[Congressional Record Volume 141, Number 182 (Thursday, November 16, 1995)]
[Senate]
[Pages S17186-S17187]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         ADDITIONAL STATEMENTS

                                 ______


                UNITED STATES-JAPAN INSURANCE AGREEMENT

 Mr. BOND. Mr. President, as Chairman of the Subcommittee on 
International Finance, it is my responsibility to monitor our trade 
agreements relating to financial services. It is a responsibility we 
take seriously.
  Earlier this year, the subcommittee held a hearing on the WTO 
negotiations regarding financial services. We heard testimony from both 
administration and industry representatives. Based on those hearings 
and close monitoring of the talks, we took a strong position in 
opposition to the proposal that was put forward. The administration, 
correctly, took the same position.
  In recent weeks, the subcommittee staff has been monitoring the 
implementation of other agreements including the United States-Japan 
insurance agreement which is formally known as ``Measures by the 
Government of Japan and the Government of the United States Regarding 
Insurance.'' Based on those initial reviews, we have some significant 
concern regarding implementation of the accord.
  Ambassador Mickey Kantor has often emphasized the importance of 
ensuring faithful implementation of our trade agreements. Great effort 
is invested in reaching agreements--once the investment is made, 
vigilance is needed to ensure that they bear fruit in terms of new 
opportunities for our businesses, U.S. exports, and jobs.
  Senators will remember the considerable efforts expended recently by 
the USTR to conclude accords under the United States-Japan Framework 
Agreement. More than a year has passed since the first agreements were 
reached; I believe it is now an appropriate time to conduct an 
assessment of those initial agreements and what, if anything, they have 
accomplished.
  One of the first agreements reached was the one covering insurance. 
Japan has the largest life insurance market in the world, and the 
second largest nonlife market, after the United States. Despite the 
enormity of this market, all foreign insurers hold less than a 3-
percent market share, a far lower share than every other advanced 
industrialized country. Japan is currently deregulating its insurance 
market following the Diet's passage of a new insurance business law in 
July of this year. If pursued in accordance with the bilateral 
insurance agreement, we can expect deregulation to provide significant 
new benefits for Japanese consumers and businesses, as well as new 
opportunities for competitive foreign insurers.
  However, developments occurring in Japan today indicate that new 
threats may be confronting United States insurance interests. These 
threats can be prevented if the United States-Japan Insurance Agreement 
is faithfully implemented.
  Specific provisions of the insurance agreement were designed to 
ensure that the interests of foreign insurers were not undermined by 
the deregulation process. In a letter from Ambassador Kantor to the 
U.S. insurance industry of October 11, 1994, detailed definitions of 
the key terms of the agreement were outlined, together with 

[[Page S 17187]]
USTR's expectations of what would result. Full compliance with these 
terms, as defined in Ambassador Kantor's letter, is essential if the 
agreement is to achieve its objectives.
  Because faithful implementation of this accord is so important, 
Senator Boxer, the ranking member on the subcommittee, and I recently 
sent to Ambassador Kantor a letter requesting a detailed and 
comprehensive report to the committee this month on all actions taken 
to date by the Government of Japan to implement its obligations under 
the insurance agreement. It is my hope that the Senate's interest will 
serve as a constructive influence to help ensure that this important 
agreement, and other agreements, stay on track and live up to their 
full potential.
  Mr. President, I ask that our letter to Ambassador Kantor, as well as 
Ambassador Kantor's letter to the U.S. insurance industry of October 
11, 1994, be printed in the Record.
  The letters follow:
         U.S. Senate, Committee on Banking, Housing, and Urban 
           Affairs,
                                 Washington, DC, November 8, 1995.
     Hon. Michael Kantor,
     U.S. Trade Representative,
     Washington, DC.
       Dear Mr. Ambassador: We are writing to share with you our 
     commitment to ensuring full and effective implementation of 
     trade agreements between the United States and Japan. You 
     have often stated it is not enough simply to reach agreements 
     with our trading partners, but that we must also be vigilant 
     in guaranteeing that the rights gained under those agreements 
     are fully realized. We could not agree more strongly.
       As part of our Subcommittee's ongoing oversight 
     responsibilities in this regard, we would like to request a 
     detailed report on the results of actions taken to date to 
     implement the commitments defined in the U.S.-Japan Insurance 
     Agreement and in your October 11, 1994 letter to the U.S. 
     insurance industry concerning certain key aspects of the 
     Agreement.
       We are concerned about reports that, as the implementation 
     date for the new Japanese Insurance Business Law approaches, 
     developments in Japan may pose serious threats to U.S. 
     insurance interests. For example, plans by large Japanese 
     insurers to enter the ``third sector'' through newly created 
     subsidiaries, pose both a major commercial threat to U.S. 
     insurers and a probable violation of the insurance agreement. 
     The Subcommittee is particularly concerned about the 
     inadequacy of actions taken to date by the Ministry of 
     Finance to ensure compliance with those provisions related to 
     this activity.
       Accordingly, we request you provide a report to the 
     Subcommittee on these and other actions taken to date by the 
     Government of Japan to implement obligations under the 
     agreement, as well as the results of those actions. Please 
     also describe additional actions USTR will take to ensure 
     ongoing implementation of the agreement's other provisions.
       We would appreciate receiving your report within the next 
     two weeks so we may proceed with our review. The Subcommittee 
     is considering a future hearing to review the results of 
     various U.S.-Japan trade agreements; your report on the 
     insurance agreement will help us prepare for any such 
     meeting.
       We appreciate your efforts on behalf of U.S. insurers, and 
     look forward to your report.

       Sincerely,

     Barbara Boxer
     Christopher S. Bond
                                                                    ____

         The United States Trade Representative, Executive Office 
           of the President,
                                 Washington, DC, October 11, 1994.
     Mr. H. Edward Hanway,
     Chairman, International Insurance Council,
     Washington, DC.
       Dear Mr. Hanway: I am writing to express my sincere 
     appreciation for the industry's support during our 
     negotiations with the Government of Japan on insurance. I am 
     pleased to confirm that we have achieved agreement with the 
     Government of Japan, through which Japan and the United 
     States will undertake ``Measures by the Government of the 
     United States and the Government of Japan Regarding 
     Insurance''. The goal of the Agreement is to achieve 
     significant improvement in market access in Japan for 
     competitive foreign insurance providers and intermediaries.
       With respect to the third sector issue, the Agreement 
     states that:
       ``With regard to mutual entry \1\ of life and non-life 
     insurance companies into the third sector, the MOF intends 
     not to allow such liberalization to be implemented as long as 
     a substantial portion of the life and non-life areas is not 
     deregulated, taking into account the fact that dependency of 
     some medium to small and foreign insurance providers on the 
     third sector is high, and that these medium to small and 
     foreign insurance providers have made the efforts to serve 
     the specific needs of consumers in the third sector. 
     Furthermore, with respect to new or expanded introduction of 
     products in the third sector, it is appropriate to avoid any 
     radical change in the business environment, recognizing that 
     such change should depend on medium to small and foreign 
     insurance providers first having sufficient opportunities 
     (i.e. a reasonable period) to compete on equal terms in major 
     product categories in the life and non-life sectors through 
     the flexibility to differentiate, on the basis of the risk 
     insured, the rates, forms, and distribution of products.''
     \1\ ``Mutual entry'' means the ability of life insurance 
     companies to introduce existing, new or modified rates, 
     products, or riders in the third sector currently allowed to 
     non-life insurance companies, and the ability of non-life 
     insurance companies to introduce existing, new or modified 
     rates, products, or riders in the third sector currently 
     allowed to life insurance companies.
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       Based on a confirmation made during the negotiations with 
     the Government of Japan, I would like to affirm the 
     following:
       (1) with respect to existing large Japanese life and non-
     life companies, ``avoid any radical change'' means, among 
     other things, that the Ministry of Finance (MOF) will 
     maintain existing administrative practices concerning the 
     third sector and not allow such companies to expand their 
     third sector presence;
       (2) with respect to subsidiaries that existing large 
     Japanese life and non-life companies might form after the new 
     insurance law takes effect, ``avoid any radical change'' 
     means, among other things, that such subsidiaries will be 
     treated the same as existing large life and non-life Japanese 
     companies and accordingly will not be allowed to surge into 
     the third sector;
       (3) ``major product categories'' includes automobile 
     insurance; and
       (4) ``a reasonable period'' means three years.
       With regard to rate and from liberalization, in addition to 
     the specific commitments made in the Agreement, I would like 
     to affirm that:
       (1) with respect to the threshold for application of the 
     special discount rate applicable to the large commercial 
     risks of fire insurance, the discount will be reduced from 2 
     to 1.5 billion yen for factory fire insurance and from 1.5 to 
     1 billion yen for general fire insurance; and the threshold 
     for storage (warehouse) insurance will be unchanged; and
       (2) with respect to the minimum insured amount of the large 
     commercial fire insurance policies to which the deductibles 
     rider can be attached, the minimum insured amount will be 
     decreased from 5 billion yen to 1.5 billion yen.
       The Agreement creates binding obligations on the Government 
     of Japan enforceable under U.S. trade laws, such as Section 
     301 of the Trade Act of 1974, as amended. The Agreement 
     provides for follow-up consultations between the Government 
     of Japan and the United States Government. We expect to hold 
     such consultations twice a year during the first three years 
     upon signing of the Agreement, and annually thereafter. With 
     U.S. insurance industry's assistance, we expect to monitor 
     closely developments in the third sector to ensure that the 
     Government of Japan is in compliance with the Agreement.
       We very much appreciate the International Insurance 
     Council's support and assistance during our negotiating 
     efforts and look forward to working with the Council to 
     ensure effective implementation of the Agreement.
           Sincerely,
     Michael Kantor.

                          ____________________