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The mandate of the Trade Policy Committee is to gather information and solicit member opinion on trade issues relevant to Canadians doing business in Japan. The culmination of these efforts is the Chamber's Trade Policy Paper. The Paper was revised in November 2004. The Chamber also prepares as needed, papers on specific issues.
If you have trade issues or barriers that affect your business in Japan, please let us know by contacting the CCCJ office. CCCJ Trade Policy Paper updated version December 2005 (PDF, 60 KB) Prepared by the Trade Policy Committee of the Canadian Chamber of Commerce in Japan (March 2003)
I. Financial Services
II. Commercial Code, Judicial Reform, Legal Services and Competition Policy
III. Air Transport Policy
IV. Building Products
V. Food and Agriculture
VI. Canada-Japan Pension Reciprocity
I. FINANCIAL SERVICES
While the Canadian Chamber of Commerce in Japan ("CCCJ") applauds the efforts of the Government of Japan to deregulate the financial services sector, in a number of key areas results still fall short of the stated goal of a "free, fair, and global" financial marketplace.
An aggressive ongoing program of deregulation will benefit both Japanese consumers and Japanese business by increasing customer choice and improving customer value. In particular, the CCCJ encourages the Government of Japan to proceed aggressively with change in the following areas:
1. Transparency
The Financial Services Agency ("FSA") should continue to improve transparency in all aspects of regulatory oversight. Operating rules and procedures should be clear and available for public review. Also, we encourage the FSA to provide more regular opportunities for all financial companies to discuss current operating rules or procedures and review any potential changes to these procedures.
2. Postal Insurance (Kampo)
While insurance products offered by Kampo compete directly with products offered by private insurance companies in Japan, Kampo operates outside the scope of the Insurance Business Law and without the supervision of the FSA. The result is inequitable and restricted competition and the range of products and services offered to customers is more limited than it would be with greater competition.
3. Product and Rate Approval Process
The current regulatory process, which requires prior approval of all insurance products, results in higher costs, less choice for customers, and slower development of the financial market in Japan. We strongly encourage the Government of Japan to move away from the current process of prior approval to a system of notification combined with clear standards of public disclosure. Until such a notification system is adopted, the guidelines and procedures used by the FSA for review and approval of products should be clear, transparent and publicly available.
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II. COMMERCIAL CODE, JUDICIAL REFORM, LEGAL SERVICES and COMPETITION POLICY
1. Corporate Governance
The CCCJ acknowledges that recent amendments to Japan's Commercial Code have the potential to increase the flexibility of companies' capital structures, facilitate corporate financing and restructuring, and streamline corporate governance procedures. From the perspective of increasing both investor confidence and foreign investment, these revisions are welcome developments.
1.1 Outside Directors
While the CCCJ applauds the planned introduction (in April 2003) of a new optional system of corporate governance for large companies (requiring, among other things, the appointment of a majority of outside directors to various internal committees), we have concerns whether the amended provisions concerning outside directors will be sufficient to assure such directors a true level of independence. If outside directors are to properly perform their function as guardians of company and shareholder interests, we consider it essential that the scope of their responsibility and authority be precisely defined such that there can be no question as to their independence. We agree with the recent submissions of both Canada and the United States that outside directors must not be employees or former employees of companies with significant cross-shareholders or that are in the same keiretsu.
While recognizing that the optional nature of the new system of corporate governance may be desirable in a Japanese context (though perhaps only as an interim measure), the CCCJ will be interested to see how many companies take up this opportunity.
The CCCJ urges Japan to attempt to engage Japanese companies on the subject of incorporating outside directors, and to carefully monitor progress in this regard.
1.2 Future Collaboration
The CCCJ notes that the Legislative Council intends to make efforts to take into account the comments and opinions of the international business and legal communities in preparing summary draft legislation concerning future revisions to the Commercial Code ("Draft Commercial Code Revisions"). The CCCJ also notes that the Ministry of Justice has indicated that it will provide the international business and legal communities with opportunities to give input on a future study examining the introduction of new merger and acquisition techniques in Japan (the "M&A Study," initiated in 2002).
The CCCJ urges Japan to provide Canadian businesses with opportunity to comment on both the Draft Commercial Code Revisions and the M&A Study.
2. Judicial Reforms
2.1 Civil Litigation and Arbitration
The CCCJ notes that the Justice System Reform Council (in its Recommendations to Cabinet on June 12, 2001) has recognized the importance of reducing the expense of litigation (both in terms of time and resources) to companies and individuals doing business in Japan, and has further recommended that an appropriate legal scheme for arbitration be established "at an early date". The CCCJ also notes that the Justice System Reform Promotion Law was enacted in November 2001, that the Cabinet has adopted a Program for Promoting Justice System Reform (the "Program"), and that the Office for Promotion of Justice System Reform (the "Reform Office") is presently playing a central role in preparing necessary legislation according to the Program.
The CCCJ urges Japan to quickly enact legislation to implement the Justice System Reform Council's recommendations to increase the speed and efficiency of civil litigation, and to reform Japan's arbitration law.
2.2 Judicial Review
In its Recommendations to Cabinet, the Justice System Reform Council identified a number of problems with Japan's existing system of judicial review. A functional judicial review process is essential to ensure that administrative agencies are subject to appropriate checks and balances, and are otherwise accountable to principles of fundamental justice. Such a process is also necessary if investors are to have complete faith in the fairness of Japan's administrative and judicial systems.
The CCCJ notes that the Reform Office is presently undertaking a comprehensive study of the judicial review process (including a review of the Administrative Case Litigation Law), and intends to take necessary measures by November 2004.
The CCCJ urges Japan to quickly complete a review of the judicial review process, and to take steps to improve the accountability of administrative agencies by increasing the authority of the courts to adjudicate upon administrative decisions.
3. Legal Services
Amidst economic globalization and ongoing regulatory reform, the business community in Japan is becoming increasingly international. Confronting challenges in the current business environment requires sophisticated legal and accounting support. However, under the existing regulatory framework, businesses in Japan are finding it increasingly difficult obtain necessary professional services. The acute shortage of capable legal professionals is well documented. As of 1997, there were only about 20,000 legal professionals in Japan (compared to approximately 83,000 in Britain). Furthermore, existing regulatory restrictions can make effective collaboration between foreign lawyers and Japanese lawyers extremely difficult.
In its recommendations to Cabinet, the Justice System Reform Council devoted an entire chapter to the difficulties posed by the shortage of capable legal professionals in Japan, and offered a number of concrete suggestions for reform (including an increase in the number of candidates passing the national bar examination, the creation of a law school system, and the promotion of collaboration and cooperation between Japanese and foreign lawyers). The CCCJ also notes that the Reform Office is planning to submit legislation in 2003 to deregulate requirements for specified joint enterprises (tokutei kyodo jigyo) between foreign and Japanese lawyers.
The CCCJ urges Japan to implement the Justice System Reform Council's recommendations with a view to (a) increasing the number of capable legal professionals available to support the increasingly international business environment in Japan, and (b) enabling greater collaboration and cooperation between Japanese and foreign lawyers.
4. Competition Policy
The CCCJ applauds Prime Minister Koizumi's commitment in his inaugural address to strengthen the structure of the Japan Fair Trade Commission ("JFTC") to permit it to act as a guardian of competition in the Japanese market. A fully functioning competition policy, particularly as it relates to the ability of new entrants (domestic or foreign) to penetrate a market, is essential to the proper functioning of a fair and efficient marketplace.
The CCCJ is also encouraged by the Council on Economic and Fiscal Policy's Work Schedule (adopted in September 2001) and its recommendations (a) to improve enforcement of Japan's Antimonopoly Act ("AMA") with respect to excessive concentration of market power, (b) to reinforce JFTC investigations into merger plans, and (c) to generally strengthen the JFTC's independence. The CCCJ further acknowledges the December 11, 2001 report of the Council for Regulatory Reform, which concluded that a comprehensive study should be undertaken of the system of enforcement measures available to the JFTC under the AMA with a view to ensuring strict enforcement of the AMA.
The CCCJ notes that, during 2002, there was an increase in the total number of JFTC staff and in the number of its enforcement activities.
The CCCJ urges Japan to further increase the independence, resources and investigative authority of the JFTC, with a view to strengthening its capacity to effectively enforce the AMA.
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III. AIR TRANSPORT POLICY
The demand for additional flights to and from Tokyo is high and the provision of such services is vital to the economies of both Japan and Canada. There is a recognized need to increase capacity at Narita Airport, which prompted the building of a second runway. Narita slots are a very scarce resource, and their limited availability constitutes a serious bottleneck to the development of business and tourism relations between Japan and Canada.
Because every slot is a valuable commodity, airlines want to keep their current slots at the longer runway and request additional slots for the new runway. Under IATA guidelines, normal practice is to allocate slots on an airport basis, and not on a specific runway.
There is still great potential to simplify and enhance regulations to ensure they conform to international (IATA) standards. While improvements appear to have been made in the transparency of slot allocation, certain rules specific to Japan's Ministry of Land, Infrastructure, and Transport ("MLIT"), e.g. the hourly, three-hourly and daily limits on slot numbers, continue to limit the freedom of the slot coordinator to meet demand.
Changes in both air traffic control procedures and the management of runway capacity could bring about an increase in the number of slots available on existing runways at Narita. This could be done within internationally recognised noise limits and without compromising safety.
Both foreign airlines operating in Japan and Japanese airlines have commented negatively on issues relating to capacity and costs. For example, landing fees in Japan are among the highest in the world. The pricing of international airfares in Japan and the ways in which they may be publicized are all matters of deep concern to the airline industry, as is the setting of fees for navigation in Japanese airspace and the setting of charges for the use of common spaces at Japanese international airports.
The CCCJ urges Japan to:
1. Ensure that the government's decision to privatize Narita independently benefits not only the operators of Narita and the Government of Japan, but also the airlines, passengers and shippers. An independent regulatory regime should be established to ensure that:
(i) charges are just and reasonable;
(ii) infrastructure development is timely and cost-effective;
(iii) service standards are acceptable; and
(iv) there is the ability to redress the users' weak bargaining position.
2. Allocate additional slots at Narita and additional capacity entitlements in Japan. In the summer of 2002, Canadian airlines were operating at their capacity entitlement of 50 unit allocations at Narita. Negotiations have been undertaken in the last 18 months between Canadian and Japanese government delegates, with no success.
3. Deregulate the setting of official prices in the Japan market, which currently requires the MLIT's approval. Carriers should be allowed to sell fares at market levels directly to consumers. As e-commerce and online opportunities develop in Japan, the airlines themselves will not be able to offer market prices directly to consumers through these potentially important channels.
4. Reduce inbound and outbound delays that have resulted from the operation of Narita's Runway B. The new runway has increased traffic, but there has been only a limited increase in air traffic control capacity.
5. Revise charges at Narita and Kansai, which are three times higher than charges at overseas airports. Environmental costs, fuel charges and taxes imposed on airlines in Japan are amongst the highest in the world. MLIT and KIAC/NAA need to reassess pricing structure in light of the current crisis affecting airlines.
6. Consider airport development in Japan in an organized manner. There are too many airport projects being driven by factors other than passenger travel or that are based on dated forecasts of passenger travel. A significant downturn in growth in recent years has resulted in too much capacity at Kansai. Meanwhile, the Kanto region has too little airport capacity; Narita's Runway B needs to be full-length, while Haneda requires a fourth runway.
7. In view of the fast growing international trade in and out of Japan, consider customs clearance availability 24 hours per day, 365 days per year without incurring overtime charges.
8. In view of the shortage of capacity in the Metropolitan Tokyo area, consider opening Haneda for international flights as early as possible, leveraging its 24-hour operation and under-utilized late-night to early-morning slots.
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IV. BUILDING PRODUCTS
Over the last few years, the Government of Japan has made some notable achievements in deregulation efforts related to housing, a key sector for Canada's export industries. These positive results include:
(i) amendments to the Building Standards Law ("BSL"), which moved toward performance- based (rather than prescriptive) building standards;
(ii) the implementation of a revised Japan Agricultural Standards Law allowing foreign organizations to obtain Registered Certification Organization and Registered Grading Organization status; and
(iii) initiating a scheduled review of JAS standards.
The ambitious housing policy reform agenda has not been without some uncertainties, such as consideration of the role of the Government Housing and Loan Corporation.
The result of this overall agenda and the lengthy implementation period for the above noted changes to the BSL has been the creation of an array of new regulations, notifications, and administrative guidance's within the building sector in Japan. Both the Japanese industry and Canadian suppliers of building products are now faced with the daunting task of learning this new system and interpreting what it means; over the last few years in particular, the result has been a lack of transparency. While the situation has improved slowly with greater information flow, the new process has hindered the ability of exporters to introduce new technologies and products into the Japanese market. Coupled with the above, new reform initiatives could lead to uncertainty in the housing market, which could further undermine consumer confidence and slow growth in a part of the economy that can otherwise greatly stimulate overall economic activity. The CCCJ suggests that mechanisms to further increase transparency and simplify regulations while not undermining consumer confidence are needed in order to benefit both Japanese consumers and Canadian suppliers of building materials.
Specific recommendations:
1. Transparency
The 30-day review period has been a very welcome addition, but this does not allow sufficient time to fully understand the complex nature of these technical documents in order to comment.
The CCCJ urges Japan to provide an extended public review and comment period to allow for a more complete review of changes to building code regulations.
2. Internationalization
In moving to a more performance based building code, Japan has partially moved to adapt international test methods and standards into their own codes pursuant to the BSL. Additionally, foreign organizations can be accredited to perform tests and evaluate products that do not meet either JIS or JAS standards. These changes are welcome and important steps towards a more international approach, but some challenges remain which can hinder foreign products from entering this market.
The new system has brought greater clarity but may not offer flexibility as the test methods are now codified. Also, while the notifications that set out test methods offer an equivalency clause, there is, as yet, limited or no experience with drawing on this for product approvals in Japan that are judged to also meet Japanese performance requirements under international test methods. In short, further clarity on the issue of conformity between Japanese and international test methods and standards is required.
The CCCJ urges Japan to:
a) continually strive to adopt international standards and practices and revise notifications in this direction;
b) ensure that "equivalency" clauses in notifications dealing with standards, test methods and procedures effectively allow for the approval of products judged to meet Japanese performance requirements. This applies primarily to fire test methods and JAS species equivalency; and
c) consider recognizing foreign organizations that already have designation pursuant to ISO certifications.
- 3. Tariffs
Spruce Pine Fir ("SPF") lumber from Canada is the primary species of lumber used in 2x4 platform frame construction. The Government of Japan has resisted repeated attempts to eliminate tariffs on SPF, despite favourable treatment of functionally similar products.|
In addition, glue laminated lumber, laminated veneer lumber, softwood plywood and particle board eliminated are subject to tariffs that contribute to more costly housing.
The CCCJ urges Japan to eliminate all tariffs on SPF lumber and engineered wood products.
4. Regulations Concerned with Fire Prevention
One of the main obstacles to Canadian market access resides in Japan's approach to fire codes. The CCCJ accepts without question the need for sound fire safety measures to ensure public safety and to minimize property damage in the event of fire. However, many of the regulations applied by Japan substantially increase the cost of housing in Japan, contrary to the government objectives. Factors that could be considered include building-related issues like firewalls and sprinklers. More broadly, statistics in North America and Europe suggest that dramatic improvements in fire safety could be realized without the need for enacting stringent building regulations if limits were placed on the flammability of upholstered furniture and mattresses and other interior furnishings and decorations.
The CCCJ urges the Government of Japan and the agencies responsible for fire related issues to consider the following issues:
4.1 Prescriptive Size and Other Limitations
Current standards impose restrictions on large-scale wooden buildings and construction of "special buildings." They also prescribe material requirements as well as size and distance limitations. For example the size limit of 1500m2 imposed on three-storey construction in quasi-fire protection districts severely restricts market access, while 3000m2 is the size limit for construction outside of quasi-fire protection and fire protection districts. In addition, prescriptive standards do not allow for sprinkler systems or other design-related solutions to fire safety concerns. Though the CCCJ recognizes the necessity of adaptation for the specific and unique circumstances of buildings in Japan, these restrictions lack sound scientific evidence.
The CCCJ urges Japan to:
a) ensure therefore that prescriptive size limitations be removed from the BSL standards related to fire;
b) examine alternative fire prevention and spread designs which would include sprinkler systems and other systems that may be appropriate; and
c) eliminate discriminatory fire testing methods for combustible building systems. While there is presently an option to apply the 72 minute fire test (without an observation period) for non-combustible building systems, such an option is denied for combustible building systems.
5. Japan Agricultural Standards
The CCCJ welcomes the Ministry of Agriculture, Forests and Fisheries efforts for the changes with respect to Foreign Registered Grading and Certification Organizations. In addition, the commitment to a review of standards on a rotating basis will be beneficial. On other JAS matters though, there remain some outstanding issues. For example, wood species such as Jackpine are not listed as a distinct species in JAS 111, and MAFF has yet to finalize criteria for equivalency.
The CCCJ urges Japan to:
a) produce the criteria for determining equivalency of lumber species;
b) consider a revision to JAS 143 standard prior to 2005; and
c) consider allowing Canada to participate in the JAS Working Groups that are formulated when JAS standards are being revised to allow for more transparency.
6. Government Housing and Loan Corporation
Consistent with our views on reforms in the financial sector, Canada understands the need to review the role of the Government Housing and Loan Corporation. However, we also recognize that the GHLC has played an important role in stimulating housing demand in Japan. To further undermine consumer confidence in the housing sector could be counterproductive.
The CCCJ urges Japan to:
a) consider alternative policy measures to ensure that moving to private sector house financing will not be a deterrent to new housing investment. The CCCJ notes that the model of the Canadian Mortgage and Housing Corporation, which guarantees mortgage lending, is a model that could be examined; and
b) consider alternative policy measures to provide support for private sector investment where other market failures could exist (e.g., repair and upgrades for the elderly).
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V. FOOD AND AGRICULTURE
Precise requirements and a high standard of taste, presentation and other specifications make Japan a complex market, requiring considerable patience and perseverance to succeed. Additionally, a variety of domestic subsidy programs, as well as regulatory and other barriers to entry, reduce Japanese consumers' ability to benefit fully from the high quality food and agricultural products that Canadians have to offer.
1. Zoning Initiative in the Event of an Outbreak of a Foreign Animal Disease and Regulations on Banned Product
Canadian pork processors have made significant investments in product innovation, research and technology, and traceability. Their continuous emphasis on food safety has garnered Canadian pork processors a reputation for maintaining high quality standards. Regardless of how diligent and quality conscious one is, however, there is always a risk of disease outbreak. For example, foot and mouth disease ("FMD") is a highly contagious disease with the potential to severely damage the livestock of any country. Canada has strict measures in place to prevent FMD from entering the country. This has helped to keep Canada free from FMD for over 50 years. The risk of an outbreak in North America, albeit very small, still exists. If such an unfortunate event were to occur in one isolated region of Canada, all pork shipments from Canada would be halted. National borders, as opposed to regional ones, define the ensuing export restrictions. Furthermore, a ban on all Canadian pork would subsequently be imposed for anywhere from 3 to 12 months. This action would effectively cripple the Canadian pork industry! With proper control measures, an outbreak could in fact be contained to a specific region. The Canadian government is working with the Canadian pork industry to put such controls in place. Recognizing the segregation of different regions would allow for pork shipments to resume in a more timely fashion.
The CCCJ urges Japan to recognize Canada's efforts in establishing standardized control measures and to be prepared to discuss the issue in greater detail once these controls are in place.
2. Safeguard Measures on Beef and Pork
Over the last decade, Japan has been steadily increasing its total volume of imported pork. The CCCJ remains concerned about the Japanese snapback safeguard measure on pork. This results in an increase of approximately 25% to the minimum import price. Since it was first triggered in 1995, the snapback safeguard has been of significant concern to the Canadian pork sector. As currently administered, these measures create considerable uncertainty for Canadian suppliers and Japanese importers.
The beef safeguard mechanism, as agreed to in the UR, was designated to protect Japanese producers against surges in imports. The domestic occurrence of BSE in September 2001 resulted in a dramatic drop in beef consumption and of imports. The subsequent recovery of the beef market in 2002 and the concomitant increase in beef imports in no way represents a surge in imports. Domestic production is above pre-BSE levels and live animal prices are above the government recommended price band. Imports however, are still below pre-BSE levels. It is apparent that these import volumes will result in the automatic triggering of the beef safeguard, resulting in a 50% tariff on imported beef. This automatic implementation neither advantages domestic producers (who supply a different part of the market) nor consumers. Japanese legislation neither obliges the automatic implementation of the beef safeguard, nor does it oblige implementation at the 50% tariff level. A full review of the effect this safeguard may have on the domestic situation and a subsequent revision of its foundation is recommended.
The CCCJ urges Japan to implement revised safeguard mechanisms that eliminate the market uncertainties of the current system.
3. Principles for Instituting Food Safety Standards in Japan
Food safety related problems in Japan have negatively affected consumer confidence in the safety of both domestic and imported food products sold in Japan.
The CCCJ recommends that the Government of Japan design and implement new policies regarding food safety in Japan in a manner that incorporates the following five principles:
1. Food safety policies, regulations, and administrative guidance should be based on sound scientific analysis.
2. Any policies, regulations and rules that are implemented should be consistent with international standards, such as those established by CODEX and other international organizations.
3. The development of food safety policies and regulations should be fully transparent with the full background and analysis supporting the proposed new rules being available to all interested parties.
4. Representatives of all parties which could be affected by the proposed policies or regulations, whether domestic or foreign, should have an opportunity to fully participate in the development of the proposed rules and to share their expertise and experience.
5. All food safety policies, regulations and guidance should treat both imported and domestically produced foods in an equal manner.
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VI. CANADA-JAPAN PENSION RECIPROCITY
A bilateral pension agreement between Japan and Canada would provide significant benefits for both Japan and Canada in improving the overall bilateral investment climate by reducing some of the costs of investing and facilitating the freer flow of managerial and technical staff between the two countries.
Based on 2001 statistics, there are already more than 1,800 Japanese nationals working in Canada (not including some 3,992 working holiday workers) and some 2,294 Canadians working in Japan (not including working holiday and JET visa holders). Existence of a bilateral pension agreement would provide an immediate significant cost saving for the Japanese and Canadian firms that are employing these individuals, thereby facilitating even further investments in both Japan and Canada. Indeed, MOF statistics indicate that beginning in 2000, and continuing into 2001, Canadian direct investment into Japan exceeded Japanese investment into Canada for the first time in more than a decade. Significant Canadian investment is starting to flow into Japan that could be further encouraged by the existence of a bilateral pension agreement.
In May 2002, at the Canada-Japan Business Committee gathering chaired by then Toyota Chairman Okuda, a joint Canada-Japan private sector statement was issued, stating that: "We recommend that our governments launch strong efforts immediately to facilitate the movement of people between our two countries, of Canadians working in Japan and of Japanese working in Canada, through an equitable arrangement on social security."
The Canadian and Japanese governments recently met at the expert level for discussions and have agreed to meet again this fall in Ottawa to continue the "exchange of information" on the possibility of a Social Security and Totalization agreement.
The CCCJ recommends that the Canadian and Japanese governments immediately proceed to negotiate and conclude a bilateral pension reciprocity treaty.
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