2010-10-27

Request for a Comprehensive Review of 's Security Export Control Legal System

Since 2005 until last year, a series of revisions were made to the Foreign Exchange and Foreign Trade Act, the basic law that governs the export control system of Japan, aimed primarily at ensuring the compliance with the agreements made by the international export control regimes and with the United Nations Security Council Resolutions. We consider, however, that, given the rapidly changing situations both in Japan and abroad, there still is an urgent need for the Ministry of Economy, Trade and Industry (METI) to keep reviewing Japan’s export control system, but from broader, more industry-oriented perspectives.

In the U.S., a major project of the Export Control Reform Initiative is in progress under a strong leadership of President Obama to strengthen U.S. national security and competitiveness of the country. It was started with the analysis that the current U.S. export control system is still based on the Cold War era realities and must be changed to meet 21st century national security needs. Key U.S. manufacturing and technology sectors, as well as academia, who have been making reform proposals over the past years, are watching the progress intently as export control reform has now become a common issue of the government and the private sectors. Also, we see even more surprising moves in security export controls in : the government has dramatically expanded administrative services for exporters. Until quite recently, it was our understanding that the South Korean government was executing export controls more or less mirroring the Japanese system. The fact, however, is that in 2007 the government established an organization called KOSTI, the Korean Strategic Trade Institute, which is now playing a key role in administering the country’s security export controls. KOSTI provides a wide range of supports including product classification, license application, and so on through an on-line management system called “YesTrade” which was launched back in 2005. In addition, the government has taken a revolutionary step to adopt European numbering system of ECCN for export control classification, which is provided in both English and Hangul. This was done in

1 order that agreements made by the international export control regimes can be taken into the national control system quickly and also that South Korean enterprises can develop their businesses smoothly on a global scale. As you are aware, the South Korean Government powerfully backs up private sectors’ business expansion overseas by concluding Economic Partnership Agreements with foreign countries, and the same is true in the world of the country’s security export controls.

Therefore, we strongly urge METI to take similar steps to ensure that the Japanese businesses will not be left behind in the world's competitive markets. In Japan, we see a distinctive change taking place in customs administration. An increasing number of people are saying that recent management and private-sector guidance of the Customs Authority are highly appropriate and efficient. This applies particularly to the creation of the "Authorized Export Declaration Program" in 2006. Started under the program is the system of AEO (Authorized Economic Operator), in which companies with excellent compliance records are certified as AEOs and are given full advantages in customs clearance. We note that since the introduction of the new system, the Customs’ way of managing and supervising exporters has completely changed to that based on mutual trust – the Customs trusts AEOs, who are certified as complying fully with applicable laws and regulations, and the truth of which is inspected by the authority. While Japan is a leading nation with high-tech industries, we can’t deny the fact that there still occur illegal exports sometimes. Therefore, we duly understand the need for private companies to be absolutely scrupulous in conducting export transactions. At the same time, however, it is also the fact that the multi-layered, hard-to-understand export control legal system, as well as the high costs incurred in implementing export controls, is a big burden for most companies, particularly for small- and medium-sized enterprises, hindering their business promotions in the competitive global markets.

Here, given those domestic and overseas circumstances, and from the industry perspectives, we have drawn up our sincere requests to METI as written below. We do not say these can be achieved overnight, but do hope that METI understand the points and give due consideration to the needs for reforming the system.

1. From the perspective of ensuring international competitiveness on equal footing:

(1) To provide a system whereby regime-based amendments can be done speedily (Legal delegation pertaining to specifying controlled items shall be transferred from Cabinet Orders to Ministerial Ordinances and Notifications).

2 (2) To rearrange the current lists of controlled items so that each item can also be identified with the internationally standard classification numbers. (3) To continue research on foreign availability and periodically review the lists of controlled items based on the results. (4) To harmonize interpretation of the export control provisions set forth by the international export control regimes.

2. From the perspective of easing restrictions on non-concerned countries and on excellent exporters:

(1) To streamline export control procedures in line with the international trends. (2) To further the simplifications of control procedures for the exports to allied counties. (3) To periodically review the system of the Special Bulk Export License for Overseas Subsidiaries. (4) To introduce a system of preferential treatment for excellent exporters.

3. From the perspective of making the legal ssytem easier to understand and easier to comply with:

(1) To establish a new law that addresses nothing but export controls. (2) To lay down in the law the basic framework of the control requirements. (3) To streamline and rationalize the multi-layered legal structure. (4) To simplify other difficult-to-understand regulations.

4. From the perspective of reducing procedural burdens on exporters:

(1) To ensure consistency in legal interpretations and provide opportunities of exchanging opinions. (2) To shorten the license application processing time. (3) To reduce the burden of laborious classification works. (4) To introduce an effective electronic system of license applications. (5) To simplify the license application procedures reducing the required documents for submission. (6) To provide preferential treatments. (7) To rationalize the overall control implementations. (8) To improve and expand administrative services.

3 1. From the perspective of ensuring international competitiveness on equal footing.

1-1. To provide a system whereby regime-based amendments can be done speedily (Legal delegation pertaining to specifying controlled items shall be transferred from Cabinet Orders to Ministerial Ordinances and Notifications).

1-1-1. To ensure international competitiveness of Japanese industries.

(1) In view of securing international competitiveness, it is essential for enterprises to do business on equal footing in the global markets while complying with the national export control law and regulations established based on the agreements made by the international export control regimes. Nowadays, this thought of “Level-playing field” is increasingly shared by industries in the U.S., Europe and Japan.

(2) In that sense, how quickly an international agreement to relax restrictions can be taken into the national system is a key to ensuring international competitiveness.

(3) Over the past few years, due to the continued changes in the control system, there had been a substantial delay in legislative amendments to reflect international agreements to update the control lists. Fortunately, this problem was solved at last at the beginning of April this year, when the required amendment was made to the regulations. Japanese industries applauded this, and U.S. counterparts who oversaw it urged their government to take quick action.

(4) In the EU, not a few member nations adopt regime agreements directly to national legislations, which is a competitive advantage for them compared with Japan where it usually takes a long time to amend relevant regulations.

(5) Some people say that the quick amendment this time was possible because it could be done only within the responsibility of METI. But if it had involved any Cabinet-level decision making, the amendment would have taken much longer time as usual. In that sense, we consider that the legal delegation pertaining to such a matter as amending control list should be transferred from Cabinet Orders to the lower levels of Ministerial Ordinances and Notifications.

1-1-2. To strike a balance between export transactions and other transactions in terms of the regulatory provisions set forth under the Foreign Exchange and Foreign Trade Law.

(1) As discussed below, the Foreign Exchange and Foreign Trade Act delegates its

4 provisions to different levels of subordinate legislations depending on the type of the transactions.

[Foreign trade] ・ Security export controls related to commodities and technology: Cabinet Order ・ Other export controls based on treaties and international agreements: ditto ・ Import controls: Notification [Foreign exchange] ・ Payments, etc.: Notification ・ Capital transactions: ditto

(2) Apparently, it is an unbalanced approach that regime-based export controls are governed by Cabinet Orders while economic sanctions and import controls imposed by the “Coalition of the Willing” are governed by Notifications. Note that both of them are applied under the same principle of contributing to the multilateral efforts to maintain international peace and security.

(3) In principle, the security export control regulations are established based entirely on the agreements made by the international export control regimes. Therefore, it is reasonable to say that while the principles should be stated in the Law or Cabinet Orders, the controlled items can be specified in lower-level legislations like Ministerial Ordinances or Notifications. By doing this, we believe, the authority can take actions promptly in response to any changes made by the regimes. For example, once a Cabinet Order states, "Items specified by Notification as controlled in order for Japan to comply with the agreement on the multilateral efforts to maintain international peace and security," then the controlled items themselves can be specified in a Notification as is the case for other transactions.

1-1-3. To harmonize the classification numbering system with the international standard

(1) As discussed below, one of the major challenges facing Japan is to harmonize the classification numbering system with the international standard. While there could be different ways to realize it, we believe it is necessary, first of all, that METI adopt a flexible system so that the Japanese item classification numbers can always be comparable with the internationally standard numbers.

(2) We understand that South Korea's revolutionary adoption of the ECCN system was handled at Notification level.

5 1-2. To rearrange the current lists of controlled items so that each item can also be identified with the internationally standard classification numbers.

(1) The necessity of restructuring the classification numbering system was already stated in the report made in the spring of 2009 by the security trade control subcommittee organized under the Industrial Structure Council.

(2) Many countries outside Japan are already using the international numbering system of ECCN, though there exist minor differences in it between the EU and the U.S. In Asia, over the past few years, the ECCN-based system has been introduced in various countries like , , Hong Kong, , and South Korea. Japan is left behind in the race still using the unique numbering system.

(3) Japanese industries have to comply not only with Japan's Foreign Exchange and Foreign Trade Act but also with the Export Administration Regulations (EAR) and other regulations of the , which are extra burdens.

(4) Also, the difference of the numbering system makes it difficult for Japanese companies to guide the export controls of their overseas subsidiaries.

(5) Under those circumstances, CISTEC organized a Working Group last year to conduct necessary works to pave the way for the ultimate goal of the international harmonization of the classification numbering system. Joined by a member from METI, the group is now hard at work making a table of controlled items whereby everybody can compare the EU, the U.S. and the Japanese classifications with each other. We believe this will be quite helpful for exporters as well as for the authority. Therefore, we would sincerely request METI to make continued efforts to realize the harmonization.

1-3. To continue research on foreign availability and periodically review the lists of controlled items based on the results.

(1) One element that affects the effectiveness of export controls is foreign availability: whether or not the controlled items can be procured in target countries. Technology is ever advancing, and the reality is that each country is acquiring the capabilities of manufacturing high-tech products in different ways. Accordingly, the lists of controlled items need to be reviewed continually.

(2) In 2006 the Government Accountability Office (GAO) of the U.S. reported that many of the sensitive goods listed by the Department of Defense are out of date. Note that the U.S. export control agencies refer to the list when deciding their controlled items to be

6 listed. More recently in 2009, the Bureau of Industry and Security (BIS) of the Commerce Department, as part of the U.S. export promotion campaign, conducted a survey on foreign availability in China of machine tools featuring simultaneous 5-spindle controls such as milling machines, turning centers and machining centers. The BIS revealed in its report that China is now capable of manufacturing those high-tech machines and is even planning to export them. The agency therefore proposed in the report that the U.S. should promote the exports of those machines by easing the controls allowing exporters to use a License Exception when exporting the products.

(3) As machine tools are one of the most important export items of Japan, this move of the U.S. has attracted big attention of Japanese industries, who are exposed to harsh international competitions.

(4) This does not only apply to machine tools. It is strongly desired that the control lists made during the Cold War era be totally reviewed and those now manufactured in non-White Countries be decontrolled as far as possible. Although it is a matter subject to international agreements, it would lead further to this argument: Why not limit controlled items to those related to weapons of mass destruction (WMD) only, or even abolish the list control itself and maintain the catch-all control only?

(5) Japan's export controls should never cause any competitive disadvantage of the industry compared with Europe and America. We would sincerely request METI to carry out periodic foreign availability researches and conduct reviews of controlled items based on the results.

1-4. To harmonize interpretation of the export control provisions set forth by the international export control regimes.

(1) In some cases, items subject to the controls in Japan are not controlled in other countries that participate in the same international export control regime. This discrepancy places us at an unfavorable position in global competitions.

(2) If Japan imposes export restriction on a specific item more strictly than the relevant regime does, we'd like METI to open the reason for that. Otherwise, we would request METI not to be too severe in interpreting regimes’ control provisions. Japanese controls should be harmonized always with those of the regimes'.

(3) Such discrepancies between Japan and the international regimes and foreign countries will automatically surface if the international harmonization of the classification numbering system is realized as discussed in section 1-2. In this respect, too, we would

7 request METI to make continued efforts to realize the harmonization.

(4) Further, although it is not an issue of regime controls, we would point out that requesting too many documents to submit when applying for an export license, compared with other countries, is also causing competitive disadvantage. We will discuss this later in details, but international harmonization in this respect is our request too.

2. From the perspective of easing restrictions on non-concerned countries and on excellent exporters.

2-1. To streamline export control procedures in line with the international trends.

(1) One of the key points of the last year's report by the government’s Industrial Structure Council subcommittee is the thought of "re-balancing the controls." This means, if we understand it correctly, that the authority should build higher walls around highly sensitive items or transactions while lowering the walls around other non-sensitive ones so that the authority with limited resources can focus more on the screening of export transactions of the highest concerns. It is great for us to have seen a steady progress in this regard: METI has introduced a new license called the "Special Bulk Export License for Overseas Subsidiaries," eased the requirement to submit support documents when applying for a license for the export of high-end machine tools, allowed to use the General Bulk Export License for return shipments, and so forth.

(2) In the U.S., the government introduced a new system of the Verified End Users (VEU) by which the controls over the exports to VEUs were relaxed. And recently, the U.S. industry associations unanimously made a strong proposal for export control reform, in which they raised a number of constructive opinions. Started after that was the U.S. Export Control Reform Initiative which is in progress under the strong leadership of President Obama. On this issue, the Secretary of Commerce Gary Locke mentioned possible introduction of a new License Exception eligible to the exports to certain partner countries. He also stated that the U.S. would introduce the Fast Track system for the licensee applications for the exports to the countries where they are maintaining stringent controls.

(3) Also, the EU adopted the Community General Export Authorization (CGEA) which allows the exports of controlled items to certain friendly countries without applying for a license.

8 (4) We could say that easing the controls over the exports to the destinations with low levels of security concern is a world trend and that the Japanese government should get on the same boat.

2-2. To further the simplifications of control procedures for the exports to allied counties.

(1) As already mentioned, the BIS of the U.S. Commerce Department has announced that it would introduce a new License Exception that allows the exports of controlled items to partner countries without license and would introduce the fast-tracking procedures to be applied for the exports to specific countries.

(2) Under the current control framework in Japan, destination countries can be classified only into the four categories, that is, "White Countries," "Non-White Countries," Countries of concern," and "Embargoed countries (Sanctioned countries)," and those are equally treated in terms of export controls. But this actually cannot be such simple because, for example:

(a) Since the U.S. is the most important allied country, it would not be appropriate to apply the same level of controls to the country as those applied to other countries. Moreover, if the U.S. applies simplified controls especially to Japan, METI should apply reciprocal treatments toward the country.

(b) Both Hong Kong and Singapore are Non-White Countries, but they actually maintain export controls as stringent as those of the White Countries. It is not appropriate, therefore, to treat them as other Non-White Countries. Similarly, Japan should apply the White Country level treatment to , , and Bulgaria because those three countries participate in all the four international export control regimes - WA, MTCR, AG, and NSG.

(3) The exports to the White Countries, according to the definition, generate almost no concerns of diversion. Therefore, it could be considered to introduce a new License Exception for the exports to those countries.

(4) Also, it could be considered to widen the scope of the countries eligible to the General Bulk Export License, depending on the control level of the country and on the country's activities related to WMD. We hope METI will consider these points too.

2-3. To periodically review the system of the Special Bulk Export License for Overseas Subsidiaries.

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(1) The Special Bulk Export License for Overseas Subsidiaries was introduced following the recommendation made in the report of the export control subcommittee of the Industrial Structure Council. The underlying principle is to allow simplified procedures for the exports by the exporters with excellent compliance records and for the exports to the end-users with low levels of concern. We think this is a great progress in a sense that the bulk license can be used also for the exports to other companies' subsidiaries.

(2) On the other hand, however, this system of the Special Bulk Export License for Overseas Subsidiaries is still unpopular in Japan. It may be too early to determine anything on this system, but it could be said at this stage that exporters cannot find any other merits in this license than those in the General Bulk Export License and Special Bulk Export License.

(3) We would therefore request METI to carry out periodic reviews of this licensing system and re-consider the conditions if necessary.

2-4. To introduce a system of preferential treatment for excellent exporters.

(1) As for the Customs administration, it should be noted that the Authorized Export Declaration Program was introduced in 2006, whereby the exporters certified as AEOs can enjoy the privilege of almost free export clearance, which makes their businesses extremely effective.

(2) This concept should also be applied to export controls; it is desired, for example, to introduce a new system to allow much simplified procedures for the exports by certified, compliant companies. The export license for the transfers of controlled technologies from such reputable companies to their overseas subsidiaries should be exempted.

(3) To make corporate activities still more efficient, we would like METI to seriously consider introducing preferential treatments for excellent companies.

3. From the perspective of making the legal system easier to understand and easier to comply with.

3-1. To establish a new law that addresses nothing but export controls.

(1) The Foreign Exchange and Foreign Trade Act consists of two main parts: foreign exchange controls over payments, capital transactions, direct investments in Japan, etc.

10 and foreign trade controls over exports, imports, service transactions, etc. However, because clauses relevant to one specific regulatory subject are scattered here and there throughout the Law, it is impossible to grasp in a single reading the locations, structure, correlations of key provisions.

(2) At the time when the Law was enacted, Japan was under the post-war controlled economy. In that sense it was reasonable to regulate both foreign exchange and foreign trade under the same law because those were closely related each other. However, now that both regulations have been liberalized in principle, there seems little reason for governing the two different regulations under one law.

(3) In the U.S. the dual-use export controls are governed by the simple formation of law and regulations, that is, the Export Administration Act (EAA) and the Export Administration Regulations (EAR). As a result, it is very easy for everybody to capture the overall picture of the regulations. Also in South Korea, export controls are governed by a single piece of legislation called the "Foreign Trade Law." Compared with these examples, nobody could deny that the Japanese legal system based on the Foreign Exchange and Foreign Trade Act is too complicated to comprehend.

(4) Security export control regulations are so powerful that it could even influence the survival of a company and that one violation could give a huge impact on the international security. Therefore, the legal system should be formulated as simple as possible with maximum transparency so that everybody can readily understand it.

(5) In addition, based on the last year's revisions to the Foreign Exchange and Foreign Trade Act, a new rule of "Exporters' Compliance Standard" was enacted in April this year. Under this rule all exporters, including small- and medium-sized companies, universities, and other institutions, are now obliged to understand the export control law and regulations and to provide necessary education and training within their organizations.

(6) After the promulgation of the new rule, large companies already started taking action to give necessary advice and instructions to their subsidiaries and partner companies who are small and medium in size. But for those who have only small experiences in export controls, it is quite difficult to comprehend the legal system.

(7) In this situation, it is strongly desired that METI review each of the legal provisions and re-arrange them into one law that govern one single issue of export controls. We do request that a new easy-to-understand legal system be established as soon as possible.

11 3-2. To lay down in the law the basic framework of the control requirements

Japan's export control law and regulations are difficult to understand not only for beginners but also for experts in some cases. The reason for this can be described in two aspects as shown below. We feel these issues must be dealt with properly and quickly by the authority.

(1) The control system is difficult to understand because the catch-all provisions - one of the key pillars of the system - are not written in the Act.

(a) The catch-all control provisions are set out in Cabinet Order for commodities and in Ministerial Ordinance for technology. But both are stipulated in the clauses of "exemption" as well as in the clauses of "exemption of exemption" (double denials), which makes it quite anomalous hiding the existence of the control itself and thus makes it quite difficult to understand.

(b) In addition, WMD-related catch-all and conventional arms-related catch-all are intermingled, and the licensing conditions related to the destination countries are different each other. So much so that it is not easy to unravel the complexity even for an expert, and this problem will not be solved unless such a complex set of regulations will be re-cast.

(2) The licensing criteria related to "item's classification" and "end-use and end-user" are not at all stated in the Act.

(a) It is well known that "item's classification" and "transaction screening" are the key elements of export controls. What determines whether any export transaction requires a license or not is the classification or screening result. Unfortunately this very important point is not at all stated in the Law.

(b) Such would not be a problem, though, if the export controls were implemented still under the framework of COCOM. But time has passed and the license criteria do not at all remain unchanged. Even the new rule of "Exporters' Compliance Standard" straightaway requires exporters to understand these basic points. We would say that licensing criteria should be stated clearly in the Act.

3-3. To streamline and rationalize the multi-layered legal structure.

The Japanese export control legal system is a labyrinth of legislations - a messy mixture of the Act, Cabinet Orders, Ministerial Ordinances, Notifications, Notices, and others.

12 Other laws and regulations are more or less the same in Japan. But this problem of the export control legislations is so extreme that it is quite difficult to comprehend, especially for the following points.

(1) Exports of commodities and technology are regulated separately by two different Cabinet Orders.

In Japan, controlled commodities are specified in the Attachment List No. 1 to the Export Trade Control Order (ETCO) and controlled technology including software in the Attachment List to the Foreign Exchange Order (FEO). These should be integrated into one single list because such a complexity makes it quite difficult to capture the overall structure generating the following problems.

(a) One item, especially computer and related equipment, requires classification in the aspects of both commodity and technology (installed software program).

(b) Similarly, the export of one item sometimes requires two licenses - one for commodity and the other for technology.

(c) Technological thresholds of both controlled commodities and controlled technology specified by the said Cabinet Orders are stipulated separately in one Ministerial Ordinance. However, their interpretations are again stated at a lower level by Notifications but separately in this case for commodities and for technology.

(d) Legislative structures related to the export of commodities, transfers of technology and brokering are different among each other. For example, the legislation level where the license exemption provisions of the catch-all controls are stated is different among the three as shown below:

 Exports of commodities - Cabinet Order (ETCO)  Transfers of technology - Ministerial Ordinance  Brokering - Cabinet Order (FEO)

These problems arise due to the unbalanced structure that the legal provisions related to foreign exchange is delegated to the Notification level and foreign trade to the Cabinet Order level.

(2) The catch-all control regulations are stipulated in a complex set of legislations.

The WMD-related catch-all control regulations, for example, are stipulated in a wide

13 range of legislations including the ETCO, the Ministerial Ordinance Stipulating the Cases Where an Export of Goods Must be Considered WMD-related, Notification on recordkeeping, the Guideline for Judging "When Apparent," the Foreign Users List, etc.

3-4. To simplify other difficult-to-understand regulations

In addition to what we discussed in section 3-2 above, there are other regulations which are too vague and difficult to understand, and must be simplified if the opportunity arises. Some of them are as follows.

(1) The term "export" is not defined in the Act, though a Notification simply says, "Export means to ship out commodities." Therefore, it is difficult to understand the differences in the meaning of "export" between the Foreign Exchange and Foreign Trade Law and the Customs Law.

(2) The regulations of technology transfer controls which were revised last year are still not easy to understand because they are not stipulated case by case, that is, cross-border transactions, domestic transactions and overseas transactions.

(3) Regulations of technology-related brokering are not stipulated in parallel with those of commodity-related brokering and are buried in the provisions of technology transfer controls.

(4) The licensing system is too complicated. Firstly, there are two types of licenses: the Individual Export License and Bulk Export License. But the Bulk Export License is divided into different types: the General Bulk Export License, Special Bulk Export License, Special Bulk Export License for Repair and Replacement, and Special Bulk Export License for Overseas Subsidiaries. And each license is further divided into two: the one for commodity exports and the other for technology transfers. Moreover, the attached conditions and required procedures for applications are also complicated and even different among each other.

4. From the perspective of reducing procedural burdens on exporters.

4-1. To ensure consistency in legal interpretations and provide opportunities of exchanging opinions.

(1) In principle, export control classification shall be done based on the definition of each controlled item specified by the applicable law and regulations. And the definition itself

14 should not be altered unless any extraordinary case takes place, which is quite rare. But some people say that it actually happens sometime when a change occurred in government officers-in-charge.

(2) Such an alteration in legal interpretation could affect not only a company concerned but also the relevant industry as a whole. Especially, the impact could not be negligible if the official interpretation differs from the one shown in the Guidance issued by CISTEC, which is made receiving assistance from METI.

(3) As a mechanism to solve such a problem when it really happened, we would propose METI to provide an opportunity of exchanging opinions between officials from the authority's Licensing Division and representatives from the relevant industry.

(4) The work of export control classification is always laborious because making technical judgments is not an easy task. If there is any good public consultation service that is more easily available for exporters, then it will be quite helpful. We know there is already a system of "No Action Letter," but it is sometimes onerous to use because publication of the official correspondences is a condition. The BIS of the U.S. Commerce Department operates a consultation service via e-mail. Like that, a consultation service using electronic files, rather than the current face-to-face consultation, will be much better because we can store and share the information, thus differences in the interpretations will be eliminated. Further, it will be much more effective if METI generalize the individual pieces of classification information and publish it as official statement.

(5) The venue for opinion exchange is required not only for classification but also for legislations in general. There is a system of "public comment" that is invited when laws and regulations are revised, but there should also be an opportunity for everybody to make comments freely at any time on legislations in general. We have been doing this through CISTEC and industry associations, but now that METI introduced a new rule of "Exporters' Compliance Standard," it will be more effective and appropriate if the authority provides a window opened for all entities including individuals, small- and medium-sized companies, universities, and so on.

4-2. To shorten the license application processing time.

(1) The time required for getting an export license from the date of application sometimes matters severely for the exporter’s international businesses. We appreciate that the authority’s processing time is becoming shorter over the past years, but some people still say that in some cases they waited the authority’s determination for several months.

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(2) The BIS of the U.S. Commerce Department mentioned in the said report on its survey on foreign availability in China of high-end machine tools that the Chinese authority pre-notifies the applicant of the possibility of issuing the license and that while the average processing time is 3.5 months in the U.S., it is 2 to 4 weeks in , making the U.S. industry less competitive.

(3) We would like the Japanese government to face the same direction and make further efforts to shorten the time. Currently, the maximum processing time set by METI as a general rule is 90 days. So we would request the authority to inform the reason if it takes more than that.

(4) Also, we could say that once a product has been exported under a legitimate license, a subsequent export raises almost no concern if it is a repeat of the first export or if it is an export of parts and components of the product. Therefore, we would request METI to consider easing licensing procedures in such a case.

4-3. To reduce the burden of laborious classification works

(1) Under the current system in Japan, export control classification shall be done by an exporter.

(2) On the other hand, however, the U.S. government maintains a service for accepting classification requests from exporters, by which they can get product classifications determined by the authority. In South Korea, exporters can enjoy the same service provided by the Korean Strategic Trade Institute (KOSTI). The classification document issued by KOSTI is valid for two years. But these two are not the only cases; some other countries like U.K. are also providing this kind of service for exporters.

(3) In Japan classification works are always laborious and burdensome. CISTEC issues two types of classification tools - the “Parameter Sheet” and the “Classification Check-sheet” – which are effective for making correct judgments. But still, the role sharing between the government and the private sectors is much deeper in the said countries than in Japan. And this leads to a bigger burden on Japanese exporters.

(4) The introduction of the new rule of “Exporters’ Compliance Standard” requires all exporters to conduct product classification properly and this would be burdensome especially for small- and medium-sized companies who are less experienced in security export controls. We can’t deny the situation to arise where improper classifications go through under the strict regulations.

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(5) It is desired therefore that the role sharing for classification works be changed. So we would now propose that the government take the responsibility for classification by providing necessary services for exporters. In this system, the authority carries out the work for the requests from small- and medium-sized companies or supports their classification works. Here, that the authority takes responsibility for classification is the key. If classification is done under the government’s responsibility, the classification information of various products can be published under the government authority. This means that exporters will no more need to get classification documents from manufacturers. Also, it will be all the more beneficial if publicized information is linked with NACCS, the Customs electronic network system. Overall, this idea generates great benefits for everybody concerned. Finally, it is also an idea that a third party operates such services under the government’s responsibility.

(6) We understand that it may be difficult for METI to change the role sharing as proposed in a short period of time. But even so, we would like the authority to consider introducing quickly such systems like pre-classification and third-party classification.

4-4. To introduce an effective electronic system of license applications.

(1) The U.S. government built a network system called “SNAP-R” (Simplified Network Application Process Redesign) and exporters are now required to submit license applications through this system.

(2) Also, South Korean government built a similar system called “YesTrade” through which exporters are now submitting license applications electronically. (With this system, they can also submit classification requests to the authority.)

(3) In Japan, a government project to promote electronic applications is going on, in which it is planned to build a new network system integrating the existing JETRAS and NACCS systems. We expect that this new project will provide us with an effective system whereby we can submit export license applications smoothly and can track the review process with certain transparency. The current system is not necessarily cost effective for corporations. We expect that the new system will be designed to allow a linkage to corporate systems so that necessary information can be shared by the authority and exporters. By this, we believe, both administrative and corporate costs can be reduced meaningfully.

17 4-5. To simplify the license application procedures reducing the required documents for submission.

When applying for a license, we are currently required to submit too many supporting documents to the authority as compared with White Countries. This is especially true to an export of manufacturing equipment, in which we are required to submit various materials including a Letter of Assurance related to the equipment’s re-location and photographs of installation sites, among others, which are sometimes very difficult to obtain. As a result, it takes a long time to get the license, which is quite disadvantageous for us in the international competitions. We hope this problem will be reviewed from the standpoint of equal footing.

4-6. To provide preferential treatments.

Japanese enterprises, after the Act’s revisions last year, are implementing security export controls ever more seriously while struggling to promote their global businesses when the economic prospect is still uncertain. We know the Japanese government is re-balancing regulations and expect that certain deregulations will be realized as a result. Japanese exporters have to survive the harsh competitions in the global markets. It will be even more helpful for them, therefore, if METI consider providing greater degree of preferential treatments for excellent companies.

4-7. To rationalize the overall control implementations.

Export controls should always be managed along with the objective of the regulations; there should be no discrepancies between the two. We would like METI to give due consideration on this point and implement the controls in flexible ways. Specifically, we would like to raise the following points.

(1) When an export transaction is eligible to a License Exception as well as to a Bulk Export License, we must use the former, according to the rule. This forces us to check whether a License Exception is eligible or not even when it is known that we can use a Bulk Export License, making the corporate process cumbersome. The conditions for using the Bulk Export License should be applied flexibly according to the degrees of estimated risks. In other words, it should be allowed to use it even when the export is eligible to a License Exception.

(2) The same is true to a General Export License issued to a holding company that has a number of group companies under its management. In this case, the General License should also be eligible to the exports to be done by those group companies.

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(3) A separate release of a software program defined by Article 9.2.14 of the Ministerial Ordinance on External Trade Other Than Export of Commodities should be exempted from a license.

(4) Even when a company exports commodities or transfers technology through a domestic agent, the use by the agent of a General Bulk Export License issued to the company should be permitted.

(5) The rule to control the transfer of technology that is for the use of already exported commodities should be eliminated.

(6) General Bulk Export License should also be eligible to an export transaction in which the cargoes are unloaded at a port of White Country and then shipped further to another country that is not eligible to the license.

4-8. To expand and improve administrative services.

(1) Intelligence information Intelligence information available about domestic customers of concern is quite scarce. To conduct our transaction screening more effectively, we need to be more informed of the status of trading firms engaged in North Korean businesses. Investigating those firms is beyond private companies’ capacity. We would therefore request METI to take action in this respect.

(2) Export control organizations Private companies are implementing export controls under the supervision and management of experts who have long experiences in this field. We dare say, however, that it seems difficult that METI’s export control organizations become a pack of such experts. This is because the government officers are on periodical rotations and leave the positions in two to three years before acquiring expert-level knowledge and skills. We don't deny the positive side of the personnel system, but there is also a negative side in the aspects of the public service and organizational effectiveness. We would sincerely suggest that METI consider establishing a new agency where officers can dedicate themselves to the service for much longer time so that they can contribute more intensively to the national as well as international peace and security and to the promotion of the Japanese economy in close cooperation with public sectors.

(3) Outreach activities We appreciate METI’s efforts to hold various seminars from time to time, but their

19 frequency seems less than those held in other countries. We hope you will also expand this service in the near future. End

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