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FM AMEMBASSY TOKYO
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RUEHOK/AMCONSUL OSAKA KOBE 1624
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UNCLAS SECTION 01 OF 15 TOKYO 002813 
 
SENSITIVE 
SIPDIS 
STATE FOR EAP/J, STATE FOR EB/TPP/BTA, USDOC FOR JBAKER, STATE PASS 
USTR FOR AUSTR WEISEL, JJENSEN, DLEE AND GBLUE 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EINV KIPR ECPS SN
SUBJECT: JAPAN - 2010 NATIONAL TRADE ESTIMATES REPORT 
 
SENSITIVE BUT UNCLASSIFIED. PLEASE PROTECT ACCORDINGLY. 
 
REF: STATE 105978 
 
¶1. Per reftel instructions, post submits it draft chapter on Japan 
for the 2010 National Trade Estimate Report.  We assume Washington 
agencies will update the trade and investment data in the first five 
paragraphs of the report as they have done in the past. 
Additionally, we have excluded the middle sections on Technical 
Barriers to Trade and Sanitary and Phytosanitary Standards, which 
are stand alone reports this year, because those sections were 
previously sent to Washington agencies and because additional work 
and modifications are ongoing.  Per reftel instructions, Embassy 
Econ Section also emailed the text of the draft report to USTR, in 
MS Word format with tracked changes frpm last year's version. 
 
¶2. Begin text of the 2010 National Trade Estimate 
 
TRADE SUMMARY 
 
The U.S. goods trade deficit with Japan was $72.7 billion in 2008, a 
decrease of $10.1 billion from $82.8 billion in 2007.  U.S. goods 
exports in 2008 were $66.6 billion, up 6.2 percent from the previous 
year.  Corresponding U.S. imports from Japan were $139.2 billion, 
down 4.3 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 $40.2 billion in 2007 (latest 
data available), and U.S. imports were $24.5 billion.  Sales of 
services in Japan by majority U.S.-owned affiliates were $54.3 
billion in 2006 (latest data available), while sales of services in 
the United States by majority Japan-owned firms were $83.5 billion. 
 
The stock of U.S. foreign direct investment (FDI) in Japan was 
$101.6 billion in 2007 (latest data available), up from $92.4 
billion in 2006.  U.S. FDI in Japan is concentrated largely in the 
finance/insurance, manufacturing, and nonbank holding companies 
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 has continued to urge Japan to address a number of 
regulatory and other business environment issues that have served to 
unnecessarily limit competition, stymie the introduction of 
innovative products and services, or otherwise hinder access for 
U.S. products and services in Japan's market.  The U.S. Government 
put forward a comprehensive list of reform recommendations to Japan 
in October 2008 to begin engagement with Japan under the 
Initiative's eighth annual cycle of work.  This list included 
comprehensive recommendations relating to specific industry sectors 
as well as those addressing cross-cutting business environment 
issues. 
 
A summary of some of the key sectoral and structural regulatory 
reform recommendations made to Japan is presented in the following 
two sections. 
 
SECTORAL REGULATORY REFORM 
 
Telecommunications 
 
In its 2008 Regulatory Reform Initiative recommendations, 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:  Japan revised rules in July and November 2008 
including Next-Generation Networks of NTT East and West as Category 
I Designated Telecommunications Facilities, creating a requirement 
interconnection rates are cost-oriented and non-discriminatory.  In 
March 2009, Japan's Ministry of Internal Affairs and Communications 
(MIC) authorized rates for the termination of VoIP onto NTT East and 
West fiber optic networks.  While interconnection rates are still 
high by international standards, MIC continues pushing NTT to lower 
interconnection rates. 
 
TOKYO 00002813  002 OF 015 
 
 
 
Dominant Carrier Regulation:  NTT continues to dominate Japan's 
fixed line market through its control over almost all "last-mile" 
connections.  As Japan's broadband users turn from digital 
subscriber line (DSL) (where competition, based on regulation, was 
vibrant) to optical fiber, NTT's competitors fear NTT will 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.  While NTT and the Japanese 
government have argued there is adequate competition in FTTH 
service, NTT's share of that market has steadily increased over the 
past few years.  The U.S. Government has urged Japan to remain 
committed to ensuring competition in the telecommunications market. 
 
Universal Service Program:  Japan approved a system, beginning in 
January 2007, for NTT East and NTT West and their competitors to 
collect a universal service fee from voice services subscribers. 
MIC has undertaken periodic reviews to determine whether this amount 
should be adjusted to more accurately reflect costs, and has 
endorsed a proposal to increase significantly the universal service 
fees.  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.  Current 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) appears redundant given the existence 
of the fund, and the U.S. Government has urged the abolition of this 
cross-subsidy. 
 
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).  NTT DoCoMo, the dominant incumbent mobile carrier, 
announced March 2, 2009, that it would lower its termination rates 
by over 10 percent, continuing incremental rate reductions 
implemented over the past 10 years.  Mobile interconnection rates, 
however, still remain high by international standards and also 
compared to fixed line rates in Japan.  Despite recognizing DoCoMo 
as a dominant carrier in 2002, MIC does not require DoCoMo to 
publish its costs or 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 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) 
 
Health IT:  Government policies that fail to encourage 
interoperability, technology neutrality, and international 
harmonization, in addition to insufficient reimbursement incentives, 
are inhibiting the expansion of Japan's health IT services sector, 
an important market for U.S. companies.  The U.S. Government has 
been urging Japan to foster interoperability and technology 
neutrality, facilitate vendor participation in government-sponsored 
projects that develop health IT systems, and implement reimbursement 
systems that reward use of innovative IT. 
 
IT-Related Financial Reform: The U.S. Government welcomes passage by 
the Diet of the "Payment Services Act," in June 2009, providing that 
non-banking entities will be allowed to provide fund transfer 
services without a banking license provided they are registered, and 
clarifying their financial liabilities.  As the Government of Japan 
continues to develop and implement regulation covering online 
payments, it should continue efforts to consider private sector 
views, and ensure rules are consistent, clear and workable. 
 
 
TOKYO 00002813  003 OF 015 
 
 
Privacy:  Separate and inconsistent privacy guidelines among 
Japanese ministries have created an unnecessarily burdensome 
regulatory environment for U.S. business with regard to the storage 
and general treatment of personally identifiable information in 
Japan.  The U.S. Government welcomes a Japanese government 
announcement in July 2008 of 37 guidelines and a subsequent review 
by ministries and agencies concerning rules for protecting personal 
information, as well as continued engagement on these topics in 
international fora. 
 
IPR Protection:  The U.S. Government continued to urge Japan to 
adopt a number of new measures to improve and strengthen IPR 
protection.  These include: improving copyright protection and 
enforcement; 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:  The lack of transparency, excessive 
reliance on sole-source contracting, and restrictions on 
intellectual property ownership among other factors hinder the 
participation of U.S. companies in Japan's government IT 
procurement.  The U.S. Government therefore has urged Japan to: 
expand disclosure of procurement information; broaden participation 
in evaluation committees; make it easier for companies to own 
intellectual property they develop through government contracts; 
apply competitive bidding rules to independent administrative 
entities and government-sponsored firms; and ensure contracts are 
swiftly concluded after bidders are chosen and are not backdated. 
 
IT and Electronic Commerce Policymaking:  Insufficient transparency 
in Japan's policymaking process for IT and electronic commerce has 
constrained U.S. company access.  The U.S. Government has urged 
Japan to improve its policymaking process by seeking and considering 
industry input at all stages of policymaking.  This will foster 
development of standards that promote technology neutrality, 
facilitate private sector participation in government-appointed 
advisory groups, and provide companies with adequate time to offer 
public comments and adjust to rule changes. 
 
Healthcare Innovation 
 
Japan's market for medical devices and pharmaceuticals continues to 
be one of the worlds largest.  In 2007, the Japanese market for 
medical devices and materials was just over $18 billion, with total 
imports by Japan of U.S. medical devices exceeding $5 billion, or 
27% market share.  The pharmaceuticals market in Japan is valued at 
$60 billion and American pharmaceutical firms have achieved a market 
share approaching 20%, or total sales worth $12 billion.  Despite 
the size of these markets, many globally available pharmaceuticals 
and medical devices have not yet been introduced in Japan.  For 
example, there is an average lag time of over four years when 
introducing pharmaceuticals into Japan compared to the United 
States.  Similarly with medical devices, only about half of all 
European and American medical devices are available in Japan.  The 
Japanese authorities have recognized that Japan suffers from a 
pharmaceutical and medical device "lag" and "gap" which prevent 
timely patient access to innovative and life-saving technologies. 
As a result, Japan has issued policy papers that propose measures to 
improve access to innovative pharmaceuticals and medical devices. 
The U.S. Government continues to urge Japan to ensure that its 
policies foster the private sector's development of innovative 
products and improve patients' access to such products.  Moreover, 
The U.S. Government supports Japan's efforts to improve the overall 
regulatory environment for these industries through the bilateral 
government talks and other fora. 
 
Although changes implemented by Japan are expected to lead to 
improvements in the regulatory environment, its reimbursement 
pricing policies continue to hinder the introduction of innovative 
medical technology to the market. 
 
In its April 1, 2008, biennial price revision, the Japanese 
government broadened application of reimbursement pricing rules, 
which exposed a wider range of pharmaceuticals to downward price 
revisions.  Japan also adopted policies that imposed a stricter 
application of the "Foreign Average Price" (FAP) rule for medical 
devices.  In the next biennial price revision to be implemented in 
April 2010, the Japanese government is expected to continue using 
pricing rules to reduce the prices of pharmaceuticals and medical 
devices in order to meet budgetary limits on healthcare spending. 
The rapid aging of Japan's population has underscored the need to 
control growth of the nation's medical expenditures.  While the 
Government of Japan has pledged to increase healthcare spending in 
FY2010, much of increase is expected to fund higher medical fees for 
doctors, which may put further downward pressure on pharmaceutical 
 
TOKYO 00002813  004 OF 015 
 
 
and medical device reimbursement prices. 
 
The U.S. Government continues to urge Japan to refrain from 
implementing reimbursement policies that hinder the development and 
introduction of innovative medical devices and pharmaceuticals. 
Such 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 serve 
as a disincentive to investment in research and development. 
Transparency of drug and medical device reimbursement decision 
making processes, including on potential further systemic changes, 
continues to be a major concern.  The U.S. Government has been 
urging Japan to build further on recent improvements in this area to 
foster a more open, predictable market. 
 
Blood Products:  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 has been 
urging Japan to not restrict imports of plasma protein products so 
as to increase patient access to life-saving blood plasma therapies, 
eliminate labeling that implies U.S. products are not as safe as 
Japanese products, and increase the efficiency of product reviews. 
The U.S. Government also urges Japan to develop a reimbursement 
system for blood products that accounts for the unique nature of 
plasma protein therapy characteristics. 
 
Nutritional Supplements:  Japan has taken steps to streamline import 
procedures and to open its $10 billion nutritional supplements 
market, although many significant market access barriers remain. 
Unusually burdensome restrictions on health and nutrition claims are 
a major concern.  Only those products approved as Foods for 
Specified Health Uses (FOSHU) or Foods with Nutrient Function Claims 
(FNFC) are allowed to have health or structure/function claims. 
Producers of most nutritional supplements, however, are unable to 
obtain FOSHU or FNFC approval due to FOSHU's costly and time 
consuming approval process and to the limited range of vitamins and 
minerals that qualify for FNFC.  Other concerns include: 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; lack of transparency in new ingredient classification; 
and a lack of transparency in the development of health food 
-regulations. 
 
Cosmetics and Quasi-Drugs:  Japan is the world's second largest 
market for cosmetics and "quasi-drugs" after the United States.  In 
2008, U.S. exports of cosmetics and personal care products to Japan 
were estimated at $350 million, second only to France at $549 
million.  Despite a successful U.S. market presence, 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 certain products 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 in addition to redundant 
paperwork for importing products.  The U.S. Government continues to 
urge Japan to address these and other issues. 
 
Financial Services 
 
Japanese banks were able to avoid the direct impact from the global 
financial crisis due to their limited exposure to foreign toxic 
assets, the domestic regulatory framework, and limited 
securitization.  However, the sharp reduction in output, and fall in 
equity prices did weaken profits in the banking sector. 
 
The authorities implemented fiscal, monetary, and financial policies 
to boost the economy and support financial markets.  Along with 
cutting the policy rate to close to zero, the Bank of Japan took a 
range of measures to stabilize financial markets and facilitate 
corporate financing, including asset purchases.  Given the severity 
of the recession and limits on monetary policy from the zero 
interest rate boundaries, the government enacted sizeable fiscal 
stimulus packages.  With the resulting increase in public debt, the 
International Monetary Fund (IMF) has recommended the government 
develop a plan to secure medium-term debt sustainability.  Monetary 
and fiscal policy action was supplemented by financial measures to 
safeguard the banking system and maintain the flow of credit, 
especially to distressed Small- and Medium-Sized Enterprises.  To 
limit distortions, these emergency measures are being phased out 
with the beginning signs of recovery. 
 
The Japanese Financial Services Agency (FSA) has noted in the 
 
TOKYO 00002813  005 OF 015 
 
 
aftermath of the global financial crisis that Japan is in a 
relatively unique position among industrial countries in that Japan 
needs to deregulate parts of its financial sector even as it 
strengthens regulation in other parts.  Japan's FSA remains 
committed to its Better Markets Initiative to improve the 
attractiveness of Tokyo as a financial center.  Much of the work to 
strengthen regulation is expected to take place in the broader 
multilateral context of the G-20 and Financial Stability Board. 
 
Agriculture 
 
Japan maintains many tariff and nontariff barriers against trade in 
the agricultural sector.  The U.S. Government's recent submissions 
to Japan under the Regulatory Reform Initiative include 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 Limit (MRL) regime that ensures that any enforcement actions 
taken when a violation occurs are no more trade restrictive than 
necessary; ensuring that Japan's pesticide residue policies to 
enhance organic trade are in compliance with international 
standards; completing the review of widely used food additives that 
are recognized as safe by the Food and Agriculture Organization 
(FAO) and World Health Organization (WHO) Joint FAO/WHO Evaluation 
Committee on Food Additives; and following international standards 
for the treatment of post-harvest fungicides. 
 
Plant Quarantine Issues:  Japan's plant quarantine system includes 
measures that are not always based on internationally recognized 
science or standards.  Japan turns to nationwide bans on imported 
products in response to narrowly focused quarantines imposed by 
exporting countries in their home markets.  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 as they reflect Japan's policy of 
zero-risk tolerance.  Through the Regulatory Reform Initiative, the 
U.S. Government continues to encourage Japan to use pest risk 
analysis that is based on international standards, and to provide a 
scientific basis for its responses, as well as 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, despite the presence of some of these pests in 
Japan.  Japan has a pest forecast system that monitors certain 
domestic pests and alerts producers to potential increased pest 
damage.  The Japanese government has contended this system allows 
for official import 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 has made progress to 
harmonize legislation and standards with international standards, 
but recognizes that more work is needed to harmonize practices on 
other pests that may adversely impact U.S. exporters. 
 
STRUCTURAL REGULATORY REFORM 
 
Antimonopoly Law and Competition Policy 
 
Although Japan has taken significant positive steps in recent years 
to bolster its competition regime, cartel activity and bid rigging 
persist.  Additional measures to combat anticompetitive behavior 
would improve the business environment and further attention is 
needed to ensuring enforcement procedures are fair and transparent. 
 
Improving Antimonopoly Compliance and Deterrence:  Japan's 
Antimonopoly Act (AMA) provides for both administrative and criminal 
sanctions against cartel violators.  Administrative penalty 
("surcharge") levels remain too low, however, and criminal 
prosecutions, which should have the strongest deterrent effect 
against anticompetitive behavior, have been few and penalties 
against convicted company officials have been weak.  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 augmenting administrative and criminal penalties, 
extending the statute of limitations, and strengthening the 
effectiveness of the Japan Fair Trade Commission's (JFTC) leniency 
program (which eliminates or reduces penalties for whistle blowing 
companies).  The GOJ has taken certain steps to address these 
concerns, particularly the AMA amendments enacted on June 3, 2009. 
These amendments increased surcharge rates for enterprises that 
played a leading role in unreasonable restraint of trade by 50 
percent, extended the statute of limitations for both cease and 
desist orders and surcharge payment orders to five years, increased 
maximum prison sentences under Article 89 to five years, and revised 
 
TOKYO 00002813  006 OF 015 
 
 
the leniency program to allow two or more enterprises within the 
same group, under certain conditions, to jointly file a leniency 
application.  The amended AMA also subjects to surcharges 
enterprises that engage in exclusionary type of private 
monopolization or abuse of superior bargaining position.  The latter 
amendments regarding exclusionary private monopolization are 
scheduled to become effective in January 2010; the JFTC issued the 
relevant guidelines on October 28, 2009, after considering public 
comments received.  The JFTC's ability to enforce the AMA 
effectively continues to be hindered by a lack 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:  Japan 
introduced a system in January 2006 that empowered the JFTC to make 
determinations of AMA violations without a formal administrative 
hearing, with respondents being afforded the right to seek 
administrative review of the decision only after the decision was 
put into place.  Although the JFTC allows 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, questions 
have been raised as to whether this system provides sufficient due 
process protections.  To ensure further credibility and transparency 
of JFTC hearing procedures, the U.S. Government has asked Japan to 
review the ex post hearing system and take necessary measures to 
ensure that respondents are afforded procedural fairness in the JFTC 
decision making and appeals process, as well as to ensure that JFTC 
investigatory processes are conducted in accordance with generally 
accepted notions of fundamental procedural fairness. 
 
Broadening Measures to Combat Bid Rigging:  Japanese officials have 
implemented a series of measures to address the problem of frequent 
and persistent bid rigging.  Apart from several cases in which the 
JFTC invoked 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 and nine other central government 
entities have also introduced an administrative leniency program to 
complement the JFTC leniency program (designed to help encourage 
individuals and companies to report anticompetitive acts), and Japan 
has put in place a series of measures aimed at ensuring a 
competitive bidding process for project contracts tendered at the 
central and local government levels.  In June 2007, the Japanese 
Diet passed legislation, which became effective on December 31, 
2009, 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 strengthen measures to: prevent conflicts of 
interest in government procurement; improve efforts to eliminate 
involvement in bid rigging by government officials; expand 
administrative leniency programs; and further improve procurement 
practices to ensure open and competitive bidding. 
 
Transparency 
 
Transparency issues remain a top concern of U.S. companies operating 
in Japan's market.  The U.S. Government has strongly urged Japan to 
adopt new measures to achieve a higher degree of transparency in 
governmental regulatory and policy making processes. 
 
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 groups can be opaque and nonmembers are too often 
not uniformly offered meaningful opportunities to provide input into 
these groups' deliberations.  The U.S. Government continues to urge 
Japan to ensure transparency of advisory councils and other groups 
convened by the government by adopting new requirements to ensure 
ample and meaningful opportunities are provided for all interested 
parties, as appropriate, to participate in and directly provide 
input to these councils and groups. 
 
Public Comment Procedures (PCP):  Many U.S. companies remain 
concerned by inadequate implementation of the PCP by Japanese 
ministries and agencies.  Examples include cases where comment 
periods appear unnecessarily short, as well as cases suggesting 
comments are not adequately considered given the brief time between 
the end of the comment period and the issuance of a final rule or 
policy.  The U.S. Government has stressed the need for Japan to 
ensure its existing PCP is being fully implemented and to make 
 
TOKYO 00002813  007 OF 015 
 
 
additional revisions to further improve the system. 
 
Transparency in Regulation and Regulatory Enforcement:  To ensure 
the private sector has sufficient information about regulations and 
official interpretations of those regulations that are necessary to 
comply, the U.S. Government is urging Japan to 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 U.S. Government continues to carefully monitor the 
implementation of the Japanese government's postal reform efforts 
and to call on the Japanese government to ensure that 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 international express delivery providers.  The U.S. 
Government urges Japan to enhance fair competition, including by 
ensuring Japan Post Service is subject to similar customs clearance 
procedures and costs for competitive services such as international 
express delivery services,  and that subsidization of Japan Post 
Service's international express service by revenue from 
noncompetitive postal services is also prevented. 
 
The U.S. Government also continues to emphasize the importance of 
transparency and disclosure for the successful implementation of the 
postal reform process.  The U.S. Government has continued to urge 
the Japanese government to ensure that the process by which postal 
reforms proceed 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.  Timely and 
accurate disclosure of financial statements and related notes serves 
a key function in the privatization process, as does the continued 
public release of meeting agendas, meeting minutes, and other 
documents relevant to the process. 
 
The Democratic Party of Japan (DPJ)-led coalition government, which 
took office in September 2009, has taken steps to implement major 
changes to the course of postal privatization.  The "Basic Policy on 
Postal Reform", endorsed by the Cabinet on October 20, called for 
drastically reviewing the on-going process of privatizing the postal 
services.  Also, a bill to freeze the planned stock-sale of the 
Japan Post Holdings Company and the two postal financial companies 
and to stop the transfer of various postal facilities, such as the 
"Kampo-no-yado" hotels, passed the Extraordinary Diet session in 
early December.  The Basic Policy also calls for replacing the 
existing Postal Privatization Laws with new legislation, and the 
government is making preparations to submit a bill in that regard to 
the ordinary Diet session in the early part of 2010.  The U.S. 
Government continues to closely monitor the changes regarding postal 
reform and will continue to advocate for transparency and for 
ensuring a level playing field with the private sector.  (For 
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 now permits the use of certain modern 
merger techniques, including domestic and cross-border triangular 
mergers.  These new provisions, however, have not yet been as 
effective as had been hoped in facilitating foreign investment into 
Japan.  This may reflect the limited range of tax-advantaged merger 
tools and corporate governance systems that do not adequately 
reflect the interests of shareholders. 
 
Through the Regulatory Reform Initiative, the U.S. Government 
continues to urge Japan to improve further its commercial law and 
corporate governance systems to promote efficient business practices 
and management accountability to shareholders in accordance with 
international best practices.  Specifically, the U.S. Government is 
urging Japan to identify and eliminate impediments to cross-border 
mergers and acquisition, including the availability of reasonable 
qualifying rules for tax-deferred treatment for many such 
transactions, and to take measures to ensure that shareholder 
interests are adequately protected when Japanese companies adopt 
anti-takeover measures or engage in cross-shareholding 
arrangements. 
 
The U.S. Government also continues to encourage Japan to identify 
 
TOKYO 00002813  008 OF 015 
 
 
legislation and other measures necessary to strengthen corporate 
governance mechanisms, including by: facilitating and encouraging 
active proxy voting by institutional investors such as pension and 
mutual funds; tightening the definition of outside directors; 
allowing the boards of directors of Japanese corporations to 
delegate certain decision making functions to committees composed 
solely of independent directors; and encouraging the stock exchanges 
to adopt listing rules and guidelines that will improve the 
corporate governance of listed companies and ensure that the 
interests of minority shareholders are protected when the board of 
directors decides to issues new shares, conduct a reverse stock 
split or allocate shares to third parties.  The GOJ has convened 
study groups to consider such measures, including the METI-sponsored 
Corporate Governance Study Group, which issued a report in June 2009 
urging regulatory changes to Japanese systems of corporate 
governance.  The Tokyo Stock Exchange strengthened its rules 
concerning private placements to third parties, effective August 24, 
¶2009.   The U.S. Government also continues to request that Japan 
amend Article 821 of the Company Law to prevent adverse effects on 
U.S. companies seeking to legitimately conduct their primary 
business in Japan through Japanese branch offices. 
 
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 continues to urge 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, counting all of the time foreign lawyers spend 
practicing law in Japan toward the three year experience requirement 
for licensure as a foreign legal consultant, and speeding up the 
registration process for new foreign legal consultants.  The U.S. 
Government has also requested that Japan take measures to ensure 
that no legal or Bar Association impediments exist to Japanese 
lawyers becoming members of international legal partnerships with 
lawyers outside Japan without restriction, and to ensure that 
foreign legal consultants can legally provide alternative dispute 
resolution (ADR) services and represent parties in any international 
ADR proceedings taking place in Japan. 
 
In order to encourage victims of trade secret theft to cooperate 
with prosecutors in bringing criminal charges against the 
wrongdoers, the U.S. Government is urging Japan to adopt necessary 
procedures that will ensure that the content of a trade secret will 
not be disclosed to the public in the criminal trial. 
 
Distribution and Customs Clearance 
 
The U.S. Government welcomes Japan's work to formulate an Authorized 
Economic Operator (AEO) system, which allows exporters with good 
compliance records to process goods more expeditiously through 
Customs. 
 
IMPORT POLICIES 
 
Rice Import System: Japan's highly regulated and non-transparent 
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 Staple Food Department (SFD) 
of MAFF manages imports of rice within the TRQ through periodic 
ordinary minimum access (OMA) tenders and through the simultaneous 
buy-sell (SBS) tenders.  Imports of U.S. rice under the OMA tenders 
are destined almost exclusively for government stocks.  MAFF 
releases these stocks exclusively for non-table rice users in the 
industrial food processing or feed sector and for re-export as food 
aid.  In calendar year 2008, U.S. rice exports to Japan were valued 
at $250 million, representing approximately 318,000 metric tons. 
Only a small fraction of this rice 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.  The United States expects Japan to continue meeting its 
WTO import-volume commitments. 
 
Wheat Import System:  Japan requires wheat to be imported through 
MAFF's Food Department, which then resells the 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 adjustment to the resale price and 
therefore more closely reflect international price movements. 
However, the U.S. Government remains concerned by Japan's operation 
of a state trading entity for wheat and its potential to distort 
trade. 
 
 
TOKYO 00002813  009 OF 015 
 
 
Pork Import Regime:  Japan is the largest export market for U.S. 
pork on both a volume and a value basis (importing 425,000 metric 
tons in 2008, worth $1.5 billion).  The import tariff for pork is 
established by a gate price system that applies a 4.3 percent ad 
valorem tariff when the import value is equal to or higher than the 
administratively established reference price.  Imports that fall 
below the reference price pay an additional duty equal to the 
difference between the import value and the reference price. 
 
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 the import volume 
increases by more than 17 percent from the level of 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. 
 
Fish and Seafood Products:  While U.S. fish and seafood exports to 
Japan have decreased since 1999; Japan remains an important export 
market for U.S. products, representing 18 percent of total U.S. 
seafood exports in 2008.  An overall decrease in Japanese seafood 
consumption and therefore imports, as well as the growing seafood 
demand in the United States, the EU, and other countries, help to 
explain the downturn in U.S. fish and seafood exports. 
 
Japan's tariffs on seafood imports are generally low, although 
tariffs on certain products remain an impediment to U.S. exports, 
making the products too expensive for Japanese importers in an 
increasingly competitive global marketplace.  However, some market 
access issues remain.  For example, Japan maintains import quotas on 
Alaska Pollock, Pacific Cod, Pacific Whiting, mackerel, sardines, 
squid and herring.  Japan also maintains quotas on specific products 
such as pollock and cod roe, and surimi.  Administration of Japan's 
import quota system has improved considerably over the years and it 
is expected that obstacles to U.S. exports of fish and seafood 
products 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, 20.4 percent on cookies, up to 17 percent on 
table grapes depending on the season of the year, and 15 percent to 
29.8 percent on wine depending on the Harmonized Tariff System (HTS) 
classification.  These high tariffs generally apply to food products 
where Japan has domestic production.  Tariff reductions continue to 
be 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. 
 
Proprietary Ingredient Disclosure Requirement for Food and Dietary 
Supplements:  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. 
 
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. 
 
(TECHNICAL BARRIERS TO TRADE and SANITARY AND PHYTOSANITARY 
STANDARDS excluded per para. 1) 
 
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. 
 
 
TOKYO 00002813  010 OF 015 
 
 
Construction, Architecture, and Engineering 
 
U.S. companies annually obtain far less than 1 percent of projects 
awarded in Japan's massive public works market, valued at $163 
billion in 2008.  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.  The United States raises 
public works issues in the annual Expert-Level Meetings 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 U.S. Government continues to 
stress the need for Japan to take more effective action to address 
this pervasive problem.  The U.S. Government also asked Japan to 
take measures to address excessive low-bidding and recognizes that 
Japan is attempting to do so through the increased use of Overall 
Greatest Value Method procurements and other measures. 
 
The U.S. Government has raised its concerns with 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 also asked Japan to: (1) 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; (2) address 
problems related to the treatment of joint venture members, 
extremely low design fees, lack of clarity in design fee structures, 
and excessive and costly documentation requirements for design bids; 
and (3) rectify the excessive use of the GPA operational safety 
exemption for railroad procurements. 
 
The U.S. Government is paying special attention to several major 
projects covered by the public works agreements that are of 
particular interest to U.S. companies; these projects should provide 
important opportunities for U.S. firms.  These projects include: the 
Haneda Airport development and expansion; the second phase of Kansai 
International Airport; the Central Japan International Airport; the 
Kyushu University Relocation Project; major expressway projects, 
including the Gaikan Expressway Project and Metropolitan Expressway 
Shinagawa Route Project; Japan Post Projects; major public 
buildings, railroad procurements, urban development and 
redevelopment projects; major Private Finance Initiative (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.  The U.S. 
Government, however, 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. 
 
Copyrights 
 
Adequate protection of intellectual property is critical for the 
continued development and competitiveness of content-related 
industries, and is a vital component to advancing electronic 
commerce and a well-functioning digital economy.  The U.S. 
Government encourages Japan to consider ways of improving its 
Internet service provider liability law to ensure it provides 
adequate protection for the works of rights holders on the Internet 
or the appropriate and necessary balance of interests among 
telecommunications carriers, service providers, rights holders, and 
website owners.  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 
 
TOKYO 00002813  011 OF 015 
 
 
the exclusive rights of authorship and the incentives to create in 
order to keep pace with distribution-related technologies. 
 
The U.S. Government is urging Japan to continue efforts to reduce 
piracy rates, including methods to protect against piracy on the 
Internet and other digital environments.  Police and prosecutors 
should be given ex officio authority to enable them to prosecute IPR 
crimes on their own initiative, without the requirement of rights 
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 copy and access 
controls. 
 
The U.S. Government is also encouraging Japan to consider clarifying 
the scope of the personal use exception, both as it applies to the 
Internet and to book piracy in the educational context. 
 
The U.S. Government also continues to strongly urge Japan to extend 
the term of protection for all the subject matter of copyright and 
related 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. 
 
The U.S. Government notes the Japanese Diet passed a bill revising 
the Copyright Law on June 12, 2009, to go into effect January 1, 
¶2010.  The bill seeks to address piracy issues, promote distribution 
of digital content, and assure better access to those with 
disabilities.  The U.S. Government welcomes efforts by the Japanese 
government to bring laws up to date and urges continuing efforts to 
modernize IPR protections in an open, inclusive, and transparent 
process. 
 
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 an 
expanded list of prohibited goods for export to include items that 
infringe copyrights and related rights, and strengthened penalty 
clauses for customs offences.  It is important for the Japanese 
government to continue its aggressive interdiction of infringing 
articles and to vigorously apply new provisions of the Customs 
Tariff Law.  Japan has positively contributed to the enhancement of 
IPR enforcement in fora such as the G-8, APEC, and the WTO TRIPS 
Council, and through border enforcement capacity building work in 
the Asia-Pacific region. 
 
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 34.7trillion yen (approximately $335 billion) in Japan 
fiscal year (FY) 2008.  In addition to the offerings of Japanese and 
foreign private insurers, substantial amounts of insurance are also 
provided to Japanese consumers by insurance cooperatives (kyosai), 
and the Japan Post Insurance Co., Ltd. (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. 
 
Postal Insurance:  Japan's postal life insurance system remains a 
dominant force in Japan's insurance market.  At the end of Japan 
FY2008, there were approximately 52 million postal life and postal 
annuity insurance policies in force, with approximately 2.7 million 
having been issued by the new Japan Post Insurance Co., Ltd., after 
it began operations on October 1, 2007, and the remainder held as 
assets of the Public Successor Corporation.  In comparison, 128 
million life and annuity policies were in force with all other life 
insurance companies combined.  The U.S. Government has long-standing 
concerns about the postal insurance company's impact on competition 
in Japan's insurance market and is continuing to closely monitor the 
implementation of reforms.  This includes the expectation that the 
principle of establishing equivalent conditions of competition 
between the Japan Post companies and the private sector, as outlined 
in Japan's basic postal reform law, will be fully achieved.  A level 
playing field between the postal insurance company and private 
sector insurers is critical to cultivate competition, enhance 
consumer choices, encourage more efficient resource allocation, and 
 
TOKYO 00002813  012 OF 015 
 
 
stimulate economic growth. 
 
The U.S. Government continues to urge Japan to take a number of 
steps to ensure equivalent treatment, including but not limited to: 
(1) ensuring equal supervisory treatment between Japan Post's 
financial institutions, including Japan Post Insurance, and private 
sector companies; (2) implementing adequate measures to prevent 
cross-subsidization 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 arm's 
length rule and requiring adequate financial disclosures to 
demonstrate that cross-subsidization is in fact not occurring; and 
(3) ensuring the company established to manage Japan's post office 
network will transparently and without discrimination select 
financial products, including 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 before the introduction of new or altered insurance 
products by the postal insurance company.  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 institutions and network 
subsidiary could have serious ramifications to competition in 
Japan's financial 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 to 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.  Timely and accurate disclosure 
provides important information as well as independent means to track 
and validate the privatization process. 
 
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 Financial Services Agency (FSA), which regulates all other 
private sector insurance companies.  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 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 has taken some important steps since 2006 to 
bring more oversight to unregulated kyosai.  Under these regulatory 
reforms, previously unregulated kyosai were required to apply to the 
FSA for new legal status by April 2008.  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 
(SASTIP)," 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 that were 
required to close their businesses by the end of March 2009 have 
done so.  The FSA is to review the SASTIP system within five years 
from the date of its enforcement (before April 2011), and in doing 
so, the FSA will, as necessary, provide information on the review 
and meaningful opportunities for input from insurance companies, 
including foreign insurance companies, and other parties concerned 
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 to provide capital and 
management support to insolvent insurers.  Legislation was 
 
TOKYO 00002813  013 OF 015 
 
 
introduced in Japan's Diet in late 2008 to renew the life insurance 
PPC system prior to its scheduled expiration in April 2009.  The new 
legislation, which passed the Diet in December 2008, will renew the 
protection system for three additional years.  It was passed without 
full deliberations on the effectiveness of the current system, which 
continues to rely on pre-funding of the PPC by its members and a 
government "fiscal commitment" in case industry funding is 
insufficient, instead of adopting a system where an insolvency would 
result in members contributing funds to the PPC as needed 
(post-funding).  The U.S. Government continues to urge Japan to 
consider more fundamental changes in the PPC systems, including 
through full and meaningful deliberations with interested parties 
before renewal legislation is required. 
 
Bank Sales:  In December 2007, the Japanese government fully 
liberalized the range of insurance products eligible for sale 
through banks.  As a follow-up, the U.S. Government promptly asked 
Japan to review market conduct rules, including the limits on sales 
of first and third sector products and treatment of customer data 
(including Insurance Business Law Enforcement Rules, Article 212), 
to ensure they do not limit the effectiveness of bank sales of 
insurance or impede consumer convenience and choice.  While the FSA 
has committed to conduct a review of market conduct rules within 
three years, the U.S. Government has called for a more expedited 
review. 
 
Domestication of Foreign Insurance Operations:  The U.S. Government 
has recommended that Japan take measures to ensure foreign 
incorporated companies operating branches in Japan that wish to 
transfer business operations to a Japan-incorporated entity can do 
so in a seamless manner that protects policyholders and creditors 
while ensuring business continuity.  The U.S. Government urged that 
the portfolio and transfer provisions of the Insurance Business Law 
be revised accordingly. 
 
Professional Services 
 
Medical Services:  Restrictive regulation limits foreign access to 
the medical services market.  The U.S. Government has continued to 
urge Japan to open new opportunities for commercial entities to 
provide full-service, for profit hospitals, including through 
Japan's special economic zones, in order to open this sector to 
foreign affiliated providers. 
 
Educational Services:  Unnecessary regulation related to both 
administrative requirements and restrictions on pedagogical choices 
has been one of the factors that discouraged foreign universities 
from operating branch campuses in Japan.  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), it does not confer the 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 has been 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.  With 
only one cross-border stock transaction occurring under the new 
rules, however, the adequacy of measures taken to date to promote 
cross-border 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, inadequate corporate governance 
mechanisms that protect entrenched management over the interest of 
shareholders, and a relative lack of financial transparency and 
disclosure. 
 
 
TOKYO 00002813  014 OF 015 
 
 
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, 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. 
 
OTHER BARRIERS 
 
Automobiles and Automotive Parts 
 
A variety of nontariff barriers have traditionally impeded access to 
Japan's automobile and automotive parts market, and overall sales of 
North American made vehicles and parts in Japan remain low.  Japan 
Automobile Importers Association (JAIA) data indicates reports that 
registrations in Japan of motor vehicles produced by of U.S. 
companies were 13,987 in 2008 compared to 15,341 units in 2007. 
Japan instituted a Green Vehicle Purchasing Promotion Measure 
Program, launched April 1, 2009 and scheduled to end March 31, 2009 
with the possibility of being extended.  The program provides 
rebates to customers who purchase a new vehicle that exceeds a 
certain fuel mileage standard but has been developed in such a way 
that a much lower proportion of imported vehicles qualify for the 
incentive compared to Japanese models. 
 
Through the Regulatory Reform Initiative, the U.S. Government has 
continued to address crosscutting structural and regulatory reform 
issues with Japan that affect the automotive sector, including 
urging Japan to take steps that strengthen competition policy and 
increase transparency in rule making.  It is also important for 
Japan to take into full consideration global harmonization efforts 
as it develops and implements regulations. 
 
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 
approximately 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.  Because of 
the lack of guidelines specific to business aviation, 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 and leads to most business aircraft operating in 
Japan being registered in the United States.  In addition to the 
regulatory environment, landing rights for business aircraft in 
Japan are difficult to obtain because of rules that hamper flexible 
scheduling, especially in the Tokyo area.  These factors greatly 
limit business opportunities in this sector for sales of U.S. 
aircraft in Japan. 
 
Certain Chubu and Kansai region airports have begun to attract 
business aircraft, although with modest results thus far.  Regional 
airports are attempting to provide many of the same services 
business aircraft operators receive in the United States and Europe. 
 Severely restricted hours for landings and take-offs at Haneda 
Airport in Tokyo, a preferred business destination, and the lack of 
 
TOKYO 00002813  015 OF 015 
 
 
services for private business aircraft at both Narita and Haneda 
continue to significantly limit travel to and within Japan. 
 
The U.S. Government has continued to urge JCAB to reexamine the 
application of airline-specific commercial civil aviation 
regulations to business aviation and develop appropriate regulations 
specific to the business aviation industry that are consistent with 
the treatment of business aviation in North America, Europe, and 
other developed economies.  Immediate improvements in the overall 
regulatory framework for business aviation are needed in advance of 
an additional runway opening at Haneda planned for 2010. 
 
During 2008, the JCAB took some initial and positive steps, 
including engaging in greater dialogue with the U.S. Government and 
other stakeholders.  A May 2008 JCAB report highlighted the 
importance of business jets in Japan's aviation future and noted 
that Japan lags noticeably behind other countries in business 
aviation development.  The JCAB also laid out a road map for a new 
business aviation policy, calling for improvements in facilitation, 
regulatory framework, facilities, and air fields.  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, 
which permits JA (Japan) registered aircraft with two engines to fly 
routes far longer than they could previously. 
 
In the spring of 2009, the JCAB conducted follow-up research on 
business aviation, but the result and any responding measures have 
not been announced (as of November 30). 
 
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 On traffic rights, 
operational flexibility, change of gauge, pricing, and other issues, 
the Government of Japan has made strides toward aviation 
liberalization with its statements in favor of a comprehensive Open 
Skies agreement, and bilateral civil aviation negotiations continue 
toward this goal. 
 
The U.S. Government commends the Japanese government for its 
expansion of Tokyo's Narita International Airport as well as the 
opening of Tokyo's Haneda Airport to international flights.  The 
U.S. Government continues to encourage Japan to take steps to 
increase capacity and reduce overall congestion Ambitious expansion 
projects are set to be completed at both airports in 2010.  However, 
the planning process for both these projects has not been fully 
transparent.  U.S. carriers have expressed serious concerns about 
how new slots at Narita Airport will be allocated and with the 
unfair advantage that Japanese carriers would enjoy if slots at 
Haneda were allocated for service to the United States in the 
restricted night hours that MLIT's most recent plans envision. 
These issues are properly addressed in bilateral air transport 
negotiations.  Separately, the U.S. Government notes that 
connections between airports in the Tokyo metropolitan area remain 
difficult and time-consuming, and that the weak connectivity 
undermines the efficiency of the airports and carriers serving 
Tokyo.  The U.S. Government is encouraged by improvements that are 
now under consideration within MLIT to improve transit access 
between Haneda and Narita airports. 
 
Recently lowered landing fees at Narita were offset in part by the 
imposition of other new or increased fees. 
 
Roos