Japan's Priority Proposals for Regulatory Reform in the EU
And Related Japanese Comments

JAPAN'S PROPOSALSM
FOR REGULATORY REFORM IN EU
(Tentative Translation)

23 October 2001, Tokyo

List of Japan's Priority Proposals for Regulatory Reform in the EU

   The GOJ has reviewed the requests of January 2001, which covered 107 items in 16 areas, from the viewpoints of four areas: regulations concerning cross-sectoral issues, sectoral issues, the environment/food safety, and Japanese residents in the EU. As a result, this list of priority proposals finally covers 45 items in 16 areas, including seven new items.

   Newly added proposals are marked with a star (*).

Note: Of the proposals included in this list, those related to taxation are included to introduce matters pointed out by Japanese private companies from the viewpoint of improving business environment in the EU.

Overview of the Japan-EU Regulatory Reform Dialogue

   Currently, the world economy is in a severe state unseen in previous years. The occurrence of multiple terrorist attacks in the U.S. in September made the outlook further unclear. We must open new prospects in the difficult era and turn the present situation into an excellent opportunity for thorough renovation. Various efforts have already been launched to attain recovery and development of the world economy. At present, Japan is trying to rehabilitate its economy by advancing reform without sanctuaries. In Europe, on the other hand, the EU is prepared to respond to the slowdown of economy through realization of further integration and enlargement. Furthermore, Japan and the EU must cooperate in playing leading roles as principal players in the world economy, with regard to global economic frameworks, such as the WTO.

   Thus far, the Japan-EU Regulatory Reform Dialogue has steadily accomplished tangible results. This dialogue is a symbolic and practical joint action of Japan and Europe in collaboratively dealing with the slowdown of the world economy, by expanding their mutual trade and investment.

   We hope that the Japan-EU Regulatory Reform Dialogue will become a genuinely constructive forum for dialogue between Japan and Europe as a whole. The purposes of this dialogue are not to criticize each other but to share findings and experience concerning regulations, and to build up better frameworks by learning from each other.

   Integration and enlargement of the EU must be progressed in a manner open to non-EU countries. Many of the matters for which we seek improvement are considered to be under the authority of individual EU Members States, or matters related to harmonization among individual EU Members States. To make the Japan-EU Regulatory Reform Dialogue more effective, we request that not only the European Commission but also each individual EU Member State participate more actively in the consultations. We also hope that, to make these talks more significant, the European Commission will more positively work on individual Member States.

   Based on the aforementioned idea, we have just formulated a list of priority proposals for regulatory reform in the EU. While submitting the list to the European Commission and individual EU Member States, we hereby ask the EU side to sincerely study our requests stated in the list, and to attain concrete achievements in the future.

   These Japanese proposals include many issues regarding which requests have already been made. These are important problems that Japanese businesspeople are faced with in reality, and calls for improvement have been repeatedly heard. Seeking improvement on these issues, we strove to clarify points at each issue, and, where possible, we proposed specific solutions conceivable, in preparing our new requests.

   In formulating these requests, we obtained cooperation also from many businesspeople, and tried to grasp specific problems in conducting business in Europe. Suggestions from the Japan-EU Business Dialogue Roundtable, which is playing an important role in dialogue and cooperation between business circles of Japan and Europe, are also reflected in these proposals.

   We sincerely hope that the process of the Japan-EU Regulatory Reform Dialogue in the current fiscal year, which will signify the start of a Decade of Japan-EU Co-operation, will prove to be beneficial to the economies of both Japan and the EU, and eventually to the world economy.

A. Cross-sectoral Issues

1. Commercial laws, business practices, and competition policy

(1) Prudent operation of requests to third-party companies to provide information during investigation of M&A

   With regard to the European Commission's investigation of M&As, there are cases in which third-party companies, which are not involved in the M&A, are fined pursuant to Regulations 4064/89 due to the failure in providing information about the M&A as requested or to the insufficiency or inaccuracy of the information they provided. In some of these cases, the Commission's information request form does not bear a warning of the fine in case of not abiding by the request. Therefore, in view of the fact that third-party companies are unsatisfied with the excessive burden of providing information in detail, and in view of ensuring fairness between European and Japanese companies, the GOJ requests that the EU operate the system with prudence, fairness and transparency to determine the scope of required information, and to impose fines upon third-party companies.

   In a previous response of the EU, importance of supplying information and grounds for imposing fines were stated, which the GOJ sufficiently understands. On the other hand, no reply was made regarding the operation with sufficient transparency, including notification to the Japanese Mission. Japanese enterprises located in Europe strongly hope for the improvement of this mater, based on their view that the current system is an excessive burden.

   The GOJ, therefore, submits the following concrete requests. (1) The Commission should inform the Japanese Mission in advance when cases arise in which Japanese companies are subject to fines. (2) Considering the short period given before responding the request, the Commission should send its request only to the designated contact section or company in the corporate group, which can respond to the request responsibly, if asked by the corporate group. (3) Procedures should be introduced to give the third-party company a chance to ask the reason of the Commission's request, and to voice its opinions before initiating the information-seeking procedures, if the company holds that there exist reasonable grounds to believe the company is not in the position to provide requested information. By implementing (2) and (3) above, the Commission will be able to gather valid information efficiently, and thereby realize an effective use of the limited human resource.

(2) Early adoption of the draft directive concerning offset of profits and losses across multiple EU Member States

   Currently it is not allowed for a company resident in one EU Member State to offset losses incurred by its subsidiaries in other Member States. Although a draft directive was proposed in 1991 to address this issue, no progress has been made to date. Therefore, early adoption of the proposed directive is hoped to facilitate further investment in Europe. The previous EU reply stated that, with no progress seen in the discussion on the matter, there were no prospects for it being adopted in the foreseeable future. Because this is a draft directive that may be able to supplement insufficiencies in the Statute for a European Company, the GOJ continues to request for the early resumption of deliberations.

(3) Improvement of the Statute for a European Company

   The GOJ understands that the Statute for a European Company - a statute which enables a multinational enterprise to operate throughout the EU without setting up subsidiaries in each Member State if it establishes a company in the form of SE (Societas Europea) in one Member State - was formally adopted in October 2001, and is expected to take effect in 2004. Although the GOJ appreciates the long-term efforts of the European Commission and others concerned, it has heard many voices that the statute in the present form will not directly contribute to an effective reorganization of enterprises. The GOJ requests continued study toward the adoption of profit/loss cancellation across EU Member States and application of the directive to non-public as well as public limited-liability companies, since most Japanese companies operating in Europe fall under the former category.

2. Standards and certification

Machine tool inspections regime in the EU market

   It is reported that, in several EU Member States, products not bearing the CE mark are seen in the market including machine tools introduced to the market after the adoption of the Machine Safety Directive (1989/392/EEC). Therefore, Japanese enterprises that export machines in accordance with the CE marking system are disadvantaged in competition. At present, no EU-wide, unified arrangements to investigate and prosecute such illegal cases are in force. Although in some countries, government authorities conduct investigation every year, and take such actions as prohibition of sales or removal of such products, there are many other Member States where no sufficient investigation or prosecution is implemented.

   In this connection, the GOJ requests the EU to give utmost consideration to the efforts of Japanese enterprises that are abiding by the CE marking system based on their understanding of the need to enhance the safety level within the EU. The GOJ therefore requests the European Commission to formulate laws (regulations and directives) to unify measures of investigation and prosecution in case of violations against CE marking-related legislations within the EU.

3. Employment

(1) Temporary employment contract system in Spain

   Spanish laws allow employers and workers to conclude, to meet the state of production, temporary labor contracts for no longer than six months, within 12 months after the phenomenon causing the demand for labor occurs (depending on the amendment of labor contracts, they may be extended up to 12 months, within 18 months).

   According to Spain's previous reply, renewal of limited-term contracts is not immediately illegal, and the Spanish regulation regarding time-limit contracts is sufficiently flexible. In reality, however, there is a virtual time limit of six months, in principle (a maximum of 12 months), so this regulation causes difficulties in the personnel management of Japanese enterprises. In Spain, large dismissal compensation is required for mid-term dismissal, and this practice itself prevents flexible employment decisions. Unless this practice is changed, it is essential for enterprises to employ workers for the necessary period through time-limit contracts.

   In this connection, the GOJ requests amendment of the system enabling enterprises to conclude time-limit contracts not restricted by the aforementioned employment time limits.

(2) Regulation for protecting representatives of employees in Belgium

   Companies cannot dismiss those employees who run for election as employees' representatives until the next election four years later, even if their work performance is poor. These candidates are protected regardless of the results of the election. With no reply from Belgium, the GOJ continues to request to amend the regulations so that proxy and unsuccessful candidates be treated in the same way as ordinary employees.

4. Trade and customs

Appropriate application of anti-dumping(AD) rules

   As in the case of components of television cameras, the European Commission conducts anti-dumping investigations by its own initiative even without enough evidence, obstructing business activities in the private sector. The GOJ requests that careful deliberation be given before the opening of authoritative investigations. With regard to personal fax machines, the expanded definition of the product is currently under re-examination by the European Commission. However, the re-examination of AD should be done only for judging whether the anti-dumping taxation should be continued. The GOJ requests that new procedures for anti-dumping be taken when the definition of the product is in question. The GOJ also requests information as to the state of current review and the time for disclosure of the results of the review.

5. Information and intellectual property

Data Protection Directive

   The EU implements measures that require EU Member States to present the transfer of personal data to countries and regions that do not have sufficient regulatory provision for the protection of personal data. The measures include the Data Protection Directive, which took effect in October 1998. In connection with the implementation of the Directive, the GOJ pointed out that Japanese companies' subsidiaries operating in Europe might be prohibited to transfer information, such as recruitment and customer data, to their head offices, and that their business activities could thereby be hampered. In response, the European Commission explained that there is no cause for immediate concern because the directive itself has sufficient flexibility. Japanese industries have been introducing self-regulation to protect personal data, and the GOJ is also working on legislation to protect personal data. The GOJ requests that the EU positively handle the issue so as to ensure freedom of transfer of personal data between Japan and the EU, including appropriateness certification.

B. Sectoral Issues

6. Legal services

(1) Legal services pertaining to laws of home country foreign lawyers in France

   The GOJ has been requesting the EU side that France establish a system that would allow foreign lawyers to engage in legal services pertaining to their own country's laws without taking any special examination, as is duly permitted in Japan under the Special Measures Law Concerning the Handling of Legal Business by Foreign Lawyers.

   According to a reply from France, foreign lawyers have to pass the French bar examination, held in France in the French language, in order to provide legal services concerning home countries' laws.

   The GOJ stands by its original request since the French reply does not address Japan's request. It should be stressed that French Requirement is inappropriate from the reciprocal point of view since the above-mentioned Japanese law does not require foreign lawyers to take any examinations in Japan.

(2)Legal services pertaining to laws of third countries by foreign lawyers in Germany

   According to a reply from Germany in August 2001, Japanese lawyers cannot provide services involving third-country laws but are allowed to practice third-country laws together with lawyers from third countries in Germany. By cooperating this way, Germany's reply holds, it becomes possible to provide clients with comprehensive advice on the law of other countries.

   Germany's reply fails to clarify the rationale for not allowing foreign lawyers to engage in legal services pertaining to third-country laws. It also fails to address Japan's request for deregulation to allow foreign lawyers to handle third-country laws. The GOJ stands by its original request.

7. Telecommunications

(1) Interconnection in the EU

1. In the EU, a "Reference Interconnection Offer (RIO)" has been made public in all Member States. Mere publication of a RIO, however, is not enough, and Article 7-3 of the Interconnection Directive (Directive 97/33/EC) stipulates that the RIO shall include a description of the interconnection offerings broken down into components according to market needs. Nevertheless, as the European Commission admits in the "Sixth Report on the Implementation of the Telecommunications Regulatory Package," there are Member States that do not meet the requirements of the Directive.
      Furthermore, the European Commission has made no reply to the GOJ's request to make it clear that the "period for interconnection" is part of the conditions that need to be stated in the RIO.
      Therefore, the GOJ requests the European Commission to explain how they intend to proceed with Member States that do not abide by the requirements of the directive. It also requests the Commission to make it clear that the "period for interconnection (including access to unbundled interconnection points in local loops)" is part of the conditions that need to be described in the RIO, and notice it to all Member States.
2. The reason why the GOJ submits such request is that the GOJ considers that, if the time for interconnection is stated in the RIO, it will be easier for possible new entrants to formulate business plans, which serves the purpose of requiring break-down into "components according to market needs" in Article 7-3 of the current "Interconnection Directive."
      To put it other way, if the time for interconnection is not stated in the RIO, new entrants do not know when the interconnection will be started, so they will have difficulties in working out business plans. Also, the GOJ does not share the view of the European Commission that the "period required for interconnection" is an issue of business negotiations which are subject to commercial discussions between carriers.
      The GOJ requests the European Commission to clarify, with regard to matters falling under "market needs", how matters that should be stated in the RIO are distinguished from those left for business negotiations.
3. According to its reply, Germany considers that Article 7-3 of the Interconnection Directive has been fully transposed into German law, and it replied that the development of the telecommunications sector lies first and foremost in the hands of market participants and that the State should intervene only in exceptional cases. However, the GOJ considers that negotiations between business enterprises can be effective only between parties on equal footing; that enterprises with significant market power (SMP) and other enterprises cannot be regarded as being on equal footing, and that this situation falls under the exceptional situation calling for intervention by the government. Although Germany holds that subsequent interference is possible if a dispute arises, long period of time is required before the start of interconnection. In addition, since carriers concerned do not know the standard interconnection time, they cannot predict if they can win a dispute.
      The GOJ requests the German Government to include the "period required for interconnection" in the RIO.

(2) Licensing fees in the EU, Germany and France

   The GOJ welcomes that a certain degree of improvement has been made in this matter. Licensing fees in France were lowered by a certain margin, while in Germany work has been started to amend rules regarding licensing fees.

   In France, however, licensing fees at the time of applying for network establishment were not lowered from the original level of FF1,750,000 (about 267,000 Euros). Also, all licensing fees are more than 10 times higher than Japanese licensing fees (nothing more than business license application fees of 150,000 yen - or about 1,363 Euros). As for Germany, although revision of rules concerning licensing fees has been undertaken, no disclosure has been made as to the levels of post-revision licensing fees or the time for realization of the revision.

   In this connection, the GOJ requests the governments of both France and Germany to take appropriate steps promptly. The GOJ also requests the European Commission to ensure that the governments of both countries adopt the aforementioned measures at early dates, and that the Commission makes public information about licensing fees of individual Member States.

[ rf. change of the license fees in France ]

1. establishing network
   application fee: FF1.75million (1999)--FF1.75million (current) (approx.267,000 Euro)
   annual payment: FF3.5 million (1999)--FF875,000 (current) (approx. 133,000 Euro)
2. providing services
   application fee: FF750,000 (1999)--FF250,000 (current) (approx. 38,000 Euro)
   annual payment: FF1.5 million (1999)--FF125,000 (current) (approx. 19,000 Euro)

(3) Exports of radio communication equipment to the EU *

   To export radio communication equipment that complies with legal regulations from Japan to the EU, it is necessary to modify the radio communication equipment so that it will meet the EU Directive (R&TTE), but domestic regulations regarding the frequency allocation in various EU Member States are not unified. Therefore, in exporting radio communication equipment designed to use frequency bands not harmonized within the EU, the manufacturer of the equipment covered by the Directive must follow procedures to prepare test reports, file applications for certification by conformity assessment bodies designated by the destination country, obtain the said certification, and notify the frequency management authorities of the export destination country. Thus, the manufacturer has to spend much time for such procedures. In this regard, the GOJ requests that the EU abolish or simplify the procedure for notifying frequency management authorities of various States after certification is obtained from conformity assessment bodies.

(4) Disclosure of information on coordination and non-observance procedures by the European Commission

   The GOJ reiterates its request that the European Commission disclose, within the framework of the Japan-EU Regulatory Reform Dialogue, current status in Member States, coordination between individual Member States and the Commission regarding Japanese requests, the progress in procedures related to non-observance of the directives regarding telecommunications.

8. Financial services

(1) Introduction of EU common procedures in financial business

   Japan requests the EU to introduce a system which makes activities, products, licenses and others approved by one EU Member State be automatically approved in other Member States, with no additional procedures or only with reporting. Unless this is realized, the EU financial service market cannot be considered a single market. Regarding documents to be submitted to governing authorities in EU Member States, the GOJ requests each Member State to prepare forms in multiple languages for foreigners, including Japanese. This would be a fast effective step to improve business environment within Europe. Because filing of applications different from country to country in content and style is troublesome and constituting an obstacle for business, enhanced harmonization is requested. While the GOJ understands that the European Commission is striving for the unification of the financial service market, the previous reply of the Commission was disappointing. Although these are not matters allowing settlement in a short period of time, the GOJ requests continual efforts by the Commission.

(2) Equal treatment between EU and non-EU banks

   Regarding large loan regulations, Japanese banks that open branches in Portugal, Austria, Luxembourg, and the Netherlands are not given the same status as branches of EU Member State banks. The upper limit of loans that the Japanese bank branches can extend is calculated based on the fictitious capital of those branches. (On the contrary, the upper limit of loans by branches of EU Member State foreign banks is calculated based on the capital at their home countries.) Therefore, the maximum amount of each loan these Japanese bank branches can extend is severely limited. Because of this and other regulations, they are disadvantaged against their EU-based competitors. Although the previous EU reply stressed that there are no "branches" of Japanese banks in these four States (the problem may not arise for a locally incorporated subsidiary established within the EU), the regulation has a preventive effect against future establishment of a branch. Therefore, the GOJ cannot accept the EU reply. The GOJ hopes that bank branches whose head offices are located outside the EU be treated equally with branches whose head offices are situated in the EU, to ensure freedom of future business operation. Also, since no reply has been made from Luxembourg, the GOJ continues to request a reply.

(3) Specific Country Issues

1. * In Germany, discriminatory treatment against Japanese enterprises is reportedly in place in calculating loan balance, which is the target of large-amount loan regulations. Namely, in judging company groups, grouping based on past "zaibatsu" relations is still maintained. Such groupings clearly do not reflect the real present state. Currently in Japan, elimination of mutual holding of stocks and formation of collaborative tie-ups deviating from previous affiliation are progressing. The GOJ requests adoption of new criteria which reflect the real state of Japanese enterprises more precisely, such as those based on consolidated accounting standards.
2. France unequally treats banks depending on the location of their head offices. To ensure freedom of business management forms irrespective of branches or locally incorporated subsidiaries, as in (2) above, the GOJ requests that France treat both EU and non-EU banks equally.

   [Examples of unequal treatment in France]

   • Non-EU banks are required to submit applications and to obtain permission when opening branches. (Branches of EU banks are required only to submit reports in advance.)
   • The branches of non-EU banks are required to prescribe fictitious capital. (Branches of EU banks are not.)
   • The branches of non-EU banks are required to subscribe to deposit insurance. (Branches of EU banks are not.)
   
      Moreover, branches of foreign banks are also required to pay for insurance, and to be a part of the French relief scheme, in the same manner as French banks, and insurance payments are calculated based on outstanding loans. No other countries, including Japan, have such a system. Therefore, the GOJ requests that France improve the situation.
      The previous reply of France can be interpreted to mean that, because of differences in supervisory and legal systems, it cannot be helped even if Japanese banks are treated in a discriminatory manner. Because the grounds and reasons for each differential treatment is not explained, the GOJ stands by its original request.
3. The GOJ has following two requests, concerning France's financial supervision:
   1. Asset evaluation in France
         There are no written standards for evaluating a bank's assets in France, and inspectors have too much leeway in assessing the required reserves of banks. In some cases, administrative instructions concerning loans to a single business partner differ from one inspector to another. Since supervising criteria, including evaluation of assets, are extremely important in the management of banks, the GOJ requests clarification of rules in statutory form to make them transparent and clear. In its previous reply, France answered that supervising standards are in accordance with the standards of the Basel Committee, and that the IMF does not take issue with the French standards. However, because France appears to have no intention of clarifying rules, which is the part and parcel of our requests, the GOJ continues to request improvement in this matter.
   2. Regulation on the current ratio in France
         A foreign bank is required to calculate the current ratio by subtracting standby L/Cs given by its head office from the net money supply to the branch. (The net money supply is the balance between the money supplied to the branch and the money raised through the branch.) Foreign banks are in a disadvantageous position in calculating the current ratio. In its previous reply, France said there is no situation in which Japanese banks are given disadvantageous treatment. It is reported, however, that the aforementioned guidance is implemented by governing authorities. The GOJ requests relaxation or abolition of such regulation and seeks a sincere reply from the EU with regard to the existence and grounds of the regulation.

9. Automobile

(1) Establishment of the Whole Vehicle Type Approval (WVTA) system for motorcycles and commercial vehicles

   Currently, WVTA is applied only to passenger cars and motorcycles, and not to commercial vehicles. The European Commission's reply in August this year states that the Commission will submit its proposal about WVTA application to commercial vehicles to the Council and the European Parliament by the end of this year. The GOJ continues to request an early start of the application by setting enforcement details promptly, as well as the clarification of the schedule up to the start of such application.

(2) Application of ECE13H in the WVTA system

   The GOJ appreciates the EC's adoption of the regulations ECE13H. To apply the regulations in WVTA, it is necessary to add the regulations to the EC Directive on automobile model recognition (Directive 1970/156/EEC -ANNEXIV). The European Commission stated, in its reply of August 2001, that after the procedure for adopting the regulations is completed, the regulations would be immediately added to the Directive. However, the GOJ has learned that the amendment of the said Directive has not yet been done. Therefore, the GOJ requests early amendment of the Directive and clarification of the schedule for the amendment.

(3) Regulations concerning pedestrian safety

   Although the EU is independently working out regulations to protect the safety of pedestrians, the GOJ requests that the EU establish harmonized standards under the framework of the International Harmonized Research Agenda (IHRA), to ensure concerted actions with Japan, the United States, and other countries.

(4) End of Life Vehicles (ELV) Directive

   In response to the GOJ's request for the expansion of the exceptions list, the European Commission states, in its reply of August this year, that the Regulatory Committee on Waste Legislation next year will examine the issue of exceptions as a priority. Because the present exceptions list does not completely cover substances considered to be irreplaceable, the GOJ continues to request the expansion of the list.

   It was earlier reported that the Japan Automobile Manufacturers' Association (JAMA) and ACEA jointly prepared a written opinion stating the substances desired to be added to the exceptions list, and submitted it to the European Commission. The GOJ requests that, in studying expansion of the exceptions list, the Commission will attach sufficient importance to the content of the written opinion.

(5) Japan-EU cooperation in formulating international harmonization standards regarding the field of driving view

   Currently, a study is underway in Japan toward formulation of safety standards regarding the field of automobile drivers' view. It is reported that similar study is progressing in the EU.

   With regard to the said safety standard, the GOJ considers it desirable to formulate Global Technical Regulations, based on the 1998 Global Agreement, as part of the efforts to enhance automobile safety and to promote international harmonization of automobile standards. The GOJ requests the EU's cooperation in starting discussions about jointly preparing Global Technical Regulations and promoting further harmonization of regulations.

10. Construction

Draft directive concerning the registration of construction business

   According to the reply of the European Commission, currently CEN and CENELEC are working on new draft standards concerning registration of construction business, taking into account of Japan's requests. The GOJ requests an explanation of how its requests are to be reflected, as well as the specific schedule up to the formulation of the standards.

C. Issues Concerning Environment and Food Safety

11. Environment

(1) Requests concerning the amendment to the Directive on batteries

   Research on alternative products for nickel cadmium batteries is progressing, and, in the course of such research, it has become clear that there are some areas in which no other product can take place of Ni-Cd batteries. In particular, there are no batteries that can replace Ni-Cd batteries in areas where instantaneous, high electric current is required, and also where minute current is necessary for a long period of time. Therefore, the GOJ continues to request that Ni-Cd batteries be removed from the regulation targets of the aforementioned Directive.

(2) Requests regarding the Directive of Waste Electronics and Electrical Equipment (WEEE)

   Regarding the Directive of Waste Electronics and Electrical Equipment (WEEE), the GOJ appreciates the fact that most of the requests from Japanese industries have been incorporated in the present draft, which went through the first reading at the European Parliament. It continues to request that sufficient information be continually supplied to Japan with regard to future deliberations and enforcement of the Directive.

12. Foodstuffs

Lifting of the ban on scallop exports

   With regard to the lifting of the ban on scallop exports, the GOJ understands that the EU inspection mission conducted an inspection in September this year and that the results of the inspection are currently being compiled within the EU. The GOJ has heard the EU explanation that the procedure for lifting a ban usually requires about six months. Because the GOJ understands that there were no major problems regarding the results of the inspection, and since the Japanese fishing season for scallops begins in December, the GOJ requests an early lifting of the ban.

D. Regulations on Japanese residents in Member States of the EU

13. Driving licences

(1) EC Directives on driving licences

   Based on the Council Directive on Driving Licences (91/439/EEC), which was adopted in 1991, Member States of the EU enacted and amended their domestic laws. As a result, holders of Japanese driving licences are now required to submit their Japanese licences to the authorities concerned when applying for local driving licences in those countries.

   The treatment of submitted driving licences differs depending on the State. However, in most cases, those licences are either discarded or kept temporarily by the local authorities. Such measures prevent the Japanese residents from driving in Japan when they return home temporarily, and that causes inconvenience. In some cases, the submitted Japanese licences are not returned to the submitters, claiming that they have been either destroyed or misplaced, even if the submitters return the local licences before returning to Japan after having completed their terms in the relevant States.

   Therefore, the GOJ continues to request that driving licences issued by the Japanese authority be returned immediately at the time of issuing a local licence. Such requests have been submitted by Japanese residents in Belgium, Denmark, Germany, Greece, Spain, France, Luxembourg, Portugal, Finland, Sweden and the UK.

1. First, the GOJ requests the European Commission to explicitly state to and make it a well-known fact among all Member States that the issuance of local licences for non-EU driving licence holders is not regulated under the European Community Law but is under the jurisdiction of each Member State. This is because erroneous assumptions, such as in the case of Portugal, were found in the replies to our previous requests addressed to the EU.
2. Secondly, given the fact that the immediate return of the Japanese licences to their holders at the time of issuing the local licences already has been either implemented or decided upon in the Netherlands and Germany, the GOJ requests the European Commission to work on the rest of the Member States by, for instance, sending a notification urging them to take similar measures as early as possible.
      In the Netherlands, the Japanese licences are returned to their holders upon request. In Germany, it was decided in September 2001 that the Japanese licence holders may obtain the local licences without submitting their Japanese licences, as long as they can report the facts and the reasons behind their frequent return to Japan on business.
3. The GOJ requests the EU to introduce a simplified exchange system between licences issued in Japan and Member States of the EU (in which Member States temporarily return the Japanese licences to their holders in exchange for their local licences) as a temporary measure until the above-mentioned measures will be implemented, in order to cope with situations in which Japanese residents in Member States temporarily need their Japanese licences returned.
   
      We would like to touch on some other responses from the EU side. The reason that the Japanese issuing authority refuses to accept Japanese licences returned by various European authorities is in the lack of systems to return submitted driving licenses, including those submitted abroad, because foreign licences are not submitted to the Japanese authority when issuing Japanese licences.
      According to the reply from Denmark in August 2001, the Danish authorities keep the submitted Japanese licences until either the licences expire or the holders leave the country to return to Japan. The GOJ's standpoint is, as mentioned above, to request EU Member States, including Denmark, to take similar measures as those of the Netherlands and Germany.

(2) Issuance of a local licence for Japanese residents in Italy *

   Italy, which had been arguing that a bilateral agreement must be reached to continue issuing local licences in exchange for Japanese driving licence since the domestic law was amended, suspended the issuance of local licences for Japanese driving licence holders in July 2001 as the two governments failed to reach an agreement.

   Although talks aimed at reaching a bilateral agreement as early as possible between the governments of Japan and Italy are underway, the GOJ requests that Italy resume the issuance of local licences as a temporary measure until the agreement will be reached, so that the possible ill effects on Japanese residents would not hamper the economic and cultural exchanges between the two countries. With due respect to the current situations of the driving licence system in Japan and Italy, the GOJ is ready to cooperate to achieve an early conclusion of the agreement.

14. Residence and work visas

Furthermore, the GOJ requests for close exchange of information on the new Directive for the implementation of the Schengen Convention, which the European Commission is currently studying, considering its potentially significant impact on stays and travel of visitors from Japan.

(1) Proposal for a Council Directive on the conditions of entry and residence of third-country nationals for the purpose of paid employment and self-employed economic activities *

1. The GOJ understands that the European Commission submitted to the Council of the European Union in July 2001 a proposal for a Council Directive on the conditions of entry and residence of third-country nationals for the purpose of paid employment and self-employed economic activities. The GOJ wishes that the new requirements will reduce the administrative paperwork for Japanese nationals who wish to work in the EU.
2. According to the draft Directive, the time limit for individual decisions on an application for a residence permit is 180 days for a general case and 45 days for an intra-corporate transferee. On the other hand, according to the replies made by the EU side in August 2001, the average period for processing the applications by each country is roughly one month. Our concern is over the possibility of substantial extension of the processing period especially for the areas that presumably require general work permits, including education.
3. The GOJ requests clarification of the details of "a certificate or adequate proof of good life and behavior" and "documents proving the skills which are necessary for the performance of the envisaged activities" in the draft Directive.
4. It is expected that the employees of Japanese companies transferred to EU Member States will fill in applications as "intra-corporate transferees" in order to avoid unnecessary confusion at the time of application, the GOJ requests clarification of the criteria for the status.

(2) EU Directive related to the Schengen Convention *

   The European Commission proposed a draft Directive related to the Schengen Convention in July 2001. The GOJ believes that, if the proposal is implemented as it is drafted now, it will have a significant impact on the trips to Europe by the Japanese nationals, which have been made under the mutual visa waiver agreement between Japan and European countries. As both public and private sectors in Japan are currently putting utmost efforts in analysing the tangible impacts, the GOJ requests the EU side to closely exchange information with Japan and, in consideration of the significant impacts, take sufficient time to finalize the Directive.

(3) Issues of residence and work visas in Italy

1. The number of work permits Italy issues is quite limited for independent business operators including members of a board and for dependent workers including managers. This makes it extremely difficult to newly obtain work permits, and works against the smooth change of representatives of Japanese firms. The GOJ requests an increase of the number of work permits issued by Italy.
2. Because no extension or renewal is allowed for the two-year work permit issued as a temporary measure for dependent workers, the holders of such permit must apply and obtain a new permit when the old one expires. In addition, since they are required to obtain a new entry visa for stay and work in Italy, those who wish to remain in the country after the expiration of the work permit are forced to return home temporarily. This is creating difficulties in business activities. The number of people for whom the two-year work permits were issued is 53, or 25% of the whole dependent workers, and the effects are significant. The GOJ understands that necessary procedures for the renewal of work permits can be followed in the issuing country in most EU Member States. The GOJ requests the Italian government to extend the term of the work permits and make possible the renewal of work permits in Italy.
3. The issuance of permits to stay in Italy often takes a long period of time, or three months on average. The GOJ requests the period be shortened. On the other hand, the GOJ appreciates the fact that special counters for accepting applications for the residence permit from foreign nationals, including Japanese, were set up in Milan and Turin. The GOJ again requests Italy to urgently take the same measures in other areas where many Japanese nationals live.
4. Documents required for the application of work visas differ from one official to another or from one office to another. Such a situation seems to have been created because changes in operations, including rules, are not thoroughly implemented at local offices. Therefore, the GOJ again requests to make clear the required documents by issuing booklets or other means and to keep officers in charge well-informed.
5. Spouses of Japanese businesspeople in Italy face difficulties when they apply for a residence permit separately, because they must prepare numerous documents and then wait for a long period of time before receiving the permit. Italy is again requested to improve such time-consuming and complicated procedures.
6. Resident registration is required to purchase an automobile in Italy. However, Japanese businesspeople often have to wait for a long period of time to first obtain a residence permit, a prerequisite for applying for the resident registration. Since Italy did not refer to this subject in their reply in August 2001, the GOJ once again requests Italy to improve the procedure, among others, by dropping the resident registration from the requirements for purchasing an automobile.
7. The place of birth is regarded as important in Italy. An Italian translation of a copy of the applicant's family register has to be submitted each time to obtain official certificates, such as work visas. Italy is requested to simplify the procedures. In Japan, a copy of the family register is required in applying for a passport, and passports are issued only after having verified the identification of the applicants in the family register. Therefore, the permanent residence indicated in the Japanese passport is trustworthy, and the Government of Italy can check the place of birth by referring to the passport. Italy did not refer to this point in their reply in August 2001 and they are requested to express their views.

(4) Work visas and related issues in Spain

1. According to the reply from Spain in August 2001, the Spanish authorities may require information on the applicant's criminal records from the authorities of his or her country and the countries in which he or she has lived in the past five years up to the date of the application. However, this stipulation is not clear and we would like to reconfirm whether non-criminal certificates issued not by the authorities of their homeland or the country of current residence, but by the authorities of the countries in which they have resided in the past five years are not necessary documents at the time of applying for a work permit (i.e. one does not have to submit it if not asked). Also, we would like to confirm again in what sorts of concrete cases those documents are requested. In consideration of the fact that the GOJ does not require the applicants of work permits to submit a non-criminal certificate issued by their country of past residence, the GOJ requests Spain to at least limit the requirement to a certificate issued by Japan as their homeland or by the country of residence, to alleviate the burden on the applicants.
2. Although visa issuance in Spain is, by and large, getting less time-consuming than it used to be, it still takes longer than half a year in some cases. Spain is requested to speed up visa issuance.

(5) Work visas in Greece

1. Greece applies the following regulations in granting work permits to non-EU citizens: (1) Companies must employ at least five EU nationals to hire one non-EU national, and (2) Companies employing five or more EU nationals must maintain the employment ratio of the EU national to foreign nationals at 10 to 1. (In case that non-EU nationals are either executives or those who have special knowledge in science and technology, these requirements are not applied.)
      Currently, there are no Japanese companies facing this particular problem. According to the replies from the Greek government in August 2001, the Greek authorities have no plan so far to revise this system. However, the conditions for investment activities in Greece for foreign companies, including Japanese, will be much improved if the regulation is relaxed. The GOJ again requests that such requirements be abolished.
2. Documents required for work visas differ from one official to another or from one office to another. Such a situation seems to have been created because the provisions stipulated in the new immigration law enacted in June 2001 are not thoroughly implemented at local offices. Therefore, the GOJ requests Greece to make clear the required documents by issuing booklets and other means, and to keep officers in charge well-informed.

(6) Work permits in Germany

1. The enforcement regulations concerning foreigners were revised in December 2000. However, some local offices in charge of foreigners seem to lack an accurate understanding of the revisions. The GOJ requests Germany to keep officers in charge well-informed.
2. While there is no additional limit on the working period for young Germans who stay in Japan for a year under the system of the Japan-Germany working holiday, there is a 90-day limit on the working period for young Japanese who stay in Germany for a year under the system. Germany did not reply on this issue in their replies in August 2001. The GOJ again requests an explanation of the reason for this restriction.

(7) Work visas in Belgium

1. Although work permits and professional cards seem to be issued more quickly than before, it still takes a long time in some cases. Belgium is again requested to shorten the processing period.
2. Some visas, in particular those for younger people, limit the maximum length of the validity of stay to four years. This presents an obstacle for Japanese companies in assigning young engineers with expertise in, for instance, information technology to Belgium. In the replies from Belgium in August 2001, it implies that these people may submit their applications in the category of executives. However, since sufficient explanations have not been made from Belgium about the categories of work permits and the criteria for approval, the GOJ requests clearer explanations. Belgium has not offered convincing explanations on the need to limit the maximum length of stay, the GOJ requests the early abolishment of the system.

(8) Business permits and work visas in France

1. The GOJ appreciates the improvement in procedures in France concerning the entry of family members of Japanese business people, as well as those concerning long-term residence permits and work visa issuance. Yet applicants still have to wait at least two months to obtain work permits and one month to renew residence permits. In some cases, the time-consuming procedures cause difficulties for Japanese business people and companies in moving to France as well as in arranging personnel reshuffles. The procedures also make it almost impossible to address urgent and emergency situations. According to the replies from France in August 2001, there is no plan to review the current system. The GOJ requests further shortening of processing time and simplification of the procedures.
2. Moreover, France is also requested to extend the period of validity of residence permits from the current one year to two years.
3. Required documents differ from one office to another or one official to another when applying for work permits. It seems that local officials are not well-informed of the changes in the rules. The GOJ reiterates its request that measures be taken to keep officials in charge well-informed.

(9) Foreign business identity card in France

1. Non-EU nationals are required to obtain business identity cards when they assume a position on the board of directors of a French company. However, the documents necessary for the application are numerous. Moreover, they differ from one province to another, which makes the application procedure even more complicated. Necessary documents include non-criminal certificates issued both by Japanese and French authorities, curriculum vitae, a non-bankruptcy written oath, a non-criminal written oath and certificates of bank balance. In addition, some provinces require a copy of a portion of the applicant's family register, diploma and other documents. There are no clear reasons for requesting these documents stated in the replies from France in August 2001. The GOJ requests that application documents for "la carte d'identit_ de commer_ant _tranger" be simplified and standardised throughout France.
2. It takes four to five months to obtain a business identity card and it has to be renewed every year. France is requested to extend the validity period of this identity card to two or three years.

(10) Work visas in Finland *

   At a Japan-Finland Dialogue on Economy and Trade, the Finnish side explained that the maximum length of stay for work visas that can be issued at the Finnish Embassy in Tokyo is one year, and that after the first year, one may renew the visa at local police stations in Finland which have the authority to issue visas valid for multiple years depending on the applicant's duration of stay. However, in many cases, they issue work visas that are valid only for one year and the process takes as long as three months. Therefore, every time the applicant needs to take a business trip abroad during the processing period in which his or her passport is kept with the Finnish authority, he or she has to ask for its return. As this procedure imposes a significant burden on the applicants, the GOJ requests the expeditious issuance of work visas that are valid for the period corresponding to the period of the applicants' stay.

15. Social security

(1) Information exchange on social security

   In European countries that have not concluded social security agreements with Japan, Japanese businesspeople are required to pay for social security in accordance with the domestic law of each country. As it is also obligatory for them to pay for social security in Japan, they pay double for social security. Many Japanese companies point out that this imposes an extra burden on them and has been an obstacle to their investment in the EU. To solve the problem, the GOJ has already concluded social security agreements with Germany and the UK. Preliminary consultations are finished with France and preparations are underway for text negotiations. Several countries including some of the other EU Member States are also calling on Japan to start negotiations for a social security agreement. The GOJ is prepared to proceed with the information exchange with a view to opening negotiations with those countries, according to the order of priority, taking into account the states of people-to-people exchanges with Japan.

(2) Harmonization of social security systems

   The GOJ understands that the EU is deliberating revised regulations to apply their rules on adjustment of social security to third nation citizens, including Japanese. In the EU, the application of social security and the standards of taxation assessment differ from one Member State to another. The procedures are complicated and additional costs incur. Therefore, the GOJ requests for early progress in the deliberation.

(Note)

Taxation

(1) Relaxation of the merger directive of 1990

   The directive of 1990 on the common system of taxation applicable to mergers, divisions, asset transfer and stock exchange within the EU stipulates tax measures to defer reevaluation if organizational changes are implemented within the EU. Because the scope of qualified reorganization is limited, however, the tax measures are difficult to utilize. In particular, the measures make it difficult for Japanese companies to carry out reorganization in Europe, based on their needs, such as reorganization to change locally incorporated subsidiaries into branches. The conditions should be relaxed so that corporate use of the measures will be easier. In the previous EU reply, it was stated that, in connection with this matter, results of a study on company taxation should be ready mid-2001. An explanation of the results and the future handling of the directive will be useful. This is also a directive that can cover the insufficiency of the Statute for a European Company, and we continue to request improvement.

   In connection with the implementation of this directive, because no unified rules exist within the EU regarding the treatment of losses, the prohibition period for the sales of stocks, evaluation of "goodwill," and asset transfer between parent and subsidiary companies, companies planning group reorganization must take differences across Member States concerned into consideration. This imposes a heavy burden in terms of work and cost. To lighten excessive burdens on enterprises obstructing the simplification of organizations, a prior arbitration system applicable to all EU Member States should be established. Before its actual establishment, steps to improve at least the supply of information, such as the European Commission's preparation of a table showing differences in systems of Member States, are necessary. The European Commission in its reply holds that the European Company Statute will help tackle the current state. The need for relaxing the merger directive, however, is considered to be great because the Statute limits its application targets to public limited-liability companies.

(2) Harmonization of the transfer price taxation

   While there is a general understanding that tax authorities of Member States of the EU operate transfer price taxation in line with the OECD rules, multinational enterprises inside and outside the EU are forced to follow complicated procedures in reality. Although the introduction of advance price arrangements is progressing gradually, there seems to be room for further improvement and simplification. It is requested that the EU as a whole build up and operate a harmonized, simplified system in accordance with discussions at OECD.

(3) Harmonization of value added taxation

   The procedures and operation related to value added tax (VAT) are greatly different among tax authorities of individual Member States. This imposes serious obstructions in recognizing the EU as a unified market and conducting business activities based on this recognition. In this connection, it is hoped that the European Commission take further initiatives in simplifying the entire VAT system and in operating the present rules in a more unified manner, including shortening of the waiting period for refund procedures.

(4) Harmonization of automobile-related taxation

   Denmark, Finland and Greece impose taxes of about 100% on the sales, possession, and the like of automobiles. These taxes not only seriously hamper sales of automobiles but also work against price harmonization in the EU. The lowering of high automobile-related taxes as well as the harmonization of tax systems among Member States is highly recommended.

   According to the reply of the European Commission, the Commission's study on the taxation of automobiles has been launched and its results are expected to be available at the end of the year 2001. An explanation on the results will be highly appreciated, since further steps will be affected by the study results.

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