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Copyright © 2001 APLPJ

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William S. Richardson School of Law

Volume 2 Issue 1 Winter 2001

U.S.-Japan Enhanced Initiative as an Instrument of Change:

The Efficacy of Japan’s Latest Effort at Telecommunications

Deregulation

Dawn Nagatani

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U.S.-Japan Enhanced Initiative as an Instrument of Change: The Efficacy of Japan’s Latest Effort at Telecommunications Deregulation

I. INTRODUCTION II. THE THIRD JOINT STATUS REPORT PROMOTES MEANINGFUL

DEREGULATION A. History of the Enhanced Initiative B. Interconnection Rates—The Key to Significant Rate

Reduction C. Legislation Designed to Overcome the

Shortcomings of Past Deregulation Efforts III. NTT—THE BREAKUP OF A MONOLITHIC CORPORATION IV. THE ENHANCED INITIATIVE—A POTENTIAL INSTRUMENT OF

CHANGE A. An Influx of New Telecommunication Carriersff B. Competition: Consumers Benefit From Lower

Prices C. Hopes for the Future—Further Price Reductions

V. CONCLUSION

I. INTRODUCTION

The modern movement toward a global marketplace for nearly all goods and services accentuates the increasing interdependence among nations. In the past, most foreign countries employed a monopolistic, government-owned approach to telecommunications1 in an effort to resist the “application of marketplace and free flow principles.”2 However, developed and developing countries have recently embraced market liberalization policies.3 The Japanese government followed this

1 See Senate Comm. on Commerce, Science, and Transportation, 98th Cong., Long Range Goals in International Telecommunications and Information 28 (Comm. Print 1983), in International Telecommunications and Information Policy 189, 232 (Christopher H. Sterling ed., 1984).

2 Id. at 218. See Kenneth U. Surjadinata, Revisiting Corrupt Practices From a Market Perspective, 12 EMORY INT’L L. REV. 1021, 1083-84 (1998) (noting that once open to free market competition, an industry will become more efficient).

3 Mark D. Director, Restructuring and Expanding National Telecommunications Markets: A Primer on Competition, Regulation and Development for East and Central European Regulators, under heading Introduction, at http://www.annenberg.nwu.edu/

292 Asian-Pacific Law & Policy Journal; Vol. 2, Issue 1 (Winter 2001)

international trend and decided to deregulate the telecommunications industry.4 Despite deregulatory efforts, Japan’s trading partners, namely the United States, have not been satisfied with the results of reform.5 Japan’s continued strict regulation of its telecommunications industry,6 combined with its history of closure from outside influences7 and significant trade imbalances, resulted in friction between the United States and Japan.8

On July 19, 2000, U.S. Trade Representative Charlene Barshefsky announced the newest pact between the United States and Japan, known as the Third Joint Status Report on the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy (“Third Joint Status Report”).9

pubs/telmar/telmar01.htm (last visited Jan. 13, 2001). See also MASANAO UEDA, DEREGULATION OF THE TELECOMMUNICATIONS INDUSTRY IN JAPAN: WAS THE BREAKUP OF NTT A SOLUTION? 7 (Harvard University, U.S.-Japan Occasional Paper No. 14, 1990).

4 The Japanese government’s decision to deregulate the telecommunications industry through privatization “complemented the liberalization that was taking place in the United States and other developed countries.” However, the primary impetus for regulatory reform was the financial difficulty facing public corporations. Alan S. Gutterman, Japanese Securities Markets: The Impact of the Privatization and Deregulation of Japan’s Public Enterprises, 12 U. PA. J. INT’L BUS. L. 589, 597-98 (1991). See UEDA, supra note 3, at 7.

5 See Alex Y. Seita, The Intractable State of United States-Japan Relations, 32 COLUM. J. TRANSNAT’L L. 467, 473 (1995).

6 See Peter Knight, Recent Developments in Information Technology Law in the Asia-Pacific Region (Part I) , COMPUTER LAW., Mar. 1997, at 19, 26, available at WL 14 No. 3CLW19 (noting that Japan’s “strict regulations concerning the telecommunications business make the rates for telecommunication services in Japan higher than in other countries”).

7 See Edieth Y. Wu, Recent Developments in the Currency War: The Euro, the Dollar, the Yen, and the BEMU, 15 CONN. J. INT 'L L. 1, 26 (2000) (stating that Japan remained closed to the world in an “attempt to secure political stability” and that while “the Japanese undoubtedly have an exclusive right to the possession of their territory; but they must not abuse that right to the extent of debarring all other nations from a participation in its riches and virtues”); generally Charlene Barshefsky, Symposium, U.S. Trade Policy in Transition: Globalization in a New Age Panel III: The Future of U.S.-Japan Relations, 25 LAW & POL’Y INT’L BUS. 1287 (1994).

8 MORDECHAI E. KREININ, INTERNATIONAL ECONOMICS: A POLICY APPROACH —EURO UPDATE 200 (8th ed. 1998).

9 The Ministry of Foreign Affairs of Japan, Third Joint Status Report on the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy, available at http://www.mofa.go.jp/region/n-america/us/report0007.html (last visited Aug. 14, 2000) [hereinafter Third Joint Status Report].

U.S.-Japan Enhanced Initiative 293

Launched by President William Jefferson Clinton and Prime Minister Ryutaro Hashimoto in 1997, the Enhanced Initiative on Deregulation and Competition Policy (“Enhanced Initiative”) promotes substantial deregulation by providing a forum for discussion of regulations that addresses consumers’ interests in conjunction with market access for foreign goods and services.10 The U.S. and Japanese governments hold annual meetings in an effort to achieve “tangible progress . . . on a wide variety of deregulation items,” including the telecommunications industry.11 The Third Joint Status Report is the last report issued in a three-year plan addressing deregulation and has the potential to substantially lower domestic long-distance costs for Japanese consumers through the lowering of interconnection rates and the subsequent influx of greater numbers of telecommunications carriers into the Japanese market.

This recent development examines the extent to which lowering of interconnection rates, as proposed in the Third Joint Status Report, will provide increased competition through the importation of goods and services and subsequently lower long-distance domestic rates for Japanese consumers. Part II presents background information about the Enhanced Initiative: the scope of the agreement and goals for the telecommunications industry. Part III provides a brief history of the Japanese telecommunications industry to explain the need for deregulation. Part IV discusses whether the Third Joint Status Report will be able to meet its stated goals and impart significant change to Japanese telecommunications. This paper concludes that, although Japanese consumers may experience decreased long-distance domestic rates, full deregulation and, in turn, a truly competitive market may not be realized due to institutional and social impediments.

10 The Ministry of Foreign Affairs of Japan, Joint Statement on the U.S.–Japan Enhanced Initiative on Deregulation and Competition Policy Under the U.S.–Japan Framework for a New Economic Partnership, available at http://www.mofa.go.jp/policy/economy/summit/1997/joint.html (last visited Aug. 22, 2000) [hereinafter Enhanced Initiative].

11 Third Joint Status Report, supra note 9, under heading Introduction. See also Enhanced Initiative, supra note 10, pts. II, III. Annual meetings between the U.S. and Japan are conducted by the High-Level Officials Group and six Expert-Level groups. The High-Level Officials Group and Expert-Level Group are defined as telecommunications, housing, medical devices and pharmaceuticals, financial services, energy, and structural issues, including competition policy, distribution, and issues related to transparency and government practices. The expert-level group is co-chaired by the Ministry of Foreign Affairs and the Ministry of International Trade and Industry for the Government of Japan and chaired by the U.S. Trade Representative for the Government of the United States. Id.


II. THE THIRD JOINT STATUS REPORT PROMOTES MEANINGFUL

DEREGULATION

A. History of the Enhanced Initiative

The Enhanced Initiative was formed in April 199712 when President Clinton and Prime Minister Hashimoto agreed to strengthen deregulation efforts under the U.S.-Japan Framework for a New Economic Partnership (“Framework”).13 Both countries agreed that “address[ing] reform of relevant government laws, regulations, and guidance which have the effect of substantially impeding market access for competitive goods and services”14 is consistent with the goals of “tangible progress.”15 As stated in preparatory legislation,16 both countries sought to focus on

12 See Enhanced Initiative, supra note 10, pt. I.

13 U.S. Department of State, Joint Statement on the United States–Japan Framework for a New Economic Partnership, July 10, 1993, U.S.–Japan, available at http://www.state.gov/www/regions/eap/japan/framewrk.html (last visited Aug. 22, 2000) (hereinafter Framework) (announcing the agreement between the United States and Japan as an effort to “promote global growth, open markets, and a vital world trading system”). See also Barshefsky, supra note 7, at 1289; The Ministry of Foreign Affairs of Japan, Japan’s Approach to Deregulation to the Present, pt. I.1, at http://www.mofa.go.jp/j_info/japan/regulate/approach9904.html (last visited Aug. 22, 2000) (detailing the framework for deregulation, which initially began with the Japanese Cabinet’s 1988 decision for a Deregulation Program Outline and the 1989 Structural Impediments Initiative). The Deregulation Action Program (1995-1997) and the current Three Year Action Program for the Promotion of Deregulation (1998-2000) later followed. Id.

14 Enhanced Initiative, supra note 10, pt. I (constructing deregulation guidelines for telecommunications, housing, medical devices and pharmaceuticals, financial services, energy, and other structural issues).

15 The Framework , under heading Introduction, supra note 13, articulates the goals of “deal[ing] with structural and sectoral issues in order substantially to increase access and sales of competitive foreign goods and services through market-opening and macroeconomic measures; to increase investment; to promote international competitiveness; and to enhance bilateral economic cooperation between the United States and Japan.” These measures are expected to “contribute to a significant reduction in both countries’ external imbalances.” Framework , supra note 13. But see generally Michael Blaker, Japan in 1994: Out with the Old, In with the New?, ASIAN SURVEY, Jan. 1, 1995, available at 1995 WL 14890092. Despite negotiations between the United States and Japan to implement the Framework , U.S. officials must confront an increasing U.S. trade deficit with Japan. Japanese officials have also “repeatedly spurned American efforts to fix quantitative or qualitative targets, even though these seemed exactly the “objective criteria” sought in the agreement.” Id.


consumers’ interests, to increase efficiency, and to promote economic activity through the Enhanced Initiative.17

Japanese and U.S. governmental agencies have released three reports detailing various measures undertaken in their deregulation efforts thus far.18 As the latest report, the Third Joint Status Report19 highlights several steps taken by the Government of Japan to encourage telecommunications deregulation.20 This report is particularly important because it expands the previous work under the Enhanced Initiative21 and articulates the results of various deregulation measures undertaken in the first and second reports.22 The report announced that (1) the Ministry of Posts and Telecommunications (“MPT”)23 will promote reduction of

16 See Framework, supra note 13, under heading Basic Objectives (noting that the Framework “provides a structure for an ongoing set of consultations”).

17 See Enhanced Initiative, supra note 10, pt. I.B.

18 See generally The Ministry of Foreign Affairs of Japan, First Joint Status Report on the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy, at http://www.mofa.go.jp/region/n-america/us/economy/date/dereg9805.html (last visited Aug. 22, 2000) [hereinafter First Report]; The Ministry of Foreign Affairs of Japan, Second Joint Status Report on the U.S.-Japan Enhanced Initiative on Deregulation and Competition Policy, at http://www.mofa.go.jp/region/n-america/us/report9905.html (last visited Aug. 22, 2000) [hereinafter Second Report]; Third Joint Status Report, supra note 9.

19 The Third Joint Status Report was published on July 22, 2000.

20 Third Joint Status Report, supra note 9, pt. I.

21 Notes, JAPAN ECON. INST . REP ., July 21, 2000, available at 2000 WL 11698961 (reporting that the settlement regarding the depth of interconnection rate decreases achieved overnight cleared the way for the release of the third report of the Enhanced Initiative).

22 See generally First Report, supra note 18. The First Report was released on May 15, 1998; Second Report, supra note 18 (released on May 3, 1999); Third Joint Status Report, supra note 9. One provision in the Third Joint Status Report states, “the Ministry of Posts and Telecommunications (MPT) has promoted the reduction of interconnection rates of NTT [Nippon Telegraph and Telephone Public Corporation] regional networks and approved further reductions of interconnection rates . . . with a total reduction of 177 billion yen over FY [fiscal year] 1998.” Third Joint Status Report, supra note 9, pt. I.A.1.

23 Douglas A. Conn, Domestic Telecommunications Policies in the United States and Japan and Their Impact on Trade Relations, in UNITED STATES-JAPAN TRADE IN TELECOMMUNICATIONS 35, 38 (Meheroo Jussawalla ed., 1993). According to Conn, the Ministry of Posts and Telecommunications is the “primary regulatory body in the Japanese telecommunications industry, and [ ] maintains regulatory authority over the activities of NTT . . . as well as over the rest of the telecommunications sector.” Id.


interconnection rates of regional networks; (2) the MPT will investigate a method of introducing “fair and transparent interconnection” as a precaution should further measures be necessary to facilitate interconnection between Japan’s wireless communication system (“NTT DoCoMo”)24 and other carriers; (3) on May 12, 2000, the Diet adopted a bill amending the Telecommunications Business Law;25 (4) the United States and Japan commenced dialogue on competitive carriers’ interest in gaining access to Internet subscribers and the effect of retail prices on the feasibility of alternative networks; and (5) on March 31, 2000, the Japanese government adopted the final revisions to its Three-Year Programme for Promoting Deregulation.26

Representatives from the United States and Japan agreed to undertake proactive measures to attain the stated goals of the Third Joint Status Report.27 Japanese officials, in an effort to increase competition and encourage lower costs for Japanese consumers, consented to “increas[e] the market access of competitive foreign goods and services . . . . and promot[e] a significant increase in global imports of goods and services, including from the United States.”28 The United States, in turn, adopted a results-oriented approach and agreed to aggressively “pursue the medium-term objectives of substantially reducing its fiscal deficit, promoting domestic saving, and strengthening its international competitiveness.”29 Further, the United States pledged to encourage American firms to take advantage of the opportunities provided by the Japanese government and by employing “nondiscriminatory, transparent,

24 See generally Amazing DoCoMo, BUSINESSWEEK ONLINE, Jan. 17, 2000, at

http://www.businessweek.com/2000/00_03/b3664010.html (last visited Jan. 15, 2001) (reporting on Japan’s largest wireless corporation).

25 See Third Joint Status Report, supra note 9, pt. I.A.3. This was done in compliance with the First Report.

26 See generally The Ministry of Foreign Affairs of Japan, The Three-Year Programme for Promoting Deregulation as Revised, at http://www.mofa.go.jp/j_info/japan/regulate/program9903.html (last visited Aug. 22, 2000).

27 See Third Joint Status Report, supra note 9, under heading Introduction.

28 Framework , supra note 13 (announcing the agreement between the United States and Japan as an effort to “promote global growth, open markets, and a vital world trading system”).

29 Framework , supra note 13. See also Kristin Leigh Case, An Overview of Fifteen Years of United States-Japanese Economic Relations, 16 ARIZ. J. INT’L & COMP . L. 11, 21 (1999).


fair, and open” measures.30 U.S. trade officials hope the expected influx of American corporations into the Japanese market31 translates into benefits for Japanese consumers in the form of “lower prices, greater choice, and more innovative new products.”32 Such deregulation, in turn, will contribute to the resurgence of Japan’s currently stagnant economy.33

B. Interconnection Rates—The Key to Significant Rate

Reduction

The Third Joint Status Report provides for a series of specific deregulation measures within the telecommunications industry. Although the Third Joint Status Report34 focuses on increasing the number of telecommunications carriers, creating greater consumer choice, and lowering phone rates,35 the bulk of the agreement incorporates provisions

30 See Case, supra note 29, at 21; also Rachelle B. Chong & Wendy Chow,

Financing Telecommunications Projects in Asia: A Promising Regulatory Perspective, 52 FED. COMM. L.J. 1, 6 (explaining that clear telecommunications policies are necessary to ensure a competitive yet fair regulatory environment).

31 Office of the U.S. Trade Representative, Barshefsky Hails Significant Achievements Under Enhanced Deregulation Initiative at http://www.ustr.gov/releases/2000/07/00-56.html (stating that the Enhanced Initiative also helps U.S. businesses by opening the Japanese market to foreign companies).

32 Id.

33 Id. See also Jason F. Cohen, The Japanese Product Liability Law: Sending A Pro-Consumer Tsunami Through Japan’s Corporate and Judicial Worlds, 21 FORDHAM INT’L L.J. 108 (1997). The collapse of the Bubble Economy indicates that “the interlocking system of business, bureaucracy, and politics that brought Japan to its present level of prosperity is unraveling as the system fails to meet the challenges of the global marketplace. Many of Japan’s leaders agree that the Japanese economy needs widespread deregulation to transform the producer-focused system into one that is more market-driven and consumer-oriented.” Id. See also ROBERT C. HSU, THE MIT ENCYCLOPEDIA OF THE JAPANESE ECONOMY 81, 83-85 (1999).

34 For the remainder of the article, references to the Third Joint Status Report pertain only to provisions affecting the telecommunications industry. See Third Joint Status Report, supra note 9, pt I.

35 Third Joint Status Report, supra note 9, pt. I.A. Compared to the First Report and the Second Report, which provide only general recommendations for deregulation, the Third Joint Status Report identifies action to be taken by the MPT and the United States. The Third Joint Status Report specifically provides for the promotion of interconnection rate reductions for Fiscal Year 1999, with “a total reduction of 177 billion yen over F[iscal] Y[ear] 1998. This was the largest reduction ever . . . .” Additional provisions include an examination of the “method of introducing fair and transparent interconnection, in case measures need to be taken to facilitate interconnection between NTT DoCoMo and other carriers, in F[iscal] Y[ear] 2000” and


that directly relate to the lowering of interconnection rates.36 Both governments agree that lowering interconnection rates will allow additional telecommunications carriers to access the Japanese market and increase competition.37

Due to its focus on encouraging the entry of new carriers, the deregulation measures articulated in the Third Joint Status Report follow a competitive market structure.38 Theoretically, a competitive market39 will emerge in the presence of two elements—unrestricted entry and a contestable market.40 In the telecommunications industry, interconnection

amendments to MPT’s ordinances so that “reductions of interconnection rates . . . will be phased in over three years.” Third Joint Status Report, supra note 9, pt. I.A.1.

36 Third Joint Status Report, supra note 9, pt I.A. Interconnection rates comprise the entire first (I.A.) and third sections (I.C.) of the Third Joint Status Report. See also James Cox, Lack of Cheap talk Hurts Japan Phone Fees, USA TODAY, Jan. 20, 2000, available at 2000 WL 5766594. “Interconnection rates” are fees phone companies charge each other for placing calls from one network. Also, “NTT charges $3.34 a minute to pass along calls from other carriers—almost five times the 69 cents U.S. carriers charge,” thus making NTT’s rates among the highest in the world. Id.

37 Clay Chandler, Telecom Giant Still Reigns in Japan, WASH. POST , July 23, 2000, available at 2000 WL 19620588. See also Chong & Chow, supra note 30, at 8 (explaining that interconnection rates are important to new companies entering the telecommunications industry because it is one of the most important costs and may affect the potential earnings of “new operators”); UEDA, supra note 3, at 12; Director, supra note 3, under heading Two Central Substantive Concerns: Interconnection and Pricing, Why is Interconnection so Important?, at http://www.annenberg.nwu.edu/pubs/telmar/telmar08.htm (last visited Jan. 13, 2001) (noting that a competitive market cannot exist without interconnection).

38 Hajime Oniki, Impacts of the 1985 Reform of Japan’s Telecommunications Industry on NTT, in GLOBAL TELECOMMUNICATIONS POLICIES: THE CHALLENGE OF CHANGE 69, 87 (Meheroo Jussawalla ed., 1993). The competition requirement “calls for introduction of competition into the industry so that the providers and the users can enjoy the benefits of competitive markets.” Id.

39 A “competitive market” is “a market in which there are many buyers and many sellers so that each has a negligible impact on the market price.” Due to the sheer number of firms present in a competitive market, one individual firm has a negligible impact on the market price of a product. N. GREGORY MANKIW, PRINCIPLES OF MICROECONOMICS 62, 295 (1997).

40 Martin Fransman, NTT and Japan’s Telecommunications Industry at the Crossroads: The Way Forward , under heading Interconnection and Competition, at http://www.nmjc.org/jiap/jdc/cyberjapan/fransman.html (last visited Aug. 22, 2000). See also Michel Kerf & Damien Geradin, Controlling Market Power in Telecommunications: Antitrust vs. Sector-Specific Regulation An Assessment of the United States, New Zealand and Australian Experience, 14 BERKELEY TECH. L.J. 919, 932-33. The effectiveness of regulatory models may be evaluated based on various criteria, including “whether the


is essential because a “high fixed cost of developing a network” discourages the entry of competitors into the marketplace.41 Thus, to facilitate interconnection, the process should be made “clear, transparent, and predictable.”42

The shift from a state-managed monopoly to a competitive market, as applied in the specific deregulation measures of the Third Joint Status Report, will proceed in the following sequence (“Chain of Events”).43 First, the lowering of interconnection rates will allow new entrants into the Japanese market.44 Next, the increase in the number of New Common Carriers (“NCCs”) will foster greater competition.45 Finally, greater competition will result in lower prices and greater consumer choice.46 If

regulatory framework is adequately designed to promote a competitive market structure” and assurances of “interconnection under reasonable conditions.” Id.

41 Interconnection access charges are crucial to the entrance of a network-owning competitor, where the new entrant requires access to a “dominant firm’s network in order to operate in that market.” Fransman, supra note 40, under heading Interconnection and Competition. See also Director, supra note 3, under heading Two Central Substantive Concerns: Interconnection and Pricing, Why is Interconnection so Important?, at http://www.annenberg.nwu.edu/pubs/telmar/telmar08.htm (last visited Jan. 13, 2001). Interconnection is important because a network’s ability to “interconnect the maximum number of users” determines its value. Id. If a firm has an “existing substantially installed network, interconnection permits competition to develop in a less costly manner. New entrants permitted to interconnect on reasonable terms and conditions will not have to invest in duplicating [the] existing plant.” Id.

42 Failure to abide by the “clear, transparent and predictable” requirements results in unpredictable costs of entry and may deter the possibility of entry into the marketplace. Fransman, supra note 40, under heading Interconnection and Competition. See also Chong & Chow, supra note 30, at 8.

43 The term “Chain of Events” is a personal designation and will be used to describe the theoretical progression from a government-monopolized industry to a competitive market.

44 See generally Yoshio Ohara, Competition in Industries Recently Deregulated in Japan, 23 FORDHAM INT’L L.J. 45 (1999); Fransman, supra note 40, under heading Interconnection and Competition.

45 See Ohara, supra note 44, pt. I.B; also Hisamori Tomita, Corporate Revitalization and Industrial Relations: The NTT after Privatization, in PRIVATIZATION AND INDUSTRIAL RELATIONS: JAPAN’S EXPERIENCE 59, 65 (Asian Productivity Organization ed., 1993); generally Fransman, supra note 40, under heading Interconnection and Competition.

46 See Ohara, supra note 44, pt. I.B; generally Fransman, supra note 40.


the aforementioned Chain of Events holds true, interconnection will be a crucial element for the creation of a competitive market.47

C. Legislation Designed to Overcome the Shortcomings of

Past Deregulation Efforts

Japan’s history of deregulation may be described as one that has emphasized “form over substance, process over end product.”48 In fact, many Japan observers believe that, because the main impetus for Japanese regulatory reform is U.S. pressure for market access, Japan has adopted the principle that procedural change in the absence of substantive change is better than no change at all.

Although most of the proposed “deregulation” measures deal with abolishing or easing current regulations, several measures in the package are better characterized as simply reshaping current regulations . . . That deregulation will prove to be a horse of a different color in Japan was emphasized . . . when a Japanese government official announced, in effect, that the government “endorses deregulation in principal” but nevertheless “expects to continue to play a major role” in guiding Japan’s telecommunications market.49

Efforts at deregulation will be wasteful if the Japanese government intends to merely go through the motions without implementing significant reform. The United States remains unsatisfied with Japan’s “proper form, lack of substance” approach to deregulation.50 As further evidence of dissatisfaction with Japan’s deregulation practices, foreign businesses operating in Japan continually charge that the “interlocking of business and bureaucracy . . . led to a dominion of entrenched interests which makes a mockery of the free enterprise that Japanese spokesmen publicly support” and forces foreigners to “run up against layer upon layer of

47 Fransman, supra note 40, under heading Interconnection and Competition.

48 William Auckerman, Form Over Substance: Japan’s Telecommunications Deregulation Debate, under heading A Map is Not a Journey, at http://www.nmjc.org/jiap/jdc/cyberjapan/auckerma.html (last visited Aug. 11, 2000) (stating that “so long as the proper form is observed, the substance (or lack thereof) is secondary”).

49 Id. See also Chandler, supra note 37.

50 FRANK GIBNEY, UNLOCKING THE BUREAUCRAT’S KINGDOM 3 (1998). See also Seita, supra note 5, at 473.


detailed government regulation designed to support the status quo.”51 The current trade imbalance between Japan and the United States supports such views.52

Japan’s history of deregulation reveals the government’s historical preference for incremental change.53 The nation experienced minimal deregulation until 1981, when the Second Provisional Committee on Administration Reform investigated the role of the public sector in reducing the people’s burden and simplifying public procedures.54 Although further deregulation proposals were later introduced, no significant change (aside from the privatization of NTT) resulted until 1993, when the U.S. and Japanese governments issued the Framework.55 In 1994, the Outline for the Promotion of Deregulation identified 279

51 GIBNEY, supra note 50, at 3. See also Notes, supra note 21 (reporting that

“government and industry in the United States maintain that conditions of competition in Japan still are skewed against U.S. suppliers”).

52 How a Global Recovery May Hurt America, U.S. NEWS & WORLD REP ., Aug. 2, 1999, at http://www.usnews.com/usnews/issue/990802/asia.b.htm (last visited Jan. 16, 2001) (reporting that the U.S. trade deficit as of 1999 was $21 billion). See also Shijuro Ogata, Japan’s International Economic Relations, in CURRENT LEGAL ASPECT OF DOING BUSINESS IN JAPAN AND EAST ASIA 2 (John Owen Haley ed. 1978). Ogata explained that, during Japan’s modernization,

Japan depended a great deal on other countries as suppliers of raw materials and . . . markets for her products, but without opening much her own economy and society to the rest of the world. Japan demanded the freedom of trade for her own exports . . . but restricted freedom of trade for her imports.

Id. See also GIBNEY, supra note 50, at 5 (observing that even as Japan gained worldwide economic power, “ubiquitous government regulation inside Japan” protected the economy from outside economic forces).

53 See David Boling, Deregulation may be Japan’s Preferred Path to Increased Competition, 18 E. NO. 3 ASIAN EXECUTIVE REP . 9, 19 (1996). As a result of its preference for gradual reform, the Japanese government “now appears poised to take the more moderate route regarding the NTT issue (that is, deregulation) rather than to pursue structural reform (that is, breakup).” Id. See also Auckerman, supra note 48. The transformation of Japan’s telecommunications industry from “monopoly to fair and effective market competition has been slow.” Id. See also Masatsugu Tsuji, Deregulation in the Japanese Telecom Market, in PRIVATIZATION, DEREGULATION AND INSTITUTIONAL FRAMEWORK 22, 39 (Mitsuhiro Kagami & Masatsugu Tsuji eds., 1999).

54 See Mitsuhiro Kagami, Privatization and Deregulation: The Case of Japan, in PRIVATIZATION, DEREGULATION AND INSTITUTIONAL FRAMEWORK, supra note 52, at 1, 6.

55 Id. See generally Framework , supra note 13.


fields (including land and housing, information and telecommunications, and finance) specified for the promotion of deregulation.56 In 1995, the Plan for the Promotion of Deregulation established a five-year plan to promote deregulation in various fields.57 The original five-year plan was later revised as a three-year plan, which evolved into the Revised Three-year Plan for the Promotion of Deregulation.58 The Third Joint Status Report is the last report issued in the three-year plan.59

III. NTT—THE BREAKUP OF A MONOLITHIC CORPORATION

Beginning with the introduction of the telegraph in 1869, the Japanese government operated the telecommunications system as a direct government monopoly (under the authority of the central government).60 The established system continued until 1952, when the Nippon Telegraph and Telephone Public Corporation (“NTT”) was organized.61 As a semi-independent corporation,62 NTT took on the responsibility of rebuilding Japan’s telephone communications system following World War II.63

56 See Kagami, supra note 54, at 6.

57 Id.

58 Id.

59 Id.

60 See Gutterman, supra note 4, at 592; also UEDA, supra note 3, at 12.

61 Youichi Ito, Telecommunications and Industrial Policies in Japan: Recent Developments, in TELECOMMUNICATIONS REGULATION AND DEREGULATION IN INDUSTRIALIZED DEMOCRACIES 201 (Marcellus S. Snow ed., 1986) (explaining that Nippon Telegraph and Telephone Public Corporation (hereinafter NTT) was established for domestic communications). See also Gutterman, supra note 4, at 601-2.

62 See UEDA, supra note 3, at 12. NTT was still subject to “strict budgetary and regulatory control by the government and parliament.” Id. See also YOSHIRO TAKANO, NIPPON TELEGRAPH AND TELEPHONE PRIVATIZATION STUDY: EXPERIENCE OF JAPAN AND LESSONS FOR DEVELOPING COUNTRIES xi (World Bank Discussion Paper No. 179, 1992). (“Although a corporate accounting system was introduced under the public corporation structure, the business was basically operated as a government-related organization: such matters as tariffs were determined by law, and budgetary and other decisions were subject to Diet approval”).

63 See Auckerman, supra note 48 (inferring that Japan’s telecommunications infrastructure was destroyed during World War II); also Youichi Ito & Atsushi Iwata, Japan: Creating the Domestic and International Network , in TELECOMMUNICATIONS IN THE PACIFIC BASIN: AN EVOLUTIONARY APPROACH 440, 442 (Eli Noam, Seisuke Komatsuzaki & Douglas A. Conn. eds., 1994). After World War II bombing raids, half of the communications facilities in Japan were destroyed. A sense of urgency


Ministry of Telecommunications officials maintained this systematic organization until April 1, 1985, when the Japanese government ordered NTT “privatized”64 to introduce the “principle of competition into the telecommunications market in order to vitalize the telecommunications business and to respond to such diversified needs.”65 The result was the partial privatization of NTT as a corporation to provide domestic long-distance and local services.66 Although the reforms provided for the entry of new carriers, a reduction in rates, and the introduction of new services, full deregulation was not achieved.67 In December 1996, the divesture of NTT was settled, fifteen years after the issue was first raised in 1981.68 This latest reform (“The Second Reform”)

underscored the need for reconstruction for telecommunications facilities due to a substantial decrease in the number of subscribers (from 1,080,000 in 1943 to 470,000 by the end of World War II). Id.

64 “Privatization” is based on the narrow definition of non-nationalization, where “ownership is transferred from the public sector to the private sector through the sale of shares (including the transitional stage in which the right of management is transferred from the government and independence is granted, even though the government still owns shares).” TAKANO, supra note 62, at 84. See Ohara, supra note 44, pt. I. “Privatization” included the government’s recognition of NTT as a private company (but where whole shares were held by the government) and the introduction of new carriers. Id. See also UEDA, supra note 3, at 22.

65 Ohara, supra note 44, pt. I. See also Tsuji, supra note 53, at 25. See also TAKANO, supra note 62, at 3-4 (listing several factors as the rationale behind the privatization of Japan’s telecommunications industry, including the government’s desire to reduce increased financial debts, achievement of the goal of universal service, and a reduction in the need for unified telecommunications due to progress in technological innovations). See also UEDA, supra note 3, at 12 (discussing the issues leading to deregulation). See also Richard B. Nohe, A Different Time, A Different Place: Breaking Up Telephone Companies in the United States and Japan, 48 FED. COMM. L.J. 307, 309-310 (1996).

66 Fransman, supra note 40, under heading Background to the Debate Over NTT: What are the Main Features of the Structure of the Japanese Telecommunications Industry? Japan separates its national and international carriers. NTT provides only domestic service, not international service. Id.

67 Tsuji, supra note 53, at 26 (noting that even though the 1985 reforms introduced new carriers into the Japanese marketplace and lowered rates, areas where NTT held a monopoly experienced rate increases).

68 Id. at 30-31. Under this final restructuring, NTT has been “divided into four companies—a long distances call company, two regional telecommunications companies, and a holding company. The new holding company owns three other telecommunications companies by holding all stocks of those companies. As for research and development (R&D), the holding company inherits the current NTT’s R&D, and


was implemented in 1999.69 Although NTT no longer monopolizes the long-distance market, MPT officials see a need for further deregulation due to continued monopolization of the local call market.70

IV. THE ENHANCED INITIATIVE—A POTENTIAL INSTRUMENT OF CHANGE

A. An Influx of New Telecommunication Carriers

The initial step in determining whether the Chain of Events posed in Section III is an accurate predictor of changes consumers may experience involves analyzing the effect adjustments in interconnection rates will have on the influx of new telecommunication carriers.71 In 1985, Japan sought to deregulate the telecommunications industry through privatization.72 Statistics indicate that more than 6,000 new carriers have entered the once-monopolized Japanese market since NTT’s privatization in 1985,73 and, as of April 1998, the number of Type I carriers increased to 15374 while the number of Type II carriers increased to 5,871.75 The number of new carriers catering to the Japanese domestic long-distance

particularly undertakes basic R&D, while applied R&D is carried out by long-distance call and regional telecommunications companies.” Id.

69 Id. at 30.

70 James D. Southwick, Addressing Market Barriers in Japan Through the WTO: A Survey of Typical Japan Market Access Issues and the Possibility to Address them Through WTO Dispute Resolution Procedures, 31 LAW & POL’Y INT’L BUS. 923, 947. See also Tsuji, supra note 53, at 37 (noting the existence of a “bottle-neck monopoly” in the local call market because long-distance carriers must still link up with NTT’s monopolized regional networks and pay high interconnection fees).

71 See Fransman, supra note 40, under heading Interconnection and Competition.

72 See Ohara, supra note 44, pt. I.A. See also Tsuji, supra note 53, at 25.

73 Ohara, supra note 44, pt. I.D. (citing statistics applicable from April 1985 until August 1998). See also Hiroshi Ishikawa & Ken-ichi Nishimura, Impact and Preliminary Results of Telecommunications Deregulation in Japan, INST . ELEC. & ELEC. ENG’RS. COMM. MAG., July 1998, at 100 (citing statistics that as of January 1998, telecommunications carriers in Japan totaled 5,765 companies).

74 See Tsuji, supra note 53, at 25.

75 Type I carriers “refer to those carriers which possess their own circuits and provide telecommunications services, while Type II carriers include those which do not own circuits and provide contents service by utilizing the circuits of Type I carriers.” Tsuji, supra note 53, at 47. See also Knight, supra note 6, at 25-26.


market since the initial 1985 reforms support the first prong of the Chain of Events.76

The lowering of interconnection rates resulted in significant increases in the number of NCCs in Japan.77 Shortly after the 1985 reforms, three NCCs78 entered the domestic telecommunications market.79 Within eleven years, the three companies have seen their earnings nearly quadruple: revenues rose from 18 billion yen in fiscal year 1987 to 69.2 billion yen in fiscal year 1988.80 More importantly, in addition to the NCCs’ financial success, NTT’s share of the marketplace has diminished.81 In 1990, although NCCs accounted for only 12%82 of the Japanese long-distance market, they controlled 40% of the Tokyo-Nagoya-Osaka market.83 This trend continued during the mid-1990s and by 1995, the NCCs had increased their market share to approximately 43% of the Japanese domestic long-distance market.84

76 See TAKANO, supra note 62, at 84-87; also Oniki, supra note 38. The author

discusses why the effects of the 1985 reforms are regarded as “a textbook case in which monopoly prices are decreased because of the competition from new entrants.” Id. at 75. See also Conn, supra note 23, at 46 (characterizing Japanese deregulation efforts as successful).

77 See UEDA, supra note 3, at 26; also Ishikawa & Nishimura, supra note 73; Tsuji, supra note 53, at 25.

78 The three New Common Carriers (“NCCS”) were DDI Corporation (“DDI”), Japan Telecom (“JT”), and Teleway Japan (“TWJ”). UEDA, supra note 3, at 26.

79 Id. See also Taro Yayama, Who Has Obstructed Reform? , in UNLOCKING THE BUREAUCRAT’S KINGDOM, supra note 50, at 91, 109-110.

80 See UEDA, supra note 3, at 27. By the end of fiscal year 1990, DDI was expected to “be in the black two years earlier than planned.” JT was also profitable and TWJ was expected to “operate in the black” at the end of fiscal year 1989. Id.

81 See Fransman, supra note 40, under heading What are the Main Features of the Structure of the Japanese Telecommunications Industry?

82 Percentages are measured in revenues from long distance calls, not volume of phone calls.

83 MARTIN FRANSMAN, VISIONS OF INNOVATION 114 (1999) (citing Teruaki

Ohara, Address at the Anglo-Japanese High Technology Industry Forum (June 1991), and Iwao Toda, Address at the Conference on “Communications after 2000 A.D.” (March 18 & 19, 1992)). Likewise, in 1991, the NCCs controlled 16% of the Japanese long-distance market but controlled 49% of the Tokyo-Nagoya-Osaka market. Id.

84 In 1994, the NCCs managed 31.3% of all domestic long-distance traffic. NTT’s share of the long-distance Japanese market in 1995 was approximately 57%. Also compare NTT’s 57% long-distance share with its 98% share in regulated local markets.


These statistics indicate that the decrease of interconnection rates as a product of deregulation efforts resulted in a greater number of telecommunication carriers willing to enter the Japanese marketplace.85 NTT’s 50% market share in some fields outside the local call market strongly implies that competition is effective.86 Likewise, the statistics indicate that in addition to infiltrating the formerly monopolized telecommunications market, NCCs have flourished.

B. Competition: Consumers Benefit From Lower Prices

The privatization of NTT in 1985 resulted in new telecommunications carriers entering the Japanese market.87 In conjunction with the Chain of Events described earlier,88 this section addresses the second and third links in the chain—greater competition and price reductions.89

Following the privatization of NTT and the entrance of NCCs into the Japanese telecommunications industry, rates decreased more than 50% in some service areas.90 As the NCCs entered the long-distance call market and provided reduced rates to customers, NTT also lowered its call rates in an effort to remain competitive.91 In April 1985, the standard long-distance rate92 was 400 yen.93 In contrast, the long-distance rate

Fransman, supra note 40, under heading What are the Main Features of the Structure of the Japanese Telecommunications Industry?

85 Tsuji, supra note 53, at 25. But see Gutterman, supra note 4, at 623 (stating that the “early results on the competitive effect of deregulation are somewhat mixed”). Although the NCCs have infiltrated the Japanese telecommunications market, NTT remains the dominant telecommunications service provider. Id.

86 See Ishikawa & Nishimura, supra note 73, at 102.

87 See supra Section II.A.

88 See supra Section II.B.

89 See Ohara, supra note 44, pt. I.D; also Fransman, supra note 40, under heading Interconnection and Competition.

90 Yayama, supra note 79, at 110.

91 Kagami, supra note 54, at 18.

92 The phone rates included in this article refer to long-distance domestic calls between Tokyo and Osaka, a distance of 500 km. Ohara, supra note 44, pt. I.D.

93 UEDA, supra note 3, at 24 (defining “long distance rate” as greater than 320 km, 3 minutes, weekday business hours).


charged by the NCCs when services were initiated in 1987 was 300 yen, 25% lower than those of NTT.94 In April 1990, NTT reduced its long-distance rate to 280 yen, indicating that increased competition directly influenced decreased phone rates.95

Other events emphasize the potential of deregulation to reduce consumer phone rates. For example, as of August 1998, Japanese consumers have seen NTT’s domestic long-distance phone rates decrease from a high of 400 yen in April 1985 to 90 yen on February 1, 1998, a 77.5% decrease.96 Tokyo Telecommunication Network (a competitor), however, charged 63 yen for the same phone call on March 1, 1998.97 Based on the cited statistics, Japanese consumers have witnessed considerable decreases in phone rates since the implementation of deregulation, thus leading to speculation that further deregulation efforts will lead to similar results.98

C. Hopes for the Future—Further Price Reductions

Statistics indicate that the “Chain of Events” rings true. Lower interconnection rates (accomplished through deregulation) led to a greater number of corporations entering the Japanese telecommunications market, which resulted in more competition and lower long-distance phone rates.99 This section considers what effect, if any, future interconnection rate reductions will have on domestic long-distance phone rates.

The announcement of the Third Joint Status Report and the accompanying optimism of U.S. and Japan trade officials contribute to increased hopes for the anticipated opening of Japan’s massive telecommunications market.100 Following the announcement of the Enhanced Initiative, U.S. Trade Representative Charlene Barshafsky

94 Auckerman, supra note 48, under heading Market “Competition” and

“Deregulation.”

95 UEDA, supra note 3, at 25 (noting that the April 1990 rate was a 30.0% reduction from the April 1985 rate).

96 Ohara, supra note 44, pt. I.D. See also Yayama, supra note 79, at 93 (noting that the “price war” resulted in price decreases, from 400 yen to 180 yen).

97 Id.

98 Ishikawa & Nishimura, supra note 73, at 102.

99 See Ohara, supra note 44, pt. I.D; Fransman, supra note 40, under heading Interconnection and Competition.

100 See Chandler, supra note 37; also Notes, supra note 21.


reported that NTT will be required to “cut connection charges to American and other foreign carriers by $1 billion a year” to allow competition into Japan’s telecommunications market.101 Along similar lines, NTT is expected to reduce its interconnection rates by 35% within two years; the figure is expected to decrease by more than 41% over three years.102 Regional access interconnection rates will also drop more than 50% over two years whereas local access interconnection rates will fall more than 20% over the same time period.103

In spite of this positive outlook, the further reduction of phone rates may be overly optimistic.104 The Third Joint Status Report, through the lowering of interconnection rates, may lead to moderate decreases in domestic long-distance phone rates; however, complete deregulation will not be realized due to several institutional and social influences.

Japan’s unwillingness to provide open access to its markets is one of the prime inhibitors of true reform.105 Although detested by foreign corporations seeking to conduct business in Japan, maintaining the status quo remains consistent with Japan’s policy of restricting freedom of trade.106 The description of regulatory reforms as procedurally sound but

101 See Chandler, supra note 37.

102 Deregulated Industries: U.S., Japan Sign Deregulation Package; Third Report Could be Last Agreement, ANTITRUST & TRADE REG. REP ., July 28, 2000, available at WL 79 ATRR 94 (reporting that the Third Joint Status Report between Japan and the United States followed an agreement to reduce network access fees charged by NTT).

103 Id.

104 See Fransman, supra note 40, under heading What are the Main Features of the Structure of the Japanese Telecommunications Industry? (noting that in the local market, NTT basically retains a monopoly with a 98% market share, thus forcing “would-be new entrants to negotiate interconnection and access charges with NTT”).

105 See GIBNEY, supra note 50, at 3 (noting that for more than 200 years, Japan operated under a “closed country” type of system). See also Alan Wm. Wolff, The Asian Question: Integration of East Asia Into the World Economy , 3 UCLA J. INT’L L. & FOREIGN AFF. 43, 48 (1998) (explaining that Japan has been “a trade problem country throughout this century”); Wu, supra note 7, at 25; Joseph Doherty, United States-Japan Telecommunications Conflict: Role of Sociocultural Factors, in UNITED STATES-JAPAN TRADE IN TELECOMMUNICATIONS, supra note 23, at 121, 127 (noting that Japan must change its “catch-up-to-the-West mentality” to reach its goals in the internals community).

106 After World War II, Japan depended on other countries for raw materials, technology, and as markets for Japan-made products but “without opening much her own economy and society to the rest of the world.” Ogata, supra note 52, at 2. See also Southwick, supra note 70 (explaining that Japan “maintains a wide range of [ ] market access barriers” that protect domestic corporations); Yoshiro Miwa, Corporate Social


substantively barren conforms to the general practice of the Japanese government implementing reform merely to appease international demands for further deregulation.107 Requests for additional reform will be acknowledged since foreign pressure, or gaiatsu, is often the “catalyst for creating change inside Japan.”108 In spite of the importance of gaiatsu, Japanese bureaucrats have “selectively adopted a monzen banai policy (literally “to keep waiting at the gate”) by simply refusing consultations requested by U.S. negotiators on trade topics.”109 Deregulation as envisioned in the Framework110 may never be achieved if these constraints continue.

Japan’s interlocking government bureaucracy, the Iron Triangle,111 is another impediment to true deregulation.112 The reforms of 1985 allowed NCCs to enter the Japanese telecommunications market and

Responsibility: Dangerous and Harmful, Though Maybe Not Irrelevant, 84 CORNELL L. REV. 1227, 1251 (1999) (observing that the Japanese economy has been strictly regulated).

107 See Auckerman, supra note 48, under heading Why Now?

108 Cohen, supra note 33, at 149. See also Auckerman, supra note 48, under heading Some Underlying Motivators; Ito, supra note 61, at 221; Thomas J. Schoenbaum, Trade Friction with Japan and the American Policy Response, 82 MICH. L. REV. 1647, 1648 (observing that Japan lifted some of its trade restrictions largely because of external pressure by the United States); Surjadinata, supra note 2, at 1085. Japanese business leaders warned the Japanese government that investors would seek other markets unless the Japanese market was liberalized. Following this warning, the Japanese government implemented further deregulation measures. Id.

109 Wolff, supra note 105, at 52. See also Notes, JAPAN ECON. INST . REP ., Apr. 21, 2000, available at 2000 WL 11698902. Foreign pressure to deregulate has also placed Japan on the defensive, as a “fed-up Tokyo finally decided” that Washington should not have “the last word on conditions of competition in Japan . . . [and] the government also clearly believes that U.S. trade strategists have not given Tokyo the credit it deserves for deregulating the economy in the 1990s and otherwise improving the competitive environment for outsiders.” Id.

110 The Framework is designed to “promot[e] strong and sustainable domestic demand-led growth and increas[e] the market access of competitive foreign goods and services . . . and [ ] promot[e] a significant increase in global imports of goods and services, including from the United States.” Framework , supra note 13.

111 KAREL VAN WOLFEREN, ENIGMA OF JAPANESE POWER (1989). Japan’s bureaucracy is referred to as “Japan, Inc.,” where corporations make political contributions to politicians, who then exert influence over the bureaucrats who regulate the company’s activities. Id. at 44-45.

112 See Cohen, supra note 33, at 109; also Auckerman, supra note 48, under heading The Ghost of Decisions Past.


introduce competition; but it has been “a closely managed competition.”113 MPT scrutinizes the interconnection rates charged and used its “regulatory authority to foster the initial success and early growth of Japan’s NCCs by permitting [them] to charge significantly lower prices than NTT.”114 MPT officials argue that MPT must continue to oversee the deregulation process due to NTT’s size and control over local networks.115 Should Japan’s telecommunications industry undergo additional deregulation under the authority of MPT, NTT may be forced to endure further fragmentation.116 Industry observers speculate that MPT officials support NTT’s divesture because the presence of a greater number of smaller firms will increase MPT’s power and lessen NTT’s influence.117

The possibility of personal interests influencing MPT decisions is a concern of the telecommunications industry. The long-standing practice of amakudari118 contributes to the overwhelming governmental bureaucracy by creating a link between Japanese corporations and former ministry officials.119 Critics note that MPT officials are encouraging deregulation and the breakup of NTT in particular because such measures will create more corporations where retired government officials can become employed.120 A May 1994 incident attests to the officials’ strategy. MPT tried to force the appointment of Vice-President Shigeo Sawada, former MPT vice minister, as the next president of NTT. NTT

113 See also Auckerman, supra note 48, under heading Market “Competition”

and “Deregulation.”

114 Id.

115 Susumu Nagai, Japan: Technology and Domestic Deregulation, in TELECOMMUNICATIONS IN THE PACIFIC BASIN, supra note 63, at 458, 469.

116 See generally Fransman, supra note 40.

117 See Auckerman, supra note 48, under heading For and Against; also Conn, supra note 23, at 41. Cf. Boling, supra note 53, at 16 (commenting that MPT’s support for the breakup of NTT was not surprising to telecommunications industry observers).

118 See HSU, supra note 33, at 16. Literally translated as “descending from heaven,” Amakudari is the practice of high-level government officials retiring from government service and, after a brief waiting period, accepting positions in private corporations that their former ministry supervises. Id.

119 See Auckerman, supra note 48, under heading For and Against.

120 See Fransman, supra note 40; also Auckerman, supra note 48 (providing statistics that as of March 1996, at least 52 former MPT senior officials held top-level executive positions at 33 leading telecommunications firms); HSU, supra note 33, at 16 (presenting the various supporting and opposing arguments for amakudari).


fought back hard on this occasion and President Hitoshi Kojima was appointed for a second term. In the course of these negotiations, the ministry reportedly threatened to break up NTT.121 This incident suggests that personal gain may unduly influence ministry decisions and further impede deregulation efforts.

Although the concerns mentioned above detract from the goal of providing lower rates to Japanese consumers, they are obstacles that will determine whether sufficient deregulation is achieved. Even if MPT continues to closely regulate NTT and the practice of amakudari continues, further price reductions may be imminent. Although these same practices were in place following the initial 1985 reforms, domestic long-distance phone rates incrementally decreased.122 Additionally, if the Chain of Events theory holds true, the introduction of deregulation measures and competitors into the marketplace will allow competition to emerge and result in price reductions.123 If the Japanese government, in accordance with the Third Joint Status Report, implements policies that directly affect deregulation while preventing the aforementioned barriers from interfering in this deregulation process, consumers will realize lower phone rates.

V. CONCLUSION

Japan must acknowledge the obsoleteness of the absolute trade restrictions it imposed following World War II and take affirmative steps to increase market access to its industries. The Third Joint Status Report provides for the United States and Japan to undertake specific and concrete deregulatory action in the telecommunications industry. The concrete nature of the provisions as well as the results of past deregulatory efforts may warrant the optimism accompanying this latest legislation. The central issue, however, should be the plan’s practical effect: whether a reduction in interconnection fees, as provided for in the Third Joint Status Report, will decrease domestic long-distance phone rates for Japanese consumers. Although the Third Joint Status Report will moderately lower consumer rates, several factors may prove the downfall of the initiative, namely Japan’s apparent lack of desire for reform and the intricate

121 Yayama, supra note 79, at 111.

122 Japan Telecom to Meet Rate Cuts by NTT, ASIA PULSE, Sept. 6, 2000, available at 2000 WL 20947069 (reporting that JT, in the wake of dramatic price cuts by NTT, also plans to reduce rates. DDI and NTT long-distance are also expected to lower charges.). See also Ohara, supra note 44, pt. I.D; Yayama, supra note 78, at 93.

123 See Fransman, supra note 40, under heading Interconnection and Competition; also Ohara, supra note 44, pt. I.


relationship between corporate officers and ministry officials. Nevertheless, the Third Joint Status Report has the potential to be a powerful instrument of change if, and only if, Japan allows it to be.

Dawn Nagatani124

124 Class of 2002, William S. Richardson School of Law, University of Hawai‘i

at Manoa.

Asian-Pacific Law & Policy Journal - University of Hawaiiblog.hawaii.edu/aplpj/files/2011/11/APLPJ_02.1_nagatani.pdf · 292 Asian-Pacific Law & Policy Journal; Vol. 2, Issue 1 (Winter

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