Q: Local Governments in Japan: How Do Their Ordinances and Powers Affect Your Business Expansion?

While national laws enacted by the Diet provide the overarching legal framework in Japan, businesses planning to operate or expand within the country must also pay close attention to the significant autonomous powers wielded by local governments. Prefectures and municipalities across Japan possess their own legislative and administrative authority, capable of creating a distinct regulatory environment that can directly impact various aspects of business activity, from zoning and permits to local taxes and environmental standards. This article explores the structure of local governance in Japan, the scope of local government powers—particularly their ability to enact ordinances—and the implications for businesses.

The Constitutional Foundation: Local Autonomy (地方自治 - Chihō Jichi)

Chapter 8 of the Constitution of Japan is dedicated to local self-government, with Article 92 establishing the "principle of local autonomy" (chihō jichi no honshi - 地方自治の本旨) as its cornerstone. This principle is generally understood to comprise two core elements:

1. Residents' Autonomy (住民自治 - jūmin jichi): This refers to the idea that local administration should be conducted based on the will of the local residents. This is primarily realized through the direct election of local assembly members and the heads of local governments (governors and mayors).
2. Organizational/Institutional Autonomy (団体自治 - dantai jichi): This signifies that local public entities should have the independence to manage their own affairs and administration, distinct from the national government, within the scope permitted by law.

While this autonomy is constitutionally guaranteed, it is not absolute. Article 92 also stipulates that "regulations concerning organization and operations of local public entities shall be fixed by law in accordance with the principle of local autonomy." This means that the Local Autonomy Act and other national statutes provide the fundamental framework within which local governments operate and exercise their powers.

Understanding the Tiers: Prefectures and Municipalities

Japan's system of local governance primarily involves two main tiers of "ordinary local public entities" (普通地方公共団体 - futsū chihō kōkyō dantai):

1. Prefectures (都道府県 - To-Dō-Fu-Ken): There are 47 prefectures (including Tokyo-to, Hokkaido, Osaka-fu, Kyoto-fu, and the remaining -ken). They are wide-area local governments responsible for broader regional administration, coordinating affairs that span multiple municipalities, and providing certain large-scale public services (e.g., high schools, major roads, regional policing).
2. Municipalities (市町村 - Shi-Chō-Son): These are cities (shi), towns (chō), and villages (son). Municipalities are considered the "basic local public entities" (kisō-teki na chihō kōkyō dantai - 基礎的な地方公共団体), meaning they are the level of government closest to residents and businesses, handling a wide array of day-to-day administrative services such as resident registration, local tax collection, waste management, primary and junior high school education, and local infrastructure.
   • Within municipalities, certain large cities can achieve special status:
     • Designated Cities (政令指定都市 - Seirei Shitei Toshi): These are cities with populations generally over 500,000, designated by cabinet order. They are granted many administrative powers typically exercised by prefectures, allowing them to provide more comprehensive services directly.
     • Core Cities (中核市 - Chūkaku Shi): These cities, typically with populations over 200,000, also have a broader range of powers than other municipalities, though less extensive than designated cities.

While prefectures geographically encompass municipalities, their relationship is now generally characterized as one of partnership and functional division rather than a strict hierarchical command structure, particularly concerning affairs autonomously managed by municipalities. However, prefectures may supervise or coordinate certain affairs handled by municipalities, especially those entrusted by national or prefectural law.

(In addition to these, "special local public entities" (特別地方公共団体 - tokubetsu chihō kōkyō dantai) exist, such as the special wards of Tokyo (特別区 - tokubetsu ku), which have functions similar to cities, and associations of local public entities formed for joint administration of specific services.)

The Law-Making Power of Local Governments: Ordinances and Regulations

A critical aspect of local autonomy is the power to enact local legislation. This primarily takes two forms:

1. Ordinances (条例 - Jōrei)

• Enacting Body: Ordinances are enacted by the deliberative assemblies of local governments (prefectural assemblies or municipal councils), whose members are directly elected by residents.
• Scope: Under Article 94 of the Constitution and Article 14 of the Local Autonomy Act, local public entities can enact ordinances concerning their own "affairs" (事務 - jimu), provided these ordinances do not conflict with national laws or the Constitution. These "affairs" include both "autonomous affairs" (jichi jimu - 自治事務), which are managed based on local initiative, and "statutory entrusted affairs" (hōtei jutaku jimu - 法定受託事務), which are national or prefectural functions delegated to them by law for execution.
• Power to Impose Duties and Restrict Rights: Importantly for businesses, ordinances can impose obligations and restrict private rights to achieve public policy objectives. This can manifest in various ways:
  • Local business taxes.
  • Zoning regulations and land-use restrictions.
  • Specific environmental standards (e.g., for noise, emissions, waste).
  • Regulations on business operating hours or specific business practices (e.g., consumer protection, public safety).
  • Requirements for local permits or licenses for certain activities.
• Penal Provisions: Local ordinances can also include provisions for limited penalties, such as fines, imprisonment for not more than two years, or minor fines (karyō - 過料), for violations, within the limits prescribed by the Local Autonomy Act (Art. 14, para. 3).
• Relationship with National Law – Preemption and "Adding On":
  The principle that ordinances cannot conflict with national law is fundamental. However, this does not always mean that local governments cannot regulate in areas where national laws exist.
  • If a national law intends to establish exhaustive, uniform nationwide regulations, then local ordinances generally cannot deviate from or add to these regulations (this reflects a concept similar to field preemption).
  • However, if a national law is interpreted as setting only minimum standards, local governments often have the authority to enact ordinances that establish stricter standards. This is known as "uwanose jōrei" (上乗せ条例 – "adding-on-top ordinances").
  • Similarly, local governments may enact ordinances to regulate matters not specifically addressed by national law but falling within their autonomous affairs ("yokodashi jōrei" - 横出し条例 – "side-by-side ordinances").
  • The Tokushima City Public Safety Ordinance case (Supreme Court, September 10, 1975) is a leading precedent. The ordinance in question regulated public demonstrations more strictly than the relevant national law (the Public Safety Ordinance of Tokushima Prefecture, which itself was based on national frameworks). The Supreme Court upheld the city ordinance, reasoning that if the superior law (in this case, the prefectural ordinance implementing national policy) was not intended to provide exhaustive, uniform regulation across all municipalities within the prefecture but rather allowed for adjustments based on local conditions, then a municipal ordinance imposing different (even stricter) regulations was permissible as long as it did not contradict the fundamental purpose of the superior law. This principle allows local governments to tailor regulations to their specific local needs and circumstances.
• Business Impact: The power to enact ordinances means that businesses must conduct thorough due diligence on local rules in every prefecture and municipality where they operate or plan to operate. Compliance requirements can vary significantly from one jurisdiction to another, affecting everything from initial setup (local permits) to ongoing operations (environmental standards, labor practices adapted to local needs, specific consumer protection measures) and local taxation.

2. Regulations (規則 - Kisoku)

• Enacting Body: Regulations are established by the executive heads of local governments (governors and mayors) or by local administrative committees (e.g., boards of education, election management committees).
• Scope: These must be within the scope of the enacting body's legally prescribed authority and cannot conflict with national laws, higher-level ordinances (e.g., prefectural ordinances for municipal regulations), or ordinances of their own local public entity. Regulations are often used for more detailed administrative rules, procedures for implementing ordinances, rules for the management of public facilities, or internal administrative matters.
• Penal Provisions: Regulations enacted by local government heads can also include provisions for minor administrative fines (karyō) for violations (Local Autonomy Act Art. 15, para. 2).

Key Administrative Powers of Local Governments Affecting Businesses

Beyond general law-making, local governments exercise numerous specific administrative powers that directly interface with business activities:

• Licensing and Permits: Many types of businesses require licenses or permits issued by local authorities. This can range from operating restaurants and retail stores to specific construction activities, waste management services, and entertainment venues.
• Zoning and Land Use Planning (都市計画 - Toshi Keikaku): Local governments, particularly municipalities, play a pivotal role in urban planning and zoning. They designate areas for specific uses (commercial, industrial, residential, agricultural, etc.), set building height limits, floor-area ratios, and other development controls that profoundly affect where businesses can locate and how they can develop property.
• Public Health and Environmental Regulation: Local authorities are often on the front lines of enforcing public health standards (e.g., through inspections of food establishments) and environmental protection measures (e.g., regulating noise, industrial emissions, waste disposal, and requiring local environmental permits).
• Local Taxation: Businesses are subject to various local taxes, including local enterprise tax, fixed assets tax on property, city planning tax (in designated areas), and sometimes other specific local levies.
• Administrative Guidance (Gyōsei Shidō) at the Local Level: Just like national agencies, local government officials frequently use administrative guidance—non-binding recommendations or requests—to encourage businesses to adopt certain practices, comply with local policies, or resolve local community concerns (e.g., regarding construction impacts, local employment, or community contributions).
• Management of Public Facilities (公の施設 - Ōyake no Shisetsu): Local governments establish and manage a wide range of public facilities (parks, roads, water supply, sewage systems, community centers, etc.). Businesses may interact with these as users, or their operations might be affected by the planning and regulation of such facilities. Rules for using these facilities are typically set by ordinance.

The Affairs of Local Governments: Autonomous vs. Statutorily Entrusted

The functions or "affairs" (jimu) handled by local governments are broadly categorized into two types, a distinction introduced by significant local government reforms in 2000 aimed at enhancing local autonomy:

1. Autonomous Affairs (自治事務 - Jichi Jimu): These are affairs that local public entities plan and execute based on their own initiative and responsibility. They cover a wide range of local services and administrative functions directly affecting residents and businesses, such as establishing and managing local schools (other than those mandated by national law), creating local parks, promoting local industry, and many aspects of urban planning.
2. Statutorily Entrusted Affairs (法定受託事務 - Hōtei Jutaku Jimu): These are affairs that are originally the responsibility of the national government or a prefecture but which, by specific provision of law or cabinet order based on law, are delegated to a lower-level local government (e.g., from the nation to a prefecture, or from the nation/prefecture to a municipality) for execution. Examples include passport issuance by prefectural governments on behalf of the nation, or national election administration by municipal election boards. Even when executing these entrusted affairs, the local government acts as the administrative body responsible for their implementation.

This distinction is significant because the degree and nature of national or prefectural "involvement" (kan'yo - 関与) or supervision can differ depending on whether the affair is autonomous or statutorily entrusted. Intervention in autonomous affairs is generally more restricted.

National and Prefectural Involvement (Kan'yo) in Local Affairs

While the Constitution guarantees local autonomy, it is not absolute. The national government (and prefectures in relation to municipalities) retains certain powers of involvement to ensure the lawful and appropriate administration of affairs, maintain nationwide consistency in essential services, and ensure the proper execution of statutorily entrusted functions.

Key principles governing such involvement include:

• Legality of Intervention: Any involvement by the national government or a prefecture in the affairs of another local public entity must, as a rule, be based on explicit provisions in law or a cabinet order founded on law (Local Autonomy Act Art. 245-2).
• Minimum Necessary Intervention: Involvement should be limited to the minimum necessary to achieve its legitimate purpose and must be carried out with due consideration for the autonomy and independence of the local public entity (Local Autonomy Act Art. 245-3).
• Forms of Involvement: The types of permissible involvement vary. For jichi jimu, it is generally limited to non-coercive measures such as providing advice or recommendations, requesting materials, or engaging in consultation. For hōtei jutaku jimu, more directive forms of involvement, such as instructions or, in rare cases of non-performance of legally mandated duties that gravely harm the public interest, execution by proxy (代執行 - daishikkō), may be possible under strict legal conditions.

Disputes can arise between national and local governments (or between prefectures and municipalities) regarding the legality or appropriateness of such involvement. Japan has established mechanisms like the Committee for Settling Disputes between the National and Local Governments (Kuni Chihō Keisō Shori Iinkai - 国地方係争処理委員会) to provide a forum for resolving such conflicts. The protracted dispute between the national government and Okinawa Prefecture concerning the landfill work for the relocation of a U.S. military base to Henoko is a high-profile example of such inter-governmental conflict that has involved these dispute resolution mechanisms as well as court litigation.

Conclusion: The Indispensable Local Dimension for Business Strategy

For any business operating or contemplating expansion in Japan, understanding the powers, regulatory landscape, and administrative practices of local governments is not merely an option but a necessity. National laws provide a baseline, but it is often the prefectural and municipal ordinances, plans, and administrative decisions that shape the immediate business environment, impose specific compliance obligations, and offer unique regional incentives or challenges. From obtaining niche local permits and navigating zoning intricacies to complying with distinct environmental standards and engaging with local community expectations, the "local dimension" is integral to successful and sustainable business operations across Japan. Proactive research into local rules, coupled with constructive engagement with local authorities, forms a critical part of a comprehensive Japanese market strategy.