*EPF504 04/27/01
Text: Larson Says More Foreign Direct Investment Would Help Japan
(Under Secretary Alan Larson's April 25 remarks) (1070)
Policy makers in Japan and the United States should consider letting investors devise ways to stimulate the Japanese economy, according to Under Secretary of State for Economic, Business and Agricultural Affairs Alan Larson.
The U.S. official gave that advice in an April 25 speech in New York City titled "A Private Sector Formula to Revitalize Japan's Economy."
Larson stressed the importance of improving Japan's "investment environment" by reducing structural, regulatory, and market access barriers.
When American companies are able to easily invest in Japan and expand existing operations, "exports of U.S. goods and services follow," he said.
In making the case for foreign direct investment, Larson also pointed to the fact that close to one fourth of U.S. global exports go to foreign subsidiaries of U.S. firms.
"Succeeding in a market like Japan's requires presence on the ground -- for sales and service, engineering to meet localized customer needs, and distribution," he added.
But the success of American firms also enhances the Japanese economy, Larson said.
"Increasing FDI promotes economic strength in Japan, and an economically strong Japan is in our national interest," he said.
Following is the text of Larson's remarks:
(begin text)
A Private Sector Formula to Revitalize Japan's Economy
Remarks By Under Secretary Alan Larson
25 April 2001
It is my pleasure to join METI Senior Vice Minister Konno and JETRO Chairman Hatakeyama in welcoming you to this symposium on foreign direct investment in Japan. I would like to thank all of the senior Japanese officials who have traveled a great distance to meet with the business community in New York.
Let me extend a very special thanks as well to our other co-sponsor, the Conference Board, which has just introduced a new monthly composite statistical index for the Japanese economy, which is further described in your information packets.
Advising on how to revitalize Japan's economy has become a cottage industry. There is, however, one new idea worth considering: let investors help show the way.
Today, U.S. and Japanese business leaders will assess how recent Japanese reforms have worked to increase Japan-bound investment. More importantly, business executives will have the opportunity to suggest specific new measures to further improve Japan's investment environment.
Increased foreign direct investment, or FDI, could help spur economic recovery, create jobs and stimulate the formation of new companies.
Although flows of FDI into Japan have doubled over the past few years, this recent upswing is from a very small base. In 1999, both the U.S. and Japan had record inflows of FDI. For the U.S., the figure was $283 billion. For Japan -- whose economy is roughly half the size of ours -- the figure was a paltry $21 billion.
The openness of the U.S. economy to foreign direct investment has helped spur productivity and growth over the past few decades. Foreign affiliated firms in the US account for roughly 6% of our GDP. They provide 12% of the output of our manufacturing sector, and account for 20% of our financial sector. By contrast, foreign affiliated firms account for only 0.6% of Japan's GDP.
Foreign investors, including Japanese companies, have helped to transform the U.S. economy from within. They have introduced quality assurance programs, R&D, and new technologies that keep our manufacturing sector globally competitive. Foreign investors in Japan, through new investment or mergers and acquisitions, can also help transform the Japanese economy, particularly by introducing new practices for corporate governance and transparency. By injecting much-needed discipline into corporate management, foreign investment can help the Japanese economy achieve the significant benefits of a more efficient allocation of capital.
In recent years the Government of Japan has taken some positive steps to open more opportunities for foreign investors. The number of Toys R' Us stores in Japan has gone from zero to 120 in a decade. Foreign firms now have significant stakes in seven of Japan's nine auto-makers. U.S. investors are reorganizing failed banks and insurance companies, preserving jobs for their Japanese employees while introducing new products and services for the Japanese consumer. FDI is also helping to support regional economic development. AIG has just opened a call center in Okinawa and Amazon.com is opening a distribution and customer service center in Sapporo. The success stories are notable -- but still relatively few, because of the myriad of remaining structural, regulatory, and market access barriers.
The United States is engaged with Japan on improving its investment climate for at least two reasons.
-- First, trade follows investment. When U.S. firms can easily invest in Japan and expand existing operations, exports of U.S. goods and services follow. About a quarter of U.S. global exports go to foreign subsidiaries of U.S. firms. Succeeding in a market like Japan's requires presence on the ground -- for sales and service, engineering to meet localized customer needs, and distribution.
-- Second, increasing FDI promotes economic strength in Japan, and an economically strong Japan is in our national interest.
Today we will address critical issues that affect the environment for foreign direct investment into Japan:
-- bringing accounting practices up to global standards;
-- improving corporate governance;
-- improving regulatory transparency;
-- increasing labor mobility;
-- further liberalizing stock swaps and stock options;
-- and the introduction of consolidated taxation.
The benefits of these reforms will not accrue only, or even primarily, to foreign firms. Reforms that improve the environment for FDI will end up improving the environment for all investors in Japan, both Japanese and foreign. And that will be good for Japan, the global economy, and U.S.-Japan relations.
Let me leave you with one final thought. In a few days time a new Prime Minister, cast from a different mold, will seize the reins of economic management in Japan. You have the opportunity, through your comments and suggestions, to give constructive input to the new Prime Minister and his team. Vice Minister Konno and I have agreed that the results and recommendations of today's meeting will be brought to the attention of President Bush and Japan's new Prime Minister, Mr. Koizumi. Do we need any greater incentive to make this a rich, substantive dialogue on the issues we are facing?
Thank you.
(end text)
(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
NNNN