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Can National Strategic Special Zones be a Gateway to Japan’s Reform?: Abe’s decisiveness tested

※This is a translation of an article by Tomoyuki ISOYAMA, economic journalist,
    reported in Gendai Business on August 28, 2013

The government started actions toward creating the National Strategic Special Zones, which had been announced as the pillar of Prime Minister Shinzo Abe’s growth strategy, the “third arrow.”

It is based on an idea of the government’s Industrial Competitiveness Council that insisted to allow exceptional measures on the regulation and taxation within the special zones as experiments to realize “the world’s top business environment where anybody can do businesses easily”. Some say it will be the cornerstone for Abe and his economic policy known as the Abenomics.

On August 23, the Cabinet Office held an explanatory meeting on the National Strategic Special Zones to invite proposalsfrom the local governments and private companies. Yoshitaka Shindo, the Internal Affairs Minister, Tatsuo Hatta, Osaka University Invited Professor, Ken Sakamura, University of Tokyo Professor, and Eiji Hara, PPPC President, attended the meeting and explained the idea to the audience from 254 organizations/companies.

Special Zones is a project to show the decisiveness

Minister Shindo’s opening remark stated the aim of the Special Zones and stressed that it would be the key for the Abenomics to boost the country’s economic recovery.
He also stated that Prime Minister Abe regards Special Zones as “a project to show the decisiveness for Japan’s reform,” and that the government needs to meet expectations both inside and outside of the country.

Prime Minister Shinzo Abe, in the G8 summit meeting in London in June, called for direct investments in Japan. Abe showed his view that the foreign investment in Japan would be “a strong catalyst for renewing the old Japan and strengthen the renewed Japan”. Abe also stressed that he would seek doubling the foreign investment in Japan to 35 trillion yen by 2020.

And it was the National Strategic Special Zones that Abe stressed as a specific means to realize the goal in the same speech.

“We intend to deregulate thoroughly areas known as "National Strategic Special Zones" under the direct responsibility of myself as Prime Minister in order to create in Japan places where capital and intellect gather from all around the world. ”, “We will foster an international business environment that stands shoulder to shoulder with such cities as London and New York. I intend to create cities that bring together technologies, human resources, and capital from throughout the world. ”

At the time, Abe showed the attitude to conduct a thorough deregulation by using the Special Zones in order to regain the economic growth by attracting goods, men and money from the world.

There have been the cases of Special Zones in the past. The Koizumi Cabinet started the Special Zones for Structural Reforms in 2003 and DPJ government introduced the Comprehensive Special Zones and designated many areas and regions.

The idea is to change the nationally uniform regulations into the ones stressing the local originality, and in many cases the local governments became the applicants. It means an admission of exceptional measures within the regional boundaries. It explains the naming of the secretariat (“headquarter for local promotion”) and that the minister-in-charge of the Special Zones is the Internal Affairs Minister responsible for the country’s local autonomy.

There were 500 requests three years ago

While the Special Zones aims at deregulation within some location, the contents are quite various. For example, while it legally requires a license of “interpreter and guide” to conduct a tour business toward foreigners in foreign languages, there is a case of the Special Zones enabling the paid-guide business without the licenses after a training program by the local government, according to the secretariat.

Indeed, it seems sound enough to say that the Special Zones have worked successfully as tools of the local governments to relax the uniform, restrictive regulations by the central government.

In the Comprehensive Special Zones, the government invited requests for deregulation or other measures in 2010, and there were 327 requests from the local governments and 145 requests from the private companies and organizations.
While the state and result of requests have been made public since then, many of the requests are merely  for more subsidy and allowance, and the central ministries’ reactions are either “responding within the current legal framework” or “not responding” in many cases. It seems to be a large deviation from the initial purpose of the Special Zones.

Then, is there a difference in the National Strategic Special Zones in the Abenomics from the past Special Zones? The Minister Shindo states that the distinguished feature is in that “the central government, the local governments, and private companies work together to undertake the projects”. In the policy fields where one cannot do businesses freely due to the existing regulations, the government is prepared to make drastic deregulation measures after examination at the Working Group on the National Strategic Special Zones as long as some specific barriers are pointed out. It was for this purpose of “inviting proposals” that the government hosted the explanatory meeting on August 23.

One of the WG members speaks of a possibility to suggest a drastic regulatory reform by using the Special Zones in the fields which received criticisms as inadequate when the Cabinet’s growth strategy was released in June.

Tokai region stood up for agricultural special zone

Agriculture, for example. While the growth strategy entailed a measure to allow “middle-corporations” to own and lease farmlands to the private company, the reform could not step into allowing the private companies to own the farmlands directly. Here comes an idea to realize this in the Special Zones.

Already, the four prefectures (Aichi, Mie, Shizuoka, Gifu) and three major cities (Nagoya, Shizuoka, Hamamatsu) in Tokai region presented to jointly propose the “Special Zone for creating the agro-frontier”. The local governments will seek promoting the private company’s entry into the agriculture, accumulating the farmlands including the abandoned lands, promoting the exports, etc. The local governments take the strategy to enhance the agriculture’s international competitiveness given the central government’s decision to enter the negotiation regarding the TPP. There is also a background that these four prefectures have a relatively-low dependency on rice and the weights of rather competitive goods such as tea, vegetables and stock-raising are relatively high.

Also, Prime Minister Abe repeatedly speaks of the fields of medical care and education. Abe stresses importance of making a living environment comfortable to the foreign residents in order to attract foreign businessmen to live and do businesses in Japan, and mentions relaxation on the regulation over the licensing of international schools and medical practice by foreign doctors.
If a private company starts selling the health insurance services to the residents in such the Special Zones, it will open further possibility of deregulation in the field of medical care. For example, one long debated regulation in this field requires patients who receive advanced medical treatment not covered by public insurance to pay all the fees without any public coverage even for basic treatment And the Special Zones might serve as breakthrough to such a regulation.
Also, there is a possibility of “governmentally-funded, privately-managed” public schools to be realized in the Special Zones.

Drastic deregulations to realize the idea?

Anyways, the point is that the government will tackle the regulatory reform altogether accordingly with the private needs, rather than that the central government takes measures from a hierarchical viewpoint. The first invitation to the National Strategic Special Zones is due on Sep 11. After that, the government’s “Council on Special Zones” chaired by Prime Minister will finally decide the specific projects in the autumn after hearing in the WG.

Whether the ideas “to attract men, goods and money from the world” will really be proposed? Will Abe undertake the necessary drastic measures to realize such ideas? The decisiveness of Abe will be tested.

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