Other Barriers

(1) Aerospace

The NTE alleges that interest rate subsidies and preferential loans are made by the Government of Japan to Japanese industries for development of airplanes and engines. The Government of Japan considers international cooperation projects, such as the B-777, subjects of the subsidy and does not give preferential treatment to Japanese industries.

The NTE describes an alleged aerospace nurturing scheme in which MITI apportions work among Japanese manufacturers. There is no such scheme in place, and it is unclear to the Government of Japan why such a description was given.

With regard to the suggestion that sales in Japan of U.S. aircraft, parts and related services remain far below that generally expected, it must be noted that Japan is the one of the world's largest importers of aviation equipment. Japan's aviation-related imports from the United States in particular were as much as US$2 billion in 1996. Furthermore, the reason why the sales of business jets and other aircraft have not grown is a distinctly Japanese restriction, namely the scarcity of land.

As for helicopter flight rules, Japan's flight system was established in line with International Civil Aviation Organization (ICAO) international standards, and, contrary to U.S. allegations, there are no particular restrictions on instrument flight of helicopters.

In regard to the lack of heliports, the Ministry of Transport is currently implementing such promotional measures as a 30% subsidy for construction of public-use heliports. There were 93 heliports in Japan in April 1997, around three times the number in December 1988.

Looking at landing slots for business aircraft near Tokyo, from July 1996 the New Tokyo International Airport (Narita Airport) has allowed two slots for business jets where there are openings in the slots for the arrival and departure of regular common flights. The New Tokyo International Airport (Narita Airport) and Tokyo International Airport (Haneda Airport) are both already operating at maximum capacity for arrivals and departures. And further more there is a large number of requests for new access, new routes, and increased flights. Therefore, requests for acceptance of business aircraft are extremely difficult to accept.

(2) Motor Vehicles

Since the August 1995 conclusion of the Japan-U.S. Autos and Auto Parts Consultations, the Government of Japan has been steadily implementing measures in compliance with them. However, the conclusion also stipulated various measures which the United States was to take, and, as indicated by Japan on occasions such as the review meeting last September, the United States really must make further efforts.

A. Autos

The NTE states that Japanese vehicle manufacturers wield control over dealer networks, and that the growth of foreign-controlled franchised 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 manufacturers and dealers have no contractual arrangements establishing restrictions on the handling of other companies' products, nor are such restrictions practiced. Dealers are free to use their own judgment in signing franchise agreements with other manufacturers. In regard to this point, as the Government of Japan has repeatedly explained to the Government of the United States, in compliance with the August 1995 conclusion of the Japan-U.S. Autos and Auto Parts Consultations, that the Government of Japan has acted in good faith, implementing measures to facilitate market access for foreign automobiles in Japan. These measures include: the Government of Japan's expression of support for, and issuance of notifications related to, announcements from relevant business organizations regarding an open distribution system for competitive automobiles; and designation of contact persons in both Governments and in the companies of both countries. The types of automobiles which dealers handle, however, is purely a matter of dealers' business judgment. Moreover, with regard to expectations based on a forecast made only by the United States, it was clearly stated on 28 June 1995, in a joint announcement by then-Minister of International Trade and Industry Ryutaro Hashimoto and United States Trade Representative Mickey Kantor, that the forecast goes beyond the scope and responsibility of government, and that the Government of Japan has no involvement whatsoever in such a forecast. To claim that the agreement has not been fulfilled on the grounds that unilateral expectations on the part of the United States have not been satisfied is therefore an inappropriate evaluation.

B. Automotive Parts

In regard to measures related to the deregulation of the repair parts market on the basis of the Japan-U.S. Autos and Auto Parts Consultations, the Government of Japan is implementing these steadily and faithfully, including review of the definition of disassembling repair. Japan's repair parts market is open. Even parts subject to regulations governing disassembling repair are handled in a non-discriminatory manner, regardless of origin, and there is no discrimination according to whether the parts are original equipments (OE) or otherwise. Japan therefore does not recognize that regulations are acting as a barrier to the entry of foreign replacement parts. In fact, more Japanese repair garages are independent than are affiliated with dealers, and make no distinction between domestic or foreign parts, or between OE and non-OE parts to the extent that the parts concerned are competitive in terms of price and quality. It is stipulated in the Deregulation Action Program, which was further revised at the end of March, that the examination for disassembling repair inspection systems will be concluded around June 1997, in view of the international situation, in paying due respect to the maintenance of safety, and including the consideration of the necessity of the disassembling repair inspection.

While the United States expresses disappointment at the slow increase in purchases by Japanese auto manufacturers of U.S. auto parts, this falls outside the Japan-U.S. Framework Talks, and is not something in which the government was involved, and was made clear on 28 June 1995 in a joint announcement by then-Minister of International Trade and Industry Ryutaro Hashimoto and United States Trade Representative Mickey Kantor.

(3) Deregulation

The newly revised Deregulation Action Program, which the Cabinet decided on 28 March, was formulated with consideration to the views and requests of many parties in and beyond Japan, giving maximum respect to the views of the Administration Reform Committee. With greater transparency of the revision process through means such as release of the interim report ten days earlier than previous revisions, government agencies worked together closely to create a comprehensive program. With respect to the existing plans, the Government of Japan made utmost efforts to set clear implementation schedule, to ensure the acceleration of their implementation, and to make them as concrete as possible in the Program. The program also contained new measures in regard to as many as 890 items.

Japan is convinced that this program takes major steps forward in many sectors. In the labor sector, for example, the range of occupations handled by fee-charging private employment agencies has been significantly expanded, and a negative list created. In the transportation sectors, supply-demand adjustment regulations in all spheres of transportation will be abolished in 3-5 years. In the legal services sector, conclusions will be drawn by the end of this October on the issue of a major increase in the number of lawyers, and during this fiscal year as to the acceptance of foreign lawyers.

Japan will continue to promote the steady implementation of the measures stipulated in the Program, and will also conduct follow-ups on the progress of the implementation.

(NOTE: The official name of the report mentioned as "January report" in the NTE is "Social and Economic Plan for Structure Reforms Towards a Vital Economy and Secure Life", decided by the Cabinet in December 1995. And the Economic Council is an advisory council to Prime Minister, not to EPA.)

(4) Distribution

In its submission to the Government of Japan regarding deregulation in November 1996, the United States raised the following three points about the deregulation of the warehousing industry: " reducing shortages of storage space," "lowering high fees" and "minimizing burdens for foreign firms related to the distribution of their products." However, regarding the "shortages of storage space," 728 new regular storage companies have registered in the past five years and the amount of storage space has steadily increased, so there is no awareness of a shortage of storage space. As for the "high fees" and "burdens for foreign firms related to the distribution of their products," it is unclear to what specifically these refer. The United States has not provided a clear response either to Japan's aforementioned awareness or inquiries. Furthermore, the regulations concerning entry into the industry are objective ones regarding the structures, equipment, etc., of warehouses from the point of the safety of the stored goods and are no more than what logic dictates. An adjustment of supply and demand to limit the number of entrants or to achieve any other such goal is not occurring here. Therefore, it is inappropriate to treat this as "a significant trade and investment barrier."

The Large Scale Retail Store Law regulates openings and operations of large-sized retail stores . The content of this law does not discriminate between foreign or domestic retailers. It is not a law that puts foreign retailers at a disadvantage, nor does it regulate the distribution of imported goods. In the changing environment of distribution in recent years, the opening of large stores has been increasing. It is the understanding of the Government of Japan that the Large Scale Retail Store Law does not violate any provision in the WTO, and the Government of Japan intends to take this position following WTO procedures.

(5) Electrical Utility Companies' Procurement

As for the procurement of power generation equipment, under the Electric Power Industry Law it is necessary to conform to technical standards established in ordinances of the Ministry of International Trade and Industry (MITI), but beyond that, there are not, as the United States suggests, any other matters such as a complex application procedure. Furthermore, regarding the technical standards in question, a complete review of technical standards has taken place. As explained to the United States, the technical standards will quickly reflect new technology and will be more functional, with the possible adoption of private standards both foreign and domestic. A revision of the Ministry ordinance to this effect, dated 27 March 1997, has been promulgated.

(6) Flat Glass

In reference to the statement that Japan's flat glass market is an oligopoly controlled by three manufacturers, the Japan Fair Trade Commission survey of the actual situation of the flat glass market found no violation of the Antimonopoly Law. Moreover, the survey did not find any specific information sufficient to initiate an investigation. The JFTC survey found that domestic flat glass retailers (distributors) are generally joint retail outlets which carry products from multiple manufacturers. The survey did not find that Japanese flat glass manufacturers control a large portion of the flat glass market. According to a Ministry of International Trade and Industry (MITI) survey, approximately 50% of distributors make purchases from more than two manufacturers.

Contrary to the NTE assertion that foreign manufacturers accounted for only 5% of the Japanese market between January and June 1995, the most recent Japan's Customs Clearance Statistics and MITI statistics find that the market share of imported glass rose to 6.3% of monetary value between January and June 1996. Also, as indicated at the last review meeting, in order to have more participation by foreign companies in the Japanese market in the future, it is necessary for foreign companies to make a sincere sales effort with regard to delivery schedules, packaging and others.

(7) Paper and Paper Products

The NTE alleges that the market share of imported paper and paper products in Japan, which is about 4%, is the lowest level among the major industrialized countries. However, in terms of making a relevant comparison, the use of these statistics is inappropriate. (The trade between Japan and the United States cannot be lined up alongside the trade of the developing free trade zone between the United States and Canada or the regional trade of Europe.) In the case of paper and paper products, the portion of international trade is extremely small. If one removes trade within the North American region and within the European region, then the import share of the countries are as follows: Japan, 5.1% (5.8% if milk cartons are included); United States, 2.6%; and EU, 5.3%. One cannot perceive a large difference between Japan's market and the European and American markets.

The importation of printing and writing paper and paperboard products, the subject of the Japan- U.S. Measures to Increase Market Access for Paper Products concluded in 1992 (hereinafter referred to as "Japan-U.S. Measures for Paper Products"), has increased by about a factor of two in the past five years. On a country-by-country basis, imports from Europe and Asia have greatly increased (from Northern Europe, 2.3 times; from Taiwan, 2.7 times), while imports from the United States have remained flat.

At the final review meeting of the Japan-U.S. Measures for Paper Products, the U.S. Government stated that the said measures did not achieve the objective of increased market access for foreign paper, so a further effort was necessary. The position of the Government of Japan is that the Japan-U.S. Measures for Paper Products have fulfilled their role.

There has been no justifiable reason for the U.S. to place Japanese practices in the paper sector on the watch list under "Super 301" for the past three years nor have there been clear explanations from the U.S. side as to why this has been done. As this designation is inappropriate, the Government of Japan has been expressing its concerns to the U.S. Government.

(8) Consumer Photographic Film and Paper

The United States alleges that there exist entry barriers which restrict the access and sales of the imported goods in the photographic film and paper markets of Japan (including distribution and retail sales sectors). The actual conditions of the markets, which are open to the imported goods, are totally different from those described in the U.S. allegations. As shown from the following facts, the U.S. allegations are groundless and based on the distorted facts.

In the film market which is essentially borderless with a limited number of participants world- wide, a little difference in the quality of a film product and consumers' general preference for the domestic products over the foreign ones have been contributing to a phenomenon both in the U.S. and Japan's markets that domestic companies are advantageous to foreign ones in the respective film market. Judging from the actual conditions of the Japan's markets mentioned above, it is evident that success or failure of foreign firms solely depends on a company's effort such as sales strategy, ability to grasp consumers needs or technical developments.

With lack of correct understanding of the openness of the Japan's market, the USTR initiated the investigation on the Japan's photographic film and paper market on July 2nd, 1995 based on the petition from Eastman Kodak pursuant to section 302 of the Trade Act of 1974. On June 13th, 1996, the USTR determined that the measures of the GOJ were unreasonable. This was extremely regrettable decision. This kind of unilateral sanctions are inconsistent with international rules and the spirit of WTO Agreements. The GOJ cannot accept such approach as a means to resolve any trade dispute.

On the same day, the United States requested the consultations pursuant to the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS), alleging that the measures of the GOJ are inconsistent with these Agreements. They also requested consultations based on the Decision on "Restrictive Business Practices: Arrangements for Consultations" under GATT, complaining that the business practices in the Japan's film and paper markets restrict competition in international trade for consumer photographic film and paper.

The GOJ is convinced that the measures are consistent with international agreements including the GATT and the GATS and do not nullify or impair benefits accruing to the United States.

In regard to the GATT issues, the NTE states that through "liberalization countermeasures" over the past 30 years Japan deliberately restructured its market to discriminate against imports and systematically nullified and impaired benefits that trading partners expected from Japan's tariff concessions. This statement, however, is groundless.

On April 3rd, 1997, the GOJ submitted its first brief to the dispute settlement panel. In the submission, the GOJ alleges that there exist no "liberalization countermeasures", the term by which the USG sums up the Japan' measures over past 30 years. The GOJ believe that its allegations will be proven to be true through discussions at the substantive meetings before the panel.

MITI's distribution policies: MITI's distribution policies during the 1960's and '70s were concerned with improving the efficiency of the relatively backward distribution sector. They had nothing to do with encouraging vertical integration of distribution channels by manufacturers, as the United States charges, much less with doing so to block imports.

In a recent meeting between both Governments under the Japan-U.S. Framework Talks, the USG encouraged the GOJ to actively utilize MITI's distribution guidelines in 1990 in order to improve the access of imported goods to Japan's markets. Interestingly, the provisions of the 1990 guidelines are similar to those of MITI's "Guidelines for Rationalization of Transaction Terms" in 1970, which has been charged by the USG as a cause of trade barriers.

The Large Scale Retail Stores Law: The Large Scale Retail Stores Law does not regulate products, and does not adversely affect the competitive conditions for imported film or paper. In addition, there is no correlation between a store's size and its likelihood of carrying foreign film brands.

The Premiums Law: The Premiums Law was enacted in 1962, well before the beginning of the liberalization of trade and investment. The Premiums Law was legislated to regulate excessive premiums and misleading representations, which undoubtedly is a sound and appropriate policy. Similar regulations have been adopted by other countries. The Premiums Law has no adverse effect on the competition in price, quality and sales promotion, and is not discriminatory nor disadvantageous for imported goods.

As for the request for consultations pursuant to the GATS, both Governments held consultations on July 10, 1996 and November 7-8, 1996 so as to obtain satisfactory adjustment of the matter. As the NTE notes, the GOJ responded in good faith to the questions put forth by the USG during the second consultation, and hope that this melts away any misunderstanding by the U.S. side concerning the measures by the GOJ.

With respect to the U.S. request for consultations pursuant to the GATT Decision on "Restrictive Business Practices", the GOJ accepted the request on condition that the U.S. accept the request by the GOJ based on the said Decision concerning the U.S. consumer photographic film and paper markets on October 3rd, 1996. The GOJ is waiting for the response from U.S. side. We do not think that our request was inconsistent with the spirit of WTO Agreement. As pointed out in our proposal at the meeting of OECD Trade Committee held in February 1996, the both markets are as like as two peas. It is indispensable and beneficial as well for both countries to discuss this matter in a objective and well-balanced manner by comparing the business practices of both markets.

(9) Semiconductors

A. Comments on the Overview

On page 184, paragraph five, it is stated that "In August 1996, the United States reached a new semiconductor arrangement." However, in August of last year, only an agreement between Japanese and U.S. semiconductor industries and a Japan-U.S. Joint Statement were released. It is inappropriate to use the expression "new arrangement."

Furthermore, it is recorded that "[the new arrangement] will involve the United States, Japan, and other semiconductor-producing nations in monitoring market access." However, in neither the Agreement between Japanese and U.S. semiconductor industries nor the Japan-U.S. Joint Statement are there any provisions for "monitoring" market access.

B. Comments on specific sections

(i) The expression "to address persistent problems of market access for U.S. manufacturers of semiconductors," which appears on page 227 in paragraph one, was used in regards to the bilateral Japan-U.S. talks in August 1996. However, it is inappropriate for the NTE to approach this matter with the premise of the existence of a market access problem in the Japanese semiconductor market, since such recognition is not expressed neither in the Industry-to-Industry Agreement nor in the Governmental Joint Statement.

(ii) On page 227, paragraph three, it is recorded that the measures establish a "multilateral government consultative mechanism, essentially to oversee and interact with the Semiconductor Council." The consultative mechanism between the governments is the forum for the governmental deliberations and discussions based on the reports from the Semiconductor Council. The Semiconductor Council is a forum for cooperative actions undertaken by the private sector. It is inappropriate to interpret the consultation's function as being "to oversee" the Semiconductor Council.

(iii) On page 228, in the latter part of paragraph two, it is recorded that "it has not yet agreed to a full schedule of activities." (While it has been agreed to engage in cooperative activities in the first half of 1997, a full schedule of activities has not been decided.) This is at variance with the facts. In summary:

(iv) In the last sentence of the first paragraph of page 228, the NTE states that "The Administration is concerned about Japanese industry's commitment to sustain the level of cooperation attained under the previous agreement, and will be working closely with U.S. industry and the Japanese Government to ensure that the commitments made in the new semiconductor agreement are fully and successfully implemented." The agreements between the industries are carried out autonomously, and we do not agree that a problem exists, and feel that there is no basis for the U.S. Administration's "concern."

Furthermore, the conclusion reached between the governments of Japan and the United States is based upon a "Joint Statement" which has no specific governmental measures to be undertaken. Therefore, the use of the such terms as "new measures," "commitments" and "agreement" is therefore inappropriate.

(10) Port Transportation

The Prior Consultation System is a practice among private parties based upon an agreement between shipping companies, the Japan Harbor Transport Association (an organization of companies engaged in port transportation) and the harbor labor unions. It has been carried out purposefully to make adjustments in response to the labor/management issues that accompany the shift to shipping using container ships, etc. Therefore, the improvement of this system is something that essentially should be solved through discussions held between the parties concerned. Discussions are taking place regarding an improvement of the system to be carried out by the parties concerned, with the Ministry of Transportation as the chair working to expedite the requests of the various countries and the relevant parties on the domestic side. As a result, at the end of March 1997, the parties concerned, including representatives of foreign shipping companies, signed an "Interim Agreement" which stipulates that toward greater simplification and modernization of the system of prior consultations the conclusion of consultations will be reached by the end of July 1997. The issues to be faced include a large-scale reduction of the matters requiring prior consultations, introduction of procedures for notification of a complaint, clarification of the role of the Ministry of Transportation. An important first step toward the improvement of the system has been taken.

In the licensing of port transportation businesses, the reforms including the elimination of the supply-demand restrictions in the port transportation businesses will be carried out, and the appropriate measures will be taken based upon this fiscal year's oversight process and solutions provided by the Administrative Reform Committee.

Based on a review desired by both foreign and domestic shipping companies, the issue of the weighing and measuring of containers will gradually fade away over the five-year period which began in April of last year. With regard to this issue, a basic resolution will be carried out through the shipping companies, the weighing and measuring organization and the harbor labor unions.

As for the stevedoring on Sundays, there was a provisional reopening of the major ports starting from June 1995. However, as they faced the expiration of the deadline in March 1997, the harbor labor unions, as a part of their spring labor offensive, refused to handle the cargo after the date of the expiration of the provisional period. The reason that they gave was that they wanted a system for an improvement of the labor situation, protesting the unjustifiable interference in the labor- management contract by the Federal Maritime Commission (FMC) and the European Union and protesting deregulation. This matter is under the discussions between labor and management.

On Japan-U.S. consultations on the maritime issues held in Washington D.C. on April 2-11, 1997, Memorandum of Consultation was signed by Mr. Sadao Iwata, Director-General of Maritime Transport Bureau, Ministry of Transport, and the VADM A. J. Herberger, Maritime Administrator, Department of Transportation. In the Memorandum of the Prior Consultation, the Japanese side stated such that at the Meeting for Improvement of the Prior Consultation System, the MOT will exert its maximum effort to achieve the final agreement by July 31, 1997, and that license applications meeting the standards stipulated in the Port Transportation Business Law will be approved by the MOT within approximately four months of receipt. On the other hand, the U.S. side stated that they will advise the FMC that the discussions as reflected in this Memorandum of Consultation represent a reasonable basis for not imposing sanctions on April 14, 1997.

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