|
JAPAN INVESTMENT ARRANGEMENT
1995 U.S.-JAPAN INVESTMENT ARRANGEMENT
Dear Secretary Christopher,
I have the honor to refer to recent discussions between the Government of Japan and the Government of the United States of America regarding inward direct investment and buyer-supplier relationships under the "Joint Statement on the Japan-United States Framework for a New Economic Partnership" (the "Framework").
As a result of these discussions, the Working Group established by the Government of Japan and the Government of the United States of America on inward direct investment and buyer-supplier relationships has prepared the attached document "Policies and Measures by the Government of Japan and the Government of the United States of America Regarding Inward Direct Investment and Buyer-Supplier Relationships." This document sets forth policies and measures to make progress in key areas needed to enhance the presence and improve the market access of competitive foreign investors and to help build effective buyer-supplier relations. The policies and measures set forth the results of the two Governments' joint efforts to address these issues. Accordingly, the Government of Japan and the Government of the United States of America each has decided to implement the policies and measures in this document, in addition to the policies and measures each Government has already implemented.
The Government of Japan reaffirms the principles of the Framework, including the principle that the policies and measures are to be applied to any third country on a most- favored-nation basis.
It is my Government's view that the attached document reflects our shared views of the respective policies and measures each Government has implemented or intends to take.
Sincerely,
Takakazu Kuriyama
Ambassador of Japan
July 20, 1995
Dear Mr. Ambassador:
I am pleased to receive your letter of today's date concerning the "Policies and Measures by the Government of Japan and the Government of the United States of America Regarding Inward Direct Investment and Buyer-Supplier Relationships" attached thereto.
I wish to confirm that the views expressed in your letter are shared by my Government. The document attached to your letter also reflects our shared views of the respective policies and measures that each Government has implemented or intends to take to make progress in key areas needed to enhance the presence and improve the market access of competitive foreign investors and to help build effective buyer-supplier relations. The policies and measures set forth the results of the two Governments' joint efforts to address these issues.
My Government welcomes the policies and measures in this document, which the Government of Japan has implemented or intends to take.
Sincerely,
Strobe Talbott
Acting Secretary
His Excellency
Takakazu Kuriyama,
Ambassador of Japan.
POLICIES AND MEASURES BY THE GOVERNMENT OF JAPAN AND THE GOVERNMENT OF THE UNITED STATES OF AMERICA REGARDING INWARD DIRECT INVESTMENT AND BUYER-SUPPLIER RELATIONSHIPS
TABLE OF CONTENTS
I. Statement of Basic Objectives
II. Shared Perspectives
III. Government Facilitation
1. General Principles
2. Policies and Measures by the Government of Japan
(1) Governmental Organizations
a. The Japan Investment Council (JIC)
b. The Office of Trade and Investment Ombudsman (OTO)
c. The Japan External Trade Organization (JETRO)
d. The Foreign Investment in Japan Development Corporation (FIND)
(2) General Efforts to Facilitate Foreign Investment
3. Policies and Measures by the Government of the United States
IV. Promotion of Foreign Direct Investment
1. General Principles
2. Policies and Measures by the Government of Japan
(1) Direct Promotion - The Japan Development Bank (JDB)
(2) JDB's "Promotion of Foreign Direct Investment Program"
(3) JDB's "Import Facilities Enhancement" Program
(4) JDB's Programs for "Promotion of International Joint R&D Projects"
(5) Programs for Small & Medium-sized Enterprises (SME's)
(6) Access by Foreign-Affiliated Firms to Government of Japan Programs which Support Private Sector Development
(7) Programs Under the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment ("Inward Investment Law")
3. Policies and Measures by the Government of the United States
V. Tax Incentives to Facilitate Foreign Direct Investment
VI. Deregulation and Non-Discriminatory Treatment of Investment
1. General Principles
2. Policies and Measures by the Government of Japan
3. Policies and Measures by the Government of the United States
VII. Mergers & Acquisitions
1. General Principles
2. Policies and Measures by the Government of Japan
3. Policies and Measures by the Government of the United States
VIII. Land Policy
1. General Principles
2. Policies and Measures by the Government of Japan
IX. Labor Markets
1. General Principles
2. Policies and Measures by the Government of Japan
(1) Employment and Training Measures
(2) Measures Affecting Expatriate Managers in Japan
X. Buyer-Supplier Relationships
1. General Principles
2. Policies and Measures by the Government of Japan
(1) Business Incubator and Co-Location Facilities
(2) Building Private Sector Relationships
3. Policies and Measures by the Government of the United States
(1) Business Incubator and Co-Location Facilities
(2) Building Private Sector Relationships
XI. Assessing Implementation of the Policies and Measures
1. General Principles
2. Objective Criteria
(1) Qualitative Criteria
(2) Quantitative Criteria
3. Additional Data Collected
XII. Shared Multilateral Investment Goals
XIII. Consultations
I. STATEMENT OF BASIC OBJECTIVES
(1) The goals of the Japan-United States Framework for a New Economic Partnership are to deal with structural and sectoral issues in order substantially to increase access and sales of competitive foreign goods and services through market-opening and macroeconomic measures; to increase investment; to promote international competitiveness; and to enhance bilateral economic cooperation between Japan and the United States.
(2) To accomplish these goals with respect to inward direct investment and buyer-supplier relationships, and based upon the principles herein, the Government of Japan and the Government of the United States of America each has implemented or intends to take the policies and measures in this document, "Policies and Measures by the Government of Japan and the Government of the United States of America Regarding Inward Direct Investment and Buyer-Supplier Relationships."
a. The key policy areas in which progress is needed to increase foreign direct investment are: government facilitation, direct investment promotion programs, tax incentives, deregulation and non-discriminatory treatment of investment, support for mergers and acquisition, and improved access to land and labor.
b. This document also describes policies and measures to be taken to help build effective buyer-supplier relations between domestic and foreign firms.*
(3) The objectives of the policies and measures described in this document are:
a. to enhance the market presence and improve the market access of competitive foreign firms;
b. to foster national investment regimes and business environments that are accessible and non-discriminatory toward domestic and foreign investors*;
(*) The terms "foreign firms" and "foreign investors" in this document include foreign-affiliated firms. The term "foreign-affiliated firms" in the context of the policies and measures by the Government of Japan in this document does not include foreign firms who have not yet set up a base in Japan. The term "foreign-affiliated firms" in the context of the policies and measures by the Government of the United States in this document does not include foreign firms who have not yet set up a base in the United States.
c. to remove unnecessary regulations that hinder investment, and to ensure that existing regulations are transparent and designed effectively to minimize the cost they impose on the private sector;
d. to better organize and coordinate government support for market-oriented, private foreign direct investment efforts;
e. to improve the effectiveness of existing government programs aimed at encouraging foreign direct investment;
f. to facilitate and enhance buyer-supplier relationships between domestic and foreign firms , and to support individual projects and seminars with this aim;
g. to promote an institutional environment and non-exclusionary business practices which will encourage foreign direct investment, and to reduce start-up costs for new foreign investors and new foreign business investments;
h. to improve mechanisms to solve investment problems, to resolve, to the maximum extent possible, investment problems affecting foreign firms, and to adjust investment policy over time in response to problems encountered;
i. to provide for ongoing consultation and review of the implementation of the policies and measures, and to promote further progress toward the objectives of the policies and measures; and
j. to set a good example internationally by working cooperatively to improve conditions for all foreign investors.
II. SHARED PERSPECTIVES
(1) The Government of Japan and the Government of the United States share the common recognition that:
a. their economies have embarked upon a process of globalization in which trade and investment are inextricably linked;
b. the market-driven expansion of inward foreign direct investment and the development of close buyer-supplier relationships between foreign and domestic firms will invigorate their domestic economies, allow firms to produce high quality products at the best value, widen consumer choices, encourage new business start-ups, and make host economies more open to the rest of the world;
c. given that the decision to invest or not rests with private companies, and that this decision is based upon expectations about success that are affected by many factors, including general macroeconomic conditions and specific costs, it is imperative to create an environment conducive to foreign direct investment; and
d. it is important to provide accessible, user-friendly information to private firms about domestic investment conditions and investor-support programs.
(2) The two Governments share the view that the size and strength of both markets are important to a wide range of foreign investors in conducting their global activities. The two Governments acknowledge that in the decade ending in 1991, the presence of and contribution by foreign firms in Japan grew in absolute terms from a low base. Despite the recent recession, the two Governments acknowledge that Japan's market holds the potential to attract a greater number of foreign firms.
(3) The two Governments confirm that policies and measures described in this document will be applied to any third country on a most-favored-nation basis and are limited to the scope and responsibility of the government. The two Governments also confirm that this document is a statement of the intent of each Government.
(4) The two Governments see great value in partnership with the private sector and will continue to consult regularly with private firms, both foreign and domestic, regarding investment concerns and the effectiveness of government support for foreign direct investment.
(5) The two Governments expect that progress in achieving the goals and implementing the policies and measures of this document and their ongoing cooperation will benefit investment liberalization initiatives currently under way in multilateral fora such as the OECD and APEC.
III. GOVERNMENT FACILITATION
1. General Principles
a. The Government of Japan has publicly declared its support for promoting increased foreign business presence in Japan, and will cooperate with foreign governments and investors to facilitate such increased presence.
b. The Government of the United States welcomes foreign direct investment because it is in the national economic interest to do so. Foreign investment provides not only capital, but also improved technology and management techniques. Most state governments in the United States maintain active programs to facilitate foreign direct investment in their states. Thirty-five state governments and four U.S. cities maintain a total of 43 offices in Japan.
c. Facilitation measures help create a welcoming environment for foreign investors. The host country can set a positive tone by the statements and activities of government agencies and officials and provision of market information and initial business services complementary to those made available privately.
2. Policies and Measures by the Government of Japan
(1) Governmental Organizations
a. The Japan Investment Council (JIC)
i. The Government of Japan established in July 1994 the Japan Investment Council (JIC), chaired by the Prime Minister and with the participation of relevant cabinet members.
ii. The Government of Japan acknowledges that the objective of the JIC is to improve the environment for foreign investment by collecting views and opinions on the investment environment of Japan for foreign corporations, disseminating information on investment-related policy measures, promoting measures to improve the investment climate, and coordinating policies of various ministries and agencies concerned with investment.
iii. The Government of Japan also acknowledges that the Experts Committee was established under the JIC which consists of foreign business representatives, academic experts, relevant organizations, such as the Japan External Trade Organization (JETRO), the Japan Development Bank (JDB) and concerned ministries and agencies.
iv. The Government of Japan acknowledges that the JIC Experts Committee provides opportunities directly and regularly to exchange views on the practical problems faced by foreign firms operating in Japan. The Government of Japan has requested the JIC Experts Committee to consult with the foreign business representatives on a regular and ongoing basis. The JIC coordinates closely with the Office of Trade and Investment Ombudsman (OTO) in handling opinions and requests by foreign investors. In formulating policy recommendations on investment, the JIC will consider OTO's experience in helping resolve the problems of foreign investors.
v. The Government of Japan supports the public statement which was issued by the JIC in June 1995, which emphasized the benefits to Japan of encouraging inward foreign direct investment. The statement highlighted the value of foreign direct investment in invigorating Japan's economy, expanding consumer choice, contributing to Japan's further globalization and improving access to its market. The statement acknowledged Japan's market potential as the world's second largest economy, and set out future directions for expanding foreign direct investment in Japan. The statement attached a list of promotional measures that the Government of Japan is carrying out in FY1995. The Government of the United States welcomes this public statement.
vi. The Government of Japan acknowledges that the JIC will present the Government of Japan's investment promotion programs and measures each fiscal year (including a clear timetable for the implementation of any new measures whenever possible) to facilitate foreign direct investment into Japan, reflecting additional progress in these policies, will formulate recommendations on important investment related matters through the Experts Committee, and will coordinate across ministries and agencies of the Government to ensure that information about inward investment-related measures are up to date, complete, and accurate. The Government of Japan also acknowledges that the JIC will disseminate information provided by regional governments on their significant measures. These measures are applied to both domestic and foreign firms on a non-discriminatory basis.
b. The Office of Trade and Investment Ombudsman (OTO)
i. The Office of Trade and Investment Ombudsman (OTO) was established by the Government of Japan for the purpose of improving market access to Japan, through receiving and processing complaints concerning market-access problems, including procedures for importing goods and services, for foreign direct investment, and government procurement.
ii. The Government of Japan acknowledges that OTO is in charge of receiving and processing specific complaints concerning foreign direct investment into Japan to achieve their resolution.
iii. The Government of Japan strengthened the OTO structure in February 1994. OTO is now comprised of the Office of Market Access (OMA) chaired by the Prime Minister, and the Market Access Ombudsman Council (MAOC). MAOC is comprised of eminent scholars, business leaders (including those from foreign firms) and others, and is empowered to make independent recommendations to OMA on relevant issues.
iv. The Government of Japan intends to use the authority that flows from its chairmanship of OMA by the Prime Minister to resolve appropriately complaints by foreign investors.
v. The Government of Japan acknowledges that MAOC will continue to make recommendations on policy actions by the Government of Japan in such areas as standards and certification systems and other issues raised by foreign businesses and others with the aim of improving market access. OMA will decide on policy actions which the Government of Japan will take respecting the recommendations of MAOC to the furthest extent possible.
vi. The Government of Japan acknowledges that the complaints related to foreign direct investment may be made directly to the Secretariat of OTO in the Economic Planning Agency, to other relevant sections of the member ministries and agencies of OTO, and to the Japanese diplomatic missions overseas and to all Japan External Trade Organization (JETRO) offices in Japan and overseas. In addition, foreign embassies and foreign chambers of commerce and industry in Japan can submit investment complaints on behalf of foreign businesses.
vii. The status of all complaints received by the OTO is reported to the complainant within ten days. If the complainant is not satisfied with the response and explanation by the relevant ministry or agency of the Government of Japan within three months, as a general rule, the complaint is turned over to the Grievance Resolution Committee (GRC) of the OTO's MAOC. The GRC makes a recommendation for resolving the complaint. Based upon this recommendation, the relevant ministry or agency reexamines its initial response to the complaint.
viii. The Government of Japan acknowledges that OTO maintains written documentation on the receipt and processing of complaints including the report of the measures which were taken, all of which are published and available to complainants.
ix. The Government of Japan acknowledges that complaints submitted to OTO to date have been primarily related to imports. As part of its comprehensive efforts to encourage foreign direct investment, the Government of Japan ensures that the role and activities of OTO will continue to be publicized to foreign investors.
x. The Government of Japan encourages foreign investors to fully utilize those functions of OTO when they have specific complaints.
c. The Japan External Trade Organization (JETRO)
i. The Government of Japan acknowledges that, since 1985, the Japan External Trade Organization (JETRO) has been providing information on the market and procedures for foreign direct investment to foreign firms through its network of 33 domestic and 79 overseas offices.
ii. The Government of Japan acknowledges that JETRO holds twice-yearly symposia in major cities in North America and Europe at which experts in Japan's climate for foreign direct investment and its investment regime provide information to interested firms and organizations.
iii. The Government of Japan acknowledges that JETRO established the Business Support Center (BSC) in Tokyo in March 1993. The Center, which provides business information and free office space for up to two months, aims to assist foreign firms that lack a base in Japan. In 1994, four other BSCs were opened in Yokohama, Nagoya, Osaka, and Kobe. JETRO indicates that to date 480 firms have used the BSC and approximately 3100 business meetings have been conducted with the Centers' support.
iv. The Government of Japan acknowledges that JETRO also manages the Invest in Japan Study Program (IJSP), available by JETRO invitation primarily to managers of private firms. The program provides general information on Japan's investment climate and the Government of Japan's investment promotion programs, and assists in developing specific investment strategies, including making introductions to potential Japanese business partners and providing travel to regional business sites in Japan.
v. The Government of Japan acknowledges that JETRO will expand the IJSP Program in FY1995, by increasing the number of invitations it issues to potential foreign investors.
vi. The Government of Japan acknowledges that a wide range of useful information regarding the national and regional investment climate in Japan, investment-related regulations, and investment promotion programs and incentives is held by JETRO.
vii. The Government of Japan acknowledges the benefits of making this information widely available to foreign investors, who have indicated that they value it. JETRO now makes some publications related to foreign direct investment in Japan available through its overseas offices. These publications are also disseminated to local chambers of commerce and industry and local governments. The Government of Japan acknowledges that JETRO will strive to make available for sale or otherwise to any interested party through an accessible public or private source, JETRO publications and computer disc-based information.
viii. The Government of Japan acknowledges that JETRO's "Investment Advisors" are stationed in Tokyo and Osaka to assist foreign investors. To provide detailed advice on investment in Japan to potential investors, JETRO has investment experts stationed at its 12 offices overseas.
ix. The Government of Japan acknowledges that JETRO is to start the "Senior Investment Advisor" program from FY1995 as part of its facilitation programs. Under this program it has been decided that two Japanese advisors will stay abroad in order to give concrete advice as well as continued support to foreign firms for their investment in Japan.
d. The Foreign Investment in Japan Development Corporation (FIND)
i. The Government of Japan acknowledges that the Foreign Investment in Japan Development Corporation (FIND) was established in 1993, and is funded by the Government of Japan, via the Industrial Structure Improvement Fund, and by the private sector.
ii. The Government of Japan states that FIND provides foreign investors with support, sometimes on a fee-for-service basis, for office establishment, employee recruitment, contract research, and developing potential Japanese business partners. FIND also provides investors with advice in using Japan's investment promotion programs.
iii. The Government of Japan acknowledges that FIND has received about 600 business inquiries to date, provided support for at least 10 successful cases of new foreign investment.
iv. The Government of Japan acknowledges that FIND has held a number of business information seminars on topics of identifiable interest to foreign investors, including such themes as taxation, administrative and legal procedures in Japan, and personnel management.
v. The Government of Japan acknowledges that FIND intends to continue to hold seminars on topics of identifiable interest to foreign investors, and FIND will provide for sale or otherwise useful written information on the results to investors unable to attend.
vi. The Government of Japan acknowledges that FIND held an International Techno-Business Forum, which brought together high-technology foreign firms with Japanese firms that shared their interest in establishing technical alliances and other business tie-ups.
vii. The Government of Japan acknowledges that FIND welcomes suggestions from foreign governments and interested foreign firms regarding the activities of FIND .
(2) General Efforts to Facilitate Foreign Investment
a. The Government of Japan acknowledges that it is important that its investment promotion activities are adequately funded, fully staffed, fully utilized, and effective. The Government of Japan will also seek private sector advice on how to serve effectively the needs of foreign investors.
b. To improve the accessibility and effectiveness of investment facilitation and promotion programs, the Government of Japan will work so that FIND and JETRO, which have an outreach mandate to foreign firms, can act as "one-stop-shops" where all foreign investors, not just start-up operations, can find complete, accurate, timely information on investment requirements and promotion programs, as well as assistance with specific business transactions.
c. In light of the many recent and forthcoming improvements in Japan's investment promotion and facilitation programs, the Government of Japan intends to update the information on the practical details set forth for foreign investors in relevant documents published by governmental organizations.
d. To inform the international community of the improvements to be made in Japan's investment environment, the Government of Japan in a joint effort with the Government of the United States intends to make this document available widely.
3. Policies and Measures by the Government of the United States
a. The Government of the United States welcomes foreign direct investment and maintains a legal environment conducive to foreign investment, including mergers and acquisitions by foreign firms, so that it can compete on an equitable basis with domestic investment. The Office of Investment Affairs of the Department of State, while not an investment facilitation entity, is prepared to redirect inquiries from foreign investors toward the officials in a position to respond. The Government of the United States notes that many state governments actively solicit foreign direct investment and frequently promote investments in their states by providing such services as facilitation, financial support for training and favorable tax treatment. Most state governments maintain offices to provide information about investment opportunities and to assist foreign investors with any problems they may encounter.
b. The Government of the United States welcomes renewed efforts by the Government of Japan to improve the coverage and effectiveness of its investment facilitation programs. While the Government of Japan has the primary role in disseminating information about its inward investment programs, the Government of the United States will take active measures to inform the U.S. business community of the existence and basic features of the Government of Japan's investment facilitation, promotion and incentive programs provided that timely, accurate information will be made available to the Government of the United States by the Government of Japan.
c. The Government of the United States acknowledges the contribution that U.S. outward foreign direct investment makes to the U.S. economy. U.S. foreign direct investment is increasingly viewed as an important channel for export. For example, roughly 60% of U.S. exports are sold by American firms that have operations abroad. Recognizing the benefits that U.S. outward investment brings to the U.S. economy, the Government of the United States undertakes initiatives, such as OPIC programs, investment treaty negotiations and business facilitation programs, that support U.S. firms' efforts to establish market presence.
d. Recognizing the importance of the Japanese market for American businesses, the U.S. Department of Commerce (USDOC) has devoted a significant amount of resources to assist American firms interested in entering the Japanese market.
i. USDOC maintains organizations specifically designed to help U.S. companies interested in entering the Japanese market.
(a) U.S. and Foreign Commercial Service/Japan (US&FCS/Japan) is USDOC's largest and busiest overseas business promotion post with a presence in Tokyo, Osaka, Nagoya, Sapporo, and Fukuoka. USDOC has expanded its US&FCS staff in Japan from 45 persons in FY1990 to 63 persons in FY1994 (17 Americans and 46 Japanese staff). Activities of US&FCS/Japan include reporting on commercial developments, preparing market research, counseling U.S. firms on business practices and opportunities, and introducing U.S. firms to Japanese companies and organizations. The market information gathered and prepared by US&FCS/Japan is disseminated electronically to the 71 US&FCS District Offices in the United States through the National Trade Data Bank (NTDB) --- including information on import/inward investment promotion measures by the Government of Japan.
(b) In 1990, USDOC created the Japan Export Information Center (JEIC) of the Office of Japan Commercial Programs (OJCP). The JEIC, located in Washington, DC, assists U.S. companies interested in entering the Japanese market through such activities as providing them with business counseling services and current information on entering the Japanese market, Japanese business customs and practices, market entry alternatives, economic conditions, available market information, research, and standards and product testing procedures. The JEIC also informs U.S. companies of the types of assistance available through import/inward investment promotion programs by the Government of Japan.
ii. USDOC export promotion efforts help U.S. exporters establish a presence in the market. It is a central tenet of USDOC's counseling advice to firms that, in order to effectively market their products and services in Japan, U.S. firms need to be in a position to gauge consumer demand and service their products and services to their customers' needs, such as quality, cost, product development, delivery and services. This often requires some physical presence in the market, such as establishing a branch or representative office in the market, or more.
e. The Government of the United States will continue to support U.S. businesses interested in entering the Japanese market through, inter alia, organizations and programs described in subparagraphs i and ii of paragraph d. above.
IV. PROMOTION OF FOREIGN DIRECT INVESTMENT
1. General Principles
a. The Government of Japan recognizes the potential to increase investment by offering attractive incentives and support to investors, and that this is particularly true for foreign firms facing the high cost of establishing new firms and new investments in Japan.
b. To achieve their full potential, investment incentive programs should be coordinated, adequately funded, accessible, and their administrative procedures simple and transparent.
c. Japan's low interest loan and loan guarantee programs designed for foreign investors can play an important role in promoting foreign direct investment. These programs can complement private lending activities by sharing the risk of dealing with new business activities and new firms, and by ensuring credit availability in cases where private commercial banks are hindered, inter alia, by the lack of collateral in Japan held by prospective borrowers.
2. Policies and Measures by the Government of Japan
(1) Direct Promotion - The Japan Development Bank (JDB)
a. The Government of Japan acknowledges that foreign firms are, and will continue to be, treated no less favorably than domestic firms in all low-interest loan programs implemented by the Japan Development Bank (JDB). In fact, some JDB programs are specifically designed to include foreign firms.
i. JDB loans mainly fall into seven broad categories: Improvement of Living Standards and Urban Structure, Regional Development, Development and Promotion of Technology, Resources and Energy, Internationalization of Japan and Adjustment of the Industrial Structure, Improvement of Key Transportation System, Consolidation of Advanced Telecommunication and Information Network, and others.
ii. The Government of Japan acknowledges that loans made by the JDB for 1994 totalled 2290 billion yen, or approximately $22.9 billion. Of that, 70 billion yen, or 3.1%, was allocated for Internationalization of Japan and Adjustment of Industrial Structure for FY1994. In 1993, JDB documents indicate that loans totalling 62 billion yen were made to non-Japanese firms (46 billion yen to U.S. firms), down from 1992's peak of 79.3 billion yen.
iii. The FY1995 budget for the JDB includes 156 billion yen for "Internationalization of Japan and Adjustment of Industrial Structure," with a total budget of 2304 billion yen.
iv. Over the last decade, 297 projects of U.S. firms were financed by JDB loans amounting to $2805 million, the approximate average per project being $10 million.
v. Foreign firms received 2 to 3% of 1993 JDB lending, a total of about 62.2 billion yen.
b. To actively support its publicly stated view that increasing foreign direct investment will generate important social and economic benefits for the Japanese economy, the Government of Japan will support JDB in its intention to make its programs more accessible to foreign firms.
c. The Government of Japan acknowledges that the Japan Development Bank is prepared to make low interest loans available to foreign firms for projects eligible under JDB's "Internationalization of Japan and Adjustment of Industrial Structure" programs up to the total budgeted level, 156 billion yen, or approximately $1.75 billion, in FY 1995, which could leverage $3.5 billion in investment.
d. The Government of Japan acknowledges that its relevant governmental organizations will cooperate with foreign governments in encouraging and facilitating efforts by foreign firms to make effective use of JDB's "Internationalization of Japan and Adjustment of Industrial Structure" programs, which would lead to an increase in JDB financing for their projects. The Government of Japan is confident that it has sufficient budgetary resources to finance all qualified projects from foreign firms in FY 1995.
e. The Government of Japan acknowledges the provisions of Article 18 of the Japan Development Bank Law, the relevant part of which, in the present context, can be summarized as follows:
"JDB programs may finance the acquisition by foreign firms of existing facilities of firms in Japan, including funds for such business as to be designated by the Minister of Finance related to the acquisition of such facilities, as well as financing the research and development or the utilization (including expenditures to acquire the rights for) of advanced and new technology."
-- In some business areas designated by the Minister of Finance, non-capital spending related to the acquisition, improvement or value-increasing repair of a "plant" may be eligible for a JDB loan. This category of costs is limited to the start-up costs of designated projects, including labor costs, lease costs, insurance premiums, real estate taxes and interest payments.
f. The Government of Japan acknowledges that foreign firms can compete on a non-discriminatory basis for low-interest loans under all other JDB programs, the total budget for which is 2148 billion yen in FY 1995, or approximately $25 billion. While foreign firms received loans totalling 62.2 billion yen in FY 1993, the Government of Japan acknowledges that there is no policy to limit to any proportion of the total budget the utilization of these programs by foreign firms with qualified projects.
g. The Government of Japan acknowledges that all loan applications received from foreign firms will be given full and equal consideration. Applications will not require endorsement from ministries of the Government of Japan.
h. With a view to facilitating equal access by foreign firms, the Government of Japan acknowledges that the Japan Development Bank makes available to them general information about eligibility criteria, financing terms and lending conditions, policy goals of its programs, as well as examples of previous business clients. The Government of Japan acknowleges that the JDB is prepared to respond actively to requests for information by foreign firms about any aspect of JDB's programs and lending considerations in order to enable foreign firms to present competitive funding proposals in a timely and cost-effective manner.
i. The Government of Japan acknowledges that foreign firms do not need official status as a "designated inward investor" to apply for and/or obtain loans from the JDB.
j. The Government of Japan acknowledges that the JDB loan programs which promote foreign direct investment in Japan will be fully publicized through all available channels of the Government of Japan, and relevant business publications.
k. The Government of Japan acknowledges that the non-Japanese collateral of foreign firms may be used to secure JDB loans, consistent with standard international banking procedures.
(2) JDB's "Promotion of Foreign Direct Investment Program"
a. The Government of Japan acknowledges that the JDB implements a specialized low interest loan program designated for "Promotion of Foreign Direct Investment in Japan" within the "Internationalization" loan category. This program was designed to support the business activities of foreign firms by reducing the cost of their entry and start-up period in the Japanese market, and the program can be utilized by firms in any sector.
i. The Government of Japan acknowledges that in 1994 loans made for Foreign Direct Investment comprised 0.6% of JDB's total budget.
ii. The Government of Japan acknowledges that over the last decade this JDB program has financed 69 projects with U.S. firms, of an approximate average value of about $10 million.
b. Recognizing that service sector and distribution activities, along with manufacturing, are valued investment activities that benefit the Japanese economy, the Government of Japan confirms that foreign direct investment in legitimate business sectors, including services and distribution, is eligible under the JDB's "Promotion of Foreign Direct Investment" program.
c. The Government of Japan acknowledges that, in 1994, the JDB raised from 40% to 50% the maximum amount of capital investment that could be financed in projects under the "Promotion of Foreign Direct Investment" program.
d. Recognizing that access to land and facilities is essential to business activities for foreign investors, the Government of Japan acknowledges that JDB:
i. is prepared to finance the acquisition of land related to office and facilities development by foreign firms; and
ii. has extended beyond the March 1995 expiration date the measure allowing JDB to finance the security deposit that foreign firms must provide to rent facilities.
(3) JDB's "Import Facilities Enhancement" Program
a. The Government of Japan acknowledges that the JDB also implements the "Import Facilities Enhancement" program, which is specifically designed to include foreign firms.
b. Since FY1992, the Government of Japan has upgraded this program to broaden the eligibility criteria and lowered the interest rates on lending under the Program for "Import Facilities Enhancement."
c. The Government of Japan acknowledges that foreign investors who import merchandise (SITC codes 0,1,5,6,7,8) covered by this program into Japan, and are trying to expand import-enhancing infrastructure to serve their business objectives are eligible for this program.
d. 1993 lending under this program totalled 16.4 billion yen or about $164 million.
(4) JDB's Program for "Promotion of International Joint R&D Projects"
a. The Government of Japan established in FY1993 the JDB's program for Promotion of International Joint R&D Projects.
b. The program is to finance R&D expenditures (equipment, personnel, and other operating costs) for high-technology projects in Japan where funds and talent will be provided by both Japanese and foreign companies.
c. As yet, only two projects totalling 500 million yen have been financed under the program for the Promotion of International Joint R&D Projects.
(5) Programs for Small and Medium-sized Enterprises (SMEs)
a. Consistent with the Government of Japan's goal, stated most recently in its "Emergency Measures" package, to support the development of small and medium-sized enterprises (SMEs), the Government of Japan confirms that all Government of Japan-funded business facilitation programs, including such programs as the Japan Small Business Corporation's program to promote international business by SMEs, programs by the Japan Finance Corporation for Small Business, and the People's Finance Corporation to promote imports by SMEs, will be available to all foreign-affiliated SMEs on a non-discriminatory basis.
b. The Government of Japan acknowledges that the JDB loan programs are available for small and medium-sized foreign firms as well as larger ones, and that the JDB will be responsive to their special needs for information in order to assist them to successfully invest in Japan.
(6) Access by Foreign Firms to Government of Japan Programs which Support Private Sector Development
-- The Government of Japan confirms that foreign-affiliated firms are eligible to participate, on a non-discriminatory basis, in programs under the "Law on Extraordinary Measures to Promote Private Sector Participation in Specific Facilities" ("minkatsu" programs), as well as other programs designed to encourage business expansion funded by the Government of Japan such as those of the Research Development Corporation of Japan (JRDC) and the New Energy and Industrial Technology Development Organization (NEDO). The Government of Japan acknowledges that foreign firms are also eligible for these programs by JRDC and NEDO.
(7) Programs Under the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment ("Inward Investment Law")
a. In order to reduce the start-up costs of foreign investment in Japan, the Government of Japan, in March 1992, enacted the "Inward Investment Law." Under this law, support measures are provided which encompass tax incentives, access to loan guarantees under the Industrial Structure Improvement Fund (ISIF), investor assistance from the Foreign Investment in Japan Development Corporation (FIND), and loan guarantees for small and medium-sized Japanese firms doing business with foreign-affiliated firms through Japan's Small Business Credit Insurance Corporation.
b. Recognizing the further potential to encourage productive foreign direct investment into Japan, and the importance to foreign investors of a stable and predictable investment climate, the Government of Japan intends to seek the extension, subject to the approval of the Japanese Diet, of the Inward Investment Law scheduled to expire in May 1996.
c. Designated Inward Investor Status
i. The Government of Japan acknowledges that to be eligible for programs provided by the Inward Investment Law, foreign-affiliated firms must apply for status as a "designated inward investor."
ii. The Government of Japan confirms that as of end of FY1994, designated inward investor status had been granted in 55 cases. The number of designated inward foreign investors grew by 30 cases in FY1994, from 25 to 55.
iii. In order to broaden eligibility under the Law, in FY1995 the Government of Japan eliminated all previous requirements related to the business activities of the parent company of an applicant and expanded eligible industries to include distribution and service sectors.
iv. In addition to the relaxation of the eligibility requirement, the Government of Japan simplified the application procedure. An applicant is required only to submit the following:
(a) a simplified application form submitting minimal factual information, i.e., name, address, date of establishment, activities, capital composition of the company, name and address of the parent company; and
(b) one copy each of the applicant's articles of association and registration certificate.
In extending the status, the same documents are required but the processing time should be briefer, as the Government of Japan considers only changes from the previous year.
v. Recognizing the benefits of this important program, the Government of Japan intends, beginning in FY1995, to take specific steps to encourage efforts by foreign-affiliated firms to achieve significantly wider utilization of this program. For this purpose, the Government of Japan intends to expand publicity about the program. Moreover, in seeking the extension of the Law in May 1996, the Government of Japan intends to examine the current eligibility requirements by taking into consideration the ideas, views and opinions of the foreign business community, including those to be presented to the Japan Investment Council.
3. Policies and Measures by the Government of the United States
a. The Government of the United States intends to contribute fully to the enhancement of the utilization of Government of Japan programs by disseminating through all available channels of the Government of the United States information provided to it by the JDB or other governmental agencies or organizations.
b. The Government of United States is taking concrete measures to promote the use of the metric system in the private sector, which among their other beneficial effects can be expected to improve the environment for foreign direct investment.
-- On March 27-28, 1995, the Department of Commerce and the Interagency Council on Metric Policy held a Metric Town Meeting to listen to the concerns and ideas of the private sector for accelerating the transition to the metric system including actions that the Government can take to make it easier for industry to convert to metric system use. Based on the attendance and success of the first meeting, the Department of Commerce will hold future meetings to explore specific topics like metric education, consumer awareness and education, and industry specific meetings (e.g., steel, hydraulics).
c. The Government of the United States acknowledges that the American State Offices Association (ASOA) maintains a publicly available list of U.S. state and city offices in Japan which may serve as contact points for information regarding investment into the United States.
d. The Government of the United States values the role that business and industry associations such as the American Chamber of Commerce in Japan (ACCJ) and the U.S.-Japan Business Council play in informing their members of effective means to expand their overseas market presence through foreign direct investment.
e. The Government of United States believes that U.S. firms rightly have been careful to recognize the importance of understanding the language, culture and business practices of the countries in which they operate, including Japan, and believes that this should and will continue to be the case.
V. TAX INCENTIVES TO FACILITATE FOREIGN DIRECT INVESTMENT
(1) While tax policy should in general strive for equity, neutrality, simplicity, and non-discrimination, in certain cases, special measures are justified in the short or medium-term to counter the effects of long-standing and even unintended impediments. In this regard, tax measures can be useful in promoting foreign investment. They can contribute to the goal of increasing foreign investment into Japan.
(2) Recognizing this, the Government of Japan has already taken the following measures. The Government of Japan has:
a. provided tax incentives for investments in infrastructures that are import-related and distribution-related, e.g. accelerated depreciation for warehouses based on the "Law on Extraordinary Measures to Promote Private Participation in Specific Facilities;"
b. expanded tax incentives for import promotion based on the "Emergency Measures for Yen Appreciation and the Economy" by increasing the tax credit rate to importers substantially in cases where the nominal yen value of their imports rises by at least 10% above previous peak levels on an annual basis and confirms their availability to foreign-affiliated firms; and
c. extended the loss carry-forward from 5 to 7 years in FY1992.
Taking account of the interest expressed by the foreign business community in the last two years, the Government of Japan extended the loss carry-forward from 7 to 10 years in FY1994, and, as noted above, broadened sectoral eligibility for this measure in FY 1995.
The Government of the United States appreciates these initiatives which advance the basic objectives set forth in Section I of this document.
(3) The Government of Japan intends to pay careful attention, when formulating or implementing tax measures, to the effect of the measures on foreign direct investors.
-- In this regard, the Government of Japan takes note of the interest of the foreign business community in improving the current treatment of loss carry-forward of start-up firms qualifying as Designated Inward Investors, including views on this matter put forward by business organizations such as the American Chamber of Commerce in Japan (ACCJ) and the European Business Council (EBC).
-- The Government of Japan welcomes various ideas, views and opinions of the foreign business community, including those to be presented to the Japan Investment Council (JIC), as well as the JIC's Experts Committee.
VI. DEREGULATION AND NON-DISCRIMINATORY TREATMENT OF INVESTMENT
1. General Principles
a. Having formulated the Deregulation Action Program in March 1995 ("the Program") for the period of FY1995-1999, the Government of Japan will systematically implement deregulatory and related measures with the fundamental objectives of making the national economy more accessible internationally and making it a more transparent economy based on the market mechanism and the emphasis on the individual self-responsibility.
-- Under the Government of Japan's "Emergency Measures for Yen Appreciation and the Economy," outlined in April 1995, the Government of Japan has decided to frontload the 1995-1999 Deregulation Action Plan as a three-year program to be completed by FY1997 with due provisions made for budgeting and staffing.
b. Deregulation will be promoted with a view to: i) improving the quality of life of the Japanese people by expanding the range of available choices in response to diverse consumer needs, reducing price differentials between Japan and other countries; ii) expanding domestic demand, facilitating imports, and increasing business opportunities, and contributing, through such means, to the minimization of external economic frictions; and iii) reducing unnecessary burdens imposed on the Japanese people and simplifying administrative work.
c. The Program will be reviewed by the end of each calendar year, and revised by the end of each fiscal year, on the basis of opinions and requests received from interested parties, both domestic and foreign, the results of monitoring by the Administrative Reform Committee, and other information. In the review process, the Administrative Reform Promotion Headquarters will solicit requests from domestic and foreign interested parties. Further, in cases where existing systems or applications thereof are to be retained after opinions and requests have been received, the necessity or grounds for their retention will be made clear. The basic approach to be taken in the review process is, in the case of economic regulations, that of freedom from regulation in principle, with regulation as the exception, and in the case of regulations that are social in nature, that of maintaining the minimum regulations required to serve legitimate policy objectives.
d. The Government of Japan holds the view that thorough deregulation of the Japanese economy will bring about a more productive environment for both domestic and foreign investors, particularly through the reduction of costs for corporate activities, and the creation of new business opportunities.
e. The Government of Japan shares the recognition with the Government of the United States that more accessible and non-discriminatory investment regimes, provision of national treatment to foreign investors, removal of unnecessary regulations, and transparency in the existing regulations are essential to promoting foreign direct investment.
f. The Government of the United States is prepared, on request, to share its ongoing experiences in rationalizing the U.S. regulatory system with the Government of Japan.
2. Policies and Measures by the Government of Japan
a. The Government of Japan amended the Foreign Exchange and Foreign Trade Control Law (the "Foreign Exchange Law") in April 1991 to move from mandatory prior notification to ex post facto reporting to the Bank of Japan for most cases of foreign direct investment. Prior notification is now required only in investment cases where the Government of Japan sees a possible negative impact on public order and security, or on the smooth functioning of the Japanese economy. As an OECD member, Japan reports a list to the OECD of sectors it reserves from unrestricted foreign investment; these reserved sectors as well as sectors related to public order and security require prior notification.
b. These limited exceptions notwithstanding, the Government of Japan intends, consistent with its open investment policy and international obligations, to continue to support vigorously the principle of national treatment, that is that foreign investment should receive treatment no less favorable than domestic investment, and recognizes that restrictions on foreign direct investment should be kept to a minimum. Therefore, the Government of Japan:
i. with regard to the industries reserved under the OECD Code of Liberalization of Capital Movements (the "Code"), is considering lifting the prior notification requirement currently placed on investment in mining within the time frame of the Deregulation Action Program which is scheduled for completion by the end of FY1997;
ii. with regard to other industries reserved under the Code (agriculture, forestry and fisheries, oil, leather and leather product manufacturing, air transport, and maritime transport), will also examine the possibility of lifting the prior notification requirement taking into consideration trends in Japan's socio-economic situation as well as progress of discussions at the OECD; and
iii. with regard to industries related to public order and national security, on which the Code provides for regulation, will continue to examine their treatment, taking into consideration discussions at the OECD, including discussions on the Multilateral Agreement on Investment (MAI), which are expected to begin in 1995.
c. The Government of Japan emphasizes that it neither requires nor requests prior consultation with foreign investors; investors should be made aware that such consultations should occur only at investors' request.
i. In October 1994, the Government of Japan informed the Bank of Japan, which does receive the required ex post facto report of investment by foreign investors and prior notification of their intent to invest in reserved sectors as well as in sectors related to public order and security, that no prior consultations are needed with potential foreign investors, and that the Bank of Japan should explain this to foreign investors to spare them confusion and unnecessary effort.
ii. The Government of Japan acknowledges that an investor who has notified the Bank of Japan prior to investing may proceed with the transaction after 30 days unless the Government of Japan explicitly initiates action towards alteration or suspension of the investment project.
iii. Should the Government of Japan decide to suspend or amend a planned foreign investment, it will make public its decision and the rationale.
d. In negotiating the Multilateral Agreement on Investment within the OECD, the Government of Japan will seek to achieve an agreement, with a satisfactory scope and balance of commitments, that would go beyond existing commitments to achieve a high standard of liberalization covering both the establishment and post-establishment phase with broad obligations on national treatment, standstill, roll-back, non-discriminatory/most-favored-nation treatment, and transparency, and apply disciplines to areas of liberalization not satisfactorily covered by the present OECD instruments.
3. Policies and Measures by the Government of the United States
a. The Government of the United States notes that it hosts the greatest cumulative amount of inward foreign investment in the world.
b. In line with the President's statement of February 26, 1993, the United States welcomes foreign investment but insists that its investors be equally welcome in other countries. The basic principle of U.S. policy towards foreign direct investment is that U.S. investment abroad and foreign investment in the United States should receive fair, equitable and non-discriminatory treatment. Exceptions to the principle of national treatment on and after establishment are few and are primarily found in regulated sectors such as broadcasting and transportation.
-- Consistent with this policy and international obligations, the Government of the United States intends to continue to support vigorously the principle of national treatment, that is that foreign investment should receive treatment no less favorable than domestic investment.
c. The Government of the United States intends to examine within the framework of the OECD the possibility of reducing the number of sectors reserved under the OECD Code of Liberalization of Capital Movement. This examination will be conducted bearing in mind the discussions at the OECD on the Multilateral Agreement on Investment.
d. In negotiating the Multilateral Agreement on Investment within the OECD, the Government of the United States will seek to achieve an agreement, with a satisfactory scope and balance of commitments, that would go beyond existing commitments to achieve a high standard of liberalization covering both the establishment and post-establishment phase with broad obligations on national treatment, standstill, roll-back, non-discriminatory/most-favored-nation treatment, and transparency, and apply disciplines to areas of liberalization not satisfactorily covered by the present OECD instruments.
e. The Government of the United States also confirms that laws and regulations of the Government of the United States are applied to foreign-affiliated firms on an open and non-discriminatory basis, with limited exceptions based on legislation.
f. Regarding the particular case of trade remedy law, the Government of the United States acknowledges that U.S. trade remedy laws generally provide relief to the U.S. industry as a whole and therefore require that the petition be filed on behalf of the U.S. industry or by an interested party who is representative of the U.S. industry. U.S. subsidiaries of foreign corporations may qualify as members of the U.S. industry, and therefore, may benefit from any remedy put in place as a result of the action. U.S. trade remedy laws do not always provide for a private right of action by individual firms. The Government of the United States confirms, however, that U.S. subsidiaries of foreign corporations can file requests under those trade laws which do permit a private right of action.
VII. MERGERS & ACQUISITIONS
1. General Principles
a. The Government of Japan recognizes that mergers and acquisitions (M&A) are a common avenue for foreign direct investment throughout the industrialized world. Foreign participation in M&A can benefit the Japanese economy by creating jobs and transferring management resources, improving technology flows, and enhancing its internationalization.
b. The Government of Japan acknowledges that the number of M&A transactions involving foreign firms has been low in Japan compared with other OECD countries.
c. The Government of Japan holds the view that the business climate and public attitudes have contributed to the rarity of foreign participation in Japan's M&A. At the same time, the Government of Japan acknowledges that public attitudes toward M&A in Japan by foreign companies are changing with increasing appreciation of the positive aspects of M&A. In this sense, there is great potential left for Japan to exploit the benefits of international M&As.
d. A variety of factors can favorably affect the climate for foreign M&A into Japan including: wide availability of publicly tradeable company shares, a high level of readily available financial information, direct shareholder input into management decisions, and a positive attitude toward foreign participation in M&A into Japan.
e. The Government of Japan recognizes that the pursuit of M&A is a private decision, but that governments have an important role in creating a welcoming environment for M&A and maintaining a legal environment conducive to foreign investment, including M&A.
-- The Government of Japan intends to establish a climate in which Japanese owners, managers, employees, distributors, and suppliers come to see M&A involving Japanese and foreign firms as a normal, acceptable business practice.
2. Policies and Measures by the Government of Japan
a. The policy of the Government of Japan is to welcome participation of foreign firms in M&A activities in Japan. The Government of Japan is prepared to address expeditiously circumstances where laws and regulations of Japan may have the unintended consequence of inhibiting foreign participation in M&A in Japan, without prejudging deliberations by the Japanese Diet.
b. The Government of Japan has taken steps in recent years to strengthen shareholders' rights and the function of company auditors. It has also taken steps to enhance corporate information disclosure with the aim of securing fair transactions and protecting investors in securities. The Government of the United States welcomes these steps, which, among other beneficial effects, are expected to improve the climate for M&A in Japan.
i. Specifically, the Government of Japan took actions:
(a) so that derivative action by shareholders can be filed with a deposit of 8200 yen irrespective of the size of the claim;
(b) to reduce from 10% to 3% the required total number of on-the-book shares owned for a shareholder to have full access to a company's financial records;
(c) to strengthen the role of company auditors by expanding their appointed terms from 2 to 3 years, and to increase their required number in large firms from two to three;
(d) to require large corporations to appoint one or more auditor from outside the corporation, and to call for the holding of auditors' meetings;
(e) to improve the disclosure of transactions between related companies and to insert consolidated financial statements into securities reports; and
(f) to require that firms disclose revenue and profit or loss classified by industry and by domestic and foreign operations and foreign sales.
ii. The Government of Japan confirms its policy that shareholders' right of proxy voting should not be hindered.
c. The Government of Japan intends to take the following measures to facilitate foreign participation in M&A in Japan:
i. The Government of Japan intends to examine and implement where appropriate, recommendations by the Japan Investment Council regarding M&A in Japan, and take a major role in identifying measures to facilitate foreign participation. The Government of Japan acknowledges that the JIC could consider such issues as the impact of cross-shareholding patterns, of practices related to annual shareholders' meetings, of procedures for the purchase or disposition of company shares, and of the protection and stengthening of shareholders' rights on foreign participation in M&A.
ii. As necessary and appropriate, the Government of Japan intends to use its full authority to ensure that business restricting practices are not permitted to obstruct M&A by foreign investors in Japan. For example, the Japan Fair Trade Commission (JFTC) affirms its commitment to strictly enforce the Antimonopoly Act (AMA) against all practices that constitute violations of the AMA, including unlawful practices that restrain M&A by foreign investors in Japan. Under Article 28 of the AMA, the JFTC is to perform its duties independently.
iii. The Government of Japan intends to lend its support along with foreign governments to the holding of seminars and workshops designed to assist foreign businesses in locating opportunities for suitable M&A and to encourage Japanese firms to look to foreign firms as M&A partners.
The Government of the United States welcomes these measures.
d. The Government of Japan also intends to take steps to enhance corporate information disclosure with the aim of securing fair transactions and protecting investors in securities. The Government of the United States welcomes the intention of the Government of Japan to take these measures, which, among their other beneficial effects, are expected to improve the climate for M&A in Japan.
i. Specifically, the Government of Japan intends to:
(a) require that firms disclose information on assets, depreciation expenses and capital expenditures classified by industry, and information on revenue, profit or loss and assets by geographical area, and foreign sales by geographical area;
(b) require that firms account for financial lease transactions in the same way as the accounting for usual purchase or sale, or provide notes about financial lease transactions in financial statements so that the nature of the transactions are reflected more appropriately in the financial statements;
(c) require that firms use substantive criteria, abolishing quantitative criteria, regarding the scope of subsidiaries to be included in the consolidated financial statements. By this change, the number of consolidated subsidiaries would increase; and
(d) require that firms disclose earnings per share which takes into account potential shares such as convertible bonds and warrants so that the disclosure of information about earnings per share would be enhanced.
e. In order to improve the environment for financing new business enterprises, and to energize the securities market, the Government of Japan has just created a special market for R&D-based firms, including those currently operating in the red, by deregulating the requirements for their registration on the Over-the-Counter market.
f. The Government of Japan intends to continue to pursue its policy to strengthen and protect shareholders' rights.
3. Policies and Measures by the Government of the United States
a. The policy of the Government of the United States is to welcome participation of foreign firms in M&A activities in the United States. The Government of the United States is prepared to address expeditiously circumstances where laws and regulations of the United States may have the unintended consequence of inhibiting foreign participation in M&A in the United States, without prejudging deliberations by the U.S. Congress.
b. The Government of the United States notes that in 1994 a record number of cross-border M&A took place in the United States.
i. Foreign purchasers spent $57 billion on 668 acquisitions, minority investments and joint ventures in the United States, up from 604 such transactions valued at $36 billion in 1993.
ii. This illustrates the success of the welcoming, non-discriminatory U.S. environment for market-oriented M&A, regardless of national ownership, which the Government of the United States intends to maintain.
c. Section 721 of the Defense Production Act of 1950 (known as the Exon-Florio provision) is used by the United States to protect the national security. The Section 721 empowers the President to suspend or prohibit foreign companies' acquisitions, mergers or takeovers of U.S. companies on grounds of national security. By law, the President may exercise the authority conferred in Section 721 only if he finds that there is credible evidence that leads him to believe that the foreign interest exercising control might take action that threatens to impair the national security.
d. Exon-Florio regulations provide guidance for investors on whether to notify voluntarily an acquisition and specifies the contents of the notice. The regulations are codified at 31 Code of Federal Regulations 800. Transactions that involve products, services, and technologies that are important to U.S. national defense requirements will usually be deemed significant with respect to the national security. Notification would be appropriate when a company being acquired provides products or key technologies essential to U.S. defense requirements. There is no suggestion that notice should be submitted of the acquisition of a company whose products or services clearly have no particular relation to national security.
e. Once a transaction has been reviewed pursuant to Section 721 and it has been determined that there are no issues of national security sufficient to warrant further action, action under Section 721 is concluded.
f. The point of contact within the Government of the United States to which foreign investors and others can direct inquiries on issues related to the Exon Florio provision is:
The Staff Chairman
Committee on Foreign Investment in the United States
Office of International Investment, Room 5100
Department of Treasury
15th St. and Pennsylvania Ave., NW
Washington, DC 20220
Phone 202-622-1860
Fax 202-622-0391
VIII. LAND POLICY
1. General Principles
a. It has often been pointed out by foreign firms that high real estate cost (land prices, office rent) is a factor which hampers smooth business activities and that it constitutes one of the major obstacles to entering the Japanese market.
b. The Government of Japan acknowledges that addressing structural issues that affect the effective supply of land for commercial and residential development, for example, by the measures described in subsection 2. below, should encourage foreign and domestic firms needing such land to invest in Japan.
c. In the recognition that land and property policies are critical issues for Japan, an overall set of guidelines defining the goals of Japan's land policy and specific measures necessary to achieve them were decided by the cabinet on January 25, 1991. Since then, comprehensive measures such as the enactment of the Land Value Tax (1992) and various amendments to the City Planning Law and the Building Standard Law (1993) have been implemented. In addition, the Government of Japan took measures to make land evaluation more appropriate for purposes of taxation of land.
d. The Government of Japan views that the incubation facilities such as offices which would be available to foreign companies at reasonable cost is one of the effective means to cope with Japan's high real estate cost.
e. The structure of taxation can have a profound impact upon market availability and types of land use, and thereby may impact the cost of investment.
f. Land use and lease regulations can in certain circumstances affect the availability of land for commercial development and the opportunity for market entry.
2. Policies and Measures by the Government of Japan
a. As a part of the FY1991 tax reform, the Government of Japan modified the special tax treatment of farmland, making taxation on the urbanization promotion areas in specific cities within the three metropolitan areas (Tokyo, Osaka and Nagoya), except for those areas preserved as "production green land" spaces, more equivalent to that of residential and commercial land.
b. The Government of Japan has also reduced, beginning in 1995, the long-term capital gains tax rates on land from 39% to 32.5% in cases where capital gains are equal to or less than 40 million yen.
c. As part of the Deregulation Action Program, the Government of Japan is developing a district planning system which allows the removal of restrictions on floor-area ratios and oblique line restrictions to increase the flexibility of urban land use with the aim of improving the urban environment. The Government of Japan will also ease physical restrictions for the building, such as restrictions on floor area ratio, when a building site has sufficient front open space.
d. The Government of Japan confirms that the Japan Development Bank is providing low-interest loans for security deposits necessary to rent space, and for financing projects to establish office space.
e. Based on the "Law on Extraordinary Measures to Promote Private Sector Participation in Specific Facilities" (the "Private Participation Promotion Law"), the Government of Japan designates certain types of facilities as "Facilities to Support Foreign Business Participation in Japan", which comprise the following facilities:
i. rental incubator offices for foreign companies;
ii. business space for providing translation and other business services, and for providing information regarding Japanese business laws, regulations, and practices; and
iii. conference/exhibition and other facilities commonly used by foreign companies.
Those who plan to construct such facilities are eligible for government support measures (subsidies, preferential tax treatment, low interest loans, etc.) Based on this scheme, the Japan Business Center (Chiba Prefecture) is currently in operation, and the Rinku Gate Tower Building (Osaka Prefecture) is scheduled to open in 1996. The Government of Japan intends to provide detailed information of "Facilities to Support Foreign Business Participation in Japan", including the level of office rent, through FIND, JETRO, etc.
f. The Government of Japan confirms that foreign leaseholders are to be treated no less favorably than domestic leaseholders in long-term lease contracts and rental rates under the Land Lease and House Lease Law.
g. Foreign Access Zones (FAZ)
Pursuant to the "Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment ("Inward Investment Law") enacted in March 1992, the Government of Japan designates certain areas near airports and harbors as "Foreign Access Zones" ("FAZ"). The law aims to expand opportunities for imports and inward investment through the establishment of import-related facilities at airports, harbors, and their surrounding areas. Those who are planning to construct and operate "Import Promotion Facilities" (facilities to support the distribution of imported goods, facilities to support import business, processing and wholesale facilities) can receive such governmental assistance as loan guarantees and equity participation from the Industrial Structure Improvement Fund, subsidies, tax incentives and low-interest rate financing by government institutions.
i. The goal of the FAZ program is to contribute to constructing a comprehensive and systemic distribution infrastructure to benefit business activities of foreign firms and encourage foreign investment into Japan, since this would create a better linkage between international and domestic distribution systems, faster import procedures, better access to imported goods, and a more customer-friendly distribution system.
ii. Since the enactment of the Inward Investment Law, eighteen areas have been designated as FAZ. These areas include: Kansai International Airport Area-Rinku Town, Osaka Port Area, Kobe Port Area, Matsuyama Port Area, Kitakyushu Port Area, Nagasaki Airport Area, New Chitose Airport Area, Kawasaki Port Area, Yokohama Port Area, Hiroshima Airport Area, Shimonoseki Port Area, Oita Port Area, Komatsu Airport Area, Shiogama Port/Sendai Airport Area, Maizuru Port Area, Sakaiminato Port Area, Kochi Port Area, and Kumamoto Port Area.
h. The Government of Japan confirms efforts to be made by the Japan Development Bank to finance the costs of land acquisition and property rental for foreign firms in Japan, and continued efforts to provide improved facility availability through the Foreign Access Zones throughout Japan.
i. In light of the high level of land prices and office rent, the Government of Japan recognizes the need to maintain and improve the current framework of the "Outline of Promoting Comprehensive Land Policies."
j. The Government of Japan will bear in mind the importance of realizing reasonable land prices in order to encourage foreign investment through the improvement of measures within the current land policy framework.
IX. LABOR MARKETS
1. General Principles
a. Foreign firms face many challenges in hiring and retaining qualified Japanese workers and in fielding foreign executives in Japan's high-cost business environment.
b. The Government of Japan holds the view that decision-making on such issues as wages and recruitment practices are in principle determined by negotiations between employers and employees. The purpose of the employment policy of Japan is to stabilize employment through securing job opportunities properly. In this respect, the Government of Japan has implemented various employment measures in the areas where the creation or the increasing of job opportunities is needed.
c. The Government of Japan confirms that all employment and training measures taken by the Government will be available to foreign-affiliated firms on a non-discriminatory basis.
2. Policies and Measures by the Government of Japan
(1) Employment and Training Measures
a. FIND is actively supporting foreign companies to successfully recruit high-quality employees through its programs.
b. In order to meet the needs of both job seekers and firms more effectively, the Government of Japan is organizing joint meetings which provide opportunities for firms and job seekers, especially new graduates, to meet each other. These joint meetings are open on a non-discriminatory basis to both domestic and foreign-affiliated firms. The Government of Japan intends to continue to give information on the dates and places of these meetings to firms, including foreign-affiliated ones, through such publicity as press releases and posting of relevant information, and is prepared to respond to their inquiries about future meetings.
c. The Government of Japan is now promoting some active labor market policies to increase labor mobility toward new fields where jobs are created. For example, comprehensive employment services such as assistance for firms, counseling programs for effective job placement are provided at the Public Employment Security Office.
d. The Government of Japan intends to take the following measures which, among their beneficial effects, will result in addressing the recruitment challenges faced not only by domestic firms but also by foreign-affiliated firms:
i. The Government of Japan intends to operate such public placement agencies as Talent Banks, which are established for the placement of managers and technical experts and which register the demands of firms, including foreign-affiliated ones, for hiring employees, and look for suitable applicants to be placed. These services are provided free of charge.
ii. In addition, the Government of Japan intends to continue to permit fee-charging employment agencies to place managers and technical experts in firms, including foreign-affiliated ones. The Government of Japan will examine the possibility of simplification of the approval procedures of the fee-charging employment agencies system in accordance with the "Deregulation Action Program."
iii. The Government of Japan also intends to disseminate information to both domestic and foreign-affiliated firms, and, upon inquiry, to other foreign investors, and work to ensure that governmental organizations that support foreign investment (FIND, JETRO) reach out to provide foreign investors information about public vocational training programs, financial assistance for firms which offer vocational training to employees and employment-related subsidies.
iv. The Government of Japan also intends to continue to operate such public placement agencies as Student Employment Centers, which are established for the placement of new graduates, and Public Employment Security Offices, which register the demands of firms, including foreign-affiliated ones, for hiring new graduates and look for suitable applicants to be placed. These services are provided free of charge. The Government of Japan acknowledges that similar services are provided by universities and colleges.
e. The Government of Japan confirms that services provided by public employment agencies and fee-charging employment agencies are also available, in principle, for foreign firms which have not yet set up a base in Japan, on condition that persons stay in Japan who are responsible for the preparation for the business, that their contact points in Japan have been established, and that precise hiring conditions, such as job description, working hours, salary range, employee benefits, and working location have already been developed. Agencies mentioned above must be able to confirm these conditions. Foreign firms which have reached this stage of planning are also welcome to participate in joint meetings which provide opportunities for firms and job seekers, especially new graduates.
(2) Measures Affecting Expatriate Managers in Japan
a. Expatriate managers living in Japan are among those who have come to deeply understand the language, culture and business practices of Japan. Recognizing the unique contributions these managers can make, not only to the success of foreign firms but also to a better understanding between Japan and its foreign partners, the Government of Japan intends to provide financial support for certain international schools under a recently expanded JDB program so as to improve the basic living facilities for foreigners residing in Japan.
b. The current tax law in Japan limits the income tax base of non-permanent residents in Japan. This beneficial treatment results in reducing the cost to firms of maintaining expatriate managers in Japan. The Government of Japan takes note of the interest of the foreign business community in the continuation of this treatment and intends to consult on this issue.
X. BUYER-SUPPLIER RELATIONSHIPS
1. General Principles
The Government of Japan shares the view with the Government of the United States that economic globalization provides new opportunities for both buyer and supplier firms, and that steps to encourage improved buyer-supplier ties between domestic and foreign firms should be taken through the following concrete programs which provide information and help smooth the path for cooperation between domestic and foreign firms.
2. Policies and Measures by the Government of Japan
(1) Business Incubator and Co-Location Facilities
a. The Government of Japan welcomes initiatives by the foreign business community to develop specific business incubator and co-location facilities, and intends to support the development of such facilities in Japan, including cooperating with foreign governments, to this end.
-- Such facilities are designed to share the costs and risks of new business start-ups in Japan, enabling foreign firms to work closely with Japanese firms to meet their needs for specific inputs.
b. The Government of Japan intends to provide interested foreign firms with comprehensive information on all government-sponsored programs which may support the establishment of business incubators and co-location facilities. These will include, but are not limited to, facilitation measures available to domestic and foreign firms:
-- assistance provided by The Private Participation Promotion Law ("minkatsu") which includes subsidies (up to 5% of construction cost granted except for land acquisition cost), tax incentives, loan guarantees by the Industrial Structure Improvement Fund (ISIF), equity participation and low-interest loans by the Japan Development Bank (for example, the Urban Infrastructure Program), Hokkaido-Tohoku Development Finance Public Corporation or Okinawa Development Finance Corporation;
-- JDB's low-interest loan program for co-location facilities for the construction of offices with at least 50% foreign tenants co-locating along with Japanese tenants; and
-- recruitment and other investment assistance provided by the Japan External Trade Organization (JETRO) and the Foreign Investment in Japan Development Corporation (FIND).
c. The Government of Japan further intends to coordinate where appropriate with prefectural governments in the provision of information, support and incentives to new investments in incubator and co-location facilities.
(2) Building Private Sector Relationships
a. The Government of Japan welcomes and intends to support, cooperatively with foreign governments, industry-to-industry dialogue aimed at expanding business ties and improving understanding of respective business practices.
-- The Government of Japan intends to encourage and participate where appropriate in seminars on the benefits of including foreign firms in sourcing options, in those which outline practical procurement opportunities between domestic and foreign firms, and those which bring industry groups and engineers together to identify opportunities for alliances in Japan and other markets.
b. The Government of Japan welcomes independent efforts by Japan's private sector to encourage the inclusion of foreign firms in the Japanese market.
i. The Government of Japan notes that the willingness of Keidanren, Japan's largest business association, to present the views of foreign-affiliated firms in Japan through its Committee of Foreign-Affiliated Corporations, comprised of foreign-affiliated firms, is a useful approach to improving the environment for foreign investment.
ii. The Government of Japan welcomes specific initiatives to be taken by Keidanren to encourage the internationalization of the Japanese economy including: (1) making a broad policy statement that emphasizes the importance of foreign direct investment, and makes recommendations for improvement of the business environment of foreign-affiliated firms on the basis of input from the Committee of Foreign-Affiliated Corporations; (2) sponsoring a seminar on international procurement opportunities and successful experiences; (3) revising "Access to Japan," the list of the contact points of private firms for procurement, which was initially published in July 1993; and (4) providing members with programs to assist in their internationalization.
3. Policies and Measures by the Government of the United States
(1) Business Incubator and Co-Location Facilities
a. The Government of the United States recognizes that business incubator and co-location facilities in Japan can provide foreign firms a cost-effective avenue to establish a market presence, to work closely with Japanese firms to meet their need for specific inputs, and also to stimulate new business start-ups.
b. The Government of the United States welcomes the efforts by the U.S. business community to establish business incubator and co-location facilities.
c. The Government of the United States will provide general information about the Government of Japan's programs available to promote efforts by foreign firms to establish incubation and co-location facilities, and will supply contact points within the Government of the United States for further information and counseling on the Japanese market to those U.S. firms interested in establishing such facilities in Japan.
(2) Building Private Sector Relationships
a. The Government of the United States sees value in industry-to-industry dialogue aimed at expanding business ties, improving understanding of respective business practices, and bringing together engineers and others to establish technology-based business alliances.
b. The Government of the United States also welcomes independent efforts by Japan's private sector to encourage the inclusion of foreign firms in the Japanese market, including the specific initiatives by Keidanren such as its willingness to present the views of foreign-affiliated firms through its Committee of Foreign-Affiliated Corporations.
c. Recognizing their potential value, the Government of the United States is prepared to assist in publicizing such business-promotion seminars and activities whenever possible.
d. The Government of the United States also welcomes efforts by U.S. business groups, including the American Chamber of Commerce in Japan, directed at supporting the efforts of foreign firms to establish a presence in Japan through the mechanism of foreign direct investment.
XI. ASSESSING IMPLEMENTATION OF THE POLICIES AND MEASURES
1. General Principles
(1) The two Governments recognize that it will be increasingly important to obtain more accurate, varied, timely investment-related data to ensure sound government policies and measures, and to track and report important global trends. The two Governments will work together toward this end.
(2) The two Governments acknowledge that the presence of foreign firms, and their integration into national economies, is reflected by a broad range of economic indicators. No single economic indicator is sufficient to fully capture this phenomenon and trends related to foreign presence.
(3) Assessment of the implementation of the policies and measures described in this document, as well as evaluation of the progress achieved, will be based on an overall consideration of the following objective criteria, using data collected and made available by the two Governments. These criteria will be considered as a set, and no one criterion will be determinative of the assessment of the policies and measures, or the evaluation of progress achieved. These criteria do not constitute numerical targets, but rather are to be used for the purpose of evaluating progress achieved toward the goals of the United States-Japan Framework for a New Economic Partnership, and the goals set forth in Section I of this document.
(4) The two Governments acknowledge that the data will be collected from a variety of existing official governmental and published private sources, and that the collection methods and precise definitions of the data used as the basis of the objective criteria may not be identical for each economy. Bearing that in mind, each Government may include technical notes to describe the nature of the data they make available.
(5) The two Governments recognize that in interpreting these criteria they must take into account the fact that in any given year foreign direct investment can be influenced by developments (e.g., economic cycles and significant global and regional developments) that are not necessarily under the control of the two Governments.
2. Objective Criteria
The objective criteria mentioned in paragraph 1.(3) above are as follows:
(1) Qualitative Criteria
a. the efforts made by each side to implement the policies and measures set forth in this document; and,
b. the degree of utilization of new opportunities created by these policies and measures.
(2) Quantitative Criteria
a. Presence of Foreign-Affiliated Firms
i. the absolute amount in the reporting period, change and rate of change in total inward foreign direct investment stock, from one reporting period to the next;
ii. the absolute amount in the reporting period, and rate of change in gross and net inward foreign direct investment flows, from one reporting period to the next;
iii. the total number of foreign-affiliated firms present in the reporting period, and the change and rate of change in the number of foreign-affiliated firms from one reporting period to the next;
iv. the total number and percentage of foreign-affiliated firms that are majority-owned in the reporting period, and the change and rate of change in these figures from one reporting period to the next;
v. the number and value of OUT-IN mergers and acquisitions by foreign firms during the reporting period, and the change and rate of change in these amounts from one reporting period to the next;
vi. total domestic sales and the change and rate of change in that amount from one reporting period to the next; and
vii. total and per capita domestic sales and total profits by foreign-affiliated firms during the reporting period, and the change and rate of change in these amounts from one reporting period to the next.
b. Investment-Related Trade by Foreign-Affiliated Firms
i. Total imports by foreign-affiliated firms, and by majority-owned foreign-affiliated firms, during the reporting period, and the change and rate of change in these amnounts from one reporting period to the next; and
ii. total exports by foreign affiliated firms, and by majority-owned foreign-affiliated firms, and the change and rate of change in these amounts from one reporting period to the next.
3. Additional Data Collected
In addition to the data used as the basis of the objective criteria, each Government intends to collect and make available additional data useful to understanding direct investment trends:
(1) the absolute amount of inward foreign direct investment flows by sector (in categories as reported by official governmental sources) in the reporting period;
(2) the total number of foreign-affiliated firms by sector (in categories as reported by official governmental sources) in the reporting period;
(3) the total number of majority-owned foreign-affiliated firms by sector (in categories as reported by official governmental sources) in the reporting period;
(4) the number and value of OUT-IN mergers and acquisitions by sector (available from published private sources) in the reporting period;
(5) the total sales by sector of foreign-affiliated and majority-owned foreign-affiliated firms (in categories as reported by official governmental sources) in the reporting period; and
(6) value-added by foreign-affiliated firms during the reporting period, (as available).
XII. SHARED MULTILATERAL INVESTMENT GOALS
(1) The Government of Japan and the Government of the United States intend to participate actively in the OECD negotiations of a Multilateral Agreement on Investment (MAI). The two Governments consider it important to achieve a state-of-the-art agreement with a balance of commitments, which would provide a broad multilateral framework for international investment with high standards for the liberalization of investment regimes and the protection of investment, and with effective dispute settlement procedures. The two Governments also consider it important that the MAI should be a free-standing international agreement open to all OECD members and the European Communities, and to accession by non-OECD countries as well. The two Governments intend to consult as necessary to advance these shared objectives, with the goal of achieving the treaty within two years.
(2) In keeping with the "Declaration of Common Resolve" made by APEC leaders in Bogor, Indonesia in November 1994, the two Governments intend to encourage APEC discussions towards achieving high standards of investment protection and liberalization of investment regimes, and improving investment facilitation and cooperation throughout the APEC economies.
XIII. CONSULTATIONS
(1) During the next two years, the Government of Japan and the Government of the United States will meet semi-annually, or at any time upon request of either Government, to review implementation of the policies and measures and to discuss as necessary other issues regarding inward direct investment and buyer-supplier relationships. Thereafter, the two Governments will consider a meeting schedule that is mutually acceptable, and will continue to meet at any time upon request of either Government. Due to the close cooperation required to implement the policies and measures in this document, the two Governments intend that staff level contact on technical issues will be ongoing for the foreseeable future. Each Government will designate appropriate contact points to ensure that the exchange of information and technical questions is accomplished effectively.
See: Japan Joint Report on Investment
TANC offers these agreements electronically as a public service for general reference.
Every effort has been made to ensure that the text presented is complete and accurate.
However, copies needed for legal purposes should be obtained from official archives maintained by the appropriate agency.
|
