Automotive in Japan

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Overview

Market

Describe the significance of, and developments in, the automotive industry in the market.

Automotive industry in Japan

The automotive industry is one of the most important sectors in Japan. Although Japanese car manufacturers have been increasing localisation of their production, automobile and parts manufacturers employ approximately 814,000 persons across Japan, and the workforce employed in the automobile-related sectors - including sales, transportation, service and maintenance, and electronics or other manufacturing industries - amounts to approximately 5.34 million persons, which is equal to 8.3 per cent of the Japan’s working population. In 2017, Japan produced 9.69 million vehicles - 8.35 million were passenger vehicles and 1.35 million were buses and light or heavy trucks, and exported 4.7 million thereof. The export of automobiles and automobile parts amounted to ¥15.1 trillion, which is 21 per cent of the value of Japan’s entire exports. The automotive industry in Japan is supported by ¥2.8 trillion of R&D investment (FY 2015) and ¥1.5 trillion of capital investment (FY 2016).

Automobile market in Japan

Approximately 5.23 million vehicles were sold in 2017, of which 4.38 million were passenger vehicles and 0.85 million were buses and light or heavy trucks. Japan imported approximately 300,000 vehicles from non-Japanese manufacturers in 2017, two-thirds of which were German-branded vehicles. The number of registered passenger vehicles in 2017 was approximately 61 million, and 80 per cent of Japanese households have at least one vehicle.

Japan’s automobile market is said to be already mature and not to have much room for growth due to the country’s ageing society, and sales of automobiles have been almost flat for the past decade.

Regulation

What is the regulatory framework for manufacture and distribution of automobiles and automobile parts, such as vehicle-type approval process as well as vehicle registration and insurance requirements?

Type approval of automobiles

Every automobile in Japan is required to comply with certain safety and environmental standards and must pass an inspection to be registered to drive on public roads under the Road Transport Vehicle Act (Act No. 185 of 1951, as amended (RTVA)). Manufacturers use the ‘type approval’ regimes for mass production models pursuant to the Automobile Type Approval Guidelines (Notification No. 185 of 1951 of the Vehicle and Component Approvals Division, Engineering and Safety Division, Road Transport Bureau at the Ministry of Land, Industry, Transport and Tourism (MLIT)) by applying for testing at the National Agency for Automobile and Land Transport Technology (NALTEC), the agency that handles vehicle certification and homologation matters under the MLIT.

The Automobile Type Approval Guidelines comprise three frameworks:

• Type designation system (TDS): this is the standard type approval regime for most passenger vehicles, which comprises inspections of sample vehicles and quality control systems to ensure uniform quality of the models. The manufacturers are required to have their vehicles inspected by qualified staff members before shipping out of the factory pursuant to the Operation Guidelines for Vehicle Type Approval (Notification No. 1252 of 1998 of the Road Transport Bureau Type-Approval and Recall Division of the MLIT). For imported cars, NALTEC dispatches its staff overseas to conduct sample inspections and examine data produced by overseas test institutions.
• Type notification system (TNS): this regime is mainly used for heavy-duty vehicles (buses and trucks), of which one production model offers various specifications and derivative models. The TNS comprises an inspection of sample vehicles and the uniformity of each product with the sample, while inspection of the quality control system is omitted.
• Preferential handling procedure for imported motor vehicles (PHP): this is a simplified system to promote the sales of imported cars and is applied to models imported in quantities of 5,000 or fewer. The procedure consists of the submission of documents and presentation of the actual vehicle to NALTEC. No sample inspection is required, but every one in 50 vehicles is tested for emissions.

TDS scandals in 2017

In September 2017, an on-site investigation by the MLIT discovered that Nissan’s pre-shipping inspection certificates for completed vehicles had been signed by non-qualified staff. Nissan voluntarily stopped shipment of its products for two weeks. After the MLIT requested other car manufacturers to check their operations, Subaru was also found to have had the same non-compliance issues. In the course of investigation, it turned out that Nissan and Subaru had not been complying with TDS (which requires inspection by qualified inspectors) for more than 30 years. Following the scandal, in November 2017 the MLIT established a commission to review the current TDS inspection regime. While Nissan and Subaru were bitterly criticised, some experts point out that this TDS requirement is an outdated formality, and there is no equivalent inspection requirement for vehicles manufactured for export. Thus, it is likely that the inspection regime under TDS will be changed in the near future.

Mutual recognition

The UNECE World Forum for Harmonization of Vehicle Regulations held in November 2017 (WP29) adopted the International Whole Vehicle Type Approval (IWVTA) together with UN Regulation No. 0 (UNR0), which will come into effect around June 2018. Under the IWVTA, countries that ratify UNR0, including Japan and European countries, will reciprocally accept vehicle inspection certificates enabling effective and speedy vehicle approval as well as promotion of higher safety and environment standards. The MLIT has announced that it will take the lead in furtherance of UNR0 to developing countries in Asia.

Registration

Generally speaking, every vehicle is required to be examined under a vehicle inspection system and registered at the local MLIT Transport Branch Office, where a licence number plate is issued. With regard to TDS-approved vehicles, manufacturers are allowed to inspect their own products before factory shipment and an inspection of each vehicle at the registration centre is not required. On the other hand, the TNS and PHP processes require the presentation of each actual vehicle as part of the registration process, although inspections for these types of approved vehicles are more simplified than those without type approval, such as automobiles produced in very small quantities or those that are imported by individual users. Any change in the registration details, including the transfer of ownership, should be registered within 15 days. Three years from first registration, vehicles are re-inspected at a designated service centre (and every two years thereafter) to ensure compliance with safety standards.

Insurance

Every driver is required to participate in the compulsory liability insurance scheme under the Automobile Liability Security Act (Act No. 97 of 1955, as amended), which automatically pays a specified amount to the victim of a traffic accident without identifying the person at fault or apportioning negligence between the parties involved. However, approximately 70 per cent of drivers also take out additional insurance because the compulsory insurance only covers a minimum amount, with a cap of ¥1.2 million for injuries, ¥0.75 million to ¥40 million for permanent disability, and ¥30 million for death, and does not provide any compensation for damage to vehicles or other property.

Type approval of automobile parts

Automobile parts manufacturers are also entitled to take advantage of the separate automobile parts type approval regime pursuant to the RTVA. Once the model for a part is approved by NALTEC, the manufacturer is not required to undertake further inspections of the part, regardless of the vehicle model into which the part is incorporated. Japan is also a party to United Nations-sponsored Agreement Concerning the Adoption of Uniform Conditions of Approval and Reciprocal Recognition of Approval for Motor Vehicle Equipment and Parts signed in Geneva on 20 March 1958 (the 1958 Agreement), which provides technical prescriptions for wheeled vehicles, equipment and parts that can be fitted or used on wheeled vehicles and the conditions for reciprocal recognition of approvals granted on the basis of these prescriptions. Japanese regulators have been increasingly promoting the harmonised standard and reciprocal recognition of approvals, and as of February 2017, Japan has adopted 75 categories of rules out of 143, including in relation to brakes, safety belts and tyres.

Development, manufacture and supply

How do automotive companies operating in your country generally structure their development, manufacture and supply issues? What are the usual contractual arrangements?

Traditionally, Japanese car manufacturers have formed strong alliances with parts suppliers, called keiretsu, and cooperated in the supply of parts and semi-processed goods and research and development. Keiretsu are hierarchical structures with the car manufacturer at the top and several layers of Tier 1, Tier 2 and Tier 3 suppliers. Some of these companies often have equity relationships; however, the alliance is formed more with contractual relationships or often just through de facto continuous transactions without any specific written agreements. These days, however, car manufacturers are increasing procurement of parts from diversified companies out of the traditional keiretsu structure because of increasing competition in the global market, complex supply chains, and the development of common architecture and modularisation. Therefore, the traditional keiretsu structure is said to be gradually dissolving. Regarding contractual arrangements, automobile manufacturers usually enter into supply agreements with auto parts manufacturers or other suppliers with respect to manufacturing, while automobile manufacturers usually enter into distributorship agreements with dealers with respect to distribution.

Distribution

How are vehicles usually distributed? Are there any special rules for importers, distributors, dealers (including dealer networks) or other distribution partners? How do automotive companies normally resolve restructuring or termination issues with their distribution partners?

Vehicles are usually distributed through dealerships of distributors, some of which are owned and managed by the car manufacturer, and others of which are independent local companies. There are no special rules or requirements for importers, distributors, dealers or dealer networks for new vehicles. To trade in second-hand vehicles, a second-hand dealer licence is required. Restructuring of dealers can be achieved through the transfer, assignment or termination of the dealer contract and does not have any special requirements in comparison with those in other industries. Under a general principle of the Civil Code (Act No. 89 of 1896 as amended), if the contractual relationship between a car manufacturer and a dealer has continued for a protracted period, the car manufacturer may not be able to terminate the contract easily, even if there is a right to terminate in the contract. There are some judicial precedents where a contractor (dealer) of a car importer challenged the validity of the termination of the dealer contract by the importer due to a poor sales record and the dealer’s non-compliance with the importer’s business strategy. To minimise this risk, manufacturers may prefer to enter into fixed-term contractual arrangements with dealers without automatic renewal, and review the relationship every year. When terminating, a car manufacturer might seek to agree to voluntarily terminate the related contract with the dealer rather than unilaterally terminate it even if such right of termination is prescribed in the contract.

Since vehicles must be inspected every two years, many dealers provide qualified vehicle mechanic services, in order to enhance customer loyalty and to market new cars. Vehicle maintenance requires certain physical facilities and qualified staff, as well as regulatory filings.

Mergers, acquisitions and joint ventures

Are there any particularities for M&A or JV transactions that companies should consider when preparing, negotiating or entering into a deal in the automotive industry?

There are generally no particularities in terms of M&A or JV transactions for the automotive industry. Antitrust and IP issues are often important for this sector.

Incentives and barriers to entry

Are there any incentives for investment in the automotive market? Are there barriers to entry into the market? What impact may new entrants into the market have on incumbents?

There are no special incentives for investment in the automotive market. Although the government has been providing financial aid to ventures or small-scale enterprises with innovative business models, and some municipalities offer tax reductions through by-laws to attract investment in factories and regional business hubs, these are not industry-specific. The Ministry of Economy, Trade and Industry (METI) provides financial aid for investment in charging facilities for electric vehicles and hydrogen stations for fuel cell vehicles.

There are no special legal barriers to foreign companies entering the automotive industry. The safety and environmental standards are increasingly conforming to those of other jurisdictions. However, the type approval process and regulations on environment and safety standards are prepared only in Japanese, and the procedures are quite complicated, which may represent short-term practical barriers to entering the market.

The traditional manufacturing and distribution sectors have many powerful incumbent players in Japan. Therefore, the impact of new entrants will likely not be significant.

Product safety and liability

Safety and environmental

What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?

The RTVA requires every vehicle to achieve certain safety standards as a condition of registration for driving on public roads. The RTVA is the fundamental statutory source of safety standards of vehicles and provides, together with the Safety Standards of the RTVA (Notification No. 67 of 1951 of the MLIT), specific standards targeted at elements and parts, as well as general principles for safety standards for automobiles. Guidelines prepared by the MLIT regulate the safety standards of the RTVA (Notification No. 619 of 2002 of the MLIT). These Guidelines provide detailed numerical standards for each component of the vehicle as well as the testing methodology. Driving a non-conforming automobile may result in criminal charges. In addition to these standards, the National Agency for Automotive Safety and Victims’ Aid conducts automobile assessments (JNCAP) from the viewpoint of consumer protection and the improvement of safety technologies, and publishes the results of the assessments, including crash testing and pre-crash safety assessment.

Environmental standards

Fuel consumption regulations

The Act on the Rational Use of Energy (Act No. 49 of 1979 as amended (the Energy Saving Act)) establishes standards for fuel consumption by automobiles. It requires automobile manufacturers and importers to keep the average fuel consumption of their entire products below the standard established by the MLIT and METI for a certain period for each class of vehicle weight. Underachievement is publicly announced, although no sanction is imposed.

The weight, type of engine, fuel consumption (in four testing modes: WTLP, urban, suburban and motorway) and other specifications are required to be stated in the catalogue for each vehicle. Vehicle owners are entitled to receive preferential tax treatment and incentives depending on the achievement of standards by their vehicles; however, vehicles that do not comply with the standards are not prohibited from being driven.

The testing method for compliance with environmental standards for passenger vehicles has been the ‘JC08’ mode (since 2011, replacing the former ‘10/15’ mode) and from October 2018 onwards, the WLTC (Worldwide Harmonized Light Vehicles Test Procedure) mode will be adopted for vehicles with a weight of less than 3.5 tons. The test consists of several driving cycles representing real-world vehicle operations on urban and suburban roads, and motorways. Although the fuel consumption tested under the WLTC usually indicates a lower score than that tested under the JC08 procedure, some manufacturers have already started to indicate fuel consumption of their vehicles in the WLTC mode.

Fuel consumption standards are established on a ‘top runner’ basis, which confers the average fuel consumption of the most fuel-efficient vehicle currently in the market as the standard for the next generation of vehicles.

Fuel consumption was not traditionally regulated by the RTVA or the Safety Standards until 2017, and was not tested in the inspection for compliance with the Safety Standards. Therefore, if manufacturers falsified the results of the fuel consumption test, this would not trigger recalls or sanctions under the RTVA. However, after a series of worldwide fuel consumption scandals, the MLIT amended the TDS-related ordinances in September 2016 to prohibit any misrepresentation in the TDS applications and suspend the effect of the TDS in the event of any breach, and finally in December 2017 included fuel consumption under the prescribed testing methods in the Safety Standards. Under the new regime, if the fuel consumption test results were falsified, the MLIT may cancel or suspend the type approval (see question 2) to halt production of the relevant vehicles.

In addition, the MLIT is contemplating the introduction of regulations on a corporate average fuel efficiency (CAFE) basis in 2020.

Emissions

The regulation of emissions consists of three components.

• Individual regulation: this applies only once when the new vehicle is registered, and regulates CO, non-methane hydrocarbon, NOx and particulate matter (PM), based on the RTVA and the Safety Standards. With regard to heavy duty vehicles, the Safety Standards have incorporated the worldwide harmonised heavy duty certification procedure and off-cycle emission testing, which from 1 October 2016 are gradually being applied to each class.
• Vehicle type regulation: this applies to vehicles with diesel engines and prohibits the operation of underachieving vehicles in designated zones to prevent diesel air pollution in metropolitan areas pursuant to the Amendment Act on the Reduction of the Total Amount of Nitrogen Dioxide and Particulate Matter Originating from Automobiles in Designated Areas (Act No. 70 of 1992 as amended, the PM/NOx Act).
• Traffic regulations: some local governments respectively provide emission control rules. For example, Tokyo and three surrounding prefectures have by-laws restricting diesel vehicle PMs under stricter standards than the above-mentioned regulations.

After the emissions scandal in 2015, the MLIT and the Ministry of Environment conducted a series of real-world driving emission tests for eight models with diesel engines via a portable emission measurement system (PEMS) and published the results; however, the MLIT has decided not to impose mandatory testing via PEMS for all vehicles because of difficulties in homogenising test conditions to account for variations in weather and traffic.

Recycling

End-of-life automobiles are mandatorily recycled pursuant to the Act on Recycling of End-of-Life Vehicles (Act No. 87 of 2002 as amended (the Automobile Recycling Act)). Vehicle owners pay a recycling fee when purchasing a new vehicle and the fee is pooled by the Japan Automobile Recycling Promotion Centre (JARC), as designated by the government. The scrapping work is conducted by a wrecker registered with a relevant local authority, and the manufacturer and importer are required to take over and destroy or recycle the shredder dust, airbags and chlorofluorocarbons using funding from JARC. A breach of the Automobile Recycling Act may result in criminal liability.

Recall of automobiles

Recalls of automobiles are governed by the RTVA and are separate from the general rules of recall for other consumer products. Manufacturers and importers of vehicles with type approval must conduct recalls pursuant to an order of the MLIT or on a voluntary basis. In many cases, the manufacturers choose to conduct a voluntary recall rather than waiting to receive an administrative order.

Based on the Automobile Type Approval Guidelines and Guidelines for the Notification of Recalls (Ordinance No. 96 of 1994 of the Vehicle and Component Approvals Division, Engineering and Safety Division, Road Transport Bureau, the MLIT), manufacturers or importers are required (in principle) to specify the cause of a defect and the solution, as well as the scope of the targeted vehicles, in a report to the MLIT. They must also notify the MLIT, in the format provided by the MLIT, with an explanation of the defect, the solution, specifications, a photograph of the target vehicle and a recall summary in English. Also, manufacturers need to make the recall public by notifying users by mail or in person, and publish the fact in the gazette of the Japan Automobile Service Promotion Association. Information about a recall is also publicly available on the MLIT website.

Once a manufacturer makes a notification of a recall, it is required to immediately implement the recall work. A breach of these regulations may result in up to one year’s imprisonment and a ¥200 million fine.

Recall of automobile parts

With regard to defective automobile parts, the defect should be dealt with by way of a recall of the entire vehicle by the car manufacturer, except for two categories of parts.

As exceptions, tyres and child safety seats are subject to an independent recall procedure pursuant to the Order for Enforcement Regulations for RTVA (Ordinance No. 185 of 1 June 1951) and parts manufacturers are to carry out the recall process rather than the car manufacturer.

Technically, car manufacturers can claim compensation for loss or damage incurred as a result of conducting a recall due to defective parts from a supplier. However, this type of litigation has historically been relatively rare in the keiretsu structure. Therefore, it was surprising to many in Japan when a Japanese car manufacturer sued one of its major tier 1 suppliers in 2014 claiming more than ¥15.6 billion as compensation for damage incurred as a result of a recall caused by a defective power steering device produced by the parts manufacturer.

Product liability and recall

Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?

Product liability is an important subject in the automotive industry. Based on the Product Liability Act (Act No. 85 of 1994, as amended), if the product has a defect, or lacks the level of safety that the product ordinarily should have, and if such a defect has caused damage to the life, body or property of others, then the manufacturer or importer shall be liable for such damage. This regime imposes strict liability, regardless of whether the manufacturer or the importer has been negligent; provided, however, that where the defect could not have been discovered given the state of scientific or technical knowledge at the time of delivery, the manufacturer would not be liable for the defect.

The Act concerning Special Provisions for the Civil Procedure for Collective Recovery of Loss of Assets of Consumers (Act No. 96 of 2013) introduced a new ‘class action’ like regime in Japan, which became effective on 1 October 2016. This class action regime is two-tiered. At Tier 1, a qualified consumer organisation must prove that the relevant manufacturer owes common liability to a number of consumers. Then at Tier 2, each consumer can have a consumer organisation file its claim with the summary court. The Tier 1 action may only be taken by a qualified consumer organisation (QCO) which has received the required designation to act from the prime minister pursuant to the Consumer Contract Act (Act No. 61 of 2000, as amended). As at February 2018, there were only two QCOs (out of a total of 17 QCOs in Japan) which had designation from the prime minister. However, this class action-like regime does not cover strict product liability, and only entitles the recovery of actual damage and specific performance, but does not extend to an indemnity for any consequential damage, loss of profits, injury or bodily harm. The action can only be made against a defendant who has direct privity of contract with consumers, but not against third-party car manufacturers, importers or parts suppliers.

Disputes

Competition enforcement

What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?

Antitrust measures are enforced by the Japan Fair Trade Commission (JFTC) based on the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No. 54 of 1947 as amended). The JFTC is active in the automobile parts sector in terms of enforcement against cartel activities. The JFTC undertook major enforcement actions against cartels in this industry during 2012 and 2013, comprising antitrust surcharges of nearly ¥12.9 billion against four major wire harness manufacturers in 2012, nearly ¥3.4 billion against seven electrical component manufacturers, and nearly ¥4.7 billion against three headlamp manufacturers.

There could be three types of follow-on litigation as a result: (i) litigation against the JFTC; (ii) civil litigation raised by a party who has incurred damage; and (iii) a derivative suit by shareholders against the directors of a company that has participated in cartel activities. A company that is subject to a JFTC enforcement may challenge the same in court. Also, any company that is involved in cartel activities could have civil liability for damage incurred by customers and end users, and once enforced by the JFTC, the company cannot utilise the defence of having no wilful misconduct or negligence. Furthermore, directors of a company that has participated in cartel activities might be sued by the shareholders of the company by way of a derivative suit. In the above-mentioned wire harness cartel case, the shareholders of a related company sued its 22 directors in a derivative suit for negligence, for participating in the cartel and, in particular, for having decided not to apply for leniency by cooperating with the JFTC. This case was finally settled with the payment of ¥520 million by the directors to the company in 2014.

Dispute resolution mechanisms

What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?

There is no specific type of dispute especially significant to the automobile industry. Automotive industry companies should be prepared for contractual disputes with customers or suppliers, product liability and consumer issues, and intellectual property issues (including disputes). Disputes between domestic companies that have not been successfully resolved through negotiation are usually submitted to the courts for litigation, while large-scale international cases are submitted for arbitration. Japanese courts tend to resolve disputes by settlement through trial, rather than giving a verdict. The court often grants interim injunctions based on statute when not doing so may make it impossible or extremely difficult for a party to exercise his or her rights.

Distressed suppliers

What is the process for dealing with distressed suppliers in the automotive industry?

In order to ensure a continued supply of parts, automotive manufacturers tend to have two choices: (i) finding an alternative supplier; or (ii) assisting the distressed supplier to continue its operations.

The distressed suppliers may go into legal insolvency procedures, including: (i) a bankruptcy procedure under the Bankruptcy Act (Act No. 75 of 2004, as amended); (ii) a civil rehabilitation procedure under the Civil Rehabilitation Act (Act No. 225 of 1999, as amended); (iii) a corporate reorganisation procedure under the Corporate Reorganisation Act (Act No. 154 of 2002, as amended); and (iv) a special liquidation procedure under the Companies Act (Act No. 86 of 2005, as amended). Among those, the bankruptcy and the special liquidation procedures are classified as liquidation-type processes while the civil rehabilitation and the corporate reorganisation procedures are recovery-type processes where the focus is on preserving the business as a going concern. Automotive manufacturers sometimes assist the distressed suppliers through the civil rehabilitation or corporate reorganisation procedures.

After the airbag defect scandal, Takata filed an application for the civil rehabilitation process with the Tokyo District Court in June 2017, along with its 14 affiliate companies around the world, which filed similar insolvency procedures in each jurisdiction. This civil rehabilitation process became the largest insolvency procedure of the manufacturing industry in the post-war era in terms of its debt amount of ¥1.082 billion. Under the civil rehabilitation plan submitted to the court in February 2018, Takata is planning to transfer its assets to KSS, a Chinese-owned US company in the same industry, and distribute compensation to its creditors, which will cover only ¥500,000 and 1 per cent of any amount exceeding ¥500,000 for each creditor. Car manufacturers are exempt from this settlement and will be compensated at a later stage from the rest of the fund after repayment to non-car manufacturer debtors, which will not cover a significant percentage of the aggregate debt amount. Despite the impact of the scandal, no bankruptcy owing to Takata issues had been reported as of September 2017. This is because Takata had been continuing to make payment to its suppliers based on the existing contractual conditions, which is allowed under the Civil Rehabilitation Act, and affected suppliers may take advantage of the ‘safety net guarantee’ by the Small and Medium Enterprise Agency of METI under the Small and Medium-sized Enterprise Credit Insurance Act (Act No. 264 of 1950, as amended), as well as the ‘safety net loan’ from the Japan Finance Corporation, a Japanese government-affiliated financial institution, both of which are designed to minimise systemic risk or domino effects on the whole industry.

Intellectual property disputes

Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?

The automobile industry is one of the most intellectual property oriented sectors. Three of the top 10 companies that were granted the most patents in Japan in 2015 are automobile-related companies and many more companies with automobile parts divisions are listed in the top 100. IP-related disputes are therefore potentially significant in the automotive industry.

However, it is generally pointed out that the Japanese legal system fails to provide sufficiently effective protection for intellectual property, and Japanese courts do not always issue favourable judgments for patent holders. While IP litigation usually takes a lot of time in Japan, it can be expensive and the courts do not support a significant amount of compensation. In 2015, the average timeline for all types of IP litigation was 14.2 months, with an average of eight hearings held at the court. About half of the cases are settled without the court issuing any judgment. Given this, intellectual property disputes are not easily resolved.

Employment issues

Trade unions and work councils

Are there specific employment issues that automotive companies should be aware of, such as with trade unions and works councils?

Some companies have their own labour unions and, at other companies, employees belong to industry-wide labour unions. The Labour Union Act (Act No. 174 of 1949, as amended) expressly permits union shop treaties, a type of collective bargaining agreement between an employer and a labour union under which the employer will ensure that all employees belong to the labour union. A number of automotive manufacturers and auto parts suppliers have a union shop treaty. In fact, although the unions negotiate the following year’s salary review every spring, which is referred to as shunto, or ‘spring labour offensive’, strikes and serious labour disputes have been relatively rare in recent years.

New technologies

Legal developments

What are the most important legal developments relating to automotive technological and mobility advances?

Automated or autonomous cars

The Japanese government has established a roadmap for the introduction of automated driving in Japan. One impetus for this programme is Japan’s ageing society and workforce shortage. The roadmap identifies the four automated driving levels in Japan, with fully autonomous driving at level 4. The roadmap also addresses the steps required for the implementation of automated driving levels from 2 to 4, with a goal to realise the operation of autonomous vehicles on public roads.

The government is contemplating the introduction of level 4, completely autonomous vehicles, into the market in the late 2020s. According to the MLIT, level 2 and level 3 automated vehicles may be driven on public roads without any infringement of regulations, provided there is a driver inside the vehicle who must handle the steering wheel, brakes and other equipment. In fact, many car manufacturers have launched ‘level 2’ and limited-‘level 3’ automated vehicles in the market. The MLIT has set standards for limited use of ‘level 3’ automated vehicles under the following conditions: when the driver loses steering control, the driver must be warned within 15 seconds, and the automated drive must be switched off within 65 seconds; in an emergency, automated drive must be overridden by the driver by giving a certain level of torque to the steering wheel; and automated parking must be at the speed of 10km/h or less.

Level 4 is still under debate owing to the Convention on Road Traffic (Geneva, 1949) and the Road Transport Act (Act No. 183 of 1951, as amended (RTA)), both of which assume the existence of a driver on board. However, the MLIT announced an amendment to the Safety Standards enabling experimental operations of a ‘level 4’ autonomous vehicle without a steering wheel, or acceleration and brake pedals on a public road under certain conditions including the time, weather, speed limit, route of operation, emergency kill switch and safety staff.

With regard to conducting road experiments, the MLIT requires no special approval for the vehicle if it satisfies the safety standards and has a driver. A vehicle that does not comply with the safety standards can be also tested on the road following receipt of special permission from the MLIT. In both cases the testing must comply with the specific guidelines issued by the National Police Agency in May 2016. A number of exceptional permissions for testing have been granted, for example:

• in January 2018, the MLIT and METI jointly conducted an experiment for automated truck platooning using Cooperative Adaptive Cruise Control by four trucks of different manufacturers on the motorway;
• an IT venture company tested a remote control vehicle with an external driver controlling the vehicle on the public road in the urban area of Tokyo;
• the prefectural government of Aichi tested an autonomous vehicle on the public road in an suburban area in December 2017; and
• an IT venture and a car manufacturer jointly conducted an experiment of autonomous taxis (with a security attendant in the driver’s seat) on the public road in the urban area of Yokohama.

The JNCAP has included pre-crash braking systems and lane keep assist systems in the list of test items from 2014. From 2017, insurance companies are offering a discount of up to 10 per cent on the insurance premium for vehicles equipped with advanced safety technologies, including pre-crash brakes.

Connected vehicles

Car manufacturers should note that advanced equipment for connected vehicles may be subject to additional regulations over and above traditional safety standards. For example, radio devices are regulated by the Radio Act (Act No. 131 of 1950, as amended) and an onboard communication service for automobiles may require notification to the relevant authority or a licence under the Telecommunication Business Act (Act No. 86 of 1984 as amended); both are governed by the Ministry of Internal Affairs and Communications.

Hybrid, plug-in hybrid, electric and fuel cell vehicles

The strategy for low- and zero-emission vehicles varies depending on the car manufacturer. Hybrid vehicles are commonplace today and are also increasing in popularity for heavy duty vehicles. METI has been promoting plug-in hybrid, electric and fuel cell vehicles by offering financial aid for the acquisition of such clean energy vehicles and the establishment of battery chargers and hydrogen stations.

On 22 March 2016, the Agency for Natural Resources and Energy under the METI revised its roadmap for the promotion of the hydrogen/fuel cell strategy, which was first published in June 2014. According to this ambitious roadmap, the agency is aiming to increase the number of fuel cell vehicles to approximately 40,000 by 2020, and to to 800,000 by 2030, as well as the number of hydrogen stations to approximately 160 by 2020, and up to 320 by 2025.

Also, the Safety Standards are constantly being updated to accommodate the requirements for these clean automobiles, including in relation to batteries, high-voltage cables, fuel cells and hydrogen tanks.

Car/ride sharing

Pursuant to the RTA, a licence is required to operate a taxi, or operate a passenger vehicle transportation business, which is defined as a service to give rides in a car to others for consideration on demand.

In 2012, one ride share application service provider started testing its service in Japan without the passenger paying the tariff to the driver. Instead, the driver received remuneration from the ride share company on the basis of a ‘data provision fee’. Nevertheless, the MLIT requested the service provider to stop the tests on the basis that such a payment still falls within the definition of ‘consideration’. However, the MLIT also noted that the payment of a small amount that can be seen as a voluntary expression of gratitude or reimbursement of the actual expenses incurred, such as fuel or parking, would not cause any issue.

However, in contrast with the above, the government has been promoting various ‘sharing economy’ policies, and designated a rural town in Kyoto prefecture as a national strategic special zone to experiment with deregulation. The first ride-sharing service operating without a taxi licence was launched on 26 May 2016. In relation to car sharing, the RTA regards it as a car rental business, which requires a licence. Currently, incumbent rental car companies have been operating car-sharing services, but it is prohibited for individuals to hire out cars as a business.