August 5, 2002
In June 2002, Japanese Prime Minister Junichiro Koizumi and US President George W. Bush agreed to launch the US-Japan Economic Partnership for Growth, under which they established the Investment Initiative as a forum to discuss measures for the promotion of foreign direct investment (FDI) in Japan and the United States.
Two vice ministerial-level meetings, a working group meeting and investment seminars were subsequently held in both countries under the leadership of METI Vice-Minister for International Affairs Hidehiro Konno and US Under Secretary of State for Economic, Business, and Agricultural Affairs Alan Larson. The 2002 report reviews the results of discussion on these occasions.
The report begins by summarizing the FDI situation as follows:
Bilateral direct investment between Japan and the United States boosts the competitiveness of both countries, benefits consumers, and contributes to economic growth. When the US economy was struggling in the 1980s, Japanese affiliates locked in employment and transferred Japanese technology to the United States, helping to revitalize the US economy. FDI from the United States and elsewhere is currently providing stimulation toward the revitalization of the Japanese economy.
FDI comprises around three percent of US GDP, as well as approximately six million jobs (5.4 percent of all employees, including 830,000 staff employed by Japanese companies). In Japan, however, FDI represents only around 0.2 percent of GDP and contributes to the employment of 300,000 persons (0.7 percent of all employees, including around 200,000 employed by U.S. companies).
The report notes the following roles played by foreign direct investment:
* Strengthening of the industrial competitiveness of the host nation through the promotion of more efficient management; development of new technology and business models through the mobilization and fusion of new economic resources
* Maintenance and creation of employment through corporate reorganization, etc.
* Creation of effective demand through the input of new management resources; restraint of surplus debt through provision of risk capital
* Strengthening of bilateral and other international exchange; closer international relations
The following points were discussed and included in the report in regard to improving the investment environment and promoting direct investment.
In terms of direct investment in Japan, it was noted that amendment of corporate law (more freedom to adopt US-style corporate governance systems, complete liberalization of the stock option system), review of accounting systems (introduction of consolidated accounting, etc.), increased land liquidity (introduction of REITs, etc.), greater labor mobility, and systemic reforms in regard to lawyers, accountants and other professional services had improved the investment environment. Frank exchanges of views took place on regulations on M&A used by foreign companies, the creation of assets open to investment, and promoting Japanese understanding of foreign investment, and it was agreed to continue considerations.
In terms of direct investment in the United States, issues discussed included high legal costs, legacy costs in the steel industry and elsewhere, the procedural burden imposed by the Foreign Agents Registration Act (FARA), the speed of visa issuance, and accounting and auditing system problems revealed in the Enron scandal.
Hidehiko Nishiyama
Director, Americas Division, Trade Policy Bureau
Ministry of Economy, Trade and Industry (METI)
Editor-in-Chief, Ichiro Araki
Director of Research
Research Institute of Economy, Trade and Industry (RIETI)
e-mail: araki-ichiro@rieti.go.jp
tel: 03-3501-8248 fax: 03-3501-8416
RIETI invites you to visit its English website
[http://www.rieti.go.jp/en/index.html].
The opinions expressed or implied in this paper are solely those of the author, and do not necessarily represent the views of the Ministry of Economy, Trade and Industry (METI), or of the Research Institute of Economy, Trade and Industry (RIETI).
