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