the Committee of Foreign-Affiliated Corporations
Their findings indicated that, first, improvements in the business climate for foreign companies benefit both Japanese and foreign capital alike, encouraging new entrants to the Japanese market. And second, the promotion of foreign investment in Japan is of vital importance to reactivate Japan's economy and to create more business opportunities. The 23 proposals contained in our opinion paper, titled "Improvement of the Business Environment of Foreign-Affiliated Companies and Reform of the Japanese Economy" issued in December 1993, are concrete means to help realize those findings.
Deregulatory measures announced by the Japanese Government are praiseworthy in a number of respects, and address many times that Keidanren itself stated needed improvement. For instance, the Government has already announced measures to reform its procurement system (by clearly delineating bidding procedures, introducing a comprehensive procedure to evaluate tenders, etc.), and relaxing regulations governing gift premiums. Such initiatives are expected to encourage the operations of foreign companies and help them enter the Japanese market. However, the policies do not yet go far enough -- a number of items and measures have still not received mention, and much work remains to be done in promoting foreign direct investment in Japan.
Keidanren would like to take this opportunity to reaffirm that it welcomes direct investment in Japan from abroad, since investment helps internationalize the Japanese economy and promote structural reform. In this opinion paper the Committee of Foreign-Affiliated Corporations calls for further measures following up on proposals we made in our December 1993 report, "Improvement of the Business Environment of Foreign-Affiliated Companies and Reform of the Japanese Economy." Many of these proposals have not yet been adequately addressed by the Government. This paper also highlights matters that require priority attention, ones that will promote new foreign direct investment in Japan and raise the level of imports to Japan.
Foreign Access Zones use an integrated bonded area system, which loosely corresponds to Free Trade Zones (FTZ) in the United States. However, to be designated an integrated bonded area a number of conditions must be met: [i] in each case the land and facilities must be contained in one area, and [ii] facilities must be used for processing, exhibiting and storage. Because of this narrow definition only one integrated bonded area thus far has been permitted -- the Asia and Pacific Trade Center (ATC) in Osaka. To put the integrated bonded area system to better use, requirements should be relaxed and further incentives should be given to importers and foreign companies wishing to invest.
The City Planning Law requires that land used for business purposes be classified either commercial or industrial which sometimes prevents businesses from processing and exhibiting goods in the same facility. Companies in a Foreign Access Zones experience the same problem. Exempting FAZs from these land-classification system would make integrated bonded areas more accessible and would raise the efficiency of facilities located there.
The Government's "Outline of External Economic Reform Measures," issued on 28 March 1994, announced the establishment of an action program for government procurement, and clearly delineated rules guiding the official announcement of information on procurement projects and governing bidding procedures. Moreover, as a way to help companies obtain information on government procurement projects, a database at the Japan External Trade Organization (JETRO) will be established within some years. Also, Ministry of Foreign Affairs conducts a number of public relations activities, meetings, etc. to enable a greater flow of information.
In particular, comprehensive tender evaluation procedures have been adopted for government procurement in the computer, telecommunications and medical technology sectors. Studies are underway to draw up evaluation guidelines, so that comprehensive evaluation systems can be rapidly adopted for other sectors as well.
Yet problems still exist even in sectors where a comprehensive evaluation system is in place. If the anticipated price to be quoted by a bidder is known to be very low, price could become the only determining factor. Also, when evaluating each item, points are allotted; point values are based on degree of necessity, importance, etc., but there are cases where information on point distribution is kept from bidders before they submit their tenders. This has resulted in cases where comprehensive evaluation of a bid does not, for all intents and purposes, occur. Additionally, the Government has not drawn up measures to introduce a "one-stop shop" system that unifies registration procedures for government procurement projects. We request that these problems be addressed.
Revision of the Foreign Exchange and Foreign Trade Control Law in 1992 amended regulations governing foreign direct investment in Japan. The amendment eliminates the requirement that notification be made prior to investing and it permits post facto notification in all areas except industrial sectors which Japan, under the OECD Code on Liberalization of Capital Movements, reserves for stricter treatment (i.e., agricultural, forestry and marine industries, the petroleum industry, hides and leather products, mining, air transport, marine transport, and investment trusts), and sectors in which there are safety concerns. The Deregulation Action Plan calls for a study to determine whether in light of opinions voiced regarding OECD multilateral agreements, the number of industrial sectors required to submit prior notification can be reduced. We suggest that this matter be dealt with promptly.
Amendments to the Insurance Business Law will change the licensing system for insurance products. The most significant change is a notification system allowing companies to introduce a part of insurance products to the market. However, the Government should adopt a notification system for other financial products as well. Certification requirements and time periods should be clarified.
We also suggest that the Government quickly relax requirements for the establishment of employee pension funds, and that it improve procedures relating to subsidized projects.
If a company wishes to undertake a construction project valued at 9 million yen or more, the Construction Business Law requires that it obtain a general construction business license. But to obtain the license, the Law specifies that "companies employ a person with at least five years of management experience in the construction business" as a full-time director. For this reason, entrants to the construction industry must often obtain the services of a director from existing construction companies. This requirement should be dropped, to promote the entry of both Japanese and foreign companies and to stimulate competition.
A Ministry of Finance ordinance specifies a uniform period of six years for the depreciation of electronic computer equipment. This period is too long, especially considering the fact that personal computers, workstations and other electronic equipment are subject to technical innovations over a very short time. To encourage use of the latest technology and to raise business efficiency, personal computers, workstations and other electronic equipment should depreciate over two to three years. To the same end, we suggest that the Government review all asset depreciation periods.
Only trust banks, life insurance companies and the Federation of Agricultural Cooperative Associations are presently authorized to manage qualified pension assets. The distribution of assets is also regulated. These obstacles make it impossible for other businesses to enter this market. A more flexible system of pension asset management would be achieved by relaxing limitations on asset-management institutions and loosening regulations on asset distribution.
A special corporate tax rate of 1.173% is applied to qualified pension assets. This rate is unfair, as shown when compared with the rate applied to employee pension funds. Qualified pension assets should be taxed at a lower rate, treating them the same as employee pension funds. This measure is in keeping with the needs of Japan's aging society, and would improve employee welfare.
In almost all cases the Japanese Government owns the rights to results findings obtained through research the Government has consigned to a company. Before the company commissioned to do the research can use the fruit of its research, or permit a third party to do so, it must first obtain government consent as well as pay for such rights. To provide ample incentives to companies involved in research, and to bring Japan's practices into conformity with those of other nations, [i] research results should belong to (or at least be shared by) the contracting company, and [ii] the contracting company should be given the rights, gratis, to use or permit another to use, the patent.
Furthermore, when a research and development contract is drawn up, it should clearly specify what information is to be kept confidential, and for how long. The contracting company should not be forced to accept extraordinarily restrictive confidentiality obligations.
Similar and overlapping statistical surveys are performed independently by a number of ministries, agencies and regional governments, creating a ponderous clerical burden on respondent companies. Government entities should, as much as possible, conduct their studies jointly, and share the resulting statistical data.