JAPAN’S
EXPERIENCES OF
OECD PEER REVIEW
Ryokichi HIRONO
Professor Emeritus, Seikei University
23 January, 2007
At Hotel Nikko, Jakarta
OUTLINE
1.
2.
3.
4.
Introduction
History of OECD Peer Review in Japan
Peer Review Mechanism
Major Findings and Some Salient Impacts of
OECD Peer Reviews
5. Merits of OECD Peer Review
6. Need for Improvement in OECD PR Process
7. Some Lessons for Non-Member Countries
from OECD Peer Review Mechanism
1. Introduction
a. Establishment of OEEC in 1948 under the
Marshall Plan
b. Japan’s participation in OEEC’s Development
Assistance Group in 1960
c. Re-organisation of OEEC into OECD in 1961
d. Japan’s full membership in OECD on 28 April,
1964, acceding to the Principle of Current and
Capital Account Liberalisation
e. Japan’s positive participation in the OECD’s
Ministerial Meetings and All standing
committees and their subsidiaries, maintaining
the second largest financial contribution and
taking some initiatives in setting guidelines on
investment and ODA in developing countries
2. History of OECD Peer Review
in Japan
a.
b.
c.
d.
Among many OECD peer reviews, Economic Survey (33), conducted
every 18 months, and ODA Review (4), conducted every 3-4 years,
have been most long-standing considered most important, and most
publicized and well-known in Japan, as growing pressures of economic
globalisation have heightened the importance among OECD members
for domestic macro-economic and structural policy and external policy
coordination, as well as for learning from other countries’ experiences
and steering public opinion in favour of some painful domestic reforms
essential to long-term economic growth and wellbeing of the people in
their respective countries and the world over.
OECD’s Regulatory Reform has also become increasingly important in
Japan (2) and other OECD countries, as their economic growth began
to depend highly on deregulation and competition policies at home.
Japan, together with Mexico, was the first member country in 2004 to
agree to expose themselves to OECD monitoring process.
With a rapid process of industrialisation in the 1960s and 70s, there
was a growing concern in Japan and elsewhere in OECD member
countries, particularly among civil society groups, with environmental
protection, culminating in an increasing need for Environmental
Performance Review (2) and an OECD consensus on PPP.
Going for Growth has now become a regular policy reform monitoring
report covering all OECD member countries including Japan (2).
3.1 OECD Peer Review (PR)
Mechanism in Japan
a.
b.
c.
As in other countries, OECD PR mechanism in Japan starts
with preparatory, consultation and assessment phases,
followed by the publication of PR reports by OECD.
Monitoring of progress made is included in all PRs.
With the groundwork and major issues for PR prepared by
the OECD mission with secretariat assistance and the
memorandum on the issues prepared by Japan, a
questionnaire is developed, often in consultation with
Japanese delegation to OECD and a few other experts on
and in Japan, for agenda setting for mission consultation
which ordinarily lasts one week in Japan.
PR mission carries out an intensive dialogue with the
government of Japan (GOJ), academics and
representatives of industry and civil society groups
including trade unions, farmers and consumer groups, if
found necessary. The mission, with secretariat assistance,
makes detailed performance analysis and prepares a final
draft report, including conclusions and recommendations.
3.2 OECD Peer Review (PR)
Mechanism in Japan
d. All OECD PR reports of Japan have been assessed
by appropriate committees at their respective
plenary meetings made up of all 30 member
countries. For example, OECD’s Economic
Development and Review Committee on a draft
report of Economic Survey of Japan, OECD’s Special
Group on Regulatory Reform for Regulatory Reform
of Japan, Development Assistance Committee for
Japan’s Official Development Assistance, Working
Party on Environmental Performance for
Environmental Performance Review of Japan, and
Economic Policy Committee for Economic Policy
Reform.
4.1 Major Findings of OECD PRs: Some
Examples
1) Economic Survey of Japan 2006
a. Successfully implementing a new monetary policy framework: enhance
the transparency of monetary policy, avoid an early and significant rise
in long-term interest rates, scale back the role of public financial
institutions and accelerate the privatisation of Japan Post.
b. Achieving fiscal consolidation: reduce the still-large fiscal deficits
through continued spending restraint and reducing public investment,
some increase in consumption tax rate, and achieve a primary budget
surplus by the early 2010s.
c. Reducing income inequality and relative poverty: reduce increased
dualism in the labour market through reducing the protection of
regualar workers and increased social spending for vulnerable groups
such as single parents.
d. Upgrading the national innovation system to promote productivity
growth through improving R&D system and education system,
enhancing linkage between public and private research institutions and
strengthening competition particularly in the network industries.
e. Strengthening the integration of Japan in the world economy through
enhancing import penetration, the stock of FDI and the inflow of
foreign workers as well as through reducing barriers in agriculture.
4.2 Major Findings of OECD PRs:
Some Examples
2) Going for Growth 2006
a. Furthering service liberalisation through strengthening of law
enforcement and imposing heavier sanction, extending nationwide
those regulatory reform measures applicable to special zones and
promotion of competition in network industries, e.g. raising surcharge
rate from 6 to 10% of the sales of the goods concerned and enlarging
the free choice of electricity providers from 1/3 to 2/3 of consumers.
b. Reducing producer support to agriculture by shifting market price
support to direct payments and allowing entry of joint stock
companies, e.g. government decision to allow on leased farmland.
c. Easing employment protection of regular workers, e.g. white collar
exemption law withdrawn and revision of labour laws in favour of
equal treatment of non-regular workers endorsed by government.
d. Reforming the financial sector by scaling public financial institutions,
requiring banks to resolve non-performing loan problem and
strengthening their capital base to overcome their remaining
weaknesses, e.g., government targets of halving NPAs exceeded.
e. Removing impediments to FDI by following government’s own plan
to double FDI stock over 5 years, e.g., revising the Commercial Code
to facilitate mergers and acquisitions by foreign companies using their
Japanese subsidiaries.
4.3 Some Salient Impacts of
OECD PRs in Japan
1) Environmental Performance Review
a. Introduction of Polluter Pay Principle (PPP) in Japanese environmental
legislations and national and local Agenda 21 and their effective
implementation since 1991
b. Japan’s initiative in 1997 for the Kyoto Protocol under the United
Nations Framework Convention for Climate Change (UNFCCC),
encouraged by EnvPR.
2) Regulatory Reform Review, 1999
a. Installation of the Comprehensive Regulatory Reform Commission in
2002
b. Adoption of the National Plan for Doubling FDI Inflows, 2003
c. Enactment of a Law on the Privatisation of Japan Post in 2006
d. Empowerment of the Fair Trade Commission in 2006
3) Official Development Assistance Review, 2003
a. Mainstreaming MDGs in 2003
b. Institutional reforms for ODA implementation, 2006
c. Improving ODA effectiveness through harmonisation, alignment and
partnership in 2006
4.4 Some Salient Impacts of
OECD PRs in Japan
4) Economic Survey of Japan, 2005
a. Ending the Bank of Japan’s exceedingly cautious zero interest rate
policy in 2006
b. Accelerating fiscal reforms and raising consumption tax rate, debate
on-going
c. Equal treatment of non-regular workforce in 2007
5) Some Recommendations found difficult and more time needed for policy
reform and effective implementation
a. Reduction of farm support programmes and increase of farm imports
as share of domestic consumption through tariff reduction (tariffisation
of quantitative import restrictions has already been done in accordance
with GATT accord)
b. Substantial increase of penalty rates charged to violation of the Fair
Trade Law
c. Streamlining the regulatory mechanism independent of the promotion
function for telecommunication and information technology market
d. Broadening the use of the specific road-related taxes for non-road
expenditures
5
5. Merits of OECD Peer Review (PR) in
Japan
a.
b.
c.
d.
e.
f.
Made GOJ feel more at ease and less costly in adapting those policy
and implementation reforms from the tried and tested experiences of
other OECD countries.
Assisted GOJ to win support at home for difficult policy decisions and
measures by showing what other countries were doing, as PR policy
and institutional recommendations came from a credible, like-minded
international organisation, and finally as PR mechanism has been
followed in other international organisations such as EU, IMF and WTO.
Enhanced Japan’s policy ownership, as PR policy recommendations
have never been legally binding.
Publication of PR results has exerted pressures on GOJ through
parliamentary debates, mass media and civil society groups to
seriously consider those issues identified and put their
recommendations into practices.
Monitoring of PR recommendations enhanced chances of faster and
more effective implementation.
OECD PR mechanism, by allowing GOJ to join PRs of other member
countries, has enhanced opportunities for them to learn from the
policy successes and failures elsewhere and thus to coordinate their
domestic policies with the rest of OECD for their own benefits.
6. Need for Improving OECD Peer
Review Process
a.
b.
c.
d.
Monitoring should be more frequent for all PR mechanism, as is done through
annual Economic Policy Reform Paper by EPC.
Given financial constraints on OECD, the preparatory phase could enhance
credibility by working in close consultation with the World Bank, WTO and
other international organisations as well as with research institutions in
reviewed countries better equipped with policy research capability. The entire
phase could be even commissioned to such research organisations.
While the consultation phase is vital to making both policy analysis and
recommendations satisfactory to the review mission and valuable to reviewed
countries, the phase would involve intensive dialogue with so many
stakeholders both within and outside the reviewed governments. To reduce
time burden on both parties, questionnaires could be both more concise and
focused, by introducing some common standards and indicators amenable to
quantitative measurements, e.g. tax revenues, national and external debts and
annual debt servicing as % of GDP.
In countries as in Japan where English is not a mother tongue, the use of
English language during the OECD PR process would increase not only the
financial burden and time waste on the government of reviewed countries, but
also there may be some interpretative prejudices introduced. The enormity of
the cost and time-consuming trouble should be easily understood by all OECD
countries if they had to use Japanese or Chinese language as a working
language. To avoid this, the use of preferred language be required except for
the assessment phase, which requires OECD to be a multi-lingual institution.
7. Some Lessons for Non-Member Countries
(NMCs) from OECD PR Mechanism
a.
b.
c.
d.
Better understanding of the OECD PR process required for effective
installation of OECD PR: why, what, how and cost-benefits to NMCs.
Support to capacity building of reviewed country by OECD through
bilateral and multilateral ODA is essential in many areas of cooperation
to make OECD PR meaningful and welcome, e.g., comprehensive
economic and social data collection, analysis and publication, and
macro-economic, structural, social and environmental policy
formulation, implementation, monitoring and evaluation.
Need for NMCs to accelerate legislative and enforcement reforms such
as free parliamentary debates and institutional arrangements such as a
broader participation of multi-stakeholders in all OECD PR process,
particularly in preparatory and consultation and monitoring phases.
Need for NMC ownership throughout OECD PR process so that various
stakeholders in reviewed countries would find the process as enhancing
their own benefits in terms of macro-economic stability, long-term
economic growth, social equity and environmental protection.
THANK YOU FOR YOUR
KIND ATTENTION
For further questions, please contact the
following email address:
ryokichi@iea.att.ne.jp