[ Nippon Keidanren ] [ Policy ]

Requesting a Prompt Conclusion of Social Security Agreements

(Provisional Translation)

September 17, 2002

Japan Business Federation (Nippon Keidanren)
Japan Overseas Enterprises Association (JOEA)
Japan Foreign Trade Council, Inc. (JFTC)

I. Introduction

With the ongoing globalization of economic activities, Japanese corporations are actively engaged in business operations on a worldwide scale. The number of Japanese private-sector employees on long-term assignments overseas has been steadily increasingly year after year, with approximately 310,000 such Japanese employees posted abroad in 2001.
When Japanese corporations send employees to overseas subsidiaries, branches or affiliated companies, the employees are subject to the public pension system of the country in which they reside. At the same time, however, these Japanese nationals are required to continue paying "kosei nenkin" employees' pension insurance premiums in Japan. This forces Japanese employers to shoulder the burden of duplicate pension premium payments. In the United States, for example, where the largest number of Japanese overseas employees is stationed, such contributions amount to some ¥83.4 billion a year. These duplicate premium payments not only impose a heavy burden on Japanese corporations but also are one of the factors that undermine the international competitiveness of Japanese companies in an era of intensifying global competition.
In order to avoid a further "hollowing out" of industry within Japan and to revitalize the domestic economy, the environment for foreign direct investment in Japan must be improved, particularly by concluding bilateral social security agreements. This will greatly benefit Japan by creating incentives for foreign companies to make direct investments in the country.
Hence, in light of the current global business environment, Japan should promptly conclude social security agreements with the U.S. and other leading industrialized nations.

II. Necessity of Social Security Agreements (Pension Agreements)

1. Evaluation of social security agreements concluded by Japan

As of 2002, the U.S. has concluded social security agreements with a total of 19 countries, most of which are European nations.
Japan, on the other hand, has thus far concluded social security agreements with only two countries: Germany (agreement entered into force in 2000) and the United Kingdom (agreement entered into force in 2001). We highly value, as a matter of extreme importance, the fact that the Agreement between Japan and the Federal Republic of Germany on Social Security has allowed Japanese corporations to avoid duplicate pension premium payments amounting to some ¥8.1 billion a year and that the Japan-UK Social Security Agreement has saved Japanese corporations some ¥25.6 billion a year. Nevertheless, it cannot be denied that Japanese corporations, when compared to American and European companies, are at a disadvantage in international competition because they must still shoulder duplicate pension payments. In particular, we are deeply concerned that Japan has yet to conclude a social security agreement with the U.S., where Japanese corporations assign their largest number of overseas employees.
Most desirable for Japanese companies is the conclusion of social security agreements that 1) avoid duplicate pension premium payments and 2) avoid premium payments with no future benefits through totalization agreements. As a matter of priority, though, Japanese corporations request first that the current situation of duplicate premium payments comes to an end as soon as possible.

2. Priority countries

(1) Early conclusion of negotiations with the U.S. a top priority
There are approximately 200,000 Japanese long-term employees in the U.S. (as of 2001), of which about 50,000 are salaried employees. This figure is nearly 10 times the number of Japanese long-term employees stationed in Germany. Hence, by concluding a social security agreement with the U.S., Japanese companies would save around ¥83.4 billion in duplicate pension premium payments, bringing about huge economic benefits.
As mentioned, the U.S. already has social security agreements with a total of 19 countries, specifically Austria, Belgium, Canada, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, South Korea and Chile. (It also is currently negotiating such agreements with Japan, Argentina, Denmark, New Zealand and Australia). In light of the strong economic relations that exist between Japan and the U.S., it must be noted that Japan's absence from this list of countries with which the U.S. has concluded social security agreements presents quite an unbalanced situation.
We understand that the governments of Japan and the U.S. are holding negotiations on a Japan-U.S. Social Security Agreement with a view to an early conclusion of the negotiations. Nevertheless, we request that both governments treat the negotiations as a top priority issue and work toward the conclusion of an agreement as soon as possible.

(2) Early conclusion of negotiations already under way
We also request an early conclusion of social security agreements with France, South Korea and Belgium, with which Japan is currently in negotiations. Conclusion of bilateral agreements with these three countries would enable Japanese corporations to avoid duplicate pension premium payments amounting to some ¥1.6 billion a year for France, some ¥700 million a year for South Korea and some ¥500 million yen a year for Belgium.

(3) Commencement of negotiations with other countries
In addition to the countries cited above, the Japanese business community requests the commencement of negotiations on social security agreements with other major European countries where the burdens of pension premium payments are relatively high for Japanese corporations. In particular, negotiations should commence at an early date with the Netherlands, Italy and Luxembourg, all of which have proposed concluding bilateral agreements with Japan.
Apart from European nations, Canada and Australia have also proposed concluding social security agreements with Japan. As for Canada, its business community is attaching particular importance to such an agreement with Japan. We hope that negotiations with Canada will commence soon, with the aim of an early conclusion of an agreement.
Furthermore, it is desired that Japan considers holding negotiations toward the conclusion of social security agreements with countries other than those cited above, should there be an expected expansion of economic relations between Japan and such countries.

III. Conclusion

In recent years, amid ever-intensifying global competition, many countries have been striving to revitalize their domestic economic activities by improving the attractiveness of their domestic systems so as to encourage foreign direct investment. This has created a phenomenon that can well be described as competition among nations for better institutional systems, and the conclusion of bilateral social security agreements can be described as part of efforts to improve the environment for business and investment.
The Japanese business community has thus far requested the conclusion of social security agreements on an individual and case-by-case basis, but the results of such efforts are far from satisfactory. It is necessary to recognize the great importance social security agreements have in not only enhancing the competitiveness of Japanese corporations but also in realizing the revitalization of the Japanese economy. From this standpoint, we strongly request that social security agreements be promptly concluded with the U.S. as well as numerous other countries.

Annual pension premiums payments in some of the countries cited above (the U.S., Germany, UK, France, South Korea and Belgium) were estimated by the Japan Overseas Enterprises Association on the basis of statistics.

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