Regulatory Developments Little has changed for the better in past years for foreign retail and wholesale companies wishing to invest in the Japanese market. Although Japan is the second largest retail market in the world, very few non-Japanese retailers are active in the Japanese market. Despite a marked expansion of foreign retail activity in the specialty retail channel (albeit with many outlets operated via franchises or under licence to Japanese companies), it has proved extremely difficult for foreign retailers to take advantage of global scale logistics when entering the Japanese market. The process for developing and opening new retail outlets has remained fraught with restrictions, inefficiency and delay. Opportunities to streamline the new Large Store Location Law of 2000 - intended to improve efficiency by decentralizing control and decreasing administration - with the Building Permit and Environmental Impact Assessment procedures were not taken. Instead the new law led to individual local governments imposing their own procedures and in some cases new licence conditions, thus increasing costs and delays. The effect, combined with restrictions on opening retail stores above 10.000 m2, has been to discourage foreign retailers further by making the costs to enter and establish operations in Japan even higher. The Government took note of EBC's concerns and introduced crucial exemptions to the new restrictions for large-scale retailing before the revisions to the City Planning Law were passed in the Diet in early 2006. Prospects for EU-Japan Economic Integration The Japanese retail market is one of the largest and most vibrant in the world. However, unlike many markets, non-franchised outlets of overseas retail chains are rare. Successful entries into Japan by European retailers have been few and the failures have been given considerable coverage by the local and international media. This has led to a perception, sometimes unfair, that Japan is simply 'too difficult': competition is intense, costs are high, the threat of a rise in consumption tax is real, and regulatory requirements and enforcement are opaque. Many retailers looking to expand internationally pass over Japan in favour of other markets that provide examples of non-local retail success. Nevertheless, a number of European retailers that have made careful studies of the Japanese market have elected to 'set up shop'. It is important that they be allowed the opportunity to succeed. Their success benefits the Japanese consumer by offering them greater choice. Success of European retailers in Japan also benefits Japanese retailers and wholesalers by providing new opportunities to compete and to further strengthen their global competitive edge. Importing, certifying and labelling various consumer products continue to be overly costly and complex, due to insisting on additional product testing against specifically Japanese standards, even where products are already covered by international and European standards. The EBC can see no reason why products already certified for the European market have to undergo testing and certification anew if to be sold on the Japanese market. As standards for most retail products are similar, the EU and Japan should swiftly move to establish mutual acceptance of standards and certification. Priorities
Key Issues and Recommendations ■ Large-scale retailing Yearly status report: limited progress. While progress has been made in clarifying many of the provisions in the Large-scale Retail Location Law, lack of transparency and unequal regional implementation limit the entry of foreign retailers into the market. Local interpretation of construction, safety and environmental regulations is inconsistent. This adds to investment costs and increases uncertainty and risk, effectively undermining any learning curve benefits for retailers attempting to expand operations in Japan. The conspicuous rarity of foreign-owned and -operated large-scale retailers in Japan bears witness to the impact this has on investment. The discussion on new restrictions on large-scale retailing is, however, continuing. The EBC urges the Government of Japan to exercise caution and not introduce any further restrictions as it will only exacerbate the situation at the regional level, leaving the countryside with no global retailers, limited selection, reduced competition and, in the long-run, lowered economic activity. Recommendation:
■ Liquor Yearly status report: some progress. Since 2001, deregulation has gradually liberalised liquor licensing in the retail sector in Japan. The withdrawal of the interim measure establishing "Urgent Adjustment Areas" in September 2006 was a significant step towards complete liberalisation. The EBC applauds the progress made and asks the Government to apply the same measures to the wholesale market, where the lack of liberalisation is becoming an issue of increasing concern. Recommendation:
■ Prohibitive import, certification and labelling rules Yearly status report: limited progress. Reluctance to accept EN and ISO standards or CE marking of products exported to Japan delays the introduction of new products to the market and increases import costs. While accepting the need to safeguard consumer health and safety, the EBC urges the Governments of Japan and Europe to mutually recognise standards and products. Recommendation:
■ Labelling of household products Yearly status report: new issue. The Household Product Quality Law and accompanying voluntary labelling guidelines "hyojikitei" prescribe in extreme detail how household products should be labelled when sold in Japan. Local governments inspect retailers regularly, seemingly with no legal grounds and issue a warning when finding violations. The combination of legal uncertainty and detailed rules cause considerable problems for retailers sourcing on a global basis. If forced to comply with these rules, they would have to alter their global production system adding unacceptable costs for customers. Recommendation:
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