2010-10-27 Request for a Comprehensive Review of Japan'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 South Korea: 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: