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RR RUEHFK RUEHKSO RUEHNAG RUEHNH
DE RUEHKO #3137/01 3160842
ZNR UUUUU ZZH
R 110842Z NOV 08
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8742
RUEHFK/AMCONSUL FUKUOKA 0914
RUEHNAG/AMCONSUL NAGOYA 8941
RUEHNH/AMCONSUL NAHA 3273
RUEHOK/AMCONSUL OSAKA KOBE 4701
RUEHKSO/AMCONSUL SAPPORO 1484

UNCLAS SECTION 01 OF 20 TOKYO 003137 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/J AND EB/TPP/BTA 
STATE PASS USTR FOR AUSTR WCUTLER, MBEEMAN, AND GBLUE 
E.O. 12958:  N/A 
TAGS: ECON ETRD EFIN EINV KIPR ECPS JA
SUBJECT: JAPAN -- 2009 DRAFT NATIONAL TRADE ESTIMATES REPORT 
 
SENSITIVE BUT UNCLASSIFIED.  PLEASE PROTECT ACCORDINGLY. 
 
REF:  STATE 88685 
 
¶1.  (U) Per reftel instructions, the following is the Post's draft 
chapter on Japan for the 2008 National Trade Estimate Report.  We 
understand Washington agencies will update the trade and investment 
data in the first three paragraphs of the report as they have done 
in the past.  Embassy Econ Section is also emailing the text of the 
draft report to USTR, in MS Word format and showing changes from 
last year's version. 
 
¶2.  (SBU) Begin text of the draft 2009 National Trade Estimate: 
 
TRADE SUMMARY 
 
The U.S. goods trade deficit with Japan was $82.8 billion in 2007, a 
decrease of $5.8 billion from $88.6 billion in 2006.  U.S. goods 
exports in 2007 were $62.7 billion, up 5.1 percent from the previous 
year.  Corresponding U.S. imports from Japan were $145.5 billion, 
down 1.8 percent.  Japan is currently the fourth largest export 
market for U.S. goods. 
 
U.S. exports of private commercial services (i.e., excluding 
military and government) to Japan were $41.3 billion in 2006 (latest 
data available), and U.S. imports were $23.9 billion.  Sales of 
services in Japan by majority U.S. owned affiliates were $53.5 
billion in 2005 (latest data available), while sales of services in 
the United States by majority Japan owned firms were $28.4 billion. 
 
The stock of U.S. foreign direct investment (FDI) in Japan was $91.8 
billion in 2006 (latest data available), up from $79.3 billion in 
¶2005.  U.S. FDI in Japan is concentrated largely in the finance, 
manufacturing, wholesale trade, and the professional, scientific, 
and technical services sectors. 
 
REGULATORY REFORM OVERVIEW 
 
The United States-Japan Regulatory Reform and Competition Policy 
Initiative 
 
Through the United States-Japan Regulatory Reform and Competition 
Policy Initiative (Regulatory Reform Initiative), the U.S. 
Government seeks changes to regulations and practices in Japan that 
limit competition, prevent development of innovative products and 
services, and hinder access for U.S. products and services to 
Japan's market.  The U.S. Government addresses a wide range of 
issues through this Regulatory Reform Initiative in specific 
industry sectors includings information technologies, 
telecommunications, and pharmaceuticals/medical devices, as well as 
in other areas that affect multiple sectors such as competition 
policy and insufficient transparency in government rule-making. 
 
The governments of the United States and Japan concluded the 
Regulatory Reform Initiative's seventh annual Report to the Leaders 
in June 2008, which documented progress made under the Regulatory 
Reform Initiative since late 2007.  Continuing work under the 
Initiative, the U.S. Government presented further, detailed 
recommendations to Japan in October 2008.  After several months of 
working- and high-level talks, the next Report documenting progress 
is expected to be completed in the summer of 2009. 
 
The following sections on Sectoral Regulatory Reform and Structural 
Regulatory Reform outline some of the key reform and market access 
issues that the U.S. Government continues to seek progress on by 
Japan under this Regulatory Reform Initiative. 
 
SECTORAL REGULATORY REFORM 
 
Telecommunications 
 
In its 2008 recommendations to Japan under the Regulatory Reform 
Initiative, the U.S. Government continued to urge that Japan ensure 
fair market opportunities for emerging technologies and business 
models, develop a regulatory framework for converged and 
Internet-enabled services, and strengthen competitive safeguards on 
dominant carriers.  The U.S. Government also continues to request 
that Japan improve transparency in rulemaking and ensure the 
impartiality of its regulatory decision making, including by 
abolishing the legal requirement that the government own one-third 
of the dominant carrier, Nippon Telegraph and Telephone (NTT). 
 
Interconnection:  Japanese laws and regulations do not prevent NTT's 
regional carriers from imposing high rates and onerous conditions on 
their competitors for interconnection.  Japan's Ministry of Internal 
Affairs and Communications (MIC) made further revisions to its Rules 
 
TOKYO 00003137  002 OF 020 
 
 
for Interconnection Charges, resulting in modest reductions in 
interconnection rates, which fell another 3.4 percent in April 2008. 
 On NTT's fiber optic infrastructure, which is not regulated like 
traditional infrastructure, NTT introduced interconnection rates 
that are high by international standards and almost four times those 
applied to traffic on other fixed-line networks regulated by MIC. 
Moreover, NTT's fiber optic infrastructure is not regulated in a 
manner transparent to consumers.  The U.S. Government looks to MIC 
to ensure reasonable interconnection terms and conditions and 
competitive rates are established, particularly as NTT continues 
deployment of its Internet Protocol (IP) based Next Generation 
Network replacing the analog network that all carriers currently use 
to reach subscribers in Japan. 
 
Dominant Carrier Regulation:  NTT continues to dominate 
overwhelmingly Japan's fixed line market.  Japan sought to promote 
competition in the telecommunications market through its Competition 
Promotion Program.  However, as Japan's broadband users turn from 
digital subscriber line (DSL) to optical fiber, NTT's competitors 
fear NTT might expand its dominant position through control of the 
fiber-to-the-home (FTTH) market and by bundling NTT fixed services 
with those of NTT DoCoMo, the dominant wireless operator.  In 
October 2007, MIC issued a revised "New Competition Promotion 
Program 2010" in an effort to address competition concerns as 
suppliers increasingly offer telecommunications services over IP 
based networks.  The U.S. Government has urged Japan to speed the 
plan's implementation and will continue to monitor MIC's 
implementation of the program. 
 
Universal Service Program:  Japan approved a system, beginning in 
January 2007, for NTT East and West and its competitors to collect a 
seven yen per month universal service fee from voice services 
subscribers.  Based on a periodic review, MIC approved a 25 percent 
increase in the fee, from six to eight yen per month per number, 
effective January 2009.  NTT regional carriers (the only carriers 
able to benefit from the fund) then receive these fees through the 
universal service fund to offset the costs of providing services in 
rural areas.  The U.S. Government has urged Japan to broaden the 
base of this fund's potential beneficiaries and ensure it is 
implemented in a competitively neutral manner.  Cross-subsidization 
of NTT West by NTT East using interconnection revenue (ostensibly to 
address NTT West's higher network costs resulting from the higher 
number of rural subscribers) further undercuts arguments for the 
program's need. 
 
Mobile Termination:  Like most countries, Japan uses the "Calling 
Party Pays" system, imposing the entire cost of termination on the 
calling party (enabling mobile subscribers to benefit from free 
incoming calls).  Although NTT DoCoMo, the dominant mobile incumbent 
carrier, has lowered its termination rates over the past 10 years, 
rates remain high.  Despite recognizing DoCoMo as a dominant carrier 
in 2002, MIC does not require DoCoMo to explain how its rates are 
calculated.  With new entrants now in the mobile sector, the U.S. 
Government will closely monitor actions both by DoCoMo and MIC to 
address such rates to ensure the possibility of effective 
competition. 
 
New Mobile Wireless Licenses:  Starting in 2005, MIC began opening 
the market to new mobile providers beyond the three main incumbents 
by auctioning blocks of spectrum to a limited number of new wireless 
entrants.  In December 2007, MIC awarded two additional licenses for 
wireless broadband services.  However, the complexity of factors MIC 
chose in determining how to evaluate applications raises questions 
about whether it achieved its stated goal of awarding these licenses 
based on objective criteria.  Given the scarcity of spectrum and 
high demand for new technologies, the U.S. Government has urged MIC 
to consider alternative means, including auctions, to assign 
commercial spectrum in a timely, transparent, objective, and 
nondiscriminatory manner that adheres to principles of technology 
neutrality.  The U.S. Government has also stressed to Japan the 
importance of ensuring reasonable "roaming" rates for competitors 
and Mobile Virtual Network Operators (MVNOs), an issue where MIC is 
making noticeable progress through policies and dispute mediation, 
as evidenced by an increase in service offerings launched by new 
entrants in 2007. 
 
Information Technologies (IT) 
 
Through its October 2008 Regulatory Reform Initiative 
recommendations, the U.S. Government continues to urge that Japan 
ensures its regulatory framework for IT and electronic commerce 
promotes competition and innovation, enhances transparency, and 
protects users, in addition to taking new steps to protect 
intellectual property rights (IPR) in the face of challenges posed 
by globalization and new technologies in a digital era. 
 
 
TOKYO 00003137  003 OF 020 
 
 
IT and Electronic Commerce Policymaking:  To augment measures Japan 
has taken to promote and support the use of IT and electronic 
commerce, the U.S. Government has urged Japan to take steps to 
ensure transparent policy and rule-making processes are applied in 
order to provide interested parties with opportunities to express 
their views and to be aware of and participate in the work of 
related government-appointed advisory groups; implement laws, 
regulations, and guidelines to promote choice and competitive market 
conditions by ensuring technology providers and users have the 
flexibility to choose preferred technologies; work cooperatively 
with the private sector on international standards development and, 
when appropriate, use established international standards in 
formulating IT and electronic commerce guidelines and regulations; 
and ensure its IT and electronic commerce policies and laws are 
compatible with international practices. 
 
Privacy:  With Japan's Law on the Protection of Personal Information 
(Privacy Law) entry into effect in April 2005, Japan's ministries 
and agencies formulated implementation guidelines to ensure its 
effectiveness.  The Cabinet Office reviewed the Privacy Law's 
implementation and released a report in June 2007.  The U.S. 
Government stressed that clear, consistent, and predictable privacy 
guidelines should be developed across ministries, with separate 
guideline provisions added as necessary for individual business 
sectors, and that any recommendations regarding cross-border 
transfers provide effective protection for individuals' personal 
information without unduly restricting the international flow of 
data. 
 
IPR Protection:  The U.S. Government continued to urge Japan to 
adopt a number of new measures to strengthen IPR protection.  These 
measures include extending the term of copyright for sound recording 
and all other subject matter protected under Japan's Copyright Law; 
adopting a statutory damages system that would deter infringing 
activities; improving the efficacy of the patent application 
process; and actively working with the United States to develop ways 
to promote greater protection of IPR worldwide, especially in Asia. 
(See also "Intellectual Property Rights Protection" in this 
chapter.) 
 
Government IT Procurement:  In order to increase the transparency 
and fairness of Japan's IT procurements and to stimulate innovation 
and competition in those procurement activities, the U.S. Government 
has urged Japan to ensure all procuring entities comply with Japan's 
Basic Policy for the Public Procurement of Computer Systems; improve 
communications with suppliers interested in the implementation of 
Japan's government IT procurement policy; apply a new Japanese 
system, comparable to the U.S. Bayh-Dole system to allow companies 
to control the intellectual property of inventions they develop 
under government contracts to all government procurement; allow IT 
vendors to limit their liability to a level proportionate to the 
risks they take in government procurement transactions; reduce the 
use of sole source contracting in IT procurements, including by 
applying rules on competitive bidding to independent administrative 
legal entities, government-sponsored private companies, and local 
governments; and ensure contracts are swiftly concluded after 
winning bidders are chosen and are not backdated. 
 
Medical Devices and Pharmaceuticals 
The U.S. Government continues to urge Japan to reform its 
reimbursement pricing and regulatory systems for pharmaceuticals and 
medical devices in order to foster industry's development of 
innovative products and to improve the access of patients in Japan 
to such products.  The Ministry of Health, Labor and Welfare (MHLW), 
in its 2007-2008 "Vision" policy paper, called for eliminating lag 
times for drug and device approvals, developing an internationally 
competitive industry, and making Japan an attractive investment 
destination.  The U.S. Government supports Japan's goal of ending 
the device and drug lags by increasing the number of reviewers to 
expedite product approvals and by reforming the pricing system to 
improve incentives for research and development of advanced medical 
products. 
Japan is the largest foreign market for U.S. medical devices and 
pharmaceuticals.  The U.S. Government, in its 2008 Regulatory Reform 
Initiative recommendations, urged Japan to take measures to improve 
its regulatory system in order to eliminate the lag in the 
introduction in Japan of innovative pharmaceuticals and medical 
devices.  The U.S. Government urged Japan to foster simultaneous 
global drug development, cut drug approval times by reforming review 
and clinical-trial consultation systems, and to improve vaccine 
reviews.  The U.S. Government urged Japan to reduce device approval 
times by, inter alia, setting and attaining performance goals and 
hiring more reviewers, expediting approvals of minor changes in 
devices, and streamlining IVD approvals.  The U.S. Government 
expects Japan's new goals of improving its regulatory system will 
prove effective, including plans to cut drug approval times by 2.5 
 
TOKYO 00003137  004 OF 020 
 
 
years by 2012; more than double the drug review staff by 2010; and 
to increase the device review staff by 30 percent by 2009. 
In its April 1, 2008 biennial price revision, Japan adopted 
reimbursement pricing policies that are inconsistent with the 
Government of Japan's goal of rewarding innovation and developing an 
internationally competitive drug and device industry.  Those 2008 
policies include broadening the repricing rule based on market 
expansion to cover a wider range of drugs, regardless of whether the 
drugs experienced increased market share.  The U.S. Government 
continues to urge Japan to abolish repricing based on market 
expansion because the rule reduces incentives for introducing 
innovative medicines in Japan.  Japan also adopted policies that 
imposed a stricter application of the "Foreign Average Price" (FAP) 
rule for medical devices, even though the rule has already 
significantly reduced the price of devices in Japan.  The U.S. 
continues strongly urging Japan to refrain from implementing 
reimbursement pricing policies that hinder development and 
introduction of innovative medical devices and pharmaceuticals. 
Such Japanese policies not only discourage companies from 
efficiently introducing advanced medical products to the Japanese 
market, a particular concern due to Japan's aging population, but 
also harm the competitiveness of the industry and serve as a 
disincentive to investment in research and development.  In its 2008 
price revision, MHLW continued to adhere to the use of biennial, 
instead of annual, reimbursement rate reviews.  The U.S. Government 
continues strongly urging Japan to avoid any     reimbursement 
changes that undermine the introduction of innovative products. 
In an effort to improve its drug reimbursement policies, MHLW in the 
2008 Report to the Leaders noted it has agreed to provide 
opportunities for industry to comment on recommendations for 
pharmaceutical pricing reform, and for industry to make proposals to 
improve economic returns for patented drugs.  With regard to 
reimbursement for medical devices, MHLW adopted measures in its 2008 
price revision to reward innovative medical technologies.  These 
measures include revising reimbursement price adjustment premiums, 
shortening the reimbursement listing procedure for category (C1) 
medical devices, and properly evaluating advanced diagnostic imaging 
equipment and techniques. 
Japan's 2002 Blood Law established a principle of "self-sufficiency" 
and includes a Supply and Demand Plan for the government to manage 
the blood market.  The U.S. Government continues to urge Japan to 
not restrict imports of plasma protein products so as to increase 
patient access to life-saving blood plasma therapies.  In 
particular, the U.S. Government urges Japan to allow labeling of 
blood products to reflect country of origin rather than a 
"voluntary" or "non-voluntary" designation, and to increase the 
efficiency of product reviews.  The U.S. Government also urges Japan 
to develop a separate reimbursement pricing system for blood 
products that accounts for the unique nature of plasma protein 
therapy characteristics (Japan currently maintains a single 
reimbursement system for both drugs and blood products). 
Nutritional Supplements:  Japan has taken steps to streamline import 
procedures and to open its $10 billion nutritional supplements 
market.  However, many market access barriers remain.  Unusual 
restrictions on health and nutrition claims are a major concern. 
Japan classifies nutritional supplements as food.  Only those 
products approved as Foods for Specific Health Uses (FOSHU) or Foods 
with Nutritional Function Claims (FNFC) are allowed to have health 
or structure/function claims.  However, producers are unable to 
obtain FOSHU or FNFC approval for most nutritional supplements due 
to FOSHU's costly and time consuming approval process and the 
limited range of vitamins and minerals that qualify for FNFC.  Other 
concerns include excessively long lead times for food additive 
applications; high levels of import duties for nutritional 
supplements compared to duties on pharmaceuticals containing the 
same ingredient(s); stopping of shipments at quarantine stations due 
to naturally occurring traces of substances such as benzoic acid and 
sorbic acid, which Japan classifies as food additives; and the 
potential for opaque development of health food safety regulations. 
 
 
Cosmetics and Quasi-Drugs:  Japan is the world's second-largest 
market for cosmetics after the United States, yet regulatory 
barriers continue to limit consumer access to safe and innovative 
products.  Unlike the U.S. over the counter drug monograph system, 
Japan requires premarket approval for products such as medicated 
cosmetics that are classified as quasi-drugs under the 
Pharmaceutical Affairs Law.  The approval process includes 
requirements that are burdensome, lack transparency, and do not 
appear to enhance product safety, quality or efficacy.  In addition, 
many types of advertising claims for cosmetics and quasi-drugs are 
prohibited, even if scientifically verifiable, denying consumers 
relevant and important information to help them make sound choices. 
Other concerns related to cosmetics and quasi-drugs include 
burdensome paperwork and long lead times for the approval of 
imported products.  The U.S. Government continues to recommend Japan 
 
TOKYO 00003137  005 OF 020 
 
 
address these and other issues under the Regulatory Reform 
Initiative. 
 
Financial Services 
 
The Japanese government has stated repeatedly its goal of improving 
the international competitiveness of Japan's financial sector.  In 
December 2007, the Financial Services Agency (FSA) unveiled its 
"Plan for Strengthening the Competitiveness of Japan's Financial and 
Capital Markets," and submitted amendments to the Financial 
Instruments and Exchange Law (FIEL) in March 2008.  The 2006 FIEL 
amended 89 financial laws and consolidated the remainder into a 
cohesive text.  The FIEL sought to enhance investor protection and 
promote the movement of financial assets into securities markets 
through cross-sectoral rules for investment product sales, 
management, and disclosure.  However, given the hundreds of pages of 
statutes comprising the FIEL and that implementation of the law 
began September 30, 2007, the FIEL's overall effect is still not 
discernable.  Partners are looking to see that FIEL implementing 
regulations, interpretation, and enforcement are evident, 
consistent, and predictable.  As part of its principles-based 
supervisory initiative, FSA announced a new code of conduct for 
financial institutions April 18, 2008 after a series of 
consultations with business associations. 
 
Japan has improved the transparency and predictability of the 
financial regulatory system, but further progress is needed.  In 
particular, FSA could expand the body of written interpretations of 
Japan's financial laws.  While FSA has enhanced supervision and 
disclosure, it must continue to move forward to establish 
transparency in regulation and supervision of financial institutions 
to bring them in line with international standards and best 
practices in order to help realize the government's goal of 
improving Japan's global competitiveness as a financial services 
center. 
 
No-Action Letters and Written Interpretations:  The FSA has made 
some efforts to enhance the effectiveness of Japan's no-action 
letter system, including by soliciting input from U.S. and other 
foreign firms on how best to improve the system.  Use of the system, 
however, has not materially increased.  The U.S. Government 
continues to recommend FSA explore ways to expand use of the 
no-action letter system.  The U.S. Government has also encouraged 
FSA to expand the written interpretations it provides, including 
through greater use of its "interpretive letter" system and 
increasing the number of "reference cases" published on the FSA 
Internet site. 
 
Agriculture 
 
Japan maintains many tariff and nontariff barriers against trade in 
the agricultural sector.  The U.S. Government's October 2008 
submission to Japan under the Regulatory Reform Initiative includes 
several recommendations to enhance the efficiency of the trading 
environment for agricultural products and the transparency of 
trade-related rules and regulations.  These include implementing a 
Maximum Residue Limits (MRL) regime that ensures any mitigating 
measures are the least trade restrictive possible; providing 
national treatment to imports and that are in accordance with 
international practices; allowing additional substances in organic 
crop production and modifying current pesticide residue policy to 
enhance organic trade; completing the review of widely used food 
additives that are recognized as safe by the Joint FAO/WHO 
Evaluation Committee on Food Additives; implementing a plant 
quarantine system that harmonizes the classification of plant pests 
and diseases based on the International Plant Protection Convention 
standards for official control and risk analysis; and following 
international standards for the treatment of post-harvest 
fungicides.  The United States also continues to call on Japan to 
apply science-based standards in accordance with World Organization 
for Animal Health (OIE) protocols on the trade in beef.  (See also 
Standards, Testing, Labeling, and Certification in this chapter.) 
 
Plant Quarantine Issues:  Japan maintains a restrictive plant 
quarantine system, which includes measures that are not always based 
on science.  A key impediment to trade is Japan's frequent use of 
nationwide bans on imported products in response to narrowly focused 
quarantines imposed by exporting countries in their home markets. 
Japan's practice runs counter to recognized international standards, 
which support targeted, regional bans (e.g., states or counties) 
limited to affected geographic areas.  For example, when a disease 
or pest outbreak is reported in a contained area of the United 
States, Japan tends to ban imports of all associated U.S. plant 
products regardless of their region of origin.  Such steps are 
unnecessarily trade restrictive.  Through the Regulatory Reform 
Initiative, the U.S. Government continues to urge Japan to use pest 
 
TOKYO 00003137  006 OF 020 
 
 
risk analysis that is based on international standards, and to 
provide a scientific justification for its responses and to clearly 
articulate how adopted quarantine measures accurately reflect the 
level of phytosanitary protection Japan has determined to be 
appropriate. 
 
Japan's Ministry of Agriculture, Forestry, and Fisheries (MAFF) 
prohibits the entry of various fresh plant products due to the 
presence of pests, even though some of these pests are also present 
in Japan.  Japan has a pest forecast system that monitors certain 
domestic pests and alerts producers to potential increased pest 
damage.  For decades, the Japanese government has contended this 
system constitutes official control under the International Plant 
Protection Convention (IPPC), the international standard setting 
body for plant protection.  According to the Japanese government, it 
must impose a similar system for imported commodities.  Japan more 
recently took initial steps to harmonize with international 
standards.  In December 2004, Japan notified the WTO of its intent 
to relax quarantine measures for several plant pests and diseases. 
In May 2006, five additional cosmopolitan pests were added to the 
list of pests subject to relaxed quarantine measures.  Although the 
U.S. Government welcomes these actions, Japan continues to impose 
measures related to many other pests that are more restrictive than 
those provided for in international standards and adversely affect 
U.S. exporters. 
 
STRUCTURAL REGULATORY REFORM 
 
Antimonopoly Law and Competition Policy 
 
Although Japan has made significant positive steps in recent years 
to bolster its competition regime, cartel activity and bid rigging 
persist with deleterious effects for the country's economy and 
government finances.  Additional measures to combat anticompetitive 
behavior would improve the business environment.  Further attention 
must also be given to ensuring antimonopoly enforcement procedures 
are perceived to be fair and transparent. 
 
Establishing More Effective Deterrence to Anticompetitive Behavior: 
The Antimonopoly Act (AMA), Japan's primary competition legislation, 
provides for both administrative and criminal sanctions against 
violators.  However, criminal prosecutions, which would more 
effectively deter anticompetitive behavior, have been few.  From 
1990 through October 2007, the Japan Fair Trade Committee (JFTC) 
initiated 12 criminal prosecutions of alleged AMA violators.  While 
Japanese courts have imposed substantial financial penalties on 
companies and prison sentences on individuals convicted of violating 
the AMA, they have consistently suspended prison sentences on 
individuals, even in the case of repeat offenders.  The U.S. 
Government continues to urge Japan to take steps to maximize the 
effectiveness of enforcement against hard-core violations of the 
AMA, including by increasing the number of criminal prosecutions, 
strengthening criminal sentences of convicted individuals, and 
maintaining a system that imposes both administrative surcharges and 
criminal sanctions on corporate participants in cartel and bid 
rigging conspiracies. 
 
The JFTC's ability to enforce the AMA effectively is also hindered 
by the lack of sufficient personnel.  JFTC staff totaled 765, 
including 409 assigned to the Investigation Bureau, as of March 31, 
2008, with an additional 30 additional staff anticipated by March 
2009   The JFTC remains relatively weak, however, in the number of 
employees with post-graduate economics training, a factor that 
undermines JFTC ability to engage in the careful economic analysis 
necessary to properly evaluate non-cartel behavior.  The U.S. 
Government continues to urge the JFTC to improve its economic 
analysis capabilities. 
 
Improving Fairness and Transparency of JFTC Procedures:  The JFTC 
introduced a system in January 2006 to allow companies subject to a 
proposed cease-and-desist or surcharge payment order to review the 
evidence relied upon by JFTC staff and to submit evidence and make 
arguments in their defense prior to an order being issued.  The JFTC 
implemented a similar system for proposed recipients of public 
warnings for suspected violations of the AMA or the Premiums and 
Misrepresentations Act.  To ensure further the credibility and 
transparency of JFTC hearing procedures, however, the U.S. 
Government has asked the Japanese government to lengthen 
significantly the two week period during which a company may respond 
to a draft cease-and-desist or surcharge order from the JFTC; 
increase the number of JFTC hearing examiners who are outside legal 
professionals; and strengthen conflict of interest rules with 
respect to hearing examiners.  The U.S. Government has also 
requested clarification of conditions under which the JFTC might 
return to an ex-ante hearing system, improved regulations for the 
standards and procedures used by the JFTC to issue warnings, and 
 
TOKYO 00003137  007 OF 020 
 
 
recognition of attorney-client privilege in JFTC investigation and 
hearing procedures. 
 
Broadening Measures to Combat Bid Rigging:  Japanese authorities 
have implemented a series of measures to address the problem of 
frequent and persistent bid rigging.  Apart from several cases of 
invocation by the JFTC of the 2003 law against bureaucrat-led bid 
rigging (so-called kansei dango), the Ministry of Land, 
Infrastructure, Transport and Tourism (MLIT) has strengthened 
administrative sanctions against companies found by JFTC to have 
engaged in unlawful bid rigging.  MLIT also introduced an 
administrative leniency program to complement the JFTC leniency 
program (designed to help encourage individuals and companies to 
report anticompetitive acts) and put in place a series of measures 
aimed at ensuring a competitive bidding process for project 
contracts tendered by the Ministry.  In June 2007, the Japanese Diet 
passed new legislation aimed at controlling post-retirement 
employment by Japanese government officials in companies they 
previously helped regulate or were otherwise involved with while in 
government service, the so-called "descent from Heaven" (amakudari), 
which has been a factor in many bid rigging conspiracies.  The U.S. 
Government has recommended that Japan increase the standard minimum 
period of suspension from bidding for companies involved in bid 
rigging conspiracies; work to prevent conflicts of interest in 
government procurement; strengthen efforts to eliminate involvement 
in bid rigging by government officials; and expand the existing 
administrative leniency programs. 
 
Transparency 
 
Transparency issues continue to be a top concern of U.S. companies 
that operate in the Japanese market.  The U.S. Government has 
strongly urged Japan to adopt a number of new measures to achieve a 
higher degree of transparency in governmental regulatory and policy 
making processes -- a critical ingredient necessary to further 
improve the business and trade environment. 
 
Advisory Groups:  Although advisory councils and other government 
commissioned study groups are accorded a significant role in the 
development of regulations and policies in Japan, the process of 
forming these councils and study groups often remains opaque and 
nonmembers are not uniformly offered meaningful opportunities to 
provide input into these groups' decision-making processes.  The 
U.S. Government continues to urge Japan to ensure transparency of 
advisory councils and other government sponsored working groups 
through new requirements, including those that will ensure ample and 
meaningful opportunities are provided for all interested parties, as 
appropriate, to participate in and directly provide input to these 
councils. 
 
Public Comment Procedures (PCP):  U.S. companies are frustrated by 
the inadequate degree to which Japanese ministries and agencies 
implement public comment procedures.  In particular, concern remains 
that comment periods are unnecessarily short and comments provided 
are not adequately taken into consideration before final decisions 
are made.  The U.S. Government has stressed the need for Japan to 
ensure its PCP all being fully implemented and to make additional 
revisions to the system so that truly meaningful opportunities are 
made available for public input into policy-making and regulatory 
processes.  In addition, the U.S. Government continues to encourage 
Japan's ministries and agencies to accelerate the voluntary practice 
of providing greater opportunities for the public to comment on 
legislation in the early stages of its formation. 
 
Transparency in Regulation and Regulatory Enforcement:  To ensure 
the private sector has sufficient information about regulations, 
including interpretations of those regulations, and the information 
necessary to comply, the U.S. Government has requested Japan 
specifically require its ministries and agencies to make public 
their regulations and any statements of policy of generally 
applicable interpretation of those regulations. 
 
Privatization 
 
The Japanese government's effort to privatize the Japan Post Group 
has made important progress.  The U.S. Government recognizes that 
reform in this area, if implemented in a fully market-oriented 
manner, can have an important positive effect on the Japanese 
economy by stimulating competition and leading to a more productive 
use of resources. 
 
The U.S. Government welcomes the ongoing privatization of Japan 
Post, which has multi-billion dollar banking and insurance 
businesses in addition to its mail and parcel delivery operations. 
The U.S. Government monitors carefully the implementation of the 
Japanese Government's reform efforts, and continues to call on the 
 
TOKYO 00003137  008 OF 020 
 
 
Japanese Government to ensure all necessary measures are taken to 
achieve a level playing field between the Japan Post companies and 
private sector participants in Japan's banking, insurance, and 
express delivery markets. 
 
In the area of express carrier services, the U.S. Government remains 
concerned by unequal conditions of competition between Japan Post 
Service and U.S. international express delivery providers.  The U.S. 
Government is strongly urging Japan to enhance fair and equal 
competition, including by ensuring Japan Post Service is subject to 
similar customs clearance procedures and costs for international 
express delivery services and that subsidization of Japan Post 
Service's international express service by revenue from 
noncompetitive postal services is prevented. 
 
The U.S. Government also has continued to urge the Japanese 
government to ensure that the process by which this reform proceeds 
is made fully transparent, including by full and meaningful use of 
Public Comment Procedures and through opportunities for interested 
parties to express views to related officials and advisory bodies 
before decisions are made.  The U.S. Government is additionally 
asking Japan to ensure the triennial review of postal privatization 
is open and addresses the equivalence of competition in the banking, 
insurance, and express delivery sectors.  (For detailed discussion 
of Japan Post privatization and the postal insurance corporation, 
see "Insurance" under the Services Barriers section.) 
 
Commercial Law 
 
Japan undertook a major reform of its commercial law by enacting a 
new Corporate Code, which entered into force May 1, 2006.  Among 
other provisions, the code permits the use of modern merger 
techniques, including domestic and cross-border triangular mergers. 
After significant public controversy, however, the Japanese 
government in April 2007 finalized tax and public disclosure rules 
for cross border triangular mergers that substantially limit the use 
of these techniques.  Under the new rules, in order for shareholders 
to defer capital gains on the transaction, the foreign acquiring 
company, at a minimum, must establish a subsidiary with an office, 
an employee/executive, and some "business activity" in the Japanese 
market before the merger.  As of December 2007, only one transaction 
has taken place using these provisions. 
Through the Regulatory Reform Initiative, the U.S. Government 
continues to urge Japan to improve further its commercial law and 
corporate governance systems to reflect international best 
practices, promote efficient corporate restructuring and increases 
in shareholder value.  Specifically, the U.S. Government is urging 
Japan to review impediments to the use of modern merger techniques 
now available to investors, including whether tax rules unduly 
impede the ability of foreign investors to use triangular merger 
mechanisms. 
 
The U.S. Government also continues to encourage Japan to strengthen 
further corporate governance mechanisms, including by facilitating 
and encouraging active proxy voting by institutional investors such 
as pension and mutual funds; requiring authorization of antitakeover 
measures by a company committee composed of a majority of truly 
independent directors; ensuring sufficient protection of minority 
shareholders in management buy-out and take-over bid situations; and 
encouraging the major Japanese stock exchanges to adopt listing 
rules or guidelines that encourage best corporate governance 
practices. 
 
Article 821 of the new Company Law still has the potential to create 
burdens for foreign corporations that conduct their primary business 
in Japan through Japanese branch offices.  The U.S. Government has 
recommended that Japan adopt a simple re-domestication procedure 
that allows foreign companies to merge or convert into a Japanese 
corporation, and continues to request that Japan amend Article 821 
to prevent adverse effects on the legitimate operation of foreign 
companies in Japan. 
 
Legal System Reform 
 
Japan imposes restrictions on the ability of foreign lawyers to 
provide international legal services in Japan in an efficient 
manner.  The U.S. Government is urging Japan to further liberalize 
the legal services market by allowing foreign lawyers to form 
professional corporations and establish multiple branch offices in 
Japan whether or not they have established a professional 
corporation, and by counting all of the time foreign lawyers spend 
practicing law in Japan toward the 3 year experience requirement for 
licensure as a foreign legal consultant.  The U.S. Government has 
also requested that Japanese lawyers may become members of 
international legal partnerships with lawyers outside Japan without 
restriction.  Japan has agreed to continue to examine these issues, 
 
TOKYO 00003137  009 OF 020 
 
 
including by holding further hearings with both the Japanese Bar 
Association and registered foreign lawyers practicing in Japan.  The 
U.S. Government is urging Japan to promote arbitration and other 
alternative dispute resolution (ADR) procedures, including by 
amending the Foreign Lawyers Law to explicitly permit foreign 
lawyers to act as neutrals and to represent parties in any 
international ADR proceedings taking place in Japan. 
 
Distribution and Customs Clearance 
 
The U.S. Government welcomes Japan's efforts to formulate an 
Authorized Economic Operator (AEO) system in Japan, which allows 
exporters with good compliance records to process goods more 
expeditiously through Customs.  However, Japan Customs currently 
does not allow post-mortem declarations, and requires brokers to 
declare express items at specific Customs offices, which limits 
flexibility and potentially increases processing costs.  To further 
facilitate trade, the U.S. Government continues urging Japan under 
the Regulatory Reform Initiative to allow customs brokers to make 
post-mortem declarations for items valued at less than 250,000 yen 
(about $2,500), and for those brokers using the Japan Customs' 
Nippon Automated Cargo Clearance System (NACCS) automated database 
to declare express items at any Customs office. 
 
To facilitate more efficient cargo flows, the United States 
recommends Japan exempt AEO exporters from paying the five percent 
consumption tax for cleared cargo. Currently, Japan Customs refunds 
this tax, but exemption would reduce the administrative burden of 
filing for a refund. 
 
In line with international best practice to reduce workloads and 
maximize efficiency, the U.S. Government also recommends Japan raise 
the Customs Law de minimis ceiling from 10,000 yen (about $100) to 
at least 20,000 yen or higher. 
 
IMPORT POLICIES 
 
Rice Import System:  Japan's highly regulated and nontransparent 
importation and distribution system for imported rice limits 
meaningful access to Japanese consumers.  In 1999, Japan established 
a tariff-rate quota (TRQ) of approximately 682,000 metric tons 
(milled basis) for imported rice.  The Japan Food Department (JFD) 
of the Ministry of Agriculture, Forestry, and Fisheries (MAFF) 
manages imports of rice within the TRQ through periodic minimum 
access (MMA) tenders and through the simultaneous buy-sell (SBS) 
tenders.  Imports of U.S. rice under the MMA tenders are destined 
almost exclusively for government stocks.  MAFF releases these 
stocks solely for non-table rice users in the industrial food 
processing or feed sector, and for re-export as food aid. 
 
Japan failed to fulfill its import obligation for rice in Japan 
Fiscal Year 2007, which ran from April 1, 2007 to March 31, 2008. 
The unique conditions in 2007 that led to higher global rice prices 
exposed several weaknesses in Japan's administration of its MMA 
trade quota system for rice.  Japan subsequently committed to 
implementing several improvements to prevent future non-fulfillment 
of the MMA rice TRQ system, including earlier and more frequent 
tenders. 
 
U.S. rice exports to Japan in calendar year 2007 were valued at $206 
million, representing approximately 322,000 metric tons of rice or 
52.4 percent of Japan's minimum access requirement (on a JFY07 
basis).  However, only a small fraction of rice imported from the 
United States reaches Japanese consumers identified as U.S. rice, 
despite industry research showing Japanese consumers would buy U.S. 
high-quality rice if it were more readily available. 
 
Excessive testing requirements for rice imports have hampered trade 
in U.S. rice to Japan.  In December 2005, MAFF began imposing strict 
testing requirements on rice imports, ostensibly to ensure 
compliance with the Japanese Government's new Maximum Residue Limits 
policy.  Rice and wheat, however, are the only commodities for which 
Japan requires multiple testing, including a separate test by the 
rice industry.  This testing has resulted in a disproportionate 
increase in the cost of bringing U.S. rice to market, particularly 
for SBS rice because of its smaller import lot size. 
 
Wheat Import System:  Japan requires wheat to be imported through 
MAFF's Food Department, which then resells wheat to Japanese flour 
millers at prices substantially above import prices.  These high 
prices discourage wheat consumption by increasing the cost of 
wheat-based foods in Japan.  In 2007, MAFF revised the wheat import 
regime to allow more frequent modification to the resale price based 
on international price movements.  As a result, the resale price to 
flour millers has increased 55 percent.  The U.S. Government remains 
concerned by Japan's operation of a state trading entity for wheat 
 
TOKYO 00003137  010 OF 020 
 
 
and its potential to distort trade.  For example, MAFF suspended 
tenders for wheat imports in September 2008 due to concerns over 
MAFF's own contracting and management of imports. 
 
Pork Import Regime:  Japan is the world's largest importer of pork, 
and also the number one export market for U.S. pork -- $1.4 billion 
in 2007.  Japan's pork import system includes a gate price and a 
safeguard negotiated during the Uruguay Round, which automatically 
raises the gate price if imports are 119 percent or more of the 
average level of imports relative to a corresponding period that 
covers the previous 3 years.  The U.S. Government continues to raise 
concerns that Japan's complicated "gate price" system distorts trade 
and is vulnerable to invoice fraud. 
 
Beef Safeguard:  Japan negotiated a beef safeguard during the 
Uruguay Round to protect domestic producers in the event of an 
import surge.  The safeguard is triggered when imports increase by 
more than 17 percent from the previous Japanese fiscal year on a 
cumulative quarterly basis.  Once triggered, the safeguard remains 
in place for the rest of the fiscal year.  If triggered, beef 
tariffs will rise to 50 percent from 38.5 percent.  The U.S. 
Government is seeking a change in the beef safeguard in the Doha 
Development Agenda negotiations.  The U.S. Government remains 
concerned that once Japan fully opens its market to U.S. beef and 
beef products, the resulting increase in imports might trigger 
Japan's safeguards, which could hamper the U.S. beef producers' 
ability to regain historical export levels in the near future (see 
the section on "Beef" under the "Standards" heading for context). 
 
Fish Products:  Japan has been the most important export market for 
U.S. fish and seafood products for over 30 years; as recently as 
1988, 73 percent of U.S. seafood exports went to Japan.  In 2006, 
however, the European Union surpassed Japan as the most important 
export market for fisheries products, with only 23 percent of U.S. 
seafood exports going to Japan.  These data should be viewed, 
however, against the growing trend of U.S. origin seafood being 
routed through China and Korea for value added processing and/or 
cold storage holding before being imported into Japan, making actual 
trade flows harder to follow. 
 
Tariffs on Japanese seafood imports are generally low, but market 
access is not seamless for some products.  Japan maintains several 
species and product-specific import quotas on fish products, 
including pollock, surimi, pollack and cod roe, herring, Pacific 
cod, mackerel, Pacific whiting, squid, and sardines.  Administration 
of the system has improved considerably over the years and it is 
expected that obstacles to Japanese importers and processors will 
continue to be reduced.  While Japan cut tariffs as a result of the 
Uruguay Round, it did not change its import quotas.  As part of 
ongoing WTO Doha negotiations, Members including the United States 
and Japan have committed to clarify and improve rules on fisheries 
subsidies. 
 
High Tariffs on Beef, Citrus, Dairy, and Processed Food Products: 
Japan maintains high tariffs on a number of food products that are 
important exports for the United States, including red meat, citrus, 
wine, and a variety of processed foods.  Examples of double digit 
import tariffs include 38.5 percent on beef, 32 percent on oranges, 
40 percent on processed cheese, 29.8 percent on natural cheese, 17 
percent on apples, and a 15 to 29.8 percent on wine depending on the 
HTS classification.  These high tariffs generally apply to food 
products where Japan is protecting domestic producers.  Tariff 
reductions are a high priority for the U.S. Government in the Doha 
Development Agenda agriculture negotiations. 
 
Wood Products and Building Materials:  Japan continues to restrict 
imports of certain manufactured wood products through tariff 
escalation (i.e., progressively higher tariffs based on the level of 
processing of the wood product).  The elimination of tariffs on wood 
products remains a long standing U.S. Government objective. 
 
Leather/Footwear: Japan continues to apply a TRQ on leather footwear 
that substantially limits imports into Japan's market, and 
establishes these quotas in a nontransparent manner.  The U.S. 
Government continues to seek elimination of these quotas. 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
 
Japan's enforcement of national standards hinders trade in certain 
farm, forest, and industrial products.  U.S. industry has raised 
concerns that Japan's stringent testing methods and low tolerances 
for regulated substances such as pesticides and food additives make 
it difficult to satisfy import requirements for many products.  The 
U.S. Government is urging Japan to use science based standards and 
implement risk-based enforcement policies, which are the least trade 
restrictive measures that also satisfy consumer safety concerns. 
 
TOKYO 00003137  011 OF 020 
 
 
 
Standards 
 
Beef:  On July 27, 2006, Japan partially reopened its market to U.S. 
beef.  Except for approximately one month from December 2005 to 
January 2006, Japan's market had been effectively closed since the 
December 2003 detection of a cow with Bovine Spongiform 
Encephalopathy (BSE) in Washington State. 
 
Japan allows imports of U.S. beef and beef products from animals 
aged 20 months or younger.  However, this limited reopening has 
prevented the United States from regaining all but a small portion 
of its historic level of exports to the Japanese market.  Before the 
ban, Japan was the largest export market for U.S. beef and beef 
products, totaling roughly $1.4 billion annually. 
 
The U.S. Government has repeatedly urged Japan to bring its BSE 
measures in line with international guidelines set by the World 
Organization for Animal Health (OIE) by allowing imports of all U.S. 
beef and beef products derived from animals of all ages deemed safe 
under OIE guidelines.  In May 2007, the OIE determined that the 
United States is a "Controlled Risk" country for BSE, a 
determination based on science.  The U.S. Government remains highly 
concerned by Japan's unwillingness to adopt science-based, 
international guidelines under which beef and beef products can be 
safely traded and will continue to work vigorously bilaterally and 
multilaterally toward achieving a full reopening of Japan's market 
to U.S. beef in line with OIE guidelines. 
 
Enforcement of Maximum Residue Limits (MRLs):  In May 2006, Japan's 
Ministry of Health, Labor, and Welfare (MHLW) implemented a new 
system of regulations governing agrochemical residues in food. 
Under this system, foods containing residues in excess of 
established MRL levels will not be allowed on the Japanese market. 
Prior to implementation of this positive list, the U.S. Government 
worked closely with MHLW to address potentially trade restrictive 
measures.  However, several outstanding issues remain, including 
Japan's MRL enforcement policy.  For example, a single MRL violation 
may result in MHLW placing sanctions on the entire industry rather 
than on just the company with the violation.  In the case of 
multiple violations, MHLW can implement an "inspection order," i.e., 
100 percent test-and-hold requirements.  The possible delays due to 
this sanction can lead to major losses for perishable goods.  These 
sanctions can severely affect trade regardless of the level of the 
violation or the degree of the threat to health.  Furthermore, 
domestic violations may be treated more favorably than import 
violations.  To address these concerns, the U.S. Government is 
urging MHLW, through the Regulatory Reform Initiative, to implement 
a regime that is as minimally trade restrictive as possible, 
provides national treatment to imports, and accords with 
international best practices. 
 
Restrictive Food Additive List:  Japan's list of food additives 
restricts imports of several U.S. food products, especially 
processed foods.  The list, which limits the use of specific food 
additives on a product-by-product basis, is more restrictive than 
accepted international standards and is without sufficient 
scientific evidence.  For example, the list effectively prohibits 
imports of light mayonnaise, creamy mustard or figs containing 
potassium sorbate, a food additive evaluated and accepted by 
numerous national and international standard setting organizations, 
including the Joint FAO/WHO Expert Committee on Food Additives. 
Despite this prohibition on imports, Japan allows the use of 
potassium sorbate in 36 other foods, most of which are traditional 
Japanese food products not normally produced outside Japan. 
 
U.S. manufacturers have complained about the slow and opaque 
approval process for indirect food additives (i.e., additives that 
do not remain on food, such as solvents). 
 
In 2002, Japan created a list of 46 food additives for expedited 
review.  The U.S. Government and many of Japan's other trading 
partners have been disappointed by the lack of progress by the MHLW 
and the Food Safety Commission in finalizing reviews and approving 
many of these additives, notwithstanding the availability of 
extensive safety data.  In addition, Japan classifies post-harvest 
fungicides as food additives requiring registration and approval, 
while the international community, including Codex, classifies them 
as pesticides.  As a result, a chemical that is approved for use as 
a pesticide under Japan's system would be prohibited from 
post-harvest use unless it has also been approved as a food 
additive.  The U.S. Government has urged Japan through the 
Regulatory Reform Initiative to complete an expedited review of the 
remaining food additives. 
 
Microbial Content Standards:  Japan's standards under the Food 
 
TOKYO 00003137  012 OF 020 
 
 
Sanitation Law for microbial content on frozen foods are, in certain 
instances, impractical and overly restrictive, particularly for 
foods that require cooking before consumption. 
 
Poultry:  Since 2002, Japan has imposed several national and 
statewide bans on the import of U.S. poultry, poultry-meat, and eggs 
due to the detection of notifiable avian influenza (NAI) in U.S. 
poultry, both high pathogenic notifiable avian influenza (HPNAI) and 
low pathogenic notifiable avian influenza (LPNAI).  These bans are 
not consistent with international guidelines and have disrupted 
millions of dollars of U.S. poultry trade.  According to 
international guidelines recently revised by the OIE, countries must 
report to the OIE any findings of NAI in domestic poultry, 
regardless of its pathogenicity.  These guidelines, as well as the 
WTO SPS agreement, provide for importing countries to impose bans on 
imports only from affected regions (zones) of the exporting country. 
 While the guidelines support banning certain poultry meat from 
regions affected by HPNAI, they do not support banning poultry meat 
from regions affected by LPNAI.  As a result of bans based on the 
reporting of high and low pathogenic avian influenza, as well as 
other factors, U.S. poultry meat exports to Japan have decreased 
substantially, from roughly $148 million in 2001 to $29 million in 
¶2007. 
 
Organics:  U.S. organic exports to Japan continue to be limited by 
Japan's ban on alkali extracted humic acid, a production substance 
that is allowed for use on U.S. organic crops.  In addition, Japan's 
zero tolerance policy for pesticide residues on organic products is 
not consistent with international standards, and is, in practice, 
more thoroughly enforced for imported organic products. 
 
Marine Craft:  Although Japan continues to maintain an inspection 
regime for new boats and marine engines that is unique in the world 
in its severity and complexity, Japan's regulatory agencies, MLIT 
and the Japan Craft Inspection (JCI) Organization, have made a 
significant shift towards adoption and acceptance of ISO standards, 
when these ISO standards are determined to provide equivalent or 
improved safety.  The U.S. Government looks to accelerate progress 
with Japan as quickly as possible to also address Japanese 
requirements that no other country considers necessary, such as 
requiring that each imported boat be individually inspected.  These 
unusual rules place an enormous burden on Japanese importers and 
American boat manufacturers.  The U.S. Government will continue to 
work with relevant organizations and agencies in Japan to urge 
Japan's acceptance of acceptance of third-party tests of Japanese 
ISO based standards. 
 
Building Size, Designs, and Wood Products 
 
Japan has adopted and implemented regulations with respect to indoor 
air quality and chemical emissions, and may be considering 
additional steps.  The U.S. Government will continue to monitor 
regulatory developments in this area and urge that Japan ensures 
transparency in any resulting rule making process.  In addition, 
Japan's fire testing of wood frame assemblies also is subject to 
standards that are open to interpretation by testing facilities, 
thereby affecting predictability in meeting Japan's fire testing 
requirements. 
 
Biotechnology 
 
Japan is the world's largest per capita importer of bioengineered 
grains and annually imports about 516 million metric tons of U.S. 
corn and 3.3 million metric tons of U.S. soybeans.  In 2007, exports 
of these commodities alone were worth $3.7 billion.  To both secure 
bilateral trade in grains and to increase global food security, the 
United States and Japan share a common interest in promoting 
effective biotechnology approval and regulatory policies. 
 
Japan's regulatory system, however, is complex and compliance is 
costly.  Japan's independent Food Safety Commission conducts risk 
assessments in support of product evaluations by the Ministry of 
Health, Labor and Welfare and Ministry of Agriculture, Forestry and 
Fisheries.  The regulatory burden is such that only large 
multinational companies or governments can afford to complete the 
approval process, even for bioengineered traits that are relatively 
well known.  Furthermore, the continued growth in the number and 
complexity of new biotechnology applications in coming years could 
strain the regulatory system.  There is also the real possibility of 
trade disruptions from an unapproved bioengineered variety showing 
up in trace amounts in imported grain or processed foods.  To avoid 
disrupting trade, the U.S. Government is working with Japan's 
regulatory agencies to encourage a risk based, case-by-case approach 
when dealing with unapproved varieties. 
 
In addition to Japan's national regulatory system, 12 prefectural 
 
TOKYO 00003137  013 OF 020 
 
 
and local governments maintain rules, generally not based on 
science, which further limit cultivation of bioengineered crops. 
These rules, combined with local regulations and public pressure on 
research institutions, have made it increasingly difficult for 
technology companies to secure sites for field trials, mandated 
under the national government's approval process. 
 
Although Japan is the largest per capita importer of bioengineered 
crops, no consumer-ready foods with recognizable bioengineered 
ingredients are sold in Japan.  One factor that keeps bioengineered 
foods out of the supermarket is Japan's labeling requirement.  As 
yet, no Japanese food manufacturer or retailer has been willing to 
test the market for a genetically modified organism labeled, 
consumer-ready food. 
 
The U.S. Government will continue to encourage Japan to address 
these issues and continue to participate in discussions on 
biotechnology policy advancement and regulation in international 
fora (i.e., the WTO, the Codex Alimentarius Commission, the OECD, 
and the APEC forum) and through international agreements dealing 
with international movement of bioengineered crops. 
 
Labeling 
 
Proprietary Ingredient Information Disclosure Requirement for 
Import:  As part of its product classification process for 
new-to-market food and dietary supplement products, Japan mandates 
that all ingredients and food additives be listed by name, along 
with content percentages, and include a description of the 
manufacturing process.  In addition to being overly burdensome, this 
process runs the risk that proprietary information may be obtained 
by competitors. 
 
Labeling of Beef:  In 2007, the Ministry of Agriculture, Forestry, 
and Fisheries adopted labeling guidelines for "wagyu" beef. 
Although presented as voluntary standards, the guidelines bar use of 
the term "wagyu" on cattle not born and raised in Japan.  The U.S. 
Government is concerned by the regulation and is monitoring this 
situation closely. 
 
GOVERNMENT PROCUREMENT 
 
Japan is a Signatory to the WTO Agreement on Government Procurement 
(GPA).  For procurement of construction services by sub-central and 
government enterprises covered under the GPA, Japan applies a 
threshold of approximately $22 million, which is three times the 
threshold applied by the United States. 
 
Construction, Architecture, and Engineering 
 
Even though Japan has the second largest public works market in the 
world ($149 billion in 2007), U.S. companies annually obtain far 
less than 1 percent of projects awarded.  Two bilateral public works 
agreements are in effect:  the 1988 United States-Japan Major 
Projects Arrangements (MPA) (updated in 1991); and the 1994 United 
States.-Japan Public Works Agreement, which includes the Action Plan 
on Reform of the Bidding and Contracting Procedures for Public Works 
(Action Plan).  The MPA included a list of 42 projects in which 
international participation is encouraged.  Under the Action Plan, 
Japan must use open and competitive procedures for procurements 
valued at or above the thresholds established in the GPA.  Public 
works issues are raised in the Expert-Level Meeting on Public Works 
under the United States-Japan Trade Forum. 
 
Problematic practices continue to limit the participation of U.S. 
design/consulting and construction firms in Japan's public works 
sector, including bid rigging (dango), under which companies consult 
and prearrange a bid winner.  The prevalence of dango is evidenced 
by the recent Defense Facility Agency procurement, in which 58 major 
construction companies were implicated in dango.  The U.S. 
Government continues to stress the need for Japan to effectively 
address this pervasive problem. 
 
Another concern is Japan's use of excessively narrow Japan-specific 
qualification and evaluation criteria that preclude U.S. firms from 
competing for projects.  The U.S. Government has asked Japan to 
develop procedures to simplify the qualification process for foreign 
firms that have relevant experience outside of Japan, as well as to 
ensure that all project-related qualification requirements are made 
public, as required by the GPA and the bilateral agreements.  Other 
concerns with Japan's procurement practices include the imposition 
of unreasonable restrictions on the formation of joint ventures, 
extremely low design fees, and excessive and costly documentation 
requirements for design bids. 
 
The U.S. Government has urged Japan to increase the use of 
 
TOKYO 00003137  014 OF 020 
 
 
Construction Management and Project Management in its public works 
to create greater opportunities for U.S. firms, which have extensive 
expertise in these areas.  Construction and Project Management 
involve advanced project delivery and management systems that 
maximize project efficiency. 
 
The U.S. Government is paying special attention to several major 
projects covered by the public works agreements of particular 
interest to U.S. companies with the expectation that they will 
provide important opportunities for U.S. firms.  These projects 
include the Okinawa Institute of Science and Technology; Haneda 
Airport development and expansion; Kansai International Airport; 
Central Japan International Airport; Kyushu University Relocation 
Project; Gaikan Expressway Project; Metropolitan Expressway 
Shinagawa Route Projects; Japan Post's Post Office Projects; major 
public buildings, large-scale hospital building projects, urban 
development and redevelopment projects; major PFI projects; and the 
MPA projects still to be undertaken or completed. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
The U.S. Government continues to pursue its IPR protection agenda 
with Japan through bilateral consultations and cooperation, as well 
as in multilateral and regional fora.  For its part, Japan continues 
to make progress in improving the protection of IPR.  In addition to 
increasing our bilateral cooperation, the U.S. Government has 
identified several areas in Japan's IPR protection regime where 
further action by Japan is needed. 
 
Patents 
 
The U.S. Government continues to urge Japan to adopt a 12-month 
patent application filing grace period, similar to that provided 
under U.S. law, to harmonize the two systems and enhance U.S. 
innovators' protection against a possible loss of patent rights in 
Japan.  The U.S. Government also continues to urge Japan to 
implement procedures to avoid a piecemeal approach to patent 
examinations that results in unnecessarily lengthy delays in 
granting patents. 
 
In 2005, Japan established an Intellectual Property High Court 
staffed with judges and judicial research officials conversant with 
IPR cases, which the Japanese government reports has reduced the 
average length of litigation.  The U.S. Government welcomes this 
reduction in the average length of litigation and will continue to 
monitor the implementation and effect of Japan's reforms on the 
cost, length, and effectiveness of IPR-related litigation. 
 
Copyrights 
 
Adequate protection of intellectual property, including copyrights 
and neighboring rights, is critical for the continued development 
and competitiveness of content-related industries such as 
entertainment software, music, film, literary works, and software, 
and is a vital component to advancing electronic commerce and a 
well-functioning digital economy.  The U.S. Government remains 
concerned that Japan's Internet service provider liability law does 
not provide adequate protection for the works of right holders on 
the Internet or the appropriate and necessary balance of interests 
among telecommunications carriers, service providers, rights 
holders, and website owners.  The law could be improved by including 
a requirement for more expeditious notification to right holders in 
the "notice and takedown" system. 
 
The U.S. Government continues to monitor Japan's efforts to promote 
digital content distribution and urges that Japan work to preserve 
and support the international framework governing the exclusive 
rights of authorship and the incentives to create in order to keep 
pace with advances in distribution-related technologies. 
 
The U.S. Government is also urging Japan to continue efforts to 
reduce piracy rates, including piracy on the Internet, and has 
recommended Japan amend its Civil Procedures Act to provide for the 
availability of statutory damages for infringement, at the election 
of the right holder, as an alternative to actual damages.  Police 
and prosecutors should be given ex officio authority to enable them 
to investigate and prosecute IPR crimes on their own initiative, 
without the requirement of right holder consent.  To develop Japan's 
digital communication networks, Japan's Copyright Law should better 
protect the technological adjuncts to copyright protection such as 
strengthening the remedies for trafficking in the tools used to 
circumvent access controls.  Japan also does not forbid copyright 
infringement in government operations through a public decree or the 
issuance of regulations. 
 
The U.S. Government is also concerned about the scope of the 
 
TOKYO 00003137  015 OF 020 
 
 
personal use exception, both as it applies to the Internet and to 
book piracy in the educational context, and is encouraging Japan to 
make clear in its law that the otherwise infringing use of 
copyrighted works over peer-to-peer networks is not excused by the 
personal use exemption; and to address loopholes in Japan's personal 
use exception that appears to allow copies of entire textbooks to be 
made. 
 
The U.S. Government also continues strongly urging Japan to extend 
the term of protection for all the subject matter of copyright and 
neighboring rights to life plus 70 years, or where the term of 
protection of a work (including a photographic work), performance, 
or phonogram is calculated on a basis other than the life of a 
natural person, to 95 years. 
 
Japan's government is coordinating an ongoing discussion among 
stakeholders of these and other related issues and plans to revise 
Japanese laws in the near term.  The U.S. Government welcomes this 
process and encourages Japan to ensure it is open, inclusive, and 
transparent, and offers all stakeholders fair opportunities to 
express views. 
 
Border Enforcement 
 
Border enforcement is a critical component of effective IPR 
protection.  The U.S. Government notes steps taken by Japan to 
strengthen its own border enforcement as well as to provide 
assistance to improve the border enforcement of key trading 
partners.  The U.S. Government also welcomes revisions to the 
Customs Tariff Law, which went into force in 2007, including 
expanding the list of prohibited goods for export to include items 
that infringe copyrights and neighboring rights, and strengthening 
the penalty clauses for customs offences.  It is important for Japan 
to continue its aggressive interdiction of infringing articles and 
to vigorously apply new provisions of the Customs Tariff Law.  The 
U.S. Government also welcomes Japan's international efforts to 
enhance IPR enforcement in fora such as the G-8, APEC, and the WTO 
TRIPS Council, as well as in the ad hoc Japan-China-Korea trilateral 
Customs dialogue. 
 
SERVICES BARRIERS 
 
Insurance 
 
Japan's private insurance market is the second-largest in the world, 
after that of the United States, with direct net premiums of an 
estimated 35.8 trillion yen (over $300 billion) in Japan fiscal year 
(FY) 2007.  In addition to the offerings of Japanese and foreign 
private insurers, substantial amounts of insurance are also provided 
to Japanese consumers by a web of insurance cooperatives (kyosai), 
and the Kampo life insurance company (a wholly government-owned 
entity of the Japan Post Group).  Given the size and importance of 
Japan's private insurance market as well as the scope of the 
obstacles that remain, the U.S. Government continues to place a high 
priority on ensuring that the Japanese government's regulatory 
framework fosters an open and competitive insurance market. 
 
Kampo Insurance:  The Japan Post Group's insurance business, Kampo, 
continues to be the largest player in Japan's insurance market.  At 
the end of Japan's FY 2007, there were approximately 62 million life 
and annuities insurance policies issued by Kampo in force compared 
to 127 million issued by all private life insurance companies 
combined.  (Note: only 651,000 of those policies were issued by the 
"new" Kampo after the commencement of privatization on October 1, 
2007; the rest are now assets of the Successor Corporation created 
as part of the privatization transition.)  The U.S. Government has 
long standing concerns about Kampo's impact on competition in 
Japan's insurance market.  It remains vital that Japan create a 
level playing field between Kampo and private sector insurers to 
cultivate competition, encourage more efficient allocation of 
resources, and stimulate economic growth. 
 
The U.S. Government is closely monitoring the privatization of Japan 
Post and implementation of related reforms.  The Japan Post reform 
framework established by Japan's Diet in 2005 includes a number of 
key measures that, if implemented fully, will represent long awaited 
progress in areas of concern to U.S. and insurers in the market. 
Importantly, the legislation also included establishment of 
equivalent conditions of competition between the Japan Post 
companies and the private sector as a basic principle of the 
reforms. 
 
In addition to ensuring equal supervisory treatment between Kampo 
and private sector companies, the U.S. Government continues to seek 
that Japan take the steps necessary to achieve a level playing 
field.  Among those steps, the U.S. Government urges that adequate 
 
TOKYO 00003137  016 OF 020 
 
 
measures are implemented to ensure that cross-subsidization does not 
take place among the newly created Japan Post businesses and related 
entities, including by ensuring the Japan Post companies' strict 
compliance with the Insurance Business Law's arms-length rule and 
requiring adequate financial disclosures to demonstrate that 
cross-subsidization is in fact not occurring.  The U.S. Government 
also continues to emphasize the importance of ensuring the company 
established to manage Japan's post office network will transparently 
and without discrimination select insurance products of private 
providers for distribution throughout the network. 
 
The U.S. Government continues to call on Japan to ensure a level 
playing field between the postal insurance company and private 
insurers.  Approval of new products by the new postal insurance 
company has shifted to a process whereby decisions are made by the 
Prime Minister (with the Commissioner of the Financial Services 
Agency acting as proxy) and Minister of Internal Affairs and 
Communications, after hearing the opinion of an appointed government 
advisory body.  This process should be transparent and open to all 
parties.  It is also critical that the process include careful 
analysis of, and full consideration given to, actual competitive 
conditions in the market and that private sector views are actively 
solicited and considered before decisions are made. 
 
As modifications to the postal financial system could have serious 
ramifications to competition in Japan's insurance market, adequate 
transparency in implementation of the reforms passed by the Diet is 
essential.  The U.S. Government has urged Japan to continue to take 
a variety of steps that ensure transparency, including providing 
meaningful opportunities for interested parties to exchange views 
with related government officials as well as members of 
government-commissioned advisory committees and groups before 
decisions, including those on new products, are made; and fully 
utilizing public comment procedures with respect to drafting and 
implementing regulations, guidelines, Cabinet Orders, and other 
measures. 
 
Kyosai:  Insurance businesses run by cooperatives, or kyosai, hold a 
substantial market share of insurance business in Japan.  Some 
kyosai are regulated by their respective agencies of jurisdiction 
(the Ministry of Agriculture, Forestry and Fisheries, or the 
Ministry of Health, Labor and Welfare, for example) instead of by 
the FSA, while others have been allowed to operate without any 
regulatory supervision at all.  These separate regulatory schemes 
undermine the ability of the Japanese government to provide 
companies and policyholders a sound, transparent, regulatory 
environment, and afford kyosai critical business, regulatory, and 
tax advantages over their private sector competitors.  The U.S. 
Government believes all kyosai must be subject to the same 
regulatory standards and oversight as their private sector 
counterparts to ensure a level playing field and to protect 
consumers. 
 
The Japanese government took some important steps in 2006 to bring 
more oversight scrutiny to unregulated kyosai.  Under these 
regulatory reforms, previously unregulated kyosai were required by 
April 2008 to apply to the FSA for new legal status.  Some of the 
cooperatives, which elected to become full-fledged insurance 
companies, have been held to the same regulatory standards as 
private sector insurers.  Others opted to become "Small Amount Short 
Term Insurance Providers," which limits their product range and size 
and holds the firms to different requirements than those applied to 
private sector insurance companies.  The remaining unregulated 
kyosai are expected to wind down their business in 2009. 
With respect to kyosai regulated by ministries and agencies other 
than the FSA, the U.S. Government remains concerned by their 
continued expansion in Japan's insurance market and continues to 
call on Japan to bring these kyosai under FSA supervision. 
Policyholder Protection Corporations:  The Life and Non-life 
Policyholder Protection Corporations (PPCs) are mandatory 
policyholder protection systems created in 1998 to provide capital 
and management support to insolvent insurers.  Japan's Diet passed 
legislation in 2005 to renew the PPC system and is preparing to 
renew the legislation prior to April 2009.  While some improvements 
have been made, the PPC system continues to rely on pre-funding by 
its members, instead of adopting a system of funding to follow an 
insolvency that results in a draw of funds from the PPC 
(post-funding).  The U.S. Government continues to urge Japan to 
adopt more fundamental changes in the PPC systems, including the 
post-funding approach. 
 
Bank Sales:  The Japanese government decided in December 2007 to 
liberalize fully the range of products eligible to be sold through 
the bank sales channel.  As a follow-up to that change, the United 
States asked Japan promptly to conduct a review of market conduct 
rules, including the limits on sales of first and third sector 
 
TOKYO 00003137  017 OF 020 
 
 
products and treatment of customer data (including Insurance 
Business Law Enforcement Rules, Article 212), to ensure they do not 
limit the bank sales channel's effectiveness or impede consumer 
convenience. 
 
Professional Services 
 
U.S. and other foreign firms and individuals are hampered in 
providing professional services in Japan by a complex network of 
legal, regulatory, and commercial practice barriers.  U.S. 
professional services providers are highly competitive.  Their 
services also help facilitate access for U.S. exporters of other 
services and goods, and contribute valuable expertise to the 
economies they serve.  The availability of such services can be a 
key factor in U.S. firms' decisions whether to invest and thus is 
central to improving the environment for foreign direct investment 
in Japan. 
 
Accounting and Auditing Services:  U.S. providers of accounting and 
auditing services face regulatory and market access barriers in 
Japan.  Only Certified Public Accountants (CPAs) or Audit 
Corporations (made up of five or more Japanese CPAs) can offer 
accounting services.  Foreigners must pass a national examination to 
qualify and this examination is offered annually.  The U.S. 
Government will continue to urge Japan to remove restrictions on 
accounting services. 
 
Medical Services:  Restrictive regulation limits foreign access to 
the medical services market.  The U.S. Government has recommended in 
the bilateral Regulatory Reform Initiative that Japan allow 
commercial entities to provide full service, for-profit hospitals in 
Japan's special economic zones as a first step to opening this 
sector to foreign capital affiliated providers. 
 
Educational Services:  Excessive regulation has discouraged foreign 
universities from operating branch campuses in Japan, presenting 
obstacles related to both administrative requirements and 
restrictions on pedagogical choices.  Under the United States-Japan 
Investment Initiative, the Japanese government established a new 
category of "Foreign University - Japan Campus" for foreign 
accredited institutions of higher education.  This designation 
provides these campuses with benefits similar to those accorded 
Japanese educational institutions (e.g., student eligibility for 
student rail passes and student visas), but does not confer tax 
benefits enjoyed by Japanese institutions and their students.  The 
U.S. Government continues to urge Japan's Ministry of Education, 
Culture, Sports, Science and Technology to work with these foreign 
universities to find a nationwide solution that grants tax benefits 
comparable to Japanese schools and allows them to continue to 
provide their unique contributions to Japan's educational 
environment. 
 
INVESTMENT BARRIERS 
 
Despite being the world's second-largest economy, Japan continues to 
have the lowest inward foreign direct investment (FDI) as a 
proportion of total output of any major OECD country.  Inward 
foreign mergers and acquisitions (M&A) activity, which accounts for 
up to 80 percent of FDI in other OECD countries, also lags in Japan, 
even though it is on an upward trend. 
 
The Japanese government has recognized the importance of FDI to 
revitalizing the country's economy.  In September 2006, the Japanese 
government set a goal of doubling the stock of FDI in Japan by 2010 
to the equivalent of 5 percent of Gross Domestic Product (GDP). 
Japan has also taken several recent steps to improve the FDI 
environment, including revision of the Corporate Code to permit the 
use of triangular stock swaps for international M&A deals.  However, 
with only one cross-border stock transaction occurring under the new 
rules as of October 2007, the long term effect of the liberalization 
of M&A rules remains unclear. 
 
Cross-border M&A is more difficult in Japan than in other countries, 
partly because of attitudes toward outside investors and partly 
because of differing management techniques and the relative lack of 
financial transparency and disclosure.  There is also growing 
concern among foreign investors about the effect of recent court 
rulings related to allowable defensive measures by listed companies 
against unsolicited takeover bids. 
 
The United States-Japan Investment Initiative, initiated in 2001 and 
co-chaired by the U.S. Department of State and Japan's Ministry of 
Economy, Trade and Industry (METI), has worked to promote policy 
changes that improve the overall environment for foreign (and 
domestic) investment and to focus on specific barriers in certain 
sectors, including educational and medical services. 
 
TOKYO 00003137  018.3 OF 020 
 
 
 
Anticompetitive Practices 
 
Law against Unjustified Premiums and Misleading Representations: 
Despite nominal changes to the Law against Unjustified Premiums and 
Misleading Representations over the past two decades, the law itself 
and the Japan Fair Trade Committee's (JFTC) enforcement of its 
provisions block many common sales techniques such as product 
giveaways and lotteries.  In March 2007, however, the JFTC did 
revise the maximum amount that a business may offer as a non-prize 
premium from one-tenth to two-tenths of the purchase price. 
Nevertheless, fair trade councils (essentially, private trade 
associations) set their promotion standards through self-imposed 
fair competition codes that are recognized by the JFTC.  These codes 
frequently impose additional standards that effectively protect 
vested manufacturing and retailing interests to the detriment of new 
entrants to the market.  As of November 2007, there were still 38 
JFTC authorized premium codes. 
 
(For detailed discussion on other anticompetitive practices and 
Antimonopoly Act enforcement, see the section above titled 
"Structural Regulatory Reform.") 
 
OTHER BARRIERS 
 
Autos and Automotive Parts 
 
A variety of nontariff barriers have long impeded access to the 
autos and automotive parts market and overall sales of North 
American made vehicles and parts in Japan remain low.  Even as U.S. 
automakers have invested in Japanese automobile manufacturers, there 
has not been a corresponding level of increase in sales in Japan's 
market.  The Japan Automobile Importers Association (JAIA) reports 
that sales of U.S. produced motor vehicles in Japan decreased in 
2006 to 16,290 units. 
 
Through the Regulatory Reform Initiative, the U.S. Government 
continues to address crosscutting structural and regulatory reform 
issues with Japan that affect the automotive sector, including 
urging Japan to take steps that help expand the opportunities for 
foreign investment, strengthen competition policy, and increase 
transparency in rule making. 
 
Aerospace 
 
Japan is among the largest foreign markets for U.S. civil aerospace 
products.  The civil aerospace market in Japan is generally open to 
foreign firms and some Japanese firms have entered into long-term 
relationships with American aerospace firms.  The U.S. Government 
continues to monitor Japan's development of indigenous civil 
aircraft. 
 
Military procurement by the Ministry of Defense (MOD) accounts for 
over half of the domestic production of aircraft and aircraft parts 
and continues to offer the largest source of demand in the aircraft 
industry.  Although U.S. firms have frequently won contracts to 
supply defense equipment to Japan (over 90 percent of the annual 
foreign defense procurement is from the United States), the MOD has 
a general preference for domestic production or the licensing of 
U.S. technology for production in Japan to support the domestic 
defense industry. 
 
Although Japan has considered its main space launch vehicle programs 
as indigenous for many years, U.S. firms continue to participate 
actively in those space systems, including Japan's primary space 
launch vehicle, the HII-A.  The U.S. Government has welcomed Japan's 
plans to develop a supplementary GPS navigation satellite 
constellation known as the "quasi-zenith" system.  The U.S. 
Government is working closely at the technical level with Japanese 
counterparts to ensure the Japanese and U.S. systems remain 
compatible and anticipates U.S. companies will have the opportunity 
to supply major components. 
 
Business Aviation 
 
Japan's regulatory framework coupled with infrastructure shortages 
impedes the development of business aviation in Japan.  Due to the 
lack of business aviation-specific guidelines, regulations for 
commercial airline safety, maintenance, and repair issues 
administered by the Japan Civil Aviation Bureau (JCAB) of the 
Ministry of Land, Infrastructure, Transport and Tourism (MLIT) also 
apply to business aircraft.  This situation in turn raises the costs 
of qualification, operation, and maintenance of business aircraft to 
uneconomical levels.  As a result, most business aircraft in Japan 
are registered in the United States. 
 
 
TOKYO 00003137  019 OF 020 
 
 
Landing rights for business aircraft in Japan are also difficult to 
obtain due to rules that hamper flexible scheduling, especially in 
the Tokyo area.  The current regulatory environment, furthermore, 
frustrates Japanese companies, foreign companies in Japan, and 
foreign companies interested in doing business with Japan.  U.S. 
aircraft manufacturers also express concern that the regulatory 
situation has greatly limited sales of their airplanes to potential 
Japanese clients. 
 
Recognizing the potential of business aviation in Japan (and hoping 
to compensate for the absence or insufficient number of scheduled 
commercial routes), certain airports in the Chubu and Kansai regions 
have begun to attract business aircraft, although results thus far 
are modest.  Regional airports are attempting to provide many of the 
same services business aircraft operators receive in the United 
States and Europe.  However, severely restricted hours for landings 
and take-offs at Japan's preferred business destination - Haneda 
Airport in Tokyo - and the lack of services at both Narita and 
Haneda, continue to significantly limit travel to and within Japan. 
 
Based on the growing needs of business aircraft owners and 
operators, the U.S. Government has continued urging JCAB to 
reexamine the application of airline-specific civil aviation 
regulations to business aviation and develop appropriate regulations 
specific to the business aviation industry.  These regulations 
should, to the greatest degree possible, reflect a regulatory 
approach consistent with the treatment of business aviation in North 
America, Europe, and other developed world economies.  The U.S. 
Government urges Japan to make immediate improvements in the overall 
regulatory framework for business aviation in advance of the opening 
of an additional runway at Haneda planned for 2010. 
 
In the past year, JCAB has taken some initial and positive steps to 
address these concerns, including regular participation in business 
aviation events in the United States and Japan, frequent dialogues 
with the U.S. Government, the industry, and U.S. and Japanese 
business aviation associations, and taking preliminary positions 
aimed at deregulation.  The JCAB released a report on business 
aviation in May 2008, which concluded the use of business jets in 
Japan constitutes an important part of Japan's aviation future and 
that the country lags noticeably behind other countries in the 
development of business aviation. 
 
The JCAB recently laid out a road map for a new policy entitled, 
"The Four 'F's to Develop Japan's Business Aviation Tomorrow."  The 
"Four F's" call for improvements in facilitation, (regulatory) 
framework, facilities, and fields (in the Tokyo area).  In July 
2008, in its first actual deregulation involving business aviation, 
JCAB extended its ETOPS (Extended-range Twin-engine Operational 
Performance Standard) requirement from 60 minutes to 180 minutes. 
This means that JA (Japan) registered aircraft with two engines are 
now permitted to fly routes far longer than they could previously. 
As a result, greater market opportunities are now open for business 
jets with sufficient range. 
 
Civil Aviation 
 
Consistent with its longstanding policy to promote competition and 
market access in civil aviation, the U.S. Government continues to 
press Japan for further liberalization. 
 
Market access for U.S. air carriers in Japan improved significantly 
with a 1998 bilateral agreement and additionally with a new 
bilateral agreement reached in September 2007 (pursuant to comity 
and reciprocity pending formal conclusion).  U.S. carriers, however, 
remain constrained by restrictions on traffic rights, operational 
flexibility, change-of-gauge, and pricing.  Other key concerns 
include the continuing disparity between the rights of "incumbent" 
and "non-incumbent" airlines, and some of the world's highest 
airport costs. 
 
The September 2007 agreement provides non-incumbent cargo carriers 
the ability to serve additional points in Japan and beyond.  It also 
removes most restrictions and limitations on same country 
code-sharing arrangements, but these remain more limited than the 
open code-sharing framework in U.S. agreements with most other 
countries.  The agreement also relaxed the pricing regime from 
"double approval" to "country of origin."  It fell short, however, 
of the standard "double disapproval" regime for pricing 
liberalization.  U.S. industry has expressed concern that Japan 
requires cumbersome and time-consuming filings for fare changes. 
 
Tokyo's Narita International Airport operates below its potential 
capacity.  The U.S. Government continues to encourage Japan to take 
steps to increase capacity and reduce congestion at one of the 
world's most important airports.  An extension of Narita's second 
 
TOKYO 00003137  020 OF 020 
 
 
runway that will facilitate more long haul flights is currently 
underway, although concerns remain about the project's financing -- 
specifically that already high user fees might be increased. 
Recently lowered landing fees at Narita were offset in part by the 
imposition of other new or increased fees.  The U.S. Government 
continues to raise the issue of high landing fees at Narita, Kansai, 
and Central Japan International Airport (Centrair) airports in the 
Regulatory Reform Initiative and other bilateral discussions. 
 
Both Narita and Haneda Airports are undergoing ambitious expansion 
projects set to be completed by 2010.  However, the planning process 
for both these projects has not been fully transparent.  The U.S. 
Government has raised with Japan concerns about how new slots at 
Narita Airport will be allocated, and prospective rules at Haneda 
that could adversely affect the competitiveness of U.S. carrier 
operations in the long term.  The U.S. Government urges Japan to 
ensure that, through a timely and transparent consultative process, 
non-Japanese carriers have meaningful opportunities to comment. 
Connections between airports in the Tokyo metropolitan area remain 
difficult and time-consuming.  The weak connectivity undermines the 
efficiency of the airports and carriers serving Tokyo.  The U.S. 
Government encourages Japan to improve transit access between Haneda 
and Narita Airports. 
 
Transport/Ports 
 
The U.S. Government continues to raise longstanding concerns about 
barriers to entry to, and the competitiveness of, Japanese ports. 
Foreign shippers servicing Japan are locked into long-term 
relationships with specific Japanese stevedoring companies, which 
reportedly collude within the industry association to keep newcomers 
out and costs high.  Foreign companies are concerned that a lack of 
transparency in Japanese laws and regulations related to ports 
creates a barrier to entry.  Foreign owned and run stevedoring 
businesses do not exist at major Japanese ports, and even major 
Japanese companies have been prevented from directly involvement in 
the stevedoring business.  As part of the Regulatory Reform 
Initiative, the U.S. Government has made recommendations on 
transparency that are applicable to the rulemaking process. 
Japanese laws and regulations could be reviewed with an eye to 
facilitating new entrants and outside competition in the stevedoring 
business. 
 
Japan amended its Port Transportation Business Law (effective 
November 2000) to eliminate the need for new entrants to prove the 
existence of surplus demand.  Charges for harbor services in nine 
large ports are subject to a prior notification requirement, and 
there is an approval requirement for other ports by the MLIT. 
 
Since 1999, the U.S. Government has continued to express concern 
that reforms have not lessened the Japan Harbor Transportation 
Association (JHTA)'s ability to deter new entry and restructuring in 
the ports sector.  The Port Transportation Business Law introduced 
requirements that run counter to the need for efficient port 
operations and discriminate against new entrants wishing to offer 
port services.  In addition, MLIT has not addressed concerns about 
the prior consultation process conducted by the JHTA nor about the 
apparent threat of illegal strikes against foreign carriers who 
obtain permission to operate their own container terminals.  The 
U.S. Government has raised with the Japanese government its failure 
to implement important aspects of the wide-ranging port deregulation 
promised in 1997. 
 
End text. 
 
SCHIEFFER