Japan's New NPO Law

by Yoshinori Yamaoka

On March 19, 1998, the "Law to Promote Specified Nonprofit Activities" (hereafter called "NPO Law") was established in Japan. A nonprofit organization is different from an administrative agency, the activities of which are supported by taxes and which aims to provide social services evenly and fairly to everyone. NPOs, as their name implies, also differ from corporations in that profits are not their goal.

The NPO Law is designed to provide readily the status of nonprofit corporation to small voluntary organizations. Before the passage of the new law, the criteria for certification as a corporate aggregate or a foundation was too rigid and difficult for many voluntary organizations: The vertically organized permission and supervision processes were not suitable for most smaller organizations. The NPO Law had been in deliberation in the Diet since it was submitted by the three ruling parties in December 1996.

Voluntary Organizations and the Legislation Process

Voluntary organizations have had a big influence on the legislation process. The concrete impetus for this legislation in the Diet began in the aftermath of the Hanshin-Awaji earthquake in January 1995. Prior to this, the necessity of such a law had been proposed by voluntary organizations, who had carried out much of the preliminary research, some of it sponsored by NIRA.*1 One organization, the Coalition for Legislation to Support Citizens' Organizations, played a major role. It was established in November 1994, right before the earthquake.

In the legislation process, many voluntary organizations expressed their opinions, developed contacts with each other, held meetings all over Japan, collected signatures, approached members of the Diet, and, in the end, had a significant influence on the revision of the law. The House of Councilors invited six activists (economists, lawyers, and researchers) who had information about the case at a committee discussion. As such, opinions of many people from voluntary organizations were directly reflected in the Diet deliberation. Especially at the House of Councilors, people discussed the matter seriously to close the gap between the ideal and reality beyond party lines. And finally members agreed to modify the draft and successfully reached a unanimous agreement. In the process, the practical and strong demands from the voluntary organizations could not be ignored.

This legislation process, including the way citizens participated in the process, could become a milestone in Japan's parliamentary history.

What Kinds of Organizations Can Be Certified for Corporate Status?

The NPO Law is designed to provide corporate status to voluntary organizations. What kinds of organizations can be incorporated? The law stipulates that the organization should "contribute to the advancement of the interests of many people." Organizations should also promote activities that stress any of the following 12 areas: health, medical care, and welfare; social education; community development; culture, the arts, and sports; the environment; disaster relief; community safety; human rights and peace; international cooperation; equal treatment of women in society; sound nurturing of youth; and support of any of the above.

These points were modified after the first draft was submitted to the Diet. For example, initially, "medical care" was not mentioned, and "environment" was limited to "the global environment": it did not include the concept of "regional environment" such as protection of riverbanks. "Disaster relief activities" was originally "a rescue operation at the disaster." It was modified as above to clearly include disaster-prevention activities and to support repair work after a disaster. The range of activities to be covered by the law is determined by the authorities concerned, by prefectural governments, and by the Economic Planning Agency. Discussions in the Diet, however, made it clear that the purpose of this legislation is to cover a broader range of activities.

In addition, religious, electoral, and political activities are allowed if they are not the "main purpose." At the beginning, it was written in a way that any political criticism against public officers and suggestions about policies was entirely prohibited. It was revised to allow people to support or criticize public officers, provided it is not the purpose of the organization.

The Certification Process Becomes Administrative Work

Under what conditions is the certification of nonprofit corporation given to an organization that satisfies several the legal requirements? The prefectural governor shall serve as the authority to give a certificate of incorporation if the organization establishes an office within the prefecture. The director-general of the Economic Planning Agency shall serve as the authority for those nonprofit corporations with offices in two or more prefectures. After incorporation, each authority demands that each incorporated organization disclose its information, and supervises the overall activities of the organization.

One characteristic of this legislation is that the prefectural government's work is defined as "prefectural-government-commissioned administrative work," not as institutionally commissioned administrative work, as it was in the existing incorporation system. This means that the process of certification is not conducted by a minister's instruction to the mayor through a government ordinance, but by each prefectural government establishing its own regulations. Therefore, before this law is implemented on December 1, 1998, each prefectural government should establish its own regulations. Prefectures have already started their preparation. Because this is the first time that prefectural-government-commissioned administrative work will deal with supervision and certification of incorporation, questions and misunderstandings will inevitably arise. However, this project will serve as a test of the potential decentralization of power. Some local governments proceed in these matters as open projects in cooperation with voluntary organizations, not as closed-investigation processes of the public offices.

Another characteristic of this incorporation system is that once the organization is certified as incorporated, it is obligated to disclose information. An existing nonprofit corporation is obligated only to disclose information to its authority, and the information tends to be kept confidential. The mechanism of the specified nonprofit corporation requires not only the supervision of its authority supervision, but also that of citizens. Whether an organization can become a specified nonprofit corporation depends on whether it can live up to this disclosure obligation.

How Will Voluntary Organizations Use Their New-Found Status?

Many organizations can now gain status as a nonprofit corporation provided they are legally qualified. But this status is not necessary for everyone. "Specified nonprofit corporation" simply added one more choice for voluntary organizations. Each organization should choose what is the best for them. If the organization is a private organization, neither controlled nor protected by law, and has neither a paid staff nor office space, gaining official status does it little good. However if an organization hires employees and has a specific mandate, the qualification becomes useful, especially when they are making contracts with other corporations and government offices; it gives them more power. Once the organization becomes incorporated, it is expected to understand and to be able to comply with the requisite disclosure policies explained above.

This new system might cause a big rush to incorporate, and at least some of the new groups might exist in name only and have few if any actual activities. However, those name-only organizations will not garner the support of citizens; they are doomed to failure. The efficacy of the new system will depend on citizens' attitudes.

The law also states in its supplementary provision that, three years after the implementation of the law, the new system should be reviewed, and that necessary measures should be taken. In its supplementary resolution, it was regulated that, two years after the implementation, the system should be reviewed and tax breaks should be given. A nonpartisan group will reexamine the above matters. Voluntary organizations are expected to understand and utilize this new system and participate in this reexamination to provide input based on their experiences.

Taking The First Step Toward a New Civil Society

The main points of Japan's incorporation system are regulated in civil law. July 1998 was the centennial anniversary of Japan's civil law. When the constitution was modified after World War II, this part of the civil law remained untouched, and remains so even today. The NPO Law was created on the foundation of this old civil law. It was the best possible attempt to deregulate within the limitations and difficulties of the old law.

As a next step, Japan should create a movement to fundamentally change regulations regarding incorporation under civil law. Some suggestions have already been made, but private, nonprofit organizations must become solid and strong to make this movement work. This new system aims to do just that. When civil laws are revised, we will finally be able to say that Japan has achieved a real civil society.

A legal system by itself does not create a civil society; it is simply a framework to make various activities available. Needless to say, we should make efforts to improve the framework. Those efforts toward continual improvement are what nonprofit organizations, especially voluntary organizations, are expected to do.

Since the Meiji era (1868-1912), Japan's development has been based on two pillars: government, and for-profit organizations. The system did not encourage private nonprofit organizations to grow. On the contrary, it oppressed and limited their growth. As a result, Japanese society lost its flexibility and stagnated. Today, however, a third pillar has emerged. It is small but is gaining momentum, and will change Japanese society. It will take time for the changes to take effect, but a new energy source has been created.

Civil society really means the combination of each person's self-responsibility toward society as a whole. Different value systems will inevitably compete with each other. This new society might become more "cold-blooded" than Japanese society today, which is traditional and oriented toward helping people within clans. The new society, though, will foster the spread of different personality characteristics. What is really needed is a desire to help people who exist outside his or her own clan.

The world seems to be demanding that Japan build such a civil society now. It will be tragic if a world power of Japan's caliber delays or fails to transform itself into a truly civil society. With luck, the newly established legal system will become the turning point for a new Japanese civil society in terms of both framework and actual activities.

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