An advisory panel to Prime Minister Junichiro Koizumi on Monday suggested that companies enter into covenants with their customers regarding product quality and safety.

The proposed nonbinding behavioral codes would set out rules that companies would follow when selling products and ensuring product safety as well as safety in other areas of corporate activity.

The proposal comes in reaction to two high-profile corporate scandals — one involving Snow Brand Milk Products Co. and the other involving Mitsubishi Motors Corp. — that shook consumer confidence in 2000. It was made in an interim report adopted by the Consumer Policy Committee of the Quality-of-Life Policy Council, which took up the issue in October.

“Obtaining consumer confidence is the source of profits for companies,” the report says. “One of the most effective ways to obtain consumer confidence is to express a solemn promise between companies and consumers, and faithfully abide by it.”

Snow Brand Milk’s sloppy product management led to a widespread outbreak of food-poisoning in summer 2000, sickening more than 10,000 people, mostly in western Japan.

MMC admitted in 2000 that it had systematically concealed customer complaints about defective vehicles beginning in 1977.

Corporate scandals continued to break after the panel began deliberations on how to restore consumer confidence.

The discovery of Japan’s first case of mad cow disease in September shed light on the fact that a number of companies — including Snow Brand Foods Co., a subsidiary of Snow Brand Milk — have long deceived consumers by falsely identifying cheaper products and selling them at higher prices.

“A number of food-mislabeling scandals broke in the course of our discussions,” the report says. Although the discussions did not specifically address the scandals involving food labeling, the scandals “increased the significance” of the talks.

The report says companies’ codes of behavior should include rules to protect customer privacy as well as ways to deal with complaints.

Each company, however, should independently decide which items to include in its behavioral code, noting that business operations vary among companies.

“We are not planning to force companies to adopt a code of behavior,” said Shigeru Hotta, head of the Consumer Policy Planning Division at the Cabinet Office. “But the Cabinet Office believes it should be adopted by as many companies as possible, and we will continue to cite the need for it.”

The interim report also calls on the government to study whether Japan should enact laws to protect whistle-blowers and to encourage investment in firms recognized as having high ethical standards.

Hotta said the recent promotion of deregulation in Japan is increasing the need for companies to establish a code of behavior.

“Deregulation expands the freedom of economic activities,” he said. “Firms with greater freedom need to be more faithful with consumers.”

The panel will seek opinions from consumers and companies, hoping to finalize the report by the end of this year, the Cabinet Office officials said.

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