This Week’s “Nagata-cho” (17-25.Dec, 2013)

 The Cabinet on December 24 approved the draft budget for the next

fiscal year. The total of general account amounted to all time record

of 95.88 trillion yen (3.5% increase from this year). Combined with

the supplementary budget decided in early-December, the size of

expenditure will exceed some 101 trillion yen. The government will

simultaneously implement the initial FY 2014 budget and the

supplementary budget for this year to avoid possible negative impacts

of the consumption tax hike to 8% scheduled in April 2014.

 In terms of revenue, it calculates the additional income by the

consumption tax hike (4.53 trillion yen), as well as the increases in

corporate tax and income tax caused by the recovery of export

companies to be +16% from this year (50 trillion yen), thereby reduced

new issuance of government bonds to 41.25 trillion yen (-3.7%). The

rate of bond-dependency, rate of loans among the overall income, thus

improved to 43% from 46.3%.

 The policy-related budget amounted to 72.61 trillion (+3.2%), making

deficits of the basic primary balance approximately 18 trillion yen, a

5.2 trillion minus of this year’s 23.2 trillion yen. The numbers show

that the government target of 4 trillion yen reduction set in the

midterm fiscal plan in August and Basic Principles for FY 2014 Budget

Formulation decided on Dec 12 was accomplished.

 The largest appropriation item is social security costs, amounting to

30.51 trillion yen (+4.8%). It was caused by the natural increases of

medical insurance and pension accompanying ageing, as well as

expansion on child-rearing support measures part of which will be

covered by revenue from the consumption tax hike. Also, it allocated

larger amounts of budget on public works projects including disaster

measures and infrastructure (5.96 trillion yen, +12.9%), defense

expenses including countermeasures to China’s aggression over sea and

North Korea’s missile issues (4.88 trillion yen, +2.8%), promotion of

science and technology (5.96 trillion yen, +1.4%), all exceeding this

year’s budget.

 On the other hand, the local subsidy decreased to 16.14 trillion yen

(-1.5%) in eye of automatic benefits from the consumption tax hike.

The expenses used for repayment of the national bonds amounted to

23.27 trillion yen (+4.6%).

 As policy measure to boost the country’s competitiveness, the budget

appropriated 120 billion yen for research and development, including

establishment of a Japanese version of National Institute of Health as

control tower of leading-edge medical care studies. In the field of

agriculture, it created 80 billion yen by halving the direct

compensation payment to rice farmers (15,000 per 10 are) to cover

costs for establishment of a Farmland Consolidation Bank which is to

consolidate abandoned farmland and manage leasing business to

ambitious farmers.

 The budget also added 0.25 trillion yen for decommissioning nuclear

reactors (-48%), 0.13 trillion yen for disposing of contaminated

materials (+37%), 22.5 billion yen of compensation and cleaning

projects, and other research and development or human resources

training projects.

 The focal point in the budget formulation process was how to achieve

the economic recovery to overcome deflation while at the same time

approaching to fiscal soundness by reducing wasteful spending. The

background of the ever-largest budget this time was combination of

ending of the special measures to cut down the national government

employees’ salary by 7.8% in total, transfer of part of special

accounts to the general account (0.79 trillion yen), and temporary

measures to lessen burden on elderly’s medical fees (0.41 trillion

yen). Yet, there were scenes that the relevant ministry, LDP’s policy

tribes and industry worked together to pressure the government for

budget allocations which in turn turned down efforts to reduce appropriations.

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Toward Starting of National Strategic Special Zone

* Written by Eiji HARA, PPPC President

 The bill to establish the National Strategic Special Zones was

approved in the last extraordinary session of the Diet. Accordingly,

on December 20, there was an announcement of five private sector

members of the “Special Zone Advisory Council” including Heizo

TAKENAKA, Tatsuo HATTA and Ken SAKAMURA.

 The National Strategic Special Zone is a plan to conduct regulatory

reforms within some districts experimentally. There were similar

institutions of special zones in the past, however, for limitations

caused by intermediary clerical coordination by the government

ministries, they could hardly cut their way into highly regulated

fields often dubbed “bedrock.”

 The aim of new Special Zone is to serve as breakthrough toward these

fields. One of the mechanisms to ensure such implementation is the

“Headquarter of Special Zone” (legally “special zone committee”)

to be established in each Zone. The committee serves as “independent

mini-government” where comprised of the minister-in-charge, local

leader and private sector members gather. The committee directly

receives on-spot voices on needs of regulatory reform. Then the

minister-in-charge takes the needs to the abovementioned Special Zone

Advisory Council for consideration. There, the minister-in-charge of

Special Zone and the minister having jurisdiction of said regulation,

along with private sector members, will have discussions and the Prime

Minister will finally decide how to advance the issues. As such, it

was designed to bypass oppositions from “the iron triangle” (of

bureaucracy, politicians and industry) with the bureaucracy at its

core.

 The legislation enacted this time entailed “relaxation of bed space

regulation,” “clarification of employment conditions,” “lifting

ban on publicly-owned privately-managed schools,” “exceptional

measures on floor-area ratio restriction,” “relaxation of

requirements for establishing agricultural corporations,” etc., as

particular initial menu of regulatory reforms to be applied in the

Special Zones (further menu will be added by the above process). All

of them are the bedrock regulations which past administrations

attempted to tackle with and failed. While some media reported these

menu are small-scaled, they are just criticisms rooted from ignorance.

 The reason behind the fruitful advancement was that discussions on

the framework of the Special Zone Advisory Council took the lead in

substance. The unimaginably distinguished members including Taichi

SAKAIYA (special advisor to the Cabinet), TAKENAKA (chief in charge of

the Industrial Competitiveness Council) and HATTA (chairperson of the

National Strategic Special Zone Working Group) formed a de facto

“negotiation team” without leaving discussions on selection of

reform menu and on coordination process between ministries, and gained

the final decision at the Prime Minister’s office in a meeting with

Prime Minister Abe and relevant ministers.

 The next phase is how the leaders operate the institution. The

Cabinet will be tested whether and how they open the breakthrough with

the Advisory Council as its arena after January.

This Week’s “Nagata-cho” (10-17.Dec, 2013)

 Last week on December 12, the Cabinet approved the supplementary
budget entailing ￥5.46 trillion yen of economic measures to mitigate
possible negative impacts of the scheduled consumption tax hike in
April 2014. The Cabinet plans to submit the budget to the ordinary
session of the Diet in January.
 The supplementary budget includes (1) infrastructure works and
support for mid- and small-sized enterprises in eye of the Tokyo
Olympic and Paralympic Games in 2020 (1.39 trillion yen), (2)
disaster-resilience and safety measures, such as rebuilding of school
facilities (1.19 trillion yen), (3) transfer to the special account
for reconstruction after the Great East Japan earthquake (1.93
trillion yen), (4) measures to youth, women and elderly (0.3 trillion
yen), grants to low-income brochures and child-rearing families (0.64
trillion yen), etc.

 On December 12, the ruling Liberal Democratic Party and New Komeito
decided the outline for the tax reform proposal for the fiscal 2014.
It entails plans to support enterprises by reducing burdens on
enterprises, beside the plan to abolish tax reduction special
corporate tax a year earlier than scheduled. Also, it proposed
corporate tax reduction within the National Strategic Special Zones on
research and development and investment works. Combined with the tax
reduction decided in October, the total amount of tax reduction will
be 630 billion yen both in the national and local taxes. The Cabinet
will continue considering further corporate tax reduction which Prime
Minister Shinzo Abe has put emphasis on.

 On the other hand, the burden on individuals will increase.
Considering retrogressive nature of the consumption tax hike scheduled
in April, it plans to decrease the tax deduction amount of the
high-salary brochures. From the current 2.45 million yen deducted from
annual income of more than 15 million yen, the mount will be changed
to universally 2.30 million yen from brochures of annual income of
more than 12 million yen from January 2016. As the subject of taxation
will increase, it will be a tax-hike in substance.

 Also, given the criticisms on vehicle acquisition tax as being the
double-taxation with consumption tax, the tax will be decreased to 3%
from the current 5% for ordinary vehicles, and 2% from the current 3%
for light-weighted vehicles. The tax will be abolished when the
consumption tax rate is to be hiked to 10%. Yet, as the budget of
local governments will be decreased, it will raise the automobile tax
of new light-weighted vehicles from the current ￥7,200/year to
￥18,000/year from April 2015. The tax on motorized two wheel vehicles,
small-sized two wheel vehicles of more than 250cc, and light-weighted
trucks will be increased to, respectively, ￥2,000 from ￥1,000, ￥6.000
from ￥4,000, ￥3,800 from ￥3,000. Also, the automobile tax amount,
which owners pay every year, will be revised to the ones promoting the
environmentally-friendly vehicles.

 It also entails measures to prevent financial gaps from widening
among the local governments. While the local governments receiving
local subsidies will be granted less subsidies after the consumption
tax hike, and wealthy local governments not receiving the subsidies
will be benefited from the net increase of the tax-hike. In light of
this, some ￥600 billion, 1/4 of corporate residential tax, will be
transferred as national tax and redistributed to the local governments
with less financial ground.
 The ruling coalition reserved conclusion on the reduced tax rate of
the consumption tax, which has been the main focal point but to
introduce it when the tax is to be hiked to 10%. It announced to reach
an agreement on details by next year’s outline for the tax reform
proposal in December. The coalition partner Komeito had proposed
repeatedly to exclude certain items such as food, newspaper and books
from subject of the consumption tax, but LDP had been rather passive
on this policy. The negotiation lasted until the very last moment
between LDP and Komeito, and they remained vague on timing and ways of
introducing the system. It might trigger discussions for the next year.

 The budget FY 2014 is reaching at climax of its compilation process.
On December 12, the Cabinet approved the basic policy for formulation
of budget 2014, seeking to achieve overcoming deflation and achieving
fiscal soundness simultaneously. Still, it stepped back from its
original draft approved by the Council on Economic and Fiscal Policy
on December 5 which entailed reduction of medical fees and public
works projects. The amount of public works projects will likely be
some ￥5.3 trillion which exceeds this year’s amount by 1-2%.

 The government is nearing the final stage of budget formulation
process, which is said to amount to ￥96 trillion, oversizing this year’
s budget (￥92.6 trillion). The budget appropriations will likely
increase in the fields of public works projects, defense policy,
social security, etc. After final coordination by the ruling party and
government, the Cabinet will approve the budget officially in its
meeting on December 24. Let’s see carefully the content of the budget
FY 2014, as it anticipates the future administration of this country.

*The Diet is in recess.

Special Intelligence Protection Act and Mass Media

* Written by Yoichi TAKAHASHI, PPPC Chairman / Kaetsu University Professor 

 The special intelligence protection bill was finally approved in the

Diet. I think there should have been more time for discussions,

however, what came to my mind through watching media reports more was

the way media should be.

 The reasons mass media, including major papers and TVs, opposed to

the legislation were (according to Japan Newspaper Association); (1)

that the administrative organs can designate certain inconvenient

information as special intelligence arbitrarily, (2) that the stricter

punishment has possibility of excessively withering the public

servants’ attitude toward information disclosure, (3) because the

scope of ‘overly inappropriate means (to obtain intelligence

information)’ is undefined and it is up to the operation of

administrative organizations, it may hinder information disclosure or

may even infringe the freedom of press guaranteed by the Constitution.

 Nonetheless, they do not comprise reasons for opposing against the

legislation. They sound as if the intelligence protection legislation

will create new secret information, but it is a misunderstanding.

 In fact, the special intelligence, as the name already indicates, is

constituting a part of general secrets stipulated in the national

public servants act (the duty of confidentiality) and information

disclosure act that provides opening of information other than

confidential information. To rephrase, the special intelligence

protection legislation is part of the national public servants act and

the information disclosure act.

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⇒This continuance by PPPC Briefing Service

　PPPC’s weekly updates and articles are fully accessible to the subscribed customers.

This Week’s “Nagata-cho” (3-10.Dec, 2013)

 The extraordinary Diet session convened on October 15 closed last

week on December 8. Although it had been scheduled to close on

December 6, raucous protests from the opposition to the controversial

state secrets bill entailing stricter penalty on information leaks by

government employees paralyzed discussions in the Upper House, leading

to that the ruling bloc weren’t able to hold voting on the bill on

that day. The ruling bloc of the Liberal Democratic Party and New

Komeito, in fear of seeing the bills drop in this session for overdue,

had no choice but to extend the session for two days. The motion to

extend was proposed and approved in the Lower House plenary session on

December 6.

*The state of deliberations in both Houses and committees are

 available from the following websites.(Japanese only)

 House of Representatives　Internet TV：http://www.shugiintv.go.jp/en/index.php

 Live broadcasts and video recordings of the deliberations in the

 House of Councillors：http://www.webtv.sangiin.go.jp/

 Over the special intelligence protection bill, toward the end of

session, the opposition camp including Your Party and Japan

Restoration Party, once agreed on the bill in consultations, released

a joint announcement requesting the government for thorough discussion

on the bill, and DPJ, Social Democratic Party and People’s Life Party

jointly took a confrontational tactic of moving a motion to dismiss

the Upper House Rules and Administration Committee Chairman Iwaki of

LDP. The ruling camp, in eye of pushing the bill through as soon as

possible, ignored the oppositions’ move and processed necessary

procedures one after another, such as interpellation with academic

references on Dec 3 and local hearing on Dec 4.

 On December 4, Prime Minister Shinzo Abe unveiled his idea to

establish within the Cabinet Secretariat an “information preservation

advisory panel” and an “information preservation oversight office”

to check appropriateness of designating information as secret and its

removal and to sketch unified standards for designation respectively.

Abe explained that Prime Minister receives reports from the office,

comprised of vice-minister-class officials, then Prime Minister

consults with the experts’ panel every year. Also, an administrator’

s post for public document archives and records will establish to

handle the information designated as state secret. While Abe insisted

this is a multilayered scheme to prevent arbitrary designations of

special intelligence, Banri Kaieda, leader of DPJ, strongly criticized

the idea as an information-hiding body composed of bureaucrats.

 The ruling bloc rushed the bill to a vote in the evening of December

5 in the Upper House Special Committee on National Security, which

approved the bill by majority amid roaring by opposition lawmakers. In

the meantime, in the revision consultations meetings among the ruling

bloc and JRP and Your Party, for the opposition from JRP that the

panel could not be regarded as a third-party monitoring organization

suggested by JRP, the parties reaffirmed to establish another

monitoring body within the Cabinet Office. Therefore, there will be

two ‘third-party’ organizations in the government. The details will

be subject of further discussions until the enforcement of the

legislation. Also, the parties agreed to establish a monitoring body

in the Diet by exchanging document.

 The bill was accordingly put onto agenda of the Upper House plenary

session, though, the ruling coalition decided to delay voting on Dec 6

for the vigorous confrontation by the opposition camp. Opposition

parties had called for further deliberation and made last-ditch

efforts to block passage, including posing a no-confidence motion

against Abe's Cabinet earlier Friday, After that motion was voted down

in the more powerful House of Representatives, the ruling bloc rushed

the bill to a vote in the upper house which it also controls. JRP and

Your Party boycotted voting. The bill will be promulgated within this

month and will be enforced within a year from the day of promulgation.

The Cabinet sets forth a preparatory office in the Cabinet Secretariat

and accelerate preparation measures toward implementation of the

legislation.

 On the other hand, LDP Secretary-General Shigeru Ishiba instructed

the party’s Policy Research Council to give considerations on an

establishment of monitoring body in the Diet to prevent arbitrary

designation of state secrets. Discussions will be undertaken within

the ruling party, in eye of drafting bill for the next year’s Diet

session. Sources said that it will take form of amendments to the

current Diet act which has the provision with regard to

‘secret-meetings’ also stipulated in the Constitution. The ruling

coalition will call for opposition parties also to participate in

discussions.

 Being influenced by an imbroglio over the special intelligence

protection bill, discussions over the bill to create National

Strategic Special Zones for economic growth had been suspended since

Nov 26 in the Upper House Cabinet Committee chaired by DPJ member. DPJ

had repeatedly rejected ruling coalition’s requests to hold meetings

of the Committee by taking the bill as hostage to extend the session.

Finally, the ruling coalition moved a motion of no-confidence against

the Chair Mizuoka on Dec 4 in the Upper House plenary session, and

passed the motion on the next day. The Chairperson was replaced by

Shoko Santo of LDP, and the bill was approved in the Committee on Dec

6 and enacted on 7.

 The bill to boost the country’s industrial competitiveness was also

pended after being approved in the Upper House Economy and Industry

Committee. For this reason, the Chairman of Upper House Rules and

Administration Committee Iwaki held plenary session of the Upper House

with his authority on Dec 4, when the bill was passed into legislation.

Given the passage of the bill, the government schedules to have its

three-year implementation plans approved by the Cabinet as early as New Year.

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Suggestion on Regulation over Taxi:We request an early relooking of the reregulation bill on taxi industry

December 2, 2013


In the extraordinary session of the Diet, the bill to re-enhance regulation over the taxi industry (“bill to optimize and promote taxi industry”) was proposed by Diet members and passed into legislation.
It aims at reregulating the industry by taking the following measures, based on a recognition that an ‘excessive deregulation’ brought about increases in the number of taxi cabs, and consequently led to overwhelming workloads, wage decrease, and higher rates of accidents.

1)Strengthening of supply-demand adjustment (prohibition of entry and increase in designated area, compulsory reduction of number of cabs)
2)Strengthening of fare regulation (application of publicly-stipulated range of fares in designated area)

However, at the first hand, the understanding that an “excessive deregulation caused troubles’ is not an accurate view.
Rather, it should be taken as a ‘halfway deregulation caused troubles’.
The revision of the law in 2020 abolished the demand-supply adjustment, though, the restrictions remained with regard to the fare under the government authorization system, so there was little progression to elasticity of fares. It appears to have caused the supply-demand gap, as result of increasing supply combined with the sustained demand without decreasing price.

Such problems as worsening working environment of taxi drivers or higher rate of accidents are the ones which should be addressed through enhancement of safety regulations such as driving hours, technical training to drivers and safety check on vehicles.
On the other hand, reducing the number of taxi vehicles and to increase fares, as the legislation stipulates to that end, would cause no positive effect on improvement on health and salary of drivers and the safety itself of taxi services. It only brings profits to the taxi operators, among others, by exploiting labor opportunities for drivers and payments made by service users. After all, the strengthening of supply-demand adjustment and fare regulation is undeniably a policy protecting certain kinds of vested interests and harming interests of general consumers and labors; a regression to the classical style of regulation since back in the 1960s.

In light of this, we propose the following suggestions.

1.Reconsider the bill to optimize and promote taxi industry which was passed into legislation in the extraordinary session of the Diet as swiftly as possible.
2.Monitor cautiously that an implementation of the policy within the scope of the law will not be an excessive regulation (in particular, designation of the ‘designated area’ and ‘quasi-designated area’, scope of application of supply-demand of in the area, setting of range of fares, etc.), and also that the Diet monitors the implementation strictly.

In addition, we expect that in government panels, such as Industrial Competitiveness Council and Regulatory Reform and Regulatory Reform Council, will continue to conduct thorough verifications.


<Proposers>
Hiroyuki KISHI, Professor, Keio Gijuku University
Takao KUSAKARI, Advisor, Nippon Yusei Kabushiki Kaisha
Shigeaki KOGA, former official of the Ministry of Economy, Trade and Industry
Yoshio SUZUKI, former chairman of Asahi Research Center Co. Ltd.
Wataru SUZUKI, Professor, Gakushuin University
Yoichi TAKAHASHI, Professor, Kaetsu University
Ushio CHUJO, Professor, Keio Gijuku University
Shuya NOMURA, Lawyer/Professor, Chuo University Law School
Hiroyuki HASHIMOTO, Professor, Keio Gijuku University
Eiji HARA, President, Public Policy Planning and Consulting, Co.
Robert A. FELDMAN, Chief Analyst on Japan and Managing Director, Morgan Stanley MUFG Ltd.
Hideo FUKUI, Professor, National Graduate Institute for Policy Studies
Naohiro YASHIRO, Visiting Professor, International Christian University

(kana order)
(as of December 5)

This Week’s “Nagata-cho”(26.Nov-3.Dec, 2013)

 Last week on November 27, a bill to establish a Japanese version of
National Security Council, which the Cabinet attaches a great
importance as control tower of Japan’s diplomatic and security policy,
was approved with other related bills by the majority in the plenary
session of the Upper House by obtaining agreements of the ruling
coalition, Democratic Party of Japan, Your Party, Japan Restoration
Party and other groups. Still, since the bill lacks a provision
regarding minutes of the meetings, the Special Committee on National
Security in both Houses added supplementary provisions requesting the
government to consider recording the minutes.

*The state of deliberations in both Houses and committees are
 available from the following websites. (Japanese only)
 House of Representatives　Internet TV：http://www.shugiintv.go.jp/en/index.php
 Live broadcasts and video recordings of the deliberations in the
 House of Councillors：http://www.webtv.sangiin.go.jp/

 The government launched the NSC on the day of enactment of the
legislation on December 4. In particular, “the four ministers’
meeting” by Prime Minister, Chief Cabinet Secretary, Ministry for
Foreign Affairs and Minister of Defense (chaired by Prime Minister)
will be regularly held twice a week, in an attempt to enable speedy
decision making in the diplomatic and security policy and to
consolidate information. Also, “emergency ministers’ meeting” will
also be established, which will composed of the ministers nominated by
Prime Minister, in order to prepare for emergency situations. The four
ministers’ meeting was held immediately held after enactment on Dec 4,
and will seek to compile the National Security Strategy, the country’
s basic guideline on the diplomacy and security within this year. In
the meantime, the conventional framework of “nine ministers’ meeting”
adding the Minister of Finance and Minister of Land, Infrastructure,
Transport and Tourism and others will have discussions on the new
National Defense Program Guidelines, another pillar of the defense
policy, which the Cabinet plans to approve next month after obtaining
approval of the NSC. NSC will engage in discussions on mid- and
long-term strategic themes including (1) relocation of Futenma Air
Station, (2) China’s ADIZ issue, (3) development of nuclear weapons
and missiles by North Korea, (4) territorial disputes, etc.

 The government schedules to launch NSC’s secretariat, National
Security Bureau, as early as in January next year. As its first head,
Abe will likely appoint Special Advisor to the Cabinet Yachi (former
administrative vice minister of Ministry of Foreign Affairs) and
Special Advisor to the Prime Minister Isozaki will be appointed as
Executive Secretary to the Prime Minister in charge of the NSC.
 National Security Bureau will consist of about 60 personnel from
MOFA, Ministry of Defense, Japan Coast Guard and other relevant
ministries and agencies. The secretariat’s organizational arrangement
will be according to six themes of (1) overall planning and
coordination, (2) communication and coordination with corresponding
departments and agencies of other countries handling intelligence, (3)
planning and coordination of security policies by themes and regions,
(4) communication with allies, including U.S., (5) China and North
Korea, (6) other regions. The secretariat will seek to consolidate
analyze pieces of information that have been acquired and reported
separately by each ministry before, and report to the four ministers’
meeting directly.
 The key for the bureau to function well will depend on how and to
what extent it can recruit human resources specialized in the field of
intelligence from at home and abroad.

 With regard to the controversial special intelligence protection bill,
the Upper House entered discussions on the bill on Nov 27. The
opposition have been repelled by the ruling bloc which had pushed the
bill through the Lower House, and have taken confrontational attitudes.
The largest opposition Democratic Party of Japan’s leader confronted
Prime Minister at the party leaders’ debate held on December 4, and
Your Party and Japan Restoration Party, although once agreed on the
bill in the revision consultation, turned their attitudes in the Upper
House for the coercive tactic taken by the ruling coalition of LDP and
New Komeito.

 In a rush to see passage of the new secrecy bill within the current
Diet session, the ruling coalition made Chairman of the Upper House’s
Special Committee on National Security take up the bill in face of
backlash by the opposition camp including Your Party once approved the
revision on November 28. The discussion idled on Nov 29 for a fuss
over responses of the ruling bloc.

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To Ensure Abolishment of Rice Production Adjustment

* Written by PPPC Visiting Fellow

1.Circumstance of Rice Production Adjustment

 Japan’s urgent task since the 1960s has been to restrain rice

production as countermeasure to its overproduction.

 For this, the rice production adjustment started as an emergency

measure in 1971 centering on fallowing rice paddy field, and its

implementation has existed in this country for more than 40 years.

 Although this policy has been implemented without legal or

legislative ground, there have been promotional measures (carrot:

production adjustment subsidy*) as well as penalty measures (stick:

exclusion from supportive projects in case not pertaining to the

adjustment goal) in order to secure enforcement of this policy

practically.

 The penalty measure was abolished in 2010, coinciding with an

introduction of individual compensation to farmers (direct grant on

rice) under the former Democratic Party of Japan’s government.

Therefore, the implementation of the rice production adjustment

thereafter has been conducted on the combination of two kinds of

carrots since then.

*With regard to production adjustment subsidy, the amount of payment

 was initially calculated on the basis of area of irrigated field to

 be hallowed to reduce production, but the payments were later made

 for a nominal reason of promotion of transplanting other crops like

 wheat and soy beans on the redundant irrigated fallow fields aiming

 for increasing the country’s food self-sufficiency rate. Therefore,

 the subsidy has been granted under the name of promotion of rotation

 of crops, instead of production adjustment. (Kazuhito YAMASHITA,

 Research Director, The Canon Institute for Global Studies, former

 MAFF official)

2.Why abolishment of rice production adjustment?

 The government’s Industrial Competitiveness Council took up the

revision of individual compensation to farmers and other items, listed

in the Liberal Democratic Party’s election pledge, as items for

discussion. On October 24, private sector members of the Council

proposed an opinion to abolish the allocation of production numerical

target and not to implement rice production adjustment by 2016

(abolishment of overall production adjustment in three years), which

brought about a wide range of attentions in public on the review of

rice production adjustment.

 The Ministry of Agriculture, Forestry and Fisheries and LDP have

suggested the direction of agricultural policy reform as the following.

(1)Creating an environment in which farmers can produce accordingly

   with demand upon their management mindset, not restricted by the

   production target set by the public administration.

(2)With regard to individual compensation to farmers on rice (direct

   grant), the payment will be reduced to \750 apiece (by half) for

   rice produced in 2014 to rice produced in 2017 for three years

   (scheduled to be abolished in 2018).

(3)Through direct payment of subsidy to utilize irrigated fields, the

   government will promote full-scale transition from food rice to

   strategic crops such as feed rice, wheat and soy beans, and take

   additional measure on the subsidy on feed rice apiece to be

   increased from the current \80,000 per 10 are to \105,000 per 10.

 Many media focused on (1) alone and reported it loudly as

“abolishment of rice production adjustment.” However, as Mr.

Yamashita (abovementioned) says, a suspension of allocation of

production numerical target is not equivalent with an abolishment of

the production adjustment. The current production adjustment measure

could have already been meaningless, as MAFF admits, as it lacks the

old penalty measures (stick) to secure enforcement of the production

adjustment.

 On the other hand, among the carrots, while the individual

compensation to farmers on rice (direct grant) will be abolished,

“the direct payment of subsidy to divert irrigated fields for food

rice into feed rice (production adjustment subsidy) will be continuing,

in an even strengthened manner by raising the amount of grant apiece

from \80,000 per 10 are to \105,000 per 10 are.

 After all, no change has been made to the basic constitution of the

production adjustment which aimed at preventing the rice price from

decreasing. Moreover, the framework is to be sustained for another

five years while feed rice production will increase through

promotional measure. It might cause further fiscal burden if it

exceeds surplus owing to abolishment of the individual compensation to

farmers scheduled five years later. This would be rather an

enhancement of the production adjustment.

3.Integration into some form of income compensation measure

 If it really intends an abolishment of the production adjustment,

the government’s fundamental role is to create an environment in

which ambitious farmers can produce as much food rice as they want to

while at the same time having as much cost-consciousness as possible,

instead of expanding the production adjustment (promotion of rotation

of crops) subsidy to such farmers.

 In this context, it should be more desirable to reimburse the farmers

through some form of income compensation the gap caused by decrease in

rice price, rather than granting production adjustment subsidy to

prevent decrease in rice price. The expansion of production adjustment

subsidy this time must remain to be a transient measure.

 At the current point, an overall picture of the new management and

income stabilization measures or the Japanese style direct payment

system said to be launched after five years is yet to be unveiled.

Aside with these important issues, however, in order to truly abolish

the production adjustment, a key will be how to integrate the

production adjustment subsidy into a new institutional design which is

more oriented toward income compensation.