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Yearbook ch1 I. The Japan Investment Council

1. Establishment of the Japan Investment Council

(1) Background

1) Increased foreign direct investment helps vitalize Japan's economy, expand selection variety, construct Japanese economy and society open to the world.

2) However, the foreign direct investment in Japan is at considerably low level and recently the interest is being directed to investment from trade.

3) The decision whether to invest in Japan is based on the independent judgment of foreign investors. It is pointed out that the reason of such a low foreign direct investment in Japan is that economic and non-economic factors and existing regulation etc. make Japan's market less attractive to foreign firms.

4) Various measures of tax, finance and others for foreign firms have been taken to promote foreign direct investment in Japan. It is necessary to give further consideration on regulations which may hinder foreign direct investment in Japan and to systematically improve programs and measures for promoting foreign direct investment in Japan.

5) From this view-point, in "Outline of External Economic Reform Measures" (Cabinet Decision, 29 March 1994), it was decided that the Japan Investment Council would be established in fiscal 1994.

(2) Structure and management, etc. of the Council

1) The Japan Investment Council is a ministerial council with the Expert Committee as its subordinate organization. Requests and opinions of foreign firms concerning investment environment in Japan are gathered to the Expert Committee and will be reflected in policy measures. The Council also make efforts to disseminate information on related policy measures.

2) The establishment of the Japan Investment Council helps create a comprehensive system of the Japanese Government for opinions, requests and complaints of foreign firms. General opinions and requests concerning trade affairs will be accepted by the Trade Council (Import Board), general opinions and requests concerning investment affairs will be accepted by the Japan Investment Council, and concrete and individual complaints concerning both trade and investment will be handled by the OTO.

(3) Others

1) The Council was established upon by the Cabinet on July 15, 1994.

2) The first Japan Investment Council meeting was held in September 1994.

(reference 1) The structure and task etc. of the Japan Investment Council

Japan Investment Council

Chairman :Prime Minister

Vice-Chairman :Minister of State for Economic Planning

Members :Minister of Justice, Minister of Foreign Affairs,

Minister of Finance, Minister of Education,

Minister of Health and Welfare,

Minister of Agriculture, Forestry and Fisheries,

Minister of International Trade and Industry

Minister of Transport, Minister of Posts and Telecommunications

Minister of Labor, Minister of Construction

Minister of Home Affairs

Minister of State for Cabinet Secretariat

Minister of State for Management and Coordination

Minister of State for Hokkaido Development

Minister of State for Science and Technology

Minister of State for Environment

Minister of State for Okinawa Development

Minister of State for National Land

Task :Arrangement of policies for promoting investment in Japan,

supply information on related policy measures, etc.

↑ Direct hearing from foreign firms etc.

Report of gathered opinions, when necessary

Expert Committee (Subordinate Organization)

Members :Expert members (Chamber of Commerce of America and/or Europe,

Asian Corporation, etc.)

Executives of private-sector economic organizations

Head of local public bodies

University professor, etc.

Director-Generals of related ministries and agencies

Task :Gathering opinions of foreign firms and private-sector economic

organizations,

supply information on policies for promoting investment in Japan,

report to the Japan Investment Council, etc.


(reference 2) Member List of the Expert Committee of the Japan Investment Council

1. Members (in Japanese syllabary order)

・Mr.Hideo Ishihara (President, Committee of International Business Affairs,

KEIDANREN (Japan Federation of Economic Organizations),

Chairman, Goldman Sachs (Japan) Corp., Tokyo Branch)

・Mr.Hiroyuki Kodera (Governor, Gunma Prefecture)

○Mr.Haruo Shimada (Professor, Faculty of Economics, Keio University)

・Ms.Sawako Takeuchi (Senior Economist, LTCB Research Institute, Inc.)

・Mr.Toru Toyoshima (Chairman, Japan External Trade Organization(JETRO))

・Mr.Yoji Hamawaki (President, Federation of Foreign-Capital Corporations,

President, Digital Equipment Corp. Japan)

・Mr.Yuzaburo Mogi (President, Japan America Cooperative Committee(JACC),

Japan Chamber of Commerce and Industry,

President, Kikkoman Corp.)

・Mr.Yoshihiko Yoshino (President, Japan Development Bank)

2. Foreign Expert Members (in alphabetical order)

・Mr.Richard Dyck (Representative Director, Teradyne K.K.)

・Mr.Willem Kortekaas (Vice-Chairman, European Business Community (EBC),

General Manager, EUROACT B.V.)

・Mr.Lee Kil Hyun (Advisor, Samsung Japan Co., Ltd., Advisor Samsung Co. Ltd.)

・Mr.Kenneth R.Lewis (Chairman, Investment Committee, American Chamber of

Commerce in Japan (ACCJ),

Resident Executive Director, Xerox Corporation)

・Mr.Gary C. Lynch (President, Shriro Trading)

・Mr.Callum McCarthy (Chief Executive-Japan, Barclays Bank plc)

Note: ○ Committee Chairman


3. Members of Ministries and Agencies

・Deputy Vice-Minister of Justice, Ministry of Justice

・Director-General, Economic Affairs Bureau, Ministry of Foreign Affairs

・Director-General, International Finance Bureau, Ministry of Finance

・Director-General, Policy Coordination, Minister's Secretariat, Ministry of Education

・Director-General, Minister's Secretariat, Ministry of Health and Welfare

・Director-General, Food and Marketing Bureau, Ministry of Agriculture, Forestry and Fisheries

・Director-General, Industrial Policy Bureau, Ministry of International and Industry

・Director-General for Policy Coordination, Minister's Secretariat, Ministry of Transport

・Deputy Minister for Policy Coordination, Ministry of Posts and Telecommunications

・Deputy Vice-Minister for Administration, Ministry of Labor

・Director-General, Economic Affairs Bureau, Ministry of Construction

・Deputy Vice-Minister for Policy Coordination, Ministry of Home Affairs

・Director, Councillors' Office on External Affairs, Minister's Secretariat, Prime Minister's Office

・Director-General, Economic Department, Fair Trade Commission

・Deputy Vice-Minister for Administration, Management and Coordination Agency

・General Executive, Hokkaido Development Agency

・Director-General, Coordination Bureau, Economic Planning Agency

・Director-General, Science and Technology Promotion Bureau, Science and Technology Agency

・Director-General, Planning and Coordination Bureau, Environment Agency

・Director-General, General Affairs Bureau, Okinawa Development Agency

・Director-General, Planning and Coordination Bureau, National Land Agency


2. Statement of the Japan Investment Council

Statement of the Japan Investment Council

- Toward the Promotion of Foreign Direct Investment in Japan -

June 13, 1995

Japan Investment Council

1. SIGNIFICANT ROLE OF FOREIGN DIRECT INVESTMENT IN JAPAN

Increased foreign direct investment in Japan contributes to structural reform of Japanese economy, such as enhancement of Japanese economic vitalization, creation of new business, reduction of the disparities between international and domestic prices, import expansion, through introduction of the new technology, management know-how and various kinds of competition among domestic and foreign firms. Also it will benefit Japanese consumers, bringing a supply of less expensive and better goods and services and greater selection. Moreover, it further opens Japan's economy, society, and culture.

Additionally, investment activities of countries throughout the world, including foreign direct investment in Japan, contribute to a balanced development of the global economy and to the creation of peaceful and cooperative international relations.

Toward the 21st century, the Government of Japan acknowledges that increased foreign direct investment is essential for constructing a dynamic Japanese socioeconomic structure open to the world.

In line with this positive attitude of the Government of Japan, the Japan Investment Council declares at home and abroad its determination to strengthen the action for increasing foreign direct investment in Japan.

2. POTENTIAL OF JAPAN'S MARKET

The level of foreign direct investment in Japan remains low as a whole, and also less than that for Japanese direct investment abroad, which, in turn, has created a large inward-outward investment imbalance. This is due to economic factors such as the macroeconomic climate, including the appreciation of the yen, and high business related costs in Japan, including land prices as well as to institutional factors such as regulations based on laws or administrative guidance. On the other hand, with the world's second-largest economy, a high level of demand, opportunities for technological and other business tie-ups, a geographical location within the fast-growing Asian region, plentiful of high-quality labor force that can take part in management, and the availability of well-maintained infrastructure, Japan has excellent potential as an investment market.

In nature of the things, decisions on investment are based on the discretion of independent firms, so there are limits to the scope and effect of the Government's measures to promote foreign direct investment. But the Government does have an important role in leading the way and the Government will play its part to the maximum extent possible to create an environment conducive to foreign direct investment in Japan, which has the potential above described.

3. EXPECTATIONS FOR THE PRIVATE BUSINESS SECTOR

Since the business climate, in terms of transparency of business practices, is also an important factor maintaining smooth business operations among foreign firms, the Government of Japan solicits the understanding and cooperation of the private business sector in order to create a desirable investment environment. In this regard, it is now understood that M&A, which has been pointed out to be difficult in Japan, is an common form of foreign direct investment as a free economic activity, and it is expected that the M&A would have a positive and stimulating effect on increase of foreign direct investment and vitalization of industrial activity in Japan.

4. THE BASIC POLICY FOR EXPANDING FOREIGN DIRECT INVESTMENT IN JAPAN

The Government will actively take the following policy measures, including deregulation and the providing of incentives, to expand foreign direct investment. While implementing these measures, both transparency and the simplification of procedures will be assured.

(1) Promote deregulation to reduce business operating costs and to create new businesses opportunities. In particular, regulation of direct investment should be kept to a minimum.

(2) Provide special treatment in taxation and financial incentives, so as to facilitate smooth business operations.

(3) Make active use of the OTO with rapid and appropriate resolution of any complaints concerning business activities of investors.

(4) Support recruitment by providing labor-related information, job consultation and employment exchange.

(5) Disseminate information extensively by JETRO and others concerning the Japanese investment environment.

(6) Provide comprehensive services for foreign firms by drawing on expertise of the Foreign Investment in Japan Development Corporation (FIND).

(7) Support the setting up of Facilities to support Foreign Business Participation in Japan.

(8) Approach the private business sector to help create a business climate with more transparent business practices.

(9) Expect that local public bodies that could be closely involved in attracting foreign businesses, to make greater efforts to attract foreign direct investment.

(10) Improve statistics-keeping, etc. to provide more accurate information on foreign investment and business activities of foreign affiliates in Japan.

(11) Continue to promote in every way the current framework of "The Outline of Promoting Comprehensive Land Policies" in order to achieve reasonable land price levels, which would be beneficial to the location of foreign firms.

(12) Contribute to fostering a free international investment climate by actively participating as a major player in multilateral discussions at the OECD, APEC and WTO.

According to these basic policies, the Government of Japan will also carry out within fiscal 1995, the investment promotion measures that have been decided upon, including those described in the attached list.

5. ACTION OF THE JAPAN INVESTMENT COUNCIL

By utilizing the Expert Committee, the Japan Investment Council thoroughly discusses important themes and collects opinions and requests from foreign businesses and others in order to have these ideas reflected in the Government programs. The Expert Committee, in particular, will immediately begin to examine the future direction of the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment, which expires in May 1996, ways to improving the climate for M&A, and ways to support employment in foreign firms.

The Japan Investment Council expresses its determination to continue to play a major role in ensuring that policies reflect these opinions and requests and in disseminating information concerning policies adopted through this process in order to improve the investment environment in Japan and it welcomes opinions and requests to promote foreign direct investment in Japan from both domestic and foreign concerns. At the same time, the Council addresses foreign businesses to take full advantage of these measures and take a positive attitude toward investing in Japan in the years ahead.

Attachment


List of Investment Promotion Measures

1. Support in accordance with the Law on Extraordinary Measures for the Promotion of Imports and Facilitation of Inward Investment (see Note 1)

(1) Taxation measures

- Extension of carry over period for losses

The carry over period for losses incurred within the first three years of establishing a business in Japan is extended to ten years. (see Note 2)

(2) Credit guarantees

- Credit guarantees by the Industrial Structure Improvement Fund

Guarantees up to 95% of loans for business funds for the first five years after a business is established.

(3) Foreign Direct Investment in Japan Development Corporation (FIND)

In order to facilitate business activity of foreign firms in Japan, the FIND was established in June 1993 with finance from the Industrial Structure Improvement Fund and private business sector, and is providing various services (market-entry service, consultation service, recruitment supporting service, training and seminar service, and various agent service).

Note 1: Conditions for designated inward investor eligible for preferential treatment under this law are as follows:

- To be a branch or a subsidiary (with a foreign capitalization ratio exceeding one-third), established in Japan by a foreign company

- To be a company which has been operating for less than five years since its establishment

- To be a company engaged in the manufacturing, wholesaling, retailing, or servicing sector including software in Japan

(Beginning in fiscal 1995, the requirement that the foreign parent company be a manufacturing company was abolished, and eligibility was expanded by adding companies in certain sectors of wholesaling or retailing and services.)

Note 2: The carry over period has been extended from seven years to ten years from fiscal 1994.

2. Low-interest loans (Japan Development Bank, Hokkaido-Tohoku Development Corporation, Okinawa Development Finance Corporation)

(1) Interest rates (see Note 3)

1) First-time full-scale investments in the following area (preferential interest rate level 5 = 3.65% applies; in some areas of high-tech industry, preferential interest rate level 4 = 3.65% applies)

i) projects in high-technology areas (see Note 4)

ii) projects contributing to import expansion

iii) projects contributing to promotion of international exchange

2) Second or subsequent investments in Japan (preferential interest rate level 3 = 3.65%)

: areas noted in 1) above

3) Investments in Japan not covered by the above (standard rate = 3.65%) : areas other than those noted in 1) above

4) Projects to establish office buildings mainly used by foreign firms and affiliates (preferential interest rate level 4 = 3.65%)

5) Basic facilities for promoting direct investment in Japan (preferential interest rate level 4 = 3.65%) (see Note 5)

(2) Maximum financing ratio

For the above-mentioned 1), 2), 3), 5) : 50% (see Note 6)

For the above-mentioned 4) : 40%

(3) Other

For the above-mentioned 1), 2) and 3) loans also cover rental guarantee fees.

Note 3: The current interest rates are in effect from June 7, 1995

Note 4: The high-technology areas includes the electronics, fine chemicals, bio, new materials, and advanced software development industries (the foregoing are eligible for preferential interest rate level 5), and the advanced system machinery industry (eligible for preferential interest rate level 4).

Note 5: New from fiscal 1995.

Note 6: The financing ratio has been expanded from 40% to 50% from fiscal 1994.

3. Deregulation

In accordance with the Deregulation Action Program (Cabinet Decision on March 31, 1995) and the Emergency Measures for Yen Appreciation and the Economy (Ministerial Conference on Economic Measures on April 14, 1995), active measures will be taken for promoting deregulation and developing competition policy including below-mentioned as a three-year action plan until fiscal 1997.

(1) Industries subject to prior notification in inward direct investment

Of the industries reserved under the OECD Code of Liberalization of Capital Movements, the Government will seek to allow, within the period of the Deregulation Action Program, investment in mining with ex post facto reporting, rather than prior notification which is currently required. With regard to other industries which Japan continues to reserve (agriculture, forestry and fisheries; oil; leather and leather product manufacturing; air transport; and maritime transport), the Government will continue to consider this matter, taking into consideration trends in Japan's socioeconomic situations as well as progress of discussions at the OECD. Regarding inward investment in industries related to public order and national security, where prior notification is required as well, although the OECD Code of Liberalization of Capital Movements shall not prevent regulation on these industries, the Government will continue to examine the treatment of such industries taking into consideration the discussions at the OECD including discussions on a Multilateral Agreement on Investment which is scheduled to begin this year.

(2) Presentation method of banking report of each branch of foreign banks

When a foreign bank has plural branches in Japan, it is admitted to present a report in a consolidated form to cover all of the foreign bank's branches thereof (enacted in fiscal 1995).

(3) Representation of parties by foreign lawyers in international arbitration

Concerning representation of parties by foreign lawyers in international arbitration, The Study Commission on the Representation of Parties in International Arbitration is studying for the liberalization, and the conclusion of the study is aimed to be drawn around October 1995, after which the necessary measures will be taken including adjustment of related laws in time for next ordinary session of the Diet.

(4) Period of stay of foreign firm resident, etc.

In fiscal 1996, a research on enforcement circumstances about the Immigration Control and Refugee Recognition Act, for the first five years since the enactment in June 1990, will be carried out, and according to this research, analysis and reciprocal view-points, period of stay will be reviewed if necessary.

(5) International contract notification system

The international contract notification system will be reviewed to determine what form it should take from the view-points of economic globalization and easing the burden on business entity, and steps will be taken for the relaxation of requirements by the end of fiscal 1996.


4. Improving the Climate for the M&A

(1) Intensification of shareholders' right

To strengthen shareholders' oversight functions on company operations, fees for initiating shareholders' suit have been standardized, and the special conditions under which shareholders may inspect the company's books have been eased.

To strengthen the auditor functions of joint stock companies, auditors' terms have been extended, the number of auditors required in large companies has been increased, and employment of outside auditors and establishment of aboard of auditors is now mandatory for major corporations.

(2) Support for M&A seminars and workshops

The Government lends its support to holding seminars and workshops designed to assist foreign businesses in locating opportunities for suitable mergers and acquisitions and to encourage Japanese firms to look to foreign firms as M&A partners.


5. Land Policies

Comprehensive land policies will be implemented steadily in order to achieve reasonable land price levels.

In the land taxation reform of 1991, from a view-point of imposing a fair and appropriate tax burden on land and reducing the superiority of land as an asset, introduction of a land value tax, a more appropriate tax on profits from the sale of land, review of special provisions regarding inheritance and fixed assets tax on farmland in the urbanization promotion areas in specific cities within the three metropolitan areas, comprehensive review of the special land holding tax, more appropriate and balanced valuation of land for inheritance tax, and more appropriate and balanced valuation for the fixed asset tax were adopted.

The provision for relaxing height or floor area ratio restrictions will be actively applied to high-grade projects in connection with the improvement of public facilities.

Regulations, such as floor area ratio and height were relaxed by the revision of the Urban Redevelopment Law etc. (implemented in May 1995).


6. Improving Support Facilities for Foreign Businesses in Accordance with the Private Participation Laws

(1) Facilities to support foreign business contacts participation in Japan

Establishing rental offices as well as facilities having ability to provide information on Japanese commercial practices for foreign businesses preparing to enter the Japanese market.

(2) Facilities for international training

Establishing facilities having such functions as to giving employees of foreign business Japanese-language instruction, providing information regarding socioeconomic conditions and business practices in Japan.


7. Providing Information

(1) Japan External Trade Organization (JETRO)

1) Symposiums to promote foreign investment in Japan

In cooperation with the Japan Regional Development Corporation and the Japan Industrial Location Center, JETRO dispatches investment promotion missions of specialists in foreign investment in Japan to North America and Europe, and provides interested companies, public organizations, consultants, and financial institutions information on the investment climate in Japan, current activities of foreign affiliates in Japan, etc.

2) Invitation Program (Invest in Japan Study Program)

JETRO invites private sector companies and influential journalists from abroad each year, providing information on the investment climate in Japan and on investment-promotion policies, etc. as well as providing support for specific investment approaches by arranging private business discussions (In addition to the current program collectively inviting persons concerned once a year, the program is expanded from fiscal 1995 so that executive of foreign companies interested in investing in Japan could be invited in a timely manner).

3) Investment advisor project

JETRO headquarters and JETRO offices in Japan and abroad give advice related to investment in Japan such as on legal, tax, and contractual matters, on the establishment of an affiliate or branch, and on joint ventures or tie-ups. JETRO's Tokyo and Osaka headquarters have investment advisors on staff and also retain advisors in 12 overseas office to give advice on foreign investment in Japan.

4) Long Term Direct Investment Advisor Dispatchment Program

From fiscal 1995, a new program is initiated in which the "Long term direct investment advisor" will be dispatched to North America and Europe, in order to provide continued support to foreign firms interested in investing in Japan reported by the above overseas advisors, and to identify other potential investors.

5) Publications

JETRO provides various guidebooks with information on foreign investment in Japan, including investment-related laws concerning establishment of a company in Japan.

(2) The Japan Development Bank

Foreign offices of the Japan Development Bank hold seminars to provide information on foreign investment in Japan.

(3) Environment Agency

The Environment Agency has prepared and distributed a pamphlet titled "Water Quality Management in Japan," etc. to provide foreign businesses with information on Environmental Quality Standards and Effluent Standards in Japan.


8. Educational Support

(1) Enrichment of the teaching of the Japanese language to foreigners

International research is carried out on Japanese language teaching curricula for school-age children, and Japanese Language Proficiency Test for Foreigners are conducted.

(2) Improving the system for accepting non-Japanese children into Japanese schools

Japanese-language teaching materials and teachers' manuals have been prepared and distributed, and teaching staff have been assigned to give Japanese language instruction to non-Japanese pupils.


9. Labor-related support

(1) Information Supply etc. by Public Employment Security Office

Public Employment Security Offices throughout Japan support recruitment of all employers including foreign firms, providing various labor-related free informations, such as job application information about managerial personnel and newly graduated persons, and carrying out job consultation and employment exchange.

(2) Conference on Labor Issues in Foreign-Affiliated Companies

The Ministry of Labor holds a conference with top-level executive of foreign chamber of commerce and industry in Japan, to exchange views on the labor problems in foreign capital firms.

(3) Guidance Service for Foreign-Affiliated Companies

The Japan Institute of Labor provides information on Japanese labor practices, legal system and circumstances and others, through holding seminars, preparing of videos, publishing of labor problem information magazine titled "LABOUR ISSUES QUARTERLY" and other activities.

(4) Study Group on Personnel and Labor Management in Foreign-Affiliated Companies

In order to improve personnel management and the welfare of employees in foreign capital firms, the Japan Institute of Labor has established a study group consisting of experts, etc. to investigate and analyze personnel management problems and to look for improvement measures.


10. Improved Statistics etc.

(1) Improved Statistics

Statistics-keeping on foreign direct investment in Japan will be improved to include amounts reinvested by foreign business in Japan, which provides a part of data for determining the state of foreign investment in Japan more accurately.

(2) Improved Survey on Foreign Affiliates in Japan

In order to grasp business activity scale etc. of foreign affiliates in Japan more accurately as well as enabling the understanding of concrete problems on doing businesses in Japan, contents of the "Survey on Foreign Affiliates in Japan" which has an objective of business activity of foreign affiliates in Japan will be improved.


11. Complaint Resolution

The OTO receives and processes complaints from foreign countries concerning direct investment.


Contents
Chapter II

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