Corporate Efforts to Promote Deregulation

Text of Speech given by Mr.Isao Nakauchi, Vice Chairman of Keidanren, at the Foreign Correspondents'Club of Japan

Date: Monday, September 19, 1994
Place: Foreign Correspondent's Club of Japan

At the present time Japan is suffering through a long recession. To achieve full economic recovery, supported by structural expansion in domestic demand,we need extensive deregulatory measures that will reform Japan's economic structure and permit the creation of new businesses and industries. Comprehensive deregulation is crucial to the creation of an economic society which is in tune with globalization and which benefits ordinary consumers, alleviating price differentials between domestic and overseas markets and opening up Japanese markets.

The issue of deregulation has great significance today, since it is necessary to achieve a transition away from bureaucratic control and central authority toward a uniquely Japanese people-oriented society, led by citizens and private enterprise. I believe that deregulation is particularly significant in a historical sense, in that it signals the end of an era of the Government's efforts to promote industry and maintain the established order through traditional forms of regulation and assistance. Deregulation signals the creation of a new era, where both citizens and private enterprise will have greater choice within a legislative framework, such as the Anti-Monopoly Law, and will be guided by the principle of self-responsibility.

Deregulation is also an indispensable element in the process of reforming the powerful "iron triangle" of government, bureaucracy and industry. This "triangle"maintained its control with a system of permits, licenses and assistance provided during the political regime established in 1955. If Japanese society is to adapt to a changing world, we must have deregulation.

The last ten years have seen some progress in deregulation, partly due to Keidanren's efforts. However, unbalances still persist in Japan,which remains a highly regulated society,characterized by of bureaucratic intervention in all facets of corporate and consumer activity. Partly as a result of the influence of the institutionalized political regime, the "iron triangle" still serves to protect vested interests and to obstruct far-reaching efforts to deregulate.

The dismantling of such a powerful structure requires genuine political leadership which is focused on the future. Also necessary is the full support of the media and public opinion. The privatization of three public corporations and other successes of the Doko Commission on Administrative Reform can be attributed to the commitment of Mr. Doko (a former Chairman of Keidanren), as well as to the strong leadership of former Prime Minister Nakasone. But most influential of all was the support for change provided by public opinion.Unfortunately, neither the government nor the media have showed much interest in deregulation, especially during the last few years. However, this apathy ended,with the collapse, in the summer of last year, of the political regime that had existed since 1955.

Right after its inauguration in the summer of 1993, the Hosokawa Cabinet managed to keep reform on the political agenda, helping to generate a substantial level of interest in deregulation both at home and abroad. A succession of deregulation policies were proposed during the subsequent year, starting with a policy to deregulate 94 items. This policy was agreed upon as part of the Government's emergency economic measures, announced in September 1993 soon after the formation of the Hosokawa Cabinet.

January 1994 saw the establishment of the Administrative Reform Promotion Headquarters, chaired by the Prime Minister. The Headquarters were set up upon the recommendation of the "Interim Report on Deregulation," submitted by the Advisory Group for Economic Structural Reform, which was a personal advisory council reporting to Prime Minister Hosokawa. In February, the Government decided to deregulate 250 items over the short-term, and to deregulate an additional 531 items to facilitate the coordination and streamlining of various procedures,such as the submission of notifications and reports. Then, in March, a working group was established under the aegis of the Headquarters, charged with considering deregulation in four areas: housing and land; information and communications; distribution; and, the further opening of Japan's markets.The results of its deliberations led to the adoption, last July 5, of a policy under which an additional 279 items were slated for deregulation.

In May this year Keidanren submitted to then-Prime Minister Hata and then-Chief Cabinet Secretary Kumagai a package recommending the deregulation of 196 items. Our recommendations were based on the results of a survey of all Keidanren member industries and businesses, conducted from the autumn of 1993 into the winter. Many of these proposals were incorporated in the subsequent Cabinet decision to deregulate 279 items. Keidanren is pleased indeed to have had its recommendations reflected so strongly in government policy.

The deregulation measures already enacted are expected to boost imports substantially. This very issue had been raised countless times at the Office of the Trade Ombudsman(which handles complaints about barriers to Japan's markets). I presently serve as an OTO committee member, and previously saw that the response from relevant government authorities was minimal. The subsequent change in attitude,acomplished in such a short period of time can, I believe, be attributed to the strong feelings of the former Prime Minister on this issue.

However, some of the initial 94 items, which I mentioned earlier as having been recommended for deregulation, were in fact items that had already been deregulated.In some other instances the decision to deregulate them had been taken prior to the start of official report to deregurate. For example, one item involved the abolition of a regulation requiring notification of in tent to sell alcohol at temporary sales counters within a store already licensed to sell liquor. Keidanren had long sought the abolition of this regulation, which required that notice befiled with the Ministry of Finance before setting up temporary sales counters in licensed stores during special occasions, such as the Chugen and Seibo gift-giving seasons.Abolition of this procedure was accomplished in July 1993, before the Hosokawa administration came to power, and before deregulation of the other items was recommended.

Similarly, while the February 1994 announcement listed an impressive number of items slated for deregulation, many represented nothing more than an attempt to combine regulations in order to reduce overall numbers, with no actual change in outcome. For instance, separate licenses used to be required for fur sealhunting at sea and fur seal hunting on land; the only change is that the licenses have now been combined into one.

Keidanren is eagerly awaiting the outcome of deliberations by the working group established this March under the Administrative Reform Promotion Headquarters. We are particularly optimistic about the outcome of discussions because, the working group includes, in addition to Cabinet ministers from relevant ministries, persons from private industry serving as Headquarters specialists. Until now been dereguration policy has determined through intimate arrangements among branches of government.

I served on two subcommittees that dealt with issues involving housing, land,and distribution and the further opening of Japan's markets. During this time the issue of whether to permit the construction of self-serve gas stations,already widespread in the United States and Europe, was raised. Fire Defense Agency officials objected to self-serve gas stations because of the fact that so much of Japan's housing is clustered together and made of wood. I suggested allowing self-serve gas stations to locate in places far from densely populated areas or wooden housing,such as parking areas besides expressways. This, too, was rejected and the argument was simply repeated: there was a possibility that dwellings might eventually happen to be situated close by.

This example clearly illustrates the kind of discussion that went on. Nevertheless, sustained efforts by expert committee members from the non-governmental sphere, such as Professor Nakatani of Hitotsubashi University and Mr.Makino from the American Chamber of Commerce in Japan, as well as the support of the Prime Minister,led to the July 5 Cabinet decision on deregulation policy -- the most substantial move forward in several years.

A positive example of the progress being made is the fact that a good number of Keidanren's recommendations have been included in measures adopted by the Government.Some of these recommendations include: in the housing and land sector, the conversion of abandoned rice fields to building lots and the acceptance of North American standards for two-by-four building materials; in the telecommunications sector, the substantial relaxation of rules governing entry into the Type I telecommunications business and the pricing in this industry; and, in the distribution sector and efforts to open Japan's market,the relaxation of rules regulating the import of beer. This measure prevents large stores with a total floor area of 10,000 square meters or more from selling Japanese beer for three years after obtaining a liquor license although they can sell imported beer as soon as they obtain a license. Needless to say this measure has been of special interest to EU countries.

Throughout Japan, those of us who are members of the Japan Chain Stores Association pay a fee to locate to holders of rice retail permits, in order to obtain the right to sell rice in our own stores,which totals to 2.3 billion yen annually. This autumn, all of these stores will be granted their own license to sell rice. On another front, under the Food Sanitation Law,supermarkets and other stores had been required to apply for and obtain a license or permit for processing and selling each individual product -- including meat, seafood, dairy products,tofu, or side dishes, even when these products were sold under the one roof.This arrangement, which was extremely costly for retailers, has been simplified into one single application per store.

Many problems still remain, however. The main problem is the fact that, in the July Cabinet decision, many items were left to be resolved over the medium term.For example, gradual abolition of the Large-Scale Retail Store Law -- a measure which Keidanren has been pushing for strongly, and which became the focus of the latest government deregulation policy -- has been demoted to a "review, over the mid-term, of the system established by the Large-Scale Retail Store Law."

Another matter postponed for medium-term resolution is the revision of regulations governing market entry, according to supply and demand, for the retail sale of liquor, rice and tobacco products. And although Cabinet has already agreed in principle to abolish the Provisional Measures Law on the Importation of Specific Kinds of Refined Petroleum Products, which regulates imports of gasoline and other petroleum products, various storage and quality control requirements will remain in place. We are concerned that, depending on the definition of these requirements, actual deregulation may not be achieved.

Thus, our task for the future is not just to see that existing government decisions are properly implemented, but also to ensure that the Five-Year Deregulation Action Program, to be drawn up during FY1994, contains truly effective measures. We believe that the main purpose of the Action Program should be the abolition of regulations on market entry and equipment, presently regulated by supply and demand under laws applying to each industrial sector.Other regulations that should be abolished are those governing pricing and importing. These reforms were recommended by the Advisory Group for Economic Structural Reform.

Unfortunately, the influence of special-interest Diet members is reportedly on the rise once again. Keidanren and companies like Daiei received hundreds of written objections from various groups when the Administrative Reform Promotion Headquarters was debating deregulation. I believe that the existence in the ranks of the current coalition government of a large number of Diet members who enjoy support from groups opposed to deregulation represents a major problem.

In a related development, when the Keidanren Secretariat presented its position on deregulation to members of a certain political party, Keidanren's stance was criticized by a Diet member, who was a leader of a group opposing deregulation of liquor retail licensing. One wonders whether deregulation,intended to benefit consumers and the general public, can actually be achieved in the face of such opinions among Diet members, or whether deregulation will really come to represent the foundation of the new Murayama administration,which pledges continued efforts at reform.

Keidanren has been urging the government to move quickly to establish working groups composed also of non-government representatives under the aegis of the Administrative Reform Promotion Headquarters. We are also asking that the Government establish, without delay, an Administrative Reform Commission to serve as a third-party organization supervising government efforts.These steps are necessary to ensure the formulation of a truly effective Five-Year Deregulation Action Program.

Some unpleasant aspects of deregulation have surfaced recently. As I mentioned earlier, bureaucratic entities oppose deregulation because they object to the curtailment of their power or any change to existing power structures. Private industry, and some vested interests, also stand to lose if deregulation is implemented. Special-interest Diet members, who follow the wishes certain business sectors, also oppose deregulation. Perhaps because of the increasing objections of these forces, themedia has recently been placing more emphasis on the negative aspects of deregulation.

It is certainly true that, if deregulation is to bring change to Japan's socio-economic systems, we may have to face situations with which we have no experience. In some ways it is easier for all of us -- politicians, government administrators, the general public and industry -- to continue operating according to regulations that we know. However, circumstances are changing rapidly both in Japan and abroad, so it is no longer feasible to maintain existing regulations and the existing order; nor is it possible for those who support the status quo to persuade us to maintain them.

The situation is the same in business, where some groups openly oppose deregulation. It is well known that Keidanren received objections from the petroleum industry when Mr.Toyoda, Chairman of Keidanren, announced his support for the abolition of the Provisional Measures Law on the Importation of Specific Kinds of Petroleum Refined Products.

We are even seeing some strong support for maintaining regulation among responses to a second Keidanren survey of member businesses and industries, which the Committee on Distribution is conducting in order to collect recommendations regarding deregulation. The trend in some business circles is support the concept of deregulation in general, but to oppose to many specific items.

It goes without saying that deregulation will require improvements to and strengthening of the Anti-Monopoly Law, as well as the acceptance among all people and industry of the principles of self-reliance, autonomy and self-responsibility.

One reason why deregulation has yet to make a significant impact is the tendency of Japanese people to immediately hold the Government responsible for any problem that develops, with the media and Diet then following suit. This trend provides the bureaucracy with a perfect pretext for intervention in the private-sector. Keidanren will work hard to find ways to change this commonly-held attitude, and will also stress the need to prepare for deregulation, by paving the way for healthy competition, and by releasing more information to the public. We shall work harder to ensure that businesses look more critically at their corporate behavior, and adopt stronger principles of self-responsibility.

I would like to end this speech with a couple of requests to everyone here today at the Foreign Correspondents' Club of Japan. I would like to ask you,in your coverage,to the encourage the Japanese people to view things from a more global perspective. Information, even that provided by the mass media, tends to focus on the government's point of view, creating a tendency for the development uniform, stereotyped opinions.

One outcome of this bias is that the general public has become confused as to whether deregulation is a uniquely Japanese phenomenon or a global issue. We do see our world becoming borderless, and we must recognize that regulations unique to Japan will pose a major threat to harmonious international relations.

Perhaps information on Japan and the Japanese people is not of great interest in your respective countries. We do hope that the international community does remain interested in Japan and the significant changes it is experiencing. In any case, I would like to ask you to make every effort to present to your readers at home a true and faithful image of Japan and the Japanese people.

Thank you .

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