Special Zones as Touchstone for Japan’s Globalization

※This is a translation of an article by Tomoyuki ISOYAMA, economic journalist,

　 written for Gendai Business website on October 9, 2013

“Special Zones for Employment Reform” facing vigorous oppositions

Abe Cabinet is nearing the final stage of elaborating specific plans on the National Strategic Special Zones recognizing as the “breakthrough toward regulatory reforms”. Since the Cabinet’s growth strategy approved and released on June 14 attracted the public criticisms as inadequate from the market and elsewhere, especially in the fields of medical care, agriculture and employment, the Cabinet will try further reforms in these fields within the boundary of the Special Zones this time.

While the relevant government ministries have shown the vigorous oppositions, the Working Group on the National Strategic Special Zones (chaired by Tatsuo HATTA, Osaka University Invited Professor) in the Cabinet Secretary has been sketching out the policy suggestion. After Prime Minister Abe’s final judgment, the suggestion will be submitted as bill to the next extraordinary Diet session starting on October 15.

Among the detailed plans by the WG, the “Special Zones for employment reform” is the one facing the severest oppositions.

The WG puts that the government should make an “environment in which it is easy for the global and start-up companies to attract able human resources and for the able employees to work in such companies.” Currently, according to the WG, it is banned by the legislation if a foreign country wanted to employ some experts for a few years’ project in Japan by terminable contracts.

Therefore, the WG’s draft suggestion entails the specific measures in the Special Zones such as “exceptions of terminable employment” as well as “specification of rules for dismissing employees” and “exceptions to working-hour regulation,” etc.

While the existing legislation puts that the employees whose terms extended five years under terminable contracts would acquire the right to shift to indefinite employment contracts, the proposition will enable companies to sign contracts “not to promise indefinite employments” in the Special Zones. Also, it will specify the rules for firing the employees by explicitly defining conditions and procedures in the contract documents.

A subcommittee of the government’s Industrial Competitiveness Council in charge of the theme of “labor/employment” led by Takeda CEO Kanji HASEGAWA and the WG’s HATTA, started discussions and consulting with the Ministry of Health and Labor in this September. But the Ministry has opposed the idea from the beginning as that “the condition of employment should be nationally uniform and it is not suited with the Special Zones.”

Negative campaign by media on the dismissal-rule

Heizo Takenaka, Keio Gijuku University Professor, presented an A4 paper in the meeting of the Industrial Competitiveness Council on October 1 and commented as the following.

“…unfortunately, there was no progress especially in the field of ‘employment’. And I’m also concerned about the possibility that firmly-standing reforms will be stopped by some inaccurate media reports. We will continue the full efforts to complete the National Strategic Special Zones including the field of employment.”

Here, Takenaka’s “inaccurate media reports” refers to a series of articles and reports in end-September by the major papers; they titled the headlines like “special zones for firing workers” and cited an example case as that “you are fired because you are late.”

As a matter of fact, the WG’s discussion focused on a ‘specification of rules’ for dismissing employees, not on how to ‘make it easy’ to fire them. Although there is the so-called “4 principles on dismissal” through an accumulation of the judicial precedents, there is no knowing of the consequence in fact in case of lawsuits. And a basic idea was that such low-predictability in court cases has in turn prevented the foreign- or venture-companies from hiring new employees.

Also, the WG had considered a possibility of denouncing unfair, inappropriate clauses of labor contracts such as “you’re fired because you’re late” by making a guideline.

Sources said that Professor Hatta and other members, frustrated by the media report, sent a note of protest to the major paper on September 30, pointing that the report had lost touch with and therefore was not based on the actual discussions in the WG.

On such ‘distorted’ media reports, a member of the Industrial Competitiveness Council thinks “obviously it was a conscious campaign,” as there was a preliminary skirmish in this March-April.

When the Industrial Competitiveness Council started discussions on the ‘specification of rules for dismissing employees,’ the major papers repeatedly released the similar articles headlined as “making it easy to fire,” “relaxation of employment protection,” etc. And a left-wing political party backed by the labor union adopted the same tone of argument. As the result, Prime Minister Abe had to suspend the discussion for fear of negative impacts on the ruling party in the July Upper House election.

To note, the exceptional employment rules in the Special Zones this time is targeted at limited companies and employees. It is limited within the Special Zones, and applied only to the global companies with certain ratio of foreign employees or the start-up companies younger than five years old.

Moreover, the subject employees are limited to “able human resources” such as licensed experts like lawyers and CPAs or those acquiring the master’s or doctor’s degree. Indeed, it is applied to a limited part in the internationally-competing global- or venture-companies.

Also, the WG’s suggestion entails an idea to enhance a monitoring function within the Special Zones to prevent unfair labor contracts or illegal actions like coercive contracts.

Ambiguous dismissal-rule is just a ‘risk” to foreign companies

Still, the Ministry of Health and Labor and left-wing parties have a strong feeling against such deregulations. The Health and Labor Minister Norihisa Tamura stated in end-September that “I recognize the legislation to protect the laborers as part of the human rights guaranteed by Japanese Constitution. I doubt whether different measures could be taken inside and outside the Special Zones.”

The Minister himself showed the cautious attitude by citing even the Constitution. Tamura and his Ministry may be concerned about the possibility that the Special Zones will eventually destruct the whole labor/employment legal framework. According to them and the labor union, perhaps, the current judicial precedent making it difficult to dismiss the full-time employees is a ‘result’ gained through the past struggles so that they cannot make any concessions on this point.

Yet, Prime Minister Abe has repeatedly stressed and called for “investment in Japan” in the international meetings recently. But Japan’s ambiguous rule on hiring/dismissing employees is actually becoming the stumbling block as a ‘risk’ for the managers of global companies. It seems to be reasonable to specify the rule in the form of employment contract as in the western countries.

In order to increase employments in the global economy, it is needed to have foreign companies to do their businesses in Japan and hire more Japanese employees. The “Special Zones for employment reform” will be a touchstone to see whether Japan will truly be internationalized.