Comments of the Government of Japan on 2002 National Trade Estimate (NTE) Report

(Provisional Translation)
April 17, 2002

Regulatory Reform
Import Policies
Standards, Testing, Labeling and Certification
Government Procurement
Intellectual Property Rights Protection
Services Barriers
Investment Barriers
Anti-competitive Practices
Electronic Commerce
Other
Supplementary Comments

In the 2002 National Trade Estimate (NTE) report, some parts state accurately the actual circumstance in Japan and provide fair assessment and there are also positive expressions especially in areas in which the Japan and United States are cooperating. However, despite our repeated efforts to point out errors on many of the issues, we still find descriptions based on misinterpretation of facts and arguments based on one-sided views in many parts of the report. The Government of Japan has great concern that such a report has been published. It is quite regrettable, in particular, that the report does not reflect results of faithful explanations by the Government of Japan or series of discussions between our two Governments, which have taken place on many occasions such as the Enhanced Initiative on Deregulation and Competition Policy, review consultations and other fora established to date.

The report points out in a number of contexts that the share of foreign-made products in Japan's market remains low, and draws from this a conclusion that there are barriers hindering access to Japan's market. In reality, under market principles, market share is determined by a wide variety of factors, specific demand structures and the effort suppliers make to market their products. Accordingly, the Government of Japan would like to point out that market share of foreign products is irrelevant to whether the Japanese market is open or not.

The U.S. Government invoked safeguard measures on imports of certain steel products in March, 2002. At a time when the international community is starting to engage in the new WTO round following the Doha meeting, the United States should exert even more leadership in promoting free trade. In this context, we are deeply concerned with the protectionist measures that the United States has taken, as we believe they are inconsistent with the obligations of the United States under the WTO Agreement, while criticizing trade practices of other countries in the report. The Government of Japan also would like to express great concern because the U.S. safeguard measures might trigger a chain reaction of safeguard measures by steel producing countries that will have an adverse effect on the world trading system.

The following are the concise critical comments on items discussed in the report.

1. Regulatory Reform

Recognizing the significance of regulatory reform in achieving both the establishment of a consumer-oriented socio-economic system and economic revitalization, the Government of Japan has been vigorously and voluntarily undertaking regulatory reform programs as our own challenges. The new Three-Year Regulatory Reform Program created in March, 2001, includes not only short-term reform agenda, but also mid-term and long-term reform agenda, and shows the fundamental direction of the overall reform. The program also stipulates that the Government of Japan will continue to work for steadily implementing all the measures specified in the past programs. The General Regulatory Reform Council, established in the Cabinet Office last year, will monitor the implementation of this new program and make positive proposals for further promoting regulatory reform such as specifying priority areas. Fully taking into account these proposals, the Cabinet decided the revision of the program this March.

It is true that the agenda referred to in the NTE report are discussed under the Regulatory Reform and Competition Policy Initiative launched at the Japan-U.S. Summit Meeting in June 2001. However, like the measures stipulated in the Joint Status Reports of the Deregulation Dialogue held from 1997 to 2001, the Japanese measures to be included in the report to the two Leaders will be those that the Government of Japan decides to take on a voluntary basis. They are not measures that are implemented as a result of "agreements" with the United States. Details of the report, such as its structure and contents, are to be determined through consultation between Japan and the U.S. It is confirmed, at least, in the terms-of-reference document of the Japan-U.S. Economic Partnership for Growth, that the report will include the progress made under the Reform Initiative, including measures to be taken by "each government," not just those of the Japanese Government.

(1) Sectoral Regulatory Reform

Telecommunications
The Government of Japan has been steadily promoting regulatory reform and competition in the telecommunications sector. These efforts have led to significant increase of new entry into the market, resulting in substantial progress such as rate reductions and diversified and advanced services. Last June, the Diet approved an amendment to the Telecommunications Business Law incorporating various measures such as further improvement of asymmetrical regulations and the establishment of "Telecommunications Business Dispute Settlement Commission" for the prompt and efficient settlement of disputes among telecom companies, further promoting fair competition in the telecommunications market.

Nevertheless, the NTE report includes unfounded and one-sided views with regard to such areas as interconnection and price regulation policy, which is very inappropriate in view of the fact that the Government of Japan has repeatedly given full explanation on these issues to the U.S. Government. In particular, the U.S. Government makes a groundless argument in the report that mobile-carrier interconnection rates in Japan are "exorbitant." It is highly inappropriate, however, to compare them with the rates in the U.S. where fees are collected not only from the calling party, but also from the receiving party. As for the interconnection rates of fixed networks, there is no such thing as a "price squeeze" because they are set solely to recover appropriate costs. Furthermore, the U.S. Government should refrain from easily making single company issues into a government-to-government level issue, without having the relevant companies exhaust transparent procedures such as arbitration and submission of opinions under the Telecommunications Business Law.
Information Technology
1. Japan has been enacting necessary amendments to relevant laws in preparation for the accession to the WIPO Performances and Phonograms Treaty (WPPT). Japan will accede to the WPPT after amendment to the domestic laws and ratification of the treaty is approved by the Diet.
2. With regard to the rule for the liability of Internet service providers (ISPs), the Law on Restrictions on the Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identity Information of the Sender was promulgated on November 30, 2001 and will come into force in May 2002. This law incorporates measures which are considered the most appropriate within the Japanese legal framework against wide range of infringement of rights. Therefore, the U.S. claim that the law does not provide adequate protection for copyright holders is inappropriate. It is important for the law to be executed in an appropriate and effective manner. As a part of action that needs to be taken for that, relevant private organizations, both domestic and foreign, have set up a working group and are considering guidelines for the implementation of the law in the working group. The Government of Japan is participating as an observer and providing support to the study group's activities.
3. Regarding "temporary copies" pointed out in the 2002 NTE report, the Article 21 of Japan's Copyright Law gives authors exclusive rights of permission to reproduce their works, which is consistent with WIPO Copyright Treaty, fulfilling Japan's obligations under the Treaty.
4. The Legislation on the Protection of Personal Information is expected to be deliberated on the Diet. The legislation places minimum obligations on the entities handling personal information and it basically aims to promote entities' voluntary measures for properly handling personal information.
5. Regarding electrical Government, the Government of Japan has executed various policies based on the policy drawn by the Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society (IT Strategic Headquarters.) and accelerated the implementation of those policies, to establish the e-Government as soon as possible.
6. The aim of the loan regulation law is to protect consumers. Using illegal means to collect money that have been lent had become a social issue. The law was amended in June 2000 to deal with this issue. The law was amended in response to this problem. The amended law put the lender under obligations to issue documents to the guarantor before concluding the guarantee contract and before providing additional loans, to deal with such issues as the problem caused by insufficient explanation to guarantors for guarantee contracts. At this time it is important to ensure compliance with the obligation to issue the documents based on the provisions of amended law.
7. The Law concerning Electronic Signatures and Certification Services passed the Diet in May 2000 and came into force on April 1, 2001. (a) The law stipulates that when certain electronic signatures which could only be attached by the person to be identified are attached on the electro-magnetic records, the records are presumed to be authentic just as private documents with handwritten signatures or seals are presumed to be authentic. (b) The law is technically neutral in that it does not exclude any specific method of electronic signature or certification.
Energy
In Japan's electricity and gas market, there has been competition in prices among the existing power companies and the new entrants after the partial liberalization for large-scale users. The proper structure of electricity and gas market in the future will continue to be discussed in the Electricity Industry Committee and the Gas Market Development Basic Issues Study Group.
Medical Devices and Pharmaceuticals
Pricing rules to correct domestic/overseas differences in medical devices' prices are applied when there are marked differences. The rules have been established after hearings at the Central Social Insurance Medical Council and a series of discussions with the US medical industry. Therefore it is inappropriate to criticize the rules as "arbitrary." As for innovative medical devices, pricing rules for new categories based on function have been established.

As for the drug pricing rules, the range of comparator products has been revised, but the decision process has not been changed. It is incorrect to say that the Japanese Government is provided with "wider discretion." Further, according to the rules, innovative pharmaceuticals are to be evaluated higher than before.

Pre-application consultations with applicants on medical devices and pharmaceuticals approval review is not regarded as "binding" although the consistency of, and adherence to the approval review are ensured.

Interpretation on the E5 guideline agreed at the International Conference on Harmonization (ICH) should be discussed scientifically at ICH.

As for "legacy products," Japan has not received information it has requested of US on applicable drugs and concrete problems that is necessary for reaching a constructive resolution of the issue.

A "decision tree" was developed and published in March 2002, clarifying the three categories ("me-too," "improved," and "new") for medical device approvals.

Japan considers it necessary to impose individual unit verification of imported blood pressure gauges and thermometers according to the Measurement Law due to the fact that some of them actually have failed in the verification.

A bill to amend Blood Collection and Donation Arrangement Control Law was submitted to the current session of the Diet. The amendment stipulates that supply and demand plans of blood products must be drawn up, based on such information as the expected supply notified by manufacturers and others, aiming at ensuring a stable supply of blood products indispensable to medical treatment. The estimated quantities of blood products production and import, set out in the supply and demand plans, are the standards for ensuring the supply of blood products to meet the demand. Manufacturers will be given recommendations when actual production and import are improper compared to the plans. If the manufacturers do not follow such recommendations, their businesses will be suspended. Therefore, the statement in the 2002 NTE report that "this market-managing legislation...would be enforced through company closures" is incorrect.
Financial Services
Regarding measures for financial system reform decided in 1996, all the measures have already been implemented by 2001. Giving consideration to the change of economic conditions, the Government of Japan will continue to make efforts in constructing a confident and vibrant financial system.

(2) Structural Regulatory Reform

Antimonopoly Act and Competition Policy
The Japan Fair Trade Commission(JFTC) is making efforts to strengthen the enforcement of the Antimonopoly Act, including efforts to enhance its investigative functions, and is taking strict and vigorous measures against price cartels, bid rigging and other types of violations of the Antimonopoly Act. The actions that the JFTC will take against such violations will include criminal prosecutions. If the U.S. Government has any information based on facts concerning alleged violation of the Antimonopoly Act, the U.S. Government should provide such information to the JFTC. The JFTC, for promoting deregulation from the viewpoint of its competition policy, had actively conducted surveys and made proposals in business sectors where entry had been restricted by supply and demand balancing regulations and, with regard to the sectors where entry restrictions have been relaxed, is conducting surveys and making necessary proposals regarding post deregulation conditions of these sectors and supporting entrepreneurs' voluntary efforts to comply with the Antimonopoly Act for promoting competition policy. The independence of the JFTC's performance of its duties is guaranteed by the Antimonopoly Act, and the JFTC is, in fact, independently enforcing the laws and conducting competition advocacy.
Transparency and Other Government Practices
Every fiscal year, the Government of Japan conducts a survey of how the Public Comment Procedures are implemented and makes public the results of the survey to make administrative decision-making process more impartial and transparent. As for administrative procedures, the Government of Japan will continue to observe the Administrative Procedure Law, and to ensure the transparency and clarity in administrative dispositions such as approvals and administrative guidance.

Regarding the reform of Public Corporations, the Government of Japan has introduced the "Programme for Readjustment and Rationalization of the Public Corporations" in December 2001. Reexamination of Public Corporations will be conducted hereafter under the initiative of various Ministries that oversee the respective organizations.
Commercial Code
In order to respond to socio-economic changes, legislation related to corporate activities will be comprehensively revised from the following four viewpoints; a)ensuring effective corporate governance; b) meeting the demands of the advanced information society; c) improving measures to obtain capital by corporations; d) meeting needs of internationalized corporate activities. Following the bill submitted to the extraordinary session of the Diet in fall 2001, regarding the revision of the stock system and the amendments concerning the electronification of corporate documents, another bill to amend the commercial law was submitted in March 2002 to the ordinary session of the Diet mainly related to corporate organization. The assertion in the 2002 NTE report that the current Commercial Code "stifles investment" is not accurate since recent revisions of the Law have already made it easier to reorganize corporations.

Permitting cross-border share exchanges is problematic from the perspective of protecting share holders under the current Commercial Code.
Justice System Reform
The Program for Promoting Justice System Reform, based on the Justice System Reform Promotion Law enacted in November 2001, was adopted by the Cabinet in March 2002. Office for the Promotion of Justice System Reform will play a central role in working to prepare concrete bills within the next three years based on the program.
Distribution and Customs Clearance
The Simplified Declaration Procedure is available to all approved importers that satisfy the necessary conditions, including express carriers. Even if express carriers are not approved themselves as importers, the Simplified Declaration Procedure is available to the express carriers on the condition that they act as the agent of the importers that is qualified to use the Simplified Declaration Procedure. The Nippon Automated Cargo Clearance System (NACCS) Center decides the user fee, considering the opinion of users. The NACCS Center will continue to ask users' opinion on user fee. Japanese de minimis value for exemption is not necessarily much lower than in other countries (about 2,000 yen in EU).

2. Import Policy

(1) Tariffs on Beef, Citrus, Dairy, and Processed Food Products

The NTE report states that beef, citrus, processed cheese and natural cheese are higher tariff items. However, tariff levels of these items were determined in the Uruguay Round negotiations in which the United States also participated. The Japanese Government has been faithfully implementing its result. Each WTO Member has maintained certain tariffs levels, consistent with the WTO Agreement, and the U.S. Government should note that the U.S. itself still maintains relatively high tariffs on certain products, such as textiles, vegetables, juice and some plant oil products, even after the tariff reduction by the UR negotiations.

(2) Rice

Current level of minimum access opportunity for rice is 767,000 tons. Japan imports all of minimum access rice under the state trading while conducting severe domestic adjustment for rice production. Sale price of minimum access rice has been set in compliance with the WTO Agreement, based on its quality and other characteristics within the framework of concession. The governmental sale price (standard sale price) of the U.S. rice for staple food is approximately 70 % of that of the same type of Japanese rice. It is also 10 to 20 % lower than that of the lowest-priced Japanese rice in the market which makes up the majority of Japanese rice currently distributed. Broken rice is a form of rice and falls under the same category as brown rice and milled rice. The decision on how much broken rice to import within the overall rice to be imported is therefore, left to Japan and there is no commitment under the WTO Agreement on this point. Import of broken rice has increased because domestic supply and demand are taken into account in importing rice.

(3) Wheat

Sale price of import wheat has been set in compliance with the WTO Agreement, based on its quality and other characteristics within the framework of concession. While sale price of import wheat decreased by 40 % since 1986, per capita consumption of wheat has remained stable at 32 to 33kg every year since 1986, so that price of wheat has not affected the level of consumption.

(4) Corn for Industrial Use

There is a misunderstanding in the NTE report's statement that the Japanese Government requires Japanese cornstarch manufacturers to blend potato starch with cornstarch in manufacturing corn sweeteners. The bound tariff rate of import corn for cornstarch is 50 % or 12 yen per kg, whichever is higher. However, the tariff is zero under the tariff quota system on the condition that the importers purchase Japanese potato starch. The purpose of this arrangement is to assure demand of Japanese potato starch. This measure is more favorable for importers than choosing the bound tariff rate, and is not obligatory. The importers are free to choose the rate they prefer. This measure was determined in accordance with the bilateral consultation between Japan and the United States during the Uruguay Round negotiations. As the Japanese Government has been faithfully implementing this commitment, the criticism by the United States is inappropriate.

(5) Pork Import Regime

The Japanese pork import regime was agreed to as a result of negotiations with interested countries including the United States in the Uruguay Round, and is consistent with the WTO Agreement. Therefore, the criticism by the United States at this point is inappropriate and is difficult to understand.

(6) Wood Products and Housing

The position of the Japanese Government is that the issue of forestry products should not be discussed from the viewpoint of trade liberalization alone. Due consideration should also be given to the viewpoint of global environmental issues and sustainable use of limited natural resources. Non-tariff measures of export countries should also be discussed in the context of forestry product issues.

The Japanese Government will continue to have technical discussions in fora such as the Building Experts Committee, the JAS Technical Committee and the Wood Products Subcommittee on building standard and regulations.

On March 6, 2002, the Ministry of Agriculture, Forestry and Fisheries (MAFF) made it public that it has designated the United States as the country that has the grading system of wood products equivalent to that under the Japanese Agricultural Standard. This system enables manufacturers certified by the JAS Registered Foreign Certification Organizations in the U.S. to conduct grading based on JAS. This system also enables the Registered Foreign Grading Organizations to conduct grading. If introduction of these new systems give rise to problems, the Japanese authorities will examine the problems upon request with actual problems.

(7) Marine Craft

The Government of Japan is of the view that series of seminars to promote marine craft exports to Japan held in the U.S. and other places ("EXPORT PLEASURE BOAT TO JAPAN" seminars) have provided opportunities for explaining small craft safety regulation system in Japan to U.S. manufactures and persons concerned and has fostered understanding of the issue. Regarding issues raised in the NTE report, the Government of Japan has already conducted a survey of U.S. trading companies engaged in marine craft exports to Japan and has found that there is neither concrete trouble nor problem concerning market access to Japan. To ensure the transparency of regulations, the Government of Japan has introduced the Public Comment Procedure for formulating or applying the regulations concerned with marine craft. To adjust the internal and external standard of regulations concerned with marine craft, the Government of Japan is gradually adopting global standard as domestic standard and making efforts to ensure the consistency of foreign and domestic regulations. Therefore, the argument of the U.S. Government in the report is inappropriate.

The Government of Japan (Ministry of Land, Infrastructure and Transport and Japan Craft Inspection Organization) held an expert level meeting in March and December of 2000 and in May of 2001 with the U.S. Government (Department of Commerce, the Coast Guard and National Marine Manufacturers Association) in order to promote mutual understanding of the issue. The meeting based on technical knowledge of experts, was friendly and constructive. If the U.S. Government has any concrete complaints, the Government of Japan intends to continue to hold such meetings.

(8) Leather/Footwear

The Government of Japan introduced tariff-quota system for leather and leather shoes in 1986, which is consistent with the GATT. The Government of Japan has steadily implemented the significant reduction of tariff rates which was committed in UR. In addition, quota is allocated to importers in accordance with the calculations that follow a publicized formula. Those who import leather and leather shoes less than the allocated quota are penalized when calculating this allocation quota.

3. Standards, Testing, Labeling and Certification

(1) Ban on U.S. Poultry

In Japan, fowl plague is defined as infection with highly pathogenic avian influenza viruses and with low pathogenic avian influenza virus subtypes H5 and H7. This is based on scientific evidence that avian influenza virus subtypes H5 and H7 can transform into highly pathogenic form even if they are low pathogenic form. This definition is therefore, consistent with WTO/SPS Agreement. It should be noted that as there has been no fowl plague outbreak in Japan for more than seven decades, Japan has maintained high level of freedom from the disease. Therefore, domestic poultry flocks are considered to be highly susceptible to fowl plague.

Recently, "the Animal Health Requirements for Poultry meat etc. to be exported to Japan from the US" was amended. After that, even if the U.S. has an outbreak of Avian influenza subtypes H5 or H7 and import of the U.S. poultry meat etc. has to be temporarily suspended, poultry from other states may be exported to Japan when Japanese animal health authorities confirm the stamping and disinfections for the poultry have been fully performed in the states which have the avian influenza outbreak. If the states that had the outbreak maintain freedom from the disease and have no more outbreaks, import suspension will be lifted 90 days after the last outbreak.

(2) Ban on Imports of Rendered Livestock Products Due to BSE

Japanese animal health authorities believe that the review of quarantine measures such as import suspension of meat bone meals etc. from other countries should be conducted not only by whether BSE exists or not in export countries, but also based on the result of the comprehensive assessment for the risk of BSE occurrence in those counties. Therefore, the Japanese authorities are assessing the BSE status of other countries including the U.S.. As we must prevent further introduction of BSE, we must carefully consider the issue after obtaining sufficient information from the authorities of these countries exchanging view with them and evaluating the result of BSE expert meetings.

(3) Fresh Apples - Quarantine Requirements for Fireblight

In order to prevent fireblight from being introduced to Japan, the Japanese plant quarantine authority has taken plant quarantine measures that are consistent with WTO/SPS Agreement. Japanese plant quarantine authority has made an effort to explore whether the U.S. proposals are scientifically justifiable as alternative quarantine measures, through the joint experiment and bilateral discussions. However, the U.S. authorities unilaterally terminated the technical discussion on quarantine measures for fireblight and requested consultation under the WTO dispute settlement procedures. The Japanese Government is of the view that the technical discussion between the two countries has not yet been exhausted and, therefore, that the discussion should be continued.

(4) Ban on Fresh Potatoes

The U.S. plant quarantine authorities have not submitted concrete data for plant quarantine measures related to lifting the import ban of fresh potatoes for processing purpose from major production areas.

(5) Biotechnology

The Ministry of Health, Labour and Welfare (MHLW) has examined safety of genetically modified foods (GM foods) from a scientific viewpoint, based on the "Standards for Safety Assessment," which was established after the WTO notification in May, 2000. The MHLW is examining the safety assessments of GM foods expeditiously as soon as the data necessary for the examination are submitted from applicants.

Beginning on April 1, 2001, the Ministry of Agriculture, Forestry and Fisheries (MAFF) has made it an obligation to have proper labeling for genetically modified foods (GM foods) which have already passed the safety assessment processes set by the MHLW, in accordance with quality labeling on the basis of JAS Law (The Law Concerning Standardization and Proper Labeling of Agricultural and Forestry Products) in order to provide consumers with information in a reliable and feasible manner. On the same day, the MHLW also introduced obligation to have labeling from the viewpoint of public health.

It is appropriate to make it an obligation to have proper labeling even for GM foods whose safety has already confirmed, from the viewpoint of providing consumers with information and public health so that they can select commodities properly. The MAFF has also made it an obligation to have proper labeling for food products (e.g. high oleic soybeans) that are not equivalent to ordinary food products in certain respects, such as its composition, nutritional value or intended use, from the viewpoint of providing information for consumers.

The rule making process of international standard for labeling of GM foods has been taking place in the Codex Committee. The Japanese Government has been actively participating in this process.

(6) New Standard for Organic Food

On March 25, 2002, the MAFF made it public that the MAFF has designated the United States as the country that has the grading system of organic agricultural products and organic agricultural products processed food equivalent to the grading system of organic products under the Japanese Agricultural Standard. This system enables farms and manufactures certified by the JAS Registered Foreign Certification Organizations in the U.S. to conduct labeling of JAS for agricultural produces. This system also enables importers certified by the Registered Certification Organizations in Japan to conduct labeling of JAS at the time of import for organic agricultural produces certified in the United States. If introduction of these new systems gives rise to problems, Japanese authorities will examine the problems upon request with actual problems.

(7) Restrictive Food Additive List

The Government of Japan has been taking certain measures for food additives in accordance with WTO / SPS Agreement. In March 1996, the Government of Japan established guidelines for application procedures for new designation of food additives and revision of use standards, after considering comments from countries concerned through such procedure as the WTO notification system. The Government of Japan will appropriately deal with requests which are made in accordance with the guidelines. This system is in accordance with international rules.

(8) Dietary Supplements

The MHLW requires applicants to submit scientific data to substantiate approval and function labeling with regard to the Food for Special Health Uses among nutritional supplements. There is no rule to differentiate between Japanese and foreign data, contrary to the statement "Japan has agreed to continue to discuss the scope of using non-Japanese data and information required to evaluate and approve products."

(9) Veterinary Drugs

The MHLW establishes maximum residue limits (MRLs) for veterinary drugs when necessary documents for safety evaluation of such veterinary drugs are available. The MHLW establishes MRLs for veterinary drugs, even though Codex standards are not established for these drugs. While Codex committee has not adopted international standards for some veterinary drugs including Oxytetracycline, the MHLW has already established residue standards for these drugs based on the Food Sanitation Law.

4. Government Procurement

The Government of Japan has voluntarily established non-discriminatory, transparent, fair and competitive "Measures" or "Procedures" on government procurement in six areas, including following five areas, in consideration of the results of a series of Japan-U.S. consultations. These measures do not constitute "agreement" as described in the report, but are voluntary measures. The report also includes description of the NTT "Arrangement." However, the procurement under the measures introduced in July of 1999 and made ineffective in July of 2001 are neither government procurement nor procurement subject to supervision of the Government of Japan, as we have repeatedly pointed out. They are procurement procedures that NTT Holding Company, NTT East and NTT West themselves adopted voluntarily.

The purpose of the measures is to provide appropriate market opportunities to domestic and foreign suppliers. However, it does not ensure an increase in volume of procurement (value nor number of procurement) from overseas including the United States.

(1) Computers

The Government of Japan is faithfully implementing "Measures related to Japanese Public Sector Procurement of Computer Products and Services," and providing non-discriminatory, transparent, free and open competition. The measures provide appropriate market opportunities for foreign products and services. In this connection, the Government of Japan would like to point out that efforts of foreign suppliers are important for improving the ratio of foreign procurement. And concerning the market share of foreign products in the private sector mentioned in the report, no supporting facts have been provided by the U.S. Government.

(2) Construction, Architecture and Engineering

The Government of Japan is properly implementing the voluntarily introduced "Action Plan on Reform of the Bidding and Contracting Procedures for Public Works" in addition to WTO Agreement on Government Procurement, therefore Japan's construction market is non-discriminatory. Moreover, the Government of Japan has been promptly and properly addressing many individual inquiries raised by the U.S. Government and U.S. companies. Furthermore, the Government of Japan considers the corresponding parts describing U.S. understanding of Japanese public works market, joint-ventures, qualification and evaluation criteria and calculation method of procurement values as inappropriate, as they do not reflect explanations provided by and measures taken by the Government of Japan to date, constituting a mere one-sided claim.

(3) Medical Technology

The Government of Japan is faithfully implementing "Measures related to Japanese Public Sector Procurement of Medical Technology Products and Services." As the report points out, there is active competition in this market. This is because appropriate market opportunities are provided under the measures and both domestic and foreign suppliers make aggressive effort.

(4) Satellites

The Government of Japan is implementing transparent, open and non-discriminatory procurement under the competitive procedures in compliance with "Procedures for the Procurement of Non-R&D Satellites." The "Procedures" are carried out appropriately to cover satellites defined under the "Procedures."

(5) Telecommunications

The Government of Japan is faithfully implementing "Measures on Public Sector Procurement of Telecommunication Products and Services" and providing non-discriminatory, transparent, fair, competitive and open market opportunities. Single source tendering is applied under strict procedures. Moreover, the Government of Japan would like to point out that the U.S. Government has not provided supporting facts for the market share of foreign products in the private sector. It goes without saying that the Government of Japan will appropriately applies the "Measures" to procurement under the e-Japan strategy.

5. Intellectual Property Protection

(1) Patents

The patent system of Japan is fully consistent with the TRIPS Agreement and provides patent protection to inventions in all technical fields. Business methods related to the Internet are treated in the same way as other technical fields, affording patent protection on condition that they are "invention," i.e. creation of technical ideas by which a law of nature is utilized.

The Government of Japan has implemented all measures to be taken by Japan according to the joint statement at the Intellectual Property Working Group meeting under the Japan-U.S. Framework for New Economic Partnership in 1994. On the other hand, although the U.S. Government has enacted the Patent Reform Act (American Inventors Protection Act), which includes the institution of an early publication system and the revision of current reexamination system, on November 29, 1999, the revision is still insufficient, taking into account the contents of the joint statement. The Government of Japan urges the U.S. to implement all the contents of the U.S.- Japan joint statement at the earliest possible date. Furthermore, "First Action Period" is not a period from the date of patent application to the first response by the Japan Patent Office, but a period from the date of request for examination to the first response by the JPO.

(2) Copyrights

The Government of Japan protects copyrights appropriately in accordance with relevant international rules.

With regard to the rule for the liability of Internet service providers (ISPs), the Law on Restrictions on the Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identity Information of the Sender was promulgated on November 30, 2001 and will come into force in May 2002. This law incorporates measures which are considered the most appropriate within the Japanese legal framework against wide range of infringement of rights. Therefore, the U.S. claim that the law does not provide adequate protection for copyright holders is inappropriate. It is important for the law to be executed in an appropriate and effective manner. As a part of action that needs to be taken for that, relevant private organizations, both domestic and foreign, have set up a working group and are considering guidelines for the implementation of the law in the working group. The Government of Japan is participating as an observer and providing support to the study group's activities.

As for the issue of temporary copies, Japanese Copyright Law fulfills all obligations under relevant international rules, such as the Berne Convention, WIPO Copyright Treaty and TRIPS Agreement.

"Device" which is subject to regulation as "a device having a principal function for the circumvention of technological protection measures etc.", provided under the Copyright Law of Japan, includes "component" and "part" defined in the U.S. Copyright Law. Therefore, the Japanese provision is equivalent to that of the U.S.

The U.S. claim that there is a consideration by some in Japan's private sector and the government to impose certain formalities as a precedent for copyright protection is unclear and we cannot comprehend the intention of the US Government in that claim.

Concerning the treatment of joint work of songwriters, the Copyright Law of Japan is fully consistent with Japan's obligations under related international rules such as the Berne Convention.

(3) Trademarks

The report indicates that Japan's protection of well-known marks is weak, but there are no concrete facts to substantiate that claim. The Government of Japan explicitly stipulates protection of well-known marks under its Trademark Law in compliance with the provisions of the Paris Convention and the TRIPS Agreement. Furthermore, determination of well-known marks by Paris Convention member countries under its authority is permitted under subparagraph 1 paragraph 1 Article 6 bis of the Paris Convention. In addition, under Japanese examination practice, the examiner determines whether or not a trademark is well known impartially and properly, providing necessary protection to the well-known marks.

(4) Geographical Indications

The Government of Japan has implemented all the obligations set under the TRIPS Agreement, and fulfills the obligations regarding geographical indications stipulated under articles 22 to 24 of the TRIPS Agreement.

The Government of Japan provides interested parties with legal means to prevent misuse of geographical indication under paragraph 2 Article 22 of the TRIPS Agreement, through sub-paragraph 13 paragraph 1 Article 2, Article 3, and Article 4 of the Unfair Competition Prevention Law, under which interested parties can request injunction and damages.

Moreover, the Government of Japan has set up necessary amendment such as paragraph 3 of Article 4 of the Trademark Law which ensures remedy measures for trademarks when there is a conflict between trademarks and asserted geographical indications.

(5) Trade Secrets

The report insists that trials dealing with trade secrets are held in open court in Japan, but holding trials in open court is in accordance with the principles of the Japanese Constitution. Article 42 of the TRIPS Agreement stipulates a reservation concerning trade secret protection which states that "unless this would be contrary to existing constitutional requirements." Thus Japan's practice is fully consistent with relevant international rules.

(6) Border Enforcement

Japan's Customs Administration has been actively preventing the inflow of products that infringes intellectual property rights in accordance with fair and just procedures that are consistent with the TRIPS Agreement.

6. Service Barriers

(1) Insurance

The Financial Services Agency (FSA) normally utilizes the Public Comment Procedures and the Financial Council when new rules are being introduced, in order to have exchange of opinions with concerned companies, including foreign companies to ensure transparency in administrative procedures. Thus, it is inappropriate for the U.S. Government to continue to request these issues.

Insurance regulations in the United States has problems of its own, including delay in deregulation, lengthy processing period for product approval as seen in many cases, the lack of standardization of state insurance regulations that creates a burden for expansion of business and considerable number of regulations discriminating against foreign companies. Nonetheless, it is inappropriate for the report to only refer to the Japanese market.

Regarding the postal services, the procedures for transition to the public corporation to be established during 2003 are implemented in a transparent manner. The transparency is fully ensured because of two reasons. First, the summary of proceedings and materials distributed in "the Study Group on Public-Corporatization of Postal Services " are open to the public, public hearings were held in three local cities and the public comment procedures were taken for the draft proposal for structure of Interim Report. Second, the bills related to the public corporatization will be approved through discussion in the Diet which reflects public opinion. Therefore, the description in the report is inappropriate.

The issue of expanding Kampo products has already been dealt with in the Third Joint Status Report on the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy, issued in July 2000. Therefore, the description related to Kampo products expansion in the report is regrettable.

(2) Professional Services

Accounting and Auditing Services
Japan's Certified Public Accountant examination is open to all nationalities regardless of residence. Therefore, the statement in the 2002 NTE report that "a foreign accountant must pass a special examination for foreigners" is inaccurate. In the United States, only those who are certified as CPAs in the United States are allowed to provide audit services in the U.S. as well. Moreover, generally speaking, in major industrialized countries including the United States, being certified to provide audit services in a foreign country does not automatically qualify that person to provide audit services in their own country.
Legal Services
The Program for Promoting Justice System Reform, adopted by the Cabinet council meeting on March 19, 2002, includes deregulation of requirements for specified joint enterprises (tokutei-kyodo-jigyo) and notes that a related bill will be submitted to the ordinary session of the Diet in 2003. Japan will take appropriate measures from the viewpoint of promoting cooperation and collaboration between Bengoshi and Gaikokuho-Jimu-Bengoshi (Gaiben).

It is not considered unreasonable to prohibit Gaiben from employing Bengoshi because if allowed, it would mean that a Gaiben can practically perform legal business regarding Japanese laws through directing Japanese Bengoshi, thereby contradicting the purporse of the Special Measures Law Concerning the Handling of Legal Business by Foreign Lawyers, which limits the scope of business.

Under the current law, Gaiben is allowed to perform legal business regarding third-country law provided that Gaiben obtain written advice on each issue from competent persons. Japan does not see this as discriminatory restrictions.

The year the law was amended to allow tokutei-kyodo-jigyo was 1994.

The requests from the U.S. have been delivered to the Japan Federation of Bar Associations, however, it is not possible for the Japanese Government to interfere in matters related to autonomy of the Japan Federation of Bar Associations.

7. Investment Barriers

The Government of Japan generally welcomes foreign capital and maintains an open investment environment, in which foreign direct investment (FDI) is, in principle, allowed without restriction. FDI into Japan has increased approximately 8 times to 3 trillion 125.1 billion dollars in 2000 from 369.7 billion dollars in 1995. This drastic increase of FDI into Japan in recent years reflects the active measures taken by the Government of Japan for reform such as the measures to improve the M&A environment in Japan and the reforms in land and labor policy. Moreover, any investment barriers such as the discriminatory use of bureaucratic discretion that the United States asserts exist, do not exist in the Japanese market.

Real estate investment trusts (REITs) were created under the Investment Trust Law, not under the Special Purpose Corporation (SPC) Law. The Investment Trust Law was amended in November 2000. In accordance with the amendment, REITs have only begun to be traded in the Tokyo Stock Exchange since last September and are expected to be more popular among investors in the future. Along with amending the Investment Trust Law, the SPC Law was also modified and the number of registration of SPCs has been steadily increasing since then.

8. Anti-Competitive Practices

Law Against Unjustified Premiums and Misleading Representations aims to protect consumers' interest by regulating unfair activities for enticing consumers, namely excessive premium offers, fraudulent presentations and misleading presentations. The "fair competition codes" are authorized by the JFTC for the purpose of preventing unfair activities for enticing consumers and ensuring fair competition. It does not unduly limit activities of trade associations. There is no regulation to the participation in and withdrawal from the "fair competition codes." Thus it will not be an obstacle to new entrants into a market.

9. Electronic Commerce

The "e-Japan Strategy" put out by the Strategic Headquarters for the Promotion of an Advanced Information and Telecommunications Network Society (IT Strategic Headquarters.) on January 22, 2001, states that "reasons for high fees are that the Internet is built on low-speed, inefficient voice telephony networks and fees are based on linear pricing" and the IT Strategic Headquarters is advancing policies to "promote the establishment of one of the world's most advanced Internet networks, and enable all the people who need it to have ultra high-speed access networks at affordable rates." In the context of utilizing internet and promoting e-commerce, it is inadequate to focus only on dial up charges.

10. Other

(1) Aerospace

The description that Japan's funding of feasibility studies plays an important role in apportioning work among major Japanese aerospace companies is an inaccurate description of fact. The Japan Defense Agency procures some aircrafts that are manufactured with licensing production with the full consent of the U.S. Government.

(2) Autos and Auto Parts

Global reorganization of the autos and auto parts industries is going on with capital and business alliances that transcend national borders and the environment surrounding the autos and auto parts industries has changed drastically with globalization. In this milieu, Japan and the United States have established the Automotive Consultative Group (ACG) which will serve as a forum to discuss a broad range of issues that are of interest to both countries such as global issues and trade related issues. Presently, the United States has not raised any specific issue of concern. However, if the Government of the United States has any concrete concerns on this issue, the Government of Japan is prepared to have discussions at any time.

(3) Civil Aviation

(bilateral civil aviation talks)

Market access for both Japanese and US carriers have been and will be enhanced, under the 98 MOU and with the opening of the provisional second runway at Narita Airport. In concrete terms, US carriers will utilize in total 162 slots per week at this runway by the fourth week of October this year.

Bilateral air talks, which were started based on the 98 MOU, came to a close at the end of last year, regrettably without achieving an agreement due to the significant difference in the position of the two sides.

US carries have taken up extremely large share of slots at Narita Airport, compared to other international airports worldwide. The Government of Japan will continue to request the US to ensure appropriate utilization of slots at the existing runway, and also to rectify the imbalance in share of slots among Japanese and US carriers at the existing runways from the viewpoint of promoting fair competition.

(Narita Airport)

Landing fee at Narita airport is coordinated through the negotiation between the Narita Airport Authority and IATA. Construction of new high speed railway link to Narita is essential to improving the level of service for airport users including foreign airline passengers.

Privatization of Narita, Kansai and Chubu airports will be carried out in line with Japan's overall airport policy. It is expected that the Government of Japan will finalize concrete measures for airport privatization by the end of this year.

(4) Electrical Utilities

This issue concerns procurement activities in the private sector and is therefore outside the scope and responsibility of government. Power utility companies adopt, in principle, a process of competitive estimate submission by several companies for procurement. All the power utility companies disclose their procurement related information in English through such means as brochures and websites. These companies maintain a transparent and competitive procurement process that is open to foreign companies.

(5) Flat Glass

The Government of Japan has steadily implemented the 1995 Measures Regarding Flat Glass. The Japanese flat glass market of today is open, fair and competitive. Therefore, it is unnecessary and inappropriate for the government to be involved. We should leave it to market mechanism. The Japan Fair Trade Commission is committed to effectively enforcing and strictly applying the Antimonopoly Act within its authority if any violation is found in the market. The Government of Japan hopes that U.S. companies will make further efforts to enter the Japanese market.

(6) Motorcycle

The U.S. Government argues that the ban on tandem riding of motorcycles on National Expressways and Motorways artificially limits Japan's market for large motorcycles, adversely affecting U.S. exports. The Government of Japan is of the view, however, that this issue should not be discussed in terms of market restriction, but be properly considered from the viewpoint of road safety.

(7) Paper and Paper Products

The report refers to "existence of exclusionary business practices." However, the Government of Japan is of the view that no such problems exist in the Japanese paper market. Therefore, it is unnecessary and inappropriate for the Government of Japan to be involved. We should leave it to market mechanism.

(8) Sea Transport / Ports

The unilateral sanction that the Federal Maritime Commission (FMC) took against Japanese carriers in 1997 violate the Treaty of Friendship, Commerce and Navigation between Japan and the United States (the Treaty), which provides for national treatment and most-favored-nation treatment. The Government of Japan will continue to assert that the sanction violate the Treaty. The situation of ports in Japan has significantly improved, such as deregulation in 2000 and the full 24-hour/day, 364-day/year (excluding January 1st) operation of terminals. The Government of Japan strongly urges FMC to have correct understanding of these positive developments.

FMC introduced a new order that requires carriers to submit a report of improved situation of the ports in Japan, in order to judge whether or not it should impose unilateral sanction that would violate the Treaty. The Government of Japan recognizes that this order constitutes a serious abuse of FMC's mandates and strongly requests the U.S. Government to withdraw the order.

(9) Semiconductors

In the field of semiconductors, cooperation has progressed through the "World Semiconductor Council" based on fairness, reciprocity and autonomy. In this framework, the milieu surrounding semiconductors have changed from "friction" to "cooperation". We are concerned that the NTE report has taken up the field of semiconductors although there are no longer trade barriers concerning semiconductors in Japan.

(10) Steel

Much of growth in Japan's steel exports to the U.S. in 1998 resulted from Japanese mill's response to increased demand situation in the U.S. market. In the previous meetings of the Japan-U.S. Steel Dialogue, the Government of Japan has explained that METI has never engaged in coordination of output, pricing and market allocation goals of Japanese steel companies and that Japanese distribution channels do not restrict steel imports. It is inappropriate for the report to take up only the arguments of the U.S. steel companies without any substantiating facts. Anti-competitive activities and market access barriers do not exist in the Japanese steel market and Japanese steel companies are making desperate efforts by forming alliances with other Japanese and non-Japanese companies to survive in the competitive international steel market. It is truly regrettable that the United States has adopted the safeguard measures on imports of certain steel products. The Government of Japan believes they are inconsistent with the U.S. obligations under the WTO Agreements and strongly requests the U.S. to revoke the measures because such protectionist measures will have a negative impact on open and free trade.

Supplementary Comments on Telecommunications of Sectoral Regulatory Reform in 2002 NTE Report

The Ministry of Public Management, Home Affairs, Posts and Telecommunications has put together supplementary comments with regard to telecommunications of sectoral regulatory reform, detailing the Government of Japan's comments on the 2002 NTE report.

The U.S. Government has inappropriately included in the report unfounded and one-sided views, on which we wish to comment as follows:
1. Japan's local telecommunications market has become increasingly competitive, as can be seen, for example, by an improvement in interconnection rules of the year before last in such areas as local-loop unbundling and co-location and by the establishment of asymmetric regulations of last year. An international comparison shows that the share competitive carriers occupy in the DSL market in major EU countries and the U.S. is below 10 percent, while in Japan the same share exceeds 60 percent. Also, as the report itself points out, local calling rates fell by more than 15 percent last year. Therefore, statements in the report such as "this sector remains encumbered by excessive, outdated regulations ... and the inability of Japan to implement a regulatory framework adequate to address ... market power" are inappropriate.
2. The interconnection rates are set solely to recover appropriate costs for interconnection. The statement in the report that "MPHPT has permitted NTT to recover costs for developing and introducing new services such as ISDN by charging these costs to competitors while it subsidizes this service for its retail customers" is not factual.
3. The statement in the report that "local competitors ... have been paying as much as 70 percent of the revenues they receive from all calls back to NTT in interconnection charges" is not only baseless but also not factual.
4. When compared internationally, while NTT DoCoMo charges 13 yen per minute, mobile-carrier interconnection rates per minute in the United Kingdom, Germany, and France are set at 19 yen, 16 yen, and 21 yen respectively *. NTT DoCoMo's interconnection rates are not high from the international perspective and the expression used in the report that DoCoMo's interconnection rates are "exorbitant" is groundless.
  
  The U.S. adopts a system whereby terminating carriers collect fees from users for calls terminating on mobile phones. In this case, mobile-carrier interconnection rates between Japan and the U.S. cannot simply be compared.
  
  * DoCoMo's rates: March 2002. Others: December 2001; 1£=183.64 yen, 1DM=58.09yen, 1Fr=17.32yen (December 2001 average exchange rates).
5. As for asymmetrical regulations introduced by last year's amendment to the Telecommunications Business Law, the Minister of Public Management, Home Affairs, Posts and Telecommunications holds legal authority to identify anti-competitive behavior by a carrier assumed to have market power and to order that such behavior be suspended or changed on his own initiative. The statement in the report that "the law places the onus on competing carriers to identify anti-competitive behavior and press for corrective action" is incorrect.
6. Examination standards regarding the Telecommunications Business Law are publicly disclosed, and the Manual for Market Entry into Japanese Telecommunications Business and Manual for the Construction of Networks by Telecommunications Carriers are formulated and published. The transparency of these criteria is fully ensured and the statement in the report that many of the criteria for approving new carriers' requests are "non-transparent" is inappropriate.
7. The Guidelines for Use of Utility Poles, Ducts, Conduits, etc. stipulates that telecommunications carriers and utility companies can charge appropriate fees based on costs for the use of utility poles, ducts, conduits, etc.
  
  Accordingly, if an instance occurs whereby an owner of utility poles, ducts, or conduits is allegedly setting fees at levels far in excess of costs, the validity of such fees is examined as part of the process in authorizing requests for negotiation or making an arbitration under Chapter 3 of the Telecommunications Business Law. The statement in the report that "there are few safeguards against exorbitant rates for the use of poles, ducts, conduits and other rights-of-way facilities" is inappropriate.
8. Each country has the discretion based on its political system to choose the structure that is most suitable. As the Government of Japan has repeatedly made clear to the United States on many occasions such as the Enhanced Initiative on Deregulation and Competition Policy and the Regulatory Reform and Competition Policy Initiative, one country insisting that "ensuring effective competition ... will require an independent regulator" in another is inappropriate.
We are of the opinion that the U.S. Government should rethink its taking the easy option, chosen in issuing this report, of transforming an individual company issue into a government-to-government level issue. Rather the U.S. Government should have the relevant companies use transparent procedures, such as arbitration and submission of opinions under the Telecommunications Business Law. Here, we wish to comment as follows:
1. As for the statement in the report that "MPHPT has ... allowed NTT regional companies to adopt discriminatory pricing schemes that leverage their virtual monopolies ... to ensure that traffic stays on NTT's network. .... This denies competitors the ability to host ISPs on their own network," if a specific problem arises between carriers, they can submit opinions under the Telecommunications Business Law.
2. As for the statements in the report that "[t]here is no explanation of how these exorbitant rates are calculated" and that "DoCoMo has used its market power ... to insist that it be allowed to set prices for both incoming and outgoing calls for its network," if a specific problem arises between carriers, they can file a request for arbitration under the Telecommunications Business Law.

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