Imagine a transnational regime with these institutional features:

• Virtually free trade in goods and services, including a ‘mutual recognition’ system whereby compliance with regulatory requirements in one jurisdiction (such as qualifications to practice law or requirements when offering securities) basically means exemption from compliance with regulations in the other jurisdiction. And for sensitive areas, such as food safety, there is a trans-national regulator.

• Virtually free movement of capital, underpinned by private sector and governmental initiatives.

• Free movement of people, with permanent residency available to nationals from the other jurisdiction – not tied to securing employment.

• Treaties for regulatory cooperation, simple enforcement of judgments (a court ruling in one jurisdiction being treated virtually identically to a ruling of a local court), and to avoid double taxation (including a system for taxpayer-initiated arbitration among the member states).

• Government commitment to harmonising business law more widely, for example consumer and competition law.

No, this is NOT necessarily the European Union (EU). These aspects characterise the Trans-Tasman framework built up between Australia and New Zealand, particularly over the last two decades. Sometimes this has been achieved through treaties (binding in international law), sometimes in softer ways (such as parallel legislation in each country), and sometimes even through unilateral abrogation of national sovereignty (New Zealand regarding film classifications!). Both countries are also actively pursuing bilateral and now some regional Free Trade Agreements (FTAs), especially in the Asia-Pacific.

So, why can’t these Trans-Tasman initiatives, and perhaps even some EU developments, provide a template for a true ‘Asia Pacific Community’ – beyond even what Australian Prime Minister Kevin Rudd apparently has in mind, or for an ‘East Asian Community’, as suggested by the new Japanese PM, Yukio Hatoyama?

The region certainly remains very diverse in terms of social and legal or political systems. Yet economic integration has burgeoned since the 1980’s, and will intensify even further as pan-Asian production networks have been forced to turn away from European and US markets in the wake of the Global Financial Crisis (GFC). The ‘diversity gap’ is narrowing significantly as the EU itself expands and becomes more diverse, at least when compared to the more developed democracies of East Asia, Australia and New Zealand. Indeed, the EU’s ‘Eastern Enlargement’ is forcing a marked reconceptualisation of its initial political motivation, which was to engage economic integration to maintain peace not only among major powers like Germany and the UK, but also to counterbalance the new Communist bloc within Europe.

The Cold War has also now thawed in most of Asia, which suggests the need for a similar rethink about why and how ASEAN was established – in the shadow of tensions in and with Vietnam. The 2008 ASEAN Charter as well many initiatives in economic policy particularly since the 1997 Asian Financial Crisis indicate some significant shifts away from traditional informal ways of promoting integration among the 10 member states. And who would have predicted in the 1990s the recent inauguration of the ASEAN Intergovernmental Commission on Human Rights?

Anyway, true respect for diversity within Asia-Pacific countries should include acknowledgement of subgroups that do exhibit greater convergence. For example, Australia and New Zealand share many commonalities with Singapore and even Malaysia, not only in terms of legal systems but also increasingly in standards of living. The economic parallels are even stronger with countries like Japan and now the Republic of Korea, with their originally ‘civil law’ traditions also undergoing significant transformations particularly over the last decade. These three pairs of countries could conceivably join in some more intense forms of economic partnership over the next decade. This has already occurred in the Trans-Tasman context – albeit with a sense of ‘back to the future’ for those two former British colonies.

Appreciation for the potential of subgroups is also found, moreover, within the EU system. It helps get around the problem that we are dealing with dual and fast-moving targets – in Europe and in the Asia-Pacific. In drawing inspiration already from the EU, we should also appreciate that ‘Brussels was not built in one day’. Various institutions have been grafted on or modified, through trial and error, and only some (or new variants) may prove useful for (some) countries nowadays within the Asia-Pacific region.

Countries like Australia need to examine the EU system more comprehensively to identify how such features might be adapted. We must get away from preconceptions generated, for example, by negative experiences in dealing with agricultural trade policy. For its part, the EU needs to overcome difficulties in projecting just what it stands for, particularly in Asia. Ironically, this problem is exacerbated by the EU’s internal diversity and the fact that broader foreign policy powers have been largely left to member state sovereignty.

More generally, the GFC has led to a reassessment of market liberalisation policies themselves. Rudd has consistently protested about the excesses of market fundamentalism, although it remains to be seen whether for example how far this will translate into reforms to consumer protection legislation in Australia (and New Zealand). Such views underpinned his electoral victory in 2007 (although a windback of labour market deregulation was a much higher profile issue). But there was a similar backdrop to Hatoyama’s election victory in Japan this August – what Arthur Stockwin described recently as a ‘political earthquake’. The new Japanese government appears likely to intensify measures to promote consumer rights and product safety, while simultaneously promoting actively both the WTO system and bilateral or regional FTAs. And the former EC Commissioner and now WTO Director-General, Pascal Lamy, has long pointed out that both East Asia and the EU share an appreciation not only of diversity, but also the need to balance free markets with other social and political values (Philomena Murray, ed, Europe and Asia: Regions in Flux, 2008, p7).

What is likely therefore to emerge – or, at least, what we should now be encouraging – is deeper and broader economic integration in the Asia-Pacific (or at least Australasia) that simultaneously incorporates regulatory safeguards to meet the challenges and expectations of our brave new post-GFC world. These innovations may be built into FTAs or negotiated out alongside them, but it needs to be done in a more concerted and comprehensive manner. Collaboration in regulating consumer product safety, financial markets, environmental protection, labour standards and investment regimes are only some of many possibilities explored in my Sydney Law School Research Paper downloadable here.

And, if it is still too difficult to use the ‘E’ word in contemporary discussions about an Asia-Pacific Community, surely there exists more scope to highlight some EU-like analogies already found in the Trans-Tasman context. Indeed, ignoring that context reminds me of the scene in Moliere’s comedy where a main character suddenly exclaims:

‘Good heavens! For more than forty years I have been speaking prose without knowing it! [Par ma foi, il y a plus de quarante ans que je dis de la prose, sans que j'en susse rien!]’ (‘Le Bourgeois Gentilhomme’ [1670] Act II, Scene iv).

Related articles:

1. Economic integration: Will Asia go regional?
2. U.S. trade policy in Asia: Going for the Trans-Pacific Partnership?
3. Competing Asian Communities: What the Australian and Japanese ideas mean for Asia’s regional architecture

Mainstream Australian media provided distressingly meagre coverage of Japan’s exciting general election for the more powerful lower House of Representatives, which saw a remarkable about-face. The centrist Democratic Party of Japan (DPJ) went from 115 to 308 seats, with allies Social Democratic Party (SDP) (the small leftover of the once-powerful Japanese Socialist Party) and the New Party Nippon taking another 7 and 3 seats respectively. Overall, these and other former Opposition parties took 340 seats, whereas the conservative ruling coalition suffered a massive defeat. The Liberal Democratic Party (LDP) dropped to 119 seats, from 300 before the election (and 296 in 2005, the previous election called by Junichiro Kozumi who then retired as Prime Minister). The Komeito dropped from 31 to 21 seats, meaning that the former ruling coalition now only has 140 seats. In short, the tables have turned almost completely since 2005, in a country famous for its aversion to abrupt political changes.

This piece is a reflection on this result and the potential implications it has for policy and law reform in Japan.

Newspaper coverage in English tends to suggest that this is the first time the LDP has really lost power since 1955. Commentators usually do mention its loss in 1993, but add that this was only for a year. This overlooks the fact that the SDP led a coalition incorporating the LDP from 1994-6, which saw some significant political developments (eg a major settlement of the long-running Minamata Disease litigation). More importantly, the year the LDP was completely out of power generated important legislation ranging from measures promoting transparency in administrative procedures through to strict liability for defective products. It also laid the groundwork for further substantive law reforms in similar areas, such as the Official Information Disclosure Act of 2001 and the Consumer Contracts Act 2000.

Most importantly, the LDP’s fall from power in 1993 made them and the bureaucracy reassess their close relationship. LDP politicians realised that even once back in power, they might lose again. From that perspective, a political process more open to diverse stakeholders – including ‘opposition’ interests – became more attractive. As part of this ongoing rethink, from the late 1990s the ‘deliberative council’ system for law reform certainly became more transparent, and alternative law-making processes developed as well (eg private Members’ Bills).

The LDP, prompted also by the Komeito, also began incorporating many centrist policies into its own program – trying to steal the DPJ’s thunder. Such developments provide a partial explanation for the counter-intuitive situation of a conservative coalition pressing ahead with major judicial reforms from 2001, These covered not just civil justice (which at least some business interests also wanted), but also criminal justice (including the new quasi-jury system, with its first trial recently concluded in the Tokyo District Court).

These shifts – accommodating concerns of a wider voter base, in a more porous process serving as a back-up plan in case the LDP lost power again – seemed to be working out quite well, especially as the Japanese economy finally returned to a growth path from 2002-7. But then came the global financial crisis and economic stagnation that is potentially far worse than during Japan’s ‘lost decade’ of the 1990s, because it was driven by the world-wide collapse of all Japan’s major markets for both exports and investment (including even China). Those who had already suffered from major socio-economic reforms and Japan’s banking crisis in the late 1990s became increasingly concerned about the LDP’s capacity to address these even larger challenges. One such group comprised the burgeoning numbers of ‘involuntary non-regular workers’, young men and others who no longer had the option of one day joining the elite ‘lifelong employee’ cadre rather than deliberately choosing not to take up that life. (This group was highlighted in the recent lecture on ‘flexicurity’ presented at Sydney Law School by former Tokyo University Law Dean, Emeritus Professor Kazuo Sugeno). Unsurprisingly, despite LDP-led law reform in 2007 aimed at part of this group, the DPJ was able to attract a much higher proportion of younger voters.

All this means that we may not witness now huge changes in both the style and substance of law reform in Japan. This will not merely be because the DPJ government is new and relatively inexperienced, or due to reactionary forces, but also because some significant changes were already afoot. It is interesting, for example, to compare the pre-election manifestos of the LDP and the DPJ (themselves one indication of broader transformations in Japanese politics over the last decade) and other policy statements. On the other hand, it is certainly worth examining the DJP’s manifesto ‘promises’ to get a better idea of the new government’s likely legislative program for the next few years.

The DPJ’s policy summary (not necessarily identical to their manifesto distributed during the election compaign) is still currently only available in Japanese. While the pace of change may be slow, the DPJ states policies relating to a wide variety of areas of law reform. Particularly, the recognition of Ainu as an indigenous people, allowing married couples to retain separate surnames, placing limits on amakudari [descent from heaven], ie retiring from government into private sector jobs, greater devolution and citizen involvement in governance, securing better conditions for non-regular workers, and preventing and resolving disputes based on the Labour Contracts Act.

Related articles:

1. Japan: Is the DPJ the party of economic reform?
2. Why Japan’s Hatoyama government matters
3. Open government in Japan

The Prime Minister, Kevin Rudd, has just contributed a long essay with this title to the Sydney Morning Herald (25-6 July 2009). Here are some extracts that should be connected to ongoing initiatives and discussions about consumer credit and consumer law more generally:

1. Rudd’s grand plan now for the forthcoming ‘building decade’:

‘It will take time to build the foundations of Australia’s long-term global competitiveness. But we must take time to do it thoroughly. We must take time to invest in the infrastructure of the future, the skills of the future, the competitive tax system we need for the future, an ambitious agenda for competition and regulatory reform, and to maintain the best national balance sheet of major advanced economies.’

2. On ‘causes of the current crisis’:

Similarly to the US, ‘Australian consumers also spent up big. Between 1996 and 2007 there was a 460 per cent increase in credit card debt, a 340 per cent increase in household debt, a 450 per cent increase in corporate debt and a 200 per cent increase in net foreign debt.’

3. On ‘the ideological hypocrisy of the right’:

‘As I have argued elsewhere, the boom-and-bust economic cycle of the past decade has been an unavoidable consequence of a decade of neo-liberal free market fundamentalism that reinforced a culture of corporate greed and excess in the financial sector. The central principles of this extreme form of capitalism are that markets are self-regulating; that government should get out of the road of the market altogether and that the state itself should retreat to its core historical function of security at home and abroad.

This fundamentalist ideology of self-regulating markets has imploded comprehensively with the current crisis. We have seen spectacular market failure requiring equally spectacular government intervention in the economy to effectively save the system from itself.’

4. As for ‘new challenges of recovery’:

‘This crisis has shown we have reached the limits of a purely debt-fuelled global growth strategy. Not only will the neo-liberal model of the past not provide growth for the future, its after-effects will make recovery more difficult. Mountains of global public and private debt, global imbalances, and a weakened global financial system will drag on global growth for a long time.’

5. Out of ‘five key areas to boost productivity’ and hence Australia’s new global competitiveness, ‘First, regulatory and competition reform’ (plus Infrastructure, Innovation, Skills and Tax – then a broader reform agenda including savings and retirement income):

‘Competitive markets encourage business innovation and productivity. Sound regulation can bring many benefits to consumers and businesses by promoting employee welfare, consumer safety, fair competition and protecting property rights. Poor regulation, however, can damage wealth creation, stifle business innovation and hamper our ability to deliver core public services. Efficient regulation strikes a balance that encourages competition but protects employees, consumers, small businesses and macro-economic stability. That is why the Government has launched a comprehensive regulatory reform agenda under the Council of Australian Governments.’

To my mind, it is heartening that Rudd hasn’t recanted from his critique of market fundamentalism in policy formation and implementation, despite the considerable controversy it engendered (for various more thoughtful responses, see the May 2009 issue of The Monthly).

But ‘consumer safety’ gets only a bare mention from Rudd. And that comes in the context of CoAG’s broader (BRCWG) regulatory reform agenda. The latter in fact looks rather like business as usual – ‘the reduction of the regulatory burden on businesses by accelerating and broadening the regulation reduction work program, and improving processes for regulation making and review’. Especially since this BRCWG agenda also now includes a more conservative government in New Zealand.

Rudd’s essay also doesn’t mention unfair consumer contract terms legislation, perhaps because the Trade Practices Amendment Bill was tabled already in late June. But we know from the Victorian state legislation from 2002 and the 1993 EU Directive that the success of such legislation is very dependent on commitment by regulators (and therefore their political masters and mistresses) to follow-up with publicity, guidance and enforcement activity. Even more surprisingly, Rudd doesn’t mention the broader ‘Australian Consumer Law’ project led now by the Treasury, nor its National Consumer Credit Law proposal. The latter includes new ‘suitability rules’ for lenders that should significantly restrict their ability to take advantage of increasingly obvious psychological biases and heuristics that have underpinned the burgeoning consumer over-indebtedness highlighted again by Rudd in this essay.

Do such omissions mean that these reform initiatives already have so much backing from the Prime Minister and his Cabinet (including a new Consumer Affairs Minister) that the reforms are expected to be implemented without any problems? Or instead do the omissions indicate consumer law’s low priority for this Government, as well as Howard’s over 1996-2007, despite Rudd’s renewed call now for a more level playing field in policy-making overall? We should be able to judge this better by next year’s election, when the entire Consumer Law and consumer credit packages are supposed to have been enacted. The answer has important repercussions not only for Australian consumers, businesses, and governments. It also matters to those close trading partners already increasingly integrated in regulatory harmonization extending beyond the scope of classic WTO/FTA agreements (such as NZ) or potentially so (such as Japan).

Related articles:

1. Australia’s lethargic law reform: how (not) to revive consumer spending
2. The long and rocky road to global recovery
3. Consumer angst over reform of China’s age-old salt monopoly

Peter Drysdale’s weekly editorial,  along with related postings to this blog and enormous media attention in Australia and elsewhere, focuses ‘on the continuing detention of Rio Tinto executive, Stern Hu, in Shanghai on allegations of espionage’. Drysdale signposts some future analysis of ‘the legal framework under which Hu’s detention has taken place’. He also emphasises that we need ‘a cooperative framework—bilaterally, regionally and globally’ for ‘China’s authorities to avoid damage to the reliability of markets and for Australia to avoid the perception of investment protectionism’.

The most pressing legal (and diplomatic) issues concern China’s criminal justice system, especially when ‘national security’ is allegedly involved. But we need to consider some broader ramifications, including investment treaty protections. Part of the backdrop to the Hu saga could be that nations retain considerable sovereignty when it comes to deciding on the operational ambit of foreign investments. Investment treaties – which may be bilateral or regional, stand-alone or folded into broader Free Trade Agreements – now often entrench substantive liberalisation. But these treaties maintain exceptions for national security or subject investments to national interest tests. So even if Australia and China conclude their current FTA negotiations making it broadly easier for firms from either country to invest in the other, that sort of exception could be invoked by Australia, for example, to block or restrict an investment like the now scuttled proposal by Minmetals to acquire Oz Minerals back in March 2009.

Explicit restrictions along these lines had diminished considerably since the 1990s, especially in developed countries like Australia, as competition for FDI burgeoned world-wide. But now they appear to be on the rise again. Concerns have grown about sovereign wealth funds, for example, as well as China’s push to secure resources directly (rather than through long-term contracts combined with smaller equity stakes, the longer-standing approach pursued by Japanese companies in Australia). And after an initial period where countries were desperate to attract funds after the GFC, those market collapses are perhaps forcing a rethink of (explicit or mostly implicit) models based on the merits of lightly regulated markets.

However, part of the recent shift may be due to the growing importance of investor-state arbitration provisions in investment treaties. Under these procedural rights, the investor can claim directly against the host state for breaching substantive protections (such as expropriations, or transparent ‘fair and equitable treatment’) for investments that have been made. Thus, for example, the NZ-China FTA contains an exception for certain ‘essential security interests’ (Art. 201) but also full investor-state arbitration provisions.

Even without such provisions, the foreign investor may be more likely nowadays to be able to get their home state to bring a claim in public international law (say before the International Court of Justice) against the host state, with any compensation obtained from the host state then passed on to the investor. This indirect means of protecting investors was less popular when states tended to temper economics with politics or broader strategic issues. But nowadays in the WTO, for example, they often sue each other over economic issues, with interested industries or firms egging them on (think of Microsoft and the US enforcing TRIPS obligations). And investment disputes, thanks to burgeoning arbitrations that are brought directly by investors against hosts, are increasingly seen as economic rather than political or diplomatic disputes, likewise resolved through a much more ‘judicialised’ procedure.

Either way, the indirect or increasingly direct threat of a claim about an investment that has been made provides an incentive for a host state to rely more on residual exceptions to allowing investments in the first place, such as the national security exception. If so, however, we are likely to see more cases like that involving Stern Hu. That is, the (more broadly frustrated) home state of a frustrated investor reacts – even in a later context – against what it may have perceived as over-eager invocation of the national security exception. The irony in this case, perhaps intentional, is that China is now using its own national security law against a citizen of Australia. But it would be particularly unfair to be making an example of an individual for the actions of his country, particularly when employed by a firm (Rio Tinto) not involved in Australia’s original invocation of the national security exception currently retained in its FDI legislation.

These sorts of issues are likely to become even more acute in light of some very recent developments in investment treaty arbitration practice (Investment Arbitration Reporter 2(11), 29 June 2009). In cases involving treaties with Russia and now China, tribunals have ruled that provisions that seemed to restrict arbitrations to quantification of compensation amounts should be read to extend arbitrability to the question of whether expropriation took place. Thus, even first- or second-generation investment treaties with China (including Australia’s dating back to 1988) may already apply far more extensively than almost everyone had thought (cf. e.g. Gallagher and Shan, Chinese Investment Treaties, OUP 2009). In any event, China is renegotiating such treaties or concluding ones with new partners (like NZ) that clearly allow arbitrability of all issues. The backdrop is that China is now a major FDI-exporter, whose investors are already beginning to bring claims abroad – although so far no investor (or law firm wanting to do other business in China) has risked claiming against China (see my paper with Romesh Weeramantry on this here [pdf]).

If these trends continue, namely direct investor-state arbitration provisions are concluded or reinterpreted to restrict the ability of home states to have second thoughts about foreign investments once they have been accepted, it seems to me that they will be more careful in allowing in FDI. But when they do, somewhere down the line, they may get a ‘Hu’ reaction from the frustrated home state. If so, then how Australia now reacts to China’s detention of Hu will be very important for the evolving field of investment treaties.

This post originally appeared on the Japanese Law and the Asia-Pacific blog

Related articles:

1. The real costs and benefits of investment treaties
2. China’s new National Energy Commission
3. Public opinion on Chinalco’s investment in Rio Tinto

Dr Malcolm Cook and Mr Andrew Shearer at the Lowy Institute in Sydney published last month a short analysis entitled Going Global: A New Australia-Japan Agenda for Multilateral Cooperation:

To help both governments navigate [a] more complicated and uncertain international environment, the paper offers a agenda for enhanced Australia-Japan multilateral cooperation organised around:

- support for American global leadership, and
- reforming post-war multilateralism.

Three areas of international policy are particularly well suited to closer Australia-Japan cooperation in pursuit of these goals: climate change and energy security; nuclear non-proliferation; and official development assistance.

I have doubts about these two foundational principles, especially over the mid- to long-term, given America’s own longstanding ambivalence about multilateralism, and its relative decline particularly since the GFC.

In the short term, however, it seems worthwhile to think more deeply and creatively about three of their seven specific recommendations:

- Leverage APEC and the East Asia Summit more to act as caucuses in multilateral bodies like the WTO …
- Better coordinate Australian and Japanese aid policies and programs …
- More ambitiously, develop and pursue an Australia-Japan agenda for reform of the
multilateral system. (p2)

Mostly implicit in the analysis is the rise of China, although that the paper does mention that specifically (at p5) – along with the rise of India – as ‘changing power balances in the region’. Ian Castles has disagreed recently with the foreign editor of The Australian on ‘Measuring China’s Size and Power’, even in economic terms. How quickly China grows relative to the US will partly define the ‘short term’ for both Australia and Japan.

Already, Tobias Harris reports that PM Aso alluded recently in Beijing to the possibility of a Japan-China FTA. If this eventuates before any Japan-US FTA, what does this bode for the ‘support for American global leadership’ advocated by Cook and Shearer?

Nor should we forget India, as Bill Emmott argued in Rivals last year. Even in the short term, Raghbendra Jha remains ‘guardedly optimistic’ about its growth prospects – and everything, especially nowadays, is relative. Already, Japan has commenced bilateral FTA negotiations with India.

The point is that the world is becoming increasingly multi-polar, especially as the GFC and recession hit the US particularly hard. Hitching our wagon to America may well leave us behind. It might be better for Japan and especially Australia to support other economic powerhouses in leadership bids, on a more ad hoc basis. Similarly, regarding at least some security matters (like invasions of Iraq), but I leave that to the experts.

Another point is that America itself has hardly been exemplary in promoting ‘post-war multilateralism’, whether in security or economic affairs. (Think of its pre-WTO approach to market access in Japan and elsewhere, its slow implementation of adverse WTO rulings, and America’s active involvement in bilateral and regional FTAs – beginning with NAFTA.) That’s understandable for a great power, and the US may be – or turn out to be – better than others like the EU or large countries in Asia. But we don’t yet know for sure, and meanwhile it leaves a tension between the two guiding principles proposed by Cook and Shearer.

In the (truly) short term, however, this approach could be useful in some fields. For example, Australia and Japan could include balanced investor-state arbitration provisions in the FTA they are currently negotiating. These could serve as a template for those in the Trans-Tasman Partnership Agreement, which both Australia and the US wish to join. A permanent Appellate Body and improvements in state-to-state dispute settlement could be added to such Agreements, which in turn might promote useful reforms to the WTO’s Dispute Settlement Understanding at the multilateral level. But even in this process, note that the US could not call all the shots, even with the support of Australia and Japan. Other countries are already involved, and pragmatic accommodations reached. All the more so, if trying to include further APEC or East Asian Summit members.

A second area where the latter two countries could collaborate is ‘legal technical assistance’, within their ODA programs. For example, AusAID programs increasingly emphasise long-term sustainability, as with Sydney Law School’s program to promote human rights awareness among police and prosecutors in Nepal. As well as ‘training the trainers’, as in that program, it would be useful to be able to commit to follow-ups with other grants through agencies like JICA in Japan. More simply, the two ODA agencies could cooperate in a one longer-term project. This, in turn, might be better coordinated with regional or multilateral initiatives.

But note again that the vision of the perfect ‘rule of law’ in the US is not necessarily identical to that which has evolved over the centuries in Australia, from the original English variant of the common law tradition. Let alone the vision found in the countries like Japan, with a legal system that has borrowed heavily from continental European law traditions. So, once again, bilateral cooperation may come up against a trade-off between American leadership and a new multilateralism.

Related articles:

1. Multilateralism in the Asia Pacific: What might have been, and what could be
2. Squaring the Japanese and Australia proposals for an East Asian and Asia Pacific Community: is America in or out?
3. Japan and Australia: stalled in domestic politics

On 21 November 2008, the Attorney-General’s Department (AGD) announced a Review of Australia’s International Arbitration Act 1974 (IAA). The aim was to consider whether the Act should be amended to:

-ensure it provides a comprehensive and clear framework governing international arbitration in Australia;

-improve the effectiveness and efficiency of the arbitral process while respecting the fundamental consensual basis of arbitration, and;

-consider whether to adopt ‘best-practice’ developments in national arbitral law from overseas.

The AGD’s Discussion Paper (DP) expressed the hope that a revised IAA would make Australia a more attractive venue for conducting international commercial arbitration (ICA), especially within the Asia-Pacific region. Unfortunately, Australia has missed that boat, with China, Hong Kong and Singapore the clear leaders now in this part of the world.

For Australia to have any chance at all, it needs a much more ambitious reform than envisaged in the AGD’s DP. Anyway, Australia needs to appreciate the more diffuse and long-term benefits of this type of reform.

This table, reproduced from an empirical study published last year by the University of London and PricewaterhouseCoopers, confirms that the Australian Centre for International Commercial Arbitration (ACICA) has almost completely missed out on attracted ICA work, compared to its counterparts in China (CIETAC), Hong Kong (HKIAC) and Singapore (SIAC).

Other arbitration centres in Asia are also building up caseloads (eg KCAB in Korea), and the American Arbitration Association (AAA) conducts arbitrations in places like California as well as the East Coast. The International Chamber of Commerce is setting up branches in Singapore and Hong Kong, following steady increases in ICC cases involving Asian parties, who also seem keener now to press for the seat to be in Asia (including, albeit occasionally, Australia or Japan) rather than Paris, Geneva or London.

China, Hong Kong and (to a lesser extent) Singapore have benefited from the boom in business with China over the last decade. HKIAC has taken away cases from CIETAC since the UK renounced sovereignty over HK in 1997, and foreign parties have become more aware that the Chinese government in fact does not require Chinese parties to agree only to CIETAC arbitration. SIAC has also benefited from the emergence of India.

And all these institutions have received strong government backing, financial and otherwise, compared say to ACICA. This extends to regular reforms to arbitration legislation, where the Australian government has been most remiss. Although it amended the IAA in 1989 to adopt the 1985 UNCITRAL Model Law on ICA, unlike HK (which also adopted it in 1989) and Singapore (1995) Australia has not amended it for almost two decades now, despite some very peculiar decisions of Australian courts and some clear errors in drafting the legislation.

Even New Zealand, which adopted the Model Law in 1996, enacted amendments to its Arbitration Act in 2007 following some major revisions to the Model Law agreed by the UN in 2006.

For Australia to regain any lost ground, it must be bold in adopting new or emerging global standards as reflected in the revised Model Law. This extends to seriously considering the option of completely abolishing writing requirements for a valid arbitration agreement, and especially the revised Model Law’s compromise solution of allowing ex parte preliminary orders in support of interim measures issued by arbitrators.

These solutions, already found for example in New Zealand, also help to restore greater informality and therefore cost-effectiveness in ICA proceedings. That is especially important now that studies (like a 2006 one by the University of London / PWC ) confirm a re-emergence of a persistent trend for ICA to become more and more like regular court litigation, despite concerted efforts in the late 1990s to address a similar trend.

However, this bolder approach is only evident in a few Submissions available via the AGD website, notably in a Final Submission (and now an article manuscript) by myself and Professor Richard Garnett. We also urge the AGD to address at least twenty major issues in this Review, not just the (mostly straightforward) eight issues raised in its DP. Australia should re-emphasise informality and a related respect for arbitral autonomy, following the global trend even though the English law tradition has involved greater supervision of arbitration by the courts. Perhaps the Review so far represents another example of Australia’s conservatism in law reform, apparent also in the reluctance to follow emerging trends in consumer product safety re-regulation and control over unfair contract terms.

Even if we can achieve a more comprehensive and bolder reform of the IAA, Australia needs to be realistic. Its ‘tyranny of distance’ and the ‘early-mover advantage’ achieved by Hong Kong and then Singapore mean that Australia will probably never achieve a dramatic increase in ICA caseloads. One quantitative analysis found quite little economic impact in various countries from adopting even the original Model Law (Christopher Drahozal, ‘Regulatory Competition and the Location of International Arbitration Proceedings’ 24 International Review of Law & Economics 371 (2004)). However, such analysis deals in aggregates so Hong Kong and Singapore are probably important exceptions, at least nowadays. More importantly, the study did not (and probably cannot easily) deal with more diffuse benefits that can follow from comprehensive arbitration law reform.

For example, it helps Australian lawyers and their clients by re-educating them about existing and emergent global best practices, so they can do more and better when negotiating arbitration clauses and resolving disputes in arbitrations (and sometimes then courts) outside Australia. Comprehensive reform of ICA legislation also assists in understanding and reassessing the distinct but overlapping and growing field of investor-state arbitrations.

Longer term, as in countries like Japan that also recently revised arbitration legislation, comprehensive reform aimed at cross-border arbitration should also help to reinvigorate arbitration of purely domestic disputes. In Australia, this field is also largely stagnant. Commercial Arbitration Acts still hold sway, dating back to the mid-1980s and involving even greater court supervision of arbitral proceedings. Some of us have been pushing for reform for years. Maybe this will get some traction now that the Chief Justice of New South Wales has highlighted the problem, and the best solution, in a speech in Sydney on 2 February 2009:

‘The focus on commercial arbitration as a form of commercial dispute resolution has always offered, but rarely delivered, a more cost effective mode of resolution of disputes. Our uniform legislative scheme for domestic arbitration is now hopelessly out of date and requires a complete rewrite. The national scheme implemented in 1984 has not been adjusted in accordance with changes in international best practice. Of course, in our federation, agreement on technical matters such as this in multiple jurisdictions is always subject to delay. The delay with respect to the reform of the Commercial Arbitration Acts is now embarrassing. This is not an area in which harmonisation based on the lowest common denominator principle is appropriate.

In my opinion, the way out of the impasse is to adopt the UNCITRAL Model Law as the domestic Australian arbitration law. It is a workable regime, itself now subject to review at the Commonwealth level. Its adoption as the domestic Australian arbitration law would send a clear signal to the international commercial arbitration community that Australia is serious about a role as a centre for international arbitration. Our competitors in this regard, such as Hong Kong or Singapore, do not create a rigid barrier between their domestic and international arbitration systems. Nor should we.’

I would add that aligning the CAA regime more closely with the revised IAA has the further advantage of reviving domestic arbitration anyway. Also, the IAA regime should be updated comprehensively, even if in extending it then to domestic arbitrations we then pare back some of the new provisions (or even some of the original ones) to acknowledge some somewhat different public interest elements (eg in B2C transactions) and perhaps different underlying empirical realities (eg more use of non-lawyer arbitrators). Ambitious reform of the IAA is particularly important, given the delays and complications alluded to by the Chief Justice that inhere in Australia’s constitutional system. Similar reasons underlie my call for a more comprehensive new ‘Australian Consumer Law’.

In both fields of law reform, if we don’t get it right now, it will be at least another decade before Australia gets another chance. And we can be sure that other Asia-Pacific countries are probably already engaged in or will soon embark on their own further reforms to laws on ICA. They too will want to further bolster this preferred mechanism for resolving cross-border commercial disputes, to keep attracting more ICA cases (and associated service industries) to their own shores, and to encourage more use of arbitration domestically.

This post can also be found on my Japanese Law and the Asia-Pacific blog here

Related articles:

1. Australia’s lethargic law reform: how (not) to revive consumer spending
2. ‘Pain on the road to recovery’ – So what, for consumer (credit) law reform for Australia (and beyond)?
3. APEC and community-building in the Asia Pacific

The former Chair of the Australia Competition and Consumer Commission, Professor Allan Fels, co-authored a column for the Weekend Business section of the Sydney Morning Herald entitled ‘Rudd’s Consumer Activism Over the Top’ (21-2 March 2009, p 5) . Their title is misleading, although they raise some good points in response to Treasury officials’ latest Consultation Paper, ‘An Australian Consumer Law: Fair Markets, Confident Consumers’. On its own terms – let alone compared to developments over recent years in the EU, Japan, and soon Canada – the Paper and the Australian Governments’ current proposals remain a disappointment for Australian consumers.

Yet now should be a perfect opportunity, however belatedly, to implement a better consumer regulatory framework and thereby revive consumer trust. After all, partly through cash handouts to consumers, Australia is trying to spend its way out of a huge recession, itself caused (or at least exacerbated) by regulatory failures and increasingly blind faith in improperly regulated markets.

Fels does remark: ‘Consumer activism by politicians is no bad thing. Consumer policy was understated in the Howard era’. And he should know, since he ran the ACCC from 1993 until 2005. But former PM Howard’s Treasurer did eventually kick off the reform debate by getting the Productivity Commission (PC) to investigate improvements in Australia’s consumer product safety regulation (2005 – February 2006), and then consumer law and policy more broadly (2007 – March 2008). A year after the latter, the Rudd Government is still at the stage of a ‘Consultation Paper’ – proposing a more harmonized regime nation-wide to come into effect only from 2011! Australia’s Constitution means that responsibility consumer law is shared between federal and state governments, but this timeframe doesn’t seem very ‘activist’.

Further, the Consultation Paper’s focus is very much on one aspect of the PC’s recommendations: reducing transaction costs through harmonization. This was a major component of the PC’s estimate that reforming consumer law could generate net economic benefits of A$1.5-4.5 billion. I can certainly see major benefits from simplification. Accumulated legislation and case law creates a legal morass – as Jocelyn Kellam and I found when analyzing Australia’s product liability law and practice in 2007, and when updating last year the CCH Australian Sales and Fair Trading Reporter looseleaf. In addition, the Consultation Paper does propose ‘trading up’: using the federal Trade Practices Act 1974 (TPA, possibly renamed the Competition and Consumer Law) as the core, but updated for ‘best practice’ developments enacted in state Fair Trading Acts since the late 1980s. So, for example, the Paper proposes a nation-wide version of Victoria’s regime to control proliferating unfair contract terms, in force since 2002 but based on an EU Directive dating back to 1993.

Yet the Consultation Paper seems to be re-opening a debate about the contours of such controls that should have been settled by the PC’s Inquiry. The EU model is working well, so is the Victorian variant, and Japan’s Consumer Contracts Act 2000 is also making a significant difference. Why does Australia feel the need continually to reinvent the wheel? There is a real risk that the wheel we end up won’t be ‘fit for purpose’, as the Consumer Law Roundtable in effect points out in our Submission regarding the Paper.

An even bigger problem lies in the Consultation Paper’s focus on harmonizing nationally, rather than internationally. For example, it omits any reference to Recommendations by the PC (in 2006, and again in 2008) to require suppliers to notify regulators about serious product related accidents. Yet another EU Directive enacted this duty in 2001, Japan added a variant in 2006, and another is currently before the Canadian Parliament. The US has also had stricter rules since 1990, even though the uniquely high levels of product liability claims quickly inform the public of potential safety risks anyway. So here is a global standard, which Australia should be catching up to, as I urge in my Submission on the Paper. If this doesn’t happen in the present round of reforms, it probably won’t happen for another decade.

Anyway, Australian exporters to the EU, Japan, Canada or the EU are increasingly likely to be required to monitor and report safety risks, under contracts with importers in those countries who themselves have reporting requirements to their own regulators. Why shouldn’t Australian exporters also disclose such information to Australian regulators? If the latter collaborate, informally or preferably formally, with regulators abroad, this could even directly assist exporters who take product safety risks seriously. Even Fonterra’s voluntary disclosure to the NZ government last year belatedly helped to address the Sanlu milk products disaster in China.

So Australia should at least ‘trade up’ in its consumer law to meet current global standards, not just local ones. But the nation should also push the envelope and help create some new global standards – as it helped do with its TPA, back in the 1970s. Fels highlights the Consultation Paper’s proposal to concentrate power over consumer credit regulation in Canberra, suggesting that the ACCC should be the regulator rather than the Australian Securities and Investment Commission (ASIC, ‘with its noted lack of consumer zeal to date’). But I am more interested in some new substantive rules. For example, why not a nation-wide ‘suitability rule’ for at least some types of consumer credit – unsecured or secured – requiring lenders to assess borrowers’ ability to repay? Japan enacted such rules in 2006, and similar protections are increasingly available for investors in other financial products world-wide. And why not try a ‘world-first’ – requiring suppliers of unsecured credit to inform regulators when their products are linked to abnormally high levels of financial distress (insolvencies, even suicides)? After all, an explosion of unsecured consumer lending was linked in the US and elsewhere to booms (and now busts) in home mortgage lending, property prices, securitisation and other markets.

Instead, the Australian government seems to be losing sight of the bigger picture. At long last some debate is now emerging, for example, about the grant of at least A$14,000 being handed out to first home buyers. In January 2009, such grants accounted for 26.5 per cent of the A$8 billion in new home lending. In the same section of the Sydney Morning Herald (‘Pros and cons of granting a fiscal favour’, p6), the CEO of Australia’s Commonwealth Bank recently drew a parallel with the US subprime housing loans debacle that triggered the current global crisis, pointing out that: ‘All of us have to make sure we’re lending responsibly to first-home buyers’. This echoes something I’ve been thinking and saying privately for months regarding this grant. It is tempting for governments to try anything in the short term to revive spending, including such measures to make credit more readily available. But a key lesson from the present mess is worth remembering. Market participants often suffer from ‘over-optimism bias’ and other irrational impulses, as well as raw greed, which can lead to enormous and widespread adverse consequences over the long term.

Lastly, if the Rudd government really wants to be ‘activist’, it should also consider – as Fels points out – ‘creating a separate consumer agency’. Once again, Australia doesn’t need to reinvent the wheel; a similar debate continues in Japan, for example. A separate agency might help generate more comprehensive, careful and expeditious ongoing reforms to Australia’s consumer law – now in mid-life crisis. Policy-makers must respond to the current economic meltdown with more innovative and energetic proposals that promise long-term socio-economic benefits, not just short-term ones.

Related articles:

1. ‘Pain on the road to recovery’ – So what, for consumer (credit) law reform for Australia (and beyond)?
2. Australia’s less lethargic law reform? International arbitration in the Asia-Pacific
3. Consumer angst over reform of China’s age-old salt monopoly

This year, Australia Day (26th January) fell on Chinese Lunar New Year, so there were a few more events celebrating Chinese traditions as well as the ever more frequent display of Australian flags around Sydney. But the day after, the Sydney Morning Herald ran a front-page story entitled ‘Revealed: secret whale deal‘. It highlighted the Federal Government’s involvement in generating a proposal whereby:

• Japanese whalers could hunt a regulated number of minke whales in its coastal waters, and take many more whales in the North Pacific, under the plan.
• Japan would agree to one of two offers in exchange: either to phase out scientific whaling in the Antarctic entirely, or to impose an annual Southern Ocean limit.
• The proposal was hammered out in secret by an International Whaling Commission drafting group of six nations, which includes Australia and Japan, at a meeting in Britain last month.

With the whaling season already underway, however, Australia’s Environment Minister insists that this is still under negotiation and that the Government remains opposed to any commercial whaling. But one NGO – the International Fund for Animal Welfare – calls this ‘Whalergate’, criticising the opaque nature of the IWC.

The article didn’t mention that the IFAW had recently released a report commissioned from the Canberra Panel of Independent Legal and Policy Experts, which questioned the legality of Japan’s Antarctic whaling program from the perspective of the Antarctic Treaty System. Dr Tim Stephens, a Sydney University international law expert, was on that Panel and provides a summary on his own blog. The Report endorses some arguments for Australia to challenge the legitimacy of Japan’s whaling program before the International Court of Justice or the International Tribunal for the Law of the Sea.

A rather different view comes, perhaps unsurprisingly, from a different discipline. Dr Charlotte Epstein, an international relations specialist at the University of Sydney, shows in her new book how views and behaviour about whaling are caught up in broader and evolving discourses, interacting with – but not reducible to – the material interests of states, organisations and individuals. I review The Power of Words in International Relations: Birth of an Anti-Whaling Discourse on my own blog focused on Japanese law in context, which partially overlaps with my postings to East Asia Forum.

Her perspective also helps to explain what I identified here last year as internally inconsistent positions adopted by both Australian and Japanese governments, which material interests help to explain but not completely. To move forward on a complex issue like whaling, I still think we need to nurture forums and processes allowing law, science, economics, politics and broader societal discourse to interact more productively. Revitalising the IWC or activating international tribunals may help, but so may some new type of regional arrangement.

Meanwhile, relations between Australia and Japan are bound to heat up again as the whaling season proceeds.

Related articles:

1. Japan and Australia: stalled in domestic politics
2. Japan is at ease in the house of the risen Rudd-san

Japan appeared to have recovered from its own financial crisis a decade ago, albeit at the cost of much accumulated government debt. The country was then hit by the collapse of its export markets and the rapid rise of the yen, following the imminent global recession.

Professor Iwao Nakatani, former Chairman of Sony, has urged a radical shift in economic policy in Japan and elsewhere from policy ‘based on neo-conservative economics and the philosophy of small government to one based on Keynesianism and welfare state ideology’.

Some may be sceptical as to whether Japan ever really embraced the former philosophy, and its ascendancy was certainly never as pronounced as in the US, the UK or then Australia.

But deregulation of alcohol distribution is one of Japan’s many transformations over the last decade. It is also the flipside of ever-stricter rules on drink driving, although these rules also reflect a broader trend towards criminalisation of socio-economic deviance, evident in product safety or consumer credit re-regulation.

On the other hand, deregulation is most notable in terms of where you can buy alcohol to celebrate this New Year of the Ox: namely, vending machines and those ubiquitous convenience stores. It is less obvious in what you pay, especially for certain beer substitutes, which reflect differential tax rates.

In fact, these tax rates may well violate WTO law. Yet there is probably not enough financial reward for potential beer exporters to Japan to encourage their home governments to sue Japan. So an implication for FTA negotiators , even those from Australia, may be to seek some offset advantage in their overall bilateral deal with Japan, which would further undermine the entire multilateral WTO framework.

Rising numbers of visitors to Japan and other commentators have remarked on the proliferation of automatic vending machines, including those selling alcohol. Careful observers may have noticed an ID card ‘reader’ supplied with many machines since 2001. Designed mainly to check the age given on drivers’ licences, the readers were partly a response to stricter punishments introduced for liquor store owners selling alcohol to minors. They were also intended to claw back market share for ‘mom and pop’ stores. Such stores’ share had dropped from 76 per cent in 1983 to 27 per cent by 2000. The big winners of increasing licensing liberalisation had been larger discount outlets and especially convenience stores, particularly after rule changes in 1993, 1998 and 2003.

By last year, at least in Kyoto, many remaining stores seemed to have rendered the readers inoperable, as the above photo shows. One store owner just told me that they led to too large a drop in sales!

The local police don’t seem too concerned, now that alcohol is available in so many convenience stores 24/7, although things are reportedly different in parts of Osaka where teenage drinking remains a social problem.

This seems a victory for the proponents of deregulation, despite opposition from many LDP parliamentarians and their small business constituents, although some health and consumer interest advocates are concerned as well. But this industry turns out to be more complicated.

Of Japan’s large alcohol market, sake (rice wine), shochu (distilled spirits), and dai-san biiru (‘third-category’ beer) each make up about 10 per cent, followed by around 20 per centfor happoshu and 40 per cent for (real) beer. The latter must have a malt content of at least 67 per cent, but is the most heavily taxed.

From 1996, however, the government responded by hiking the tax rates for both types of happoshu. In 2003, it also raised tax on happoshu with 25-50 per cent malt content. However, its tax and that of happoshu with less than 25 per cent malt remained less than that on high-malt happoshu or real beer. In 2004, Sapporo and Suntory responded with a zero-malt dai-san biiru, which incurred an even lower tax, and hence retail price, than any happoshu.

In 2002, the then Director of Research at RIETI (a METI offshoot), argued that Japan’s existing tax differentials between happoshu and real beer amounted to tax discrimination between ‘like products’, contrary to WTO rules:

‘Article III:2 of the General Agreement on Tariffs and Trade says: “The products of the territory of any Member imported into the territory of any other Member shall not be subject, directly or indirectly, to internal taxes or any other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.” There is no question that beer and happoshu are like products. To the extent that imported beer is subject to tax in excess of those applied to domestically produced happoshu, it is inconsistent with the WTO rules. …

The tax authorities are right in their move to equalize the level of taxation between beer and happoshu. The major breweries opposed to this are wrong. Their argument that happoshu is a totally new product might have been more persuasive if there had been a net increase in the combined market of beer and happoshu, but in reality, happoshu merely substituted some of the beer market. Beer and happoshu should be taxed equally. Of course, the tax authorities could decide to lower the tax rate on beer to the level equal to happoshu, but such a decision is extremely unlikely in view of the current budget crisis.’

Happoshu tax rates were indeed raised from 2003, but some differentials remain. Other commentary and cases in the WTO (against Korean soju, 1997-9; and Chilean pisco, 1998-2000) suggest that key tests for discrimination among ‘like products’ include their physical characteristics, common end-uses, tariff classifications, and ‘the marketplace’, possibly including evidence from changes in other countries.

So Professor Ichiro Araki’s argument in 2002 still seems valid for at least some types of happoshu – and possibly even now dai-san biiru. And that would suggest some persistent limits to liberalising parts of the alcohol industry in Japan, especially when foreign imports, actual or potential, are involved.

Yet which country and their exporters are really likely to sue Japan?

Possibly, low-cost producers of reasonable beer from nearby countries, such as China (Tsingtao Beer), Thailand (Singha), Singapore (Tiger) – and perhaps even Mexico (Corona) or Australia. But China didn’t accede to the WTO until 2001, and Japanese consumers have gone off Chinese food imports, especially after last year.

Singapore, then Thailand and Mexico, now Australia, wouldn’t want to jeopardise FTAs with Japan by launching a WTO complaint over an issue like this. And the situation is further complicated by Japanese brewers investing overseas, especially Kirin, in brewer Lion Nathan, and more recently Asahi, in Cadbury Schweppes in Australia.

So perhaps all that might be achieved in dealing with these problems in Japan, especially by countries (like Australia) still negotiating an FTA, is through raising the issue to achieve some sort of extra advantage in the overall bilateral deal. Any advantage could be small, given the practicalities of suing (or not). Some questions also remain about applying the substantive legal test in the context of a product like beer rather than spirits. And such bilateral negotiations in any case undermine a transparent multilateral system of international trade law.

–

Further reading:
For a longer version with statistics, see the Japanese Law and the Asia-Pacific blog.
Also, the Telegraph bases Legal trouble brewing for Japan’s low-tax beer on this article.

Related articles:

1. Japan: The DPJ prepares for its first steps towards a new style of government
2. The Japan-Thailand economic partnership agreement: Utilization and implementation issues from the perspective of Thailand
3. Neutrality and non-interference, Malaysian style

If you are one of those many more short-term visitors to Japan nowadays, and even if you are an old hand, watch out for signs setting out various rules that may be unexpected or new. Like these two signs:

The bigger one to the bottom left is one of many signs we see increasingly around Japan in English (and sometimes now Chinese or Korean). The text is small but reads: “In the Beautification Enforcement Areas you will be fined up to 30,000 yen for littering regardless of your nationality or status”. The kind of prohibition and penalty you might expect in Singapore. Not in Japan, where local communities have long taken pride in being tidy – although that has not excluded individuals or dodgy firms from dumping their rubbish in distant communities! But what is meant by the round blue sign up on the right?

It shows an adult walking with a small child, as well as a bicycle. Not so obvious, although more self-explanatory than the picture on the bigger sign. The text in Japanese under this blue sign – not yet in English! – indicates that riding a bicycle is permissible on that footpath. Most countries I know prohibit this, at least for adults, because poorer sight lines from the footpath make it more likely that bicyclists will have accidents. Alice Gordenker suggests that Japan does have more fatalities per capita than major European countries or the US, but points out that:

“Until about 1970, when these signs first started appearing, it wasn’t permitted to ride on sidewalks at all. But the rapid increase in the number of automobiles during the first postwar decades forced bicyclists up onto the sidewalks for sheer safety. Traffic was chaotic, and there were few of the safeguards we take for granted today, like guardrails and pedestrian lights.”

Writing for the Japan Times on 23 January 2007, she also reports that the Japanese police still seemed to favour bicyclists keeping off the roads, which explains why officers haven’t been concerned about them riding on footpaths even without those blue signs allowing for it. That has also been my experience. It also helps explains why some taxi drivers in Kyoto in the early 1990s shouted at me to get off the road I was riding on – even though this is always allowed, in addition to sometimes being permitted to ride on the footpath. Lax police enforcement may also have been related to the blue signs being quite widely spaced, and the footpaths not being as obviously for cyclists as some of them are now (with separate lanes, still usually not respected especially by pedestrians!).

Indeed, following amendments to the Road Traffic Law (No 105 of 1960) in effect from June 2008, bicycling on footpaths has been allowed in two more situations: where road or traffic conditions make it unavoidable, or for children up to 13 or those over 70. But these seem more sensible and comparable to rules abroad. And other amendments are aimed at making bicyclists ride more safely anyway, whether on footpaths or on the road. Parents now have to tell children under 13 to wear bicycle helmets. But this is a “best efforts” duty (doryoku gimu), so the Law provides no sanctions; and bicyclists 13 or over still don’t need to wear helmets in Japan. Volunteer “Regional Traffic Safety Activities Promotion Members” can now also “promote good manners for bicycle riding”. These are the first significant reforms aimed at cyclists since the 1970s, reflecting burgeoning accidents involving bicycles.

Against this backdrop, various existing rules also may be enforced more strictly. For example, to avoid a fine up to 50,000 yen, cyclists must display lights at night. Cyclists often ignored this rule, partly because the front light was typically powered by a pedal-driven dynamo. Now, more and more people use battery-operated lights (like the one in the photo below). Easier on the pedaling, worse for the environment, but safer than no lights.

Riding double can be fined up to 20,000 yen, except if a child up to aged 6 and in a proper seat. This exception never extended to a parent carrying two children on the bicycle. But recently the police caved in to public pressure and will allow that as a further exception if parents’ bicycles meet new safety standards.

Using a mobile phone or holding an umbrella on a bicycle may also be more likely subjected to a fine. But violations involving mobile phones are still apparent. And shops in Kyoto still sell handlebar accessories that will hold an umbrella up for you (like the one in the photo above). This is partly due to the Kyoto Prefecture Road Traffic Safety Regulations (kisoku, under the Law), which allows cyclists anyway to ride with umbrellas if the road there is on is not “frequently” used. This makes it difficult to enforce criminal law provisions on abetting (hojo-zai) vis-à-vis suppliers of such products. (Likewise, the police have had difficulty taking on suppliers of covers for car number plates, since there is a – small! – chance that they will used for legal purposes, like protecting the plates from the elements rather than hiding identity from the police.) Nonetheless, now that riding with an umbrella is more widely perceived as a safety issue, supply of such products nowadays may at least to raise the spectre of contractual liability or manufacturers’ product liability.

Drink driving is most likely to attract enforcement action, rather than just a caution. Not many visitors to Japan will be aware that the Road Traffic Law sets a very low tolerance level. Some say it is zero tolerance, which is not quite true. One threshold (for the crime of shukiobi-unten under the Law) is by blood-alcohol rate, which was lowered in 2002 to 0.15 from 0.25 (2.5 grams of alcohol per litre). Yet this does mean that one drink will put most people over the limit, which is stricter than Australia and much stricter than NZ or the UK. Anyway, a second crime is sakeyoi-unten, which involves a more discretionary test: a risk that the person cannot drive properly due to the influence of alcohol.

Even fewer visitors will realise that this second crime also extends to bicycles. This is because they are defined as “light vehicles” (keisharyo) in Article 2(11) of the Road Traffic Law, in turn encompassed within “vehicles (sharyo)” – along with automobiles – under Article 2(8). Bicycles are expressly excluded from the usual penalty provisions regarding the first crime (Article 117-4(3)), but if you have been drinking the police may try to get you under sakeyoi-unten. You may only get a caution, unless you injure someone in a bad accident while significantly under the influence of alcohol. But the fear is enough nowadays to dissuade not only government officials, but also for example a professor I know working in a private university, to not drink at all if later riding a bicycle.

So visitors should be aware that the police are now more concerned about safe riding on bicycles, after years of flouting the rules and lax enforcement (confirmed by a survey back in 2006 ). A stricter attitude may be linked to the growing proportion of elderly Japanese wandering the streets (rather than the small children depicted in the blue sign above, which dates back to the post-War baby boom era). Reflecting broader public opinion, the police are even more concerned about drink driving. Back in the 1990s, police only cracked down periodically and predictably. But some nasty accidents attracted intense media attention, especially when a local government official drunkenly rear-ended a SUV, killing three children in Fukuoka in August 2006.

The Road Traffic Law was amended in 2007 to impose stricter penalties on (a) drunk drivers, but also on those who abet them by providing (b) a vehicle or (c) alcohol despite the risk that they will drive (prohibited since 2002, but with a lesser penalty). One of the most controversial amendments introduced a new category, penalising (d) passengers who ask someone to drive them knowing that person will commit shukiobi- or sakeyoi-unten. So far, however, the penalties for such passengers are lower:

Infringement / Category (a) = [now] (b) (c) (d) liability of passengers
1. sakeyoi-unten Up to 5 years’ [previously 3 years’] imprisonment or a 1m yen [0.5m] fine Up to 3 years’ imprisonment or a 0.5 million yen fine Up to 2 years’ imprisonment or a 0.3 million yen fine
2. shukiobi-unten Up to 3 [1] years’ imprisonment or a 0.5 [0.3] million yen fine Up to 2 years’ imprisonment or a 0.3 million yen fine

It may be hard for police and prosecutors to prove cases in category (d). But in April, for example, proceedings were initiated in Sendai after a recommendation by the Prosecutorial Review Board. And the arrest of a small restaurant owner in Saitama , falling within category (b), sparked renewed debate about such expanded scope for criminal liability.

Additionally in 2007, the Criminal Code added Article 211(2) on “negligent automotive homicide and injury” (gyomujo kashitsu chishi-zai, more specific than Article 208-2). This provision also covers two-wheeled motor vehicles and “light vehicles”. For now, however, such cases will not be subject to the lay assessor or “quasi-jury” system for serious criminal matters that Japan is reintroducing from May next year. The Saiban-in Law applies to cases of “intentionally causing death”, under Article 2(2), so it only extends for example to kiken unten chishi zai (Criminal Code Article 208-2). One expectation for the lay assessor system is that randomly selected lay people and judges will hold more accused to be not guilty. But there are also some concerns that verdicts will be come even tougher for cases that happen to attract widespread public opprobrium by the time they get to trial.

Overall, it remains to be seen whether some clampdown on bicyclists and this latest round of bigger clampdowns on drunk drivers will have any lasting long-term effect. Socio-legal studies examining the impact of stricter drink driving laws in other jurisdictions have often suggested otherwise. In Japan in 2005, there were approximately 140,000 drink-driving arrests, a 60 percent decrease from 1999. But this number indicated that drink-driving was still an everyday fact of life, despite a similar high-profile accident that resulted in 2002 amendments to the Road Traffic Law. Police officers may also still be driven more by a requirement or expectation to meet infringement “quotas”, rather than a thoroughgoing commitment to applying the rules uniformly in order to maximize safety on the roads and footpaths. Similar concerns have been raised, for example, in parts of Australia.

Meanwhile, if you want to enjoy a taste of Japanese beer, sake or shochu, either walk or consider using a scooter, which doesn’t seem to fit within the definition of a light vehicle! So far, I’ve only noticed foldaway bikes in Japan, which seem to have become increasingly popular (at least in Kyoto) since authorities have clamped down (somewhat) on parking near railway stations. But that’s another story.

Related articles:

1. Gates rules out renegotiation of Okinawa deal with Japan
2. The Great Crash of 2008 and getting financial regulation right
3. How do Australia’s foreign investment rules apply to China?