Other Barriers

(1) Aerospace

The NTE alleges that interest rate subsidies and preferentialloans are made by the Government of Japan to Japanese industriesfor development of airplanes and airplane engines. The Governmentof Japan considers international cooperation projects such as theB-777 as subjects of the subsidy and does not give preferentialtreatment to Japanese industries.

The NTE describes an alleged aerospace nurturing scheme inwhich MITI apportions work among Japanese manufacturers. There isno such scheme in place, and it is unclear to the Government ofJapan as to why such a description was given.

The description that the "domestically designed andproduced mid-size passenger jet (the YSX project) was being puton hold indefinitely" is incorrect; the project is currentlyundergoing a feasibility study. There has also been no suchcancellation announcement.

With regard to the description that "sales in Japan ofU.S. business jets, light aircraft, air traffic technology andequipment, airport-use equipment, and services remain far belowthat generally expected," it must be noted that Japan is thelargest importer of aviation equipment (1994). Especially withregard to imports from the United States, Japan imported US$3.3billion in 1993, which accounted for approximately 10% of exportsof manufactured products from the United States to Japan in 1993.Furthermore, the reason why the sales of business jets and otheraircrafts have not grown is because of the distinctly Japaneserestriction of scarcity of its land.

The NTE cites the requirement of certificates ofairworthiness as a trade barrier. However, the Convention onInternational Civil Aviation stipulates that the country ofregistry has the responsibility to ensure the airworthiness ofaircraft. Therefore, it is obvious that any aircraft that is tobe registered in Japan require a Japanese certificate ofairworthiness. In the United States as well, any aircraftimported and/or registered is required to pass a U.S. inspectionand to acquire a U.S. certificate of airworthiness. Therefore,the systems in Japan and the United States are equivalent. Aninsistence that only Japan is exercising excessive regulations(thus creating a trade barrier) is a misconstrual of the facts.

Alleged restrictive flight rules and the lack of heliportsare described as factors which have stifled Japanese demand forhelicopters. The construction of heliports require theauthorization of the Minister of Transport under the CivilAeronautics Law. This is mandated to ensure the safety ofhelicopter operations, and not to suppress heliport construction.Furthermore, the Ministry of Transport is implementing suchactive promotional measures as a 30% subsidy of public-useheliports.

There is a description in the NTE which presses for increasedaccess to main airports for business aircraft that operateinternationally. These requests have been accepted at KansaiInternational Airport, the New Tokyo International Airport andother major airports through adjustments of times of receptionand apportionment of slots (in 1995, Kansai -- 178 times, Narita-- 326 times). The New Tokyo International Airport (NaritaAirport) and Tokyo International Airport (Haneda Airport) areboth already operating at maximum capacity for arrivals anddepartures with a large number of requests for new access, newroutes, and increased flights. Therefore, the request foracceptance of business aircraft are extremely difficult.

(2) Autos and Auto Parts

(a) Motor vehicles

The NTE states that Japanese vehicle manufacturers wield controlover dealer networks, and that the growth of foreign-controlledfranchised dealerships since the conclusion of the Japan-U.S.Autos and Auto Parts Consultations has been slower than expected.Here it should be pointed out that Japanese vehicle manufacturersand dealers have no contractual arrangements establishingrestrictions on the handling of other companies' products, norare such restrictions practiced. Dealers are free to use theirown judgment in signing franchise agreements with othermanufacturers. Regarding this matter, results of a Japan FairTrade Commission investigation released in June 1993 indicatethat it was not a fact that the Anti-Monopoly Act was beingviolated. Nevertheless, taking into account the results of itsinvestigation, the Commission urged the adoption of voluntarymeasures promoting competition. The Commission subsequentlyconducted follow-up investigations into companies' implementationof voluntary measures; results of these investigations, releasedin December 1993 and August 1994, indicated that all companieswere acting in a sincere and positive manner. On numerousoccasions, the Government of Japan has provided explanations onthis matter to the Government of the United States.

Furthermore, in compliance with the August 1995 conclusion ofthe Japan-U.S. Autos and Auto Parts Consultations, the Governmentof Japan acted in good faith, implementing measures to facilitatemarket access for foreign automobiles in Japan. These measuresinclude: the Government of Japan's expression of support for, andissuance of notifications related to, announcements from relevantbusiness organizations regarding an open distribution system forcompetitive automobiles; and designation of contact persons inboth Governments and in the companies of both countries.

Moreover, with regard to expectations based on a forecastmade only by the United States, it was clearly stated on 28 June1995, in a joint announcement by then-Minister of InternationalTrade and Industry Ryutaro Hashimoto and United States TradeRepresentative Mickey Kantor, that the forecast goes beyond thescope and responsibility of government, and that the Governmentof Japan has no involvement whatsoever in such a forecast.

(b) Auto parts

Regulations governing vehicle inspections, modifications andrepairs are clearly specified in written form, so the NTE ismistaken when it describes these regulations as"obscure." Furthermore, in Japan the replacement ofauto parts is, in principle, conducted freely, and even partssubject to regulations governing disassembly and repair arehandled in a non-discriminatory manner, regardless of origin.Therefore, these regulations do not act as a barrier to themarket entry of foreign-made replacement parts; the commentreferred to above is based on a misunderstanding of the facts.

Of the approximately 80,000 certified garages locatedthroughout Japan, about 80% are independent; only about 20% aredealer-affiliated. According to a survey conducted by theMinistry of Transport in FY1994, vehicle owners and repair garageowners stated that they would use parts which exhibited highlevels of safety and quality, thus showing that there was nodiscrimination as to product origin; the NTE's comment ismistaken.

Furthermore, the inspection cost for consumer replacement ofcritical parts is very low -- the NTE errs on this point also.

The Government of Japan will deregulate 23 standards andcertifications issues, not 16 as stated. The document issued asthe results of the Autos and Auto Parts Consultations did notstate that the Government of Japan would, on its own, deregulateall issues, but that the Government of Japan "intended toreach a conclusion in good faith under the Consultations (.....)to the mutual satisfaction". The Japan-U.S. Expert Meetingon Motor Vehicle Standards and Certification Issues, held towardthe end of March 1996, yielded decisions on all issues.

There was neither agreement nor common recognition reachedbetween the Government of Japan and the Government of the UnitedStates regarding Japanese vehicle manufacturers increasingproduction in the U.S. and increasing local content. This commentin the NTE is without any foundation whatsoever. In this regard,it is true that Japanese vehicle manufacturers announced, on 28June 1995, respective plans to increase production capacity inthe United States, but it was clearly specified, in the jointannouncement made the same day by then-Minister of InternationalTrade and Industry Ryutaro Hashimoto and United States TradeRepresentative Mickey Kantor, that these plans were outside ofthe Japan-U.S. Framework Talks.

(3) Cellular Telephones/IVANS/NCTE

The Government of Japan adopted deregulation measures in Marchof this year limiting the range of service agreements betweeninternational value-added network services (IVANS) providers andforeign operators which require authorization to internationaltelephone service and international ISDN services.

Moreover, a decision to completely liberalize the provisionof basic voice services in IVANS with the public networks in 1997was made in the revised Deregulation Action Program. Furthermore,reviews of the standards for the number of lines for Special TypeII carriers and General Type II carriers are planned to becompleted by July of this year, with the aim of reducing thenumber of domestic Special Type II carriers to approximatelyone-half the current number.

(4) Civil Aviation

• The NTE states that the Government of Japan advocates restraints on growth of U.S. carriers' services, while at the same time trying to expand flying rights for Japanese carriers to and beyond the United States. This comment is mistaken, for the following reasons:

• It is alluded that the Government of Japan unfairly restricts the flights of U.S. incumbent carriers to points beyond Kansai International Airport and prevents the flights of other U.S. carriers desiring to serve the same airport. Here it is worth pointing out the following:

• The NTE also asserts that, during Japan-U.S. All-Cargo Negotiations, Japanese air transport authorities have sought to restrict the rights of U.S. carriers. This statement is based on a misunderstanding of the facts. The negotiations were carried out with the objective of achieving equality and further liberalization. Japanese air transport authorities conducted the consultations on air freight with a view to expanding opportunities for both Japanese and U.S. carriers, as will be clear from a perusal of the contents of the result obtained through consultations at the end of March.
• The comment was made that U.S. carriers have the lion's share of the Japan-U.S. civil aviation market because U.S. carriers are more competitive than Japanese carriers. Here it should be stated that their large share is due to the advantageous position they have enjoyed for 43 years under the current Japan-U.S. Civil Air Transport Agreement, and not due to a difference in competitiveness. Before making such an assertion, the United States should first agree to permit equal opportunity for both countries' carriers under a Japan-U.S. Civil Air Transport Agreement.

(5) Deregulation

The Government of Japan has steadily and systematicallypromoted deregulation in accordance with the Deregulation ActionProgram. (The Program includes specific details of measures and aclear timetable of implementation to the greatest extentpossible.) The Government of Japan revised the Program on March29, taking into consideration the opinions and requests fromdomestic and foreign entities. Efforts were also made to ensuretransparency of the revision process by such a way as publishingthe interim report of deliberations. The revised Program includes569 new deregulation measures concerning each ministry andagency, as well as the steps to be implemented for measuresincluded in the original Program such as accelerating andclarifying the implementation timetable, and specifying thedetails of each measure.

The Government of Japan believes that review of regulationsneeds to be conducted on a continual basis in order to reflectthe changes of social and economic situations. The Program willbe revised again at the end of FY1996, and the Government ofJapan is in a position to promote further deregulation throughtaking account of opinions and requests from domestic and foreignentities as well as the reports of the Administrative ReformCommittee.

Though it is not defined as part of deregulation, theGovernment of Japan has included administrative reform as one ofthe most important issues, and has been steadily promoting itsimplementation. In this regard, the Fundamental Principles ofAdministrative Reform decided by the Cabinet at the end of lastyear include a wide variety of measures such as promoting thegovernment information disclosure, ensuring the proper operationof administrative process, and enhancing the transparency ofadvisory committees.

(6) Distribution

The Large Scale Retail Store Law will be revised in FY1997.This revision will aim to ensure the effectiveness of thederegulation measures initiated in May 1994 through theDeregulation Action Program approved by Cabinet Decision on 29March of this year. The revision will be made in consideration ofthe changes surrounding the distribution environment. Therevision will also include the simplification of the documentsrequired to be submitted to the various administrative organs.

(7) Flat Glass

In response to the indication in the NTE that the flat glassmarket is controlled by three domestic manufacturers, the JapanFair Trade Commission (JFTC) survey of the glass market did notfind any violations of the Anti-Monopoly Act. Moreover, thesurvey did not find any information sufficient to initiate aninvestigation. The JFTC survey found that domestic flat glassretailers (distributors) are joint retail outlets which generallycarry products from multiple manufacturers, and did not recognizethat Japanese flat glass manufacturers control a large portion ofthe flat glass retailers. According to a Ministry ofInternational Trade and Industry (MITI) survey, approximately 50%of the distributors make purchases from more than two glassmanufacturers.

In contrast to the NTE reference that foreign manufacturersaccount for only three percent of the Japanese market, Japan'sForeign Trade Statistics and MITI statistics found that themarket share of imported flat glass was 12.6% on a quantitybasis, and 5.3% on a monetary basis between January and June of1995.

(8) Marketing Practice Restrictions

If sales promotions (offered to customers such as premiums andsweepstakes) impede the full functioning of the market,regulations need to be put in place (from a competition-policyperspective). The intent of sales promotion regulation is toprevent the hindrance of fair competition and the malfunctioningof market mechanisms by the distortion of informed consumerselection. It has never been intended to prevent new market entryby anyone, including foreign enterprises.

Furthermore, there are much stricter regulations on salespromotions in the countries of continental Western Europe;therefore, even from an international perspective, Japan is notimposing unique regulations.

The fair trade regulations prevent the unfair enticement ofcustomers through representations and prizes, and ensure faircompetition, thereby making it a necessary policy to ensurecustomer benefit. The suggestion that it is collusive oranti-competitive is a misunderstanding of the facts.

The revision takes into consideration changes in the economicsituation and results of discussions among learned specialists.The review was conducted (with a view to effecting acomprehensive revision of the existing regulations), and containsappropriate suggestions made by the United States. The resultingregulations propose the maximum amount of deregulation possiblein Japan under current conditions.

(9) Paper and Paper Products

The 1992 Measures to Increase Market Access in Japan forForeign Paper Products provide that the Government of Japan shallencourage efforts to increase imports of competitive foreignpaper products as well as efforts by the U.S. Government topromote marketing efforts by foreign companies.

The Government of Japan has been steadily implementing thesemeasures. In the above-mentioned Measures, it is stated that theU.S. side has also decided to implement measures for 12 items:however, insufficient explanations have been given by the U.S.side on the current situation regarding the measures beingimplemented. The U.S. side has indicated its concerns regardingencouragement for the use of foreign-made paper products in keysectors and the lack of direct encouragement of consumers in fourkey end-use sectors. The Government of Japan has implementedpublic notification measures to key end-user sectors eitherdirectly or through written notification to business and industryassociations, and has submitted the appropriate documents to theU.S. side at the review meetings. Therefore, the indication thatmeasures implemented by Japan are insufficient is inappropriate.

Furthermore, imports of foreign papers in Japan have beensteadily increasing, with a rapid increase in imports from theU.S. especially after the summer of 1995. Imports from the U.S.for print-quality paper and cardboard which are subject to the1992 agreement have increased 18.6% (April 1995 to January 1996)compared to the same period of the previous year, and the shareof the Japanese paper market held by foreign paper makers hasbeen on the increase.

There was no justifiable reason for the U.S. Government ofplacing Japanese paper practices on the watch-list under"Super 301," and there have been no clear explanationsas to why this was done. As this designation is inappropriate,the Government of Japan is expressing a note of concern to theU.S. Government.

The Japan Fair Trade Commission (JFTC) also carries out rigidenforcement of the Anti-Monopoly Act in all industries includingthe paper and paper-manufacturing industries. If an action takenby an enterprise or industry is determined to have specificallyinfringed on the Anti-Monopoly Act, then it is the policy of theJFTC to conduct requisite investigation and to rigidly enforcemeasures if there is a determination of proof of wrongdoing.

(10) Consumer Photographic Film and Photographic Paper

The United States Government insists that the Government ofJapan is refusing to consult with it on this issue. Presumably,the U.S. Government is referring to the lack of formalnegotiations, since there are constant exchanges of views betweenthe government officials on this issue. Furthermore, there are nosubstantive proofs outlined in the NTE Report which support thedescriptions under "Wholesale Distribution,""Retail Sales," and "LiberalizationCountermeasures," etc.

The U.S. assertion based upon Section 301 petition filed byEastman Kodak claims that there are habitual Anti-Monopoly Actviolations in the Japanese market, and requests that theseviolations be eliminated. The Government of Japan regards thismatter to be an issue concerning the Anti-Monopoly Act. The JapanFair Trade Commission (JFTC) has always effectively carried outthe Anti-Monopoly Act in this and all other markets and hasrigidly enforced the Act against violators. Therefore, it isimpossible that violations would be passed over by the JFTC.Since Kodak is insisting that there are Anti-Monopoly Actviolations, it is possible and appropriate for them to file aclaim with the JFTC. The Government of Japan has suggested to theU.S. Government that it encourage Kodak to file a claim with theJFTC. However, to date, Kodak has expressed that it has no intentto file with the JFTC.

Recently, the U.S. Government has been insisting that thereare also problems of market access. At any rate, the U.S. claimsthat there are habitual Anti-Monopoly Act violations in theJapanese market resulting in problems of market access.Furthermore, the alleged "LiberalizationCountermeasures" supposedly taken between 1967 and 1984, andthe resulting creation of an anticompetitive market structureare, more specifically, issues of whether or not there areviolations of the Anti-Monopoly Act in the Japanese market. Thisultimately comes back to an Anti-Monopoly Act issue. (All of theclaims regarding the Liberalization Countermeasures are completemisconceptions, and this point has already been conveyed to theUnited States Government. For example, the Ministry ofInternational Trade and Industry's (MITI) Distribution Guidelinesfor the Photographic Film Industry, indicated in Kodak's petitionto the United States Trade Representative (USTR), containsdetails on such matters as making the rebate system transparent,clarifying the system of payment, and the excessive frequency ofrestriction on physical distribution, and was drafted to promoteclarification and rationalization of the conditions oftransaction.)

In any case, the Government of Japan has always made it clearthat it cannot negotiate under the threat of unilateral measuresthrough Section 301 of the United States Trade Act, which is initself inconsistent with international rules.

Furthermore, the JFTC is currently conducting a survey(separate from the claims of Kodak under Section 301) on theactual state of consumer photographic film and photographic papermarkets as a part of their series of annual surveys from theviewpoint of competition policy.

(11) Semiconductors

General comments

It was inappropriate for the NTE to raise the issue ofsemiconductors. From a comprehensive perspective that includestotal sales and the number of design-ins, the access of foreignsemiconductors to the Japanese market has already beensufficiently improved.

Foreign semiconductors have penetrated rapidly into theJapanese market. The Japanese semiconductor market is completelyopen. As for the view that the Japan-U.S. SemiconductorArrangement has promoted access to Japan's semiconductor market,even if opportunities for access expand, this merely providesfurther business opportunities. These business opportunitiescannot result in real commercial benefit unless suppliers providecompetitive semiconductors. The situation in today's Japanesesemiconductor market completely reflects the power of productcompetitiveness.

Competitive foreign semiconductors are now so firmlyestablished in the Japanese market that they are indispensable toit. Industrial cooperation, which is pursued on a commercialbasis, is also firmly established.

Comments on individual issues

1. With regard to the NTE's assessment of the Japan-U.S. Semiconductor Arrangement

(a) The NTE states that the recent improvement in the performance of foreign semiconductors in Japan's market has demonstrated the effectiveness of efforts being made by all parties under the Arrangement. This statement is not based on the facts. Actually, the improvement is due to companies' business decisions, which are based on the following market mechanisms:

(b) The NTE asserts that because of the existing Arrangement, confrontation between Japanese and U.S. industries has been replaced with cooperation, thereby providing mutual benefits, and that if the Arrangement is not continued this progress might stall or even backslide. However, the formation of cooperative relationships among Japanese and United States industries is motivated by business decisions which are based on specific commercial strategies aiming at deepening complementary and interdependent relationships among companies. The existence of the Arrangement has nothing to do with this.

2. With regard to the NTE's comments implying the closed nature of Japan's market:

(a) The NTE suggests that market access for foreign semiconductors could be further improved in the following areas:

Each time these points are brought up by the United States during regular government-to-government semiconductor consultations, the Japanese side requested a clear description of the alleged existence of actual barriers; but until now no concrete, persuasive explanation has been forthcoming.

Moreover, when these points are discussed in subcommittee experts' meetings among Japanese and United States industrial representatives, no specific example showing the existence of such barriers has been given.

(b) The NTE also asserts that the foreign semiconductor share of the Japanese market remains relatively low compared to the situation in other markets, and that more remains to be done. Yet, in actual fact, market share is determined by such factors as demand structures in that market, product competitiveness, and sales efforts made by suppliers. Market share does not instantly indicate the extent to which a market is open or closed, so it would be wrong to point to market share and then make inferences on the closed nature of Japan's market.

Objective facts which should be recognized

During regular government-to-government semiconductor consultations, the United States referred to the need to further improve market access, but did not provide a clear explanation. The following objective facts should be recognized:

• During the approximately ten years since 1986, market share of foreign semiconductors rose from about 9% to about 30%, thereby greatly surpassing the 20% level which the U.S. industry had expected.
• Foreign semiconductor sales and the number of design-ins involving foreign semiconductors in Japan increased approximately seven times and nine times, respectively, during the eight-year period after the Arrangement came into effect.
• Due to advances in computerization, semiconductors, especially those from the United States, have become indispensable components in the Japanese market.
• United States microprocessors occupy a 78% share of the Japanese market.
• During the past ten years, the structure of the world's semiconductor market has changed significantly. The Asian market has grown rapidly, while the relative size of the Japanese market in the world has declined. The Arrangement, which only deals with the Japanese market, has become meaningless.
• Trade has increased in semi-finished and finished products integrated into semiconductors; the Arrangement was unable to cover this development, and is thus out of keeping with economic realities.
• During the past ten years, international tie-ups between Japanese and United States semiconductor manufacturers have spread greatly, like the mesh of a net, in the areas of development, production and sales. Similar relationships are being formed with European and Asian manufacturers. At a time when corporate relationships are increasingly reaching across borders, the Arrangement's approach, based on the concept of borders and nationalities, is out of keeping with reality.
• Japanese industry is opposed to government involvement in this field. Furthermore, Japanese companies plan to continue cooperating with other foreign companies.

In light of these facts, the objectives of the Arrangement have been sufficiently achieved, and the Arrangement should be allowed to expire at the end of July this year, as provided for. In the future, trade in semiconductors should be left to market mechanisms, and government involvement should be completely eliminated. As for future industrial cooperation, it would be desirable for voluntary and frank discussions to proceed between the private sectors in Japan and the United States without government involvement, and for even more constructive relationships to be established among companies.

Conclusion

From the above, it is clear that the NTE contains errors springing from a basic misunderstanding of the facts. It is not appropriate to urge extension of the Japan-U.S. Semiconductor Arrangement on the basis of such arguments.

(12) Sea Transport and Freight

The items indicated by the United States are private-sectorbusiness practices deeply related to labor issues. These are notissues in which the Government of Japan should involve itself,and the Government believes that a solution should basically befound among the parties concerned.

First, shipping companies requested to meet with the JapanHarbor Transport Association (JHTA) to discuss the revision ofthe current system and its method of operation. After discussionsbetween the representatives, an agreement was reached between theJHTA and the shipping companies to work toward the revision ofthe system. The same agreement was reached between the JHTA andthe harbor labor unions. The discussions between the JHTA and theshipping companies are ongoing.

Second, on the issue of weighing and measuring freight cargo,a basic agreement is close to being reached on a five-yearphase-by-phase dissolution of the system for FCL freightbeginning in April of this year. This procedure began with arequest from the shipping companies for a review of the system,and the solution is being coordinated among the shipping company,the weight and measures commission, and the harbor labor unions.

Third, harbor labor and management agreed to restart Sundaywork in major ports initially for a one-year basis which began inJune 1995. The extension of this agreement will be worked outbetween labor and management in the future.

These points were explained to the United States at themaritime consultation between Japan and the United States whichtook place this January, and Japan believes that it has gainedthe understanding of the United States.

(13) Direct Broadcast Satellite Services

As announced in the Deregulation Action Program, Japan relaxedsome of the regulations on the concentration of mass mediaownership on 28 February 1996 in order to encourage theintroduction of multi-channel digital satellite broadcasting.Furthermore, during 1996, model contract clauses will be writtenand made public. Furthermore, the introduction of standardizedtariffs and fees for a prior-notification system for pay-TVservices will be planned, after necessary legal revisions arestudied.

---

Back to Index