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Yearbook ch.2 II. Government Actions and Opinions

1. Promoting Deregulation

(1) General remarks

The Government is promoting deregulation from the perspective of expanding domestic demand and promoting imports, pursuing improvement in the quality of national life, creating new industries and expanding consumers' choice, narrowing price differentials between Japan and the rest of the world and so on. The Government of Japan decided "Deregulation Action Program" on march 31, 1995 and decided front loading of the Program as a three-year plan at the Ministerial Conference on Economic Measures on April 14, 1995. The current deregulation efforts are under the basic policy that economic regulations should be eliminated in principle with regulated areas only as exceptional, and that social regulations should be minimized in line with original policy objectives. Business opportunities engendered by deregulation should be open equally to domestic and foreign interests and will contribute to foreign direct investment in Japan as well.

(2) Relaxing or abolishing regulation of foreign capital participation

1) Industries related to public order and national security

Inward investment to particular sectors which could affect public order and national security, such as aircraft, weapons, explosives, nuclear power, space development, electric power, gas, heat supply, water, telecommunications and broadcasting, and vaccine manufacturing are subject to prior notification and examination under the Foreign Exchange Control Law. The OECD Code of Liberalization of Capital Movements shall not prevent a member country from taking measures which it considers necessary for those sectors of public order ,national security , or public health. Concerning these reasons, the Government intends to consider their treatment, on the basis of the progress of discussions in the OECD such as the Multilateral Agreement on Investment (MAI).

2) Industries reserved under the OECD Code of Liberalization of Capital Movements

Of the industries reserved under the OECD Code of Liberalization of Capital Movements, the Government of Japan will seek to allow, within the period of the Deregulation Action Program, investment in mining with ex post facto reporting, rather than prior notification which is currently required. With regard to other industries which Japan continues to reserve (agriculture, forestry and fisheries; oil; leather and leather product manufacturing; air transport; and maritime transport), the Government will continue to consider this matter, taking into consideration trends in Japan's socioeconomic situations as well as progress of discussions at the OECD including the MAI.

(3) Regarding prior consultation concerning notification of foreign direct investment into Japan under the Foreign Exchange Control Law, the ministries and agencies provide consultation as administrative services only when such consultations are requested by investors and the decision on whether to consult is up to the investors. This was made sure among the authorities concerned in October 1994.

(4) Presentation method of banking report on each branch of foreign banks

When a foreign bank has plural branches in Japan, it is admitted to present a report in a consolidated form to cover all of the foreign bank's branches thereof (enacted in fiscal 1995).

(5) Period of stay of foreign firm residents etc.

In fiscal 1996, a research of enforcement circumstances about the Immigration Control and Refugee Recognition Act, for the first five years since the enactment in June 1990, will be carried out, and according to this research, analysis and reciprocal view-point, period of stay will be reviewed if necessary.

(6) International contract notification system

The international contract notification system will be reviewed to determine what form it should take from the view-points of economic globalization and easing the burden on business entity, and steps will be taken for the relaxation of requirements by the end of fiscal 1996.

(7) Term of employment of foreign faculty member

Term of employment of foreign faculty member at national universities is left to the discretion of each university, under the Special Action Law Concerning Employment of foreign faculty member at National and Public Universities.

(8) Improving the transparency of administrative procedures

Based on the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment, statutes clearly set out the following approval requirements for investors in specific domestic investment projects to enable applicants to readily determine their eligibility: 1) number of years since founding; 2) ratio of foreign capital; and 3) project targeted for investment.
Pursuant to the Administrative Procedures Law which endeavors to secure transparency in procedures, the standard processing time to designate a foreign investor as a "designated inward investor" of the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment is published as one month or less given that legally required documents and application forms are in order and necessary information is included, and as a result, transparency is ensured. In fact, applications are generally approved in a shorter length of time.

(9) International harmonization of standards and certification, specifications standards, and regulations

International harmonization of standards, content and methods regarding the standards and certification system and the labelling system are being promoted further, foreign data acceptance and mutual recognition are being introduced, in principle. Further, when standards and certification systems are being introduced or expanded, their necessity and the appropriateness of their content is subject to stringent examination to follow up the Action Program for Improved Market Access adopted in July 1985 in the area of standards and certification.


2. Measures of Tax and Finance

(1) General remarks

The current measures of tax and finance for foreign businesses are aimed at the initial period when foreign companies enter Japan and become established here. Specific support measures include facilitating smooth business operation (taxes), facilitating the raising of capital (credit guarantees, low-interest loans), and improving infrastructure. Information on these programs can be obtained through JETRO and the Japan Development Bank, and steady progress is being made in this area.
Regarding the type of businesses eligible under the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment, the scope was expanded from fiscal 1995 by abolishing the requirement that the foreign parent company be a manufacturing company, and by additionally including some types of wholesale, retail, and service industries. The standard processing period for applications is one month, and efforts are being made to secure transparency.

(2) Taxation system

1) Special measures under Import and Inward Investment Law

The Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment was enacted in 1992 to promote the entry of foreign businesses into the Japanese market. Foreign companies designated under this law (designated inward investor) benefit from special measures; for example, they were allowed to carry over losses incurred in the first three business years after establishing their business for a period of seven years, whereas losses may ordinarily be carried over for five years. In the fiscal 1994 tax reform, this period was extended to ten years from initial seven years, and further, in the fiscal 1995 tax reform, the types of businesses eligible for this special measure were expanded.

2) Withholding tax rate on dividends received by non-resident

Regarding the application of a lower tax rate on dividends, similarly to the withholding tax on interest and royalties, the tax rate has been lowered on a reciprocal basis by tax treaties, and the tax rate should not be lowered unilaterally under domestic law. In the tax treaties recently concluded by Japan, the withholding tax rate on dividends between parent companies and subsidiaries is set at five percent, and this matter shall continue to be handled under this policy.

(3) Low-interest loans

Low-interest loans for foreign direct investment extended by the Japan Development Bank and other relevant financial institutions were introduced in 1984, and since then the funds available for such loans have been increased cumulatively. In fiscal 1994, the maximum loan ratio was raised from forty to fifty percent. In fiscal 1995, basic facilities for promoting foreign direct investment were made eligible for low-interest loans, in order to improve living conditions for foreign business persons. The total amount of loans extended falls short of the funds available. Therefore, fund availability for loans does not constitute a barrier, and it is expected that this loan program will be used more widely.
Low-interest loans from the Japan Development Bank may be used only as capital for facilities, but the funds necessary for acquiring buildings needed for conducting business operations include security deposits required when foreign businesses rent office buildings.


3. Active Publicity on Foreign Direct Investment in Japan, Better Consulting

(1) More active public relations

Active efforts to provide publicity directly to foreign businesses have been made, with JETRO-sponsored seminars and symposiums, FIND-sponsored seminars, and newsletters. Active publicity efforts will be continued, including the publication of newsletters reporting on the activities of the Japan Investment Council and its Expert Committee.
Information on taxation system and financial incentives, etc. for foreign businesses will also be disseminated to certified public accountants' and tax accountants' offices.

(2) Promoting information center functions

JETRO collects and provides information on foreign direct investment and functions as an information center. In addition, necessary information is supplied through overseas advisors on foreign direct investment retained in 12 JETRO offices abroad and through foreign direct investment advisors in Japan. A database on foreign direct investment contains investment climate information by region on CD-ROM and may be accessible at 45 JETRO offices worldwide.

(3) Promoting consulting functions

JETRO and FIND offer advisory and consultation services to foreign businesses in Japan. JETRO also retains investment advisors for consulting in 12 of its offices abroad.
Further, in order to provide continued support to foreign firms interested in investing in Japan reported by the above overseas advisors, consulting functions will be strengthened from fiscal 1995 by dispatching the "Long term direct investment advisor" to North America and Europe.


4. Improving Local Systems for Accepting Foreign Companies

(1) Local public bodies have adopted various programs to attract businesses, for example by providing subsidies, implementing loan programs, and leasing land. These apply to both domestic and foreign businesses, and some foreign businesses have taken advantage of these measures to invest in Japan.
(2) One example of local public body's policies to promote foreign direct investment is Nagasaki Prefecture's industrial exchange program with the city of Essen, in the North Rhine-Westphalia state of Germany, since September 1990. The Nagasaki Japan Germany Industrial Exchange Council, established in November 1991, has been the main force behind activities to foster economic contacts. The Council succeeded in attracting two German firms in February 1992. It intends to continue sending and receiving goodwill groups, and is promoting joint commercial ventures and provision of technology.
(3) At the municipal level, the city of Yokohama has a subsidy program to encourage medium and small companies, including foreign companies, in high-tech or design industries to establish themselves there. There is a German Industry Center in Hakusan High-tech Park, which was built to attract high-tech industries, and this facility is rented to German companies entering the Japanese market.
(4) Local public bodies thus offer positive support measures to attract foreign businesses. The Government will do its best to publicize such programs as well, and expects local public bodies to further improve conditions to receive foreign businesses.
(5) In accordance with the Extraordinary Measures Law to Promote Imports and Facilitate Foreign Domestic Investment and also to contribute to promoting acceptance of foreign businesses in local areas, the Government has been establishing and improving Foreign Access Zone (FAZ) since 1992. The Government will continue to establish FAZ, giving as much support as possible, by such means as providing funds from the Industrial Structure Improvement Fund based on this law.


5. Improving the M&A Climate

(1) Improving the M&A climate

The Government of Japan views M&A as a form of ordinary inward direct investment within the scope of unrestricted economic activity. Since there are no legal restrictions on M&A in Japan, it is hoped that the M&A will have a stimulating effect on industrial activity.

(2) Disclosure requirements

Information on the ownership of the company is already sufficiently disclosed in the "Shares of the company" in an annual securities report with a view to secure fair transactions and protect investors in securities. Annual securities reports are on display at the Ministry of Finance for five years from the date of acceptance. Copies of annual securities report are on display for the same length of time at locations including the head office and main branches of the filing company, and at stock exchange, and are accessible by anyone.

(3) Cross-shareholding

The Government of Japan is aware that, in general, cross-shareholding, which is adopted for the purpose of business relationship building or ensuring stable management authority of companies, is appreciated to have been a supporting element of Japanese-style management by establishing continuous relationship among companies and enabling stable long-term management of companies. The Government is also aware, on the other hand, of the opinions pointing out that cross-shareholding may present problems of insufficient supervision of shareholders on their companies' managements or give rise to anti-competitive business practices.
To protect investors, the Securities and Exchange Law includes provisions on the disclosure requirements regarding take-over bids (TOB) and ownership of large blocks of shares. However, the purpose of the Law is to ensure the fairness in transactions and protect investors through controls on unfair transactions and disclosure requirements, and not to regulate cross-shareholding per se.

(4) Reinforcing shareholders' rights

To guarantee that shareholders can vote appropriately, notices of regular shareholders' meetings must be accompanied by various financial statements and be dispatched two weeks before the meeting date, so that shareholders will have time to receive the notices and make preparations to attend. All joint stock companies must also be audited by an auditor. The Commercial Code was amended in 1993 to facilitate derivative lawsuits by shareholder.

(5) Holding companies (Article 9 of the Anti-monopoly Act)

In the "Deregulation Action Program," it is said that "The Fair Trade Commission will commence study of the regulation of holding companies to bring about deeper debate on this matter, based on the existing prohibition's intent to prevent excessive concentration of economic power, while fully aware of the issues of 'keiretsu,' corporate groups, etc. and with the view-point of making Japan's market more open as well as of further stimulating business activities of entrepreneurs, The Commission's study is to reach a conclusion within three years". The Fair Trade Commission has just begun this study at present.


6. Distribution

(1) Strict enforcement of the Antimonopoly Act (AMA)

The Fair Trade Commission is going to deal with the AMA violations vigorously as it has been doing. In fiscal 1994, the Commission issued recommendations to eliminate illegal conducts against 21 cases of violations such as price-fixing and bid-rigging. In vicious and serious cases that are likely to have widespread effect on daily life, the Commission has brought criminal accusations for criminal punishment. Furthermore, deterrence against the AMA violations such as price-fixing has been enhanced by increasing the rate of surcharge calculation and raising the upper limit of criminal fines.
In order to strengthen efforts in actively eliminating import-restrictions which violate the AMA and the AMA violations which may cause price differentials between Japanese and overseas markets, the Commission has established the "Task Force for Import Restriction and Price Differentials between Japanese and Overseas Markets Issues" since March 1995.
In order to ensure the transparency of the enforcement of the AMA and to prevent the AMA violations, the Commission has formulated and published various guidelines clarifying the interpretation of the AMA such as the "Antimonopoly Act Guidelines Concerning Distribution Systems and Business Practices" (July, 1991) to provide guidance on the AMA with regard to distribution systems and business practices, and the "Antimonopoly Act Guidelines Concerning the Activities of Firms and Trade Associations in Relation to Public Bids" (July, 1994) to present what kind of activities in relation to public bids by firms and trade associations may raise problem under the AMA. Moreover in order to revise the "Antimonopoly Act Guidelines Concerning the Activities of Trade Associations (Trade Associations Guidelines)" within 1995, the Commission published the draft of the revised Guidelines on April 3. The Commission has also been dealing with various consultations concerning the AMA appropriately. From the viewpoint of further promoting fair and free competition in Japanese economy, the Commission continues its efforts to enhance widespread understanding of those guidelines and to deal vigorously with the AMA violations as well as to ensure transparency of the enforcement of the AMA and prevention. The Commission published "Regarding the Active Implementation of Competition Policy along with the Formulation of the Deregulation Action Program" in March 1995, for promoting deregulation and active implementation of competition policy as one unit.

(2) Resale price maintenance system

The Antimonopoly Act outlaws resale price restrictions in principle, and this stance has been upheld in the Supreme Court decision. Resale price restrictions are not allowed because they unduly restrict the independence of sellers to set retail prices, one of the most basic elements of their business activities; they represent direct interference with price determination, which should in essence be determined freely by market mechanisms; and they can be a basic impediment to fair competition, by depriving sellers of the means of competing on price.
Accordingly, the same applies to the practice of setting a maximum resale price and of forcing distributors to comply with this set price. In other words, the Antimonopoly Act does not concern itself with whether resale price levels are appropriate; the issue is whether manufacturers' interference with how sellers set their prices constitutes an artificial impediment to market mechanisms.

(3) Passing on manufacturer discounts to consumers

Lower prices at the retail level as a result of manufacturer discounts should be achieved through free competition among sellers by having distributors set prices on their own. In any case, the Fair Trade Commission is determined to deal strictly with violations of the Anti-monopoly Act which interfere with free pricing and price competition.

(4) Large-Scale Retail Store Law

Measures to apply the Large-Scale Retail Store Law appropriately were taken in May 1990 and a revised Large-Scale Retail Store Law was adopted in January 1992. Deregulation measures were enacted in May 1994 and a three-stage deregulation program was implemented. Efforts will continue to make deregulation measures effective, and taking into consideration changes in the distribution environment, the Large-Scale Retail Store Law system will be reviewed by fiscal 1997.

(5) Review and regulation on premium offers

The Fair Trade Commission will review regulation on premium offers, considering the conclusion of the study group concerning the review and clarification of regulation on premium offers consisting of academics at the end of March, 1995, as to abolish the notification of the Commission concerning premium offers by department stores (subsection 8 of the Specific Unfair Trade Practices in the Department Store Industry) and one concerning premium offers to entrepreneurs, and to increase the upper limit of premiums set up by notification concerning prize without connection with transactions, one concerning premiums offered by lotteries, and one concerning premiums offered to general consumers not by lotteries, as well as to take measures to relax the regulation and to clarify the regulation including the scope of regulation during fiscal 1995. Then the Commission will also review, as appropriately, regulation on premium offers applied to specific industry by notifications or the fair competition codes.
Regulation on premium offers were reviewed by the Market Access Ombudsman Council (MOAC) of the OTO and the Government has decided above mentioned measures at the meeting of Office of Market Access, with the maximum respect to the MOAC's recommendation.


7. Rectifying Japanese Commercial Practices

(1) Rectifying Japanese-style commercial practices:

keiretsu (affiliated company groups) and industry association activities Although certain aspects of keiretsu relationship are economically efficient, transactions among companies with the background of keiretsu relationship must be improved so as not to hamper fair competition or transparency of transaction, if they prefer transaction inside of group or bring anti-competitive business practices and as a result negatively affect foreign direct investment in Japan.
The activities of industry associations are carried out based on voluntary participation by individual companies. No foreign business may be excluded from such associations without justifiable reason. Business associations' activities are being overseen and warnings issued in this respect.


8. Lowering High Costs

(1) Land prices

The Basic Land Act was enacted in 1989, and the Outline of Promoting Comprehensive Land Policies was adopted by the Cabinet in 1991 to develop comprehensive land policies covering both demand and supply. The Government will continue to act in accordance with the policies of the outline to steadily implement comprehensive and structural land policies to achieve reasonable land price levels that are appropriate to the useful value of the land and ensure appropriate and rational land use.

(2) Construction costs

According to a study of domestic and international construction cost levels conducted in 1994 by a construction-related public corporation, the total cost of building an office building in Tokyo is 1.35 times (calculated at the exchange rate of $1 = \111) of the cost of building the same building in Los Angeles.
The Government thus recognizes the need for efforts to reduce construction service costs. Specifically, in December 1994 the Ministry of Construction established and announced "Action Program to Reduce Public Works Construction Project Costs", which called for promoting imports of materials and parts from abroad, standardizing specifications for materials and parts, and promoting deregulation. This Action Program is expected to have a contributory effect in reducing costs not only in public works projects but in private sector building as well.

(3) Price deferential between domestic and world prices

Although price levels in industrialized countries are generally higher in international terms, in Japan the cost of food, clothing, housing and other basic consumption items, and for energy and intermediate input such as services for industry, is much higher than abroad due to price structure distortions. Studies and analysis are being undertaken to determine how to rectify and reduce this high cost structure, and measures to expand imports, deregulate, rectify and improve business practices, and pass on yen appreciation gains are being steadily implemented. The Government will continue to take specific steps to rectify and lower the disparity between domestic and international prices.

(4) Wages

Wage levels in Japan, compared with other countries, are high when calculated with foreign exchange rate, partly because of radical yen appreciation in the past few years: wage index (Japan=100) in manufacturing at 1993 exchange rates ($1 = \111), indicates 72 in the United Kingdom, 83 in the United States, 122 in Germany (former West Germany) and 83 in France. However, the principle is that wage level should be voluntarily determined through collective bargaining, based on the sense of well-balanced macroeconomic conditions and workers' welfare.


9. Land Use

(1) Restrictions on land acquisition

Non-resident foreigners acquiring real estate for purposes other than residential purposes are required to report to the Minister of finance under the Foreign Exchange and Foreign Trade Control Law. However, foreigners are under no unfair restrictions compared to Japanese nationals where acquisition of property, including farm land, is concerned.

(2) Leasing of land

The minimum length of the initial lease contract is set at 30 years for ordinary contracts for leasing land, and at 10 years for period lease contracts for business purposes, to ensure stability of leasing rights and from the perspective of the economic and social viability of buildings. The current Land Lease and House Lease Law was revised only two years ago and the Government is not planning any further revisions to shorten the leasing period.
The issue of whether to apply the revised Land Lease and House Lease Law to existing commercial contracts was thoroughly discussed when the law was revised. To ensure the stable livelihood of leaseholders and tenants, and to maintain the stability of existing contractual relationship, it was decided not to apply the provisions regarding renewal to existing contracts, and the Government does not intend to apply these provisions.

(3) Land taxes

In accordance with the "fundamental principles of land policy" of the Basic Land Act, and to impose a fair and appropriate tax burden on land and to reduce the advantage of land as an asset, in the 1991 revision of the land tax system ,the following measures were taken; 1) a land value tax was introduced; 2) a more appropriate tax on profits from the sale of land was introduced; 3) special provisions regarding inheritance and fixed asset taxes on farmland located within the city limits of specified cities in the three major metropolitan areas were reviewed; 4) a comprehensive review of the special land ownership tax was undertaken; 5) more appropriate and balanced valuation of land for inheritance tax purposes was adopted; and 6) more appropriate and balanced valuation for the fixed asset tax was introduced.

(4) Restrictions on land use

Where zoning is concerned, urban residential, commercial and industrial districts are designated appropriately and land use restrictions are adopted to create a well-functioning urban structure and a sound urban environment. Height and other restrictions on buildings are in place to ensure sufficient sunlight, light and ventilation and to secure a good living environment in urban areas.
Accordingly, simple relaxation of such restrictions is inappropriate as this could lead to a deterioration of urban living conditions.
However, less stringent height restrictions are in effect for projects which contribute to creating a pleasant urban environment, and the Government undertakes to make use of this system.
In addition, by the revision of the Urban Redevelopment Law etc. (implemented in May 1995), scope of district planning system was enlarged. As a result, relaxation of floor area ratio owing to width of front road and of height became possible, when position of wall surface or height of buildings are guided as a whole according to characteristics of a district.
Also, in the district mainly used as a residential area, floor area ratio owing to width of front road was relaxed when wall alignments are designated, and height restriction relating to front road was relaxed as well when a building faces road with certain width.


10. Supporting Employment and Livelihood-related Issues

(1) Securing personnel

Public Employment Security Offices throughout Japan provide employment counseling and referral services free of charge and endeavor to secure personnel to meet requests from all types of employers, including foreign businesses. In particular, when employers require large numbers of personnel or employers are likely to attract large numbers of suitable job-seekers because of the type of positions offered, joint interview sessions between prospective employers and job-seekers are arranged in an effort to meet employers' needs. Where new school graduates are concerned, student employment centers are set up in major cities around the country for university graduates to provide job information and referral services and to support university job referral services. These services are provided free of charge to all businesses, including foreign businesses.
Concerning managerial personnel and special and technical personnel, the Personnel Banks were established in 25 main cities in Japan and foreign firms can take benefit of free personnel services according to their needs.
The labor turnover in managerial personnel is largely due to temporary transfer. Foundation Industrial Employment Security Center operates supporting business for the labor turnover through temporary transfer. The companies including foreign firms, which need to secure middle-management personnel through temporary transfer, can take benefit of its free service.
The Government will continue to support efforts by foreign firms to secure personnel through such activities.

(2) Employment-related subsidies and grants

Foreign and domestic businesses alike are eligible for employment-related subsidies if the business is eligible for unemployment insurance. Public employment stabilization offices distribute pamphlets and endeavor to provide information to business operators.

(3) Bilateral pension agreements

As international contacts grow, it is becoming important to protect the right to receive pensions and to eliminate double eligibility. The Government recognizes the greater need today to conclude bilateral or multilateral international pension calculation agreements. Several unofficial working level conferences have already been held in preparation to conclude such agreement with Germany and the United States, two countries with which contacts are plentiful.
An agreement with Germany on pensions for elderly has been more or less finalized, and adjustments must be made in the area of disability pensions, where the Japanese and German systems differ considerably. With the United States, the basic points have been discussed, and talks toward reaching an agreement are continuing. In any case, the Government is continuing its efforts to conclude pension agreements with these two countries at an early date.

(4) School education

Non-Japanese children are not obliged to enroll in Japanese compulsory education system, but if they wish to do so they are accepted in public schools offering compulsory education. After entering school, non-Japanese are under the same condition as Japanese on the principles of equality and non-discrimination (e.g., no tuition will be required).

(5) Schools for non-Japanese

Schools for non-Japanese, including international schools, are to be established independently, in accordance with the respective needs and conditions. Since most such schools are currently authorized as 'miscellaneous schools' by the prefectural governor, they are entitled to preferential tax treatment, etc.


11. Intellectual Property, Patents

(1) Shortening time required at the Patent Office

The Patent Office is aware that granting rights in a prompt and proper manner is its most important mission in industrial property policy. Efforts are being made to shorten the examination period. By increasing the number of examiners, promoting computerization "Paperless Project", utilization of specialized outside agency for prior art search, and strictly selecting applications, the examination period, which lasted three years at the end of 1988, has been shortened to two years and four months at the end of 1993.

(2) Review of the requirements for claims

Under the revised Patent Law (scheduled to be enacted in July 1995), the requirements for claims and descriptions have been changed to internationally harmonized system. The requirements for description of invention have been so changed that the invention be described clearly and sufficiently. These revisions will make it possible to offer the most appropriate protection to the fruits of technological development for a variety of technologies.

(3) Objection system after granting of patent

The pre-grant opposition system under the law before revision is useful for granting stable rights. However, since the right cannot be granted before the term of opposition has expired, or because granting of patent rights was delayed if a number of oppositions are raised, Japan decided in August 1994 to shift to the post-grant opposition system, based on the result of the Japan-United States Framework for a New Economic Partnership. The revised law has already been ratified by the Diet, and is scheduled to be implemented in January 1996.

(4) Prohibition of registration of well-known trademarks

Under the provisions of the Paris Convention, Japan's Trademark Law clearly sets down the protection of foreign well-known trademarks, and such trademarks are given increased protection. Trademark examination standards, which set out how examination should be carried out, provide for increased protection of foreign well-known trademarks and are being applied.

(5) Provision concerning scope of patent claims

The Industrial Property Council has discussed methods, including stipulation the Doctrine of Equivalents, of interpreting claims in patent infringement cases. However, 1) since existing laws do not exclude the application of the Doctrine of Equivalents; 2) since the matter is currently under examination by the Grand Bench of the Court of the Appeals for the Federal Circuit (CAFC) in the United States; and 3) regarding legislating the Doctrine of Equivalents, because of the question of whether to make this the principle or the exception, and because of the connection between this and pleas for publicly known technology, it is inappropriate to adopt stipulation at this time. This issue should be thoroughly discussed over the medium term.

(6) Collecting evidence of activities of suspects in patent infringement cases

Japan doesn't have such a discovery system as in the United Kingdom or the United States. However, the law of civil procedures authorizes the court to have necessary evidence presented in a trial. The Patent Law also includes provisions to order presentation of documents needed to calculate the amount of damages in cases of patent infringement. For this reason, the current system does provide a system under which patent holders can collect evidence necessary for a trial in an actual suit.

(7) Effective protection of trade secrets

Taking into consideration the importance of the protection of trade secrets and the international harmonization of national laws, the Unfair Competition Prevention Law, amended in 1990, provides the right of demanding cessations in addition to the existing post facto claim for damages against the misappropriation, improper use or disclosure of trade secrets, then the trade secrets has been already protected in the side of substantive law.
With regard to the closed court procedure for the protection of trade secrets, Article 82 of the Constitution, which specifies that courtrooms shall be open to the public, severely restricts the circumstances in which exceptions to the open trial principle can be made to allow a closed trial; as follows. A case may be tried in a closed courtroom only if a court unanimously decides that opening the trial is expected to have a deleterious effect on public order or morals, and even in such cases, if the issue relates the people's fundamental rights in the Clause 3 of the Constitution and so on, the trial shall not be closed.
Accordingly, as long as this article is the prerequisite, it is difficult to interpret the Constitution permitting closed court procedures for the protection of corporate secrets or technological information, and to change the law to allow this.

(8) Acceptance of opinions from foreign companies

The Patent Office holds forums with the American Intellectual Property Law Association (AIPLA), the Pacific Intellectual Property Association (PIPA), the Federation International des Conseils en Propriete Industrielle (FICPI) and other groups and has regular meetings with American and European patent agents and companies to hear their opinions on the Japanese patent system. These opinions have been reflected in revisions to laws or their application, and as a result, measures to introduce systems for filing patent applications in English, for filing an objection to a patent after patent rights have been granted, and for restoring lapsed patent rights, have been taken as a result. To achieve harmonization with international practices, the Patent Office will continue to provide opportunities for discussion with foreign companies and will endeavor to take actions reflecting the comments and requests presented to it.

(9) Review of practice of granting compulsory license

The Paris Convention and the TRIPS Agreement include provisions concerning the compulsory license, which is permitted under certain conditions. Further, as a result of Japan's ratification of the Marrakech Agreement, the relevant clauses of the law regarding transfer or abrogation of the compulsory license have been amended to conform with the provisions of the TRIPS Agreement.

(10) Publication of unexamined application after the expiration of 18 months from the filing date

In Japan, the content of patent applications are laid open after the expiration of eighteen months from the filing data. This is to inform the public of the contents of the patent application once a certain period after application has elapsed, regardless of the stage of examination, and to avoid instability in corporate activities, duplicated research, or duplicated investment which could occur if the contents of patent application for are not made public for long periods due to delays in examination. To protect patent holders, the Japanese patent system also allows them, under certain conditions, to demand the payment of compensation from the third party has commercially worked the invention, the said third party laid open.

(11) Evidence disclosure system for suspects in patent infringement cases

As described in (6) above, Japan has a system permitting patent holders to collect the necessary evidence in cases of actual trials. In addition, in the case of a patent for an invention of a process of manufacturing a new product, there is also a provision to assume that a product identical to the one in question has been manufactured according to the patented process, to lighten the patent holder's burden of providing proof.

(12) Introduction of English application

Revisions to the law have been passed by the Diet and effective on and after July 1995, applicant may file patent application in English, provided that a Japanese translation of the application is followed within two months of the application date.


12. Government Procurement

(1) Providing foreign businesses with more opportunities for market access

Government Procurement in Japan is carried out in observance of the GATT Agreement on Government Procurement. The Government has made every effort to make procedures more transparent and fair, and to facilitate participation by competitive domestic and foreign suppliers. Moreover, in order to provide foreign businesses with more opportunities for market access and bring more competition among domestic and foreign businesses, from fiscal 1994, the Government has decided to give more careful consideration to disclosure of prior information at the earliest stage possible. It has also carried out various voluntary measures of "GATT plus" such as introduction of the overall greatest value evaluation method, prior announcement of single tendering, and establishment of complaint review procedures, to secure transparent and fair procedures.
The ratio of foreign products among the Government Procurement items in 1991 was 14.8% in Japan, a higher ratio compared to the United States (9.4%), and the European Community (2.0%, 1990). In 1992 this ratio in Japan was 20.8%.

(2) Voluntary measures on Government Procurement

As voluntary measures of "GATT plus," concerning products in general, the "Action Program on Government Procurement" in February 1994 and "Procedures for Government Procurement on Products (Operational Guidelines) in March 1994 were decided. Concerning telecommunications and medical sectors the "Measures on Procurement of Telecommunications Products and Services" and "Measures on Procurement of Medical Technology Products and Services" in March 1994 and "Operational Guidelines" in October 1994 were decided. Concerning computers, the "Measures Related to Japanese Public Sector Procurements of Computer Products and Services" was decided in January 1992. The main points of these procedure improvement measures are as follows:

1) Provision of information supply at early stage

i) Publication of related information in a seminar on Government Procurement and making information available for public by each entity on a list of item which is estimated at no less than 100,000 SDRs at the beginning of the fiscal year (publication by official gazette (Kanpo) is applied for procurement no less than 800,000 SDRs for products in general and 100,000 SDRs for telecommunications and medical technology sectors).

ii) Improvement of procedures for Request for Submission of Materials for market research and for Request for Comments before notice of procurement (applied for procurement no less than 800,000 SDRs for products in general) shall be made.

iii) Publication of an official gazette compiling official gazette (Kanpo) notices relating Government Procurement, development of a JETRO database of Government Procurement information (from April 1995), and prior announcement in official gazette for single tender procurement no less than 100,000 SDRs.

2) Introduction of the overall greatest value evaluation method

The overall greatest value evaluation method is taken to the extent possible for those procurement, in which the principle of the lowest-price award method does not work efficiently. The evaluation standard (including standardized guides in each field) for the overall greatest value evaluation method applied for computers, telecommunications equipment and medical technology was made. The standard value applied for the overall greatest value evaluation method in telecommunications and medical technology sectors will be reduced gradually from 800,000 SDRs in fiscal 1995 to 385,000 SDRs in fiscal 1998.

3) Establishment of Complaint Review Procedures

Complaint review procedures are executed by establishing the independent Government Procurement Review Board (in principle concluding within 90 days and reviewing within 45 days in case of rapid examination; reviewing within 25 days in case of rapid examination in telecommunications and medical technology sectors). From January 1996, a complaint-application procedures will be introduced and managed based on the new Agreement on Government Procurement. All necessary preparations are currently being made.


13. Dispute Resolution

(1) Activities of foreign lawyers

Because of the globalization of the world economy and increasing interdependence in trade and investment, the OTO Advisory Council undertook a review of Japanese systems and regulations with a view to achieving international harmonization. In accordance with the Council's report, the law has been amended to relax regulations concerning the work experience requirements of foreign lawyers and to allow joint enterprises between foreign and Japanese lawyers.
As to the issue of representation of parties by foreign lawyers in international arbitration, the Market Access Ombudsman Council of the OTO has delivered a recommendation that a conclusion which has logic acceptable internationally should be reached soon at the Study Commission on the Representation of Parties in International Arbitration established by the Ministry of Justice and the Japan Federation of Bar Associations and necessary measures including the adjustment of law should be taken promptly on the basis of the conclusion. The Office of Market Access meeting has decided the measures respecting the recommendation to the maximum extent.

(2) Shortening the time required for legal procedures

The issue of lawsuit procedures is inseparably linked to the execution of the judiciary's powers, and from the viewpoint of separation of the three powers, it is inappropriate to take this matter up in the Japan Investment Council, which is a government body. However, since 1990 the Legislative Council of the Ministry of Justice has been undertaking a comprehensive review of civil lawsuit procedures and if the laws on such procedures are amended based on its findings, this will contribute to shortening the time required to examine cases.


14. Others

(1) Improving market access

Improving access to the Japanese market will bring free and vital economy and society more open to the international community. Better market access is also an important issue from the view-point of expanding and balancing trade and investment, and the Government is actively promoting the use of the functions of the Trade Council (Import Board) and the OTO, improving the environment for foreign investors, and carrying out deregulation.

(2) Promoting horizontal integration

Government policy has always welcomed foreign investment in Japan. The Japan Investment Council, chaired by the Prime Minister, was established to promote investment in Japan in order to establish harmonious contacts with the world economy, and the Council will continue to make efforts to expand foreign investment in Japan, including the promotion of horizontal integration. The Economic Planning Agency is conducting studies to promote direct foreign investment in Japan, and will provide feedback on study findings to the Council as much as possible, to enable the ministries and agencies concerned to formulate effective policies. The EPA will operate the Council to expand foreign investment in Japan and promote horizontal integration.

(3) Transfers of foreign employees to regional areas

It is pointed out that in Japanese companies, transfers are considered an essential component of human resources policy from the view-point of human resources development and staff assignments, and are unavoidable in companies operating over a large area to ensure management efficiency and response to business conditions. However, this issue also affects personal lifestyles, and since individuals are entitled to have some choice in the matter, in general this matter should be thoroughly discussed by the persons concerned in individual companies.
The Ministry of Labor will undertake to improve working conditions to ensure that transfers do not place an undue burden on workers.

(4) Handling of comments and requests

Comments and requests presented to the Expert Committee of the Japan Investment Council are studied by the concerned ministries and agencies which make up the Council, and, where possible, are reflected in policies adopted. The Expert Committee discusses certain selected topics in depth.

(5) Strengthening the activities and functions of the OTO

The organization and functions of the OTO were strengthened in February 1994. Currently the OTO consists of the Office of Market Access, headed by the Prime Minister, and of the Market Access Ombudsman Council, which is composed of scholars and experts who present neutral views to the OTO. In addition, since 1992 the OTO has, as a more positive action, had the Market Access Ombudsman Council compile recommendations on needed measures based on the complaints raised by foreign business and others concerning the standards and certification system and other market opening issues, including direct investment. The Government is to decide actions


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