JAPAN'S PROPOSALS AND COMMENTS FOR REGULATORY REFORM IN the EU

November 24, 1999

1. The GOJ submitted a request list (57 items in 18 areas) to the European Commission at the Japan-EU Deregulation Dialogue held on November 4, 1998, in Tokyo.
2. The GOJ submitted an additional request list (11 items in 3 areas, including 3 pending items in 1 area) to the European Commission at the Japan-EU Deregulation Dialogue held on February 22, 1999, in Tokyo.
3. The GOJ received the replies to the above lists of November 1998 and February 1999 from the EC in April 1999.
4. The new request list which appears below (62 items in 21 areas) was prepared based on the original Japanese request lists, taking the EC's replies into account and adding new requests and comments. The items marked with three asterisks (***) are additional requests and comments.

1. Legal services

(1) The establishment of a system in France whereby foreign lawyers are able to provide legal services with regard to their own country's laws (1. of Requests and Comments of November 4)

Japan has made a request to the EU that France establish a system that would allow foreign lawyers to engage in the provision of 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 the Reaction from the European Union of April 22, 1999, a qualified lawyer from a non-EU third country will be allowed to join the French bar, subject to passing an examination based on his/her knowledge of French laws. This reply does not address Japan's request for exempting the foreign lawyers from the obligation of any special prior examination to provide legal services pertaining to their own country's laws in France. Japan stands by its original request.

(2) Establishment of a system in Italy whereby foreign lawyers are allowed to provide legal services with respect to their own country's laws***

Japan requests the EU that Italy should establish a system that would allow foreign lawyers to engage in the provision of 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.

(3) Permission for providing legal services in Germany whereby foreign lawyers are able to provide legal services pertaining to laws of third countries (so called "third-country law")***

It is prohibited in Germany that the foreign lawyers provide legal services pertaining to third-country laws (laws of any other countries than their own country). Japan requests that the concerned laws be revised to the effect that foreign lawyers are permitted to engage in the provision of legal services pertaining not only to their own country's laws, but also to the third-country laws in response to the needs of their clients and so on.

2. Business stays and work visas

General comments (2. (1) of Requests and Comments of November 4).

In many EU Member States, it takes a very long time indeed for Japanese applicants to obtain or renew work visas. Such delays cause considerable difficulties for Japanese companies operating in those countries to ensure smooth and systematic employment or transfer of employees. Furthermore, the administrative procedures regulating the issuance of visa are sometimes not transparent in some Member States (France, Germany, UK, Spain, Belgium, Austria, Greece, Portugal, Luxembourg), such as different handling depending on official-in-charge and ambiguous guidelines for issuance, and procedures are often complicated. Thus, Japan requests each Member State to shorten the period for procedures, simplify the procedures, and extend the validity of permits.

3. Driving licences

Requests concerning EC Directive on Driving Licenses (3. (1) of Requests and Comments of November 4)

On July 29, 1991, the Council of the European Communities adopted the Council Directive on Driving Licenses (91/439/EEC) [hereafter referred to as the EC Directive], and the EU Member States were to make and amend their domestic laws based on the EC Directive. In some EU countries, as a result of the amendment of legislation and/or the enactment of new legislation, Japanese driving licence holders applying for a driving licence in those countries come to be treated differently than before.
According to the explanation provided in the EU Reaction, the EC Directive only stipulates that a driving license issued by a third country may be exchanged to a "Community model driving licence" only if the former license has been surrendered to the competent authorities of the Member State, and the recognition of driving licences issued by a third country is a matter of Member States competence.
In April 1999 the EU explained that a number of meetings have been held with Member States to discuss the common approach toward recognition and exchange of driving licenses of third countries, including Japan. But it still leaves room for large discretion to individual EU Member States. While some EU countries (Spain) have begun to work for conclusion of agreements for the exchange of driver's licenses with Japan, others (UK, Germany, Greece, Sweden, Luxembourg) have been treating Japanese driver's license holders in an arbitrary and disadvantageous manner. Japan continues to request that the situation be remedied.

4. Retail business, commercial laws, and business practices

(1) EU response to the French move to strengthen the law regulating large-scale retailers (5.1 of Requests and Comments of November 4)

In order to protect self-employed small-and medium-sized retailers, the French Government decided to strengthen the 1973 Royer Law that sets regulations regarding the opening of large-scale retail stores. The bill to amend the Law was approved by both chambers of the French parliament in June 1996.
Although the European Commission explained in the EU Reaction its own understanding on the necessity and rationale for strengthening regulations on retail businesses in France, some points remain unclear. Japan requests further explanation from the Commission with regard to the following points.
The Government of Japan also requests the following explanations on the unclear points in the April 1999 EU Reaction.

(a) While the Commission's reply clarifies the purpose of the amendment of the Royer Law, such a purpose alone would not necessarily ensure that the effective application of the amended legislation does not result in effective impediments to the opening of a new large-scale retail store. Can the Commission definitely confirm that the amendment creates no barriers to the opening of a new store?
The point of our question is whether this causes an objective impediment for the opening of new retail stores or not. We think that the reply mentioning "there is no substantial difference regardless whoever the applicants are" will be sufficient. However, we are not sure if it is possible to conclude that there is no barrier.

(b) Have there been any claims or complaints to date from applicants against the French authorities' decisions concerning the authorization of the opening of a new store? If so, how has the French Government responded?
Kindly inform us, whether there have been any claims or complaints or not. The description that the competence of judgment is vested in CNEC, which is an independent organization, does not present a satisfactory answer.

(c) Under the amended Royer Law, the stated criteria for judgment in determining whether authorization should be granted are:

(i) considerations of overall supply and demand in each industrial sector;
(ii) the density of large-scale and medium-size retail stores, etc. Don't such criteria correspond to demand-supply adjustment?
The reaction of the EU impressed us that the function of demand-supply adjustment is included in the criteria of CNEC. The Government of Japan requests the EU to clarify as to whether this understanding is correct or not.

(d) The 1996 amendment provides reduction in the space in square meters of commercial facilities subject to approval. Isn't this considered as a strengthening of the regulation? Should not such an amendment be regarded inconsistent with the Stand-Still commitment in the framework of the GATS?
Although the EU responded that the revision is in line with the purpose of guaranteeing necessary infrastructure, the Government of Japan requests the reason why it can justify the reinforcement of the current standards in relation with WTO Stand Still.

(e) It has been explained in the EU Reaction that the objective of the legislative reform in question is to "avoid ... disorderly growth of newer types of distribution." It is nevertheless unclear who would distinguish "disorderly" growth from "orderly" growth. What does "disorderly growth of newer types of distribution" concretely mean? (Give some specific examples.)
The response of the EU stated that "it is important to ensure a gradual transition from the traditional form of commerce to the modern one"; this the cannot be considered as a specific example which we are looking for. Please furnish us with specific example.
Furthermore, we would like to clarify if the consideration of the balanced development of retail business in mountain areas and town centers falls under the "economic needs test" or not.

(2) Strengthening of regulations on retail businesses in the United Kingdom (5.2 of Requests and Comments of November 4)

In the Japan-EU deregulation dialogue held in Brussels in May 1998, Japan requested that the EU provide information on the recent move in the United Kingdom to strengthen its regulations on retail businesses. Although the European Commission presented its reply in June 1998, Japan asks additional clarifications on the following points in order to know the actual status of the regulations in the United Kingdom as accurately as possible:
(a) Does not the UK's Town and Country Planning Act (and Planning Policy Guidance) entail the economic needs test, which is prohibited under the GATS?
The Government of Japan requests to clarify if the planning guidelines, which was expressed in the response of the EU in April 1999, in which planning authority is expected to have an understanding of future prospects of demand and supply, fall under the "economic needs test"
(b) Do not the regulations set forth under this Act have the effect of protecting existing small-scale stores by blocking the opening of new large-scale stores?
Our question was whether this regulation consequently blocks the opening of new large-scale stores or not. The response of the EU in April 1999, expressing that "the planning authority is expected to have an understanding of future prospects of demand and supply", which is the same explanation of (a), was not sufficient as an answer to our question. The Government of Japan requires a response that is to the point on this question.

(3) Strengthening of regulations on retail businesses in Germany
(5.3 of Requests and Comments of November 4)

From the point of view explained in the preceding paragraph (5. (2)) regarding the United Kingdom, Japan asked for clarification on the possible favourable effects that the current German legislation (the Baugesetzbuch) could have on existing small-scale stores by blocking the opening of new large-scale stores. The response of the EU was that "the regulation does not intend to protect small and medium sized retail stores against large-scale retail facilities." Is it correct understanding that the regulation actually does not serve to protect existing small retail stores from large-scale retail facilities?

(4) Treatment of accumulated losses in Spain (Article 260 of the Corporation Law, 5.4 of Requests and Comments of November 4)

The Spanish regulation provides that, when accumulated losses of a company exceed the level of half of its capital, the company is forced into liquidation unless such losses are balanced by the use of a part of its capital or an increase in its capital. Japan requests the abolition of such an excessively strict regulation.
The response of the EU mentioned that this provision is consistent with the relevant EC Directives. However, our request is not to inquire whether the provision meets with the EC Directives or not, but is to abolish it, because this unique provision, that does not exist in Japan and the USA, constitutes a market barrier.

(5) Regulation on undercapitalization caused by accumulated losses in France (5.5 of Requests and Comments of November 4)

Undercapitalization is so strictly regulated under the French Commercial Law that few options in business management are available for operating companies. If a company's capital falls below the level of half of its capital due to accumulated losses, the company is forced into liquidation by law. Companies assume various obligations in order to ensure that their capital level is kept above half of their capital. Japan requests France to relax this regulation.
As our request was under investigation in April 1999, Japan would still like to acquire a EU response to it.

(6) Improvement of the credit and debt system in Spain (Commercial Transaction Law) (5.6 of Requests and Comments of November 4)

As the Spanish legal framework for regulating commercial transactions is weak, defaults on payments often take place and the settlement of disputes in the court takes a long time. Delays in payment are not punished severely enough. For instance, checks are readily dishonored, and even those who repeatedly dishonor checks are not suspended from transaction with banks if they eventually pay. Japan requests that the regulations be amended to strengthen the legal framework for regulating commercial transactions, for applying stricter rules, such as observance of payment days and bearing the costs for delay in payment, and for implementing punishment by the authorities or the banks.
Although the explanation of the legal system was given by the EU at the last meeting, Japan would like to request again the improvement of those issues concerning business practices.

(7) Simplification of the application procedures provided in the Commercial Law in Austria (5.7 of Requests and Comments of November 4)

In Austria, the signature certificate by an executive of the parent company is always required in the application under the Commercial Law (application for an amendment to the Statutes of the company, etc.) For example, the parent company's executive has to go to the Embassy of Austria in Japan to obtain the signature certificate each time the company changes the legal contents of its commercial registry (date of reckoning, etc.). This procedure is extremely time-consuming and burdensome. Japan requests the simplification of the procedure so that most applications for registration can be completed locally by a foreign company's branch once it is entrusted to do so by its parent company's executives.
As our request was under investigation in April 1999, Japan would still like to acquire the EU's reply to it.

(8) Prohibition of the display of retail prices***

The display of retail prices by suppliers is prohibited in Denmark by the "Danish Competition Law." However, the display of retail prices has often been requested strongly in their commercial practice by sales outlets, thus suppliers are facing difficulties in maintaining good relationship with those sales-outlets. Japan recognizes that displaying of retail price itself is not prohibited at the level of the EU Laws and requests Denmark to adjust this legislation law to meet the level of the EU Laws.

(9) Merger Directive of 1990 ***

The Merger Directive of 1990 concerning the tax treatment applicable to cross-border mergers, transfer of assets, exchange of shares, etc. within the EU prescribes that any immediate tax consequences to companies that carry out reorganization in the EU may be removed. However, as the Directive limits the scope of "qualifying reorganization," it is hard for those companies to obtain such tax treatment. Especially, in case of intra-group reorganization such as transformation from local corporation structure to branch structure under a headquarter that many Japanese subsidiary companies carry out in Europe, the Directive makes it difficult to implement the reorganization that fits their needs. Therefore, the requirement under the Directive should be eased so as to facilitate such reorganization.
Also, as the implementation of the Directive is not uniform throughout the EU Member States in such points as the treatment of losses and the duration of prohibition against the disposal of shares, companies that intend to carry out intra-group reorganization in Europe have to take the position of each of the EU Member States into account. This imposes a heavy burden on those companies in terms of the total amount of work and cost. In order to lessen the burden on those enterprises, an advance ruling system that is applicable to all EU Member States should be established.

(10) Early adoption of the draft Directive that allows the establishment of Societas Europaea (European Company Law Directive)***

Since the draft Directive, which would enable 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 Europaea) in one Member State, was first proposed in 1970, its legislative process has stalled several times. Although the deliberation on the draft Directive in the EU Council began again in 1997, it is currently deadlocked due to the opposition by Spain in spite of the collective support by the other 14 Member States. As the lack of this Directive constitutes a negative factor against efficient business operation in the EU, the early adoption of the Statute is called for.

(11) The offset of profits and losses across the border.***

Currently it is not generally possible for a company resident in one Member State to offset losses incurred by its subsidiaries in other Member States. Although a draft Directive was proposed in 1991 in order to address this issue, no progress has been made to date. Therefore, early adoption of the proposed Directive is desirable in order to facilitate further investment in Europe.

5. Standards and certification

(1) Unification of the standards for plugs and sockets within the EU (6. (1) of Requests and Comments of November 4)

Japan welcomes the progress that has been made through the establishment of a voluntary European standard, etc., toward the harmonisation of standards for low-voltage plugs and sockets in the EU Member States, with the exception of the United Kingdom. Japan expects that further efforts will be made for the increased convenience of users.
Japan continues to request the unification of standards.

(2) Driver's helmets (6. (2) of Requests and Comments of November 4)

Japan hopes that the competent European authorities will introduce the driver's helmet certification procedures that would allow Japanese helmets to be distributed more smoothly and at a lower cost throughout the EU area. In its Requests and Comments regarding EU Regulations and Access to EU Markets presented to the EU in March 1998, Japan made certain requests, including, in particular, the application in the United Kingdom of Regulation 22 annexed to the UN/ECE Revised 1958 Agreement.
According to the explanation provided in the EU Reaction in June 1998, Regulation 22 does not currently apply to the United Kingdom, but will be applied to it from July 1, 2000, or earlier if the European Community accedes to an amended UN/ECE Regulation on protective helmets and visors, which provides for higher standards.
Although Japan welcomes the indications that the uniform technical prescription for driver's helmets defined under the UN/ECE Revised 1958 Agreement will be applied in the United Kingdom in the near future, some points remain unclear.
According to the EU Reaction in April 1999, no delay in the implementation of the amended Regulation 22 by the UK is expected. Japan requests the EU to provide detailed information, such as the current progress and the specific timetable of work for amendment of the regulation until Japan confirms its implementation.

(3) Uniformity of sound pressure regulations for stereo headphones (6. (3) of Requests and Comments of November 4)

With regard to regulations on sound pressure for stereo headphones currently under consideration in France and Belgium, these two countries are planning to introduce different regulatory standards.
The EU Reaction states that Member States are allowed to enact regulations necessary to protect the health and safety of consumers, even if the regulations constitute obstacles to trade, thus trying to justify the introduction of discrepant standards in France and Belgium. However, it should be borne in mind that such divergence in regulations and standards within the EU will undermine considerably the merits of the Single Market.
Although the EU Reaction in April 1999 was that the consensus toward the adoption of unified regulation had not been made, Japan requests that France and Belgium harmonize their regulations, or the EU establishes unified regulation concerning the regulating value, test methods, and methods of indication throughout EU countries.

(4) Consistency of the application of European directives to construction machinery (6. (4) of Requests and Comments of November 4)

(a) The UK's Health and Safety Executive enacted with excessive high standard on visibility support equipment for construction machinery (large dump trucks etc.), which are neither required by any other EU country nor subsumed by the harmonized standard (EN474-1) for machinery. The response provided by the European Commission regarding this issue in June 30, 1998, merely explains the current status of the application for such regulations in the United Kingdom. Japan requests that such inconsistency in the application of directives on construction machinery be rectified.
Although the EU Reaction stated that "the Commission has taken a number of initiatives to enhance co-operation among market surveillance authorities to reduce divergence in interpretation of community documents as much as possible," Japan requests further information on specific measures that have been taken. Japan also would like to acquire answers for the questions below:
Has the interpretation of these documents been unified among Member States as a result of those "several measures"?
Has the UK changed its interpretation of these documents?
If the UK still sticks to a different interpretation from that of other Member States, Japan requests the reason of it as well as the reason why the UK requires visibility support equipment, which are not required by any other EU countries.

(b) We understand that the draft Directive on the "Noise limitation for machinery intended for use outdoors" is expected to be fully implemented between June and September 2001, and the new draft will repeal the current Directive 95/27/EC in the middle of its implementation at the first stage. As, the manufacturers obtain certificates of approval, issued by a Notified Body, which are valid until the end of 2002 under the current Directive. Japan requests that such certificates will be valid throughout the original effective period.
As for construction machinery to which the new Directive will be applied, its grace period is the same as those machinery to which the current Directive is applied. However, Japan requests that the present grace period of 18 months be extended to 30-36 months so that manufacturers will be able to take necessary measures to adapt to the new regulation.

(5) Standard conformity certification procedures for radio equipment in the EU (6 (5) of Requests and Comments of November 4)

Almost all radio equipment are subject to the national standard and certification procedures of each EU Member State. Therefore, the Japanese manufacturers applying for a certification of their products have to submit their application to the relevant national authorities and follow the national certification procedures in each EU Member State. The differences in such national practices may cause a kind of confusion and could pose de facto obstacles for those manufacturers desiring access to the European market.
As for the problems concerning standard conformity certification procedures for radio equipment in the EU, EC's reply states that the problems will disappear under the new R&TTE Directive, to which will come into force in April 2000. Japan requires each State to take measures to eliminate any problems under the new R&TTE Directive, and requests an acceleration of the public disclosure of information on the application of the directive in each country.

(6) Application for CE marking on the products covered by the EMC
Directive (6 (6) of Requests and Comments of November 4)

Japanese companies are willing to join in the process for the revision of the EMC Directive. Japan requests EU to invite them to the process made in those committees, such as EMC and SLIM.

(7) Recycling and collecting obligations
(6. (8) of Requests and Comments of November 4)

Obligations for manufacturers and/or distributors to put a recycle mark on products and collect recyclable products vary among the EU Member States. This causes considerable constraints for the Japanese companies operating at the overall EU level. Japan requests the harmonization of recycling, marking, and collecting systems in the EU.
As the European Commission is preparing a study to compare the different recycling systems in its Member States, according to the EU response, Japan continues to request that the European Commission should consider concrete measures based on the study and other effective measures and make efforts for the harmonization of recycling, marking, and collection systems in EU.

(8) Recycling and collecting obligation in Germany
(Council Directive of 18 March 1991 on batteries and accumulators containing certain dangerous substances (91/157/EEC), (93/86/EEC), Verordnung zur Verwertung und Entsorgung Gebrauchter Batterien und Akkumulatoren, etc.) (6 (8) of Requests and Comments of November 4)

In Germany, regulations on recycle marking and collecting for Ni-Cd batteries are excessively strict. In general, each EU Member State adopts its own national systems which override the general rules defined at the EU level, and such a situation causes inefficiency and confusion. Japan requests the harmonization of the systems in the EU.
Japan continues to request the EU to improve the current situation in which each Member State adopts different recycling, marking, and collection systems for batteries despite relevant EEC Directives prescribing about it. Also, though the EU mentioned that "additional information should be provided," the confirmation is needed if the "additional information" means the details of those systems in each EU country.

(9) Conclusion of the European Conformance Assessment Agreement (ECAA or PECA) between EU countries and the Central and Eastern European countries***

Some of the Central and Eastern European countries require foreign companies to comply with their national legislation in addition to the European Directive, and that results in cost increase for these companies.
Japan requests early conclusion of the European Conformance Assessment Agreement (ECAA or PECA) with Central and Eastern Europe. In doing so, it is requested that the EU makes efforts to ensure that Central and Eastern European countries would integrate the relevant EU Directives with the same manner and same interpretation as EU countries.

(10) Inspection system in the European Directive in the European market ***

Some importers sell machinery that is not in compliance with the relevant European Directives in the European market, clearly admitting their non-compliance. Japan requests that the information on inspection methods to check such non-compliance and penalties on such violations taken by each Member State be disclosed to give companies an incentive to comply with the relevant EU Directives.

6. Tourism

(1) Abolition of nationality requirements for tour guide licenses in Italy and Spain (7. (1) of Requests and Comments of November 4)

According to the legislation on tour guides in Italy and Spain, only EU nationals can obtain tour guide qualifications. While the EU has explained that the nationality requirements for tour guides in these countries are covered by the GATS schedule of the EC and its Member States, Japanese tourists visiting these countries are compelled to hire both local guides who do not speak Japanese and Japanese interpreters, and thus forced to pay totally redundant cost.
The Italian authorities suggested with respect to the tour guide license in Italy that there may be possibilities for non-EU nationals to apply for the tourist-guide qualification examination in specific regions. Although Japan stated its position that such non-discriminatory opportunities should be provided without exception, the European Commission repeated in the previous reaction in April 1999 that nationality requirement is necessary in order to ensure high-quality tourist-guides. Japan, therefore, repeats its request to abolish the nationality requirement for tour guide license without exception.

(2) Easing of excessive investigations of Japanese tour conductors by tourist police in Italy (7. (2) of Requests and Comments of November 4)

The number of Japanese overseas tourists reaches almost 15.8 million per year, and most of these overseas tourists travel on package tours. They are usually accompanied by tourist conductors, other than interpreters. However, for example, when they are giving explanations to Japanese tourist groups on time schedules or meeting places for next day, they are often mistaken for tour guides. Such mistakes are often followed by excessive investigations by the local tourist polices that hamper those tour conductors' work which have nothing to do with those of tour guides.
The Commission has, according to the EU Reaction of 1998, given a notice to concerned Italian authorities regarding this problem. However, the problem has not been solved to date and the issue is still under investigation, according to the EU Reaction of April 1999. Japan stands by its request until the problem will actually be solved.

7. Shipbuilding

Aid to the shipbuilding industry (9. of Requests and Comments of November 4)

Aid to the shipbuilding industry
The "EU New Regulation on Shipbuilding Subsidies (the regulation which abolishes the ship price subsidies by the end of the year 2000 as per Council Directive No. 1540/98.)" was approved at the Council of the EU Industry Ministers, as an alternative means of subsidy to the "7th Directive on Shipbuilding Subsidy." The price supports for ships and the provision of huge subsidies to specific shipbuilders obviously distort the market, although some European shipbuilders wish that the subsidy system be extended. Japan requests the immediate and complete abolition of shipbuilding subsidies.

8. Telecommunications

The Japanese Government has been consistently interested in the telecommunication interconnection and licensing rules and practices in the EU Member States since the Plenary Deregulation Meeting between Japan and the EU in March 1998 took place, and has presented interconnection and licensing issues at each Plenary Meeting. Especially concerning the interconnection and licensing fees in Germany and France, Japan provided concrete requests to the EU in both the November 1998 and February 1999 Plenary Meetings.

In the 5th Report on the implementation of the Telecommunications Regulatory Package which was published recently, the EU itself pointed out the same issues as our concerns. It is very regrettable, however, that the EU has not taken any concrete measures regarding these issues. The EU should take appropriate measures for the following requests:

(1) Interconnection in Germany (10.2. (1) of Requests and Comments of February 22)

New entrants in the German telecommunication market remain at an extremely disadvantageous and unfair situation due to the obscure interconnection rules and practices, such as the sluggish negotiations (about one year) for the interconnection with Deutsche Telecom (DT), the selfish cancellation of negotiations by DT, and the imposition of advance payment for a one-year interconnection line rate.
With regard to the above-mentioned problems, the response of the EU, dated 22 April 1999, only explained the provisions in the German Telecommunications Law of 25 July 1996 (Bundesgesetzblatt IS.1120) and the Network Access Decree of 23 October 1996 (Bundesgesetzblatt IS. 1568). For example, the response only states that the regulatory authority is obliged to make a decision about the interconnection arrangement within a ten-week period in accordance with Paragraph 37 of the German Telecommunications Law. However, it only concerns the decision as to whether the interconnection should be arbitrated or not. It is inadequate in terms of clarity and quickness of procedures, as these regulations do not mention the period of time for the accomplishment of the interconnection.
Therefore, the German Government should establish indiscriminate and concrete rules on interconnection conditions between DT and other telecommunication operators and prevent DT from abusing its dominant status.
Japan also requests that the EU take concrete measures to urge Germany to immediately establish these rules.

(2) Licensing fees in Germany and France (10.2. (2) of Requests and Comments of February 22)

Fees for the provision of licenses are extremely high in Germany and France. For example, a license of the telephony service throughout the country costs 3,000,000 DM in Germany. In France, the license fees for nationwide service is 750,000 FF for application and an annual 1,500,000 FF for administration. These are excessive burdens and obstacles in both countries for new entrants into the telecommunications market.
With regard to the above-mentioned problem, the response of the EU, dated 22 April 1999, only mentions the provisions of Directive 97/13/EC concerning the common framework for general and individual authorization for telecommunications services. It does not refer to concrete measures to decrease the licensing fee.
Therefore, the German and French Governments should take appropriate measures in order to reduce the excessive financial burden of the carriers. Japan also requests that the EU take concrete measures to urge both governments to remove such financial obstacles.
For your reference, a licensing fee (tax for registration and license) is merely 150,000 yen in Japan (about 2,500 DM or 7,500 FF).

9. Financial services

Large loan restrictions on banks (14. (1) of Deregulation Requests of November 4)

Regarding the large loan regulations, Japanese bank branches in Austria are not given the same treatment as applied to branches of the other EU Member State banks. Under the Austrian rules, the upper limit of loans that branches of EU Member State banks in Austria can extend is calculated on the basis of the total capital in their home countries. However, the upper limit of loans that the Japanese bank branches can extend is calculated only on the basis of the capital of those Austrian branches. Therefore, the maximum amount of each loan those Japanese banks can grant is severely limited and, thus, they are at a disadvantage against their EU-based counterparts. Among the EU Member States, only Portugal, Austria, and Luxembourg still have such regulations. Other EU Member States treat foreign banks EU Member States' banks under the condition that similar large loan regulations are applied in their home countries and that their head offices are under the supervision of the reliable financial authorities.
It is, however, still unclear in the EU's reply in April 1999 why the unified guideline on this matter is not presented by the EU. Japan stands by its original request that the EU countries should supervise banks in a unified manner.

10. Construction

Procedures necessary for operating construction business in Belgium (4. (1) of Deregulation Requests of November 4)

In order to conduct construction business in Belgium, it is required to obtain a certificate of business activities in each category of business as well as to obtain a registration of contractor that is necessary in each of the 28 sub-categories of construction. Applications for certificates and registration must be presented at different offices, and it is necessary to obtain both certification and registration in every category of business. These complicated procedures increase the entry cost. Japan requests that the objectives and contents of the certifications and registrations, and the reason why both two procedures are necessary. Japan also requests that the application for both of them be integrated or should be submitted at the same office and that both the number of categories of business for the certification and the number of sub-categories for contractors' registration be reduced by integrating them.

11. Automobile***

Participation of JAMA in relevant conferences concerning laws and regulations on automobile engineering

(1) General***

Those conferences, such as MVWG (Motor Vehicle Working Group), MVEG (Motor Vehicle Emission Group), hosted by the European Commission, have deliberated regulations on automobile related technologies. Japan requests that JAMA (Japan Automobile Manufacturers' Association) should be permitted to participate in those conferences as is permitted to ACEA.
Japan also requests that relevant information be provided to Japanese companies and their agents simultaneously with European companies.

(2) Early implementation of mutual interconnection of telecommunication system in the region***

In parallel with the increase of equipping electronic apparatus in vehicles, the cases that vehicles become the objective of each country's electronic frequency restrictions have been on the rise recently. Those wireless communication equipment in vehicles are required to obtain the permission from the authorities concerned with the restriction of telecommunication in each country, and procedures to obtain these permissions have grown considerably complex. Although the new R&TTE Directive was issued and is going to take effect as of April 2000, it is our concern that the progress may be slow because each country is permitted to continue its own regulation for a grace period of 30 months.
Japan requests that each country applies the new R&TTE Directive (99/5/EC) promptly and promotes the publicity of information concerning the application of the Directive.

12. Fermented products

Strengthening of regulations concerning European Pharmacopoeia monographs (11. of Deregulation Requests of November 4)

Japan has pursued its request to avoid excessive regulations concerning the monographs of fermented products. Japan finds no big problems in the currently established monographs, which almost satisfy Japan's request. Japan would like to request the EU to prepare the comparison list of technical terms which the EU mentioned in its previous reply.

13. TSE

Prohibition of the use of TSE-risk materials (12. of Deregulation Requests of November 4)

(a) We understand that the date when the Commission Decision 97/534 concerning bans on the use of SRMs takes effect has been delayed until January 1, 2000, and the Commission will submit a new proposal to the Council (as the co-decision procedure with the European Parliament), which is based on the advice of the Scientific Committee and the recommendations of the OIE. Until the new proposal is adopted, Member States would take their own national measures. Japan also understands that the selection of the countries that should be exempted from the regulations, including BSE-free countries, will be examined by the Scientific Committee, based on scientific data which is obtained through discussions in the OIE.

(b) The European Commission should carry out sufficient study based on scientific grounds, international standards, and other resources in preparing the new Decision proposal. In Japan, with the aim of preventing infectious diseases spreading among domestic animals and ensuring the safety of meat, measures against such infectious diseases among others are being strictly enforced. For example, it legally obligated in accordance with the Domestic Animal Infectious Diseases Control Law (under the jurisdiction of the Ministry of Agriculture, Forestry and Fisheries) and the Abattoir Law (under the jurisdiction of the Ministry of Health and Welfare) to report when specifically designated animal infectious diseases such as TSE are found. There has been no report of any incidence of BSE in Japan to date. This fact has been reported to the OIE. Moreover, from the viewpoint of controlling risks, in addition to requiring other countries to conform to the conditions stipulated by the International Animal Health Code when exporting animals and livestock products to Japan, Japan prohibits the feeding of bovines with meat and bone meal made from ruminants. Through these and other measures, Japan fully meets the conditions for being classified as a BSE-free country.

(c) Based on the situation described in section (b) above, Japan continues to request the EU to exempt Japan from the tallow ban, where there has been no case of BSE to date, as well as the ban on products (foodstuffs, pharmaceuticals, medical devices, cosmetics, etc.) containing or derived from such materials.

(d) This October, Japan submitted the necessary data for the examination of the TSE status to the EU. Japan requests the EU to conduct the examination promptly and to exempt Japan from the tallow ban.

14. Pet foods

Abolition of the prohibition to import pet food into the EU (13. of Deregulation Requests of November 4)

Imports of pet food from Japan into the EU have been abruptly prohibited on the grounds that Japan is not on the List of the Third Countries from which import of pet foods is allowed (under the EC-regulation 94/278/EC). In its Deregulation Requests for the EU (Additional List) on May 7, 1998, Japan requested the European Commission to place Japan on the aforementioned Third Countries List and to take provisional measures in order to enable the resumption of the import from Japan until Japan is formally added on the List.
Japan understands that further consideration by the EU is being made to add Japan on the list for other pet foods containing mammalian protein, but no progress has been made on this matter since May 1998. Japan requests that the European Commission carry out its study as expeditiously as possible to allow Japanese pet food exporters to resume the export of their products as in the past.

15. Employment

(1) General comments (15. (1) of Deregulation Requests of November 4)

Employment regulations and labor practices in Europe are in many respects more burdensome for employers than those in Japan. In particular, many Japanese companies operating in Europe have difficulties in meeting requirements regarding the dismissal and transfer of their employees, as well as their work hours and wages. Although these difficulties may not be necessarily attributable to undue "regulation" or to discrimination against foreign countries. Japan requests a solution to these problems, which would improve the efficiency of labor markets and be beneficial to Europe itself.
Although the reaction from Luxembourg and Spain was that "no reform is planned," Japan continues to request further improvement since the current legal and other systems in Member States have been the obstacle for enterprises which employ local workers. Japan also recognizes that this matter should be discussed with each country as a bilateral issue, separated from the EU Laws. However, the reaction of Sweden is understandable for us. As for the countries currently investigation, Japan continues to request their reactions.

(2) Reduction of prescribed days of paid leave in the national legislation and the labor-management agreement in the banking sector in Luxembourg (15. (2) of Deregulation Requests of November 4)

In Luxembourg, national legislation as well as the labor-management agreements in the banking sector stipulate that companies have to pay their employees during vacations that do not exceed forty-four days (including 10 bank holidays) and must guarantee 100-percent pay for sick leave that does not exceed three months. Such constraints result in considerable difficulties for Japanese companies with branches in Luxembourg, most of which are small-scale financial institutions with a limited number of employees in their human resources management. Japan requests a reduction of duration of such paid leave, provided either through Luxembourg's national legislation or in the labor-management agreement in the banking sector of the country. According to the response of the EU in April 1999, the Government of Luxembourg didn't plan to modify the legislation. Japan continues its request for the reduction of prescribed days of paid leave.

(3) Flexible application of dismissal procedures in Luxembourg (15. (3) of Deregulation Requests of November 4)

The relevant provisions of the current labor law in Luxembourg make it extremely difficult for a company to discharge employees for its own reason, once they are formally employed. In general, competent employees tend to resign on relatively short notice for better promotion, while less competent employees tend to remain. Keeping the high quality of employees is one of the most important prerequisites for a company to maintain its competitiveness. According to the response of the EU in April 1999, the Government of Luxembourg didn't plan to modify the legislation. Japan requests the adoption of more flexible dismissal procedures.

(4) Problems related to employment in Spain (15. (4) of Deregulation Requests of November 4)

As of April 1999, the Government of Spain had no plan of reform. Japan hereby requests the improvement as follows again.

(a) With respect to Japan's request for deregulation of working hours, Spain argues that working hours can be flexibly organized in accordance with the provision of the Spanish Workers' Statute, which stipulates that overtime work will be compensated by giving a day-off within the four months following the overtime work. In all cases, however, the legal maximum overtime per year is fixed at eighty hours, and a company must always provide vacations for its employees if their overtime work exceeds this threshold. Such a constraint makes it difficult for companies to flexibly increase their production and/or sales. Japan requests the introduction of a new flexible clause in relevant Spanish legislation, which would allow overtime work hours to exceed the limit in certain circumstances.

(b) Regarding Japan's request for flexible adjustments of wages corresponding to position and skills, the Spanish authorities explained that a company is allowed to reduce salaries of its workers who became less capable than used to be in accordance with Spanish labor law. However, Japan is of the view that the law should also allow companies to adjust wages of an employee who transferred to a new job which is subordinate to his/her previous job in terms of the work skills required.

(c) With respect to Japan's request for deregulation on the collective transfer of workers, the Spanish authorities explain that an employer has the right to make a decision about a collective transfer after having consultation with the labor union for a certain period regardless of the result of the consultation. However, there is no such explicit provision in the Spanish Workers' Statute. In the actual implementation of the Statute, it is impossible for a company to implement a collective transfer of workers without having the agreement with the labor union. If the Statute intends to implement a collective transfer scheme as explained by the Spanish authorities, it should be stipulated explicitly as such.

(d) Regarding compensation for dismissal, the Spanish authorities explain that the new law (63/1997) has reduced the amount of compensation for dismissal to 33 days' wages or salary per year of service. However, this provision applies only to employment contracts that have been concluded after the law took effect in 1997. Japan considers that the amount of compensation for dismissed employees who concluded their employment contracts before 1997 should also be reduced to that level.
Spain also states that the provision regarding compensation for dismissal is applied only to "unfair dismissal." However, it should be noted that dismissal for any reason undertaken by a company is usually regarded as "unfair dismissal" and thus the company must, in reality, always pay a high amount of compensation.

(5) Employment security in Sweden (15. (5) of Deregulation Requests of November 4)

Swedish employment security law provides the so-called "last-in, first-out" rule whereby the priority is given to guaranteeing the job of employees who have worked for a longer period than others when employers attempt to reduce their workforce. As many Japanese companies in Sweden have pointed out that this rule has hindered them from employing capable workers, thus contributing to the aging of their workforce and consequently causing the loss of the vitality of these companies, Japan has been requesting improvement in this regard. Although the reaction of Sweden toward it was understandable, Japan further requests the EU to verify Sweden's comment, which states these rules will neutralise the possible aging effect.

(6) Improvement of short-term employment scheme in Italy (15. (6) of Deregulation Requests of November 4)

In Italy, the current scheme for the employment of temporary staff allows employers to renew an employment contract only for one year. Japan requests the improvement of the scheme, which lacks flexibility, in order that employers will be able to renew contracts for a longer period.
As this case was still under investigation in April 1999, Japan repeats its request for a reaction from the EU.

(7) Creation of a systematic framework for the prevention of absenteeism in Italy (15. (7) of Deregulation Requests of November 4)

In Italy, an employee who has been absent from work due to illness is entitled to be paid disease allowance of the INPS (Social Protection Institution) at the fourth day from the outbreak of the illness according to the INPS's standard for payment. However, the labor convention has a contradictory clause which allows the provision of the INPS's allowance from the first day of the outbreak of illness, and, consequently, the original anti-absenteeism measure has failed to bring about the intended effect. Japan requests the improvement of such systems, including the amendment of the labor convention.
As this case was still under investigation in April 1999, Japan repeats its request for a reaction from the EU.

(8) Establishment of a strike-mediating institution in Italy (15. (8) of Deregulation Requests of November 4)

In Italy, the mediation procedure for strikes is not clear. In practice, either national or local politicians or public institutions play the role of mediator, depending on the company in which the strike takes place, the type of business of the company, specific background of the strike, and/or labor-management relations in the company. Even the designation of an appropriate mediator is so time-consuming that the current procedure may cause a negative impact on company management. Japan requests that an institution specializing in strike mediation be established, which will provide a systematic framework and make it possible to achieve the solution in an efficient and expeditious manner.
Because it was still under investigation in April 1999, Japan repeats its request for a reaction from the EU.

(9) The wage system in Belgium***

Under Belgian laws, it is impossible to cut the salary of individual employees; in other words, the wage system is inflexible, dictating that wages can only rise, not fall. In addition, although the Belgian government has set a ceiling on the rate of wage increases so as to remain cost-competitive in international terms, the Belgian government annually mandates a minimum wage increase for the entire work force. Japan requests relaxation of these requirements.

16. Trade and customs

(1) Export permission in Belgium (16. (1) of Deregulation Requests of November 4)

In Belgium, it takes more than one month for a company to obtain the Government's permission to export machine tools from Belgium to non-EU countries. Japan requests that such permission be granted within an appropriate period (one to two weeks), unless there is any problem identified in the examination of the application.
Although the Government of Japan cannot open specific examples to public, which EU requested in the response made in April 1999, Japan would like to request the responsible authority to continue the investigation.

(2) Certification of origin in Spain (16. (2) of Deregulation Requests of November 4)

In Spain, the presentation of the original certification of origin is required for imports virtually from any foreign country. Japan requests that such a requirement should be imposed only for imports from countries enjoying preferential treatment.
Although Spain mentioned that "the presentation of a certificate of origin is required only in the case of preferential imports, " importers are forced to peruse the 500-page rule book in reality to determine whether this condition is applicable or not in specific cases. Furthermore, some custom clearance officers very strictly check imported goods, and thus which cause the certificate of origin actually being necessary for all importation. Therefore, the Government of Japan continues to request the improvement of the situation.

17. Environment***

Japan recognizes that the EU is preparing the "Directive of End of Life Vehicle." Japan deeply recognizes the importance of the environmental issue and agrees with the EU's aim of trying to lighten the burden imposed on the environment by discarded cars.
But Japan must say that the car industry in Japan still has concern on some parts of the draft of the Directives.
Japan recognizes that the EU is considering the Directive of Waste Electronics and Electrical Equipment and the draft Directive of batteries and accumulators. Japan understands the importance of the environmental issue and agrees with the EU's aim of trying to lighten the burden imposed on the environment by waste from electronic and electrical equipments.
However, the Government of Japan and the electronic and electrical industry are still concerned by some parts of the draft Directives.

(1) Requests concerning the Draft Directive on Waste Electronics and Electrical Equipment (WEEE) ***

(a) Substance ban
Japan is concerned that the substance ban in the draft Directive (lead, mercury, cadmium, hexavalent, chromium, PBB and PBDEs) by 2004 might not meet the requirement of WTO/TBT 2.2., which requires that technical regulations shall not be unnecessary obstacles to international trade and not be more trade-respective than necessary to fulfill a legitimate objective taking account of the risks non-fulfillment would create.

(b) Some members of the EU, like Germany, have already established efficient collection networks by local governments. The Japanese electronics and electrical manufacturers suggest utilizing these existing networks. Japan requests that the EU should make it clear in the draft Directive that municipal government is responsible for collection and that the cost of collection should not be imposed on manufacturers.

(c) The Japanese electronics and electrical manufacturers are against a directive that might force the manufacturers to take back equipment even when the manufacturers have already stopped producing the equipment. It is an excessive burden for manufacturers and it may unreasonably harm industrial activity in the EU. Japan requests to make such these equipments out of collection by manufacturers.

(d) The Directive covers too broad a range of electric/electronic equipment. For example, it is natural to consider that the environmental-load caused by small equipment would be very limited.
We request that the coverage of the Directive should be limited, considering the environmental load and recycling cost of such equipment.

(e) The cost of recycling and disposal should be charged to the customer at the point of sales. Japanese manufacturers are ready for collecting these costs. We request that the draft Directive should make clear the cost payment and collection scheme and should avoid unreasonable burden to the manufacturers.

(2) Requests concerning the Draft Directive of End of Life Vehicle***

(a) The directive should not be applied retroactively to vehicles manufactured before it goes into effect. As for existing cars, it is difficult to fulfill the requirements under the draft ELV Directive, inter alia the requirement for the reuse or re-production of at least 80% of discarded cars, since those cars have not been designed, manufactured, or sold to fulfill it. The cost of reuse or re-production will be a big issue, since present car prices do not reflect the cost of reuse or re-production which, in some cases, can exceed the remaining value of a car when the car is discarded.

(b) The current list of exemptions from substances prohibited to use is inadequate in view of the fact that it does not apply to cases in which alternative substances are not available or in which there is a need for the lead time because of research requirements. Therefore, the scope of the list of exemptions should be expanded. Following are examples of parts and materials that should be added to the list of exemptions.

1. Bearing shells made of lead or bronze and pistons (lead)
2. Coatings (lead) for fuel tanks
3. Wheel balancers (lead)
4. Piezo-electric elements (lead)
5. Lubricants and oils (lead)
6. Glass (lead)
7. Polymers (lead)
8. Fluorescent tubes (mercury)

(3) Requests concerning the Directive of batteries and accumulators***

1. The substance ban proposed in the draft raises the concern of the inconsistency with the WTO rules, as is the case of WEEE.
2. We request the EU to ease the limit of percentage of mercury content of button-type batteries for sales from 1% to more than 2%. (There are a number of products that are required to exceed 1% in order to achieve the demands of all users, e.g. certain hearing appliances.)
3. We request the EU to ease the limit of percentage of cadmium content in batteries from more than 0.0005% to more than 0.002% and that the nickel cadmium batteries should be excluded from this regulation article.
   (Cf. Unavoidable residue of cadmium in view of materials being used in primary batteries.)
   (Cf. No alternatives are possible in the great majority of uses.)

18. Information***

(1) Personal Data Protection Directive***

In October last year, the EU put the Personal Data Protection Directive into effect, which requires EU Member States not to permit the transfer of personal data to countries and regions that do not have sufficient regulatory provision for the protection of personal data. As indicated by this example, the EU is moving toward stronger government-led regulation concerning personal data. There is a concern, therefore, that Japanese companies' subsidiaries operating in Europe might be regulated in transferring various information, such as recruitment information and customer data, to their head office, and thus their business activities could thereby be hampered. As industries have been introducing self-regulation for protecting personal data (the MITI guideline, JIS Q 15001, and Privacy Marks scheme) in Japan, the freedom of transfer of personal data should be ensured to those enterprises that carry out such self-regulation.

(2) The EU Copyright Directive***

The draft Copyright Directive requires compensation for all private digital copying. As to private analogue copying, the draft gives copyright holders a partial ability to claim their rights. It should be considered how much effect the compensation for private copying has on the development and distribution of consumer electronics and information technology equipment. The scope of cases for compensation in digital copying, and the condition for claiming compensation in analog copying, should be determined limitedly.
As is prescribed in the revised draft Directive submitted on 21 May 1999, circumvention for de-compilation should be legal to be consistent with the EU Program Protection Directive.

19. Issues concerning social security***

(1) Uniform application of social security***

In case people emigrate from one Member State to another, they are treated differently in the application of social security and the standards of assessment for taxation, imposing on them complicated procedures and additional costs. Therefore, uniform treatment throughout the EU should be introduced.

(2) Double payment of social security cost***

In European countries that have not concluded a social security agreement with Japan, Japanese businessmen resident in those countries are required to pay social security contributions in accordance with the national regulations of those countries. However, as the same Japanese businessmen are also required to pay social security contributions in Japan, they are under a similar situation as double taxation. This means the imposition of excessive burden on enterprises and is an obstacle for investment. Therefore, the conclusion of a social security agreement is called for.

20. Others

(1) Patent registration system in Italy (18 of Deregulation Requests of November 4)

As the payment of patent and registration fees is not promptly confirmed by the Patent Office, it takes a long time to obtain information on the status of patent rights, and thus business opportunities to use patents may be lost. Japan requests that a relevant database be established as soon as possible.
Because it was still under investigation in April 1999, Japan repeats its request for a reaction from the EU.

(2) Inappropriate application of the anti-dumping regulation***

The European Commission commenced anti-dumping proceeding on certain parts of television camera systems originated in Japan without any sufficient evidence of dumping. This case demonstrates the EC's arbitrary application of the anti-dumping regulation. Therefore, Japan requests the improvement of the situation.

[note] Issues concerning taxation***

(1) Early realization of the definitive VAT system***

The definitive VAT system, which replace the place of taxation on cross-border transactions within the EU from the country of destination to the country of origin, was supposed to be introduced in 1997. As the submission of the draft statute, remains to be seen. The current situation is unstable for companies that make business transactions within the EU, and the specific target date for the introduction of the new system should be announced. Also, when the present system was introduced as a transitional measure in 1993, significant confusion in business activities occurred due to the lack of preparation by administrative authorities. Therefore, sufficient lead-time should be provided at the time of introduction of the new system.

(2) Abolition of capital tax in three Benelux countries***

The three Benelux countries impose capital tax at the time of incorporation or increase of capital. Such a tax, being an impediment to investment, should be abolished so as to establish a good environment for companies to invest.

(3) Unification of rules concerning transfer pricing***

While progress is being made toward the European Monetary Union with the introduction of the euro, there is a concern for double taxation as the rules on transfer pricing are different from one Member State to another. In order to avoid it, enterprises are forced to go through cumbersome procedures. It is thus necessary to establish an advance ruling system applicable to all EU Member States.

(4) Tax on payment of interests on overseas loans in Portugal***

In Portugal, 5% tax is imposed on the payment of interests on overseas loans. This regulation, existing only in Portugal, clearly aims to protect Portugal's financial sector, which enjoys a big profit, by setting higher interest rates than in other countries.

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