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May 20, 2008 -- Japan’s Expert Committee on FDI (foreign direct investment) Promotion¹ released its recommendations for increasing FDI into Japan. These recommendations will be used by the Council on Economic and Fiscal Policy, chaired by Prime Minister Yasuo Fukuda, in formulating new policies for FY 2008. The recommendations urge the Government of Japan (GOJ) to undertake measures to drastically expand the amount of FDI into Japan, primarily to help stimulate the Japanese economy and increase job opportunities.

Over the last decade, the GOJ has twice set targets for doubling levels of FDI into Japan. While Japan’s FDI stock has increased steadily, levels remain low when compared to other developed countries.

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Source: “Five Recommendations Toward the Drastic Expansion of Foreign Direct Investment in Japan,” Expert Committee on FDI Promotion, May 20, 2008.

The Committee urged the GOJ to revise the “Program for Acceleration of Foreign Direct Investment in Japan”, approved by the Japan Investment Council in June 2006, and made the following five recommendations:

1. Enhance the M&A system

Because merger and acquisition (M&A) activity is an important means of FDI in Japan, wide-ranging studies should be conducted and further improvement of Japan’s M&As system should be accelerated.

• Clarify acquisition rules, particularly regarding takeover defense measures. The Committee will continue discussions until this summer regarding how to prevent takeover defense measures from working as hindrances to FDI.
• Promote studies to facilitate cross-border M&As, i.e. studies on the M&A system and taxation regarding various M&A measures.
• Eliminate local resistance of M&As by foreign companies by promoting M&As and their benefits, i.e. job creation, etc.

2. Conduct comprehensive studies on desirable forms of foreign capital regulations

Within FY 2008, the GOJ should establish a predictable system of regulations for foreign capital. The scope and grounds of cases where such regulations are necessary should be clarified, i.e. for maintaining national security, public order, and so on. In doing so, it should be made clear that such cases are exceptions to the principle of nondiscrimination between domestic and foreign parties that the GOJ maintains and that Japan is truly open to FDI.

3. Establish a strategy to prioritize sectors

Medical devices and pharmaceutical products will be especially important in revitalizing the Japanese economy and improving the quality of life. Therefore, an action program should be formulated to place focus on the field of medical devices. (Action programs for other focused sectors will be planned.)

• Eliminate the so-called “device lag” by tripling the number of examination officials (from 35 to about 100).

4. Reduce business costs and improve system transparency

Reforms to business regulations and systems should be made to reduce business costs and improving system transparency.

• Lower the corporate tax rate (nominal rate) in order to attract foreign capital.
• Drastically improve the ”no-action letter” system and written reply procedures for taxes.
• Conduct a survey of regulatory and administrative burdens.
• Revise adjudicative proceedings, etc. under the Antimonopoly Law.
• Promote utilization of private-sector vitality in business run by government enterprises.

5. Revitalize regions through foreign capital and strengthen the message that foreign capital is welcome

Regions in Japan should be developed to make the business environment easier for foreign capital to be active. Also, the message that foreign capital is welcome should be strengthened.

• Local governments should cooperate in creating wide-area economic zones to attract foreign capital.
• Activities to attract foreign capital should be led by former private-sector personnel.
• Build living environments suitable to foreigners. Local governments should promote good practices for doing so.
• Facilitate investments of foreign capital that enables small- and medium-sized companies requiring support to continue operating.
• Strengthen the message that FDI in Japan is welcome.

¹The Committee was established in January 2008 to analyze impediments to FDI into Japan and to recommend courses of actions to further promote FDI.

Note: The information presented here is an unofficial interpretation of the proposal made by the Committee and should not be taken as an official translation.