5th Report of Market Access Ombudsman Council (March 17, 1998)

5-(1) Deregulation of construction licenses

1. Complainant: European Union Delegation of the European Commission in Japan

2. Ministry concerned: Ministry of Construction

3. Background:

(1) Current state of systems in the construction industry

To ensure appropriate execution of construction work, protect procuring entities and promote the healthy development of the construction industry, those who intend to do construction businesses (with the exception of those engaging in minor construction works only) are required to obtain a construction license (Construction Business Law, Article 1, Article 3).

1) Licenses from the Minister of Construction and licenses from prefectural governors
When a construction company intends to have business offices in two or ore prefectures, a license must be obtained from the Minister of Construction; when a construction company intends to have businesses offices in one prefecture only, a license must be obtained from the governor of the prefecture concerned.

2) Licenses for ordinary construction business and licenses for special construction business
For each construction project ordered directly by a procuring entity, contractors that contract all or part of the project above a specific value out to sub-contractors must obtain a license for special construction business. Others must obtain a license for ordinary construction business.

3) Licensing system by work type
A licensing system is in effect for each of 28 type classifications of construction work.

4) Validity period for construction licenses
Construction licenses are valid for a period of five years and must be renewed at the end of the validity period (the validity period was extended from the previous three years when the Construction Business Law was revised in June 1994).

5) License Requirements (Construction Business Law Articles 7 and 15)
1] A construction company that wants to get a license shall have at least one full-time board director with specific experience to be responsible for management operations. (The Minister of Construction can approve persons with experience in foreign countries as having the equivalent required experience: Construction Business Law Article 7 Section 1b), Article 15 Section 1.)
2] A full-time engineer with specific qualifications or actual experience must be employed at each office. (The Minister of Construction can approve persons with experience in foreign countries as having the equivalent required experience: Construction Business Law Article 7 Section 2c), Article 15 Section 2c).)
3] The applicant must not have a certain record of a breach of laws and contracts.
4] The applicant must have sufficient assets or credit-worthiness to carry out the contract.

(2) Current state of systems regarding Kenchikushi (architects and building engineers)

1) Persons with foreign architect licenses who wish to be licensed in Japan may, in the case of first class Kenchikushi (architects and building engineers), be certified by the Minister of Construction, and in the case of second class Kenchikushi or of Mokuzo-Kenchikushi (architects and building engineers for wood constructions), by the prefectural governor, as having equivalent or superior qualifications and obtain a license without passing the Kenchikushi's licensing examination (Kenchikushi's Law, Article 4, Clause 3).

2) Most foreign countries also have legal or private qualification systems for architectural design. However, few have a clear system for handling persons with foreign licenses such as Japan's, and the equivalency of qualifications is more often recognized under a bilateral mutual recognition system. Professional associations from various countries, including Japan, are currently working to formulate criteria for mutual recognition.

4. Complaint:

Japan currently has a complex system of 28 types of construction licenses, for each type of classification, and workers with special qualifications must be hired, local governments require that construction firms establish local business offices, which are expensive to maintain, and so on. When a construction company does business in one prefecture, only one license from the prefectural governor is needed. But if it expands its business to other prefectures, it must obtain a new license from the Minister of Construction, which is a bothersome process.

Where architect qualifications are concerned, although the conditions are improved, there still remains room to be improved. For example, the Ministry of Construction and local governments require that examinations be passed in Japanese, without regard for holders of equivalent qualifications from abroad. In addition, such persons are required to have three years' experience in Japan, over and above their work experience in foreign countries.

Given these circumstances, the complainants recommend the following:

(1) Reducing the type classifications of construction licenses

(2) Reducing the cost involved in obtaining licensing as a construction company

(3) Streamlining procedures for obtaining and renewing licenses

(4) Recognizing certain technical qualifications among European architect licenses as equivalent to those of first class Kenchikushi (architects and building engineers) in Japan.

5. Results of deliberation:

(1) Construction licenses

Given the technical progress made since the system of 28 type classifications was introduced, the time has come for a review of the system. Further, under the present system, it is possible for a general contractor to contract for special works and for every contractor to contract for appurtenant works, even if the company does not have a license for the work, furthermore, the company can undertake actual construction for himself when the technical requirements are met. However, some foreign businesses are unfamiliar with the definitions for the various types of classifications or the meaning of general works and appurtenant works, which could have a negative impact on inward investment in Japan.

Businesses are also obliged to employ a full-time stationed engineer in order to obtain a construction license, but the qualifications required for full-time stationed engineers are the same in some type of classifications. Therefore, grouping the current classifications for construction licenses by related type would have the practical effect of reducing the types of licenses and of simplifying the system. Where this is concerned, the Central Council on Construction Contracting Business recommended initiating a study on grouping type classifications (February 4, 1998).

Restrictions on market access such as construction licenses should be kept to a minimum to begin with. Additionally, it is important to provide information on the technical abilities of construction companies, from the perspective of selection through market mechanisms.

Based on the above, we recommend that the ministry take the following steps:

1) Enhance activities to publicize the workings of the construction license system should be undertaken, by producing a pamphlet in English and other means, during FY 1998.
2) A comprehensive study concerning review of the type classifications for construction licenses should be undertaken and a conclusion reached at an early opportunity. The issue of making public information on construction companies should be studied at the same time.
3) Regarding the procedures for obtaining and renewing construction licenses, although it is a positive development to have undertaken the simplification by uniforming applicant processes of plural licenses, extending validity period for licenses, and eliminating some of the documents required for license renewal, have been taken, further streamlining should be studied.

(2) Approval of Kenchikushi (architects and building engineers)

The fact that the Kenchikushi (architects and building engineers)'s Law contains clear provisions for permitting persons with foreign architect licenses to practice their profession in Japan is a positive factor. However, given that the criteria for applying approval criteria are not written down, this could invite undeserved criticism from foreign countries. For example, regarding the need to pass examinations in Japanese, which the Complainant mentions, the ministry concerned states that, depending on the circumstances, a paper written in a foreign language can be presented instead, but the criteria for exemption from the examination in Japanese are not clear to persons outside the ministry.

Accordingly, the ministry should take the following measure, in the spirit of the Administrative Procedures Law:

Criteria for application of Article 4, Clause 3 of the Kenchikushi's Law should be drawn up and made public during FY 1998.

Government decision (March 23, 1998)

2-(1) Deregulation of construction licenses

(1) Enhanced activities to publicize the workings of the construction license system will be undertaken, by producing a pamphlet in English and other means, during FY 1998.

(2) A comprehensive study concerning review of the type classifications for construction licenses will be undertaken and a conclusion reached at an early opportunity. The issue of making public information on construction companies will be studied at the same time.

(3) The issue of further simplifying procedures for obtaining and renewing construction licenses will be studied.

2-(2) Clarification of approval criteria for Kenchikushi (architects and building engineers)

Criteria for application of Article 4, Clause 3 of the Kenchikusi's Law will be drawn up and made public during FY 1998.