Presentation by Mr. Ove Juul Jørgensen, Ambassador, Head of Delegation of the European Commission in Japan at the hearing of the Regulatory Reform Committee on 8 February 2000

I would like to begin by thanking you for again making the time for us to come and put our point of view on regulatory reform. We have moved on to the phase in the regulatory reform year where the emphasis shifts from making proposals to examining the state of their implementation.

First, let me say a quick word about the Regulatory Reform Committee's own Report of 14 December 1999. We were very encouraged to see that this was more comprehensive than ever. The more extensive introduction reiterated some of the key arguments for regulatory reform which are all too often overlooked - freedom and variety of choice for the consumer and fostering the development of new products, services and technologies. The economic imperative for reform is clear and the arguments bear repetition. The latest report from the Economic Planning Agency, just like previous such reports, shows that regulatory reform brings tangible benefits in the sectors it reaches - 8.6 trillion yen, 2.3% of national income, in Fiscal Year 1998.

We also welcome the Prime Minister's announcement that he will work to ensure maximum take-up of the Committee's recommendations. He repeated in his policy speech before the Diet of 28 January that, with regard to deregulation and other structural reforms, he would "work with greater effort towards their promotion". In an election year, the steady advocacy of your Committee will also play a vital role in ensuring that the facts of the matter do not get lost in the hurly-burly of politics.

We have also tried to make a modest contribution to enriching the debate on regulatory reform in Japan. On 6 December last year, we held, together with Keidanren and the Embassies of Australia, Canada, New Zealand and the United States, an International Symposium on Regulatory Reform. While there is no one "right" blueprint for regulatory reform, this Symposium showed to what a high degree experiences in developed countries are similar, and the benefits very real. We were gratified that a number of members of the Committee, including Mr. Miyauchi as a panellist, were able to participate.

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It has been barely ten weeks since I last appeared before this Committee. In the mean time the various ministries and agencies have published their Interim Reports. I would like to use the bulk of my time to give our reactions.

In general, the Interim Reports do not change our basic analysis of the progress of regulatory reform in Japan. We see progress as essentially incremental, with encouraging trends such as acceptance of international standards becoming more firmly established. Partly because this incremental approach has had some success, we are now in a new phase. It is harder to identify any one regulation as being the problem. Instead, as the process matures, there is a need to define more cross-cutting, integrated approaches to regulatory reform.

Last time I spoke to you, I singled out two such areas for special attention, investment and competition policy. The Committee showed considerable interest in the investment question at our last hearing, and you will by now have received a letter from me on that subject. I will therefore not go into it in detail. Suffice it to say that we see a clear link between regulatory reform and improving the environment for foreign direct investment.

On competition policy, the Interim Reports once more, frankly speaking, fall far short of our hopes. We are of course pleased to see that work has been done to continue the progressive narrowing of exemptions to the Anti-Monopoly Act. The fact that a Bill will go to the Diet this session in order to introduce a civil remedy system is also genuinely good news. However, there has been no progress on the core issue of giving the JFTC the full panoply of sanctions and penalties it needs to be able to deter anti-competitive behaviour. This is a special disappointment to us because we see the JFTC as having a central role to play, now and in the future, in levelling the economic playing field. Evidence that we regard the JFTC as an important interlocutor is to be found in the discussions already underway with the European Commission on co-operation in cross-border merger cases.

On the specific items that I raised with you in November, the picture is mixed. The regulatory reform process has come quite some distance, but some areas seem to be stuck stubbornly beyond its reach.

• Insurance. We are happy to see that the concept of "file and use", is now accepted for commercial lines. However, its extension to personal insurance lines is still all too often contested on the grounds that adequate consumer protection can not be ensured. We find this argument hard to swallow because it has no echo in our experience in the EU. It is possible to ensure a high level of consumer protection by ex post facto supervision. This is why we have offered to share our experience in this area with the Ministry of Finance.
• Pharmaceuticals. One of our main concerns is that, even after the introduction of a twelve-month period for New Drug Approvals from April 2000, the clock may be stopped on the approval process so that in actual fact it takes much longer than twelve months. The Ministry of Health and Welfare announces in its Interim Report that measures will be taken to ensure that the conditions under which this may happen are made clear. We look forward to seeing this take effect.
• Air transport. We would like to see improved use of runway capacity at Narita, and a more transparent, fair and equitable slot allocation system. We now have a clearer idea about slot allocation procedures at Narita, and, over the past year, the application of the internationally accepted "use it or lose it" rule has allowed a number of previously unused slots to be returned for re-allocation. However, though these developments are welcome, MOT again replies in its Interim Report that our proposals are not deregulation issues. We find this hard to fathom, since (i) we still see a need to establish clearly the independence of the slot co-ordinator from MOT, and (ii) the number of slots available is determined by strict rules on the number of flight movements per hour. Both of these issues involve MOT as a rule-maker, and are thus, in our opinion, regulatory in nature. The Committee's remarks in its Report about improving slot allocation procedures at congested domestic airports could usefully be applied to Narita too.
• Foreign lawyers. We support the intervention of the Committee in this matter, and wholeheartedly agree that there is no rational reason to prohibit employment of Japanese lawyers by foreign legal consultants. The Ministry of Justice has recognised the need to review the operation of the current joint enterprise scheme. While a review is welcome in itself, mere fine-tuning of the current legal structure for joint enterprise, which in our view is inherently incapable of delivering the legal services that businesses need, is not enough. We would strongly urge the Ministry of Justice to enlarge its review with a clear presumption that restrictions on partnership and employment will be abolished.
• Engines for fishery vessels. This is another area where we have been able to work well with the Committee and its Secretariat. We do not yet have a solution to the problem that MAFF's "Engine performance Index" is not based on agreed international standards for measuring engine output, but MAFF is establishing a study group which will look at how to shape the regulation of fishery vessel engines in the future. We strongly recommend that MAFF's new study group makes defining a simple and transparent new standard based on actual engine output its top option. This is the best way to ensure that domestic and foreign manufacturers can compete on equal terms in the Japanese market.

On all the items I have mentioned above, there has been some progress, even if limited or slow in places. However, a hard core of issues remains where there has been little movement. I would like to register these with you and solicit your help in resolving them.

• Telecommunications. High interconnection rates are still putting new entrants at a serious competitive disadvantage. A lack of competition can serve only to decrease quality and keep prices high. Even the small reductions proposed in interconnection rates will keep NTT's rates three times higher than in most EU Member States. We also continue to be perturbed by indications that, by using its high domestic rates to cross-subsidise its international voice telephony rates, NTT may be engaging in anti-competitive practices to the detriment of other players in the market. There may be a case for further investigation of this issue by the Japanese authorities. In addition, we fear that if cases A or C are adopted for LRIC in the near future, the competitive situation in Japan will remain substantially unchanged. The Regulatory Reform Committee has in our view identified correctly the key issue here - competition. Only independent and pro-competitive regulatory approaches can bring long term solutions to these problems. This is a classic case of a special interest, in this case NTT's, being pursued to the detriment of a silent majority of Japan's businesses and consumers.
• Agricultural products. Last time I raised this issue I told you that we would like to see nine key organisms added to Japan's list of non-quarantine pests. However, the Interim Reports repeat old arguments on this issue. MAFF has since told us in a letter that the matter will be further delayed pending yet another lengthy study. We were quite astonished to be told at a meeting with MAFF late last year that although these nine pests are already present in Japan, if the same species arrive in a shipment of fresh produce from the EU it may be grounds for refusal or fumigation. We still think that these regulations are both unfair and unsound.

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My presentation would be incomplete without a mention of implementation. By "implementation" we do not mean just making the necessary change in a law or regulation, but making certain that those to whom the new deregulated situation applies actually feel the benefits. This may be a case of educating both the officials and the companies or individuals concerned. Our perception is that there can be a wide discrepancy between a ministry declaring that an item should be categorised under "action taken", and the effects being felt on the ground. At best, this translates into a time lag. At worst, we are afraid that good intentions may go to waste if proposals are not followed through to their conclusion. At this stage in the process, therefore, there is a need to take stock of the true rate of implementation and to identify any problems there may be.

Looking to the future, we understand that a debate is already going on within government circles as to what might take the place of the Three-Year Deregulation Programme after the current one expires in March 2001. In the short term, the stewardship and monitoring activities of the Regulatory Reform Committee will be essential to ensure that the current Three-Year Deregulation Programme is 100% implemented.

Our experience with the European Single Market shows that in the long term tackling the headline issues "Big Bang" style is not enough. Once the easily identifiable issues are dealt with, the precise source of regulatory problems becomes harder to identify. Rolling programmes with both long and short-term objectives become all the more necessary. Imaginative use of public complaints, for instance via the internet, can help to pinpoint areas of difficulty.

Within any new structure, there is an important place for an advisory and monitoring body such as your Committee, which can promote pro-reform arguments and provide a valuable source of experience. We would wish to see this rich fund of expertise built upon to the full in any new structure for the promotion of reform from March 2001. All the more so since there will be a premium on continuity amidst the reorganisation of central government ministries and agencies due at the beginning of next year.

Finally, I would like to repeat our long-standing invitation to the Committee to come to Brussels to study the EU's experience of regulatory reform.

We look forward to continuing to work with you in the future. Thank you.