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TEST NG AND COMPLIANCE PROCEDURES

Another area in which foreiga exporters to Japaa have had problems is product-testing and standard compliance procedures. There are two problems in this area which are common to a number of product categories and which make compliance more burdensome for foreign thaa for domestic products.

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Japan tends of to accept product-testing done outside Japan.* As a result, imported products must be tested in Japan to determine whether or not they meet Japanese requirements, regardless of previous testing, a process which in some cases may require several years and iavolve considerable expense.

This problem has been compounded by foreign exporters' limited knowledge about the requirements to be met, and the resulting diffi. culty in minimizing the expense of testing in Japan by anticipating Japanese requirements. Until 1978, for example, foreign exporters of.mar.ite diesel engines above certain capacities were compelled to disassemble each engine in Japan, submit various parts of the engine to.specific tests and reassemble the engine before it was installed in a vessel to be classified under the JG (Japanese Government) classification. EC nations protested this practice, and, as a result, the recent rules were replaced with rules identical with Lloyd BV and other similar classification rules. U.S. origin products, of course, received the same benefit from the new rules. Previous to this change, the excessive cost of local tests made foreign-built marine engines uncompetitive in Japan. It is very significant to note that a prominent foreign manufacturer of marine diesel engines learned of this change a full year after the fact, and then only as a result of submitting the problem to the GPC. The system of public notification now being implemented should minimize this kind of oversight in the future.

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Significant progress has already been made on the issue of domes-' tic versus foreign testing. Discussions with MITI center around the concept of granting the "T Mark" to electric appliances based upon

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This reference applies to the location or "siting" of the testing. The nature of the standards against which tests are conducted is a separate issue.

tests conducted by Underwriter's Laboratories (UL) in lieu of testing the appliances in Japan (see Electrical Appliances Task Force Repor: below). While it is not clear what the final conclusion of the ongoing discussions will be, the GPC anticipates that an equitable solution will be reached in the near future.

Progress has also been made on acceptance of foreign test results for pharmaceutical and agricultural chemicals. The GPC will continue to work with the task forces concerned to seek improvement of procedures and practices in this area, in line with those followed by other major trading nations.

Aporoval Rights

Another characteristic of the Japanese system is the requirement that an approval to import and sell a specific product be held by a Japan-based importer, who remains totally under the Japanese govern. mént's jurisdiction. This requirement sometimes causes problems for forcign manufacture:s when their relations with the Japanese importers and/or agents get strained. Such an approval can be held.simultaneously by two or more Japanese importers with respect to one particular product. Whatever arrangements are made between the foreign manufacturer and the Japanese importer remain strictly the affair of the parties concerned. (Actually government approval is given separately for each entry, although the severity of test varies substantially from entry to entry. Initial samples are usually suhjected to physical and performance tests. · After initial entry, visual inspectica may be substituted, with performance tests only conducted intermittently.)

In praciice, however, foreign manuiacturers and exporters prefer to work with one particular Japanese importer for a certain period of time on a one-to-one basis for the efficiency which can be achieved by repeating identical procedures for importing the same product. Frequeat changes of iinporters create a bad public image, either for the manufacturer or the product itself. Moreover, it is cumbersome to a foreign manufacturer who is dissatissied with a Japanese importer to find a new agent and let him go through the whole "learning curve" required to make an application for importing a certain product which has been imported without any proslem by the former agent.

The foreign manufacturer can overcome this approval problemr. by establishing an affiliated company in Japan, which would then apply for and hold the approval for importation of the manufactured products. This approach has been utilized with considerable success by foreign pharmaceutical manuiacturers, which have established subsidiaries in Japan complying with Health and Welfare Ministry requirements for adequate laboratory facilities and qualified personnel. It is clearly too much, however, to expect all foreign manufacturers who wish to export to Japan to establish subsid. iaries here. Other approaches must be sought.

It is most important, of course, to maintain cordial zad efficient rela. tions with the Japanese importer (for which the Japanese importer shou!d also strive in reciprocation) and changing the system is not going to solve each and every problem. The Japanese should, however, search for and implement means whereby unnecessary inconveniences to foreign manufacturers are minimized. Among the possibilities to be considered are automatic transfer of approval to the foreign manufacturer after a certain period of time has elapsed without complaints (probably unsatisfactory from the Japanese point of view because it does not offer protection from possible later defects arising from the manufacturing process such as a failure caused by deviations from established practices) or security bonds of various forms (it is extremely difficult to assess the appropriate amounts of coverage).

One al:ernative under serious consideration by some Japanese government oificials is the separation of the import approval of a product (to be given to the foreign manufacturer) from the approval of the act of importing the fore product (to be given to an eligible Japan-based importer), so that duplication of the product test-approval procedure can be dispensed with and the lime required can be substantially shorteaed.

MITI took an important step towards expediting the approval process for foreign products when it created the "commissioned testing system for Category A electrical appliances and materials" effective April 1, 1979. Under this system, a foreign applicant is able to submit his products for testing by a "designated testing authority."* After completion of a successful test, he receives a certificate of test results. He then sends this certificate to his importer, who returns it to the "desigaaied testing authority" to obtain a "type test. After completion of the "type test," the importer receives a "successful test certificate, * which“ be then sends to MITI, who then issues the "type authorization." This procedure is detailed in the block diagram in the chart on page 16.

At present, there are no "designated testing authorities" outside Japan, but it is hoped that this function can be performed by Underwriters Laboratories in the future

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Commissioned Testing System of Category A Electrical Appliances and Material

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One of the most significant developments in the area of study of the GPC took place on December 7, 1979 whea a "Joint Statement on Standards, Testing and Certification Activities" was issued by the governmenis of Japan and the United States. The complete text has been incorporated in Appendix B. The Joint Statement deals with the question of who may apply for approvals in the last sentence of section 3, which reads, "It is recognized that, for reasons of accountability (emphasis added), the importing country may require that, in place of a supplier in the exporting country, a representative in the importing country file the formal application."

While the GPC considers the several new procedures described above to be significant improvements, we are still hopeful that appropriate legislation to permit direct applications in accordance with the GPC's interpretation of the Standards Code can be enacted. In aay case, the GPC will continue to study and monitor this problem, and will develop specific recommendations in the future.

CUSTOMS MATTERS

In addition to standards and testing. a third major area in which fore.sn exporters to Japan have encountered significant problems is customs valu.. ation, classification and administration. The recently adopted GATT Code of Cordw.ci includes a Code on Conduct of Customs Valuation, scheduled to go into force January 1, 1981. Its principle thrust is towards making the value for customs the samne as ine "transaction value," that is, the invoice cost plus relevant charges for freight and insurance. It should be noted that this Code will apply to customs valuation and not to othe: taxes such as commodity taxes on automobiles. The Code defines relationships which might exist between the buyer and seller which could alter the invoice price. Further, it provides alternative methods for establishing the value in cases in which the buyer and seller are interrelated. It is hoped that implementation of the Customs Code in Japan will minimize application of "customs uplifts, " which in past cases have caused the buyer to be uncertain as to the customs and commodity tax obligations involved.

Customs classification is a second major problem area. Not only do ambiguities in terminology result in products being classified in categories with higher duties, they may also cause goods to be classified in categories subject to quotas. Vagueness in the administration of quotas has aroused strong !eelings, and customs classification is regarded by foreigaers as a serious noc-tarifi barrier (see the Processed Foods section of this report). Unfortunately, the new GATT Code of Conduct does not deal with customs classification.

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