competitive practices, including cases where any practices,
such as those with retaliatory threats, by an influential manufacturer
against distributors lead to exclusion of its competitors.
- When the JFTC as part of an economic survey recommends that firms
implement measures, the JFTC will undertake a follow-up survey to assess
whether firms have implemented measures recommended by the JFTC and
report the results to the public.
- Budget and Resources: The Government of Japan will increase JFTC
staff by 10 persons and its budget by 1.1% in FY 1998.
- Surveys: The JFTC will:
- Conduct a survey of the Antimonopoly Act compliance programs of
the top 2000 Japanese firms, with a report to be issued in summer 1998.
In this regard, the JFTC is prepared to consult with and give advice
to firms concerning their compliance programs.
- Conduct a follow-up survey of the photographic color film and
paper industry to assess how firms have addressed the JFTC's suggestions;
and
- Conduct a follow-up survey of the flat glass industry to assess
how firms have addressed the JFTC's suggestions.
- Private Remedies: The Government of Japan established study groups
(MITI in September 1997 and JFTC in March 1998) to consider systems
to permit private parties to sue for injunctions against violations
of the Antimonopoly Act with reports to be expected in Summer 1998 and
Fall 1998, respectively.
- Exemption Systems of the Antimonopoly Act: The Government of Japan
will submit legislation to the next ordinary session of the Diet to
abolish or reform exemption systems (including anti-depression cartels
and rationalization cartels), based on a March 1998 cabinet decision.
- Deregulation: The JFTC will actively conduct surveys and make necessary
proposals regarding the business field where entry is restricted by
supply-and-demand adjustment regulations as well as business fields
where entry regulations have been relaxed.
- Bid-rigging:
- The Government of Japan will take necessary measures to secure
full compliance with section V.6(l) "Confirmation in Tendering Documents"
of the "1994 Action Plan on Reform of the Bidding and Contracting Procedures
for Public Works," which requires participants in bidding to confirm
in tendering documents that they recognize they may not engage in practices
inconsistent with the Antimonopoly Act, and that they are indeed not
involved in such practices.
- To increase transparency in the bidding process, the Government
of Japan will disclose the scheduled price (yotei kakaku)
for public works projects after the results of the tenders are
released.
G. Legal Services
The current session of the Diet passed legislation that will:
- Reduce the experience required to register as a gaikokuho-jimu-bengoshi
(foreign legal consultant) from five years to three years, while
at the same time reducing the amount of time spent in Japan that would
count toward meeting that requirement from two years to one year.
- Allow a foreign lawyer to count toward meeting the experience required
to register as a foreign legal consultant, the time spent practicing
the law of the lawyer's home jurisdiction in a third country.
- Liberalize the ability of a gaikohuho-jimu-bengoshi to
practice third country law with written advice from foreign lawyers
qualified in that third country.
- Expand the purpose of joint enterprises between gaikokuho-jimu-bengoshi
and bengoshi with a view to enabling the joint enterprises
to provide full legal services throughout the entire process including
judicial and administrative proceedings in cases involving foreign legal
matters.
H. Transparency and Other Government Practices
- Public Comment Procedures
- Reach a conclusion concerning an administrative measure for public
comment procedures for the introduction, amendment, and abolition of
regulations by Spring 1999.
- "Central Government Reform Bill" (tentative translation) which
provides that the Government of Japan shall consider utilizing and establishing
a mechanism of public comment procedures for the purpose of reflecting
public opinions in its policy-making process, and thereby securing fairness
and transparency in the process (legislation submitted to the current
session of the Diet).
- Application Process
- Review the examination standards for the issuance of licenses,
permits, and approvals with the aim of clarifying, specifying, and quantifying
the examination standards while minimizing discretionary factors.
- Simplify and speed up the examination procedures for licensing,
permits and approvals with measures to be specified by the end of September
1998 and promptly implemented.
- Enforce strictly the Administrative Procedure Law.
- Establish a study group to explore means of introducing the use
of overall greatest value methodology for procurement by local governments,
with a view to taking necessary measures, including submission of a
bill amending the Local Autonomy Law, as appropriate, in FY 1999,
H. Deregulation Entity
Under the new "Three-Year Program for the Promotion of Deregulation,"
the Government of Japan mandates the Deregulation Committee under the
Administrative Reform Promotion Headquarters which consists of Prime
Minister as its chairman and all cabinet ministers to: (1) monitor implementation
of Japan's deregulation measures decided by the new three-year deregulation
promotion program, and (2) address new deregulation challenges. In order
to enable the Committee to execute these mandates, the Government of
Japan announced on May 8, 1998, to expand the Committee's membership
from seven to eleven, and decided to strengthen the function of its
secretariat, especially that of conducting research upon the Committee's
request and established a new research division of about fifteen supporting
staff on May 11, 1998, with a view to making the Committee's activities
more efficient.
U.S. ITEMS OF INTEREST TO THE GOVERNMENT OF JAPAN
- Structural Issues, Transparency and other Government Practices
- Buy America Clauses
- Measures under Ocean Shipping Reform Act of 1997
- Maritime Security Program
- Requirements to Transport on U.S. Flag Vessels
- Provisions requiring the use of ships built in the United States
in the coastal shipping service
- U.S. and International Standards for Oil Tankers for the Protection
of the Marine Environment
- Anti-dumping
- Anti-Monopoly Exemption Clause on Insurance Industry
- Visa Issuance Process
- Telecommunications
- Federal Communication Commission's (FCC) Order on Foreign Participation
in the U.S. Telecommunications Market
- Licensing Criteria,
- Regulations on Dominant Carriers, and
- Standard Processing Period
- FCC's Order Concerning International Settlement Rate Benchmark
- FCC's Order to allow Non-U.S.-Licensed Satellites to Provide Services
in the United States
- Method for Sharing the Costs for Utilizing Internet Communication
Circuits.
- Implementation of LRIC to calculate interstate access charges
in the United States at the same time as Japan does.
- Transparency in preparation of the Government of the United States'
LRIC models.
- Medical Devices and Pharmaceuticals
- Promotion of Mutual Recognition of Good Manufacturing Practices
(GMP) of pharmaceutical and medical devices between the United States
and Japan.
- Medical Devices: Simplification and Acceleration of Procedure
510(k) Notification Submission.
- Pharmaceuticals: Allowing the Notification to the Food and Drug
Administration (FDA) after the Alteration of the Manufacturing Methods.
- Simplification of the data submitted for investigational new drugs
(IND).
- Financial Services
- An abbreviated examination system for licensing of Japanese and
other foreign securities representatives, for conducting business with
the NYSE, NASD, and AmEx exchanges.
- Minimizing the overlap between federal and state securities registration
requirements, and prohibiting states from limiting or imposing conditions
on the sale of most securities.
- Allowing bank holding companies and foreign banks with subsidiaries
in more than one state to merge or consolidate these bank subsidiaries
into a single bank with interstate branches (except in states that specifically
prohibit such interstate branching networks).
- An expanded list of activities (contained in Regulation Y) that
bank holding companies and foreign banking organizations are permitted
to engage in, to include: riskless principal, private placement, proprietary
trading and other activities that had been previously approved only
in individual Board orders; streamlined application or notification
procedures for bank holding companies or foreign banks to engage in
regulation Y activities or to acquire a firm engaged in such activities.
- Amending Regulation K which governs the foreign operations of
U.S. banks and U.S. operations of foreign banks, including revisions
that would change how Qualifying Foreign Banking Organization status
is calculated for purposes of determining eligibility for certain exemptions
from nonbanking restrictions.
- Financial modernization legislation to allow common ownership
of banking, securities and insurance companies, subject to certain restrictions
an affiliation with non-financial firms.
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