2nd Report of the Market Access Ombudsman Council (March 14, 1995)

4-(3) Abolition of restrictions on transportation ships built for export

1. Complainant: Taiwan Trade and Culture Representative Office

2. Ministry concerned: Ministry of Transport

3. Complaint:

To ensure the healthy development of Japan's international sea transport, the Temporary Shipbuilding Adjustment Law was adopted in 1953. Under this law, shipbuilders intending to build steel-hulled ships of overall gross tonnage of over 2,500 tons or over 90 meters in length for use on the DEEP seas or near seas must obtain a permit from Minister of Transport before beginning construction. Minister of Transport must grant permission for construction if there is no oversupply of ships in the navigating area or route for which construction of the said ship is intended, and if construction coincides with the standards set down by the law.

Regarding ships for use in near seas (general cargo ships with dead weight of under 12,000 tons, used to transport timber, plywood, miscellaneous goods, steel, etc.), because of the sharp decline in the import volume of log from the southern Pacific, which is the main cargo, and the resulting oversupply of ships, since 1972 the ministry has regulated shipbuilding based on the Temporary Shipbuilding Adjustment Law. Building of ships for export is allowed only when it is clear that the ships will be not used in Japan, and to verify this, the entity ordering the ship is required to declare in a written manner not to load or unload in Japan.

The complainant states that this restriction on the loading of cargo by foreign ships protects the interests of domestic ships and violates free competition, and should be abolished.

4. Results of deliberation:

Under current international economic conditions, Japan must take the initiative to maintain and strengthen the system of free competition by making more efforts to improve market access not only in the area of importation of goods but also in the area of service sectors including in the field of maritime transport. Further, in order to maintain economic vitality, by promoting deregulation, it is necessary to conduct a thorough review of economic regulations which restrict competition, and act in the direction of abolishing them in principle.

By making it impossible for ships built in Japan to load or unload cargo in Japan, the regulation mentioned in this complaint aim to limit free competition in the maritime transport sector. This is a problem. Further, considering Japan's superior global position as a shipbuilding nation and the fact that it is discriminative to apply such a regulation only to foreign ships built in Japan, it is natural for the complainant to request abolition of the regulation in question.

Additionally, this regulation has been in place for more than 20 years, but in view of the original purpose of the law on which this regulation is based, that is, to promote the healthy development of Japan's international maritime transport sector, efforts should be made to create a climate of active international competition instead. It is therefore inappropriate to continue such regulation restricting competition by reason of adjusting supply and demand.

With the above in mind, the restrictions making it impossible for foreign ships built in Japan to load or unload cargo in Japan should be abolished at an early date.

Government decision (March 28, 1995)

4-(3) Abolition of restrictions on transportation ships built for export

When permission to build coasting vessels (ships weighing 2,500 gross tons or more and less than 12,000 dead weight tons built for export) is granted, the foreign orderer of the ship is required to declare in a written manner not to load or unload cargo in Japan. From June 1995, such declaration will no longer be required, and overall restrictions will be abolished by the end of FY1996.

Follow-up (May 27,1996)

4-(3) Abolition of restrictions on transportation ships built for export

Submitting a written undertaking when a building permit is granted for a ship to be used in near seas (export ships with overall gross tonnage of over 2,500 tons) will no longer be required (Administrative Notice dated June 16,1995). The entire system is scheduled to be abolished by the end of FY1996.