Japan Inc. & Electronic Commerce: A Match Made at MITI
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The economy is tanking, the yen is wavering, the public is screaming for blood. Can electronic commerce be the shot in the arm that Japan Inc. has been looking for? MITI seems to think so, and is spending some serious yen to get the ball rolling.
by Yaeko Mitsumori On May 15, Japanese Prime Minister Ryutaro Hashimoto and US President Bill Clinton released the "US-Japan Joint Statement on Electronic Commerce," thus marking the first time that the two governments had publicly agreed on basic electronic commerce (EC) policies. The joint statement declared that, in principle, Japan and the US are in agreement that "the private sector should lead in the development of electronic commerce" and that governments "should avoid imposing unnecessary regulations or restrictions" on EC. According to Tomoya Ichimura, the Ministry of International Trade and Industry's (MITI) Deputy Director of International Affairs for Information Society, this joint statement was also remarkable because it clarified both nations' policies on such EC issues as domain names and certificate authorities (CAs). The European Union (EU) and the US had released a similar joint statement regarding EC in late 1998, so this declaration of the US-Japan position means that the world's three leading economies have now made their EC positions clear. "Based on the two statements, those three powers will gear up their efforts to establish an international rule on EC at the OECD (Organization for Economic Cooperation and Development) ministerial-level meeting to be held in Ottawa in October," suggests Ichimura.
MITI-sponsored EC experiments The 45 projects included 19 business-to-consumer projects, in which more than 350 firms and 500,000 consumers were involved, and 26 business-to-business projects in 20 different industries. Most of the consortiums promoting these projects have decided to continue their involvement. Several have already launched commercial activities based on the technologies developed in the experiments, while others have selected to continue demonstration experiments at a more advanced level. The 19 business-to-consumer projects were promoted under the leadership of the Electronic Commerce Promotion Council of Japan (ECOM). These included a total of 10 "cybermalls," one of the most successful of which was Smart Commerce Japan (SCJ), led by Toshiba and VISA International. In addition to operating a virtual mall, the SCJ had conducted an electronic money experiment in Kobe through which some 30,000 consumers shopped at 650 stores around Kobe as well as in the SCJ virtual mall stores. Twenty-five "reload" terminals and 24 kiosks were constructed in the city that was recently hit by a large earthquake, and total revenue from the experiment (both in real stores and at the virtual mall) reached nearly \100 million. The SCJ is continuing the "real store" portion of the experiment. The Ueda Chamber of Commerce and Industry (Ueda City, Nagano prefecture), meanwhile, conducted an EC experiment using a local cable TV network. Residents could not only shop for goods at a virtual mall, but could also purchase such content as movies, karaoke songs, and computer game software through the CATV network (at 10M bps). This experiment was launched as part of a Chamber of Commerce effort to revitalize the city, and with the cooperation of the local government a hybrid CATV network was deployed throughout Ueda in 1994. It has been decided to continue the experiment at least through March 1999. In another business-to-consumer experiment, a consortium led by NTT Data Communications opened a virtual town, called Machiko (machi means "town"), targeting housewives. Some 10,000 consumers, many of them women aged 25 to 35, not only shopped at the 100 virtual stores but also shared information on the Net. Machiko is now being operated on a commercial basis. Most of the 26 business-to-business projects, which employed either EDI (electronic data interchange) or CALS (commerce at light speed), were declared a success. The automobile industry, for example, promoted a project called V-CALS that involved some 60 related companies. The project simulated the entire automobile manufacturing process, from design to assembly to final quality checks, on-screen. Since April, the participating firms have begun applying this technology on a commercial basis under the leadership of the Japanese Automobile Manufacturers Association. An aeronautics group project developed an engine on-screen, and successfully standardized the technology dealing with image data, while a manufacturing group established a communications system through which nearly 70 companies exchanged information. Based on their achievements, the participating firms intend to promote further development projects.
Government policy The interim report cited Japanese governmental polices on a variety of issues related to EC: certificate authority (CA), privacy protection, measures against illegal and "harmful" content, consumer protection, security protection and measures against crimes, rules for transaction, electronic money/electronic settlements, intellectual property, domain names, taxes, and tariffs. The study group was scheduled to compile its final report, which will be the official position paper of Japanese EC policy, in June.
Certificate authority policy Yoshinori Akimoto, of the Ministry of Posts and Telecommunications' (MPT) Computer Communications Division, suggests that what the government should do is actively promote an environment conducive to the CA business. In Japan, only a couple of firms have so far launched CA businesses. "EC is still in its infancy in Japan. If CAs are not efficient enough, they may discourage businesses from becoming involved in EC. In order to avoid a worst case scenario, we may [need to] consider introduction of a licensing or reporting system," Akimoto says. At present, the only Japanese governmental office active in the CA arena is the Ministry of Justice, which reportedly plans to take over the role of CA for notarial documents.
Guarding against illegal content Nearly everyone involved seems to be in agreement that Internet-based content should be regulated by existing Japanese laws (for instance, that obscene content should be regulated by the Criminal Law). The main issue under contention is the definition of "obscene content," which is unclear. The government recently took the step of revising the Law on Control and Improvement of Amusement Businesses. The revised law requires that Internet Service Providers (ISPs) make an effort to check the flow of "harmful content" on their systems. Some ISPs have already expressed their objection, arguing that it is impossible to check all of the flow of content on their systems to determine what content is "harmful."
Copyright protection Separately, the agency is also seeking to establish a single channel for dealing with all copyright issues, so that developers who want to incorporate copyrighted materials will know with whom they should deal. Since, quite often, multiple copyright holders are involved in a piece of work, there may be several different organizations that represent those copyright holders. This makes it difficult for developers who want to create a multimedia work incorporating many elements. As part of its effort to promote the development of digital multimedia, the agency hopes to establish an umbrella organization to deal with all copyright matters.
Domain name registration The MPT has not yet worked out its own official position on the matter. Last March, the MPT established a study group for domain name issues; that study group was scheduled to compile a final report in June.
Regulating electronic money In September, the Cyber Business Association (CBA), an industrial association under the influence of the MPT, will launch an EC project using "Internet Cash." This project will be confined to the virtual world. Internet Cash, a transferable and anonymous transaction settlement method developed jointly by the CBA and NTT, is based on the so-called NTT-BOJ electronic money scheme. A total of 10,000 participants will shop (mostly for content) in virtual malls, supported by major firms including Asahi Shimbunsha, Dai-Nippon Printing, and Toppan Printing. The MPT's Akimoto says that the ministry hopes the electronic cash system invented in Japan will be widely used throughout the world and become the international standard. In February 1998, another large electronic money (Super Cash) project will be kicked off in Shinjuku, one of the biggest shopping districts in Tokyo. Unlike the previous two projects, this one will be conducted in both the virtual and real worlds. A total of 100,000 people will shop either in virtual malls or in 2,000 real stores in the Shinjuku area. Super Cash is also based on the NTT-BOJ electronic money scheme, but it was modified to emphasize ease-of-use and security. The organizers of both Shinjuku and Shibuya projects plan to start a commercial transaction system after their experiments. Interestingly, though, although the widespread use of electronic money seems imminent, there is no clear-cut definition of electronic cash and what it entails. According to Kazuhisa Koyama, of the Financial Market Section of the Ministry of Finance, the government is allowing the private sector to lead the electronic money revolution. "We just require these businesses to work out what will happen when the electronic money holders lose their electronic money, and what will happen when such businesses go bankrupt." In principle, the government says that it will apply the Prepaid Card Law, enacted a decade ago, to the use of electronic money. Revision of that law, or enactment of a new law, will be considered when the need arises.
The future of EC Although MITI's big EC project has been completed, the efforts of Japan Inc. to shape the future of electronic commerce seem set to continue. In Japan's historic \16 trillion Economic Stimulus Package, MITI won an additional \50 billion for developing EC. Hisashi Yoshikawa, Director of MITI's Information, Computer, and Communications Policy Planning Office, declares that the ministry will use these funds to promote more big projects. Although the details of these projects have not been decided yet, Yoshikawa says that MITI is likely to subsidize more practical projects this time. The call for applicants for the new projects may come as early as this fall.
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