Services Barriers

(1) Construction, Architectural and Engineering Services

The NTE states that at the First Annual Review Meeting of the Action Plan on the Reform of the Bidding and Contracting Procedures for Public Works (the Action Plan), it was acknowledged that FY1994 had been a transition period, but dissatisfaction was expressed with the limited business awarded to United States firms. In addition, it is noted that the United States made numerous procedural recommendations, but while the Ministry of Construction has taken some steps to accommodate these recommendations, there has been little real impact on foreign firms' access to the overall Japanese public works market. Furthermore, there were apparently implementation problems in both the 1994 arrangement and the 1991 MPA, and U.S. firms had described specific instances where the Japanese Government and industry had not been forthcoming in allowing foreign participation in the bidding process. Reference is also made to Japan being placed on the Title VII "Watch List" on 30 April 1996.

Against this backdrop, the second annual review of the arrangements was held in June 1996, but although FY1995 was the first year in which the Action Plan measures were fully implemented, the NTE alleges that the number of opportunities available for foreign firms to bid on contracts, particularly in the area of design contracts, was limited. The entry of foreign firms was also apparently restricted by market-entry barriers such as restrictions on the size and scope of joint venture consortia and other procedural requirements, as well as exclusive business practices.

However, Japan has formulated the Operational Guidelines with Respect to the Action Plan to achieve concrete operational improvement, taking into account the U.S. opinions to date. The main points of these guidelines include relaxation of conditions for qualifications to be invited to participate in open and competitive bidding, and the adoption of simple open-bidding procedures for procurement for design and consulting contracts below the Action Plan level. The guidelines were partially implemented in FY1996, and will be completely implemented with the initial budget for FY1997. The above facts show that Japan has faithfully implemented the Action Plan. Thus, questioning the status of implementation of the Action Plan simply because of the low number of projects awarded to foreign firms is not an appropriate manner to evaluate the efforts made thus far.

In addition, the NTE states that while at the second annual review meeting, the United States Government expressed particular concern over the handling of the Chubu New International Airport and the Kansai International Airport, the U.S. side was pleased at notification from the Japanese Government that it had recently been decided that, as soon as the FY1997 Budget was approved, MPA procedures would be applied voluntarily for the Chubu New International Airport project. The United States also described as progress the fact that these procedures were also being employed already for the Kansai International Airport project.

In order to further expand participation opportunities for foreign companies in the procurement for both airports, in regard to the Chubu New International Airport, even before the entity of the project is decided, Japan will implement measures in line with the provisions of the Action Plan for survey procurements undertaken by the Government valued at or above MPA levels. For the Kansai International Airport, Japan will continue to carry out measures in line with the attachment of the Action Plan (MPA measures) in Stage II as it has in Stage I. Transparent and objective bidding and contract procedures will continue to be conducted in the case of both airports.

(2) Insurance

The minimum necessary insurance regulations are applied to all insurance companies with a view to the protection of consumers and those who contract for insurance, as well as the guarantee of a stable insurance supply. Regulations in the insurance area are not for the purpose of limiting competition in the insurance market.

Japan's insurance market is non-discriminatory and open to foreign insurance companies. There is no fact to claims that special competition restrictions exist in primary sectors which do not exist in the third sector. In addition, it is illogical to unilaterally blame regulations for the low market shares of foreign insurance companies without considering the level of management resources which they have committed to the Japanese market, and whether they have made an effort to promote sales and formulated effective business strategies.

The NTE states that "the foreign market shares of other G-7 countries' domestic insurance markets ranged from 10 to 33 percent." It is not appropriate, however, to compare European insurance companies within the EU as foreign insurance companies. The basis on which many of the data provided by the NTE were estimated is also unclear.

According to the NTE, "negotiations resumed in the fall of 1995, when it became apparent that Japan intended to allow Japanese insurance subsidiaries to operate in the third sector in a manner contrary to key provisions of the 1994 agreement." However, even if a difference in interpretation of the 1994 document was the cause of the reopening of the consultations, it is a very one-sided interpretation to make pronouncements such as "in a manner contrary to key provisions of the agreement."

Currently, Japan places no legal restrictions on insurance products which brokers can offer to customers. Moreover, as in many of the corporate insurance areas in which brokers are active, the proffering of innovative new products and rate differentiation are allowed, it is incorrect to say that "competition is restricted."

As for the "keiretsu" survey, while this has not been launched as early as either country would have liked, consultations are apparently underway to this end. Such efforts by the private sector to initiate the survey should be respected. The Fair Trade Commission is ready to implement its study within a reasonable period of time, bearing in mind developments since revision of the Insurance Business Law.

The approval of automobile insurance with risk-differentiated rates which was decided at the Japan-U.S. insurance talks was to be implemented from September 1997, not "by" September 1997, as the NTE mistakenly notes.

In the Supplementary Measures by the Government of the United States and Government of Japan Regarding Insurance ("the Supplementary Measures"), it is explicitly stated that legislation toward achieving the reform of rating organizations will not predetermine Diet deliberations, and the NTE is therefore incorrect in stating that Japan "committed to obtain Diet passage."

The content of the rating organization reforms is the abolition of the obligation to use rating organization rates. Thus it is inappropriate to explain it as "to eliminate the rating organizations' authority to set industry-wide rates," as the NTE notes.

The lowering of the floor of the advisory rate system for loading rates of commercial fire insurance to seven billion yen will be implemented from April 1998, and not "by" April 1998, as the NTE mistakenly notes.

"Until foreign firms have had sufficient time to establish a presence in the deregulated primary sectors" is the expression used in the NTE report. However, these measures to avoid radical change will be abolished two and a half years (with 1 January 2001 as the target) after confirmation of the implementation of the deregulation measures stipulated in the Supplementary Measures. Whether or not foreign insurance firms can build a presence for themselves in the primary sectors before that time will be up to the business efforts of the companies themselves.

(3) Legal services

In regard to partnerships between gaikokuho jimu bengoshi, foreign legal consultants, and Japanese lawyers, revisions to the Special Measures Law Concerning the Handling of Legal Business by Foreign Lawyers which came into effect as of January 1995, allowed specific joint enterprises, thus making it possible to for a client to receive legal advice concerning Japanese law and foreign law at the same time. It also became possible for gaikokuho jimu bengoshi and Japanese lawyers to share fees, and it is expected that this would have the same effect as that of partnerships.

Last December, a study committee on gaikokuho-jimu-bengoshi issues, composed of prominent persons, was initiated to look at issues such as the employment of Japanese lawyers by gaikokuho jimu bengoshi, experience requirements for qualification and the handling of third country law, and a conclusion is expected FY1997. As to a major increase in the number of qualified lawyers, based on the discussion of the three-party consultations among the Ministry of Justice, the Supreme Court and the Japan Federation of Bar Associations about an increase to 1,500 in the number of successful applicants of the National Bar Examination to be concluded by the end of October, 1997, the Japanese Government will set up the necessary measures during FY1997 to increase this number to 1,000.

(4) Telecommunications Services

The NTE alleges that given that the new interconnection rules will not come into effect until 1998, there are two urgent and unresolved issues, namely, access by competing service providers to all NTT services; and the costs NTT is asking competing service providers to bear for network modification. While this reference is too lacking in specificity for the import to be clear, Japan would like to make at least the following initial comments.
(i) Firstly, a provision will be stipulated in tariffs concerning conditions for interconnections with essential NTT facilities, and this will in fact cover all services.

(ii) Secondly, network modification costs being incurred in providing basic interconnection functions are being covered fairly in the form of interconnection fees levied on the sales divisions of companies owning essential facilities and other companies.

(iii) Thirdly, as temporary measures until the transition to the interconnection rules, it was proposed in the Telecommunications Advisory Council report (December 1996) that (a) an interconnection agreement be concluded between providers based as far as possible on the new rules; and (b) the new rules be applied as far as possible as standards for directions and arbitration on interconnection, with work undertaken to see that steps which could be implemented under the present administrative system were realized as soon as possible. The Ministry of Posts and Telecommunications is planning to operate in line with these proposals.

(iv) It should be added that Japan is concerned that the initiation of interconnection rules has currently been stalled in the United States.
The NTE further notes the U.S. recommendation that the distinction between general Type II carriers and special Type II carriers be eliminated, with all resellers treated as general Type II carriers. Japan believes the current administrative system to be appropriate for the following reasons, and therefore is not open to the U.S. recommendation.
(i) Not all Type II carriers handling international telecommunications fall within the scope of special Type II carriers, which are only those operating telecommunications business using international leased lines. Procedures for registration as a special Type II carrier have always been simple and transparent. Regarding the amount of time required for registration, based on the Japan-U.S. Arrangement of July 1990, standard processing time has been set at 15 days.

(ii) Because special Type II carriers have a major social and economic impact due to factors such as communications breakdowns, a registration system needs to be adopted and a minimum consideration given on financial fundamentals and technical capabilities.

(iii) In addition, Japan would particularly like to note that while the standard processing period for registration of special Type II carriers in Japan is 15 days or less, it is still uncertain how long it will take to get certification in the United States. For example, it took KDD's American subsidiary one year and one month to receive certification for the provision of the similar service. Moreover, certification has been suspended for KDD's additional request and for the request by NTT's American subsidiary.
The NTE expresses concern over Japan's retention of a 20% foreign investment limit in KDD and NTT. The issue of foreign investment regulations in individual countries' telecommunications markets has, however, already been discussed at the Negotiations on Basic Telecommunications in the WTO, with negotiations concluded on individual countries' liberalization commitments.
It is therefore desirable at this point in time that countries first faithfully implement the commitments they made in the above negotiations. The stance of the Government of the United States in unilaterally seeking further liberalization measures goes contrary to the conclusions of the Negotiations on Basic Telecommunications.
The NTE also suggests that Japan has failed to liberalize two key direct broadcasting services (DBS) areas: restrictions on the transponder bandwidth a single company can control; and limits on both foreign investment and corporate board representation. Japan would like to make the following comments on this suggestion.
(i) Currently, when broadcasting through a CS digital broadcasting system, one commissioned broadcasting company can broadcast up to 12 CS digital television programs within two transponders. The current regulations seem appropriate given factors such as the current limit to the number of transponders which can be used and the many companies wanting to participate.

(ii) Given the limited number of frequencies, and the major social and cultural impact, foreign investment in broadcasting companies is limited under Japan's Broadcast Act. It should be noted that in the United States, too, foreign investment is restricted to 20% or less of capital or voting rights.

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