VZCZCXYZ0016
PP RUEHWEB

DE RUEHKO #1407/01 1740116
ZNR UUUUU ZZH
P 230116Z JUN 09
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC PRIORITY 3976
INFO RUEAWJA/JUSTICE DEPT WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHAAA/NSC WASHDC PRIORITY

UNCLAS TOKYO 001407 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP KURT TONG 
DEPT ALSO FOR EAP/J AND EEB/OIA 
DEPT PASS USTR FOR CUTLER, BEEMAN AND KALLMER 
NSC FOR LOI 
USDOC FOR 4410/ITA/MAC/OJ 
JUSTICE FOR ANTITRUST DIVISION - CHEMTOB 
TREASURY DEPT FOR IA/CARNES, FOSTER AND WINSHIP 
 
E.O. 12958: N/A 
TAGS: EINV PREL JA
SUBJECT: THE FUTURE OF THE U.S.-JAPAN INVESTMENT INITIATIVE 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (SBU) Summary: The U.S.-Japan Investment Initiative 
recently completed its eighth year of work on improving 
Japan's investment climate and contributing to economic 
growth in both countries.  The Initiative can claim a number 
of successes.  However, we may be able to engage Japan more 
effectively to open to foreign investment -- and the trade 
flows and U.S. domestic job creation associated with such 
investment -- and to work jointly for stronger investment 
regimes in the region, if we enhance bilateral 
investment-related discussions.  End Summary. 
 
Past Success of U.S.-Japan Investment Initiative 
--------------------------------------------- -- 
 
¶2.  (U) The U.S.-Japan Investment Initiative and its 
associated bilateral Investment Working Group have, since 
their establishment in 2001, achieved concrete improvement in 
Japan's investment climate and raised the awareness among GOJ 
officials of the contribution of cross-border investment 
flows to long-term economic growth.  Japan's stock of FDI 
over the lifetime of the Initiative tripled from 6.1 trillion 
yen to over 18 trillion yen (about USD 180 billion at current 
exchange rates.)  Meanwhile, both U.S. investors and Japanese 
companies have benefited from the increasingly important role 
of foreign capital in Japan's equity markets.  Foreign 
investors are a major force in Japan's capital markets owning 
approximately 27 percent of Japan-listed equities (compared 
with less than five percent 20 years ago), and accounting for 
between 50 and 60 percent of the daily trading volume of the 
Tokyo Stock Exchange.  Business representatives and academics 
also consistently note that success in opening Japan to 
greater foreign investment yields benefits in terms of 
opening Japan generally to increased economic engagement, to 
further economic reforms, and to more trade with the United 
States. 
 
Investment Issues Remain Salient 
-------------------------------- 
 
¶3.  (U) Investment liberalization and opportunities for 
merger and acquisition (M&A) activity in the Japanese market 
continue to interest U.S. businesses.  The American Chamber 
of Commerce in Japan (ACCJ) remains a vocal advocate of 
expanding the types of cross-border M&A transactions 
allowable under Japanese law and of introducing global 
standards of corporate governance to Japan-listed companies 
as a means of improving their financial efficiency.  ACCJ has 
issued five "Viewpoint" position papers on subjects related 
to corporate governance since the beginning of 2008. 
Officials from U.S. companies -- both manufacturing as well 
as financial services firms -- also repeatedly emphasize that 
trade, with benefits in terms of increased U.S. exports and 
the creation of U.S.-based jobs, follows U.S. investments in 
Japan. 
 
¶4.  (U) Investment issues are also of continuing interest to 
the Japanese government.  The government's official goal of 
doubling Japan's stock of foreign direct investment (FDI), as 
a percentage of GDP, by the end of FY2010 (March 2011) 
remains in place.  Although, at present, there is a lack of 
cabinet-level policy direction in this area, working level 
officials at the Ministry of Economy, Trade and Industry 
(METI) and the quasi-governmental Japan External Trade 
Organization (JETRO) continue to actively promote inward FDI. 
 The Financial Services Agency (FSA) is implementing policies 
to make Japan's capital markets more attractive to foreign 
investors. 
 
Benefits from Combining Discussions into Single Forum 
--------------------------------------------- -------- 
 
¶5.  (SBU) Embassy Tokyo believes there would be benefits from 
a more coordinated approach to all current investment-related 
bilateral activities.  While we do not propose a particular 
format or level for these discussions, we believe there is a 
critical mass of issues surrounding investment policy that 
are ripe for progress with Japan over the next several years. 
 The Investment Initiative in recent years has been 
discussing liberalization of cross-border merger techniques, 
policies governing national security reviews of proposed FDI 
transactions, Japan's obstacles to foreign investment in 
educational services, and GOJ and USG strategies towards 
negotiating bilateral investment treaties (BITs) with third 
countries.  Separately, the Regulatory Reform and Competition 
Policy Initiative discusses corporate governance issues and 
regulations to strengthen protection of minority shareholder 
rights.  The Financial Services Working Group has reviewed 
tax policies that may have an impact on investment. 
Discussion on multilateral and regional investment policy 
largely takes place in APEC working groups.  All of these 
issues remain relevant to U.S. companies operating in Japan. 
 
¶6.  (SBU) Private sector interest in these issues, however, 
is moving beyond simply seeking improvements to Japan's 
regulatory structure and in the direction of a more 
comprehensive policy approach to improving the investment 
climate.  This includes issues such as tax policy, the role 
of independent directors on company boards, and Japan's 
climate for entrepreneurship and innovation.  At the May 2009 
Investment Working Group session, the METI co-chair expressed 
interest in continuing an investment dialogue with the U.S. 
and the two sides had a preliminary discussions on how we 
might link our bilateral investment discussions to related 
activities in multilateral organizations such as APEC and 
OECD. 
 
Policy Objectives for an Expanded Investment Dialogue 
--------------------------------------------- -------- 
 
¶7.  (SBU) The policy objectives of an expanded investment 
dialogue would be to: 
 
-- Promote investment as a positive contribution to the 
global economic recovery; 
 
-- Respond to the concerns of U.S. businesses about continued 
legal and regulatory obstacles in Japan to cross-border 
investment flows; 
 
-- Promote needed Japanese domestic structural reforms; and 
 
-- Contribute to improved regulatory transparency and 
corporate governance in Japan. 
 
Outline of an Enhanced Investment Agenda 
---------------------------------------- 
 
¶8.  (SBU) Possible items for an enhanced investment agenda 
could include: 
 
-- Improving Japanese Corporate Governance by encouraging an 
expanded role for independent directors on corporate boards, 
limiting cross-shareholding linkages between operating 
companies without explicit approval of shareholders, and 
strengthening minority shareholder rights; 
 
-- Seeking changes to Japan's Company Law to expand the 
allowable structures for M&A; 
 
-- Promoting increased regional autonomy in Japan and 
empowering local governments so they can provide targeted 
incentives to potential investors; 
 
-- Exploring ways to promote innovation and entrepreneurship 
and support corporate start-ups; 
 
-- Removing disincentives to corporate reorganization (an 
issue first raised by Japan at the May 2009 working group); 
 
-- Expanding U.S.-Japan cooperation to oppose investment 
protectionism and promote investment liberalization and 
investor protection schemes in third countries; 
 
-- Tax issues, including Japan's high corporate tax rates and 
the lack of effective tax deferral for cross-border stock 
swaps. 
ZUMWALT