Request for Deregulation

Basic Philosophy

  1. Deregulation
    1. Deregulation as a linchpin of economic structure reform
      1. Deregulation will 1) enable improvement of the level of the quality of life of citizens by reducing price differences between Japan and foreign nations and by providing larger choices for products and services, 2) open a way for reform of economic structures propelled by the entrepreneurship through eliminating, as much as possible, government interference in private sector business activities, 3) enable government sector (both national and local) to get over their financial difficulties by streamlining their operations and make it possible to distinguish between function of the government and function of private sector, and 4) contribute to improve relationship with foreign nations <1> by improving traditional Japanese business practices, which are often unclear and arbitrary, <2> by improving Japanese market accessibility by establishing fair and free competitive environment and <3> by making these systems applicable internationally.

      2. As stated above, the effect of deregulation is expected to spread to a large area. In addition to the effect, what is most important today is the effect of deregulation on economic structural reform. Though Japan's efforts to catch up with advanced nations in the past half century since the end of the World War II has been completed, the Japanese society is faced with ordeals such as rapidly aging society and the age of head-to-head competitions, which heightens a need for urgent and drastic reform of the economic structure in Japan.

      Deregulation plays the important role of being the linchpin for this reform.

      First of all, deregulation is expected to correct the high cost structure of Japanese economy by promoting free competition and imports. For example, since the privatization of Nippon Telegraph and Telephone Corp. in April 1985, and the legalization of private companies entering into the telecommunications field, domestic and international telephone rates dropped by about one-third during the ten years since 1985. Moreover, prior to the liberalization of petroleum product importation in March 1996, the price of petroleum products began to, and has continued to decline since the beginning of 1994 in anticipation of the liberalization, resulting in the redistribution of about one trillion yen in profits to consumers each year. The electricity rate system was revamped in December 1995, which also resulted in a total of 612 billion yen reduction in electric bill in January 1996.

      Second, deregulation will expand the business frontiers and, through the encouragement of investment activities by enterprises, it will stop so called industrial hollowing and creates new employment opportunities.

      For example, mobile communication services such as portable telephones spread explosively with the implementation of the terminal-end equipment sell-out system in April 1994, with market size reaching 2.8 trillion yen (the expected actual sales base) in 1995. According to the Ministry of Posts and Telecommunications, the market size is expected to top 17.0 billion yen in 2010 with the number of related workers exceeding 562,000, a 9-fold increase over that of 1995.

      Moreover, because Large-scale Retail Stores Law has been reviewed three times since 1990, openings of large retail stores, including some foreign-capital-owned stores, increased sharply. The reported number of store openings increased from 794 in 1989 to 2,206 in 1995. With this development, the total work force in retail industry began increasing steadily, with the net increase of retail workers exceeding 280,000 over the period between 1990 to 1995, although the number of self-owned stores and self-employed employees have decreased during the same period.

      In short, deregulation will increase the overall productivity of the economy by making the market more dynamic, and will expand the size of market.

      According to estimated figures by the Economic Planning Agency, the effect of demand expansion caused by deregulation in the Japanese economy was about 7.9 trillion yen annually from fiscal year 1990 through fiscal year 1995 (with a nominal GDP rate of 1.69%). This is expected to induce additional production of 14 trillion yen with an increase of 1,030,000 in the number of the work force to cover this added production.

      In the future, drastic promotion of deregulation is needed in areas where productivity is comparatively lagging behind internationally and in areas where imports to Japan are restricted presently.

    2. Drastic Expansion of the DAP and Establishment of a Promotion System from Fiscal Year 1998
      1. The government is taking necessary actions following the DAP. The Administrative Reform Committee monitors the progress of the implementation of the program and submits opinions to the government concerning revisions to the program. This promotion system is established based on the final response on the Diet floor (October 1993) during the third administrative reform council meeting, after reviewing the progress of deregulation since the Second Ad hoc Commission on Administrative Reform and on the interim report (November 1993) by the Economic Reform Study Group.

        It is not an exaggeration to say that the current system has introduced a new, significant step in the history of deregulation.

        First of all, the current system became a driving force behind a giant leap for actual deregulation. The DAP fairly clearly and concretely describes the contents and timing of deregulation measures to be implemented. As a result, the administrative institutions, which used to show only its future planning and an attitude of wait-and-see, has begun to show specific measures on deregulation.

        Second, Japanese Government has been disclosing periodically the status of deliberation for the revision of the program as well as clarifying reason for not taking further measures for certain plans.

        This attitude of government resulted in promoting deregulation by the mutual cooperation between government and private sector.

        Moreover, because the Administrative Reform Committee has had open discussions and has disclosed disclosure of major points of discussion, it contributed substantially to fostering citizens' awareness of the importance of deregulation.

      2. However, problems still exist in current promotion system.

        First of all, measures for deregulation by the government are planned in response to various concrete requests/opinions in Japan and abroad. Therefore, the DAP, which is a compilation of these individual requests, is somewhat lacking in clearly-defined problem solving objectives. Leadership demonstrated by the legislature in compiling the "Urgent Major Plan for Cost Reduction in Home Construction" (March 1996) and opinions expressed by the Administrative Reform Committee are trying to overcome such problems. Unfortunately, their efforts are not apparently enough to get over this problem.

        Second, the DAP lacks in the perspective of promoting administrative reform comprehensively.

        For example, deregulation is closely connected to the reorganization of central government offices, the reform of the public services personnel system, etc., and ultimately, it relates to the reevaluation of the division of responsibilities of activities between the government and private sectors.
        However, various issues regarding such administrative reform are not clarified in the program. Furthermore, although local governments as well as the central government needs to promote deregulation, the program covers only deregulation measures for the central government. Moreover, in order to achieve deregulation on a major scale, it often becomes necessary to come up with new policy means in place of regulations and to improve business circumstances to ease friction during the transition period, but such issues are not included as one of the focal points of the program.

      3. In spite of the problems described above, the current system is making substantial progress as a mechanism for deregulation. The effective period of the DAP will end March 1998 with the final revision scheduled for March 1997. Hence, major enhancement of the contents of the program during the next revision process is vital.

        Of course, completion of the current program doesn't imply the completion of deregulation. After the next revision, the merits and limitations of the current promotion system must be evaluated and analyzed to build another promotion system for fiscal 1998 and beyond, with more enhanced system and contents.

    3. Issues to be Addressed with Deregulation
      1. Promotion of analysis on the economic impacts of deregulation
      2. To make deregulation effective as a linchpin for economic structural reform, private enterprises are expected to create new businesses and industries by actively utilizing the deregulation measures. For this reason, information relating to possible business opportunities and expected market sizes for new businesses and successful examples, as well as details of deregulation measures must be widely supplied domestically and abroad.

        Opposition and skepticism based on the concerns on employment security, and the protection of mid- to small-size businesses have been expressed against deregulation, but such concerns may prove to be false alarms, once objectives and positive survey analysis on deregulation is completed. Expectations of favorable results from deregulation will then doubtlessly be heightened among citizens.

        The government has begun some attempts for such analysis as evidenced by the compilation of the "Current Status of Promotion of Deregulation" (what is called the Deregulation White Paper), etc. The Economic Planning Agency has also published its expected figures. Keidanren and the Keizai Koho Center, with cooperation from related government offices, sponsored a symposium concerning the economic impacts of deregulation in July 1996, but much more can be and needs to be done in this regard. However, only the government can conduct a comprehensive survey analysis on the economic impacts of deregulation which is being promoted in various branches of administration, and it is a responsibility of the government to provide unified information covering all aspects of the economy, which should also be easy to understand.

      3. Establishment of General Provisions Related to Rule Making Procedure
        1. National laws are not the only laws governing the nation as legal orders from the government/ministry established by the administrative institutions also govern the nation. Moreover, administrative regulations such as instruction/notification established by executive branches also play important roles in the regulation administration which is evidenced by expressions such as "notification administration." In this system, regulations can be set up by the interpretation and discretion of the executive agencies.

          The amount of such rule making by the executive agencies is great, and the number of those who know the actual conditions regarding this rule making is limited. For example, about 100 laws are established by the legislative branch each year. Whereas, as many as 1,000 government/ministry orders are established on average, partly because the government/ministry orders are revised frequently. Based upon the government/ministry orders currently in force, the number of the government/ministry orders are about 2.8 times as numerous as the number of laws officially established by the legislative branch.

          As for instructions/notifications from the government and ministries, the numbers are not even disclosed.

        2. The necessity of legal orders, on which the Japanese constitution also makes provisions, has no room for argument considering 1) professional and technological limitations of the Diet to cope with needs of the executive branch which continue to become more complex and diversified with time, 2) lack of time for the Diet to cope with rapidly changing demands of the executive branch, and 3), limitations of the legislation to consider all aspects of diversified conditions of regional and local communities. However, if the executive branch tries to restrict the rights of citizens, and if the actual criteria for imposing a duty on the citizens are sought by the administrative regulations, this can be a threat to the principle of reservation of infringement (the basic principle of administrative law which states that invasion by the executive branch on the freedom and property of a private citizen must be justified by the law) even if Diet legislation have given authority to do so, and may thereby result in weakening the function of the Diet as the legislature.

        3. In the "Basic Philosophy Concerning the New Relationship between the Central Government and Local Governments (Draft)" (October 1996) prepared by the Decentralization Promotion Committee, the idea of the legal principle is manifested as a general underlying principle for interaction of the central government with local governments. It must be firmly established that regulations are to be in accordance with laws or legal orders based on laws when administrative institutions give regulations to the citizens. This should be realized at least on the reasoning of the regulation and on how the regulation is implemented.

          At the same time, procedural supervision is needed for legal orders so that the establishment of legal orders may not be done through the arbitrary discretion of the administrative institutions. For example, in the United Kingdom, provisions or drafts of provisions are required to be presented to the parliament. In the United States, drafts of provisions are announced to the public, and parties concerned are allowed to participate in the process of establishing the provisions. In Japan, the need to improve procedures for administrative legislation is pointed out in the opinion of the First Ad hoc Commission on Administrative Reform (September, 1964) and general provisions regarding the procedure for establishment of legal orders are included in the "Administrative Procedure Law Outline Proposal" (November 1983) published by the First Administrative Procedure Law Study Group. However, making the general provisions concerning administrative legislation procedures into law was not realized in the subsequent processes to establish the Administrative Procedure Law.

          Opinions from foreign nations asking for improvement in the procedures for administrative legislation are also strong.

          From the perspective of achieving a fair, transparent, and democratic executive administration, general provisions concerning administrative legislation procedures must be established immediately. Its contents should maintain the right of the Diet to examine legal orders and the right by the concerned parties to participate in and to submit opinions in the process of rule making by regulation administration.

      4. Promotion of Understanding of the Current Conditions of Regulations
      5. Regulations are generally levied by laws and administrative legislation, but in reality, much of the administrative guidance and administrative contracts also contain regulation- like characteristics. Moreover, there are quite a few cases in which more than one ministry levies regulations in the form of co-supervision and as a result of competition between ministries. In order to discontinue or relax such intricate and complicated regulations, the overall picture concerning regulations must be understood and findings must be disclosed widely to the citizens.

        The Management and Coordination Agency, after receiving the final response from the Third Administrative Reform Council (October, 1993), established the "Study Group Promoting Understanding of Current Condition of Public Regulation" and has engaged in such studies, the results of which are finally compiled as the "Reference for Understanding of Public Regulations (Draft)". The Management and Coordination Agency intends to carry out details to understand the current conditions after discussion and coordination with each ministry based on the above Reference. However, deregulation is an urgent issue and there is no time to be wasted. The government should immediately undertake detailed operations involved in understanding the current conditions of the regulations and should disclose, as soon as possible, the results concerning the regulations in the form of a database.

  2. Easing of Application Burdens, Etc.
    1. Easing of Application Burdens Aimed at the Streamlining of the Regulation Administration
      1. Regulations impose burdens on the citizens in various forms. For example, regulations prevent effective distribution of resources, degrade incentive for innovation and creativity of the private sector, and impose unnecessary obligations on the citizens. Moreover, regulations cause quite large amounts of paperwork and economic burdens. For example, large amount of attachments, periodic notifications and complicated descriptions in application forms are still required for permissions and approvals even for insignificant changes and updates, etc.

        The need for the easing of application burdens etc., was already pointed out in the final response of the Second Ad hoc Commission on Administrative Reform (March 1983) and an unofficial agreement was established in December 1989 concerning "policies for easing burdens of citizens in applying for permissions and approvals" at the council, comprising each ministry and agency on granting permissions and approvals. However, many voices are still heard complaining of excess burdens associated with applications.

      2. Easing the application burden, etc., is a prerequisite for computerization of the administration. According to a case study by the Ministry of International Trade and Industry, it is estimated that the costs for applicants may be reduced to a mere fraction of the current costs by computerizing the application forms. Hopes are high for computerization and the achievement of paperless application processes.

        The computerized and paperless application process is achieved only as a result of the simplification of items to be filled-in on application forms, such as by reducing and unifying attachments, and by abolishing the use of personal seals. These easing of application burdens should be promoted in full scale.

      3. Since the establishment of the DAP, the easing of application burdens have become important part of the plan and measures have been executed frequently since the establishment of the program.

        However, because both the deregulation measures and the measures for easing the burden are part of the same program, the responsible ministry quite often declares "action completed" through partial simplification of application forms, although private citizens are requesting for discontinuation or relaxation of regulations. Also in some ways, the mixing of deregulation measures and measures for easing of application burdens causes the program to be diluted and less effective.

        For this reason, the policies must be clarified so that unnecessary or excessive regulations are discontinued or relaxed. In regard to the regulations to be retained, the paperwork and the economic burdens in the process of application should be eased.

        Also, measures for deregulation and measures for easing the application burdens must be clearly separated in the program to promote the overall streamlining of the regulation administration.

        In the United States of America, numerical goals are established to help lessen the reporting burden. In Japan also, the awareness and understanding of citizens are increasing regarding the need for easing of application burdens and the like. Now is the time to achieve a major enhancement in the measures for easing of burdens by establishing new unified standards such as 1) legislating the format, the attachments, and the number of copies to be submitted in applications, and any alterations and additions to regulation by order/notification and past examples should be prohibited, 2) aggressively unifying the reporting changes of items such as company names and names of representatives that are identical in more than one application for permissions and approvals, thus eliminating the overlapping of attachments, and 3) minimizing use of a personal seal.

    2. Issues to be Addressed with the Easing of Application Burdens, Etc.
      1. Thoroughgoing of the purpose of Administrative Procedure Law and enhancement and strengthening of the law
        1. From the perspective of easing burdens for applicants associated with application for permissions and approvals, achievement of fair and transparent administrative procedures such as 1) prevention of arbitrary dealings by the administrative institutions to increase the odds of predicting the approval or denial of application, 2) reduction of the time period for processing applications, and 3), elimination of administrative guidance that asks for the withdrawal and/or alteration of contents in the application against the will of applicants, etc., is urgently needed. For this purpose, the Administrative Procedure Law has been in effect since October 1994, and the government has been executing various measures to guarantee codification and a smooth enforcement of the law.

          The scope of the Administrative Procedure Law is limited to dispositions, guidance, and notification of the administration, and is not comprehensive in the sense that taxation procedures and export procedures are not included in the scope of the law.

          However, it is the first general Administrative Procedure Law in Japan, and the establishment of the law has been a strong desire of the private sector for a long time--since the start of such examination in 1950--and the citizens are obligated to actively utilize the law. As soon as the law implemented, Keidanren established an advisory service for consultation and to provide information regarding the methods of utilizing the Administrative Procedure Law, with the main emphasis on administrative guidance.

        2. The following considerations are necessary regarding thoroughgoing enhancement and strengthening of the Administrative Procedure Law in order to further promote utilization of the law by the private sector in the future.

          First of all, refocusing and reemphasis of the purpose is needed. In the Administrative Procedure Law, the establishment of a decision standard for the disposition of an application is stated. However, according to the survey by the Management and Coordination Agency, the decision standard is not complete.

          This is clear violation of the law and must be addressed immediately so that a complete and comprehensive decision standard may be established.

        3. Next, after surveying and analyzing the current implementation status of the law, measures to improve the law, including its revision should be taken on the following points:

          Firstly, in the Administrative Procedure Law, actions of the administrative agencies to disapprove any permission and application are not considered an adverse disposition, hence provisions such as notices, formal hearings, etc., are not applicable to those action. However, disapproving an application is an invasion of the application right, and is within the scope of adverse disposition. It is also in the scope of adverse disposition to restrict the contents of approval such as terms and conditions, time frame and attached obligations by additional articles. In particular, disapproval to renew existing licenses and permissions clearly disadvantage applicants by taking their given rights away and should be regarded as an adverse disposition. Therefore, from the perspective of guaranteeing the procedural rights of the applicants, applicants should be granted at least an opportunity to submit opinions prior to a disapprove of the application.

          Secondly, in the Administrative Procedure Law, the decision standard for transacting applications is generally based on government notifications, etc. This is a judgment based on the premise that the statutes don't have specific stipulations for matters related to permissions and approvals. However, it is not proper to leave the decision standard subject to government notification which are no more than internal rules in the administration, because the purpose of the Law is to improve transparency in the administrative operation and of the desire to eliminate arbitrary decisions by administrative agencies. Hence, matters should be clearly defined by statutes in compliance with the principle of legalism so that the additional standards by government notifications should not be necessary.

          Thirdly, the Management and Coordination Agency has shown its interpretation that Administrative Procedure Law doesn't include any standards for attaching additional articles such as terms and conditions and time period. However, quite frequently, contents for permissions and approvals are restricted or altered by additional articles. Hence, a clear interpretation should be strongly emphasized so that the Administrative Procedure Law will include standards for attaching additional articles.

          Fourthly, the Administrative Procedure Law stipulates the standard time periods needed for processing applications are based on best-effort basis. According to the survey conducted by the Management and Coordination Agency, many ministries, agencies and local governments have not established standard processing time period for all applications for permissions and approvals. Moreover, the under-secretary of the Management and Coordination Agency has notified that absence of a standard processing time period is not immediately considered as a "violation due to nonperformance." Hence, some complaints related to extreme delay in the processing of applications are received by Keidanren's advisory service. From the perspective of reducing processing time for paperwork associated with permissions and approvals, the establishment of standard processing time periods should be mandatory; moreover, those applications for which processing takes substantially longer than the standard processing time period should be considered as having been granted approval or at least be given a legal advantage in the form of recognition of the violation to the applicant in cases where litigation becomes necessary to confirm violation by nonperformance.

          Next, the Administrative Procedure Law defines the criteria for administrative guidance based on Japan's administrative tradition wherein administrative guidance is used in various manners in every step of the administrative process. This has some effect on correcting excessive administrative guidance, but at the same time, it cannot be denied that the criteria, in reality, consents to the validity of the administrative guidance. In addition, the criteria are documentation of the administrative guidance-targeted plurality of recipients, and some local governments are reportedly using the criteria to strengthen their so-called administration by guidelines.

          In order to guarantee fairness and to improve transparency in administrative operation, it is necessary to change the administrative tradition and style by eliminating administrative guidance as much as possible.

          At the same time, rules on the procedures of administrative guidance needs to be enhanced in the Administrative Procedure Law.

          In fact, in addition to the documentation issuance request system of the current law, the principle of "administrative guidance by documentation" should be firmly established with the implementation of provisions for compulsory record creation/maintenance and for a record reference system.

          Moreover, improvements in relief provisions are needed. Administrative guidance is executed in such a manner that the recipients submit voluntary; hence, even if administrative guidance may contain illegal actions, it is in reality virtually impossible for the recipient to ask for relief in the form of administrative litigation or a request for government compensation. A new system in which complaints may be filed concerning administrative guidance should be established, referring also to the provisions of a complaints examination committee being proposed in the "Information Disclosure Law Outline Draft (Interim Report)" (April 1996) compiled by the Administrative Information Subcommittee of the Administrative Reform Committee.

          Finally, in Japan, there is a fear that the administrative agencies may somehow retaliate against those who do not submit to the will of the administrative agencies, which causes the private sector to hesitate in utilizing the Administrative Procedure Law. Although the Administrative Procedure Law states that "Persons imposing administrative guidance shall not treat the subjects of administrative guidance disadvantageously owing to the subjects' non-compliance with the administrative guidance in question" it is not enough to completely eliminate illegal sanctions by the administrative agencies. There is no simple solution for this problem; however, we think such actions by the administrative agencies to give sanctioning pressure on those who seek administrative decisions by disclosing the examples of those who have not complied with administrative guidance and by suspending subsidies should be prohibited as "adverse dispositions" in the said provisions.

      2. Improvement of General Rule Provisions of Administrative Agencies on Investigation Procedures
      3. In addition to applications, administrative investigations cause procedural and economic burdens to the citizenry. Administrative investigations are performed in numerous forms including various statistical surveys, document submission orders, questioning, and on-site investigations, inspections, etc.

        The means, methods, scope, etc., of the administrative investigation needs to be reexamined so that administrative investigations are limited to minimum amount possible to effectively achieve justifiable objectives of the investigations.

        At the same time, the procedural regulations standards concerning administrative investigations must be clearly defined in order to guarantee the rights and freedom of recipients of examination. Procedural regulations concerning administrative investigations are already incorporated in the "Administrative Procedure Law Draft" (September 1994) which was compiled by the First Ad hoc Commission on Administrative Reform, and the fundamental principles are also stated in the "Administrative Procedure Law Outline Proposal" (November 1983). However, somehow it was eliminated in the Administrative Procedure Law.

        Currently, the Administrative Reform Committee is proceeding with preliminary work to establish the Information Disclosure Law (tentative), but inasmuch as the law discloses the information possessed by the administrative institutions, it is natural to impose procedural rules on information-gathering activities by the administrative institutions. Hence, general rule regulations on administrative investigations must be established immediately including 1) notification to recipients prior to an investigation as to the purpose of the investigation, the reason for the investigation, whether the investigation is optional or compulsory, and how investigation findings will be disclosed, and 2) if the investigation is conducted on the basis of non-disclosure, a stipulation of the method to verify the existence of the basis after the investigation, in addition to enhancement of the statistics law and the statistical reports coordination law.

October 28, 1996

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