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Challenges for the Upcoming WTO Negotiations and
Agendas for Future Japanese Trade Policy

Appendix 6
Development of International Investment Rules

1. Importance of International Investment Rules

With companies facing to various impediments in expanding their foreign direct investment, particularly in developing countries, international investment rules are needed to strengthen investment protection and promote liberalization. The Uruguay Round produced the Agreement on Trade-Related Investment Measures, but this is extremely limited in content, only prohibiting of measures such as local content requirements, trade balancing requirements, foreign exchange restrictions and domestic sales requirements.

Moreover, in terms of legal frameworks protecting investment, where the United States and most European countries have concluded bilateral investment agreements with some dozens of countries, Japan has only made such agreements with five other countries.

We therefore strongly hopes to see international investment rules developed within the WTO. Such an agreement would promote international investment interaction, providing considerable merit for developing countries wishing to encourage greater foreign investment.

In parallel with WTO investment rules, it will also be important to promote efforts toward the development of bilateral agreements.

2. Elements to be included into WTO Investment Agreement

The main issues confronting Japanese companies in terms of foreign investment include (i) foreign capital limitations, (ii) performance requirements, (iii) citizenship restrictions in regard to company executives, etc., and (iv) the instability and lack of transparency of investment-related regime. It will be vital to resolve these issues within any investment agreement.

  1. WTO member countries need to be prohibited in principle to limit foreign capital participation and capitalization ratios, with general exceptions including security-related area, while systemic transparency needs to be secured through the listing of specific reservations for restrictions which countries cannot immediately eliminate.

  2. All performance requirements-namely, technology transfer requirements, foreign exchange remittance regulations, export obligations and local employment obligations-should be banned.

  3. In relation to citizenship restrictions on company executives, etc., it will be important to abolish the obligation to appoint nationals as company executives and to ban restrictions on work permits and stay visas for human resources necessary for investment (executives, engineers, etc.).

  4. In the context of transparency, member countries must be obligated to clarify their investment-related law and regulations and permission application procedures. Technical cooperation also needs to be provided to promote developing country development of important investment-related legislation, such as bankruptcy and credit protection laws.

3. Importance of Bilateral Investment Treaties

  1. While multilateral rules on investment are important, because the WTO includes countries at various stages of economic development, it could take some time to reach consensus. Moreover, there is also a concern that agreement will not be reached on high-level rules which go beyond the content of existing investment agreements to include new areas such as the free movement of executives and engineers.
    In parallel with the development of WTO investment rules, Japan must therefore conclude high-level investment protection agreements with Asian and Latin American countries, etc., starting from those areas on which consensus can be reached, and using as a base the Multilateral Agreement on Investment discussed in the OECD.

  2. Many companies are experiencing taxation problems in their business with other countries. Tax treaties play an important role in the resolution of such problems. Japan has already concluded tax treaties with 44 countries, but these are for the most part with developed countries or Asian countries, with almost no coverage in Latin America, the Middle East or Africa. Japan must widen the scope of its tax treaty partners, while also reviewing as appropriate those existing treaties which have been outdated through technological advances. For example, consideration should be given to amendments so that withholding tax is not levied on software transactions and neither party levies withholding tax on interest.

  3. Pension aggregation agreements are important in eliminating double social welfare payments by companies. In particular, because of our close economic ties, Japan needs to conclude such an agreement as soon as possible with the United States.

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