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Japan and the United States will hold working- and high-level talks next week in Tokyo to follow up on a 1996 bilateral agreement that aims to promote deregulation of the Japanese insurance market and protect U.S. insurers operating here.

The U.S. Trade Representative is expected to raise doubts that Japan has fully implemented its deregulation commitments. The Finance Ministry insists that the decontrols have been proceeding as planned and there is no room for compromise. Friction may result if the USTR demands anything beyond the bilateral agreement to sacrifice deregulation for the interest of American firms, a ministry official said.

The upcoming talks mark the third such occasion since the two countries reached the agreement in December 1996. The accord obliges Japan, for instance, to permit differentiated-rate auto insurance products, deprive rating organizations of the power to set compulsory rates for nonlife insurers and approve new insurance products within 90 days.

Also under the agreement, life insurance subsidiaries of Japanese nonlife insurers are not allowed until 2001 to sell so-called third-sector products such as stand-alone cancer coverage and medical insurance. This regulation is to protect American firms, which have strengths in such coverage, until the primary sectors — where whole life insurance and auto insurance belong — are fully liberalized.

Differentiated-rate auto insurance was allowed last September and two foreign firms, including American Home Assurance Co., are already selling risk-based, minutely differentiated products in Japan. The abolition of the compulsory rate system, planned for July 1, was formally decided Friday as related bills cleared the Diet. The Finance Ministry also said it has fully followed the 90-day approval process unless application forms are incomplete.

But the U.S. is “deeply concerned” about Japan’s implementation of its commitments, a U.S. government official said, adding that a majority of American insurers operating in Japan have raised doubts particularly about the reform of rating organizations and the ministry’s compliance with the 90-day approval requirement.

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