*EPF311 03/01/00
Text: Amb. Foley Remarks to Investment in Japan Symposium 2000
(Foreign direct investment could help Japan's economy grow) (1690)

U.S. Ambassador to Japan Thomas Foley told participants of the Investment in Japan Symposium 2000 March 1 he believes Japan's economic potential is "clearly not being realized."

The solution to this problem lies "in promoting freer market forces, entrepreneurial talent, and in encouraging foreign direct investment," Foley said in prepared remarks in Tokyo.

"Foreign direct investment ... spurs competition, leading to greater economic efficiency and growth" and "has the added benefit of bringing with it global 'best practices' in management and technology, new jobs and new ideas," Foley explained.

He added that a competitive, deregulated market was a prerequisite for attracting such investment.

"Regulatory reform will increase productivity, open markets, and create the basis for a sustainable economic recovery in Japan," Foley said.

Foley suggested in particular that regulatory reform of the Japanese telecommunications sector would reduce prices, provide more innovative services, and stimulate broader economic growth.

"In order for competition to truly flourish, there must be a pro-competitive regulatory system that eliminates restrictions on new entrants and strengthens safeguards against anti-competitive practices by dominant carriers," Foley said.

"Of particular importance are lowering interconnection rates, providing timely and reasonable access to facilities needed to build new networks, and ensuring fair pricing," he added.

The Investment in Japan Symposium 2000 symposium is sponsored by the U.S. Department of State, the Japanese Ministry of International Trade and Industry (MITI), and the Japan External Trade Organization (JETRO). Its goal is to bring together government and private sector elements to foster constructive, informative dialogue.

Following is the text of Foley's remarks, as prepared for delivery:

(begin text)

REMARKS BY AMBASSADOR THOMAS S. FOLEY
TO INVESTMENT IN JAPAN SYMPOSIUM 2000
SPONSORED BY U.S. DEPARTMENT OF STATE,
MITI AND JETRO

PALACE HOTEL, TOKYO, JAPAN
March 1, 2000

(as prepared for delivery)

It is a pleasure to join Senior State Secretary of MITI Hosoda and Chairman of JETRO Mr. Hatakeyama in welcoming you to the Investment-in-Japan Symposium 2000.

I would like to extend my appreciation and thanks to the Japanese government representatives for joining us today, in the midst of a busy Diet session. The Government of Japan deserves much credit for taking steps to encourage new business and to enhance Japan's attractiveness as a destination for foreign direct investment.

It is a real pleasure as well to have GE Capital CEO and Chairman Dennis Dammerman here with us. GE Capital Japan has distinguished itself as a leading American investor in Japan's market, and I look forward to hearing his key insights on doing business in Japan.

Also my thanks to Mitsui President and CEO Shigeji Ueshima, who is an active voice on investment issues, for offering his assessment from a Japanese company's perspective, and to Mr. Hatakeyama, JETRO and the Ministry of International Trade and Industry for their unflagging energy in supporting and organizing this symposium. The co-chairs of the US-Japan Investment Working Group, Robert Fauver of the Department of State and Takato Ojimi of MITI, were equally instrumental in bringing this conference about. Finally, the American Chamber of Commerce in Japan deserves special recognition for working closely with us to help shape and define the investment agenda.

The United States and Japan have held investment discussions since 1993 and share a strong commitment to increase investment into Japan. We have worked together to identify barriers to investment in Japan and find means to overcome such obstacles.

Prime Minister Obuchi has been instrumental in setting the right tone for our positive talks on investment. Last spring in his meeting with American CEOs, the Prime Minister engaged in a frank, constructive exchange of ideas on trade and investment. In an editorial in the New York Times, the Prime Minister welcomed the "new ideas and energy" that foreign investment brings. His words and actions had a deep impact on the American business community and catalyzed last fall's bilateral discussions on investment led by the Ministry of International Trade and Industry and the Department of State. We are keenly aware, however, that the issue of improving Japan's investment climate is not a matter confined to government-to-government discussions. For this reason, this symposium brings government together with the private sector in a unique opportunity to have a constructive, informative dialogue.

In order to evaluate Japan's investment climate and the measures needed to make it more attractive, we welcome the insights of American and Japanese investors. You are the people on the spot, who need to have a transparent investment environment in which to seek new business opportunities. One of our goals today is to hear the ideas from the Japanese and American business community on the best way to achieve that welcoming environment. Our discussions on investment in Japan come at a critical time for Japan's changing economy and society. The ongoing structural reform in Japan is a difficult but necessary process. It involves reducing excess capacity, moving workers to more productive industries, spinning off unprofitable subsidiaries, and consolidating key lines of business. It also involves creating a framework in Japan which nurtures the new ideas and opportunities so abundant in this age of information technology.

Japan's societal changes are also putting pressures on how its economy will function in the future. How will Japan support an aging society and aging workforce? How will its industries create a better working environment for Japanese families with child-care concerns? How will Japanese enterprises recognize and promote young talented workers, in order to keep them? Finding answers to questions like these is not an easy task. But I believe that many of the answers lie in promoting freer market forces, entrepreneurial talent, and in encouraging foreign direct investment. Foreign direct investment or FDI can help meet these challenges, for FDI, like deregulation, spurs competition, leading to greater economic efficiency and growth. FDI has the added benefit of bringing with it global "best practices" in management and technology, new jobs and new ideas.

The American corporate sector has benefited from many Japanese "best practices" as we restructured our economy. Japan is now in a similar process and has begun to enjoy some of these benefits: US-affiliated firms -- and this does not include banks -- already employ more than 400,000 workers in Japan, paying over $24 billion in compensation. All this contributes to the increased economic productivity crucial to Japan's future. Nevertheless, while foreign direct investment and the numbers of mergers and acquisitions are on an upward trend, Japan is still not experiencing the full benefits of foreign investment that the US has enjoyed, including increased employment and the innovation that greater competition brings. The United States right now is experiencing its longest-running economic boom, has seen the creation of 19 million new jobs, and has the lowest unemployment rate in 29 years.

Our openness to foreign direct investment was one of the critical factors sparking this growth and productivity. In 1998, foreign direct investment flows into the United States equaled 8.6 percent of our gross domestic product. In 1997, foreign affiliated firms produced about 6 percent of our GDP and 12 percent of the output of our manufacturing sector. There are substantial beneficial impacts at the local level in the states which have attracted the investment. More than 11 percent of Hawaii's total workforce is employed by foreign-affiliated companies. 20 percent of Kentucky's manufacturing employees work for foreign affiliates -- a lot of them for Toyota, in fact.

By comparison, in Japan fiscal year 1998, inward direct investment was about one quarter of one percent of Japan's gross domestic product and was the lowest among OECD countries. In Japan, majority-owned foreign firms only contributed six tenths of one percent to GDP. Japan's potential -- as the world's second largest economy -- is clearly not being realized. Why is that?

Japan has to compete with investors' other options in a global business environment. For investment to grow in Japan, it needs to take place in a competitive, deregulated market. Regulatory reform will increase productivity, open markets, and create the basis for a sustainable economic recovery in Japan. Under the US-Japan deregulation initiative, our two governments are examining measures to open up such sectors as financial services, energy, and telecommunications. We are now in the process of completing our Joint Report on Deregulation.

Telecommunications is one of the best examples of how regulatory reform can reduce prices, provide more innovative services, and stimulate broader economic growth. Unfortunately, simply declaring a market open is not sufficient to create competition in an industry where one player is dominant and controls resources required by all other competitors. In order for competition to truly flourish, there must be a pro-competitive regulatory system that eliminates restrictions on new entrants and strengthens safeguards against anti-competitive practices by dominant carriers. Of particular importance are lowering interconnection rates, providing timely and reasonable access to facilities needed to build new networks, and ensuring fair pricing.

I believe the Japanese government is aware of the importance of taking additional steps to create an environment that nurtures new business and investment. Through the expert insights of our panelists, this symposium will no doubt identify other problems which are hindering investment and suggest how best to remove these impediments. My thanks to all the American and Japanese business representatives with us today. It is important that the American and Japanese business community sit side-by-side in this room, for we share the same fundamental goals. In the global economy, there is neither foreign investment nor domestic investment; there is only investment. The challenges facing a Japanese firm trying to restructure are the same ones confronting foreign firms trying to invest.

I hope this symposium can lead to an improved environment that will bring buyers and sellers together in a more efficient and dynamic market place, to the mutual benefit of firms and their workers in both our countries. Let me encourage a lively, substantive discussion today, which I hope will be only the first step in a continuing fruitful exchange of ideas.

Thank you.

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)

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