PRESS RELEASE
For Immediate Release ...............................Contact: Vladimir Gololobov
March 28, 2005 .................................. ..........(202) 289-7460 x24
Foreign Industry Associations Call for Level Playing Field and Equal Footing in Postal Privatization
Consistent with Prime Minister Koizumi’s pledge to privatize Japan Post and its three postal businesses, Kampo (postal insurance), Yucho (postal savings), and Yubin (postal delivery), the Cabinet Office is expected to submit draft legislation to the Diet with a goal of securing authorizing legislation before the end of the current ordinary session in June 2005. Postal privatization is an enormous undertaking that will profoundly impact the Japanese financial system and economy, and private companies that must compete with the privatized Japan Post entities.
Against this backdrop, the undersigned U.S. and European business associations representing the finance, insurance and express delivery industries strongly urge the Government of Japan to ensure that privatization results in a level playing field and “equal footing” between the postal entities and private sector competitors. Private competitors will be at a severe and unfair disadvantage due to the overwhelming size and market power of the postal institutions unless Kampo, Yucho and Yubin are: 1) required to meet the same regulatory, financial, tax, transparency and prudential requirements; 2) prohibited from broadening the range of products and services offered both domestically and internationally until their current privileges are completely eliminated; and 3) prevented from cross-subsidizing their services, as well as one another.
The creation of a fair and competitive environment for finance, insurance and express delivery services should be a primary goal of postal privatization and reform. This is necessary not only to ensure that competitive foreign and domestic providers are not disadvantaged, but to ensure efficiency in Japan Post and the Japanese economy, and provide Japanese citizens with the best service at the lowest cost.
Given the magnitude and complexity of postal privatization, all deliberations should be fully transparent and subject to public comment at every stage. Moreover, the process can be enhanced through close cooperation between the Government of Japan and private companies. Many private companies have accumulated valuable experience from helping other countries reform government-operated postal systems. Allowing these companies to participate in the privatization process would contribute to a successful outcome that maximizes benefits for the economy.
FINANCE and INSURANCE RECOMMENDATIONS
Establish a level playing field: Privatization must ensure that Kampo and Yucho are subject to the same level and type of regulations as private competitors. Specific measures should include: 1) requiring that both entities pay taxes; 2) eliminating government guarantees on all insurance policies and requiring them to set up a safety-net system to protect policyholders from potential failure; and 3) requiring that they be placed fully under Financial Services Agency (FSA) supervision and subject to the Insurance Business Law (IBL) and Banking Law, respectively.
Prohibit expansion of new products until equal treatment is established: Until Kampo and Yucho and their private-sector competitors are all treated the same under the law, expansion of new Kampo and Yucho product offerings, including new hybrids of existing products or riders that do not require Diet approval, should be strictly prohibited. Such interim measures are essential to limit the harm to the private sector until a level regulatory playing field and equal conditions can be established.
Prevent Kampo and Yucho from abusing market power: Kampo’s and Yucho’s activities must be restricted to ensure that they do not abuse their market power, even inadvertently. Appropriate measures include placing stricter limitations on the permissible range of product offerings, preventing cross-subsidization between Japan Post’s three businesses, and rigorously enforcing Japan’s Antimonopoly Law in a manner consistent with global standards of competition law.
Ensure that Japan’s regulatory regime is consistent with GATS commitments: In line with Japan’s commitments to national treatment under the General Agreement on Trade in Services (GATS) of the WTO, the Government of Japan must ensure that treatment accorded Japan Post’s financial institutions is no more favorable than that accorded foreign suppliers of similar services.
EXPRESS DELIVERY RECOMMENDATIONS
Separate basic postal service and express delivery: A clear division is needed between the postal service reserved to Japan Post in its universal service obligation for basic delivery services and any competitive businesses in which Japan Post is involved, including express delivery services and logistics.
End postal subsidies: The government should not provide subsidies or benefits, either directly or indirectly, to the competitive businesses of Japan Post through exemption from taxes and other fees or special treatment by government agencies in the transport of goods. For example, Japan Post should not be exempt from the costs of Customs operations or administrative requirements that must be paid by all private entities.
Do not allow cross-subsidization: All transactions between the delivery business and the other three businesses of Japan Post (insurance, savings, network) must be conducted on an arms-length basis to ensure fair competition. This same principle applies to all transactions between the universal service business and the other delivery services of Japan Post.
Ensure fair competition: In determining the scope of the postal monopoly, the government should maintain the principle that the only reason to create a monopoly or reserved area is to ensure provision of basic and essential universal postal delivery service. To stimulate economic efficiency and increase consumer choice by promoting competition, the postal delivery monopoly should be defined in the narrowest possible way. This should be based on a reasonable combination of price and weight thresholds for letters with a view to exclude all value-added services, such as express delivery services, from the postal monopoly.
Create an independent regulator: An independent regulatory authority for Japan Post’s postal delivery business is required so that there is a complete and transparent separation between it, the national postal operator and government authorities. The postal regulator must have jurisdiction only over the services provided by the universal postal service provider, that is, Japan Post. The general transportation and express industries, both domestic and international, should remain outside the authority of the postal regulator.
SUPPORTING ORGANIZATIONS
The following European and U.S. industry associations stand ready to offer advice, input and assistance to the Government of Japan during the privatization process:
American Council of Life Insurers (ACLI)
American Chamber of Commerce in Japan (ACCJ)
Bankers’ Association for Finance and Trade (BAFT)
Coalition of Service Industries (CSI)
European Business Council in Japan (EBC)
Securities Industry Association (SIA)
U.S. Chamber of Commerce
U.S.-Japan Business Council (USJBC)
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