The Regulatory Process in Japan in Comparison with the United States
Visiting Scholar, RIETI
Across the globe, regulations govern the workings of financial markets, the safety of our cars, the approval process for new drugs, and the quality of our air and water. Not surprisingly, and for many reasons, regulatory requirements vary widely across nations. However, as the global marketplace has expanded and traditional trade barriers such as tariffs diminish, governments and stakeholders have increasingly recognized that diverse approaches to regulation can compromise economic growth and trade unnecessarily. Indeed, regulatory barriers in various areas have been a key feature of the Trans-Pacific Partnership (TPP) negotiations.
Governments, experts, and international organizations have also focused increasingly on the importance of the regulatory process and certain, consensus "good regulatory practices," which the Asia-Pacific Economic Cooperation (APEC) has noted "contribute directly to trade, investment, job creation, and sustained economic growth." For these reasons, the TPP includes a chapter on "Regulatory Coherence" in which member nations are likely to commit to several of these practices, including public consultation and transparency, central government coordination, the use of regulatory impact statements, and the review of existing regulations. This is the first chapter of its kind in a major trade agreement, and the focus is on how member nations develop regulations, not on any particular policy outcome. Improvement of these practices across nations will also increase the chances that future efforts at international regulatory cooperation are successful.
Should the TPP pass, it will come as Japan continues to implement several significant reforms over the last two decades that have improved the process by which ministries develop new regulations. In addition, Prime Minister Shinzo Abe has made the review of existing regulations a central component of his "third arrow" structural reform efforts. As a result, this is a particularly interesting and useful time to consider the Japanese regulatory process. Using the U.S. system as a comparative point of reference, I will briefly share my impressions of the current state play in Japan with a focus on public comment, regulatory impact analysis, review of existing regulations, and central government coordination. 
For many years, the Japanese regulatory process was characterized by a lack of transparency and public involvement. Key reforms over the last two decades have addressed some of these concerns by, for example, reducing the use of unwritten administrative guidance and requiring that the public have an opportunity to comment on proposed regulations. Public comment has been a critical feature of the U.S. system for decades. It can improve regulations by providing important new information and ideas from a wide array of perspectives, and also helps increase transparency and accountability in the government.
Although public comment was applied in some cases previously, Japan first required it by law in 2006, and ministries now routinely publish their proposed regulations for public comment. This represents an important change in the regulatory process, but comment periods are often short. Even in 30 days (the period required under Japanese law when possible), it can be difficult to provide useful comments for complicated regulations, and ministries sometimes provide even less time than this. More problematic is a general sense from those outside the government that ministries do not take public comments seriously or view them as a source of ideas or information to improve specific provisions of regulations. Some final regulations, for example, have been issued within a few days of the end of the public comment period, suggesting that the comments were largely ignored. 
Regulatory impact analysis
Although there are variations across nations, the typical components of a regulatory impact analysis (RIA) include a statement of the need for the regulation, an evaluation (and when possible, quantification) of the costs and benefits of the regulation, and a comparison with alternative possible approaches. As noted by the current guidance in Japan to ministries, ex-ante evaluation of regulations in this way is important to improving the quality of regulations, deepening public understanding of a regulation's purposes, and increasing government accountability. 
Since 2007, RIAs have been required for parliamentary laws (horitsu) and Cabinet Orders (seirei), but not in practice for lower forms of regulation such as ministerial ordinances (shorei).  Implementation has been difficult and inconsistent across ministries. RIAs appear to be often done as a way to justify decisions that have already been made, rather than as a means of informing draft regulations as they are developed. Although there are examples of well-done analyses, many are lacking in thorough economic analysis or serious evaluation of alternatives. While it would be naïve to expect exceptional RIAs immediately after they are required, it is also unclear whether the quality and consistency is even improving over time.
Ministries do not appear to have much of a desire or incentive to commit time and resources to conducting regulatory impact analyses. First, some ministry bureaucrats may question the benefit of such analysis and view it as an unnecessary additional burden to what is already a full workload (they may view a careful consideration of public comments the same way). For many years, they developed regulations without conducting such analyses and may not see the need to do so now.
Second, despite the requirements established in 2007, no entity compels ministries to produce high quality regulatory impact analyses. Ministries are required to provide the Ministry of Internal Affairs and Communications (MIC) with copies of their analyses for feedback, but this happens at the same time that ministries issue their regulations publically, not beforehand. As a ministry itself, MIC also has limited ability within the structure of the government to tell another ministry it must do something.
Third, some have suggested that not enough ministry bureaucrats have the necessary expertise or training to conduct thorough analyses, and, furthermore, that the rotation of bureaucrats to new positions within ministries every two years makes it difficult for them to develop the relevant expertise.
Review of existing regulations
The Japanese government has had various efforts to review existing regulations since the 1990s. Proponents of reform are cautiously optimistic that the current initiative, coordinated by the Cabinet Office for Promotion of Regulatory Reform, will produce more significant results than previous ones, largely because Prime Minister Abe has made clear that this work is a priority and a key component of his "third arrow" of economic reform.
Time will tell whether this initiative is ultimately a success, but so far it has yielded hundreds of potential reforms across broad areas of policy, with a plan containing specific timelines for implementation. Many of the ideas came from those outside the government, including through an open website hotline. While most attention has been focused on a handful of controversial reforms—for example, in agriculture and health care—the efforts range from increasing credit access for small and medium-sized businesses to making it easier for highly skilled foreign nationals to work in Japan. 
This has also been a priority for U.S. President Barack Obama. By Executive Order, he launched a government-wide effort to review existing regulations to reduce burdens and costs, and the initiative has produced billions of dollars in near-term savings. A key challenge in both countries will be to institutionalize the work and make it a regular part of the regulatory process. 
Central government coordination
As may be clear from the discussion above, there is a significant difference in Japan between the coordination of efforts to review existing regulations, which has a dedicated Cabinet Office, and the development of new regulations, which does not. MIC provides guidance and monitors compliance with public comment and regulatory impact analysis requirements, but it has limited power to demand changes and improvements. The U.S. system, by contrast, is characterized by strong central coordination through the Office of Information and Regulatory Affairs (OIRA), which is part of the White House Office of Management and Budget. Among other responsibilities, OIRA reviews the most important regulations that agencies have drafted to make sure they are consistent with the president's priorities and that their benefits justify any costs. 
OIRA also shares the draft regulations with other agencies and White House offices for comment and discussion, and it sets and oversees government-wide regulatory policies. Neither MIC nor any other office plays this specific role in Japan, though there is of course some coordination and discussion between ministries, particularly when there are overlapping jurisdictions and when the Cabinet must approve the regulation.
Every government has ways that it can improve its regulatory process. In Japan, there is an opportunity to increase the use and effectiveness of public comment and regulatory impact analysis. With a highly capable bureaucracy, key requirements already written into law, an Abe administration that has demonstrated a commitment to improving existing regulations, and the TPP Regulatory Coherence chapter on the horizon, the government in many ways is well positioned for such an effort.
One approach would be to mirror the effort on regulatory reform of existing regulations and establish a new Cabinet Office, or expand the mandate of an already existing Cabinet Office, or somehow provide MIC with more power in this sphere. Any of these solutions are sure to meet resistance from ministries, which are notoriously strong and independent within the structure of the Japanese executive branch as compared to agencies in the U.S. system. Whatever the solution, increasing the use of these practices is an important element to improving the quality of regulations over time while increasing accountability, transparency, and opportunities for future international cooperation.
- ^  Good Regulatory Practices in APEC Member Economies Baseline Study, November 2011. See also OECD, Recommendation of the Council on Regulatory Policy and Governance, 2012.
- ^  Although legislation can contain regulatory requirements, what I am focused on here is the process by which ministries and agencies fill in the details of legislatively passed laws. In the United States, and even more so in Japan, laws passed by the legislature are often broad and leave much discretion to agencies and ministries to issue regulations which do not require further legislative approval and which can have significant impacts on public welfare and the economy. For example, U.S. President Barack Obama's most significant domestic actions to address the threat of climate change are agency regulations, not new laws passed by the U.S. Congress.
- ^  In the United States, a Presidential Executive Order recommends that agencies provide 60 days, though there are many examples of comment periods both shorter and longer.
- ^  Another important part of the process in Japan is the use of advisory councils (shingikai), which provide some transparency and an opportunity for input from those outside government (prior to any general public comment period). However, the extent to which they genuinely do so varies, and, in many cases, the shingikai are viewed more as a rubber stamp for already developed policies rather than a forum where new decisions are made. In both Japan and the United States, informal consultations with outside parties can also play an important role as officials consider various options for regulation.
- ^  Implementation Guidelines for ex-ante Evaluation of Regulations, August 24, 2007.
- ^  In the United States, the Congressional Budget Office (CBO) analyzes proposed legislation. In terms of executive branch regulations, agencies are generally expected to regulate only when the benefits of regulations justify their costs, but RIAs are only required for rules that have an estimated annual economic impact of at least $100 million.
- ^  In addition, the Japanese government last year launched National Strategic Special Zones in six geographic areas to experiment with reforms in healthcare, employment, education, urban revitalization, agriculture, and utilization of historical buildings. Coordinated by a separate office within the Cabinet Office, the scope of this effort includes both regulatory reforms and others, and has the potential to lead to changes later replicated at a national level.
- ^  Institutionalizing reforms throughout agencies and ministries is a challenge in both countries, but for a variety of reasons it is generally easier for the U.S. president than the Japanese prime minister. However, one advantage for Japan in this specific effort is that the Cabinet Office for Promotion of Regulatory Reform has about 40-50 staff—split evenly between government bureaucrats and employees from the private sector. The Office of Information and Regulatory Affairs (OIRA) has approximately the same number of staff, but they are busy reviewing new regulations and hold various other non-regulatory responsibilities.
- ^  I served as the Associate Administrator of OIRA from 2013 to 2014.
- ^  OIRA only reviews "significant" rules as defined by a Presidential Executive Order. In general, OIRA's authority extends only to agencies in the Cabinet and other executive agencies (Environmental Protection Agency, Department of Health and Human Services, Department of Agriculture, etc.) but not to agencies established by Congress as "independent" (Securities and Exchange Commission, Federal Communications Commission, etc).
- ^  That practices and processes continue to evolve in the United States is evident by various new policies over the last several years, including three Executive Orders by President Obama (which address the general regulatory process, review of existing regulations, and international regulatory cooperation) as well as new methods for measuring costs and benefits such as the development of social cost of carbon estimates for consistent use by agencies in their economic analyses.
August 28, 2015
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The Regulatory Process in Japan in Comparison with the United States
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