Regulatory reform in Japan.

343 Pages·1999·3.165 MB·English

by  OECD

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Regulatory reform is at the heart of Japan’s strategy for economic recovery and R M
long-term growth. Identified as a priority by the Japanese Government as early E
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as 1994, considerable progress in regulatory reform has already been made. But
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today it is essential that regulatory reform be deepened and accelerated. This
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report calls for a "sharp break" with the regulatory practices and doctrines of the A E
past. Energetic measures, including both sectoral reform and reform of T V Regulatory Reform
Regulatory Reform
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framework conditions, need to be adopted to complete the transition from a
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state-led growth model to a market-driven growth model, the only model capable
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of laying the foundation for sustainable competitiveness and prosperity in Japan. D
R in Japan
N in Japan
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Japan was one of the first OECD countries to request a broad review by the F A
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OECD of its national regulatory practices and domestic regulatory reforms. This
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report – the result of intensive assessment by the OECD and review by its
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Member countries – is unique in that it presents an integrated assessment of
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regulatory reform in framework areas such as the macroeconomic context, the I T
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quality of the public sector, competition policy and enforcement, and integration
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of market openness principles in regulatory processes, and in sectors such as A
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electricity and telecommunications. The policy recommendations present a P P
balanced plan of action for both short and longer-term based on best AN O W S O F
international regulatory practices. O- O E C D R EOVRI EY R E F O R M
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C U L
Further Reading R E G

In the same series: Regulatory Reform in the United States, Regulatory Reform C
in Mexico and Regulatory Reform in the Netherlands. The general policy I
M
analysis that is the basis for these country reviews is presented in the OECD
O
Report on Regulatory Reform: Synthesis, and the supporting two-volume OECD
N
Report on Regulatory Reform: Sectoral and Thematic Studies, published in 1997.
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ISBN 92-64-17061-8 99 O
OECD Reviews of Regulatory Reform
REGULATORY REFORM
IN JAPAN
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ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force
on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote
policies designed:
– to achieve the highest sustainable economic growth and employment and a rising standard of living in
Member countries, while maintaining financial stability, and thus to contribute to the development of the
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LA RE´FORME DE LA RE´GLEMENTATION AU JAPON
(cid:211) OECD 1999
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FOREWORD
The OECD Review of Regulatory Reform in Japan is among the first of a series of country reports car-
ried out under the OECD’s Regulatory Reform Programme, launched in 1998 in response to a mandate by
OECD Ministers.
The Regulatory Reform Programme is aimed at helping governments improve regulatory quality–
that is, reforming regulations which raise unnecessary obstacles to competition, innovation and growth,
while ensuring that regulations efficiently serve important social objectives.
The Programme is part of a broader effort at the OECD to support sustained economic development,
job creation and good governance. It fits with other initiatives such as our annual country economic sur-
veys; the Jobs Strategy; the OECD Principles of Corporate Governance; and the fight against corruption,
hard-core cartels and harmful tax competition.
Drawing on the analysis and recommendations of good regulatory practices contained in the 1997
OECD Report to Ministers on Regulatory Reform, the Regulatory Reform Programme is a multi-disciplinary pro-
cess of in-depth country reviews, based on self-assessment and on peer evaluation by several OECD
committees and members of the International Energy Agency (IEA).
The country Reviews are not comprehensive, but, rather, targeted at key reform areas. Each Review
has the same structure, including three thematic chapters on the quality of regulatory institutions and
government processes; competition policy and enforcement; and the enhancement of market openness
through regulatory reform. Each Review also contains chapters on sectors such as electricity and telecom-
munications, and an assessment of the macroeconomic context for reform in the country under review.
The country Reviews benefited from a process of extensive consultations with a wide range of gov-
ernment officials (including elected officials) from the country reviewed, business and trade union rep-
resentatives, consumer groups, and academic experts from many backgrounds.
These Reviews demonstrate clearly that in many areas, a well-structured and implemented pro-
gramme of regulatory reform has brought lower prices and more choice for consumers, helped stimulate
innovation, investment, and new industries, and thereby aided in boosting economic growth and overall
job creation. Comprehensive regulatory reforms have produced results more quickly than piece-meal
approaches; and such reforms over the longer-term helped countries to adjust more quickly and easily
to changing circumstances and external shocks. At the same time, a balanced reform programme must
take into account important social concerns. Adjustment costs in some sectors have been painful,
although experience shows that these costs can be reduced if reform is accompanied by supportive pol-
icies, including active labour market policies, to cushion adjustment.
While reducing and reforming regulations is a key element of a broad programme of regulatory
reform, country experience also shows that in a more competitive and efficient market, new regulations
and institutions are sometimes necessary to assure that private anticompetitive behaviour does not
delay or block the benefits of reform and that health, environmental and consumer protection is assured.
In countries pursuing reform, which is often difficult and opposed by vested interests, sustained and con-
sistent political leadership is an essential element of successful reform efforts, and transparent and
informed public dialogue on the benefits and costs of reform is necessary for building and maintaining
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broad public support for reform.
OECD 1999
OECD Review of Regulatory Reform in Japan
The policy options presented in the Reviews may pose challenges for each country concerned, but
they do not ignore wide differences between national cultures, legal and institutional traditions and eco-
nomic circumstances. The in-depth nature of the Reviews and the efforts made to consult with a wide
range of stakeholders reflect the emphasis placed by the OECD on ensuring that the policy options pre-
sented are relevant and attainable within the specific context and policy priorities of each country
reviewed.
The OECD Reviews of Regulatory Reform are published under the responsibility of the Secretary-General
of the OECD, but their policy options and accompanying analysis reflect input and commentary provided
during peer review by all 29 OECD Member countries and the European Commission and during consul-
tations with other interested parties.
The Secretariat would like to express its gratitude for the support of the Government of Japan for the
OECD Regulatory Reform Programme and its consistent co-operation during the review process. It also
would like to thank the many OECD committee and country delegates, representatives from the OECD's
Trade Union Advisory Committee (TUAC) and Business and Industry Advisory Committee (BIAC), and
other experts whose comments and suggestions were essential to this report.
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OECD 1999
ACKNOWLEDGEMENTS
This series of Reviews of Regulatory Reform in OECD countries was prepared under the direction of
Deputy Secretary-General Joanna R. Shelton. The Review of Japan reflects contributions from many
sources, including the Government of Japan, Committees of the OECD and the IEA, representatives of
member governments, and members of the Business and Industry Advisory Committee (BIAC) and the
Trade Union Advisory Committee (TUAC), as well as other groups. This report was peer reviewed in March
1999 in the OECD’s Ad hoc Multidisciplinary Group on Regulatory Reform.
In the OECD Secretariat, the following people contributed substantially to the review of Japan: Head
of Programme and lead drafter: Scott H. Jacobs; Document preparation: Jennifer Stein; Economics
Department: Chapter 1 was principally prepared by Richard Kohl, and benefited from work by Giuseppe
Nicoletti on regulatory indicators; Public Management Service: Rex Deighton-Smith; Trade Directorate:
Akira Kawamoto, DoHoon Kim, Anthony Kleitz; Directorate for Financial, Fiscal and Enterprise Affairs:
Patricia Heriard-Dubreuil, Patrick Hughes, Bernard J. Phillips, Sally Van Siclen, Michael Wise; Directorate
for Science, Technology, and Industry: Wonki Min, Dimitri Ypsilanti; General Secretariat: Pierre Poret.
In the International Energy Agency: John Cameron, Peter Fraser.
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OECD 1999
TABLE OF CONTENTS
Part I
Executive Summary.......................................................................................................................................... 11
Chapter 1: Regulatory Reform in Japan......................................................................................................... 15
Chapter 2: Government Capacity to Assure High Quality Regulation....................................................... 47
Chapter 3: The Role of Competition Policy in Regulatory Reform............................................................. 59
Chapter 4: Enhancing Market Openness Through Regulatory Reform...................................................... 69
Chapter 5: Regulatory Reform in the Electricity Industry........................................................................... 79
Chapter 6: Regulatory Reform in the Telecommunications Industry......................................................... 91
Chapter 7: Conclusions and Policy Options for Regulatory Reform in Japan........................................... 101
Notes.................................................................................................................................................................. 119
Annex: Other Figures......................................................................................................................................... 125
References......................................................................................................................................................... 137
Tables
1.1. Sectoral regulatory reforms in Japan by end 1998............................................................................. 26
1.2. Potential impacts of sectoral regulatory reform in Japan.................................................................. 37
4.1. International price differences for intermediary inputs.................................................................... 70
Figures
4.1. Share of stocks and inward and outward direct investment in GDP in OECD countries (1995).. 71
5.1. Electricity prices in IEA countries, 1997 –Industry sector................................................................ 80
5.2. Household sector................................................................................................................................... 80
6.1. Comparison of long distance call charges.......................................................................................... 93
Annex Figures
1.1. Japanese macroeconomic performance.............................................................................................. 126
1.2. Japanese macroeconomic indicators, 1991-1998................................................................................ 127
1.3. Japan share of G7 exports..................................................................................................................... 128
1.4. Sources of growth................................................................................................................................... 129
1.5. Comparative price performance in manufacturing and service industries..................................... 130
1.6a. Japan growth performance in manufacturing vs G7 countries........................................................... 132
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1.6b. Japan growth performance in services vs G7 countries (OECD = 100)............................................. 132
OECD 1999
OECD Review of Regulatory Reform in Japan
1.7a. Japan growth performance in electric power vs G7 countries........................................................... 133
1.7b. Japan performance in levels in electric power vs G7 countries (OECD = 100)................................ 133
1.8a. Japan growth performance in telecommunications vs G7 countries................................................. 134
1.8b. Japan performance in levels in telecommunications vs G7 countries (OECD = 100)..................... 134
1.9a. Japan growth performance in air passenger vs G7 countries............................................................. 135
1.9b. Japan performance in levels in air passenger vs G7 countries (OECD = 100)................................. 135
Boxes
1.1. What is regulation and regulatory reform?.......................................................................................... 17
1.2. The Japanese labour market................................................................................................................. 22
1.3. Regulatory reform in the financial sector in Japan............................................................................. 24
1.4. Estimating the economic impact of regulatory reform...................................................................... 35
1.5. Why have traditional small businesses declined in Japan?............................................................. 39
2.1. Managing regulatory quality in Japan.................................................................................................. 50
2.2. Elements in the Basic Law on the Administrative Reform of the Central Government
of particular importance to regulatory reform (new names of ministries are tentative).............. 52
2.3. Use of administrative guidance in Japan............................................................................................. 56
3.1. Government-sponsored collusion: the problem of bid rigging....................................................... 62
3.2. Private suits as a supplement to public enforcement....................................................................... 65
4.1. The OECD efficient regulation principles for market openness...................................................... 72
4.2. OTO: Ombudsman for Foreign Traders and Investors....................................................................... 73
5.1. Why are electricity prices in Japan the highest in the OECD?.......................................................... 83
5.2. Vertical separation between transmission and generation.............................................................. 88
6.1. Major drivers of Japanese regulatory development in the telecommunications sector............... 92
6.2. 1997 Changes in the NTT Law............................................................................................................... 97
Part II
Background Report on Government Capacity to Assure High Quality Regulation.................................. 141
Background Report on The Role of Competition Policy in Regulatory Reform........................................ 187
Background Report on Enhancing Market Openness through Regulatory Reform.................................. 233
Background Report on Regulatory Reform in the Electricity Sector.......................................................... 281
Background Report on Regulatory Reform in the Telecommunications Industry.................................... 317
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OECD 1999
Part I
OECD REVIEW
OF REGULATORY REFORM
IN JAPAN