4th Report of the Market Access Ombudsman Council (March 17, 1997)

3-(1) Deregulation relating to internal combustion

1. Complainant: American Chamber of Commerce in Japan

2. Ministry concerned: Ministry of International Trade and Industry (MITI)

3. Background:

When emergency auxiliary power generators are installed, prior notification of the building plan is required as necessary. If the facilities described fail to meet technical standards and so on, the builder may be ordered to change or abandon the building plan (Electrical Business Law, Article 48). The decision as to whether conditions are met is made after examination by MITI or by a MITI regional bureau, whichever received the notification.

The Japan Internal Combustion Power Generation Facilities Association ("the Association") has an approval system for privately used power generators which also applies to emergency auxiliary power generators. However, the current law makes no clear mention that it is necessary to obtain approval from the Association. In the past, it was obligatory for such equipment to be inspected by the Minister of International Trade and Industry prior to use, although equipment was exempt from inspection if approved by the Association. But when the Electrical Business Law was revised in 1995, the requirement for prior inspection of emergency auxiliary power generators was abolished.

The Association's standards for approval incorporate all of MITI's technical standards and also include more detailed standards which are the Association's own. MITI's technical standards are drawn up with usage within Japan in mind and do not necessarily coincide with ISO and other international standards.

4. Complaint:

The complainant has raised the following issues concerning installation of emergency auxiliary power generators.

Under the technical standards used by MITI, approval of engine model and class, generator model, and control panel model is required. Only after approval for all these individual elements has been obtained can the equipment be installed. A large amount of detailed documentation, including blueprints, specifications, sales history, manufacturer's quality control measures and organization, etc. must be presented when application for approval is made. There is also the Japan Internal Combustion Power Generation Facilities Association ("the Association"), which has an Approval Committee for Private Power Generating Equipment ("the Committee"), which includes MITI and other administrative bodies among its members. The complainant understands that equipment which has obtained an approval certificate issued by the Committee is not required to go through MITI's approval process and is virtually automatically guaranteed to be certified as meeting MITI technical standards. Many private sector customers are under the impression that the Association's approval has a legal basis, and since many client companies insist on it, suppliers sometimes have to include a notation in their contracts to the effect that their equipment will receive approval from the Association. As a result, the complainant submitted equipment for approval, but was made to undergo operational tests and to modify the equipment to meet the Association's specifications, which entailed considerable expense. This added expense is unavoidably passed on to Japanese consumers.

The complainant's equipment conforms to ISO standards, etc., which are international standards. Most countries other than Japan require no additional testing or structural modifications if the equipment meets those standards, and the equipment can be sold without restrictions. The complainant believes that the Japanese government should accept the prevailing international standards, as doing so will enable non-Japanese companies to sell their products on the Japanese market and to improve quality and safety without difficulty, and will also contribute to keeping prices down.

5. Results of deliberation:

Harmonizing Japanese specifications and standards to international standards promotes unrestricted transactions and improves the transparency of domestic systems, and measures in this direction should be continued. The ministry concerned has been conducting a review, due to be completed by the end of March 1997, to require only standards have to do with safety functions. In addition to JIS, these standards also conform to those of the American Society of Mechanical Engineers (ASME), and this is a positive development.

Where the private sector is concerned, in addition to technical standards set by the government mainly to ensure safety, voluntary standards are sometimes used. These standards can be useful in contributing to lower prices and improved quality, through the use of standard specifications, and can provide valuable information assisting consumers in selecting products. However, when these standards are not compatible with international standards, the fact that foreign products meeting international standards must be modified to conform with these standards can constitute a barrier to imports of foreign products, and can be even less transparent than government standards to foreign businesses. Additionally, even if the government deregulates, the continued existence of approval activities by a private sector body which retains similar standards negates the point of deregulating and can be a barrier to imports. This is also a disadvantage from the viewpoint of rectifying the high cost structure of the domestic economy and structural reform. It is important to study cases with specific advantages and disadvantages in mind.

The Association's approval system for private power generating equipment is an activity that is the Association's own, carried out according to its own approval standards. According to the ministry concerned, there are no legal restrictions on installing equipment which has not been approved by the Association. By the same token, there is no guarantee that equipment approved by the Association will automatically be approved as meeting the technical standards based on the Electrical Business Law. However, Association approval continues to play a major role, leading to misunderstandings on the part of some concerning the relationship between the Association's approval and the government's approval in private sector transactions, and this could impede market opening.

Accordingly, the ministry concerned should take the following actions:

(1) To improve market access, it is necessary for domestic standards to harmonize with international standards. The ministry should harmonize its legally mandated technical standards for internal combustion engines with international standards like ISO and so on by the end of March 1997.

(2) Active measures should be taken to inform users and suppliers of power generators for private use that there is no connection between the Association's approval system and the approval system mandated by law and administered by the government. The Association should also be given strong guidance to the effect that it avoids giving the appearance that there is a legal requirement for its approval system. In particular, the Association's pamphlet should be revised by June 1997 to avoid giving third parties misunderstandings. Efforts should also be made to change the practice among private sector companies of not accepting products not approved by the Association, if this appears to be impeding imports of foreign products.

Government decision (March 25,1997)

3-(1) Deregulation relating to internal combustion

(1) Technical standards based on the Electricity Utilities Industry Law will be harmonized with ISO and other international standards by the end of March 1997.

(2) The ministry concerned will actively publicize the fact that the approval system for private power generating facilities set out by the Japan Association for Internal Combustion Power Generating Facilities are unrelated to the above-mentioned law or government approved standards. The ministry will also request the Association to correct the contents of its pamphlet by June 1997 and will instruct the Association to avoid giving the impression that products require by law the approval of the Association. If the business practice of requiring Association's approval hinders the import of foreign products, the ministry will endeavor not to aggravate it.