Proposals for the Annual Revision of
the Regulatory Reform Action Program

October 12, 1995

Basic Position

The Necessity of Regulatory Reform in Rebuilding the Japanese Economy

In order to wipe out the sense of "suffocation" that permeates the Japanese economy and to get the brighter perspective for the twenty-first century, we must take a bold step to achieve the drastic reform of the economic structure, while continuing implementation of the policy measures to boost our economy. Regulatory reform is the key to structural economic reform and the first critical step Japan must take in rebuilding a strong economy.

In a recent consumer study conducted by Keidanren, we found that the overwhelming majority of respondents also thought that regulatory reform serves to revitalize the economy and regulation should be kept to a minimum, whenever possible.

Expectations on the Government in Revising the Regulatory Reform Action Program

The government's 1091 items Regulatory Reform Action Program compiled in March 1995, is of critical importance since it is the first substantial program to outline implementation of regulatory reform measures. To the credit of the Government, original five year program was decided to be front-loaded as the three year program to the fiscal year of 1997 at the time of crafting "the emergency economic measures toward the yen evaluation" of April 14th. The government should also receive credits for early implementation of about one-quarter of 1091 items in the first half year of the program. However, from the standpoint of rebuilding the Japanese economy, we must say that the current government effort is insufficient to tackle the price and entry regulations to adjust demand and supply in the field such as finance, security and insurance, labor, agriculture, etc.

The regulatory reform sub-committee of the government's Administrative Reform Committee has taken up the forty-six major policy issues and these items are expected to work as supplement for weak points of the above program.

The government program states that the program will be revised every year based upon the result of surveillance of the Administrative Reform Committee by receiving opinions and requests from concerned parties in Japan and foreign countries. We expect that revising system functions effectively and recommendation to sufficiently expand the program to trigger structural economic reform.

Keidanren proposed the relaxation of 456 items for the program November 17, 1994 and a little less than a half of these items has been included into the program in somewhat ways. At the time of this revision, we request that the items, which have not been adopted last year, be incorporated and the items, which have been adopted but not effectively be further relaxed. We are asking now to add new items such as follows.

Expectations to the Cabinet

Based on the Program's requirement to "advance revising the program with sufficient lead time", we hope that the reform schedule will be made public as soon as possible. We also expect that the opinions and requests of concerned parties should not be treated as one of the simple public hearings, but as the effective impetus to the program, under the political leadership at the meetings with the Administrative Reform Promotion Headquarters.

The principle to revise the program is stipulated in the program itself and we expect that the rules listed below will be obeyed with regard to economic regulations:

1. prompt abolish all entry and facility regulations such as installation and expansion from the standpoint of supply/demand adjustment.
2. abolish import regulations in principle. Regulations that have a due date imposed by international agreement should be abolished at the date of termination.
3. abolish price controls. Such regulations should be applicable only to a minimum number of essential public goods and services and implemented in the form of price ranges and price ceilings, etc.

Expectations to the Administrative Reform Committee

We hope that the Committee will fully demonstrate its leadership in assuming its role as a third-party organization. This role requires making bold decisions on the basis of the overall benefit to the nation's citizens and going beyond the narrow limits of vested interests.

Roles That Should Be Played by the Government and the Private Sector to Effectively Implement the Program

The Role of Administration

Economic reform is always accompanied by pain. First of all, in order to minimize the pain and friction that are inevitable during the period of adjustment, the government should make efforts to keep the economy "afloat" through appropriate economic management initiatives. In addition, in order to encourage a mobility of workforce, nurture small and medium-size businesses, and revitalize local economies, additional measures should be considered in certain situations -- The key concern is that policies should be implemented in the manner of centering on both individuals and on independent business which seek for true rescue. Traditional "convoy" approach should be abandoned.

Second, there is an urgent need for reforms that promote fair competition, if the benefits of regulatory reform are to be shared equally and if we are to avoid the danger of regulatory reform resulting in the "law of the jungle" becoming the norm in business. This may include the strict enforcement of anti-monopoly laws (AML) to promote fair and free competition.

The need to reform our laws regulating competition is especially acute. An across-the board abolition, including accelerating abolition of cartels exempted from AML based on the separate laws should be undertaken. As well, we recommend a review of policies governing cartels based on the Law Concerning Exemptions, with an eye toward its abolition. We also expect that there will be a review of the Fair Competition Rules, which are a defacto impediment to competition.

Third, we need to complete administrative reforms on both the national and regional levels. Especially, we expect that local governments will adhere closely to the spirit as well as the letter of federal laws by restraining enactment of any local legislation that enacts additions to federal law. We also expect that local governments will honor the spirit of the Regulatory Reform Action Program and undertake a fundamental review of their local laws. In addition, to ensure fairness and openness in local government administration and operation, we advocate early adoption of local administrative procedure laws to assist in implementation of the Administrative Procedure Law.

The Role of the Administrative Reform Committee

The first obligation of the Committee is to be come the "eyes of the people" by keeping a strict and watchful eye on implementation of the Program as it unfolds. This obligation does not only entail monitoring of the plan's implementation in a timely and appropriate manner: The Committee must seek explanations if results fall short of expectations and must promote further refinements or "fine-tuning" of the Program's provisions, when appropriate. The most important responsibility of the Committee is to make an advice and recommendation, if necessary, for refinement of the Program to the Prime Minister and other cabinet Ministers, as the "voice of the people".

Second, we expect the Committee to actively provide information to the public. Popular support is essential if the Committee is to fulfill its mandate, and we fully expect the Committee to periodically make public its findings. In these reports, the Committee should widely publicize, using an easily understandable format, the intent of the reform and the steps taken for each individual regulatory reform measure. We hope that the Committee will make thorough efforts to clearly explain the costs and benefits of regulatory reform, using specific economic indicators.

Third, we expect the Committee to not only monitor the implementation of specific items, but also to ensure that there has been strict observance of past Cabinet decisions on regulatory reform. For example, the Regulatory Reform Action Program stipulates that a review clause should be incorporated in principle whenever a new legal regulation is being adopted. We hope that the Committee observe and evaluate compliance with these decisions and publicize its findings.

The Role of the Private Sector

The role assigned to the business community is a major one. The first task of business is to acknowledge that fundamental economic restructuring is the only route left by which we can reconstruct the Japanese economy. Business needs to begin from the firm position that is committed to active implementation of regulatory reform, with acceptance of the pain that will accompany these changes. Business should work to repeal and revise any regulation that may harm the interests of our citizens and consumers, even if the regulation may have benefited industry. The private sector should therefore work toward realization of an improved quality of life for all citizens through active competition in the market.

The second task of the private sector is to secure transparency and to stop improper business practices. Keidanren has asked reviews of business practices of member corporations and organizations. In our consumer research, we have also found reports of many abuses from cartel-type institutions. We place a great deal of weight on these finding and should firmly address these opaque practices and institutional restrictions on competition. Correction of business practice will lead society to a deeper, and more solid understanding of and trust in the business community and its activities.

The third responsibility of the private sector is to demonstrate its dynamic and creative entrepreneurial spirit in applying the benefits of regulatory reform to the creation of new industries and businesses. At Keidanren, we recently requested that our members earnestly employ the positive results of regulatory reform, and we will continue to urge members to put the "fruits" of regulatory reform to good use.

Specific Request Items

The main points in each sector are outlined below.

(1) Land and Housing Sector

• Administrative deregulation to promote housing in central Tokyo (relaxation of density restrictions, increased subsidies for related public facilities, ending administrative guidelines on requiring construction of housing units within office buildings.
• Simplification and rationalization of completion inspections (separation of structural and interior inspections, etc.).
• Expansion of the areas where three-story wooden housing for shared ownership may be built.

(2) Information and Communications Sector

• Relaxation of the regulations governing he market entry of class 1 telecommunications providers (reconsideration, including the elimination of the article requiring the adjustment of supply and demand).
• Relaxation of regulations on road use (simplification of the procedures for obtaining permission for and renewal of road use in constructing telecommunications facilities.

(3) Distribution Sector

• A phased abolition of the Large-Scale Retail Store Law.
• Elimination of market-entry restrictions based on the adjustment of supply and demand related to the licensing of retail sales of alcoholic beverages and the licensing of retail sales of tobacco products.
• major relaxation of the standards for permission to engage in the sale of pharmaceutical products (requirement for the presence of a registered pharmacist, etc.)

(4) Agricultural Sector

• Relaxation of the administration of the new Foodstuff Control Law (implementation of a selective system for the reduction of rice acreage, comprehensive relaxation of regulations on rice distribution, phased reduction of the gap between the government purchase price and the delivery price of rice, etc.).
• Relaxation of regulations concerning agricultural production (animal feed production, agricultural machinery, barns, etc.).
• Reconsideration of the support system for agricultural product prices, etc. (wheat, milk as a raw material for processing, milk products, sugar starch, pork, etc.).

(5) Transportation Sector

• Extension of the motor vehicle inspection period for commercial vehicles; reconsideration of the standards for the minimum number of vehicles for trucking operators.
• Reconsideration of the fare and freight rate regulations for domestic airline routes (introduction of a tariff schedule proportionate to distance, etc.); promotion of policies to foster competition.
• Clarification of a schedule toward the planned elimination of tonnage adjustment for coastal shipping; establishment of a system for international shipping.

(6-1) Commercial Sector

• Improvement of the foreign Access Zone (FAZ) system (removal of the distinction between commercial and industrial zones; giving the system permanent status; relaxation of the standards for sanctioning bonded areas; etc.).
• Liberalization of private-sector employment agencies and placement services.
• Reconsideration of irrational and excessively high tariffs (abolition of tariffs on auto part imports; abolition of seasonal tariffs on fruit; etc.).

(6-2) Sectors Related to the Asia-Pacific Economic Cooperation Conference (APEC)

• Rectification of high tariff rates and tariff differentials on agricultural products.
• Simplification and improvement of the transparency of procedures for obtaining commercial visas.

(7-1) Financial and Insurance Sector

• Liberalization of financial operations (reconsideration of the scope of operations of subsidiaries by business status); consideration of the establishment of system for financial holding companies.
• Reconsideration of the regulation of the use of capital held by welfare annuity funds (5 3 3 2 regulations).
• diversification of means to increase the liquidity of debt (removal of the ban on the domestic issuance of asset-mortgage securities).

(7-2) Securities Sector

• Abolition of regulations concerning capital increase through market-price issuance.
• Relaxation of regulations on the issuance of commercial paper (abolition of issuance competency standards; relaxation of regulations restricting the use by lease credit companies and on the application of funds).
• Phased liberalization of stock trust commissions.

(7-3) International Financial Sector

• Relaxation of regulations on transactions under the Foreign Exchange and Foreign Trade Control Law (loans to non-residents and direct foreign investment, etc.).
• Relaxation of regulations on special settlements under the Foreign Exchange and Foreign Trade Control Law (offsetting, mutual accounts, etc.).

(8) Energy Sector

• Abolition of the regulations prohibiting the simultaneous storage of naphtha and crude oil (heavy natural gas liquid) for the manufacture of petrochemical products.

(9) Environmental and Waste Products Sector

• Reconsideration of the classification standards for industrial waste products.
• Relaxation of the approval system for the collection and transportation of waste products directly by the companies that generate the waste.

(10) Maintenance and Safety Sector

• Eliminating the redundancy among safely laws and regulations (High-Pressure Gas Management Law, Fire Services Act, Labor Safety Sanitation Law, Law for the Prevention of Disaster at Petrochemical Complexes, etc.); and ensuring conformity among these laws and regulations.
• Promotion of self-inspection and self-maintenance (introduction of a system whereby entities with at least a certain level of technical and management capacity can manage their own safety issues).
• Introduction of self-service at gasoline stations.

(11) Economic Regulation and Accounting Sector

• Relaxation of the regulations on the holding and repurchase of stock shares (holding shares toward the introduction of a stock options system, and repurchase of shares in accordance with resolutions passed by the board of directors).
• Reconsideration of the Land Lease Act and the Building Lease Act (establishment of fixed-term land lease rights; etc.).

(12) Technology Development Sector

• Relaxation of the regulations on outside employment for public servants in the research and education fields towards strengthening the linkages among industry, government and academia.
• Improving the handling of the result from commissioned government research (returning ownership of the result to the corporations commissioned to conduct the research, etc.).
• Elimination of redundancy among regulations concerning the construction, placement, and periodic inspection of floating marine structures.

(13) Competition Policy Sector

• Removal of the ban on pure holding companies.
• Abolition of the Limitations on the total number of shares that may be held by large-scale corporations.
• Abolition of the reporting requirements for international contracts.

(14) Nonprofit Foundation Sector

• simplification of the authorization to establish private-sector nonprofit foundations.
• Increasing the flexibility of the process for sanctioning specified non-profit foundations for the promotion of public welfare.